-----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, OoHy67zc0PJS1KCgcjzQQYXWcHolE+qwc5okLG+Cx/zDQ8WNalQv4XzqA7ipjFZs 7dM9K9NCXziJgEuIFKoUzQ== 0000771993-94-000002.txt : 19940317 0000771993-94-000002.hdr.sgml : 19940317 ACCESSION NUMBER: 0000771993-94-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELOGIC TRACE INC CENTRAL INDEX KEY: 0000771993 STANDARD INDUSTRIAL CLASSIFICATION: 7370 IRS NUMBER: 742368260 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-08948 FILM NUMBER: 94516269 BUSINESS ADDRESS: STREET 1: TURTLE CREEK TWR I STREET 2: PO BOX 400044 CITY: SAN ANTONIO STATE: TX ZIP: 78229-8480 BUSINESS PHONE: 5125935700 MAIL ADDRESS: STREET 1: P.O. BOX 400044 STREET 2: TURTLE CREEK TOWER I CITY: SAN ANTONIO STATE: TX ZIP: 78229-8480 10-Q 1 10-Q 2 1994 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 January 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 number 1-8948 INTELOGIC TRACE, INC. (Exact name of registrant as specified in its charter) New York 74-2368260 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) Turtle Creek Tower I P. 0. Box 400044, San Antonio, Tx. 78229-8415 (Address of principal executive offices) (Zip Code) 210-593-5700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) The number of shares outstanding of registrant's common stock, par value $.01 per share, as of March 1, 1994 was 12,452,621 shares. PART I - FINANCIAL INFORMATION Item 1 - Financial Statements
INTELOGIC TRACE, INC. CONSOLIDATED BALANCE SHEETS (In thousands) January 31, July 31, 1994 1993 (Unaudited) ASSETS Current Assets: Cash and temporary investments $ 507 $ 1,626 Accounts receivable, net 9,818 8,728 Net assets of discontinued operations 858 320 Prepaid expenses and other current assets 1,878 2,070 TOTAL CURRENT ASSETS 13,061 12,744 Leasehold Improvements and Equipment, net 1,762 2,076 Field Support Spares, net 24,248 26,788 Intangible Assets, net 1,898 2,213 Other Assets 513 640 $ 41,482 $ 44,461 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 3,432 $ 3,689 Accrued expenses 4,933 5,900 Short-term borrowings 7,713 4,377 Deferred revenue 11,346 12,170 Other current liabilities 141 254 TOTAL CURRENT LIABILITIES 27,565 26,390 11.99% Subordinated Debentures Due 1996 49,924 49,924 Deferred Income Taxes and Other Liabilities 435 1,632 Deferred Pension Liability 1,703 1,861 $10.00 Redeemable Preferred Stock; 65,000 Shares Authorized, 44,305 Shares Issued and Outstanding; $100 Mandatory Redemption 4,274 3,903 Value Shareholders' Equity (Deficit) (42,419) (39,249) $ 41,482 $ 44,461
See accompanying notes to consolidated financial statements 2
INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months January January 31, 31, 1994 1993 Revenue: Service $18,655 $22,112 Sales 143 352 TOTAL REVENUE 18,798 22,464 Cost of Revenue: Service 14,964 16,858 Sales 114 156 TOTAL COST OF REVENUE 15,078 17,014 GROSS PROFIT 3,720 5,450 Selling, General and Administrative Expenses 4,367 4,379 EARNINGS (LOSS) FROM OPERATIONS (647) 1,071 Other Income (Expense): Interest expense (1,683) (1,751) Investment income (loss) - (19) Other, net (163) ( 76) LOSS FROM CONTINUING OPERATIONS BEFORE (2,493) ( 775) Income Tax - 141 LOSS FROM CONTINUING OPERATIONS (2,493) (916) Extraordinary gain from purchases of subordinated - 550 debentures, net of taxes Extraordinary gain from net operating loss - 141 NET LOSS (2,493) (255) Net Loss, Less Preferred Stock Dividends $ (2,685) $ (382) Earnings (Loss) Per Common Share: Loss from continuing operations $ (.21) $ (.08) Extraordinary items - .05 Preferred stock dividends - NET LOSS PER COMMON SHARE $ (.22) Weighted Average Common Shares Outstanding 12,074 12,052
See accompanying notes to consolidated financial statements 3
INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Six Months Ended January 31, January 31, 1994 1993 Revenue: Service $38,331 $45,546 Sales 569 680 TOTAL REVENUE 38,900 46,226 Cost of Revenue: Service 31,139 34,816 Sales 200 389 TOTAL COST OF REVENUE 31,339 35,205 GROSS PROFIT 7,561 11,021 Operating Expenses: Selling, general and admin. expenses 9,058 9,675 EARNINGS (LOSS) FROM OPERATIONS (1,497) 1,346 Other Income (Expense): Interest expense (3,319) (3,613) Investment income 54 45 Equity in loss of affiliate - - Other, net (317) (239) LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (5,079) (2,461) Income Taxes (Benefit) (1,193) 141 LOSS FROM CONTINUING OPERATIONS (3,886) (2,602) Earnings From Discontinued Operations 828 - LOSS BEFORE EXTRAORDINARY ITEMS (3,058) (2,602) Extraordinary gains from purchases of subordinated debentures, net of taxes - 2,547 Extraordinary gain from net operating loss carry forward - 141 NET LOSS $ (3,058) $ ( 86) Net Loss, Less Preferred Stock Dividends $ (3,429) $ (222) Earnings (Loss) Per Common Share: Loss from continuing operations $ (.32) $ (.23) Earnings from discontinued operations .07 - Extraordinary items - .21 Preferred stock dividends (.03) - NET LOSS PER COMMON SHARE $ (.28) $ (.02) Weighted Average Common Shares Outstanding 12,074 11,970
See accompanying notes to consolidated financial statements 4
