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1
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, 1994 COMMISSION FILE NUMBER 1-8086
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GENERAL DATACOMM INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 06-0853856
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1579 Straits Turnpike
MIDDLEBURY, CONNECTICUT 06762-1299
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(Address of principal executive offices)
(203) 574-1118
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(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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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
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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 September 30, 1994: $445,389,246
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Number of shares of Common and Class B Stock outstanding as of September 30,
1994:
15,620,186 Shares of Common Stock
2,271,780 Shares of Class B Stock
Item 10 as to Directors and Items 11 and 12 to be filed by amendment or by
definitive proxy statement.
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GENERAL DATACOMM INDUSTRIES, INC.
TABLE OF CONTENTS
PART I Page
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Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II
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Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Results of
Operation and Financial Condition 10
Item 8. Financial Statements and Supplementary Data 16
PART III
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Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related
Transactions 33
PART IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 34
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PART I
ITEM 1. BUSINESS
General DataComm Industries, Inc. (the "Corporation") was incorporated in 1969
under the laws of the State of Delaware. The Corporation's principal executive
offices are located at 1579 Straits Turnpike, Middlebury, Connecticut, and its
telephone number is (203) 574-1118. Unless the context otherwise requires, the
term "Corporation" as used here and in the following pages means General
DataComm Industries, Inc. and its subsidiaries.
GENERAL
The Corporation 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 and services include
multiplexers and internetworking equipment, digital data sets, analog modems,
Asynchronous Transfer Mode ("ATM") cell switches, network management systems
and comprehensive support services.
The Corporation'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,
Harris and Hongkong & Shanghai Bank; and government entities including the
British Ministry of Defence, the French Ministry of State, NASA, the U.S.
Department of State and many state and local governments.
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 networking solutions to its customers is based upon the following:
Capitalizing on ATM technology. The Corporation believes it has a leading
position in the ATM switch market. The following entities have deployed or
announced their intention to deploy the Corporation's ATM cell switches in
their proposed ATM networks: Ameritech, Bell Canada, MCI, MFS Datanet, Telecom
Finland and Australia's Defence, Science and Technology Organisation. As of
September 30, 1994, the Corporation, along with Netcomm Limited, had shipped
238 ATM switches to a variety of customers in 15 countries (76 for customer
trial and 162 sold). The Corporation also believes that growing market
awareness of its ATM switch technology has increased customer exposure to its
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 then migrate to higher capacity products over time.
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.
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Leveraging global customer base, distribution and support. The Corporation
has a worldwide customer base of corporate and government users and
telecommunications carriers. With a sales and marketing organization of 471
employees, the Corporation has global distribution capabilities in nearly 60
countries around the world. The Corporation's ability to provide international
customer service and support is critical to customers that run mission-critical
applications over their networks.
MARKETING, SALES AND BACKLOG
The Corporation's products and networks are marketed throughout the world. The
Corporation's sales and marketing force is organized on a worldwide basis to
address three market segments: (1) corporate and government end-users; (2)
common carriers (PTTs); and (3) indirect sales through value-added resellers
(VARs) 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 geographic support organizations for the corporate and
government end-users and common carrier markets. Internationally, the
Corporation maintains full subsidiary operations in Canada (sales and service),
the United Kingdom (sales and service), Mexico (sales and service), France
(sales and service), Australia (sales), Singapore (sales) and Russia (sales),
and sales and technical support offices in Japan, Hong Kong, Germany, China,
Brazil and Spain. These sales offices manage a worldwide distribution network
with representatives in more than 48 countries. International operations
represented 37% of the Corporation's revenues in fiscal 1994. The
Corporation's foreign operations are subject to all the various risks inherent
in operating outside the United States.
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, 1994, the
Corporation's leasing subsidiary had agreements in place with financial
institutions whereby certain finance 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: 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 hereby included in Note 9 of "Notes
to Consolidated Financial Statements". See "Index to Financial Statements and
Schedules" on page F-1 in this report.
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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, 1994, 331 people
were engaged in research and development activities. The Corporation conducts
research and development activities in three locations. 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 applications and
solutions, 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 15.7%, 14.1% and 12.7% of revenues in fiscal 1994, 1993 and 1992,
respectively. In order to support its commitment to new products and
technologies, the Corporation expects to continue or to increase these levels
of spending on research and product and software development.
COMPETITION
Each of the segments 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 Telecom- munications, Bay Networks, Cascade Communications, Cisco, ECI
Telecom, FORE Systems, Lightstream, Newbridge Networks and StrataCom, 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, AT&T Network
Systems, 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 59 domestic patents and has
approximately 10 additional applications pending. In addition, all of these
patents and applications have been filed in Canada; most have also 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.
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EMPLOYEE RELATIONS
At September 30, 1994, the Corporation employed 1,824 persons, of whom 331 were
research and development personnel, 537 were manufacturing personnel, 471 were
employed in various selling and marketing activities, 307 were in field
services and 178 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.
SOURCES OF MATERIAL
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. The Corporation's inability to obtain a sufficient quantity of these
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 of 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 located in a 360,000 square foot facility
owned by the Corporation
Middlebury, Connecticut -- engineering organization, DataComm Service Corporation and government activities subsidiary
located in a 275,000 square foot facility leased through 2003 by the Corporation
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 10,000 square foot repair and warehouse facility leased through February 1995 by General
DataComm Ltd. and an 11,000 square foot research facility leased through April 1999 by
General DataComm Ltd.
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Paris, France -- sales and administrative offices located in a 10,000 square foot facility leased through
April 1997 by Eurotech France SARL
Waterbury, Connecticut -- a 207,500 square foot facility (currently vacant) leased through December 1995 by the
Corporation
Mexico City, Mexico -- sales, service and administrative offices located in a 3,000 square foot facility leased
through December 14, 1994 by General Telecomm S.A. de C.V.
