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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, 1996 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.)
1579 Straits Turnpike, 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 10, 1996: $205,255,611.
Number of shares of Common Stock and Class B Stock outstanding as of December
10, 1996: $205,255,611.
18,852,558 Shares of Common Stock
2,137,443 Shares of Class B Stock
DOCUMENTS INCORPORATED BY REFERENCE:
Annual Report to Stockholders for the fiscal year ended September 30, 1996 for
Part II, Items 5, 6, 7 and 8.
Corporation's Proxy Statement (dated December 10, 1996) for 1997 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 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial
Owners and Management 17
Item 13. Certain Relationships and Related
Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 18
2
PART I
ITEM 1. BUSINESS
General DataComm Industries, Inc. (the "Corporation" or "GDC") was incorporated
in 1969 under the laws of the State of Delaware. Unless the context otherwise
requires, the terms "Corporation" and "GDC" as used here and in the following
pages mean General DataComm Industries, Inc. and its subsidiaries.
Overview
GDC is a leading worldwide provider of wide area networking and
telecommunications products. The Corporation designs, assembles, markets,
installs and maintains products and services that enable telecommunications
common carriers, corporations and governments to build, upgrade and better
manage their global telecommunications networks. Products include Asynchronous
Transfer Mode ("ATM") cell switches, multiplexers, internetworking equipment,
digital data sets, analog modems, network management systems and comprehensive
support services. The Corporation sells and leases its products through its own
worldwide sales and service organizations, as well as through distributors,
value-added resellers and system integrators.
GDC's customer base includes: Local Exchange Carriers including all seven
Regional Bell Operating Companies, Bell Canada and GTE; Competitive Access
Providers including MFS Datanet; Interexchange Carriers including AT&T, MCI and
Sprint; corporate end users such as American Airlines, Citicorp, EDS, Chrysler,
Amoco, Hitachi and Hong Kong & Shanghai Bank; government entities including the
British Ministry of Defence, the French Ministry of State, NASA, the U.S. State
Department and many state and local governments; and international communication
carriers such as Impsat (Argentina and Colombia), Telefonos de Mexico, France
Telecom and Deutsche Telekom, and suppliers of central office switching
equipment such as Lucent Technologies, LM Ericsson and DSC Communications.
The Corporation's executive offices are located at 1579 Straits Turnpike,
Middlebury, Connecticut, 06762-1299 and its telephone number is (203) 574-1118.
Strategy
The Corporation's broad product line provides integrated networking solutions
used to construct global data, voice and video communications networks. The
Corporation's core product line of multiplexers and internetworking equipment,
digital data sets and analog modems has historically combined advanced wide area
networking technology with analog and digital transmission capabilities. During
the last several years the Corporation has emphasized its digital product
offerings over its analog products as telephone companies upgrade their
transmission facilities and offer new digital services at substantially lower
rates.
In the early 1990s, the Corporation identified ATM technology as the preferred
solution for addressing problems caused by the increasing limitations of
conventional Local Area Network ("LAN") and Wide Area Network ("WAN")
technologies. ATM provides a dramatic increase in network capacity, carrying
both LAN and WAN traffic faster than conventional networking technologies. ATM
also enables the transmission of voice, video and high-speed data traffic on a
single communications line. After reviewing various strategic alternatives for
entering the ATM market, the Corporation entered into a distribution and
technology transfer agreement with Netcomm Limited ("Netcomm") in December 1992.
The Corporation subsequently acquired Netcomm in 1993.
By offering ATM solutions to its customers, the Corporation believes it has
enhanced its position as a leading supplier of wide area networking and
telecommunications products. The Corporation's strategy of providing integrated
solutions to its customers is based upon the following:
3
Capitalizing on ATM Technology. The Corporation believes it has a leading
position in the ATM switch market. The following entities have deployed GDC's
ATM cell switches in their ATM networks: Bell Canada; MCI; MFS Datanet; France
Telecom and Deutsche Telekom. As of September 30, 1996, GDC, including Netcomm,
had shipped approximately 1,000 ATM switches and related products to a variety
of customers in approximately 30 countries. Additionally, the Corporation has
shipped non-revenue products for trial and evaluation. The Corporation also
believes that growing market awareness of its ATM switch technology has
increased customer exposure to GDC's other products.
Providing Cost-Effective Flexible Product Solutions. The Corporation's product
families are designed with architectures that scale to most network sizes and
cost requirements. Customers can select the products that are most appropriate
for their needs and migrate to higher capacity products over time.
