-----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, tQOf6TC3ikZAs21ZpuCxbXV1xoeNTiYUXh7c3TpKFHX/GB+5jg68ucak0b3y+mP1 X79HoT/IYlvhUUbY54GorA== 0000725282-94-000004.txt : 19940520 0000725282-94-000004.hdr.sgml : 19940520 ACCESSION NUMBER: 0000725282-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXECUTONE INFORMATION SYSTEMS INC CENTRAL INDEX KEY: 0000725282 STANDARD INDUSTRIAL CLASSIFICATION: 7385 IRS NUMBER: 860449210 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11551 FILM NUMBER: 94528045 BUSINESS ADDRESS: STREET 1: 6 THORNDAL CIRCLE CITY: DARIEN STATE: CT ZIP: 06820 BUSINESS PHONE: 2036556500 MAIL ADDRESS: STREET 1: 6 THORNDAL CIRCLE CITY: DARIEN STATE: CT ZIP: 06820 FORMER COMPANY: FORMER CONFORMED NAME: VODAVI TECHNOLOGY CORP DATE OF NAME CHANGE: 19880802 10-Q 1 EXECUTONE 10-Q MARCH 31, 1994 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 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 No. 0-11551 EXECUTONE Information Systems, Inc. (Exact name of registrant as specified in its charter) Virginia 86-0449210 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6 Thorndal Circle, Darien, Connecticut 06820 (Address of principal executive offices) (Zip Code) (203) 655-6500 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of registrant's Common Stock, $.01 par value per share, as of April 29, 1994 was 43,958,846. INDEX EXECUTONE Information Systems, Inc. Page # PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1994 and December 31, 1993. 3 Consolidated Statements of Operations - Three Months Ended March 31, 1994 and 1993. 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1994 and 1993. 5 Notes to Consolidated Financial Statements. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 12 SIGNATURES 13 EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS 14 PART I - FINANCIAL INFORMATION Item 1. Financial Statements EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except for share amounts) March 31, December 31, 1994 1993 ASSETS (Unaudited) (Restated) CURRENT ASSETS: Cash and cash equivalents $ 7,522 $ 7,406 Accounts receivable, net of allowance of $882 and $1,017 36,636 37,567 Inventories 29,404 29,092 Prepaid expenses and other current assets 6,877 5,789 Net assets of discontinued operation 9,667 8,538 Total Current Assets 90,106 88,392 PROPERTY AND EQUIPMENT, net 15,028 14,727 INTANGIBLE ASSETS, net 43,627 44,215 DEFERRED TAXES 24,738 25,200 OTHER ASSETS 5,588 2,623 NET ASSETS OF DISCONTINUED OPERATION --- 397 $ 179,087 $ 175,554 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 2,854 $ 2,989 Accounts payable 27,732 29,295 Accrued payroll and related costs 8,412 7,750 Accrued liabilities 7,085 7,057 Accrued restructuring costs 1,259 1,381 Deferred revenue and customer deposits 18,548 17,713 Total Current Liabilities 65,890 66,185 LONG-TERM DEBT 33,601 32,279 LONG-TERM DEFERRED REVENUE 1,513 1,345 TOTAL LIABILITIES 101,004 99,809 STOCKHOLDERS' EQUITY: Common stock: $.01 par value; 60,000,000 shares authorized; 43,876,915 and 41,205,498 issued and outstanding 439 412 Additional paid-in capital 69,745 68,275 Retained earnings 7,899 7,058 Total Stockholders' Equity 78,083 75,745 $ 179,087 $ 175,554 The accompanying notes are an integral part of these consolidated balance sheets. EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except for per share amounts) 3 Months Ended March 31, 1994 1993 REVENUES: (Restated) Product $ 29,086 $ 30,593 Base 36,221 32,471 65,307 63,064 COST OF REVENUES 39,386 37,966 Gross Profit 25,921 25,098 OPERATING EXPENSES: Research, development & engineering 2,162 1,809 Selling, general & administrative 22,452 20,371 24,614 22,180 OPERATING INCOME 1,307 2,918 INTEREST, AMORTIZATION AND OTHER EXPENSES, NET: Cash 422 794 Noncash 742 715 1,164 1,509 INCOME BEFORE INCOME TAXES FROM CONTINUING OPERATIONS 143 1,409 PROVISION FOR INCOME TAXES: Cash 100 83 Noncash (utilization of pre-acquisition tax benefits - refer to Note E) (43) 480 TOTAL PROVISION FOR INCOME TAXES 57 563 INCOME FROM CONTINUING OPERATIONS 86 846 INCOME (LOSS) FROM DISCONTINUED OPERATIONS [NET OF INCOME TAXES OF $102 AND $(82)] 153 (123) GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS (NET OF INCOME TAXES OF $403) 604 --- NET INCOME $ 843 $ 723 EARNINGS PER SHARE: INCOME FROM CONTINUING OPERATIONS $ --- $ 0.02 INCOME FROM DISCONTINUED OPERATIONS 0.02 --- NET INCOME $ 0.02 $ 0.02 WEIGHTED AVG. COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 47,898 47,713 The accompanying notes are an integral part of these consolidated statements. EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended March 31, 1994 1993 (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 86 $ 846 Adjustments to reconcile net income to net cash provided by continuing operations: Depreciation and amortization 1,938 2,035 Noncash expenses, including noncash interest expense, provision for income taxes not currently payable and provision for losses on accounts receivable 383 658 2,407 3,539 Net change in working capital items (1,154) 845 NET CASH PROVIDED BY CONTINUING OPERATIONS 1,253 4,384 Cash Flows from Discontinued Operations (551) (958) NET CASH PROVIDED