Basildon, England -- engineering organization located in 8,500 square foot facility owned by General DataComm
Advanced Research Centre Limited
In addition, the Corporation leases sales and service offices throughout the
United States and in international locations.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
COMMON STOCK PRICES
General DataComm Industries, Inc.'s Common Stock is listed on the New York Stock
Exchange and trades under the symbol "GDC." The table below shows the
intra-day high and low and closing sales prices as reported during each quarter
of the last two fiscal years.
1994 1993
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QUARTER HIGH LOW CLOSING HIGH LOW CLOSING
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FIRST 11 7/8 8 5/8 10 3/8 6 3/8 3 3/8 6 3/8
SECOND 17 5/8 8 1/4 13 1/8 11 3/8 6 1/4 11
THIRD 16 3/4 10 16 15 3/4 8 3/8 14 1/2
FOURTH 30 1/4 15 1/4 28 1/4 14 5/8 8 1/2 10 7/8
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No cash dividends have ever been paid on the Common or Class B Stock. The
Corporation's principal loan agreement does not allow payment of cash
dividends. In the event this would change, it is still management's intention
to reinvest future earnings in the business to support growth plans.
The Corporation had approximately 1,953 shareholders of record at September 30,
1994.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
In thousands except per share, ratio and employee data
Years ended September 30, 1994 1993 1992 1991 1990
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Operations
Revenues $210,990 $211,847 $197,858 $191,686 $201,546
Operating income 661 8,997 5,549 4,405 3,152
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Net income (loss) ($2,328)* $6,116 $2,643 $598 $159
Earnings (loss) per share ($0.14) $0.36 $0.17 $0.04 $0.01
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Financial Position
Working capital $56,413 $38,245 $43,467 $36,937 $59,657
Current ratio 2.2:1 1.9:1 2.1:1 1.7:1 2.6:1
Total assets 180,264 141,676 127,654 134,945 142,879
Long-term debt, less current portion 42,118 28,402 23,711 14,973 37,562
Stockholders' equity 84,487 67,028 60,290 57,948 57,758
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General
Research and product development:
Gross spending (before software
capitalization) $33,189 $29,829 $25,184 $24,623 $24,676
Net expense 20,076 19,279 15,910 15,610 18,198
Depreciation 8,776 7,985 8,686 10,251 12,181
Investments in property, plant and equipment 11,534 22,378 ** 7,157 5,920 5,700
Cash flows provided (used) by operating activities (3,521) 27,406 25,738 17,546 19,923
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Average number of common and
common equivalent shares outstanding 16,659 16,874 15,505 15,409 15,047
Average number of employees 1,823 1,805 1,764 1,899 2,043
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(* - Fiscal 1994 net income (loss) includes: (i) after-tax charges totaling
$(433), or ($0.03) per share, resulting from the adoption of Financial
Accounting Standards Nos. 106 and 112 effective October 1, 1993, and
(ii) an income tax benefit of $1,700, or $0.10 per share, relating to
the resolution of a foreign tax issue.
(** - Fiscal 1993 includes the purchase of the Corporation's principal
manufacturing facility and corporate headquarters for $14,473.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL SUMMARY DISCUSSION
Although revenues were essentially unchanged in fiscal 1994 when compared to
fiscal 1993, there were significant differences in both the revenue trends
within the years and in the types of products sold in each year. Revenues
declined 4.9% in the fiscal 1993 second half compared to the first half,
whereas fiscal 1994 second half revenues exceeded the first half by 19.6%. The
Corporation's fiscal 1994 fourth quarter revenues were the highest in its
history. The upward trend in the second half was driven by demand for the
Corporation's ATM (Asynchronous Transfer Mode) and digital transmission
products, offset in part by a continuing decline in demand for the
Corporation's traditional analog products.
The Corporation has made incremental investments in research and development,
marketing, production engineering and inventories (including ATM trial units)
in preparation for the roll-out of its ATM products. The Corporation also
continues to expand its international sales operations. As a result, operating
expenses grew by $7.6 million to 47.4% of fiscal 1994 revenues compared to
43.6% of fiscal 1993 revenues and contributed to the losses in the first three
quarters of fiscal 1994.
Net income in the fiscal 1994 fourth quarter of $1.3 million, or $0.07 per
share, reduced the net loss for the fiscal 1994 year to $(2.3 million), or
$(0.14) per share, compared to net income of $6.1 million, or $0.36 per share,
in fiscal 1993. The fiscal 1994 loss included: (i) after-tax charges of
$(433,000), or $(0.03) per share, as a result of adopting Statements of
Financial Accounting Standards Nos. 106 and 112 relating to post-retirement and
post-employment benefits, respectively, and (ii) an income tax benefit of $1.7
million, or $0.10 per share, resulting from the resolution of a foreign tax
issue.
In November 1993 the Corporation acquired Netcomm Limited ("Netcomm"), a
developer of ATM technology, and, accordingly, Netcomm's results of operations
were included in the Corporation's financial data beginning at that time.
Netcomm has been renamed General DataComm Advanced Research Centre Limited, and
its charter is to develop next-generation ATM equipment.
In the third quarter of fiscal 1994, the Corporation raised $14.6 million,
after expenses, through a private offering of 1,250,000 shares of Common Stock.
