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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999 Commission File number 1-8086
GENERAL DATACOMM INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Park Road Extension, Middlebury, Connecticut, 06762-1299
(Address of principal executive offices)
(203) 574-1118
(Registrant's telephone number, including area code)
__________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. { X }
The aggregate market value of the voting stock of the Registrant held by
nonaffiliates as of December 13, 1999: $120,690,015.
Number of shares of Common Stock and Class B Stock outstanding as of December
13, 1999:
19,981,115 Shares of Common Stock
2,092,383 Shares of Class B Stock
DOCUMENTS INCORPORATED BY REFERENCE:
Annual Report to Stockholders for the fiscal year ended September 30, 1999 for
Part II, Items 5, 6, 7 and 8. Corporation's Proxy Statement (dated January 4,
2000) for the 2000 Annual Meeting of Stockholders for Part III, Items 10, 11, 12
and 13.
GENERAL DATACOMM INDUSTRIES, INC.
TABLE OF CONTENTS
PART I Page
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition 18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the
Registrant 19
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management 21
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 22
2
PART I
ITEM 1. BUSINESS
General DataComm Industries, Inc. was incorporated in 1969 under the laws of the
State of Delaware. Unless the context otherwise requires, the terms "Company,"
"Corporation" and "GDC" as used here and in the following pages mean General
DataComm Industries, Inc. and its subsidiaries. In addition, in the following
business discussion "ATM" refers to Asynchronous Transfer Mode cell switching
technology, "LAN" refers to Local Area Network and "WAN" refers to Wide Area
Network.
Overview
General DataComm Industries, Inc., based in Middlebury, Connecticut, is a
worldwide provider of wide area networking and telecommunications products and
services. The Company is focused on providing multiservice provisioning
solutions using ATM switching and multiservice access products. The Company
designs, assembles, markets, installs and maintains products and services that
enable telecommunications common carriers, corporations, and governments to
build, improve and more cost effectively manage their global telecommunications
networks. In fiscal 1999, the Company completed a major reorganization of
business operations that created three independent operating divisions in the
form of the Broadband Systems Division, the Network Access Division and VITAL
Network Services, L.L.C. (VITAL was established as a business unit in 1997).
Each of these groups now have dedicated marketing, sales, engineering and
finance components and are separated as distinct operating business units with
separate general managers. Refer to "Company Strategy" below for further
discussion.
The Company's products and services are marketed throughout the world. The
Company sells and leases its products primarily to corporations, governments and
common carriers (telephone and cable companies) through its own worldwide sales
and service organizations as well as original equipment manufacturers (OEMs),
system integrators, local distributor networks and value-added resellers.
Internationally, GDC maintains subsidiary operations in Canada, the United
Kingdom, Mexico, France, Singapore and Brazil. Sales and technical support
offices are maintained in Sweden, Japan, Hong Kong, China and Argentina. In
total, the Company manages a worldwide distribution network with representatives
in more than 60 countries. International operations represented approximately
48% of the Company's revenues in fiscal 1999 as compared to 50% in fiscal 1998.
GDC's foreign operations are subject to all the risks inherent in international
operations.
The Company's customer base includes: Local Exchange Carriers, including all
five Regional Bell Operating Companies, Bell Canada and GTE; Alternative Service
Providers including Cignal Global Communications and Twister Communications;
Interexchange Carriers including MCI Worldcom; corporate end users; government
entities including New York City Transit Authority, Commonwealth of Kentucky and
the U.K. Ministry of Defense; international communications carriers such as
France Telecom and Telecom New Zealand; and suppliers of central office
switching equipment such as Lucent Technologies and LM Ericsson.
No individual customer accounts for 10 percent or more of the Company's
consolidated revenue.
3
The Corporation's executive offices are located at Park Road Extension,
Middlebury, Connecticut, 06762-1299, and its telephone number is (203) 574-1118.
Company Strategy
Prior to December 1998, the Company operated with a horizontal structure with
such functional organizations as marketing, sales and engineering operating
across all product lines.
In December 1998, the Company restructured its operations into three distinct
business units with increased operating autonomy and business focus. The
Broadband Systems Division ("BSD") has responsibility for the development,
marketing and sale of broadband telecommunication products, including ATM
products; the Network Access Division ("NAD") has responsibility for the
development, marketing and sale of access telecommunication products, including
frame relay and DSL products; and VITAL Network Services, L.L.C. ("VITAL") will
continue to offer a broad range of network services, including an expansion into
professional network design and consulting services.
Each business unit is comprised of a general manager and dedicated marketing,
sales, product development and finance functions ("Strategic Business Unit [SBU]
management teams"). As a result, the business units are more focused on
products, sales channels and technologies unique to each unit and will be
streamlined to maximize time-to-market, product performance and customer
satisfaction. The new SBU management teams have responsibility for their
respective operating results.
To minimize the cost of certain support functions, including, among others,
marketing services, information technology, specific finance functions, human
resource management and facilities maintenance, such support operations are
centralized and provide their respective services to all business units.
Since the reorganization, each division, and the Company as a whole, achieved
improved financial performance on a quarter-to-quarter basis during fiscal 1999.
The Company views this performance improvement as confirmation that its new
business strategy (autonomous business units created along product lines) is a
more effective means of managing the business. Refer to Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," for
detailed discussion of the Company's (and each division's) performance trends
since their creation in December 1998.