BY OPERATING ACTIVITIES 702 3,426 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (850) (509) Other (1,719) (28) NET CASH USED BY INVESTING ACTIVITIES (2,569) (537) CASH FLOWS FROM FINANCING ACTIVITIES: Restructuring cost payments (122) (73) Borrowings (repayments) under revolving credit facility 2,587 (2,364) Repayment of term note under credit facility (312) (312) Repayments of other long-term debt (417) (378) Repurchase of stock (750) --- Proceeds from issuances of stock 997 268 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,983 (2,859) INCREASE IN CASH AND CASH EQUIVALENTS 116 30 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 7,406 7,404 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 7,522 $ 7,434 The accompanying notes are an integral part of these consolidated statements. EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - NATURE OF THE BUSINESS EXECUTONE Information Systems, Inc. (the "Company") designs, manufactures, markets, installs, supports and services voice processing systems and provides cost-effective long-distance telephone service. The Company is also a leading supplier of specialized hospital communications equipment. Products are sold under the EXECUTONE, INFOSTAR, IDS, LIFESAVER and INFOSTAR/ILS brand names through a worldwide network of direct sales and service offices and independent distributors. NOTE B - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments, which include normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented have been included. As of July 1, 1988, an accumulated deficit of approximately $49.7 million was eliminated. NOTE C - SALE OF VODAVI COMMUNICATIONS SYSTEMS DIVISION As of March 31, 1994 the Company sold its Vodavi Communications Systems Division (VCS), which sold telephone equipment to supply houses and dealers under the brand names STARPLUS and INFINITE, for approximately $10.9 million. Proceeds of the sale consisted of approximately $9.7 million in cash and a $1.2 million note, fully secured by a letter of credit and payable in September 1995. The proceeds were received on April 11, 1994 and were used to reduce borrowings under the Company's credit facility. As of March 31, 1994, the cash portion of the proceeds is reflected in the Consolidated Balance Sheet as Net assets of Discontinued Operation and the note portion of the receivable is included in other assets. The application of these proceeds as of March 31, 1994 would have reduced long-term debt to $23.8 million. The sale resulted in an after-tax gain of $604,000 (net of income tax provision of $403,000). The results of VCS have been reported separately as a discontinued operation in the Consolidated Statement of Operations. Prior year consolidated financial statements have been restated to present VCS as a discontinued operation. Net revenues of the discontinued operation for the three-month periods ended March 31, 1994 and 1993 were $8.6 million and $7.3 million, respectively. NOTE D - INCOME TAXES The Company accounts for income taxes in accordance with FAS 109, Accounting for Income Taxes. The deferred tax asset represents the benefits that are more likely than not to be realized from the utilization of pre and post-acquisition tax benefit carryforwards, which include net operating losses, tax credits and the excess of tax bases over the fair value of the net assets at acquisition. For the three-month periods ended March 31, 1994 and 1993, the Company made cash payments for income taxes of approximately $50,000 and $6,000, respectively. NOTE E - EARNINGS PER SHARE Earnings per share is based on the weighted average number of shares of common stock, convertible preferred stock (which was entirely converted in 1993) and dilutive common stock equivalents (which include stock options and warrants) outstanding during the periods. Common stock equivalents and the convertible debentures which are antidilutive have been excluded from the computations. NOTE F - INVENTORIES Inventories are stated at lower of first-in, first-out ("FIFO") cost or market and consist of the following at March 31, 1994 and December 31, 1993 (amounts in thousands): 3/31/94 12/31/93 Raw Materials $ 3,120 $ 3,363 Finished Goods 26,284 25,729 -------- -------- $29,404 $29,092 ======== ======== NOTE G - OTHER MATTERS For the three-month periods ended March 31, 1994 and 1993, the Company made cash payments of approximately $1.1 million and $1.6 million, respectively, for interest expense on indebtedness. During the three-month periods ended March 31, 1994 and 1993, noncash financing activities other than those related to the sale of VCS (See Note C) included capital lease obligations incurred in connection with equipment acquisitions of $256,000 and $99,000, respectively, noncash proceeds for issuances of stock from application of credits under an option credit plan of $155,000 and $170,000, respectively, and Common Stock Purchase Warrants exercised thru bond conversion of $1.0 million and $104,000, respectively. In December 1993, there was a fire at the Company's main subcontractor's production facility in China. As a result, additional costs were incurred to manufacture product at Company facilities and alternative manufacturing subcontractors. The Company believes it will be reimbursed by its insurance carrier for these costs and, accordingly, has established a receivable of $1.8 million for amounts incurred through March 31, 1994. Refer to the consolidated statements of cash flows for information on all cash-related operating, investing and financing activities. