-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fGdfTohZiaR8p4HmfysY+bisSdIEc+hm6W93TBELyiFuq8XG+ZhJG0Oc8kf2S+25 IcrUpja11o+3p/iR2LUssQ== 0000701376-95-000012.txt : 19950814 0000701376-95-000012.hdr.sgml : 19950814 ACCESSION NUMBER: 0000701376-95-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA SWITCH CORP CENTRAL INDEX KEY: 0000701376 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE MACHINES, NEC [3579] IRS NUMBER: 060962862 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09780 FILM NUMBER: 95561737 BUSINESS ADDRESS: STREET 1: ONE ENTERPRISE DR CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 2039261801 MAIL ADDRESS: STREET 1: ONE ENTERPRISE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q _________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Period Ended June 30, 1995 Commission File Number 0-10745 DATA SWITCH CORPORATION ______________________________________________________ (Exact name of Registrant as specified in its Charter) DELAWARE 06-0962862 _______________________________ ____________________________ (State or other jurisdiction of (IRS Employer Identification incorporation) Number) One Waterview Drive, Shelton, Connecticut 06484 _________________________________________ ___________ (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (203) 926-1801 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days, [X] YES [ ] NO. Indicate the number of shares outstanding of each of the issuer's classes of Common Stock at June 30, 1995. Securities registered pursuant to Section 12(b) of the Act. Title of Each Class Number of Shares Outstanding Common Stock, $.01 par value, 12,576,299 with Purchase Rights attached Common Stock Purchase Warrants 10,112 (expiring December 31, 1995) DATA SWITCH CORPORATION INDEX PAGE NO. PART I. UNAUDITED CONSOLIDATED CONDENSED FINANCIAL INFORMATION Consolidated Balance Sheets as of June 30, 1995 and December 31, 1994 2 Consolidated Statements of Operations for the three and six months ended June 30, 1995 and June 30, 1994 3 Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and June 30, 1994 4 Notes to Unaudited Consolidated Condensed Financial Statements 5-6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (11) Computation of Earnings Per Share for the three and six months ended June 30, 1995 and June 30, 1994 10 DATA SWITCH CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 1995, (unaudited), AND DECEMBER 31, 1994 (000's except share data)
June 30, December 31, 1995 1994 _________ ____________ Current assets: Cash and cash equivalents $ 12,988 $ 7,757 Accounts receivable (net of allowance for doubtful accounts of $422 in 1995 and $553 in 1994) 18,275 18,713 Income taxes receivable - 161 Lease receivables, net 1,108 1,475 Inventories 13,693 14,672 Prepaid expenses and other 905 646 __________ _________ Total current assets 46,969 43,424 Long-term lease receivables, net 2,342 3,288 Property, plant & equipment, net 9,029 7,988 Other 2,752 2,988 __________ _________ Total assets $ 61,092 $ 57,688 ========== ========= Current liabilities: Accounts payable, trade $ 5,020 $ 4,525 Short-term debt 1,458 1,578 Current portion of long-term debt 212 18 Accrued compensation 1,753 2,081 Other accrued liabilities 4,255 5,098 Income taxes payable 1,212 801 Other taxes payable 676 508 Current portion of capital lease obligations 221 237 __________ _________ Total current liabilities 14,807 14,846 Long-term debt 20,893 19,591 Capital lease obligations, less current portion 596 506 Deferred income taxes 146 130 Contingencies - - Shareholders' equity: Common stock, $.01 par value; authorized 20,000,000 shares; issued 12,612,671 and and 12,425,320 shares June 30, 1995 and December 31, 1994, respectively 126 124 Additional paid-in capital 51,105 50,669 Accumulated deficit (25,815) (27,724) Cumulative translation adjustment (56) (165) Less: Notes Receivables (500) - Treasury stock, at cost (36,372 shares at June 30, 1995 and 48,429 shares at December 31, 1994) (210) (289) __________ _________ Total shareholders' equity 24,650 22,615 __________ _________ Total liabilities and shareholders' equity $ 61,092 $ 57,688 ========== ========= The accompanying notes are an integral part of the consolidated financial statements.