Standardization of a network management protocol across product families allows
the end user to utilize a single network management system, which provides
value-added capabilities such as extensive alarm reporting, diagnostics and
advanced service restoral options for each circuit and unit of equipment in the
network.
Improving Performance of Customer Networks. The Corporation's products are
designed to improve network efficiency by increasing transmission speed,
compressing and consolidating voice and data communication and providing dynamic
bandwidth allocation.
Leveraging Global Customer Base, Distribution and Support. The Corporation has a
worldwide customer base of corporate and government users and telecommunications
carriers. The Corporation has global distribution capabilities and products
installed in more than 60 countries around the world. GDC's ability to provide
international customer service and support is crucial to customers that run
mission-critical applications over their networks.
ATM Market
Background. Improvements in microprocessor technology over the past several
years have significantly changed the way users design and build communications
networks. Corporations are migrating away from mainframe centric computer
networks and moving to client/server architectures in which increasing
processing power is located on the desktop. Personal computers ("PCs") and
workstations are connected together to form LANs, and large corporations today
may have up to several hundred LANs within their enterprise. LANs typically use
shared medium technologies like Ethernet, Token Ring and Fiber Distributed Data
Interface. These LAN technologies require that all users contend for the
available bandwidth and consequently, as the number of users increases,
throughput decreases. In addition, users find that shared medium LANs cannot
provide the bandwidth necessary to support today's powerful PCs running
communication-intensive applications. As a result, switched-connection
architecture is now being implemented in the LAN with several competing
technologies, including ATM, vying for the business.
WANs present an additional bottleneck constraining greater deployment of
enterprise-wide networks. The underlying WAN architecture of the telephone
companies is optimized for low speed, constant bit-rate voice communications. It
does not scale well to accommodate high-speed, burst-oriented data
communications typical of a LAN. To address this problem, telecommunications
carriers have deployed fiber optic transmission facilities in their networks
over the past decade and are beginning to, or have announced their intention to,
test and deploy ATM switches as the platform of choice for offering new,
value-added services to their customers. The need for more bandwidth in both the
LAN and WAN environments to support current data processing and networking
applications is a key factor driving demand for ATM products. Increasing numbers
of applications combining voice, video and data will demand even more bandwidth
than current applications.
4
ATM Segments. Although currently in the "early adopter" phase of deployment,
ATM is expected to become a leading transmission technology for communications
networks. Within the broader ATM market, the Corporation has identified the five
distinct segments described below and has chosen to pursue the enterprise, edge
switch and edge concentration switch segments.
Workgroup Hub. ATM workgroup hubs are devices used to connect high-speed
workstations and servers to form a high performance, local computing
environment. The Corporation expects switched Ethernet and virtual LAN
architectures to be the dominant approaches to creating this
high-performance local computing environment and anticipates a gradual
migration to ATM desktop connectivity. GDC intends to address this market
segment through partnerships or potential acquisitions in order to provide
a timely entrance into this market.
Enterprise Switch. Enterprise switches are used to interconnect a broad range of
customer premise equipment, including LAN hubs, routers, multiplexers, PBXs
and video codecs, across a campus or a more geographically dispersed area
to create high-speed backbone networks linking major corporate locations.
Key market requirements include a fault tolerant architecture and the
ability to support a broad range of interfaces and adaptation capabilities
for new, as well as legacy, technologies.
Edge Switch. The telecommunications carrier edge switch is typically
located in the central office of a Local Exchange Carrier, an
Interexchange Carrier, a Competitive Access Provider or a Cable
Television Operator. Switches are used as platforms to provide
services to a number of end user locations. Common carriers also
utilize these switches in the basements of customer buildings to offer
new services to multiple customers. As with the enterprise switch
market, fault tolerance and the ability to support a broad range of
interfaces and adaptation capabilities are key requirements because
carriers need maximum flexibility. In addition, the unique packaging
and environmental requirements of telecommunications carriers must be
met.
Edge Concentration Switch. The Edge Concentration switch provides an
intermediate level of cell switching in a network without requiring the
carrier to make massive investments in large core switches. Whereas the
primary function of an edge switch is adaptation, the primary functions of
an Edge Concentration switch are fast, high capacity cell switching,
traffic management and very high capacity up-links to the core network.
This switch must be fault tolerant and must meet the unique packaging and
environmental requirements of telecommunications carriers.
Central Office Switch. At many large central offices, all traffic in the network
hierarchy has been converted into ATM cells and the required switches must
provide up to hundreds of gigabits of throughput. GDC does not intend to
address this market directly as the Corporation views the development costs
of these switches to be high and believes this market is currently served
by established central office switching providers. Rather, the Corporation
has developed strategic partnerships with participants in this market, such
as Lucent Technologies, Ericsson and DSC Communications Corporation, as a
vehicle for enhancing its position in the edge, enterprise and edge
concentration switch markets.