Detailed discussion of each division's operations follows below. In addition,
financial performance by reportable operating segment and other geographical
information presented on a consolidated basis is included in Note 11 of the
Notes to Consolidated Financial Statements. See "Index to Financial Statements
and Schedules" on page F-1 in this report.
As part of the Company's new business strategy, it has sold, is holding for sale
and/or closed operations not considered strategic to the three business units
discussed above. Refer to the "Partnering/Divestiture Strategy" discussion below
for additional discussion.
4
Broadband Systems Division
The Broadband Systems Division ("BSD" or "the Division") has concentrated its
efforts on providing integrated networks utilizing ATM multiplexing and
switching products to construct global networks offering converged data, voice
and video communications. BSD's broadband networking products provide an
advanced, multiservice architecture for wide area networking solutions to
operators, governments and enterprises worldwide.
In the early 1990s, the Company identified ATM technology as the preferred
solution for addressing the need for support of next-generation data and
multimedia applications requiring higher bandwidth and differentiated Qualities
of Service (QoS). Such applications include internet-related access and
services, high-speed intranets, remote interactive education, content
distribution and broadcast TV transmission. ATM, as a broadband technology,
enables the simultaneous transmission of voice, video and high-speed data
traffic on a single communications line. By offering ATM solutions to its
customers, the Company believes it has enhanced its position as a leading
supplier of wide area networking and telecommunications products.
BSD's strategy of providing integrated solutions to its customers rests upon:
Providing Cost-Effective Flexible Product Solutions. The Division's trademark
product families {GDC APEX(R), NEXERA(TM) and ProSphere(R)} are designed with
architectures that scale to meet the differing size, performance and cost
demands encountered in its potential customer base. Customers select products
which are most appropriate to their current needs and may easily migrate to
higher capacity products over time. Standardization of the network management
suite across all product families allows the end-user to utilize a single
network management system providing value-added capabilities such as
configuration, alarm reporting, route planning, provisioning and advanced
service restoral options.
Improving Performance of Customer Networks. The Division's system products are
designed to improve network efficiency by increasing data transmission speed,
compressing and consolidating voice and video signals and providing dynamic
bandwidth allocation as individual applications demand it. The ability to
migrate isolated company voice and data intranets to a single, converged
broadband network may provide significant cost savings within a relatively low
payback period.
Broadband Division Product Suite
ATM Products: To address the needs of its target customers, the Division offers
several product solutions designed to provide a flexible and cost-effective
on-ramp into the broadband environment. The GDC APEX(R) range of systems enables
companies to address network requirements for data, compressed video and
compressed voice in a multi-service environment with switching and multiplexing
speeds from 1.6Gbps to 6.4Gbps. The NexEra(TM) family of switches is a new
system designed to offer higher density data, IP, voice and private line
services at the edge of the operator's network offering switching at 2.5Gbps and
5
5Gbps. The NexEra(TM) system incorporates functionality required to interconnect
the PSTN and ATM networks, such as an integral SS7/ISUP gateway. The
ProSphere(R) family of network management products was successfully migrated
during 1999 to a next-generation core platform with the introduction of
leading-edge, unique and innovative concepts such as an all-JAVA client/server
interface and a CORBA inter-process communications agent. Both of these features
are designed to promote standards-based open interfaces for third parties to
utilize, and to enable easier integration into a network operator's
provisioning, monitoring and alarm systems.
Multimedia Products: During fiscal 1999, the Division's multimedia products
consisted of the APEX-MMS (Multimedia Multipoint Server), the industry's first
"any band" multipoint control unit, and a family of integrated codecs (APEX VIP
series) within the APEX switch which provide wide area transport for Motion
JPEG, H.320 and MPEG-2 compression options, allowing for optimized
video-provisioned services.
In fiscal 1999 BSD introduced the MAC 500, a versatile, multi-service access
concentrator capable of delivering multiple MPEG-2 video signals to customer
locations along with data and Internet access. In addition, a new release of the
Multipoint Server, which is targeted to service providers, was introduced. The
Company believes these two new products, together with the APEX platform, offer
one of the most innovative and complete solutions available in the marketplace
today. The principal applications are in distance learning for schools and
universities as well as telemedicine for hospitals and health organizations.
With the establishment of a new Multimedia Division in fiscal 2000,
responsibility for these multimedia products will reside in the new
organization.
Multiplexers/Internetworking Products: GDC's multiplexer and internetworking
product family includes systems for both branch office and corporate backbone
locations which integrate voice, traditional data, video and LAN traffic over
narrowband (56/64 Kbps) or wideband (fractional T1/E1 and T1/E1) digital
services. By consolidating multiple forms of traffic over a single transmission
line, these products significantly decrease an end user's network costs. For
corporate backbone locations, GDC offers the TMS 3000, which supports a wide
range of voice, facsimile, LAN, traditional data and video applications. The
Office Communications Manager ("OCM"), a cost-effective networking solution for
the branch office location, operates with the TMS 3000 as part of a network and
offers the integration of voice, LAN routing, frame relay and traditional data
at speeds ranging from 9.6 Kbps to T1/E1.
Broadband Division Sales and Marketing
The Division's products are sold throughout the world using various channels to
market, including: a dedicated U.S. sales force; international subsidiary
operations in Canada, Mexico, the United Kingdom, France, Germany, Singapore and
Brazil; and indirect sales through an international distributor network,
original equipment manufacturers ("OEM's"), value-added resellers, system
integrators and alternate service providers.
