Back to GetFilings.com
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, 1997 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 November 28, 1997: $99,584,237.
Number of shares of Common Stock and Class B Stock outstanding as of November
28, 1997:
19,252,317 Shares of Common Stock
2,136,933 Shares of Class B Stock
DOCUMENTS INCORPORATED BY REFERENCE:
Annual Report to Stockholders for the fiscal year ended September 30, 1997 for
Part II, Items 5, 6, 7 and 8. Corporation's Proxy Statement (dated December 10,
1997) for the 1998 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 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
2
PART I
ITEM 1. BUSINESS
General DataComm Industries, Inc. (the "Company", "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
General DataComm Industries, Inc. is a provider of internetworking and
telecommunications equipment. Based in Middlebury, Connecticut, the Company is a
Delaware corporation that was incorporated in 1969. 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, governments and corporations to better and more cost effectively
manage their global telecommunications networks. 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 OEMs, integrators, local distributors and value-added
resellers. The Company's products are assembled primarily in its Naugatuck,
Connecticut facility.
The Company's customer base includes: Local Exchange Carriers, including all
seven Regional Bell Operating Companies, Bell Canada and GTE; Competitive Access
Providers including WorldCom/MFS; Interexchange Carriers including AT&T, MCI and
Sprint; corporate end users such as American Airlines, Citicorp, EDS, Chrysler,
and Hong Kong & Shanghai Bank; government entities including the British
Ministry of Defense, the French Ministry of State, NASA, the U.S. State
Department and many state and local governments; international communications
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 and LM Ericsson.
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 Company has concentrated its efforts on providing integrated networking
solutions and uses its access, multiplexing and ATM products to construct global
data, voice and video communications networks. The Company has added ATM and
Intelligent Access products to its core product line of multiplexers and
internetworking equipment, digital data sets and analog modems and has
introduced an end-to-end, multiservice architecture for wide area networking
solutions.
In the early 1990's, the Company identified ATM technology as the preferred
solution for addressing need for higher network bandwidth to support new data
and multimedia applications such as Internet services, telemedicine,
videoconferencing and distance learning. ATM provides a significant increase in
network capacity, carrying both conventional Local Area Network ("LAN") and Wide
Area Network ("WAN") technologies traffic faster and more efficiently than
conventional networking technologies. ATM, as a broadband technology, also
enables the transmission of voice, video and high-speed data traffic on a single
communications line.
3
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. The Company's strategy of providing integrated
solutions to its customers rests upon:
Capitalizing on ATM Technology. The Company believes it has a leading
position in the edge switch ATM switch market. The following entities have
deployed GDC's ATM cell switches in their ATM networks: Bell Canada, MCI,
France Telecom, Deutsche Telekom, Chrysler and Burlington Northern. Through
OEMs and reseller channels, GDC APEX switches have been supplied to
Netherlands PTT, Telefonica de Espana (Spain) and Telia (Swedish telephone
company).
France Telecom, Deutsche Telekom and Netherlands PPT have each built out
their multiservice networks to over one hundred APEX switches that provide
for LAN interconnect, voice, frame relay and Internet services.
Providing Cost-Effective Flexible Product Solutions. The Company's product
families are designed with architectures that scale to most network sizes,
performance and cost requirements. Customers can select the products which
are most appropriate to their current 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 Company'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 Company has
a worldwide customer base of corporate and government users and
telecommunications carriers. The Company 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 continues to invest heavily in marketing and engineering resources
to promote and develop products for emerging ATM applications. Its contracts
with Lucent Technologies, Inc. and LM Ericsson provide a breadth of coverage and
opportunity not previously available to GDC.
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 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
4
implemented in the LAN which is greatly increasing the bandwidth available on
the LAN. Many users also have access to remote locations from their desktop.
This requires new, advanced access products for LAN to WAN connectivity and
efficient WAN switching solutions.
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 some such companies 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 Company believes that
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. The
Company believes, for example, that the Internet is the single most compelling
driver of ATM-based backbone networks.