GDC's Target ATM Segments. The enterprise, edge switch and edge concentration
switch markets, which the Corporation is pursuing, address the points in a
network where LAN, voice, video and other data applications converge with WANs
and the greatest bandwidth bottlenecks exist. The Corporation also believes
that, at present, these three market segments are not adequately served by any
established vendors due to a lack of sufficient proven tested products by other
vendors.
5
Products
In fiscal 1996, sales and leases of products represented approximately 83% of
revenues while service revenues represented about 17% of revenues. GDC's line of
products includes:
Multiplexers/Internetworking Products. GDC's multiplexer and internetworking
products 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 (1.5 Mbps)/E1 (2.0 Mbps) and
T1/E1) digital services operating up to 2 Mbps. By consolidating multiple forms
of traffic over a single transmission line, these products dramatically decrease
an end user's network costs. The Corporation's products integrate both time
division multiplexing and packet switching (LAN routing and frame relay
switching), thereby providing a flexible networking platform.
For corporate backbone locations, the Corporation offers the TMS 3000 which
supports a wide range of voice, facsimile, LAN, traditional data and video
applications. In April 1993, GDC introduced the Office Communications Manager
("OCM"), a cost-effective networking solution for the branch office location,
which offers the integration of voice, LAN routing, frame relay and traditional
data at speeds ranging from 9.6 Kbps to T1/E1. In June, 1996, GDC introduced the
Metroplex 6000, an intelligent access multiplexer designed for cost-effective
access to a variety of data and voice services that can feed into the corporate
backbone.
In September 1996, GDC introduced the North American version of Universal Access
System 7000 ("UAS 7000"), a service provisioning multiplexer that allows service
providers to deliver digital services over copper loop systems, and reduce cost
and service provisioning time. UAS 7000 has previously been sold in
international markets earlier in 1996.
In corporate backbone environments requiring broadband speeds and services, the
Corporation's APEX ATM switches can be used. The TMS 3000 and OCM can feed into
the APEX switch enabling the Corporation to offer an integrated networking
solution that scales from small remote or branch locations into regional
wideband backbones and ultimately into ATM-based broadband backbones.
Selling prices vary widely depending upon the size and complexity of the system
being ordered.
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. The Corporation offers a broad
set of narrowband digital data sets that run at various speeds up to 64 Kbps and
wideband digital data sets operating at fractional T1 (FT1) and T1 speeds. In
September 1996, GDC introduced the Desktop 554A, a full featured single port
T1/FT1 Channel Service Unit/Data Service Unit (CSU/DSU),for applications, such
as LAN bridging/routing to multiplexers, video teleconferencing, CAD/CAM and
medical imaging, that demand the speed and performance offered by today's
cost-effective FT1 services. GDC recently introduced broadband data sets running
at T3 (45 Mbps) rates. GDC supplies its digital data sets to major North
American telephone companies and various end users. GDC 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 the Corporation to
offer differentiated and, in some cases, unique transmission solutions.
The Corporation is leveraging its digital transmission expertise by pursuing
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. The Corporation is responding to
these needs by offering new products utilizing transmission technologies like
2B1Q (Two Binary One Quarternary) and HDSL (High Speed Digital Subscriber Line).
These products offer much higher transmission speeds while using half of the
copper wire pairs normally needed to provision private line services.
6
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 market for
dial-up modems is continuing to grow. The Corporation offers a broad range of
private line and dial-up analog modems operating at all standard speeds up to
33.6 Kbps.
GDC began shipments of its new modem family, known as the V.F. 28.8 family, in
the first quarter of fiscal 1994. These modems, which comply with the global
transmission standard V.34, offer transmission speeds twice as fast as modems
conforming to any pre-V.34 standards with throughputs of up to 115 Kbps over
basic analog dial-up facilities or over two-wire analog private line circuits.
The V.F. 28.8 enables faster transmission speeds on a single pair of wires
whereas traditional analog provisioning requires two pairs. During fiscal 1995,
the Corporation added standards-based SNMP (Simple Network Management Protocol)
network management capability to its V.34 modems. These modems are sold through
direct and indirect sales channels throughout the world.
In fiscal 1995 and 1996, the Corporation entered into technology licensing
agreements whereby licensees, including certain semiconductor manufacturers who
produce V.34 modem-integrated circuit chips for the mass modem market, pay the
Corporation license fees for the use or sale of specific V.34 patented
technology. During fiscal 1996, the Corporation received technology licensing
fees for the use of its technology and revenues from the sale of computer
chips.