6
The Division focuses on providing systems solutions for public voice and data
network provisioning, remote interactive education (distance learning) and the
migration of TDM and frame relay facilities to higher capacity broadband
networks. In addressing these solutions, the Division focuses its selling and
marketing efforts on emerging competitive service providers, incumbent
telecommunications carriers, educational and medical establishments, federal and
state governments and utilities. The Division has a worldwide customer base of
operators, corporate and government entities. The Division has global
distribution capabilities, and its ability to provide international customer
service and support is critical to customers that run mission-critical
applications over their networks.
The Company believes it has a leading position in the multi-service voice, data
and video switch market. The following organizations have deployed GDC's
broadband products extensively in their wide-area networks: Telekom Austria,
France Telecom, KPN Netherlands PTT, Slovakia Telecom, Telefonica Spain, Telia
Sweden, Energis Carrier Services, NASA, U.S. Air Force, Mayo Clinic, Burlington
Northern Santa Fe Railroad, BC Tel (Telus), Cignal Global Communications, and
Twister Communications. Several of these entities have deployed over 200 GDC
switches into their networks, creating some of the largest public switched ATM
networks in existence. The Division's products were sold to some of the
referenced customers through Lucent Technologies and LM Ericsson.
The Division had three customers which individually accounted for more than 10
percent of revenue in fiscal 1999 and in total accounted for approximately 40
percent of the Division's fiscal 1999 revenue.
Value of the Broadband Division's Solutions
Numerous operators have deployed GDC broadband switches as their platform for
provisioning new, differentiated data communications services. During 1999 the
Division managed to significantly expand and enhance its presence in the
voice-over-packet service market. As a leading proponent and early provider of
standards based AAL2 voice over ATM packet solutions, the Company's BSD division
has established a presence in several of the largest voice-over-packet networks
in the world. Additionally, 1999 saw a number of U.S. government agencies begin
to deploy the Division's products for mission-critical applications in military,
security and space applications.
The Company believes its family of broadband switches have the following
competitive advantages:
- Scalability, allowing a customer to construct a multitiered switch
network that scales in price and performance and offers multiple
services over one platform;
- Flexibility, providing the customer with comprehensive interfaces and
adaptation capabilities;
- Traffic management architecture, providing networks with traffic
policing, traffic shaping, traffic prioritization and buffer management
capabilities second to none;
- Switched virtual circuits, dynamically establishing voice, data and
video connections on an end-to-end basis;
- Standards-based compressed voice and MPEG2 video.
Selling prices vary directly with the size and complexity of the systems being
ordered.
7
The Division is pursuing an aggressive TDM to ATM migration strategy. This
allows BSD to address its existing TDM customer base with an appropriate
forward-looking technical evolution. In corporate backbone environments
requiring broadband speeds and services, GDC APEX(R) switches can be used. The
TMS 3000 and OCM can feed into the APEX switch enabling the Division to offer an
integrated networking solution which scales from small remote or branch
locations into regional wideband backbones and ultimately into ATM-based
broadband backbones.
BSD Research and Development
The Division has significant ongoing engineering programs for product
improvement and new product development. Gross expenditures for research and
development activities amounted to $29.9 million, $32.2 million and $38.0
million for fiscal 1999, 1998 and 1997, respectively.
BSD Competition
All segments of the telecommunications and networking industries are intensely
competitive. Many of the participants in the networking industry, including,
among others, Nortel Networks, Cisco Systems, Siemens, Marconi Communications
and Newbridge Networks, have targeted the WAN ATM market segment. Other
companies are expected to follow. In addition, traditional suppliers of central
office switching equipment such as Alcatel, Lucent Technologies, Fujitsu and LM
Ericsson are offering ATM-based switches for central offices. Refer to the
caption "Competition" below for further discussion.
BSD Manufacturing and Product Support
The Division's products are manufactured by the Company's manufacturing
operation and outsourcing partners. Product support services are available to
BSD customers through VITAL Network Services, L.L.C.
BSD Employees
At September 30, 1999 the Division had 315 dedicated employees. In addition, the
Division utilized Company support personnel as necessary (see "Company Employee
Relations" below).
Network Access Division
The objective of the Network Access Division ("NAD" or "the Division") is to
improve sales, marketing, and engineering productivity relative to the Company's
access product line. The new business unit intends to leverage the sales
resources of distributors, value-added resellers, integrators and
telecommunication provider channels in an effort to achieve greater sales
coverage both domestically and internationally. The reorganization has also
served to intensify the selling of access products, which have an inherently
short selling cycle.
8
GDC has adjusted to shifting priorities in the overall access market. These
priorities are governed by the accelerated growth of the internet, frame relay
and cell-based services, all of which require increased attention to network
management and performance quality. NAD accordingly is focused on the
development and sale of products targeted towards market growth areas. More
specifically, NAD's digital data sets, DSLware equipment and service monitoring
probes constitute the Division's major product elements serving to meet emerging
market requirements.
Network Access Division Product Suite
Digital Data Sets: Digital data sets are used to convert and interpret signals
from computers and communications equipment into a form that is acceptable for
transmission over telecommunications facilities. GDC offers a broad set of
narrowband digital data sets which operate at various speeds up to 64 Kbps and
wideband digital data sets which operate at fractional T1 and full T1 speeds. In
fiscal 1999 a broadband data set operating at T-3 speeds was also introduced.