INTELOGIC TRACE,. INC. CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (DEFICIT) (In thousands) (Unaudited) Foreign Retire- Add. Retained Currency ment Common Paid-in Earn. Transl. Treas. Valuat. Stock Capital (Deficit) Adj. Stock Reserve Total Balance at $199 $55,003 $(35,024) $54 $(56,919) $(2,562) $(39,249) July 31, 1993 Redeemable preferred stock dividends (371) (371) (in kind) Foreign currency translation 4 4 adjustment Shares issued - 401(k) Plan (17) 105 88 Employee Stock 167 167 Option Plan Net loss (3,058) (3,058) Balance at $199 $55,153 $(38,453) $58 $(56,814) $(2,562) $(42,419) January 31, 1994
See accompanying notes to consolidated financial statements 5
INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended January January 31, 31, 1994 1993 Operating Activities: Net earnings (loss) $(3,058) $ 86 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 6,442 7,268 Gain on repurchase of subordinated - (2,547) debentures Adjustments to net assets of discontinued (828) - operations Other 972 1,242 Changes in operating working capital, net (4,509) (5,351) NET CASH PROVIDED (USED) BY OPERATING (981) 698 Investing Activities: Purchase of spares and other fixed assets (3,525) (4,179) Proceeds from sale of discontinued - 4,999 NET CASH PROVIDED (USED) IN INVESTING (3,525) 820 Financing Activities: Short-term borrowings, net 3,336 2,817 Repurchase of subordinated debentures - (4,459) Other - ( 19) NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 3,336 (1,661) Effect of Exchange Rate Changes on Cash 51 (46) NET DECREASE IN CASH AND TEMPORARY INVESTMENTS $ (1,119) $ (189) Interest Paid $ 3,286 $ 3,462 Income Taxes Paid, net $ 8 $ 59
See accompanying notes to consolidated financial statements. 6 INTELOGIC TRACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 1994 (Dollars in thousands, except share data) 1. BASIS OF PRESENTATION The consolidated financial statements of Intelogic Trace, Inc. (the "Company") include the financial statements of the parent and its wholly-owned subsidiaries. The interim consolidated financial statements and notes are unaudited. Investments in affiliated companies owned 20% or more are accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included and such adjustments consist only of normal recurring items. 2. DISCONTINUED OPERATIONS In 1992, the Company sold substantially all of the assets of its computer hardware sales and leasing and application software businesses. These businesses represented the entire operations of Intelogic Trace Systems Group. During the first quarter of fiscal 1994, the Company received lease payments on certain lease receivables not transferred to the buyer and reduced certain remaining unclaimed liabilities which resulted in a combined $828 reduction to the previously recorded loss from discontinued operations. The net amount due at January 31, 1994 includes a $750 note receivable due July 25, 1994 bearing interest at 8%. 3. INVESTMENT IN AFFILIATE For the fiscal year 1992, the Company's share of Datapoint Corporation's ("Datapoint") losses exceeded its recorded investment. No earnings were recorded for the 1993 fiscal year. The Company's pro rata share of Datapoint's second quarter results for fiscal 1994 are shown for information purposes only. The carrying value of the Company's investment in Datapoint at January 31, 1994 remains at zero. The Company's share of Datapoint's future earnings will have to exceed $2,789 before the Company can reflect income on this investment. 7 The Company's pro rata share of Datapoint's second quarter results, applicable to common stockholders, are as follows: Three Months Ended Six Months Ended January January January January 31, 31, 31, 31, 1994 1993 1994 1993 Income (loss) before extraordinary items $ 185 $329 (189) $352 Extraordinary items - 142 263 236 Net earnings (loss) $ 185 $471 $ 74 $588 from affiliate Datapoint's results of operations are summarized below: Three Month Ended Six Months Ended January January January January 31, 31, 31, 31, 1994 1993 1994 1993 Total revenue $44,786 $54,296 $86,434 $114,839 Gross profit 19,229 25,891 36,343 51,627 Earnings (Loss) 532 1,233 (1,794) 856 before extraordinary item Net earnings 532 1,955 (454) 2,051 (loss) 4. DEBT During the third quarter of fiscal 1992 the amount of borrowings available under the Company's revolving financing agreement was increased to $12,000. Under a subsequent amendment to the agreement, the Company's borrowings under this facility are limited to the lesser of: (1) fifteen percent of annualized service maintenance revenue, (2) cash collections for the prior 50-day period, or (3) an amount equal to the sum of 80% of eligible accounts receivable. Commencing in November 1993, eligible borrowings related to field spares began to be phased out ratably over the following 5-month period. At January 31, 1994 eligible borrowings were limited to 12.0% of net field support spares. 5. TAXES Based on further discussions with taxing authorities during the first quarter of fiscal 1994, the Company has recorded a tax benefit of $1,193 related to a tax refund received in a prior year. Recognition was deferred previously based, in part, upon ongoing Federal income tax examinations. 