ATM Switches and Network Management Systems. The Corporation currently offers a
family of ATM switches and access products for both public and private networks
under the GDC APEX name. The APEX product line consists of the APEX-DV2, the
APEX-NPX, the APEX-MAC and the APEX-MAC1. In September 1996, the Company
introduced APEX-STROBOS which addresses the edge concentration switch market.
This product is expected to be deliverable in 1997.
GDC introduced the APEX-MMS (Multimedia Multipoint Server), the industry's first
"any band" Multipoint Control Unit in September 1996. Part of the ATM
broadband family, it can operate on any band (narrow, wide and broad), and
provide audio, video and data-intensive applications like videoconferencing,
telemedicine and distance education. Wide area transport is provided via the
shared APEX VIP(TM) family of integrated codecs within the APEX Switch.
Switch Specifications Targeted Segment
APEX-STROBOS Provides up to 25.6 Gbps of Edge concentration switch
capacity and support for up for common carriers,
to 32 ports of OC-12 links including telephone and
within a single shelf, cable television companies.
utilizing DC power supplies.
APEX-DV2 Provides up to 6.4 Gbps of Enterprise switch for corporate
capacity and support for up and government users.
to 64 ports within a single
shelf, utilizing AC power
supplies.
APEX-NPX Provides up to 6.4 Gbps of Edge switch for common carriers,
capacity and support for up including telephone and cable
to 64 ports within a single television companies.
shelf, utilizing DC power
supplies.
7
APEX-MAC Provides up to 2.8 Gbps of Lower capacity enterprise switch
capacity and support for 14 to for corporate and government users
28 ports within a single shelf. and common carriers.
APEX-MAC1 Provides up to 1.6 Gbps of Access concentrator for corporate
capacity and support for 8 to and government users and common
16 ports within a single enclosure. carriers.
GDC's APEX-NMS 3000 Network Management System supports the Corporation's
APEX-ATM switches. The network management platform offers a powerful UNIX-based,
object-oriented system employing a graphical user interface for ATM network
management via the industry-standard Simple Network Management Protocol. The
APEX-NMS 3000 enables a network manager to configure APEX switches and monitor
the ATM switch network, the capacity and utilization of each ATM node and the
status of each other component of the network. In September 1996, GDC introduced
the APEX-ProSphere network management software for the complete line of APEX ATM
Switches. APEX-ProSphere enables network managers to build and administer ATM
networks using point-and-click Graphical User Interface applications.
Several major carriers have begun deploying GDC-APEX ATM switches as their
platform for provisioning new data communications services. A number of
corporate customers also have purchased APEX switches. The Corporation believes
its family of APEX switches have the following competitive features:
- Scalability, allowing a customer to construct a multi-tiered switch network
that scales in price and performance.
- Flexibility, providing the customer with comprehensive interfaces and
adaptation capabilities.
- Traffic management architecture, providing networks with traffic policing,
traffic prioritization and buffer management capabilities.
- Switched virtual circuits, dynamically establishing connections on an
end-to-end basis.
Selling prices vary directly with the size and complexity of the systems being
ordered.
Acquisition Strategy
As part of its business strategy, the Corporation actively reviews acquisition
opportunities, including those which may complement its product lines, provide
access to emerging technologies or enhance market penetration. In November 1993,
the Corporation acquired Netcomm for $5.5 million in cash and $1.8 million in
Common Stock. Future acquisitions could be for stock or cash or a combination
thereof and could be substantially larger than past acquisitions. 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.
Marketing, Sales and Customers
The Corporation's products and networks are marketed throughout the world. GDC's
sales and marketing organization, which, at September 30, 1996 consisted of 457
employees, is organized on a worldwide basis to address three market segments:
(1) corporate and government end users and Competitive Access Providers; (2)
local and long distance telephone companies and Internet Service Provdiers; and
(3) indirect sales through original equipment manufacturers, value-added
resellers and distributors. In the United States, the Corporation sells, leases
and services its equipment primarily through its own sales and service groups,
which include separate sales and technical support organizations to address each
of the market segments. No single customer accounted for 10% or more of the
Corporation's revenues during any of the past three fiscal years.
8
Internationally, GDC maintains full subsidiary operations in Canada (sales and
service), the United Kingdom (sales and service), Mexico (sales and service),
France (sales and service), Germany (sales and service), Australia (sales),
Singapore (sales and service) and Russia (sales), and sales and technical
support offices in Japan, Hong Kong, China, Argentina, Brazil, England, Scotland
and Sweden. In addition, GDC maintains a worldwide distributor network with
representatives in more than 60 countries. International operations represented
approximately 46% of the Corporation's revenues in fiscal 1996. GDC's foreign
operations are subject to all the various risks inherent in operating outside
the U.S.