NAD supplies its digital data sets to the major North American telephone
companies and various end users. NAD continues to enhance its digital
transmission product line by combining higher transmission speeds with
value-added capabilities including data compression, concentration, protocol
adaptation/conversion and network management. This enables GDC to offer
differentiated and in some cases unique transmission solutions. The SpectraComm
5000 family of network managed CSU/DSU products is the latest generation of
digital products which are targeted at large managed digital networks and local
exchange carriers.
DSLware(TM): The Universal Access System 7000 is a service provisioning system
which allows service providers to deliver digital services over copper loop
systems, reducing both cost and service provisioning time. It is particularly
applicable in international markets. In China and in developing countries in
Latin America and the Pacific Rim, there is insufficient copper wire installed
to support the growing demand for communications services. NAD believes it is
responding to these needs by offering the Universal Access System 7000, which
utilizes transmission technologies like 2B1Q (Two Binary One Quaternary) and
HDSL (High-speed Digital Subscriber Line). These products offer much higher
transmission speeds while using half of the copper wire pairs normally required
to provision private line services.
Intelligent Voice Data Access Multiplexer: The Metroplex(R) 6000 is an
intelligent access multiplexer designed for cost-effective access to a variety
of data and voice services available in wide area networks. It is applicable to
the branch office/small office market where it provides connectivity from the
office to an enterprise network or to public network services.
Analog Modems: Analog modems convert digital computer signals to a format that
can be transmitted over telephone lines. The market for private line modems has
been shrinking as telephone networks move from an analog to a digital format.
However, with the growth of telecommuting and internet access, the need for
analog modems continues to grow. NAD offers a broad range of private line and
dial-up modems operating at all speeds up to 56 Kbps.
9
Network Access Division Sales and Marketing
The Division's products are sold throughout the world using: a dedicated
domestic sales force; a Canadian subsidiary; and indirect sales through a
(domestic and international) distributor network, original equipment
manufacturers (OEM's), value-added resellers, system integrators and alternate
service providers.
The Division's customer base includes: Local Exchange Carriers, including all
five Regional Bell Operating Companies, Bell Canada and GTE; Interexchange
Carriers, including MCI Worldcomm and Sprint; Alternate Service Providers such
as Northpoint Communications and DSL Net; government entities, including state
and local governments; and international communications carriers such as
Telecomm New Zealand.
No individual customer accounted for 10 percent or more of the Division's fiscal
1999 revenue.
NAD Research and Development
NAD's gross expenditures for research and development activities amounted to
$8.6 million, $9.0 million and $11.0 million for fiscal 1999, 1998 and 1997,
respectively.
NAD Competition
All segments of the telecommunications and networking industries are intensely
competitive. Many of the participants in the networking industry, including,
among others, ADC Kentrox, Adtran, Paradyne, PairGain and Newbridge Networks,
have targeted the Access/Transmission market segment. Other companies are
expected to follow. Refer to the caption "Competition" for further discussion.
NAD Manufacturing and Product Support
The Division's products are manufactured by the Company's manufacturing
operation and outsourcing partners. Product support services are available to
NAD customers through VITAL Network Services, L.L.C.
NAD Employees
At September 30, 1999 the Division had 135 dedicated employees. In addition, the
Division utilized Company support personnel as necessary (see "Company Employee
Relations" below).
VITAL Network Services, L.L.C.
In February 1997, GDC restructured its service division to form an integrated
worldwide service organization providing comprehensive global professional and
traditional network services to customers who run critical applications over
their networks. In September 1997, the service division was
10
incorporated as a wholly owned subsidiary of General DataComm, Inc. under the
name VITAL Network Services, L.L.C. ("VITAL"). A critical element of the newly
formed organization was the strategic decision to convert VITAL from a single
manufacturer support (i.e., GDC) organization to one capable of servicing
multiple manufacturers' equipment and technologies.
VITAL Services Offered
VITAL's traditional support services, which comprise the majority of its fiscal
1999 business, include installation, on-site maintenance, technical support,
logistics management and product repair. In addition, VITAL's professional
services portfolio includes network audits, performance consulting, design,
staging, rollout and integration services, project management, remote network
monitoring/management and educational services.
Worldwide services are provided by VITAL personnel and are augmented by
third-party service partners when necessary. Customer relationships and services
are managed from VITAL's global headquarters in the United States and four area
offices in North America, Mexico, United Kingdom and Singapore. High level VITAL
technical support engineers using centralized simulation labs provide VITAL
field engineers and customers remote assistance from the VITAL Technical
Assistance Centers ("V-TACs") located in each area office; the North America
V-TAC contains an additional global internetworking center.
VITAL Sales and Marketing
VITAL's customer base includes telecommunications carriers, corporate and
government network customers, distributors, value-added resellers, system
integrators, competitive local exchange carriers, internet service providers and
equipment manufacturers.
As noted above, VITAL has converted from a single manufacturer (i.e., GDC)
support organization to one capable of servicing multiple manufacturers'
equipment and technologies. Capable of working in integrated networks, VITAL has
received designations as a Cisco Professional Services Partner and Authorized
Support Provider, a Nortel Certified Support Expert and a 3Com Authorized
Service Provider. In addition, VITAL is the exclusive authorized (outside)
service provider for General DataComm Industries, Inc., ADC Kentrox, Eastern
Research, Ennovate Networks, Larscom, MCK, Olicom, AccessLan and Verilink. VITAL
has also established working relationships with other manufacturers. No
individual customer accounted for 10 percent or more of VITAL' fiscal 1999
revenue.