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RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial data stated as a
percentage of total revenues:
YEARS ENDED SEPTEMBER 30,
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1994 1993 1992
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Revenues:
Net product sales 80.6% 80.9% 80.2%
Service revenue 16.2 15.5 16.0
Leasing revenue 3.2 3.6 3.8
--- --- ---
100.0 100.0 100.0
Costs and expenses:
Cost of revenues 47.7 48.2 50.8
Amortization of capitalized software
development costs 4.6 3.9 3.6
Selling, general and administrative 37.9 34.6 34.8
Research and product development 9.5 9.1 8.0
--- --- ---
Operating income 0.3 4.2 2.8
--- --- ---
Net income (loss) (1.1)% 2.9% 1.3%
====== ==== ===
1994 COMPARED WITH 1993
Revenues for fiscal 1994 were slightly lower (0.4%) than fiscal 1993. However,
fiscal 1994 fourth quarter revenues rose $8.0 million, or 15.4%, over the
fourth quarter of fiscal 1993. Growth markets in the fiscal 1994 fourth
quarter included both the domestic carriers and many international areas. New
products, such as ATM cell switches, V.F 28.8 modems and additions to digital
data sets and multiplexer lines, sold higher volumes compared to the prior
quarters of fiscal 1994, offset in part by a reduction in traditional analog
modem shipments. For the 1994 fiscal year, net product sales were down $1.5
million, or 0.1%, service revenues were up $1.4 million, or 4.2%, and leasing
revenues were down $737,000, or 9.8%.
Gross margin (which includes amortization of capitalized software development
costs) declined slightly (0.2%) to 47.7% in fiscal 1994 from 47.9% in fiscal
1993. Amortization of capitalized software development costs charged to cost
of product sales increased to $9.7 million in fiscal 1994 from $8.3 million in
fiscal 1993 and had the effect of reducing gross margins by 0.5%. High
technology products in particular are subject to sales price pressures as
competition grows. The Corporation works to offset these effects by
negotiating lower material component prices, improving manufacturing cost and
efficiencies and introducing new-generation products.
Selling, general and administrative expenses increased $6.8 million, or 9.2%,
in fiscal 1994, principally due to strategic investments made in ATM marketing
operations and in international selling organizations. Since there was no
corresponding growth in revenue until the second half of the fiscal year,
selling, general and administrative expenses rose to 37.9% of revenues from
34.6% in fiscal 1993.
Research and product development spending, before consideration of capitalized
software development costs, increased to $33.2 million, or 15.7% of revenues,
from $29.8 million, or 14.1% of revenues, in fiscal 1993. This increase,
11.3% year-over-year, reflects the acquisition of Netcomm and its
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subsequent conversion to a dedicated ATM research facility, the start-up of a
new ATM product development facility in Quebec, Canada, and the strategic
repositioning of the domestic product development organization. The increase
in capitalized software development costs to $13.1 million, or 39.5% of total
spending, from $10.6 million, or 35.4% of total spending in fiscal 1993, is
directly related to the increasing software content within the Corporation's
products.
Interest expense in fiscal 1994 increased $1.8 million, nearly double the
fiscal 1993 level. The Corporation purchased and concurrently mortgaged two of
its principal facilities in September 1993, adding $630,000 to interest
expense, which was offset by lower rent expense. Also, the higher interest
levels reflected an increase in borrowing levels attributable to the
acquisition cost of Netcomm in November 1993, the related investments since
made to support the ATM product line and investments in international sales
organizations.
The fiscal 1994 income tax benefit of $975,000 is comprised of a $1.7 million
favorable resolution of a foreign tax issue offset by $725,000 in provisions
for state and foreign income taxes. The Corporation has significant net
operating loss carryforwards (approximately $35 million at September 30, 1994)
available to offset future federal income taxes. These net operating losses
begin to expire in the year 2002.
1993 COMPARED WITH 1992
Revenues for fiscal 1993 rose $14.0 million, or 7.1%, over fiscal 1992. The
increase in net product sales of $12.7 million was principally due to
improvements in sales into domestic markets while foreign sales results were
mixed. Service revenue increased 3.7%, or $1.2 million, while leasing revenue
remained constant on a year-to-year basis.
Gross margin rose to 47.9% in fiscal 1993 from 45.6% in fiscal 1992. Product
margins increased 2.3%, from 47.0% to 49.3%, mainly attributable to higher
volumes and manufacturing productivity improvements. Amortization of
capitalized software development costs charged to cost of product sales
increased to $8.3 million in fiscal 1993 from $7.2 million in fiscal 1992.
Excluding the impact of this amortization, product margins rose to 54.1% in
fiscal 1993 from 51.5% in fiscal 1992.
Selling, general and administrative expenses increased $4.4 million, or 6.4%,
in fiscal 1993. The higher spending levels reflected the impact of headcount
additions in the international and domestic sales forces, regular salary
increases, higher commissions and increased costs associated with the launch of
new products.
Research and product development expenditures increased $4.6 million to 14.1%
of revenue in fiscal 1993 due to increased investments in new product
development and enhancements. As a result, the capitalization of software
development costs rose from $9.3 million in fiscal 1992 to $10.6 million in
fiscal 1993. On a net basis, research and development expense increased $3.4
million, or 21.2%, from the prior fiscal year.
Interest expense declined 26.4% from $2.7 million in fiscal 1992 to $2.0
million in fiscal 1993 mostly due to lower levels of borrowings during the
fiscal year. Foreign currency exchange gains of $54,000 and $122,000 were
reported in other income in fiscal 1993 and 1992, respectively.
The Corporation provided $1.0 million and $554,000 in fiscal 1993 and 1992,
respectively, for federal, state and foreign income taxes, with the increase
principally attributable to higher taxable income in foreign operations.
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LIQUIDITY AND CAPITAL RESOURCES
The Corporation's cash and cash equivalents were $2.9 million at September 30,
1994, compared to $2.6 million at September 30, 1993.
