-----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, IkhSLi5rlusPhThq8Cjch+3KNwu1T/Nzdr4tCH8Qdqwhldvyrz82rRGYxNIpR5ZS M8COr9PkC5nsrFi97JPWbg== 0000905718-98-000243.txt : 19980512 0000905718-98-000243.hdr.sgml : 19980512 ACCESSION NUMBER: 0000905718-98-000243 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIALOGIC CORP CENTRAL INDEX KEY: 0000899042 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 222476114 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23816 FILM NUMBER: 98615147 BUSINESS ADDRESS: STREET 1: 1515 US RTE 10 CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 2019933000 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1998 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: 33-59598 DIALOGIC CORPORATION (Exact name of registrant as specified in its charter) New Jersey 22-2476114 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1515 Route 10 Parsippany, New Jersey 07054 (Address of principal executive office, including zip code) 973-993-3000 (Registrant's telephone number, including area code) ------------------------------------------------------------------------- (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[ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At March 31, 1998, there were 16,167,332 shares of Common Stock, par value $0.01, outstanding. DIALOGIC CORPORATION INDEX Page Number Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 3 Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 (unaudited) 4 Consolidated Statements of Cash Flows for the Months 5 Ended March 31, 1998 and 1997(unaudited) Notes to Condensed Consolidated Financial Statements (unaudited) 6-8 Item 2. Management's Discussion and Analysis of Financial 9 Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 PART I. Financial Information Item 1. Financial Statements DIALOGIC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
March 31, December 31, 1998 1997 -------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 45,889 $ 18,764 Marketable securities 48,430 43,774 Accounts receivable (net of allowance for doubtful accounts of $1,605 and $1,280, respectively) 47,065 45,186 Inventory: Raw materials 7,058 8,827 Work in process 9,645 6,724 Finished goods 15,495 14,941 ----------- --------- 32,198 30,492 Deferred income tax 6,513 7,190 Other current assets 9,389 6,842 ----------- --------- Total current assets 189,484 152,248 Property and equipment, net 20,760 22,615 Other assets 3,894 7,541 ----------- --------- TOTAL ASSETS $ 214,138 $ 182,404 =========== ========== LIABILITITES Current liabilities: Accounts payable $ 9,786 $ 14,361 Accrued salaries and benefits 8,099 6,390 Accrued royalties 965 1,825 Accrued expenses 10,622 7,986 Income taxes payable 15,253 1,237 Current maturities of long term liabilities 522 529 ----------- ---------- Total current liabilities 45,247 32,328 Long term liabilities 2,376 2,481 Deferred income tax 2,538 2,730 SHAREHOLDERS' EQUITY Preferred stock, par value $0.01-10,000,000 shares authorized: none issued - - Common stock, par value $0.01-60,000,000 shares authorized: 16,167,332 and 16,100,862 shares outstanding, respectively 208 207 Additional paid-in capital 53,354 51,948 Treasury stock, at cost 98,000 and 50,000 shares, respectively (3,617) (1,912) Retained earnings 109,596 94,023 Accumulated other comprehensive income 4,436 599 ----------- ------- Total shareholders' equity 163,977 144,865 ----------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 214,138 $ 182,404 ========== ==========
See Notes to Unaudited Consolidated Financial Statements. DIALOGIC CORPORATION Consolidated Statements of Income (Unaudited) (In thousands, except per share data) Three Months Ended March 31, 1998 1997 ---- ---- Revenues $ 66,388 $ 57,089 Cost of goods sold 24,657 21,769 ------ ------ Gross profit 41,731 35,320 Research and development 13,759 12,254 Selling, general and administrative expenses 18,975 18,374 Asset impairment 5,297 - ------ ------ Operating income 3,700 4,692 Interest expense 48 32 Interest income 679 386 Net realized gains (losses) on available for sale securities 16 (4) Gain on sale of subsidiary 23,384 - ------ ----- Income before provision for income taxes 27,731 5,042 Provision for income taxes 12,158 1,815 ------ ----- Net income $ 15,573 $ 3,227 ========= ========== Net income per share: Basic $ 0.97 $ 0.20 Diluted $ 0.93 $ 0.20 Weighted average number of common shares: Basic 16,061 15,802 Diluted 16,825 16,512 See Notes to Unaudited Consolidated Financial Statements. DIALOGIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, 1998 1997 ---- ---- Cash flows from operating activities: Net Income $ 15,573 $ 3,227 Adjustments for non-cash items included in net income: Depreciation and amortization 2,014 2,112 Asset impairment 5,297 - Deferred income taxes (1,738) (113) Gain on sale of subsidiary (23,384) - Other 677 586 Changes in operating assets and liabilities 4,034 (2,460) ----------- ----------- Net cash provided by operating activities 2,473 3,352 ----------- ----------- Investing Activities: Capital expenditures (2,229) (4,036) Purchase of short-term investments (3,446) (721) Proceeds from sales of short-term investments 4,868 295 Proceeds from sale of subsidiary 26,000 - Other (131) - ----------- --------- Net cash flows provided by (used in) investing activities 25,062 (4,462) ----------- ---------- Financing Activities: Exercise of stock options 352 186 Purchase of treasury stock (1,705) - Issuance of common stock 479 445 Other (185) (280) ----------- --------- Net cash provided by (used in) financing activities (1,059) 351 ----------- --------- Effect of exchange rate on cash 649 (340) Increase (decrease) in cash and cash equivalents 27,125 (1,099) Cash and cash equivalents, beginning of period 18,764 11,848 ----------- --------- Cash and cash equivalents, end of period 45,889 $ 10,749 =========== ========= Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 24 $ 28 Income taxes $ 192 $ 1,124 Supplemental disclosures of non-cash investing and financing activities Change in net unrealized gains on available for sale securities $ 3,881 $ (1,854) See Notes to Unaudited Consolidated Financial Statements.