In October 1998, VITAL purchased all of Olicom Inc.'s (router manufacturer)
Canadian and United States network service business and their support center
located in Marlborough, Massachusetts. VITAL also hired approximately 30 of
their highly skilled internetworking technical personnel. Additionally, as of
November 1, 1999, VITAL assumed the responsibility for Olicom's technical and
warranty product support worldwide.
11
In an effort to sustain revenue growth trends, VITAL plans to expand its direct
sales force with such personnel dedicated to selling VITAL services only. The
acquisition of synergistic service businesses would also offer growth
opportunity; no such acquistions are in progress at this time.
VITAL Competition
The network support service industry is intensely competitive, and there can be
no assurance that VITAL will successfully achieve its growth objectives.
VITAL Employees
At September 30, 1999, the Division had 299 dedicated employees. In addition,
the Division utilized Company support personnel as necessary (see "Company
Employee Relations" below).
DataComm Leasing Corporation ("DLC")
While the majority of the Corporation's products are sold on an outright basis,
the Corporation also leases its equipment through a wholly owned consolidated
subsidiary under a versatile selection of leasing programs designed to meet the
specific needs and objectives of its customers.
Manufacturing
The Company's manufacturing operation and its outsourcing partners service the
needs of the BSD and NAD business units.
Prior to fiscal 1999, the manufacturing operation had outsourced all power and
packaging assembly and test, and high-volume, through-hole printed circuit board
("PCB") assembly and test. In early fiscal 1999, the manufacturing operation
outsourced all residual through-hole PCB assembly and test. Furthermore, on
September 30, 1999, the Company entered into an agreement with the Matco
Electronics Group, Inc. ("Matco") to outsource the remainder of its principal
manufacturing operations (including surface mount printed circuit board assembly
and test). Transition of all surface mount PCB assembly and test to Matco's
manufacturing operations is targeted to be complete in January 2000.
At that point, GDC's manufacturing operation will be responsible for higher
level assembly and test on a build-to-order basis. Warehousing, distribution and
other miscellaneous services will also be provided by the manufacturing
operation.
After the transition to Matco is complete, the manufacturing operation will
occupy approximately 80,000 square feet, or 25%, of the 360,000 square foot
facility located in Naugatuck, Connecticut; 25% of the facility is being
utilized for other GDC operations and 50% will be vacant (as compared to 25%
vacancy during fiscal 1999).
GDC's Connecticut facilities continued to be ISO 9001 certified during fiscal
1999.
12
Reliance on Key Components and Subcontractors: The Corporation's products use
certain components, such as microprocessors, memory chips and pre-formed
enclosures that are acquired or available from one or a limited number of
sources. The Corporation has generally been able to procure adequate supplies of
these components in a timely manner from existing sources. While most components
are standard items, certain application-specific integrated circuit chips used
in many of the Corporation's products are customized to the Corporation's
specifications. All suppliers of components do not operate under contract. The
Corporation's inability to obtain a sufficient quantity of components when
required or to develop alternative sources at acceptable prices and within a
reasonable time, could result in delays or reductions in product shipments which
could materially affect the Corporation's operating results in any given period.
In addition, as referenced above, the Company relies heavily on subcontractors
for production. The inability of such subcontractors to deliver products in a
timely fashion or in accordance with the Company's quality standards could
materially affect the Corporation's operating results.
Backlog
The Corporation's order backlog while one of several useful financial
statistics is, however, a limited indicator of the Corporation's future
revenues. Because of normally short delivery requirements, the Corporation's
sales in each quarter primarily depend upon orders received and shipped in that
same quarter. In addition, since product shipments are historically heavier in
the last month of each quarter, quarterly revenues can be adversely or
beneficially impacted by several events, including: unforeseen delays in product
shipments; large sales that close at the end of the quarter; sales order changes
or cancellations; changes in product mix; new product announcements by the
Corporation or its competitors; and the capital spending trends of customers.
Acquisition Strategy
As part of its business strategy, the Corporation has in the past reviewed
acquisition opportunities including those which may complement its product
lines, provide access to emerging technologies or enhance market penetration.
GDC's VITAL Network Services subsidiary acquired Olicom Inc.'s service business
in October 1998. The Corporation at this time has no understandings or
commitments to make any acquisitions, and there can be no assurances that any
acquisitions will be made.
Partnering/Divestiture Strategy
The Company's intent is to focus its resources on the three business units
(Broadband Systems Division, Network Access Division and VITAL Network
Services), to launch a new Multimedia Division and to sell or close
non-strategic assets to provide additional funds for operations and/or reduce
outstanding indebtedness of the Corporation.
On December 31, 1998 (effective as of December 22, 1998), the Company sold its
Technology Alliance Group division ("TAG"), which was identified as
non-strategic to the reorganized business units mentioned above. The division,
which developed, patented and licensed advanced modem and access technologies,
13
was principally comprised of scientists and engineers, and held rights to
certain technologies patented by the division. The sale resulted in a pre-tax
gain of approximately $9.0 million and generated cash proceeds, net of expenses,
of approximately $12.0 million. Separately, in July 1999, the Company closed a
non-strategic remote technology center in England and consolidated any
development activities considered critical in its Connecticut research and
development facility.
At September 30, 1999, the Company is offering for sale its previous and now
vacant corporate headquarters facility in Middlebury, Connecticut, and three
buildings located in Wokingham and Basildon, England.
Regarding partnering strategy, the Company would consider partnering strategy
opportunities which it believes would result in enhanced financial performance
and/or shareholder value. The Corporation at this time has no understandings or
commitments to enter into any partnering agreement, and there can be no
assurances that any such partnering agreements will be made.