Selected users of the Corporation's products include:
Telecommunications Commercial Financial Services
- ------------------ ---------- ------------------
Alascom American Airlines Boatmen's Bancshares
Ameritech Burlington Northern/Santa Fe Cecoban (Mexico)
AT&T Chrysler Citicorp
Bell Atlantic EDS Fiserv
Bell Canada Harris Hong Kong & Shanghai Bank
BellSouth Hitachi Key Services
British Telecom Lockheed Quotron Systems
Deutsche Telekom Loral Shawmut Bank
France Telecom Telerate Systems
Guangdong PTA (China) Government Wheat First Butcher
GTE ---------- & Singer
Impsat (Argentina, British Ministry of Defense
Columbia) French Ministry of Defense Suppliers
MCI Los Angeles, City and County ---------
MFS Datanet NASA DSC Communications
Netherlands PTT New York City Transit Authority LM Ericsson
NYNEX U.S. State Department Lucent Technologies
Pacific Bell Various state governments, including
SNET California, Florida, Iowa,Kentucky
Southwestern Bell Michigan, Ohio and Texas
Sprint
Telefonos de Mexico
US West
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. At September 30, 1996, the
Corporation's leasing subsidiary had agreements in place with financial
institutions whereby lease receivables can be transferred with full recourse.
Each request for financing is subject to the approval of the financing
institution.
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.
9
Industry and geographic area information is included in Note 10 of "Notes
to Consolidated Financial Statements." See "Index to Financial Statements and
Schedules" on page F-1 in this report.
Customer Service and Support
GDC provides comprehensive technical support crucial for its telecommunications
carrier, corporate and government customers that run mission-critical
applications over their networks. Each of the Corporation's sales subsidiaries
directly provides its own support capabilities, augmented by third party service
providers when necessary. Authorized distributors provide their own support
services and participate in service certification programs administered by the
Corporation's global services division.
The Corporation's service and support programs include product repair, logistics
support, installation, maintenance, educational services, on-line network
management, and other professional services. Services are supported by field
service engineers, technical support staff and Technical Operations and
Assistance Centers ("TOAC") located in the U.S., Canada, Mexico, England and
Singapore. TOACs in the U.S. and United Kingdom are staffed 24 hours a day, 365
days a year. The Corporation offers various value added services, including
First ResponseTM, an outsourcing service by which TOAC Technicians monitor and
manage customer networks on a remote basis. Customers of GDC's service and
support programs include Bell South, New York City Transit Authority, the State
of Michigan and Volvo. At September 30, 1996, GDC had 311 people engaged in
services and support activities.
Research, Engineering and Product Development
In order to develop and implement new technology in the data, voice and video
communications industry and to broaden the applications for its products, the
Corporation has significant ongoing engineering programs for product improvement
and new product development. At September 30, 1996, 414 employees were engaged
in research and development activities. To expand its pool of available talent,
the Corporation conducts research and development activities in four locations.
In addition, the Corporation utilizes contractors and outside developers for
product development. Development for all transmission products, multiplexer and
internetworking products, enhancements to the APEX-ATM switch products and
continuation engineering activities occur in the Technology Research Center in
Middlebury, Connecticut. The Multimedia Research Center in Montreal, Quebec,
focuses on ATM-based video and multimedia applications and solutions. The Boston
Research Center in Marlboro, Massachusetts, focuses on LAN-to-ATM and IP
(Internet Protocol) switching applications using APEX-ATM products, and the
Advanced Research Centre in Basildon, England, focuses on next-generation ATM
hardware and software.
The combination of research, development and capitalized software spending
amounted to 19.4%, 18.3% and 15.7% of revenues in fiscal 1996, 1995 and 1994,
respectively. In order to support its commitment to new products and
technologies, the Corporation expects to continue a high level of spending on
research and product and software development.
Manufacturing
GDC's principal assembly plant is a Corporation-owned, 360,000 square foot
facility located in Naugatuck, Connecticut, of which approximately 60% is
currently being utilized for manufacturing (25% is used for other GDC
operations and 15% is vacant). The Corporation also outsources the manufacturing
and assembly of certain subassemblies, generally high volume circuit boards and
power and packaging items. Outsourced products represented approximately 29% of
the manufacturing assembly during the 1996 fiscal year.