ATM Segments. The Company believes that ATM has the potential to become a
leading transmission technology for communications networks. Within the broader
ATM market, the Company has identified the six distinct segments described below
and has chosen to pursue the access concentrator, enterprise switch, edge switch
and edge concentration and backbone 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. Although there can be no certainty as to future developments,
the Company expects switched Ethernet and virtual LAN architectures to
continue to be the dominant approaches to creating this high-performance
local computing environment and anticipates only limited migration to ATM
desktop connectivity. The Company believes there may be evolving
applications over longer periods of time, such as videomail, which will
drive ATM usage. However, in the near term these will remain niche
applications and not mass market.
Access Concentrators. Carrier ATM Services are just beginning to evolve
globally. Remote offices, branch offices and medium size business offices
are expected to begin subscribing to these new service offerings and will
require cost effective access. As in the frame relay services arena where
low cost access devices enabled cost efficient services, the Company
believes this will occur over the next several years. Key market
requirements include low cost adaptation of legacy voice and data, and
manageability of the trunk line by both carrier and end user.
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.
5
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 TV 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 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 and Backbone Switch. The edge concentration and backbone
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 and backbone switch are fast,
high capacity cell switching, traffic management and very high capacity
up-links to the core network. It can also be used as a small core switch.
This switch must be fault tolerant and must meet the unique packaging and
environmental requirements of telecommunications carriers.
Central Office Core 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 several terabytes of throughput. GDC does not
intend to address this market directly as GDC views the development costs
of these switches to be high and believes this market is currently served
by established central office switching providers. Rather, GDC has
developed strategic partnerships with participants in this market, such as
Lucent Technologies, and LM Ericsson, as a vehicle for enhancing its
position in the switch markets that it does address.
GDC's Target ATM Segments. The access concentrator, enterprise switch and edge
switch markets that GDC 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 edge concentration and backbone switch market
addresses the lower end of the high capacity backbone market (see discussion
above). GDC also believes that, at present, these targeted market segments align
with the Company's core ATM competencies developed over the last five years.
Products
In fiscal 1997, sales and leases of products represented 81% of revenues while
service revenues represented about 19% of revenues. GDC's line of products
includes:
ATM Switches and Network Management Systems. GDC 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-IMX and the APEX-MAC1. In September 1996 the Company introduced
APEX-STROBOS, which addresses the edge concentration and backbone switch market.
This product is expected to enter trials in the fourth quarter of calendar 1997.
GDC introduced the APEX-MMS (Multimedia Multipoint Server), the industry's first
"any band" Multipoint Control Unit (MCU), 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
6
videoconferencing, telemedicine, and distance education. Wide area transport is
provided via the shared APEX VIP(TM) family of integrated codecs within the APEX
switch, providing Motion JPEG, H.320 and MPEG-2 compression options allowing
optimized video-provisioned services.
Switch Specifications Targeted Segment
APEX-STROBOS Provides up to 25.6 Gbps of Edge concentration and Backbone
capacity and support for up for common carriers, including
to 32 ports of OC-12 links telephone and cable television
within a single shelf, utilizing companies.
DC or AC power supplies.
APEX-DV2 Provides up to 6.4 Gbps of Enterprise switch for corporate
capacity and support for up to and government users.
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 to including telephone and cable
64 ports within a single shelf, television companies.
utilizing DC power supplies.
APEX-IMX Provides up to 2.8 Gbps of Lower capacity enterprise switch for
capacity and support for 14 corporate and government users and
to 28 ports within a single common carriers.
shelf.
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 carriers.
enclosure.
GDC's APEX-Prosphere network management suite of applications supports GDC's
APEX ATM switches. The network management platform offers a powerful,
object-oriented system employing a graphical user interface for ATM network
management via the industry-standard Simple Network Management Protocol. The
APEX-Prosphere enables a network manager to configure APEX switches, provision
APEX circuits, build the ATM switch network and monitor that network, including
the capacity and utilization of each ATM node and the status of all other
components of the network.
Several major carriers have begun deploying GDC APEX ATM switches as their
platform for provisioning new differentiated data communications services.
During 1997 and 1998, some GDC APEX customers will add standards-based voice
over ATM which offers compression, silence suppression and idle detection over
available bit rate services. This allows cost efficient provisioning of both
voice and data services. A number of corporate customers also have purchased
APEX switches. GDC believes its family of APEX switches have the following
competitive features:
7
- 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.
- 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.