OPERATING
Non-debt working capital, excluding cash and cash equivalents, increased $19.6
million in fiscal 1994 to $58.7 million at September 30, 1994. This increase
resulted primarily from increases in current receivables and inventories, which
were partially offset by increases in accounts payable and accrued liabilities
and deferred income on maintenance contracts. Current receivables increased
$13.9 million in fiscal 1994 to $49.6 million at September 30,1994, due in part
to the revenue growth in the fourth quarter. Inventory grew $7.6 million to
$42.2 million in anticipation of increasing shipments of ATM and other new
products.
INVESTING
Investing activities during fiscal year 1994 included net additions to
property, plant and equipment of $11.3 million, additions to capitalized
software development costs of $13.1 million and costs of $5.9 million
associated with the Netcomm acquisition. Any future product growth will
increase capital requirements for manufacturing and development equipment. As
a result, the Corporation anticipates that fiscal 1995 capital requirements
should equal or exceed 1994 capital expenditures.
FINANCING
Financing activities during the year ended September 30, 1994, added $34.2
million in cash, representing $16.5 million from long-term borrowings and $3.1
million from the issuance of Common Stock pursuant to employee stock programs
and net proceeds of $14.6 million in conjunction with a private placement of
1,250,000 shares of Common Stock in the fiscal 1994 third quarter.
In November 1993, the Corporation entered into an amended revolving credit
agreement expiring on November 30, 1996, that provides for borrowings of up to
$25.0 million, reduced by the value of outstanding letters of credit issued by
the lenders on behalf of the Corporation up to $2.5 million. Interest is
charged at 0.75% over the prime rate, or, at the Corporation's option, 2.625%
over selected LIBOR terms. The agreement imposes various financial covenants,
requires that most assets be pledged as collateral and limits the permitted
amount of borrowing through an asset-based formula. The loan balance
outstanding at September 30, 1994, was $16.2 million. In June 1994, this
agreement was further amended to provide an $8.0 million term loan ($7.5
million outstanding at September 30, 1994), the proceeds of which the
Corporation used to reduce in full other maturing indebtedness.
In September 1993, the Corporation purchased its corporate headquarters and
manufacturing facilities and concurrently entered into mortgages to partially
finance these purchases. The mortgage balances outstanding at September 30,
1994, totaled $11.4 million. Interest is charged at LIBOR (90-day) plus 2%,
principal payments are $100,000 per quarter and the mortgages mature in the
year 2003.
Notes payable and capitalized lease obligations, both used to finance capital
equipment purchases, totaled $11.8 million at September 30, 1994 and have
five-year maturities.
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The Corporation believes that its existing cash balances and future cash flow
from operations, combined with available funds under its revolving credit
facility will be adequate to support the Corporation's growth for the
foreseeable future.
The Corporation also considers its ability to offer for sale its Common Stock
as a viable alternative source of funds. Accordingly, during fiscal 1994, the
Corporation completed a 1,250,000 share private placement offering, as
described above. Additionally, on October 28, 1994, a registration statement
was filed with the Securities and Exchange Commission relating to a proposed
public offering of 1,800,000 shares of Common Stock and 270,000 shares of
Common Stock subject to an over-allotment option. It is anticipated that the
proceeds of this offering would be used for debt reduction, working capital
needs and other general corporate purposes, including expenditures related to
the development and expansion of the Corporation's ATM products and potential
acquisitions. The registration statement has not yet, and may not, become
effective.
LEASE FINANCING AGREEMENTS
The Corporation's principal leasing subsidiary has 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.
OPERATING LEASE OBLIGATIONS
See Note 7 of the "Notes to Consolidated Financial Statements" for discussion
of the Corporation's operating lease obligations.
TRADE RECEIVABLE CONCENTRATION
Approximately $15.2 million, or 28.5%, of consolidated accounts receivable at
September 30, 1994 ($9.3 million, or 22.9%, at September 30, 1993) were
concentrated in telephone companies in North America and Europe. These
receivables are not collateralized due to the high credit ratings and the
extensive financial resources available to such telephone companies.
IMPACT OF INFLATION AND CHANGING PRICES
In management's opinion, the impact of inflation and changing prices for the
three most recent fiscal years is not significant to the financial statements
as reported.
ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NOS. 106, 109 AND 112
Effective October 1, 1993, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 106, "Employer's Accounting for
Post-Retirement Benefits Other Than Pensions", requiring the use of an accrual
method of accounting for post-retirement benefits. The Corporation elected to
recognize the transition obligation as a one-time cumulative after-tax charge
to income of ($117,000), or $(.01) per share. The increase in annual expense
for retiree health care is not material.
Effective October 1, 1993, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". SFAS 109 is an asset and liability approach that requires recognition
of deferred tax assets and liabilities for the expected
-14-
15
future tax consequences of events that have been recognized in the
Corporation's financial statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future events other
than enactments of changes in the tax law or rates. Previously, the
Corporation used the SFAS 96 asset and liability approach that gave no
recognition to future events other than the recovery of assets and settlement
of liabilities at their carrying amounts. The effect of adoption was not
material to the Corporation's results of operations.
Effective October 1, 1993, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Post-Employment Benefits", requiring the use of an accrual method of accounting
for post-employment benefits. The Corporation elected to recognize the
transition obligation as a one-time cumulative after-tax charge to income of
($316,000), or $(.02) per share. The increase in annual expense for
post-employment costs is not material.