10
GDC's Connecticut facilities are ISO 9001 certified. ISO 9001 is a comprehensive
model for quality assurance in design/development, production, installation and
servicing. It was developed by a technical committee comprised of
representatives from over 90 countries under the direction of the Geneva-based
International Organization for Standardization. GDC's United Kingdom facilities
are BS 5750 certified. Awarded by the British Standards Institute, BS 5750 also
is a comprehensive quality assurance model. The Corporation's Montreal, Canada
sales and service facility received ISO 9002 certification in October 1995. ISO
9002 covers quality assurance in production, installation and servicing; it does
not cover design and development.
Competition
Each segment of the telecommunications and networking industries is intensely
competitive. Many of the Corporation'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.
Many of the participants in the networking industry, including, among others,
ADC Telecommunications, Bay Networks, Cascade Communications, Cisco, ECI
Telecom, FORE Systems and Newbridge Networks and certain participants in the
computer industry, including among others, DEC and IBM, have introduced, or
announced their intention to develop, ATM networking products. Other companies
are expected to follow. In addition, traditional suppliers of central office
switching equipment such as Alcatel, Lucent Technologies, DSC Communications
Corporation, Fujitsu, Hitachi, LM Ericsson, Northern Telecom and Siemens, are
expected to offer ATM-based switches for central offices. Companies may also
develop alternative network solutions to ATM. Even though certain of these ATM
competitors currently offer or plan to offer ATM products in markets in which
the Corporation does not plan to compete, it is possible that such competitors
will develop ATM technology that does compete with the Corporation's products.
This competition could result in the same intense price competition that is
present in the broader networking market.
Patents and Related Rights
The Corporation presently owns approximately 63 domestic patents and has
approximately 11 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. Most 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.
Employee Relations
At September 30, 1996, the Corporation employed 1,849 persons, of whom 414 were
research and development personnel, 503 were manufacturing personnel, 457 were
employed in various selling and marketing activities, 311 were in customer
support services and 164 were in general and administrative activities.
No Corporation employees are covered by collective bargaining agreements. The
Corporation has never experienced a work stoppage and considers its relations
with its employees to be good.
11
Reliance on Key Components
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. The suppliers of components do
not operate under contract. The Corporation's inability to obtain a sufficient
quantity of components as 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.
ITEM 2. PROPERTIES
The principal facilities of the Corporation are as follows:
Middlebury, Connecticut -- executive offices of the Corporation and Data-
Comm Leasing Corporation located in a 120,000
square foot facility owned by the Corporation
Naugatuck, Connecticut -- principal assembly, test and systems integration
operations and global services division located in a
360,000 square foot facility owned by the
Corporation
Middlebury, Connecticut -- engineering organization located in a 275,000
square foot facility leased through 2003 by the
Corporation; approximately 72,000 square feet are
sub-leased to a third party through December 1999
Wokingham, England -- sales, service, systems integration 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 2004
by General DataComm Ltd.
Montreal, Canada -- a 20,000 square foot research, sales and service
facility leased through February 2000 by General
DataComm Ltd.
Paris, France -- sales and administrative offices located in an 11,000
square foot facility leased through April 1997 by
General DataComm France SARL
Mexico City, Mexico -- sales, service and administrative offices located in a
4,500 square foot facility leased through August 14,
1997 by General DataComm de Mexico S.A. de C.V.
12
ITEM 2. PROPERTIES (cont'd)
Basildon, England -- engineering organization located in an 8,500 square
foot facility owned by General DataComm Advanced
Research Centre Limited
In addition, the Corporation leases sales, service and engineering offices
throughout the United States and in international locations.
Approximately sixty (60) percent of the 360,000 square-foot Naugatuck,
Connecticut, facility is being utilized by the Corporation's manufacturing
(assembly, test and systems integration) operations. The plant is currently
operating at 37% utilization by running partial first and second shifts. With
two full shifts, the aggregate productive capacity would be approximately
565,000 printed circuit boards per year. The Corporation has the capability of
adding a third shift should product demand require it.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
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 19 of the Corporation's 1996
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 1 of the
Corporation's 1996 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 15 through 19 of the Corporation's 1996 Annual
Report to Stockholders. (1)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from pages 20
through 33 of the Corporation's 1996 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.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors is incorporated by reference from the
section entitled "ELECTION OF DIRECTORS" in the Corporation's Proxy Statement
for the 1997 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, 1996.