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The Company's revenues are primarily derived from sales of its products and services through a worldwide network of Company-owned direct sales and service offices and independent distributors. The Company's end-user revenues are derived from two primary sources: (1) sales of systems to new customers, which include sales of application-specific software options ("product revenues"), and (2) servicing the end-user base through the upgrade, expansion, enhancement (which includes sales of application-specific software options) and maintenance of previously installed systems, as well as revenues from the INFOSTAR/LD+ program (commonly referred to as "base revenues"). Base revenues usually generate higher operating income margin than initial sales of systems, since the Company's selling expenses for base revenues are lower than those for initial system sales. Sales of the Company's application-specific software options and related services generally produce higher operating income margin than both system sales and base revenues due to the added performance value and relatively low production costs of such proprietary software and services. Results of Operations Total revenues for the three-month period ended March 31, 1994 were 4% higher than the comparable 1993 period. Product revenues for the three-month period ended March 31, 1994 decreased slightly from the corresponding 1993 period due, primarily, to inventory shortages caused by a fire which occurred at the Company's main subcontractor's production facility in China in December 1993 (see page 10). Base revenues for the three-month period ended March 31, 1994 were 12% higher than the comparable 1993 period. The increase in base revenues was primarily attributable to continuing growth in sales to the Company's existing customer base, including increased sales of systems upgrades, expansions and maintenance as well as volume increases generated by the LD+ program. For the three-month period ended March 31, 1994, gross profit as a percentage of total revenues was 39.7% a minimal change from 39.8% for the comparable 1993 period. While bookings of newer, higher margin products continue to grow, they have not yet significantly increased gross margin due to the costs of entering new markets, the minimal relative revenue generated by these new products and increased backlog resulting from inventory shortages. Operating income as a percentage of total revenues for the three- month period ended March 31, 1994 was 2.0% as compared to 4.6% for the corresponding 1993 period due to higher operating expenses. Research, development and engineering expenses continue to reflect increased investments in engineering for the development of new higher margin products. SG&A expenditures increased primarily due to the investment of resources necessary to service the Company's expanding customer base and new product lines and higher sales volume. Interest, amortization and other expenses, net for the three-month period ended March 31, 1994 was lower than the corresponding 1993 period due, primarily, to lower interest expense for the Company's credit facility resulting from lower borrowing levels and an interest rate reduction on the Company's bank borrowings. For the three-month period ended March 31, 1994 the Company recorded a provision for income taxes of $57,000 for continuing operations, $102,000 for discontinued operations and $403,000 for the gain on the sale of its VCS division. Of the total provision, $462,000 was recorded as a reduction of the deferred tax asset to reflect the utilization of pre-acquisition tax benefits. As a result of the utilization of these benefits, the Company does not have a significant tax liability for the period. The Company has substantial tax benefit carryforwards which means that minimal taxes will be paid in the near future. In December 1993, a fire occurred at the Company's main subcontractor's production facility in Shinzen, China, causing inventory shortages. The Company attempted to alleviate production restrictions and product shortages caused by the fire through existing inventory, equivalent equipment substitution, purchases from other subcontractors and/or production at the Company's own facilities, but was unable to ship approximately $3 million of orders during the quarter. A new facility has since been built and is expected to reach full capacity by June 30, 1994. The Company estimates that by June 30, 1994, it will have incurred approximately $3 million in additional direct costs related to the emergency production, of which $1.8 million has been incurred as of March 31, 1994. The Company believes these additional costs will be recovered from insurance