8 6. CONTINGENCIES Two shareholders of the Company have filed lawsuits against the Company and its Board of Directors demanding that the Company seek damages from its Board of Directors with respect to the Company's 1990 purchases of the stock of the Company and Datapoint Corporation. A committee of the Board of Directors was appointed to consider the demands raised in each case. The committee retained independent counsel to review the matters raised in the lawsuits. The committee determined that it was not in the best interest of either the Company or its shareholders to accept either demand and, accordingly, instructed counsel to seek the dismissal of both lawsuits. In January 1992 a motion for summary judgment on behalf of the Company and its Board of directors was denied in the lawsuit pending in the New York State Court and is currently on appeal. A similar motion, involving only the Company's purchase of its own stock, was denied, with leave to renew after the appeal in the New York State Court action is decided. The second case is pending in the United States District Court for the Southern District of New York. This action charges a violation of the proxy laws and breach of fiduciary duties with respect to several actions by the Board, including the purchase of the Company's own stock. In June 1993, another shareholder commenced a derivative action against certain members of the Company's Board of Directors and Datapoint Corporation. Because this latest action is substantially similar to one of the previously filed suits, the plaintiffs in the latest action have filed a motion to dismiss their complaint without prejudice. The Company believes that these issues will ultimately be resolved in its favor; however, the ultimate outcome cannot presently be determined. The Internal Revenue Service ("IRS") has issued assessment letters relating to the consolidated Federal Income Tax Returns of the Company for the years 1986 through 1992. The IRS letters propose assessments of approximately $31,000 in additional taxes plus interest. The assessments primarily involve the industry-wide issue of the appropriate method for cost recovery of spare parts. A recent case on the same issue was decided in the taxpayer's favor by the U. S. Tax Court, but is being appealed by the IRS. If the decision was followed by courts with jurisdiction over the Company, the remaining proposed assessment would be approximately $2,500 in additional taxes plus interest. The Company strongly disagrees with the proposed adjustments and has filed a protest, appealing each of the adjustments in the IRS report. The Company believes that these issues will ultimately be resolved in its favor; however, the ultimate outcome cannot presently be determined. No provision has been made for any possible liability. 9 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Years referred to are fiscal years) (In thousands) Results of Operations Three Months Ended January 31, 1994 versus Three Months Ended January 31, 1993: Revenue Service revenue in the second quarter of 1994, $18,655, declined $3,457 (15.6%) from the year-ago period as domestic revenue from servicing Datapoint-manufactured products decreased $1,755 while domestic revenue from servicing all other products decreased $1,702. Cancellations and expirations continue to exceed new sales activity, while revenue from installation of telephone devices in the second quarter was not significant. Service revenue from Datapoint products totaled $1,833 for the quarter, or 9.8% of total revenue. In the second quarter of 1993, domestic revenue from servicing Datapoint products totaled $3,588, or 16.0% of the revenue total. This decline can be attributed to customers who are converting to new platforms. Canadian service revenues also declined in 1994 as compared to 1993, decreasing $327 (37.4%) to a 1994 second quarter total of $547. Canada operations are currently in transition from providing service solely to Datapoint system customers to a more balanced and diversified customer equipment base. In an effort to improve service delivery systems and enhance Canadian offerings, the Company announced a new Canadian service alliance with DataTech Systems, Ltd., effective March 1, 1994, which will provide for expanded service coverage and technical resources. 10 Gross Profit Gross profit of $3,720 (19.8%) for the second quarter compared to $5,450 (24.3%) for the same period one year ago. This decline resulted directly from the decrease in revenue as costs of service have declined $1,936 (11.4%) quarter over quarter. Selling, General and Administrative Expenses Selling, General and Administrative (SG&A) expenses of $4,367 for the second quarter were substantially unchanged from the year- ago period, despite a substantial increase in the Company's sales force during the first half of this year. Total selling costs were $3,160 for the three months ended January 31, 1994, up $498 (18.7%) from the second quarter of 1993. Interest Expense Second quarter interest expense decreased $68 from the same period in 1993 due to a decrease of $2,017 in the outstanding credit facility with Foothill Capital Corporation from the same period in 1993. Federal and State Income Taxes Effective August 1, 1993, the Company changed its method of accounting for income taxes in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes" ("FAS 109"). As permitted under the new rules, prior years' financial statements have not been restated. FAS 109 provides for recognition of deferred tax assets when realization of the deferred tax assets is more likely than not. Because of continued losses, no tax benefit has been recorded in the period with respect to the loss carry forwards. 