Name Position Age
Charles P. Johnson Chairman of the Board of Directors 69
and Chief Executive Officer
Ross A. Belson President and Chief Operating Officer 60
Frederick R. Cronin Vice President, Corporate Technology
and a Director 65
Robert S. Smith Vice President, Business Development 63
William S. Lawrence Senior Vice President, Finance and
Chief Financial Officer 53
James R. Arcara Vice President, Corporate Operations 61
Dennis J. Nesler Vice President and Treasurer 53
William G. Henry Vice President and Corporate Controller 47
August J. Hof Vice President, Manufacturing Operations 46
V. Jay Damiano Senior Vice President, U.S. Sales 51
Robert H. Dorion, Jr. Vice President, Human Resources 42
Lloyd Atkinson Vice President, Marketing 52
Howard S. Modlin Secretary and a Director 64
- -----------------------
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.
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.
15
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (cont'd)
Mr. William S. Lawrence, Senior Vice President, Finance and Chief Financial
Officer, served as Vice President, Finance and Chief Financial Officer since
joining the Company in April 1977, until February 1996 when he was appointed
Senior Vice President, Finance and Chief Financial Officer.
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. William G. Henry, Vice President and Corporate Controller, joined the
Corporation as Corporate Controller in January 1984, was appointed an officer of
the Corporation in June 1989 and was appointed Vice President and Corporate
Controller in February 1996.
Mr. August J. Hof, Vice President, Manufacturing Operations since June 1989,
joined the Corporation in 1985 as Printed Circuit Board Plant Manager.
Mr. V. Jay Damiano, Senior Vice President, U.S. Sales, was elected an officer of
the Corporation in August 1993. He joined the Corporation in the sales
organization in 1984 and has held positions of increasing responsibility since
that time.
Mr. Robert H. Dorion, Jr., Vice President, Human Resources, joined the
Corporation in May 1995 and was elected an officer of the Corporation in June
1995. Before that time, Mr. Dorion held human resource management roles with
Wang Laboratories and Morton International.
Mr. Lloyd Atkinson, Vice President, Marketing, has been with the Corporation
since October 1995, and was elected to his current position effective June 1996.
Before joining the Corporation, Mr. Atkinson held positions with Digital
Equipment Corporation (18 years) and Timeplex.
Mr. Howard S. Modlin, Secretary, an attorney and member of the firm of Weisman,
Celler Spett & Modlin, P.C., has been Secretary and counsel to the Corporation
since its formation.
16
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"
in the Corporations's Proxy Statement dated December 10, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requried by Item 12 is incorporated by reference from the
section entitled "Security Ownership of Directors and Officers" in the
Corporations's Proxy Statement dated December 10, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requried by Item 13 is incorporated by reference from the
section entitled "Executive Compensation and Other Transactions with Management"
in the Corporations's Proxy Statement dated December 10, 1996.
17
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 19 of this report.
(b) Reports on Form 8-K.
On October 8, 1996, the Corporation filed a Report on Form 8-K reporting
the sale of 800,000 shares of new 9% Cumulative Convertible Exchangeable
Preferred Stock at $25.00 a share to a group of qualified institutional
buyers (780,000 shares) and its Chairman, Mr. Charles P. Johnson (20,000
shares).
18
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 and Restated By-Laws of the Corporation.2
10.1 Transfer of Receivables Agreement between DataComm Leasing
Corporation and Sanwa Business Credit Corporation.3
10.2 1979 Employee Stock Purchase Plan.4
10.3 1983 Stock Option Plan.5
10.4 1984 Incentive Stock Option Plan.6
10.5 1985 Stock Option Plan.7
10.6 Amendment to the 1984 Incentive Stock Option Plan.8
10.7 Amendments to the 1984 Incentive Stock Option Plan.9
10.8 Retirement Savings and Deferred Profit Sharing Plan.10
10.9 1991 Stock Option Plan.11
10.10 Credit Agreement between General DataComm Industries, Inc. and
The Chase Manhattan Bank.12
10.11 Third Amended and Restated Revolving Credit and Security
Agreement between General DataComm Industries, Inc. et al.
and The Bank of New York Commercial Corporation et al.13
10.12 Amendment No. 1 to Third Amended and Restated Revolving Credit
and Security Agreement between General DataComm Industries, Inc.
et al. and The Bank of New York Commercial Corporation et al.14
10.13 Amendment No. 2 to Third Amended and Restated Revolving Credit
and Security Agreement between General DataComm Industries,
Inc. et al. and The Bank of New York Commercial Corporation
et al.15
10.14 Amendment No. 3 to Third Amended and Restated Revolving Credit
and Security Agreement between General DataComm Industries,
Inc. et al. and The Bank of New York Commercial Corporation et
al.