Competition
The telecommunications and networking industry is intensely competitive. Many of
the Company's current and prospective competitors have greater name recognition,
a larger installed base of networking products, more extensive engineering,
manufacturing, marketing, distribution and support capabilities and greater
financial, technological and personnel resources.
Specific competitors for the Company's individual business units were referenced
earlier in the discussion. Each competitor offers a unique solution and all are
formidable competitors. The Company believes it can maintain or grow its market
share for both broadband and access products through BSD and NAD, respectively,
as well as for services offered by VITAL. However, there can be no assurance
that the Company will be able to attain this objective.
Patents and Related Rights
The Corporation presently owns approximately 60 domestic patents and has
approximately 35 additional applications pending. In addition, all of these
patents and applications have been filed in Canada; most also have been filed in
other various foreign countries. Many of those filed outside the United States
have been allowed while the remainder are pending. The Corporation believes that
certain features relating to its equipment for which it has obtained patents or
for which patent applications have been filed are important to its business, but
does not believe that its success is dependent upon its ability to obtain and
defend such patents. Because of the extensive patent coverage in the data
communications industry and the rapid issuance of new patents, certain equipment
of the Corporation may involve infringement of existing patents not known to the
Corporation.
14
Company Employee Relations
At September 30, 1999, the Corporation employed 1,118 persons, of whom 315 were
BSD positions, 135 were NAD positions, 299 were VITAL positions, 246 were
Manufacturing positions, 5 were DataComm Leasing Corporation positions, 12 were
general corporate management positions and 106 were shared support-service
positions. The shared support functions included information technology,
corporate finance, human resource management, marketing support groups,
facilities maintenance and other miscellaneous functions.
In January 2000 the Corporation reduced its workforce by more than 100 positions
as a result of the outsourcing of its manufacturing operations.
No Company employees are covered by collective bargaining agreements. The
Company has never experienced a work stoppage and considers its relations with
its employees to be good.
15
ITEM 2. PROPERTIES
The principal facilities of the Corporation are as follows:
Middlebury, Connecticut - former executive offices of the Corporation
(vacant as of September 30, 1999); a 120,000
square-foot facility owned by the
Corporation; the facility is listed for sale
or lease at September 30, 1999
Naugatuck, Connecticut - manufacturing operations, as discussed above,
and worldwide headquarters for VITAL Network
Services, L.L.C.; a 360,000 square-foot
facility owned by the Corporation
Middlebury, Connecticut - executive offices of the Corporation and
DataComm Leasing Corporation; also houses the
management teams, marketing and engineering
operations of the Broadband Systems and
Network Access divisions; a 275,000
square-foot facility leased through 2003 by
the Corporation; approximately 72,000 square
feet are subleased to a third party through
June 30, 2001
Wokingham, England - sales, service, and administrative offices
(including a parking garage) located in a
36,000 square-foot facility owned by
General DataComm Limited
Toronto, Canada - sales and administrative offices located in a
12,000 square-foot facility leased through
November 1999 by General DataComm Ltd.;
effective November 1999, operations moved to
a 3,600 square-foot facility elsewhere in
Toronto, Canada
Montreal, Canada - a 20,000 square-foot research, sales and
service facility leased through February 2000
by General DataComm Ltd.
Paris, France - sales, service and administrative offices
located in an 5,500 square-foot facility
leased through April 2006 by General DataComm
France SARL
Mexico City, Mexico - sales, service and administrative offices
located in a 3,230 square-foot facility
leased through June 14, 2001 by General
DataComm de Mexico S.A. de C.V.
16
ITEM 2. PROPERTIES (cont'd)
Basildon, England - two buildings totaling 8,500 square feet
owned by General DataComm Advanced Research
Centre Limited, whose operations were
closed in July 1999; facilities are listed
for sale or lease at September 30, 1999, one
of which was sold in late December 1999
In addition, the Corporation leases sales, service and engineering offices
throughout the United States and in international locations.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from the
section entitled "Common Stock Prices" on page 17 of the Corporation's 1999
Annual Report to Stockholders.(1)
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from the
section entitled "Five-Year Selected Financial Data" on page 8 of the
Corporation's 1999 Annual Report to Stockholders.(1)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information required by this item is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Results of Operations
and Financial Condition" on pages 9 through 17 of the Corporation's 1999 Annual
Report to Stockholders.(1)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
pages 18 through 39 of the Corporation's 1999 Annual Report to Stockholders or
is included elsewhere in this annual report on Form 10-K.(1)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
_____________________
1. Such information is also included in Exhibit 13 of this Form 10-K report as
filed with the Securities and Exchange Commission.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors is incorporated by reference from the
section "ELECTION OF DIRECTORS" in the Corporation's Proxy Statement for the
2000 Annual Meeting of Stockholders, which Proxy Statement will be filed within
120 days after the end of the Corporation's fiscal year ended September 30,
1999.
Name Position Age
- ---- -------- ---
Charles P. Johnson Chairman of the Board of Directors
and Chief Executive Officer 72
Ross A. Belson President and Chief Operating Officer 63
William G. Henry Vice President, Finance and
Chief Financial Officer 50
Frederick R. Cronin Vice President, Corporate Technology
and a Director 68
Robert S. Smith Vice President, Business Development 66
James R. Arcara Vice President, Corporate Operations 64
Dennis J. Nesler Vice President and Treasurer 56
P. John Woods President, VITAL Network Services, L.L.C. 51
Keith A. Mumford Vice President, and General Manager of the
Broadband Systems Division 35
Howard S. Modlin Secretary and a Director 68
____________________________
Mr. Charles P. Johnson, Chairman of the Board and Chief Executive Officer,
founded the Corporation in 1969.