DIALOGIC CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Unaudited Condensed Consolidated Financial Statements In the opinion of management, the unaudited condensed consolidated balance sheet at March 31, 1998, and the unaudited consolidated statements of income and unaudited consolidated condensed statements of cash flows for the interim periods ended March 31, 1998, and 1997 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of results for the interim periods presented. In accordance with the rules of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The year-end balance sheet data was derived from audited financial statements, but does not include disclosures required by generally accepted accounting principles. It is suggested that these condensed statements be read in conjunction with the Company's most recent Annual Report on Form 10-K for the fiscal year ended December 31, 1997. Certain prior year amounts have been reclassified to conform to the 1998 presentation. 2. Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for the Company for the year ending December 31, 1998. This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that these enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Company is currently evaluating the impact that the adoption of SFAS No. 131 will have on its consolidated financial statements. 3. Divestment On February 17, 1998, Dialogic Corporation completed the sale of the principal assets and operations of Spectron Microsystems, a wholly owned subsidiary, to Texas Instruments for $26 million. The sale resulted in an after tax gain of $14.0 million. The sale will not have a significant effect on the sales or earnings or the Company in future periods. 4. Available for Sale Securities The following is a summary of the available for sale securities as of March 31, 1998 and December 31, 1997 ($000's): March 31, 1998 Cost Gross Gross Unrealized Unrealized Estimated Gains Losses Fair Value - ----------------------------------------------------------------------------------------------------------------- Municipal bonds $ 38,456 $ 176 $ - $ 38,632 Equity investments 1,954 7,844 9,798 - ---------------------------------------------------------------------------------------------------------------- Total marketable securities $ 40,410 $ 8,020 $ - $ 48,430 - ---------------------------------------------------------------------------------------------------------------- December 31, 1997 Cost Gross Gross Unrealized Unrealized Estimated Gains Losses Fair Value - ---------------------------------------------------------------------------------------------------------------- Municipal bonds $ 39,863 $ 149 $ - $ 40,012 Equity investments 1,954 1,808 - 3,762 - ---------------------------------------------------------------------------------------------------------------- Total marketable securities $ 41,817 $ 1,957 $ - $ 43,774 - ----------------------------------------------------------------------------------------------------------------
The Company owns 1,399,715 shares of capital stock in Voice Control Systems, Inc. (VCS). The shares are classified as available for sale under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The fair value of the Company's investment in VCS has been determined by reference to the market price for VCS stock as quoted on publicly traded exchanges on the representative valuation dates. The price per share of VCS stock had increased to $7.00 at March 31, 1998, as compared to $2.69 at December 31, 1997. Unrealized gains/losses are reported net of tax in the equity section (as a component of accumulated other comprehensive income) of the Company's balance sheet per SFAS No. 115. 5. Asset Impairment During the first quarter of 1998, the Company undertook a strategic review of its business lines and product offerings. At the conclusion of this review, the Company determined it would no longer allocate resources to its Dianatel product line. Activities to sell and upgrade Dianatel products were ceased and employees working on Dianatel related products were diverted to other activities. As the result of this decision, management has concluded that the carrying value of the goodwill that arose on the purchase of Dianatel Corporation was no longer justifiable, and the Company recorded a non-cash impairment loss of $3.5 million related to the write-down of goodwill. During the three months ended March 31, 1998, the Company upgraded certain internal information technology systems. Accordingly, the Company took a $1.3 million after-tax charge to reduce the carrying value of the internal information technology assets that will no longer be supported. Management believes the recognition of these impairments were in accordance with the provisions of Statement of Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." 