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/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. GDC's
products integrate both time division multiplexing and packet switching (used
for LAN routing and frame relay switching), thereby providing a flexible
networking platform.
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.
The Metroplex 6000, introduced in 1996, is an intelligent access multiplexer
designed for cost-effective access to a variety of data and voice services which
can feed into the corporate backbone. Additional enhancements for increased data
flexibility, additional voice interfaces, network management and an
international E1 interface were added in 1997.
The Universal Access System 7000 is a service provisioning multiplexer which
allows service providers to deliver digital services over copper loop systems,
reducing both cost and service provisioning time.
GDC 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. GDC believes it is responding to these needs by
offering the Universal Access System 7000 that 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.
In corporate backbone environments requiring broadband speeds and services, GDC
APEX ATM switches can be used. The TMS 3000 and OCM can feed into the APEX
switch enabling GDC 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.
Selling prices vary widely depending upon the size and complexity of the system
being ordered.
8
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 that run at various speeds up to 64 Kbps and
wideband digital data sets operating at fractional T1 and T1 speeds. GDC
supplies its digital data sets to the 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 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.
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. GDC offers a broad range of private line
and dial-up analog modems operating at all standard speeds up to 33.6 Kbps.
Separately, the Company has entered into technology agreements whereby
licensees, including certain semiconductor manufacturers who provide V.34
modem-integrated circuit chips for the mass modem market, pay the Company
license fees for the use or sale of specific V.34 patented technology.
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. 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 Company's products and services are marketed throughout the world. GDC's
sales and marketing organization, which at September 30, 1997 consisted of
approximately 428 employees, is organized on a worldwide basis to address three
market segments: (1) corporate and government end users; (2) common carriers:
and (3) indirect sales through original equipment manufacturers ("OEMs"),
value-added resellers, distributors and system integrators. In the United
States, the Company sells, leases and services its equipment primarily through
its own sales and service groups, which include separate geographic sales and
technical support organizations for corporate and government end users and
common carrier markets. A National Resellers Division is part of the U.S. Sales
organization to more aggressively pursue distributors, value-added resellers and
system integrators as channels to market. No customer accounted for 10% or more
of the Company's revenues during any of the past three fiscal years.
Internationally, GDC maintains full subsidiary operations in Canada, the United
Kingdom, Mexico, France, Germany, Russia, Singapore, Venezuela, Brazil and
Australia. Sales and technical support offices are maintained in Sweden, Japan,
Hong Kong, China and Argentina. In total, the Company manages a
9
worldwide distribution network with representatives in more than 60 countries.
International operations represented approximately 52% of the Company's revenues
in fiscal 1997 as compared to 47% in fiscal 1996. GDC's foreign operations are
subject to all the risks inherent in international operations.
Selected users of the Corporation's products include:
Telecommunications Commercial Financial Services
- ------------------ ---------- ------------------
Alascom American Airlines BITAL (Mexico)
Ameritech Burlington Northern/Santa Fe CIBC (Canada)
AT&T Chrysler Citicorp
Bell Atlantic EDS Fiserv
Bell Canada Harris Hong Kong & Shanghai Bank
BellSouth Hitachi Shawmut Bank
Deutsche Telekom Lockheed Telerate Systems
France Telecom Loral Wheat First Butcher & Singer
Guangdong PTA (China)
GTE Government Suppliers
Impsat (Argentina, ---------- ---------
Columbia) British Ministry of Defense LM Ericsson
MCI French Ministry of Defense Lucent Technologies
Netherlands PTT Los Angeles, City and County
NYNEX NASA
Pacific Bell New York City Transit Authority
SNET U.S. State Department
Southwestern Bell Various state governments, including
Sprint California, Florida, Iowa, Kentucky
Telefonos de Mexico Michigan, Ohio and Texas
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.
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.
Industry and geographic area information is included in Note 9 of "Notes to
Consolidated Financial Statements." See "Index to Financial Statements and
Schedules" on page F-1 in this report.
10
Customer Service and Support
In February of 1997, GDC restructured its service division to form an integrated
worldwide service organization providing comprehensive technical support for its
telecommunications carrier, corporate and government customers that run critical
applications over their networks. Regional service entities, located in
strategic locations around the world, directly provide support capabilities,
augmented by third party service partners when necessary. Authorized global
distributors provide complimentary support services and participate in service
certification programs further enhancing the global reach of the service
organization. In September 1997, the service division was incorporated as a
wholly owned subsidiary of General DataComm Industries, Inc. under the name
VITAL Network Services, Inc.