Mr. Ross A. Belson, President and Chief Operating Officer, has served in his
present capacity since joining the Corporation in August of 1987.
19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (cont'd)
Mr. William G. Henry, Vice President, Finance and Chief Financial Officer,
joined the Corporation as Corporate Controller in January 1984, was appointed an
officer of the Corporation in June 1989, was elected Vice President in February
1996 and was promoted to his current position in February 1999.
Mr. Frederick R. Cronin, Vice President, Corporate Technology, has served in
executive capacities since the founding of the Corporation.
Mr. Robert S. Smith, Vice President, Business Development, has held positions of
major responsibility within the Corporation since its formation and has served
in executive capacities since February 1973.
Mr. James R. Arcara, Vice President, Corporate Operations, has held positions of
major responsibility within the Corporation since its formation and has served
in executive capacities since September 1978.
Mr. Dennis J. Nesler, Vice President and Treasurer since May 1987 and Treasurer
since July 1981, joined the Corporation in 1979 as Vice President of the
Corporation's wholly owned leasing subsidiary, a capacity in which he still
serves.
Mr. P. John Woods, President, VITAL Network Services, L.L.C., has been with the
Corporation since February 1993, and was appointed to his current position
effective October 1996. Before joining the Corporation, Mr. Woods held positions
with Digital Equipment Corporation and Philips.
Mr. Keith A. Mumford, Vice President and General Manager of the Corporation's
Broadband Systems Division, has been with the Corporation since 1993. He was
elected an officer in October 1998 and elected to his current position in
December 1998.
Mr. Howard S. Modlin, Secretary, an attorney and president of the firm of
Weisman Celler Spett & Modlin P.C., has been Secretary and counsel to the
Corporation since its formation.
20
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
section entitled "Executive Compensation and other Transactions with Management"
to be contained in the Corporation's Proxy Statement for its March 2, 2000
Annual Meeting.(1)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
section entitled "Security Ownership of Directors and Officers" to be contained
in the Corporation's Proxy Statement for its March 2, 2000 Annual Meeting.(1)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
section entitled "Executive Compensation and other Transactions with Management"
to be contained in the Corporation's Proxy Statement for its March 2, 2000
Annual Meeting.(1)
______________________________
1 The Corporation's Proxy Statement will be filed with the Commission within 120
days after the end of the Corporation's fiscal year ended September 30, 1999.
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements - see "Index to Financial Statements and
Schedules" on page F-1 of this report.
(2) Financial Statement Schedule - See "Index to Financial Statements and
Schedules" on page F-1 of this report.
(3) Exhibits - See Exhibit Index on page 23 of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30,
1999.
22
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (cont'd)
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Corporation (1)
3.2 Amended By-Laws of the Corporation (2)
4.1 Certificate of the Powers, Designation, Preferences, Rights and
Limitations of 9% Cumulative Convertible Exchangeable Preferred
Stock (3)
4.2 Indenture dated May 1, 1997 covering presently unissued 9%
Convertible Subordinated Debentures due 2006 (4)
4.3 Supplemental indenture, dated September 26, 1997, which amends
the May 1, 1997 Indenture covering presently unissued 9%
Convertible Subordinated Debentures due 2006 (5)
4.4 Indenture dated September 26, 1997 covering issued 7-3/4%
Convertible Senior Subordinated Debentures due 2002 (6)
10.1 Transfer of Receivables Agreement between DataComm Leasing
Corporation and Sanwa Business Credit Corporation (7)
10.2 1979 Employee Stock Purchase Plan (8)
10.3 1983 Stock Option Plan (9)
10.4 1984 Incentive Stock Option Plan, and related amendments (10)
10.5 1985 Stock Option Plan (11)
10.6 1991 Stock Option Plan (12)
10.7 1998 Stock Option Plan (13)
10.8 Retirement Savings and Deferred Profit Sharing Plan, and related
amendments (14)
10.9 Credit Agreement between General DataComm Industries, Inc. and
The Chase Manhattan Bank (15)
10.10 Loan Agreement between General DataComm Industries, Inc., et al.,
and Foothill Capital Corporation (16)
10.11 First Amendment to, and Amendment Number Two to the Loan and
Security Agreement between General DataComm Industries, Inc.,
et al., and Foothill Capital Corporation
10.12 Outsource Manufacturing and Purchase Agreement between General
DataComm, Inc. and the Matco Electronics Group, Inc.
13. Annual Report to Stockholders for the year ended September 30,
1999. Portions of the Annual Report to Stockholders for the year
ended September 30, 1999 which have been incorporated by
reference are deemed to be "filed" (and are included as Exhibit
13 in our electronic filing with the Commission). All remaining
portions of the Annual Report to Stockholders will be furnished
for the information of the Commission and are not deemed "filed"
21. Subsidiaries of the Registrant
23. Consent of Independent Accountants
_______________________
1 Incorporated by reference from Exhibit 3.1 to Form 10-Q for quarter ended
June 30, 1999.
2 Incorporated by reference from Exhibit 3.2 to Form 10-Q quarter ended
June 30, 1999.