6. Changes in Accounting Principles Effective January 1, 1998, Dialogic adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This statement also requires that an entity classify items of other comprehensive earnings by their nature in an annual financial statement. For Dialogic, other comprehensive earnings include foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available-for-sale. Annual financial statements for prior periods will be reclassified, as required. Dialogic's total comprehensive earnings were as follows: Three Months Ended March 31, 1998 1997 (In millions of dollars) Net earnings $ 15,573 $ 3,227 Other comprehensive income, net of tax 3,842 (2,030) ----- ------- Total comprehensive earnings $ 19,415 $ 1,197 ========= ========== 7. Earnings per share The Company adopted the provisions of SFAS No. 128, "Earnings per share" in the year ended December 31, 1997. SFAS No. 128 requires the dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised and resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is computed using the treasury stock method when the effect of common stock equivalents would be dilutive. EPS for the quarter ended March 31, 1997, has been restated to comply with the provisions of SFAS No. 128. The only reconciling item between the denominator used to calculate basic EPS and the denominator used to calculate diluted EPS is the dilutive effect of stock options issued pursuant to the Company's Incentive Stock Compensation Plans. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION A. General The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Results of Operations and Financial Condition incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and the Unaudited Consolidated Financial Statements and related Notes to Consolidated Financial Statements included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q. This Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements"), which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include product demand and market acceptance risks, the effect of worldwide economic conditions, the impact of competitive products and pricing, the Company's ability to enter new markets, the adoption of new standards and the Company's ability to meet those standards, product development, effects of competitive forces and pace of deregulation in the telecommunications industry, the status of intellectual property rights, commercialization and technological difficulties, capacity and supply constraints or difficulties, consolidating of capital resources, general business conditions, the effect of the Company's accounting policies, and other risks detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Such factors may also cause substantial volatility in the market price of the Company's common stock The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amount of costs and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Significant estimates in the Company's financial statements include allowances for accounts receivable, product returns and net realizable values of inventories. Actual results could differ from these estimates. B. Results of Operations Consolidated revenues increased 16% for the three months ended March 31, 1998, compared to the equivalent prior year period. North Americas' revenue increased 23% to $42 million for the quarter ended March 31, 1998, as compared to the three months ended March 31, 1997. Revenue in Europe and Latin America increased 36% and 70% respectively for the quarter ended March 31, 1998, as compared to the equivalent prior year period. Partially offsetting the growth in Europe and Latin America, revenue in Asia/Pacific decreased 16% as compared to the three months ended March 31, 1997. During the quarter, the Company continued to release commercial production of its new products based on DM3 architecture. DM3 products are now available in PCI, cPCI, and VME configurations utilizing industry standards such as H.323, G.723.1, G.711, GSM and T.38. Gross margins increased to 62.9% for the three months ended March 31, 1998, compared to 61.9% for the three months ended March 31, 1997. The increase in margins reflects the continued effects of Dialogic's cost reductions. In addition, margins were impacted by favorable product mix related to the increased volume of high-density products. Research and development expenses as a percentage of revenues represented 20.7% for the quarter ended March 31, 1998, as compared to 21.5% for the three months ended March 31, 1997. The Company continues to invest engineering resources in the development of the Dialogic DM3 Mediastream Resource Architecture ("DM3") as well as development of IP telephony and open switch products. The Company believes that investment in research and development is critical to future growth and anticipates investing at current levels throughout the remainder of 1998 in an effort to enable the Company to maintain its technological leadership in the marketplace. This estimate regarding future research and development as a percentage of revenue represents a Forward-Looking Statement; actual results could differ materially from the Company's expectations as a result of a variety of factors including variations in revenue, product market and competitive conditions, the availability of required resources and the Company's technological needs. Selling, general and administrative expenses increased to $19.0 million for the three months ended March 31, 1998, as compared to $18.4 million in the comparable prior year period. As a percentage of total revenues, selling, general and administrative expenses decreased to 28.6% in the first quarter compared to 32.2% for the comparable prior year period. These expenses increased as the Company incurred additional sales commissions due to higher revenue volume and expanded its executive management staff. Asset impairment charges for the three months ended March 31, 1998, included the write-down of goodwill associated with the 1996 acquisition of Dianatel Corporation of $3.5 million and a $1.8 million pre-tax charge primarily associated with the write-down of selected