DATA SWITCH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (000's except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, Revenues: 1995 1994 1995 1994 ________ ________ ________ ________ Product revenues $ 19,632 $ 17,399 $ 37,685 $ 33,959 Service revenues 5,327 4,819 10,370 9,469 _________ _________ _________ _________ Revenues, net 24,959 22,218 48,055 43,428 Cost of revenues: Cost of product revenues 11,028 9,435 21,082 18,397 Cost of service revenues 3,008 2,881 5,957 5,627 _________ _________ _________ _________ Cost of revenues 14,036 12,316 27,039 24,024 Gross profit 10,923 9,902 21,016 19,404 Operating expenses: Selling, general and administrative 6,132 5,996 12,166 12,108 Engineering and development 2,432 2,849 4,932 5,591 Relocation expense 332 - 433 - _________ _________ _________ _________ Total operating expenses 8,896 8,845 17,531 17,699 Income from operations 2,027 1,057 3,485 1,705 Other income (expense): Interest expense (475) (482) (951) (1,010) Foreign exchange gain/(loss) (13) 79 4 126 Other, net 202 22 237 19 _________ _________ _________ _________ Total other income (expense) (286) (381) (710) (865) Income before income taxes 1,741 676 2,775 840 Provision for income taxes 612 219 974 268 _________ _________ _________ _________ Income before extra- ordinary gain 1,129 457 1,801 572 Extraordinary gain on repurchase of debt 13 - 108 - _________ _________ _________ _________ Net income $ 1,142 $ 457 $ 1,909 $ 572 ========= ========= ========= ========= Primary earnings per share before extra- ordinary gain $ 0.09 $ 0.04 $ 0.14 $ 0.05 ========= ========= ========= ========= Primary earnings per share $ 0.09 $ 0.04 $ 0.15 $ 0.05 ========= ========= ========= ========= Fully diluted earnings per share $ 0.09 (a) (a) (a) ========= ========= ========= ========= Weighted average number of common shares outstanding 12,887 12,333 12,801 12,325 ========= ========= ========= ========= (a) Not presented as a result of being anti-dilutive. The accompanying notes are an integral part of the consolidated financial statements.
DATA SWITCH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (000's) (unaudited)
Six Months Ended June 30, 1995 1994 ________ ________ Cash flows from operating activities: Net income $ 1,909 $ 572 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,528 1,791 Goodwill amortization 86 85 Extraordinary gain (108) - Deferred income taxes - (23) Changes in operating assets and liabilities: (Increase) decrease in: Receivables 1,945 4,766 Inventories 1,035 3,743 Prepaid expenses and other (72) 213 Increase (decrease) in: Accounts payable, trade 484 (2,351) Accruals (1,248) (1,694) Income taxes payable 335 246 Other taxes payable 147 (184) Other, net 96 (251) _________ _________ Net cash provided by operating activities 6,137 6,913 Cash flows from investing activities: Property, plant and equipment additions (2,537) (959) Loan to shareholder (500) - _________ _________ Net cash used in investing activities (3,037) (959) _________ _________ Net cash provided before financing activities 3,100 5,954 Cash flows from financing activities: Net payments of short-term debt 19 - Proceeds under long-term borrowings 4,914 14,572 Principal payments and repurchases under-term borrowings (3,335) (20,627) Proceeds from issuance of common stock 517 208 _________ _________ Net cash provided (used) by financing activities 2,115 (5,847) Effect of exchange rate changes on cash 16 59 _________ _________ Net increase in cash and cash equivalents 5,231 166 Cash and cash equivalents at beginning of the period 7,757 491 _________ _________ Cash and cash equivalents at end of the period $ 12,988 $ 657 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 896 $ 953 Income taxes $ 408 $ 30 The accompanying notes are an integral part of the consolidated financial statements.