23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (cont'd)
EXHIBIT INDEX (cont'd)
3 Incorporated by reference from Exhibit 4 to Form 8-K dated October 8,1996.
4 Incorporated by reference from Exhibit 4.1 to Form 10-Q for quarter ended
June 30, 1997.
5 Incorporated by reference from Exhibit 4.3 to Form 10-K for the year ended
September 30, 1997.
6 Incorporated by reference from Exhibit 4 to Form 8-K dated October 8, 1997
7 Incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter ended
June 30, 1989
8 Incorporated by reference from Part II of prospectus dated August 31,
1999, contained in Form S-8, Registration Statement No. 333-86229.
9 Incorporated by reference from Exhibit 1(c) to Form S-8, Registration
Statement No. 2-92929. Amendments thereto are incorporated by reference
and filed as Exhibit 10.3 to Form 10-Q for quarter ended December 31, 1987
and as Exhibit 10.3.1 to Form 10-Q for quarter ended June 30, 1991.
10 Incorporated by reference from Exhibit 1(a), Form S-8, Registration
Statement No.2-92929. Amendments thereto are incorporated by reference and
filed as Exhibit 10.2 to Form 10-Q for quarter ended June 30, 1991,
Exhibit 10.19 to Form 10-K for year ended September 30, 1987 and Exhibit
10.2 to Form 10-Q for quarter ended December 31, 1987.
11 Incorporated by reference from Exhibit 10a, Form S-8, Registration
Statement No. 33-21027. Amendments thereto are incorporated by reference
from Part II of prospectus dated August 21, 1990, contained in Form S-8,
Registration Statement No. 33-36351 and as Exhibit 10.3.2 to Form 10-Q for
quarter ended June 30, 1991.
12 Incorporated by reference from Form S-8, Registration Statement No.
333-35299.
13 Incorporated by reference from Form S-8, Registration Statement No.
333-89571
14 Incorporated by reference from Form S-8, Registration Statement No.
33-37266. Amendments thereto are incorporated by reference to Exhibit
10.16 to Form 10-Q for the quarter ended December 31, 1996.
15 Incorporated by reference from Exhibit 10.21 to Form 10-K for the year
ended September 30, 1993.
16 Incorporated by reference from Exhibit 10.1 to Form 8-K dated May 14,1999.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GENERAL DATACOMM INDUSTRIES, INC.
By: /S/ WILLIAM G. HENRY
William G. Henry
Vice President, Finance and
Principal Financial Officer
Dated: January 13, 2000
25
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/S/ CHARLES P. JOHNSON Chairman of the Board January 13, 2000
CHARLES P. JOHNSON and Chief Executive Officer
/S/ WILLIAM G. HENRY Vice President, Finance January 13, 2000
WILLIAM G. HENRY Chief Financial Officer
/S/ HOWARD S. MODLIN Director and Secretary January 13, 2000
HOWARD S. MODLIN
/S/ FREDERICK R. CRONIN Director and January 13, 2000
FREDERICK R. CRONIN Vice President, Corporate
Technology
/S/ LEE M. PASCHALL Director January 13, 2000
LEE M. PASCHALL
/S/ JOHN L. SEGALL Director January 13, 2000
JOHN L. SEGALL
26
General DataComm Industries, Inc.
and Subsidiaries
Index to Financial Statements and Schedules
Financial Statements Incorporated by Reference
The consolidated financial statements of General DataComm Industries, Inc. and
Subsidiaries and the Report of Independent Accountants related thereto are
incorporated herein by reference from pages 18 through 39 of the Corporation's
Annual Report to Stockholders for the year ended September 30, 1999. Such
information is also included in Exhibit 13 of this Form 10-K report (as filed
with the Securities and Exchange Commission). The Corporation's 1999 Annual
Report to Stockholders is not deemed to be "filed" as part of this Form 10-K
report except for those portions thereof specifically incorporated by reference.
Financial Statements and Schedule Included Page
- ------------------------------------------ ----
Report of Independent Accountants F-2
Consolidated Financial Statement Schedule:
II. Valuation and qualifying accounts for the years
ended September 30, 1999, 1998 and 1997. F-3
Financial Statements and Schedules Omitted
Financial statements and schedules other than those incorporated by reference
above or included herein are omitted because they are not required or because
the required information is presented elsewhere in the financial statements or
notes thereto.
F-1
Report of Independent Accountants
To the Shareholders and Board of Directors of General DataComm Industries, Inc.
Our report on the consolidated financial statements of General DataComm
Industries, Inc. and its subsidiaries has been incorporated by reference in this
Form 10-K from page 39 of the fiscal 1999 Annual Report to Shareholders of
General DataComm Industries, Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page F-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/S/ PricewaterhouseCoopers LLP
Stamford, Connecticut
October 29, 1999, except for Note 7 and Note 16
for which the date is December 31, 1999
F-2
General DataComm Industries, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended September 30, 1999, 1998 and 1997
(In Thousands)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses Deductions of Period
--------- ---------- ---------- ---------
(b)
1999
Allowance for doubtful
receivables (a) $1,442 $183 $250 $1,375
====== ==== ==== ======
1998
Allowance for doubtful
receivables (a) $1,703 $22 $283 $1,442
====== ==== ==== ======
1997
Allowance for doubtful
receivables (a) $1,768 $285 $350 $1,703
====== ==== ==== ======
- -------------------------------------------------
(a) Deducted from asset accounts.
(b) Uncollectible accounts written off, net of recoveries.
F-3