-15-
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands except shares
September 30, 1994 1993
- - ------------------------------------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $2,939 $2,594
Accounts receivable, less allowance for doubtful
receivables of $1,618 in 1994 and $1,575 in 1993 49,581 35,654
Inventories 42,162 34,522
Deferred income taxes 4,062 -
Other current assets 5,288 6,711
- - ------------------------------------------------------------------------------------------------------------
Total current assets 104,032 79,481
============================================================================================================
Property, plant and equipment:
Land 1,764 1,745
Buildings and improvements 27,058 24,307
Test equipment, fixtures and field spares 47,012 43,183
Machinery and equipment 38,522 35,390
- - ------------------------------------------------------------------------------------------------------------
114,356 104,625
Less: accumulated depreciation and amortization 73,248 67,384
- - ------------------------------------------------------------------------------------------------------------
41,108 37,241
Capitalized software development costs, net
of accumulated amortization of $14,008 in
1994 and $10,582 in 1993 22,712 19,333
Other assets 12,412 5,621
- - ------------------------------------------------------------------------------------------------------------
$180,264 $141,676
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $5,238 $3,489
Accounts payable, trade 15,317 10,563
Accrued payroll and payroll-related costs 5,415 6,962
Deferred income 6,548 5,672
Other current liabilities 15,101 14,550
- - ------------------------------------------------------------------------------------------------------------
Total current liabilities 47,619 41,236
============================================================================================================
Long-term debt, less current portion 42,118 28,402
Deferred income taxes 4,997 1,756
Other liabilities 1,043 3,254
- - ------------------------------------------------------------------------------------------------------------
Total liabilities 95,777 74,648
============================================================================================================
Commitments and contingent liabilities - -
Stockholders' equity:
Capital stock, par value $.10 per share, issued:
18,733,739 in 1994 and 16,980,581 in 1993 1,873 1,698
Capital in excess of par value 68,027 50,064
Earnings reinvested 21,477 23,805
Cumulative foreign currency translation adjustment (901) (1,077)
Common stock held in treasury, at cost:
841,773 shares in 1994 and 1,082,058 in 1993 (5,989) (7,462)
- - ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 84,487 67,028
- - ------------------------------------------------------------------------------------------------------------
$180,264 $141,676
============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
- 16 -
17
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND EARNINGS REINVESTED
In thousands except per share data
Years ended September 30, 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
Revenues:
Net product sales $169,958 $171,468 $158,768
Service revenue 34,245 32,855 31,679
Lease revenue 6,787 7,524 7,411
- - ---------------------------------------------------------------------------------------------------------------------------------
210,990 211,847 197,858
- - ---------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of product sales 76,854 78,622 77,051
Amortization of capitalized software development costs 9,735 8,300 7,166
Cost of services 22,861 22,493 22,441
Cost of lease revenue 882 990 952
Selling, general and administrative 79,921 73,166 68,789
Research and product development 20,076 19,279 15,910
- - ---------------------------------------------------------------------------------------------------------------------------------
210,329 202,850 192,309
- - ---------------------------------------------------------------------------------------------------------------------------------
Operating income 661 8,997 5,549
- - ---------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest (3,780) (1,982) (2,692)
Other, net 249 126 340
- - ---------------------------------------------------------------------------------------------------------------------------------
(3,531) (1,856) (2,352)
- - ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
and cumulative effect of accounting changes (2,870) 7,141 3,197
Income tax provision (benefit) (975) 1,025 554
- - ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting changes (1,895) 6,116 2,643
Cumulative effect of changes in accounting for
post-retirement and post-employment benefits (433) - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (2,328) 6,116 2,643
Earnings reinvested at beginning of year 23,805 17,689 15,046
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings reinvested at end of year $21,477 $23,805 $17,689
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Income (loss) before cumulative effect of accounting changes ($0.11) $0.36 $0.17
Cumulative effect of changes in accounting for post-retirement
and post-employment benefits (0.03) - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share ($0.14) $0.36 $0.17
- - ---------------------------------------------------------------------------------------------------------------------------------
Average number of common and common equivalent
shares outstanding 16,659 16,874 15,505
=================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
- 17 -
18
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
------------------------------------------------
In thousands
Years ended September 30, 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Income (loss) before cumulative effect of accounting change ($1,895) $6,116 $2,643
Adjustments to reconcile income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 20,504 17,072 17,103
Deferred income amortization - (1,963) (1,412)
Deferred income taxes 132 (107) 100
(Increase) decrease in accounts receivable (13,206) 1,096 (253)
(Increase) decrease in inventories (6,594) 2,086 1,644
Increase in accounts payable and accrued expenses 2,268 1,123 7,530
(Increase) decrease in other net current assets (1,787) (36) 1,485
(Increase) decrease in other net long-term assets (2,943) 2,019 (3,102)
- - -----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (3,521) 27,406 25,738
- - -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:-1)
Acquisition of property, plant and equipment (11,344) (9,537) (5,961)
Capitalized software development costs (13,113) (10,550) (9,274)
Purchase price of companies acquired (5,852) (24) (56)
- - -----------------------------------------------------------------------------------------------------------------------------
Net cash (used for) investing activities (30,309) (20,111) (15,291)
- - -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Final payment of previous revolving credit line - - (19,989)
Revolver borrowings (repayments), net 15,750 (6,991) 5,808
Proceeds from notes payable 13,432 2,639 3,287
Principal payments on notes and mortgages (12,208) (3,192) (3,126)
Proceeds from issuing common stock-1) 17,676 2,135 5
Payment of escrow deposits (500) (1,000) (500)
- - -----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 34,150 (6,409) (14,515)
- - -----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash 25 (310) (10)
- - -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 345 576 (4,078)
Cash and cash equivalents at beginning of year-2) 2,594 2,018 6,096
- - -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year-2) $2,939 $2,594 $2,018
- - -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $2,979 $1,202 $2,191
Income taxes, net ($55) ($1,152) $494
=============================================================================================================================
(1 - Excluded from the fiscal 1994 Consolidated Statements of Cash Flows is the
issuance of common stock with a fair market value of $1,846 related to
the acquisition of a company. Excluded from the fiscal 1993 and 1992
cash flows are the acquisitions of capital equipment in the amounts of
$701 and $1,175, respectively, financed in their entirety with capital
leases. Also excluded from the fiscal 1993 cash flows is the
acquisition of property financed with mortgages in the amount of
$11,925.