and, accordingly, has established a receivable for amounts incurred through March 31, 1994. If all of the product that was ordered had been available for shipment, the Company estimates that its revenues would have been $68.3 million and that net income would have increased by approximately $900,000 to $1.7 million or $0.04 per share. As of March 31, 1994 the Company sold its Vodavi Communications Systems Division (VCS), which sold telephone equipment to supply houses and dealers under the brand names STARPLUS and INFINITE, for approximately $10.9 million. Proceeds of the sale consisted of approximately $9.7 million in cash and a $1.2 million note, fully secured by a letter of credit and payable in September 1995. The proceeds were received on April 11, 1994 and were used to reduce borrowings under the Company's credit facility. As of March 31, 1994, the cash portion of the proceeds is reflected in the Consolidated Balance Sheet as Net assets of Discontinued Operation and the note portion of the receivable is included in other assets. The application of these proceeds as of March 31, 1994 would have reduced long-term debt to $23.8 million. The sale of VCS resulted in an after-tax gain of $604,000 (net of income tax provision of $403,000). The results of VCS have been reported separately as a discontinued operation in the Consolidated Statement of Operations. Prior year consolidated financial statements have been restated to present VCS as a discontinued operation. Net revenues of the discontinued operation for the three-month periods ended March 31, 1994 and 1993 were $8.6 million and $7.3 million, respectively. Liquidity and Capital Resources The Company's liquidity is represented by cash, cash equivalents and cash availability under its existing credit facilities. The Company's liquidity was approximately $26 million and $29 million as of March 31, 1994 and December 31, 1993, respectively. At March 31, 1994 and December 31, 1993, cash and cash equivalents amounted to $7.5 million and $7.4 million, respectively, which represented 8% of current assets. The Company generated $1.3 million in cash from continuing operations, after funding approximately $3.0 million in costs relating to the emergency production requirements, during the three-month period ended March 31, 1994 as compared to $4.4 million in cash from continuing operations for the corresponding 1993 period. In addition to funding the emergency production costs, the Company also repurchased stock of $0.8 million and purchased equipment of $0.9 million. Total debt at March 31, 1994 was $36.5 million, an increase of $1.2 million from $35.3 million at December 31, 1993. The increase in debt is primarily due to increased borrowing levels under the revolving credit facility of $2.6 million and capital lease agreements for equipment purchases of $0.3 million. This was partially offset by common stock purchase warrants exercised through bond conversions of $1.0 million and repayments of other long-term debt of $0.7 million. On April 11, 1994, the Company received the cash proceeds from the sale of the VCS division of $9.7 million, of which $2.2 million was used to reduce the Company's term loan and $7.5 million was used to reduce the Company's revolving credit facility. As of April 29, 1994, approximately $16.4 million of direct borrowings was available under the Company's credit facility. The Company believes that borrowings available under the credit facility and cash flow from operations will be sufficient to meet working capital and other requirements for the next twelve months. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not applicable. Item 2. CHANGES IN SECURITIES Not applicable. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 11 - Statement Regarding Computation of Per Share Earnings b) Reports on Form 8-K Not applicable. 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. EXECUTONE Information Systems, Inc. Dated: May 12, 1994 /s/ Alan Kessman Alan Kessman Chairman, President and Chief Executive Officer Dated: May 12, 1994 /s/ Anthony R. Guarascio Anthony R. Guarascio Vice President Finance and Chief Financial Officer EX-11 2 EXECUTONE 10-Q MARCH 31, 1994 - EXHIBIT 11 EXHIBIT 11 EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS 3 Months Ended March 31, 1994 1993 (Restated) INCOME FROM CONTINUING OPERATIONS $ 86,000 $ 845,000 DISCONTINUED OPERATIONS: INCOME (LOSS) FROM OPERATIONS, NET OF INCOME TAXES 153,000 (122,000) GAIN ON DISPOSAL, NET OF INCOME TAXES 604,000 --- NET INCOME $ 843,000 $ 723,000 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 42,724,000 31,323,000 COMMON STOCK EQUIVALENTS: Add - Net shares assumed to be issued for dilutive stock options and warrants 3,638,000 4,114,000 Add - Shares assumed to be issued on conversion of preferred stock (converted entirely in 1993) and exercise of related warrants 1,536,000 12,276,000 TOTAL WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 47,898,000 47,713,000 EARNINGS PER COMMON SHARE: Income From Continuing Operations $ --- $ 0.02 Income From Discontinued Operations 0.02 --- Net Income $ 0.02 $ 0.02 -----END PRIVACY-ENHANCED MESSAGE-----