11 Six Months Ended January 31, 1994 versus Six Months Ended January 31, 1993: Revenue Service revenue in the first six months of 1994, $38,331, declined $7,215 (15.8%) from the year-ago period. Domestic revenue from servicing Datapoint-manufactured products decreased $3,397 while domestic revenue from servicing all other products decreased $3,818. Cancellations exceeded new sales activity throughout the first six months of 1994. Service revenue from Datapoint products totaled $3,995 for the first six months, or 10.3% of total revenue. In the first six months of 1993, domestic revenue from servicing Datapoint products totaled $7,392, or 16.0% of the revenue total. Datapoint products continue to be replaced with new platforms. Gross Profit Gross profit of $7,561 (19.4%) for the first six months of 1994 compared to $11,021 (23.8%) for the same period one year ago. This decline resulted directly from the decrease in revenue as costs of service have declined $3,866 (11.0%) from the same period one year ago. Selling, General and Administrative Expenses Selling, General and Administrative (SG&A) expenses of $9,058 for the first six months decreased $617 (6.4%) from the year-ago period. Much of this reduction can be attributed to elimination of marketing management layers in the first six months of 1993 to achieve greater operational efficiencies. Interest Expense Interest expense for the first six months of 1994 decreased $294 from the same period in 1993 due to a decrease in the 12 outstanding credit facility with Foothill Capital Corporation from the year-ago period and debenture repurchases which took place during the first six months of 1993. Federal and State Income Taxes During the first six months of 1994 tax benefits of $1,193 were recorded related to a tax refund received in 1993. Recognition was deferred previously based in part upon ongoing Federal income tax examinations. Although a final resolution has not been reached with respect to the Company's Federal income tax contingency, management believes its current estimate of tax liabilities is appropriate, given continuing discussions with taxing authorities which took place during the first six months. During the first six months of 1993 the Company recorded $141 of taxes related to book/tax timing differences. This tax was offset by utilization of net operating loss carry forwards. Capital Resources and Liquidity Through the first six months of 1994, cash and temporary investments decreased $1,119, as compared to a decrease of $189 from the same period one year ago. Net cash provided by operating activities was lower than in the prior year by $1,679; however, investments in spares and other fixed assets decreased by $654 as the Company continued to shorten the necessary parts pipeline and short-term borrowings under the Foothill facility increased. Financing activities in the first six months of 1993 consisted of $2,817 in short-term borrowings and disbursements of $4,459 for subordinated debenture repurchases. 13 At January 31, 1994, the Company's current liabilities exceeded current assets by $14,504. Current liabilities include $7,713 of borrowings under the Company's revolving financing agreement. No periodic principal payments are required under this agreement as long as the Company is in compliance with the financial covenants and the borrowing base exceeds the amount outstanding. Management believes that internally generated cash flow, existing cash and temporary investments and borrowings available under the Company's revolving financing agreement will be sufficient to fund the Company's obligations and any capital expenditures. 14 PART II - OTHER INFORMATION Item 8. Exhibits and Reports on Form 8-K B. Reports on Form 8-K: On November 24, 1993, the Company announced an agreement in principle with a major company to install and maintain certain devices beginning in January 1994. The Company anticipates revenue of approximately $8 million from the initial order. The agreement will have an initial term of three years. 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. INTELOGIC TRACE, INC. (Registrant) Date: March 16, 1994 By Martin J. Landon Vice President and Chief Financial Officer 15 PART II - OTHER INFORMATION Item 8. Exhibits and Reports on Form 8-K B. Reports on Form 8-K: On November 24, 1993, the Company announced an agreement in principle with a major company to install and maintain certain devices beginning in January 1994. The Company anticipates revenue of approximately $8 million from the initial order. The agreement will have an initial term of three years. 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. INTELOGIC TRACE, INC. (Registrant) Date: March 16, 1994 By /Martin J. Landon Martin J. Landon Vice President and Chief Financial Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----