(2 - The Corporation considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
- 18 -
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its majority-owned subsidiary companies. Intercompany accounts,
transactions and profits have been appropriately eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost or market, using a first-in,
first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated or amortized
using the straight-line method over their estimated useful lives. The cost of
internally constructed assets includes manufacturing labor and related overhead
costs. Depreciation expense amounted to $8,776,000, $7,985,000 and $8,686,000
in fiscal 1994, 1993 and 1992, respectively.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs are capitalized for those products that have met the
requirements of technological feasibility. These costs are amortized on a
product-by-product basis using a straight-line method over the estimated
economic life of the product, not to exceed three years.
REVENUE RECOGNITION
Revenue from equipment sales is recognized at the date of shipment. Service
revenue is recognized when the service is performed or, in the case of
maintenance contracts, on a straight-line basis over the term of the contract.
Revenue from sales-type leases is recognized at the date of shipment. Revenue
from operating leases is recognized ratably over the lease term, and the
related equipment is depreciated using the straight-line method over its
estimated useful life which approximates four years. The average length of
initial lease terms in fiscal 1994 was approximately 31 months. Leasing revenue
includes income from the transfer of certain finance lease receivables with
full recourse. Such income amounted to $842,000, $1,354,000 and $871,000 in
fiscal 1994, 1993 and 1992, respectively.
INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes", which requires the use of the liability
method of accounting for deferred income taxes effective October 1, 1993. The
financial effect of adoption on the results of operations was not material.
However, adoption changed the classification of deferred income tax accounts on
the balance sheet.
-19-
20
The provision for income taxes includes federal, foreign, state and local
income taxes currently payable and deferred taxes resulting from temporary
differences between the financial statement and tax basis of assets and
liabilities. The Corporation intends to permanently reinvest the undistributed
earnings of foreign subsidiaries ($1,279,000). Accordingly, no federal income
taxes have been provided on such earnings.
EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of common
(including Class B Stock) and common equivalent shares outstanding. Common
equivalent shares consist of dilutive stock options and warrants.
FOREIGN CURRENCY
Assets and liabilities of the Corporation's foreign subsidiaries are translated
using fiscal year-end exchange rates, and revenue and expenses are translated
using average exchange rates prevailing during the year. The effects of
translating foreign subsidiaries' financial statements are recorded as a
separate component of stockholders' equity.
In addition, included in other income are net realized foreign currency
exchange gains (losses) of ($188,000), $54,000 and $122,000 for fiscal 1994,
1993 and 1992, respectively.
POST-RETIREMENT BENEFITS
Effective October 1, 1993, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employer's Accounting for
Post-Retirement Benefits Other Than Pensions", requiring the use of an accrual
method of accounting for post-retirement benefits. The Corporation elected to
recognize the transition obligation as a one-time cumulative after-tax charge
to income of ($117,000), or $(.01) per share. The increase in annual expense
for retiree health care is not material.
POST-EMPLOYMENT BENEFITS
Effective October 1, 1993, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Post-Employment Benefits", requiring the use of an accrual method of accounting
for post-employment benefits. The Corporation elected to recognize the
transition obligation as a one-time cumulative after-tax charge to income of
($316,000), or $(.02) per share. The increase in annual expense for
post-employment costs is not material.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and cash equivalents - The carrying amount reported in the consolidated
balance sheet for cash and cash equivalents approximates its fair value due to
their short-term nature.
Long-term debt - The carrying amounts of the Corporation's long-term
borrowings, including current maturities, approximate fair value based on
current rates available to the Corporation for debt of the same remaining
maturities.
-20-
21
RECLASSIFICATIONS
Certain reclassifications were made to prior years' financial statements to
conform to the current year's presentation.
2. BUSINESS ACQUISITION
Effective November 24, 1993, the Corporation acquired Netcomm Limited
("Netcomm"), a leader in Asynchronous Transfer Mode (ATM) technology, located
in England. Under the terms of the acquisition, the Corporation issued 184,647
shares of common stock valued at $1.8 million and committed to pay cash of $5.5
million in return for all the outstanding common stock of Netcomm. The
acquisition was accounted for as a purchase and, accordingly, the results of
operations of the acquired business have been included in the Corporation's
consolidated financial statements commencing on November 24, 1993.
Approximately $6.5 million of the purchase price was allocated to goodwill,
which is being amortized on a straight-line basis over fifteen years.
3. PRODUCT DEVELOPMENT AND PURCHASE AGREEMENTS
QUEBEC R&D PROJECT
In fiscal 1993, the Corporation's Canadian subsidiary entered into an agreement
with the Quebec, Canada, government to establish a research and development
facility in Quebec for the development of an ATM hub product. The Corporation
has committed to spend approximately $9.0 million over a three-year period. Up
to 50% of the costs of this facility will be reimbursed through tax credits and
grants from the Quebec government. Such tax credits and grants, which amounted
to $320,000 and $355,000, respectively, for the year ended September 30, 1994,
are recorded as a reduction to research and product development expense.