10.15 Amendment No. 4 to Third Amended and Restated Revolving Credit
and Security Agreement between General DataComm Industries,
Inc. et al.and The Bank of New York Commercial Corporation et al.
11. Calculation of (Loss) Per Share for the fiscal years ended
September 30, 1994 through 1996, inclusive.
12. Calculation of Current Ratio.
13. Annual Report to Stockholders for the year ended September 30,
1996. Portions of the Annual Report to Stockholders for the year
ended September 30, 1996 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, 1988. Amendments thereto are filed as Exhibit 3.1 to Form 10-Q for
quarter ended March 31, 1990.
2 Incorporated by reference from Exhibit 3.2 to Form 10-K for year ended
September 30, 1987.
3 Incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter
ended June 30, 1989.
19
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(cont'd)
EXHIBIT INDEX (cont'd)
-------------
4 1979 Employee Stock Purchase Plan is incorporated by reference from
Part II of prospectus dated September 30, 1991, contained in Form S-8,
Registration Statement No. 33-43050.
5 Incorporated by reference from Exhibit 1(c) to Form S-8,
Registration Statement No. 2-92929. Amendments thereto are 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.
6 Incorporated by reference from Exhibit 1(a), Form S-8, Registration
Statement No.2-92929. Amendment thereto is filed as Exhibit 10.2 to Form
10-Q for quarter ended June 30, 1991.
7 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.
8 Incorporated by reference from Exhibit 10.19 to Form 10-K for year
ended September 30, 1987.
9 Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter
ended December 31, 1987.
10 Incorporated by reference from Form S-8, Registration Statement No.
33-37266.
11 Incorporated by reference from Form S-8, Registration Statement No.
33-53150, from Form S-8, Registration Statement No. 33-62716, from Form
S-8, Registration Statement No. 33-53201 and from Form S-8, Registration
Statement No. 33-59573.
12 Incorporated by reference from Exhibit 10.21 to Form 10-K for the year
ended September 30, 1993.
13 Incorporated by reference from Exhibit 10.14 to Form 10-K for year
ended September 30, 1995.
14 Incorporated by reference from Exhibit 10.15 to Form 10-Q for quarter ended
June 30, 1996
15 Incorporated by reference from Exhibit 10.16 to Form 10-Q for quarter ended
June 30, 1996
20
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 S. Lawrence
WILLIAM S. LAWRENCE
Senior Vice President, Finance
and Principal Financial Officer
Dated: December 20, 1996
21
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 December 20, 1996
CHARLES P. JOHNSON and Chief Executive Officer
/s/ William S. Lawrence Senior Vice President, December 20, 1996
WILLIAM S. LAWRENCE Finance and Principal
Financial Officer
/s/ William G. Henry Vice President and December 20, 1996
WILLIAM G. HENRY Corporate Controller
/s/ Howard S. Modlin Director and Secretary December 20, 1996
HOWARD S. MODLIN
/s/ Lee M. Paschall Director December 20, 1996
LEE M. PASCHALL
/s/ Frederick R. Cronin Director and December 20, 1996
FREDERICK R. CRONIN Vice President, Corporate
Technology
/s/ John L. Segall Director December 20, 1996
JOHN L. SEGALL
22
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
subsisidaries and the Report of Independent Accountants related thereto are
incorporated herein by reference from pages 20 through 33 of the Corporation's
Annual Report to Stockholders for the year ended September 30, 1996. 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 1996 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 Schedules:
II. Valuation and qualifying accounts for the years
ended September 30, 1996, 1995 and 1994. 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 Stockholders and Board of Directors of General DataComm Industries, Inc.
Our report on the consolidated financial statements of General DataComm
Industries, Inc. and Subsidiaries has been incorporated by reference in this
Form 10-K from page 33 of the Annual Report to Shareholders of General DataComm
Industries, Inc. and Subsididaries for the year ended September 30, 1996
(Exhibit 13). 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.
COOPERS & LYBRAND, L.L.P.
Stamford, Connecticut
October 21, 1996
F-2
General DataComm Industries, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended September 30, 1996, 1995 and 1994
(In Thousands)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses Deductions of Period
--------- ---------- ---------- ----------
(b)
1996
Allowance for doubtful
receivables (a) $1,704 $121 $57 $1,768
====== ==== === ======
1995
Allowance for doubtful
receivables (a) $1,618 $252 $166 $1,704
====== ==== ==== ======
1994
Allowance for doubtful
receivables (a) $1,575 $339 $296 $1,618
====== ==== ==== ======
- ---------------------------------
(a) Deducted from asset accounts.
(b) Uncollectible accounts written off, net of recoveries.
F-3