information technology assets. (See Note 5 to the Unaudited Condensed Consolidated Financial Statements) Net interest income for the quarter increased $278,000 over the comparable period ended March 31, 1997. The increase reflects the earnings on the increase in the Company's short-term investment portfolio and the proceeds from the sale of Spectron Microsystems. The Company's effective income tax rate at March 31, 1998, is 43.8% as compared to 36% for the period ended March 31, 1997. The increase is attributable to the write-down of the non-tax deductible goodwill of Dianatel Corporation in the amount of $3.5 million, as well as the higher effective tax rate on the gain on the Spectron sale. Net income for the quarter ended March 31, 1998, was $15.6 million or $.93 per share on a diluted basis, compared to $3.2 million or $0.20 per share on a diluted basis, for the comparable period ended March 31, 1997. Results for the quarter include an after-tax gain of $14.0 million or $.83 per share from the sale of the principal assets and operations of Spectron Microsystems, and a one time after-tax charge of $3.5 million or $.21 per share for the write-down of goodwill associated with the 1996 acquisition of Dianatel Corporation, and a $1.3 million after-tax charge or $.08 per share write-down of selected technology assets. Management believes that this additional information regarding earnings is useful and meaningful to an understanding of the operating performance of the Company. However, this measurement of earnings should not be considered by the reader as an alternative to net income as an indicator of the Company's operations or performance, or to cash flows as an indicator of liquidity. Weighted average diluted shares outstanding represented 16.8 million and 16.5 million for the three months ended March 31, 1998, and 1997, respectively. C. Financial Condition As of March 31, 1998, and December 31, 1997, Dialogic had working capital of $144 million and $120 million respectively, and a current ratio (i.e., the ratio of current assets to current liabilities) of 4.2 to 1 and 4.7 to 1, respectively. For the three months ended March 31, 1998, Dialogic's cash and cash equivalents increased by $27.1 million. Cash inflows from proceeds of the sale of Spectron Microsystems were $26.0 million for the first quarter of 1998. Cash outflows of approximately $2.2 million were expended for capital purchase related to the growth at Corporate Headquarters. Net cash flows from operating activities were $2.5 million. Cash outflows for the repurchase of treasury stock of $1.7 million, was partially offset by the proceeds from the exercise of stock options and the issuance of common stock. Dialogic believes that its current liquidity, coupled with cash generated from operations and credit available under its credit lines, will be sufficient to meet its liquidity and capital requirements for at least the next twelve months. This statement constitutes a Forward-Looking Statement. The actual sufficiency of such capital resources could differ materially from the Company's expectations, depending among other things upon the extent to which unanticipated capital requirements may arise and the extent to which unanticipated events may have a materially adverse effect on the Company's profitability. D. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for the Company beginning January 1, 1998. This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that these enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Company is currently evaluating the impact that the adoption of SFAS No. 131 will have on its consolidated financial statements. PART II. Other Information Item 1. Legal Proceedings For information regarding certain pending legal proceedings, see Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997. As previously disclosed, the complaint filed against the Company and certain of its directors alleging breach of principles of common law fraud was dismissed with prejudice by the New Jersey Superior Court on February 18, 1998. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27.1 - Financial Data Schedule (b) A Current Report on Form 8-K was filed on January 30, 1998, disclosing (under Items 5 and 7) the Company's definitive agreement to sell the principal assets and operations of Spectron Microsystems, a wholly-owned subsidiary to Texas Instruments Incorporated. A Current Report on Form 8-K was filed on February 18, 1998, disclosing (under Item 5) consummation of that sale. (c) A Current Report on Form 8-K was filed on February 25, 1998, disclosing (under Item 5) dismissal with prejudice of a June 30, 1996, class action lawsuit "Schwartz v. Dialogic Corporation et al." (see Item 1 of Part II, above). 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. DIALOGIC CORPORATION By: /s/Thomas G. Amato Thomas G. Amato Vice President, Chief Financial Officer By: /s/Jean M. Beadle Jean M. Beadle Chief Accounting Officer, Controller Dated: May 11, 1998 EXHIBIT INDEX Exhibit No. Exhibit Page 27.1 Financial Data Schedule E-1 EX-27 2 FDS --
5 This financial data schedule contains summary financial information extracted from Dialogic Corporation's financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 MAR-31-1998 45,889 48,430 48,670 1,605 32,198 189,484 47,927 (27,167) 214,138 45,247 0 0 0 208 163,769 214,138 66,388 66,388 24,657 24,657 38,031 0 48 27,731 12,158 0 0 0 0 15,573 0.97 0.93
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