DATA SWITCH CORPORATION NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary, consisting of normal recurring items, to fairly present the financial position of the Company as of June 30, 1995 and the results of operations for the six months ended June 30, 1995 and 1994 and cash flows for such six month periods. The December 31, 1994 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements contained herein should be read in conjunction with the financial statements and related notes included in Form 10-K for the year ended December 31, 1994 as filed with the Securities and Exchange Commission. 2. Inventories consist of (000's): June 30, 1995 December 31, 1994 _____________ _________________ Raw materials $ 10,008 $ 8,266 Systems in process 948 1,541 Finished goods 1,299 3,392 Demo equipment 1,438 1,473 $ 13,693 $ 14,672 3. In March of 1993, the Company entered into a long-term revolving line of credit agreement with People's Bank providing for domestic borrowings of up to $8,000,000, of which $5,750,000 was available as of June 30, 1995 based on a formula of eligible receivables (as defined). The credit facility is collateralized by a first lien on substantially all of the Company's assets, and the agreement contains, among other provisions and covenants, the following: (1) subordination of all existing and future indebtedness (as defined) of the Company to the indebtedness under the credit facility; (2) limitations on dividend payments, stock purchases and subordinated debt repurchases; (3) maintenance of levels of Consolidated Adjusted Tangible Net Worth (as defined) and (4) achievement of various financial ratios. The Company is required to pay a commitment fee equal to 1% of the unused borrowings under the line of credit. The loans mature on March 1, 1996, and bear interest at the People's prime rate plus 1-1/4%. In March 1995 the Company entered into a new international overdraft line of credit with National Westminster Bank Plc, enabling its foreign subsidiaries to borrow up to an aggregate of $2,250,000 of which $792,000 was available as of June 30, 1995. Borrowings under this line of credit are payable upon demand, are available until September 30, 1995, and are secured by a standby letter of credit and the cross guarantees of the Company and its subsidiaries. The loans bear interest at the rate of National Westminster's prime rate plus 1%. As the letter of credit securing this loan was funded under the Company's domestic credit line, the Company's borrowing ability under its domestic line of credit has been reduced for the aggregate amount of $2,250,000 so long as this facility remains available. In August 1994 the Company received a grant of $100,000 and a loan of $100,000 from the State of Connecticut in connection with the relocation of its manufacturing facility to Orange, Connecticut in 1992. The loan is payable monthly over five years at a rate of 5% per annum. In March 1995 the Company received a mortgage loan of $2,500,000 from the State of Connecticut related to the purchase of its new facility in Shelton, Connecticut. The loan is payable monthly over 10 years. The rate is adjusted annually at 1% below LIBOR. The rate for 1995 is 5.75%. In January 1995 the Company repurchased $750,000 face amount of its 8 1/4% convertible subordinated debentures. This repurchase resulted in an extraordinary gain of $95,000, net of income taxes and related deferred issuance costs. In April 1995 the Company repurchased $199,000 face amount of its 9% convertible subordinated debentures. This repurchase resulted in an extraordinary gain of $13,000, net of income taxes and related deferred issuance costs. 4. In January 1995, the Company made a loan to Mr. Greene, founder of the Company and former Chairman of the Board of Directors, in the amount of $500,000, collateralized by a pledge of 400,000 shares of the Company's common stock, to be repaid in thirty six (36) equal monthly installments commencing on January 1, 1997, plus interest at the rate charged to the Company by its principal lender, plus 1%, which interest payments began upon the effective date of the agreement. In consideration for this loan, Mr. Greene granted to the Company an option to purchase 200,000 shares of the pledged stock at a price of $3.00 per share, and a right of first refusal to purchase any other shares of common stock which Mr. Greene may desire to sell in a private sale transaction. 5. On May 8, 1995 the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with General Signal Corporation ("General Signal") and a direct wholly-owned subsidiary of General Signal, pursuant to which the Company has agreed, subject to regulatory approvals and the approval of the Shareholders of the Company, to an exchange of shares of the Company into shares of General Signal. The exchange rat will be the ratio obtained by dividing $4.55 by the average market value of the shares of General Signal, so long as General Signal's shares trade at an average of between $31 and $43 per share during the during the thirty (30) trading-day period ending on the last day before the scheduled special meeting of shareholders of the Company. The Merger Agreement contains provisions with respect to representations and warranties and covenants of both parties. In the event of termination due to certain circumstances, the Company may be obligated to pay General Signal's expenses in connection with the