CROSSCOMM
In 1992, the Corporation entered into a joint development agreement with
CrossComm Corporation ("CrossComm") pursuant to which the Corporation and
CrossComm will jointly develop certain new products that will integrate
CrossComm's Token Ring Local Area Network (LAN) technology into the
Corporation's Wide Area Network (WAN) products. CrossComm will receive
$1,250,000 in payments for software license fees based upon the Corporation's
profits recorded on the sales of certain of the new products over a four-year
term commencing upon the Corporation's future receipt and acceptance of the new
products.
4. INVENTORIES
Inventories consist of (in thousands):
September 30, 1994 1993
- - ---------------------------------------------------------------------------------
Raw materials $18,313 $13,024
Work-in-process 7,249 5,033
Finished goods 16,600 16,465
- - ---------------------------------------------------------------------------------
$42,162 $34,522
=================================================================================
-21-
22
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
Years ended September 30, 1994 1993
- - ----------------------------------------------------------------------------------
Revolving credit loan $16,200 $ 450
Notes payable 18,318 18,283
Mortgages payable 11,809 11,825
Capital lease obligations 1,029 1,333
- - ----------------------------------------------------------------------------------
47,356 31,891
Less: current portion 5,238 3,489
- - ----------------------------------------------------------------------------------
$42,118 $28,402
- - ----------------------------------------------------------------------------------
REVOLVING CREDIT LOAN
On June 1, 1994, the Corporation, for the purpose of providing a term loan (see
Notes Payable), entered into an amended agreement with The Bank of New York, as
lender and agent for other institutions that are also lenders, to provide a
revolving credit facility maturing on November 30, 1996 in the amount of
$25,000,000. The amended agreement provides for interest on outstanding
borrowings to be charged at .75% plus the higher of either (1) the prime rate,
or (2) the federal funds rate plus 1/2 of 1% (on September 30, 1994, the prime
rate was 7.75% and the federal funds rate was 5.44%). Alternately, the
Corporation may elect to borrow at 2.625% over LIBOR for terms of 1, 2, 3 or 6
months (on September 30, 1994, these LIBOR rates ranged from 4.94% to 5.69%).
The agreement also requires conformity with various financial covenants, the
most restrictive of which include minimum tangible net worth and a fixed charge
coverage ratio. Certain assets of the Corporation, including most accounts
receivable and inventories, are pledged as collateral. The amount of borrowing
is predicated on satisfying a borrowing base formula related to levels of
certain accounts receivable and inventories.
NOTES PAYABLE
The Corporation has entered into five-year note and installment purchase
agreements collateralized by certain machinery, test equipment and furniture
and fixtures. The outstanding balance of $10,818,000 at September 30, 1994,
which approximates the net book value of the underlying equipment, bears
interest depending upon the agreement, either at fixed rates ranging from 6.5%
to 11.22%, at prime rate, at prime plus 1% or at the 30-day commercial paper
rate plus 3.75%. Individual notes mature between fiscal 1995 and fiscal 1999.
The following is a schedule of future minimum payments on such notes at
September 30, 1994 (in thousands):
1995 1996 1997 1998 1999 and thereafter
- - -----------------------------------------------------------------------------------------------
$3,349 $2,883 $2,233 $1,544 $ 809
- - -----------------------------------------------------------------------------------------------
Total future minimum
note payments $10,818
- - -----------------------------------------------------------------------------------------------
-22-
23
On June 1, 1994, the Corporation refinanced $8,000,000 of a note payable,
previously maturing January 2, 1995, with The Bank of New York as lender and
agent for other institutions by incorporating term loan provisions and
additional collateral into the previous revolving credit agreement. Quarterly
principal payments of $250,000, $375,000 and $500,000 are required in the
first, second and third (partial) years, respectively, with the final payment
due November 30, 1996. Interest is payable either at 3.25% over LIBOR terms of
1, 2, 3 or 6 months or at 1.25% over the prime rate, at the Corporation's
election. At September 30, 1994, the outstanding balance on this note was
$7,500,000.
MORTGAGES PAYABLE
In September 1993, the Corporation purchased its corporate headquarters and
manufacturing facilities with financing provided by the seller's banks.
Interest is payable at 90-day LIBOR (5.44% at 9/30/94) plus 2%, and quarterly
principal payments of $100,000 are required until these mortgages mature in the
year 2003.
CAPITAL LEASE OBLIGATIONS
The Corporation has acquired the use of certain machinery and equipment by
entering into capital leases. The outstanding balance of $1,029,000 at
September 30, 1994 bears interest, depending upon the agreement, at fixed rates
ranging from 6.66% to 10.75%.
6. INCOME TAXES
Income (loss) before income taxes and cumulative effect of accounting changes
consists of both domestic and foreign income (loss) as follows (in thousands):
Years ended September 30, 1994 1993 1992
- - ----------------------------------------------------------------------------------
United States $(1,703) $5,391 $5,153
Foreign (1,167) 1,750 (1,956)
- - ----------------------------------------------------------------------------------
$(2,870) $7,141 $3,197
- - ----------------------------------------------------------------------------------
The provision for (benefit from) income taxes consists of the following amounts
(in thousands):
Years ended September 30, 1994 1993 1992
- - ----------------------------------------------------------------------------------
Current:
State $ 500 $ 400 $ 457
Foreign (1,607) 732 (3)
- - ----------------------------------------------------------------------------------
$(1,107) $1,132 $ 454
- - ----------------------------------------------------------------------------------
Deferred:
Federal $(100) $(91) $221
Foreign 232 (16) (121)
- - ----------------------------------------------------------------------------------
$132 $ (107) $ 100
- - ----------------------------------------------------------------------------------
Due to the Corporation's net operating loss carryforward position, no tax
benefit was recorded for the cumulative effect of adopting SFAS Nos. 106 and
112 (see Note 1).