VITAL's traditional support programs include product repair, logistics support,
installation, on-site maintenance and technical support. A Professional Services
portfolio includes educational services, on-line network management and network
audits. Global services are supported by field service engineers, technical
support staff, professional service consultants and 4 Technical Operations and
Assistance Centers (TOAC) located in the U.S., Mexico, England and Singapore.
TOACs in the US and United Kingdom are staffed 24 hours a day, 365 days a year
with the others providing business day coverage. VITAL offers various value
added services, including First Response, an out-tasking service by which TOAC
Technicians monitor and manage customer networks on a remote basis. Customers of
VITAL's service and support programs include New York City Transit, Lucent
Technologies, Hong Kong Bank, Allegiance, State of Iowa and Volvo. At September
30, 1997, VITAL had 295 people engaged in service and support activities
worldwide. Recently, VITAL expanded its value-add support capability to provide
multivendor product support to its customer base, establishing itself as a
premier provider of services for system integrators and other manufacturers of
synergistic networking products worldwide.
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, 1997, 415 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 Marlborough, 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 25.5%, 19.4% and 18.3% of revenues in fiscal 1997, 1996 and 1995,
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.
11
Manufacturing
GDC's principal assembly plant is a Corporation-owned, 360,000 square foot
facility located in Naugatuck, Connecticut, of which approximately 45% is
currently being utilized for manufacturing (30% is used for other GDC operations
and 25% 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 34% of
the manufacturing assembly during the 1997 fiscal year.
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.
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. The 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, the Company sometimes relies
on subcontractors for product 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.
Competition
Each of the segments of the telecommunications and networking industries 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.
Many of the participants in the networking industry, including, among others,
Nortel, Cisco, ADC Telecommunications, Ascend Communications, Siemens, FORE
Systems 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, DSC
Communications, Fujitsu, Hitachi and LM Ericsson have already or are expected to
offer ATM-based switches for central offices. Each competitor offers a unique
solution and all are formidable competitors.
12
The Company is not anticipating growth in its market share for such products.
However, the Company believes it can maintain such share as the overall market
for ATM-based products expands. There can be no assurance that the Company will
be able to attain this objective.
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, 1997, the Corporation employed 1,727 persons, of whom 415 were
research and development personnel, 448 were manufacturing personnel, 428 were
employed in various selling and marketing activities, 295 were in customer
support services and 141 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.
ITEM 2. PROPERTIES
The principal facilities of the Corporation are as follows:
Middlebury, Connecticut -- executive offices of the Corporation and DataComm
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 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
13
ITEM 2. PROPERTIES (cont'd)
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, service and administrative offices located in
a 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.
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.
The Corporation is presently utilizing 75% of the 360,000 square-foot Naugatuck,
Connecticut facility, including 45% being utilized by the Corporation's
manufacturing (assembly, test and systems integration) operations. The plant is
currently operating at 46% utilization by running partial first and second
shifts. With two full shifts, the aggregate productive capacity would be
approximately 406,000 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.
14
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 15 of the Corporation's 1997
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 1997 Annual Report to Stockholders.(1)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 15 of the Corporation's 1997 Annual
Report to Stockholders.(1)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from pages 16
through 31 of the Corporation's 1997 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.
15
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
1998 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,
1997.
Name Position Age
Charles P. Johnson Chairman of the Board of Directors
and Chief Executive Officer 70
Ross A. Belson President and Chief Operating Officer 61
Frederick R. Cronin Vice President, Corporate Technology and
a Director 66
Robert S. Smith Vice President, Business Development 64
William S. Lawrence Senior Vice President, Finance and
Chief Financial Officer 54
James R. Arcara Vice President, Corporate Operations 62
Dennis J. Nesler Vice President and Treasurer 54
William G. Henry Vice President and Corporate Controller 48
V. Jay Damiano Senior Vice President, U.S. Sales 52
Lloyd Atkinson Vice President, Marketing 53
P. John Woods Vice President, Global Services 49
Howard S. Modlin Secretary and a Director 65
____________________________
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.