Agreement of up to $1.5 million plus an additional fee of up to $2.4 million. In connection with the merger, Richard E. Greene, the largest single shareholder of the Company, has entered into a Letter Agreement with General Signal, approved by the Company, which provides for his support of the Agreement, and his proxy to vote for the Merger Agreement and against approval or ratification of any other acquisition agreed to repay to the Company the principal amount of all outstanding loans at least 30 days prior to the consummation of the merger. DATA SWITCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reported net income for the second quarter of 1995 of $1,142,000, including a $13,000 extraordinary gain on the repurchase of debentures, compared with net income of $457,000 in the second quarter of 1994. The Company reported net income for the six months ended June 30, 1995 of $1,909,000, including a $108,000 extraordinary gain on the repurchase of debentures, compared with $572,000 for the same time period in 1994. Revenues for the three and six months ended June 30, 1995 increased 12.3% to $24,959,000 and 10.7% to $48,055,000, respectively, from the comparable 1994 period. Both domestic and international revenues increased over the 1994 period, due largely to greater sales of the Company's director product line. This increased revenue was partially offset by a decrease in sales of the Company's traditional product lines. Service revenues for the three and six months ended June 30, 1995 were 10.5% and 9.5% higher than in the comparable 1994 period, due principally to an increase in domestic service revenues. The gross profit margin for the second quarter of 1995 was 43.8%, down from second quarter 1994 margins of 44.6%, reflecting the increase in sales of the less profitable director product line. The gross profit margin for the first half of 1995 decreased 1.0% to 43.7% from the first half of 1994, primarily due to a changing product mix partially offset by manufacturing efficiencies. Service margins for the second quarter and first half of 1995 were 43.5% and 42.6%, compared with 40.2% and 40.6% for the second quarter and first half of 1994, as a result of increased revenues without any significant increase in the cost of service revenues. Selling, general and administrative expense-to-revenue ratio for the second quarter of 1995 decreased to 24.6%, compared with 27.0% in 1994. Actual expenses for the second quarter increased $136,000 compared with the second quarter of 1994, due primarily to higher commission and bonus accruals due to improved results. These are partially offset by lower personnel costs. The expense-to-revenue ratio decreased to 25.3% for the first half of 1995, as compared with 27.9% for 1994, as a result of a higher revenue base in 1995. Actual expenses were $58,000 higher in the first half of 1995 than in the first half of 1994. Engineering and development expenditures for the three and six month periods ended June 30, 1995 decreased to 9.7% and 10.3% of revenues, versus 12.8% and 12.9% of revenues for comparable periods in 1994. Actual expenditures in the second quarter and first half of 1995 decreased by $417,000 and $659,000, respectively, from expenditures in the second quarter and first half of 1994, reflecting a reduction in personnel costs offset by bonuses due to improved results and savings due to facilities consolidation. Costs related to the consolidation of the Company's Connecticut facilities into one building was $332,000 for the second quarter and $433,000 for the first half of 1995. This consolidation will be finalized in the third quarter of 1995. Interest expense for the second quarter and first half of 1995 decreased 1.5% and 5.8%, respectively, from the comparable 1994 period as a result of lower debt levels. During the first quarter of 1995 the Company repurchased $750,000 face amount of 8 1/4% convertible subordinated debentures which resulted in an extraordinary gain of $95,000, net of taxes and related deferred issuance costs. In the second quarter the Company repurchased $199,000 face amount of 9% convertible subordinated debentures, which resulted in an extraordinary gain of approximately $13,000, net of taxes and related issuance costs. Provision for income taxes was $612,000 and $974,000 for the three and six month periods ended June 30, 1995, respectively, based on the estimated annual effective tax rate of 35%, versus a provision of $219,000 and $268,000 for the second quarter and first half of 1994 at an effective tax rate of 32%. The estimated tax rate for 1995 is higher than the federal statutory rate of 34.0% because of state taxes and higher international taxes, partially offset by anticipated utilization of loss carryforwards and tax credits. On May 8, 1995 the Company entered into an Agreement and Plan of Merger with General Signal Corporation and a direct wholly-owned subsidiary of General Signal pursuant to which the Company agreed to an exchange of shares of the Company into shares of General Signal (See Note 5). In March, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used for long-lived assets and certain identifiable intangibles to be disposed of. Implementation of the statement is required for fiscal years beginning after December 15, 1995. The Company is in the process of reviewing the statement and as of this date has not determined its impact. The Company has not determined