16
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (cont'd)
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. 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 in February 1996.
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. 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. P. John Woods, Vice President, Global Services, 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. 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.
17
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 Corporation's Proxy Statement dated December 10, 1997(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" in the
Corporation's Proxy Statement dated December 10, 1997(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"
in the Corporation's Proxy Statement dated December 10, 1997(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, 1997.
18
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 20 of this report.
(b) Reports on Form 8-K.
On October 8, 1997, the Corporation filed a Report on Form 8-K
reporting the issuance of $25 million of 7-3/4% convertible senior
subordinated debentures which mature on September 30, 2002 (if not
converted) and accrue interest at the rate of 7-3/4% per annum. The
debentures were issued to a group of qualified institutional buyers and
accredited investors.
19
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)
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.
4.4 Indenture dated September 26, 1997 covering issued 7-3/4% Convertible
Senior Subordinated Debentures due 2002.(5)
10.1 Transfer of Receivables Agreement between DataComm Leasing Corporation
and Sanwa Business Credit Corporation.(6)
10.2 1979 Employee Stock Purchase Plan.(7)
10.3 1983 Stock Option Plan.(8)
10.4 1984 Incentive Stock Option Plan, and related amendments.(9)
10.5 1985 Stock Option Plan.(10)
10.6 1991 Stock Option Plan.(11)
10.7 Retirement Savings and Deferred Profit Sharing Plan, and related
amendments.(12)
10.8 Credit Agreement between General DataComm Industries, Inc. and The Chase
Manhattan Bank.(13)
10.9 Loan and Security Agreement between General DataComm Industries, Inc.
et al. and Transamerica Business Credit Corporation, et al.
11. Calculation of Loss Per Share for the fiscal years ended September 30,
1995, 1996 and 1997.
13. Annual Report to Stockholders for the year ended September 30, 1997.
Portions of the Annual Report to Stockholders for the year ended
September 30, 1997 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 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 to Form 8-K dated October 8, 1997
6 Incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter ended
June 30, 1989
7 Incorporated by reference from Part II of prospectus dated September 30,
1991, contained in Form S-8,Registration Statement No. 33-43050.
20
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(cont'd)
EXHIBIT INDEX (cont'd)
8 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.
9 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.
10 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.
11 Incorporated by reference from Form S-8, Registration Statement No.
333-35299.
12 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.
13 Incorporated by reference from Exhibit 10.21 to Form 10-K for the year
ended September 30, 1993.
21
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: William S. Lawrence
Senior Vice President, Finance and Principal
Financial Officer
Dated: December 22, 1997
22
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
__________________________ Chairman of the Board December 22, 1997
CHARLES P. JOHNSON and Chief Executive Officer
__________________________ Senior Vice President, December 22, 1997
WILLIAM S. LAWRENCE Finance and Principal
Financial Officer
__________________________ Vice President and December 22, 1997
WILLIAM G. HENRY Corporate Controller
__________________________ Director and Secretary December 22, 1997
HOWARD S. MODLIN
__________________________ Director December 22, 1997
LEE M. PASCHALL
__________________________ Director and December 22, 1997
FREDERICK R. CRONIN Vice President, Corporate
Technology
________________________ Director December 22, 1997
JOHN L. SEGALL
23
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 16 through 31 of the Corporation's
Annual Report to Stockholders for the year ended September 30, 1997. 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 1997 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, 1997, 1996 and 1995. 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 31 of the Annual Report to Shareholders of General DataComm
Industries, Inc. and Subsidiaries for the year ended September 30, 1997 (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
December 22, 1997
F-2
General DataComm Industries, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended September 30, 1997, 1996 and 1995
(In Thousands)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses Deductions of Period
--------- ---------- ---------- ---------
(b)
1997
Allowance for doubtful
receivables (a) $1,768 $285 $350 $1,703
====== ==== ==== ======
1996
Allowance for doubtful
receivables (a) $1,704 $121 $57 $1,768
====== ==== ==== =======
1995
Allowance for doubtful
receivables (a) $1,618 $252 $166 $1,704
====== ==== ==== ======
------------------------
(a) Deducted from asset accounts.
(b) Uncollectible accounts written off, net of recoveries.
F-3