whether it will adopt the statement prior to the required date. Liquidity and Capital Resources _______________________________ The Company generated $3,100,000 of cash before financing activities in the first half of 1995, compared with generating $5,954,000 in the first half of 1994. Working capital at June 30, 1995 increased by $3,584,000 from December 31, 1994 as a result of a significant increase in cash partially offset by lower inventories and accounts receivable and increased accounts payable. The ratio of current assets to current liabilities is 3.2:1 at June 30, 1995. In addition to selling its products, the Company also leases it products under sales-type lease agreements. These lease receivables are available for sale as a source of financing. In November 1994, the Company purchased an 83,000 square foot facility in Shelton, Connecticut and adjacent land for the purchase price of $3.1 million. This facility serves as the Company's corporate headquarters and manufacturing plant as the leases for the company's facilities in Shelton and Orange, Connecticut expired in mid-1995. The Company intends to spend approximately $1.2 million in additional capital improvements on the facility, including the addition of 11,000 square feet of warehouse space. The Company financed its new Shelton facility with a $2,500,000 low interest State of Connecticut mortgage loan. Short-term debt consisted of $1,458,000 of international borrowings. The current portion of long-term debt consisted of $19,000 of the State of Connecticut loan and $193,000 of the State of Connecticut mortgage loan. Long-term debt consisted of $18,566,000 of convertible subordinated debentures, $67,000 of the State of Connecticut loan, and $2,260,000 for the State of Connecticut mortgage loan. The Company had $6,542,000 of its $8,000,000 domestic and international revolving line of credit available at June 30, 1995. In the opinion of management, existing financial resources, including cash anticipated to be generated by operations and available under existing credit facilities, will be adequate to meet current and expected operating and capital requirements. Impact of Inflation ___________________ Inflation did not have a significant impact on the Company during 1994 and is not expected to do so in 1995. DATA SWITCH CORPORATION SIGNATURES Pursuant to the requirements of Section 13 or 15(b) 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. DATA SWITCH CORPORATION (Registrant) Date: August 11, 1995 /s/ William J. Lifka __________________________________ William J. Lifka Chairman and Chief Executive Officer Date: August 11, 1995 /s/ W. James Whittle __________________________________ W. James Whittle President and Chief Financial Officer EX-11 2 Exhibit 11 DATA SWITCH CORPORATION COMPUTATION OF EARNINGS PER SHARE (000's except per share data)
For the Three Months For the Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 _________ _________ ________ _________ Primary _______ Shares outstanding at the beginning of the period 12,486 12,290 12,377 12,176 Weighted average number of shares issued and issuable share equivalents 401 43 424 149 ________ _________ _________ _________ Weighted average number of common shares outstanding 12,887 12,333 12,801 12,325 ========= ========= ========= ========= Income before extra- ordinary gain $ 1,129 $ 457 $ 1,801 $ 572 ========= ========= ========= ========= Net income $ 1,142 $ 457 $ 1,909 $ 572 ========= ========= ========= ========= Primary earnings per share before extra- ordinary gain $ 0.09 $ 0.04 $ 0.14 $ 0.05 ========= ========= ========= ========= Primary earnings per share $ 0.09 $ 0.04 $ 0.15 $ 0.05 ========= ========= ========= =========
Fully Diluted _____________ Shares outstanding at the beginning of the period 12,486 12,290 12,377 12,176 Weighted average number of shares issued and issuable share equivalents 482 61 465 158 Assumed conversion of debentures 2,683 2,820 2,683 2,820 _________ _________ _________ _________ Weighted average number of shares issued and issuable share equivalents as adjusted for full dilution 15,651 15,171 15,525 15,154 ========= ========= ========= ========= Income before extra- ordinary gain $ 1,129 $ 457 $ 1,801 $ 572 ========= ========= ========= ========= Net income $ 1,142 $ 457 $ 1,909 $ 572 ========= ========= ========= ========= Adjustment for interest, net of tax, on convertible debentures 231 243 465 486 _________ _________ _________ _________ Adjusted net income before extraordinary gain $ 1,360 $ 700 $ 2,266 $ 1,058 ========= ========= ========= ========= Adjusted net income $ 1,373 $ 700 $ 2,374 $ 1,058 ========= ========= ========= ========= Fully diluted earnings per share before extra- ordinary gain $ 0.09 $ 0.05(a) $ 0.15(a) $ 0.07(a) ========= ========= ========= ========= Fully diluted earnings per share $ 0.09 $ 0.05(a) $ 0.15(a) $ 0.07(a) ========= ========= ========= ========= (a) These calculations are submitted in accordance with SEC Release No. 9083, although they are not in accordance with APB opinion No. 15 because the additional incremental shares are anti-dilutive and increase/decrease the reported net income per share.
EX-27 3
5 6-MOS DEC-31-1994 JUN-30-1994 12,988 0 18,697 422 13,693 46,969 29,565 20,536 61,092 14,807 18,566 125 0 0 24,525 61,092 48,055 48,055 27,039 27,039 (240) 0 951 2,775 974 1,801 0 108 0 1,909 .15 .15
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