-23-
24
The following reconciles the U.S. statutory income tax rate to the
Corporation's effective rate:
Years ended September 30, 1994 1993 1992
- - ------------------------------------------------------------------------------------------------
Federal statutory rate (34.0)% 34.0% 34.0%
No benefit recognized for domestic net operating loss 12.8 - -
Benefit recognized for domestic net operating
loss carryforward - (24.6) (53.1)
Effect of foreign income taxes 29.8 1.7 18.0
Reversal of excess reserves for tax audits (67.4) (1.3) -
Deferred alternative minimum tax - - 7 .3
State and local income taxes, net of
federal benefit 17.4 3.7 10.0
Non-deductible expenditures 7.4 0.8 1.1
- - ------------------------------------------------------------------------------------------------
(34.0)% 14.3% 17.3%
- - ------------------------------------------------------------------------------------------------
For regular tax reporting purposes at September 30, 1994, tax credit and net
operating loss carryforwards amounted to $4,118,000 and $43,509,000,
respectively. Domestic federal loss carryforwards of $35,051,000 expire
between 2002 and 2009, of which approximately $4,100,000 relate to items which
will be credited to stockholders' equity when applied; state loss carryforwards
of $4,882,000 expire between 1995 and 2009. Foreign loss carryforwards of
$3,576,000 expire beginning in 1996. Tax credit carryforwards expire between
1995 and 2009.
For federal alternative minimum tax purposes at September 30, 1994, net
operating loss carryforwards amounted to $35,966,000.
The nature of temporary differences for prior periods were consistent with
those of September 30, 1994. The tax effects of the significant temporary
differences comprising the deferred tax assets and liabilities at September 30,
1994 follow (in thousands):
Deferred Tax Assets:
Receivable reserve $ 1,429
Inventory reserve 3,721
Deferred income 1,419
Restructuring and other accruals 1,116
Loss carryforwards 14,793
Tax credits 4,118
--------
26,596
Valuation allowance (12,956)
--------
Net deferred tax assets $13,640
========
Deferred Tax Liabilities
Depreciation $ (1,735)
Deferred income (1,527)
Capitalized software (7,722)
Operating leases (1,027)
Capital leases (2,041)
Other (523)
--------
Gross deferred tax liability $(14,575)
========
During fiscal 1994 the valuation allowance increased by $754,000.
-24-
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7. OPERATING LEASES
The Corporation has certain non-cancelable operating leases on automobiles,
subsidiary locations, sales offices and service facilities, which expire within
one to five years. These leases generally contain renewal options and
provisions for payment by the lessee of executory costs (taxes, maintenance and
insurance). In addition, the Corporation has entered into a non-cancelable
operating lease with scheduled rent increases for its engineering facility
which expires in the year 2003. The Corporation also has a non-cancelable
operating lease for an industrial facility which expires December 31, 1995.
This facility was vacated as part of a cost reduction program in 1988 (see Note
12).
The following is a schedule of the future minimum payments on such leases at
September 30, 1994 (in thousands):
1995 1996 1997 1998 1999 and thereafter
- - ----------------------------------------------------------------------------------------------------
$6,413 $4,320 $2,996 $ 2,408 $ 8,342
- - ----------------------------------------------------------------------------------------------------
Total future minimum lease
payments $24,479
Less: future sublease income,
non-cancelable through 2000 9,558
- - ----------------------------------------------------------------------------------------------------
Net future rental expense $14,921
- - ----------------------------------------------------------------------------------------------------
Net rental expense for the three most recent fiscal years was (in thousands):
Deferred
Rental Sublease Income
Expense Income Amortization Net
- - ----------------------------------------------------------------------------------------------
1994 $ 7,650 $1,538 $ - $6,112
1993 10,236 1,952 814 7,470
1992 11,680 1,904 1,412 8,364
- - ----------------------------------------------------------------------------------------------
-25-
26
8. STOCKHOLDERS' EQUITY
Authorized: 35,000,000 shares of Common Stock - par value $.10 per share;
35,000,000 shares of Class B Stock - par value $.10 per share; 3,000,000 shares
of Preferred Stock - par value $.10 per share (of which no shares have been
issued):
Transactions in capital stock during fiscal 1992, 1993 and 1994 were as follows
(in thousands except share amounts):
Capital Stock Capital Treasury Stock Foreign
------------------------- in Excess ------------------------ Currency
Shares Amount of Par Shares Amount Translation
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1991 16,479,117 $1,648 $47,699 1,058,107 ($7,203) $758
Exercise of stock options 1,500 - 5 - - -
Foreign currency translation adjustment - - - - - (306)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1992 16,480,617 1,648 47,704 1,058,107 (7,203) 452
Exercise of stock options 444,561 44 1,995 23,951 (259) -
Employee stock purchase plan 55,403 6 365 - - -
Foreign currency translation adjustment - - - - - (1,529)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1993 16,980,581 1,698 50,064 1,082,058 (7,462) (1,077)
Exercise of stock options 448,617 45 2,122 (11,559) (106) -
Employee stock purchase plan 54,541 5 806 (44,079) 306 -
Business acquisition - - 573 (184,647) 1,273 -
Private placement offering 1,250,000 125 14,462 - - -
Foreign currency translation adjustment - - - - - 176
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1994 18,733,739 $1,873 $68,027 841,773 ($5,989) ($901)
===================================================================================================================================
Class B Stock, under certain circumstances, has greater voting power in the
election of directors. However, Common Stock is entitled to cash dividends, if
and when paid, 11.11% higher per share than Class B Stock. The Corporation has
never paid cash dividends, and dividends are not permitted by the Corporation's
revolving credit and term loan agreement. Class B Stock has limited
transferability and is convertible into Common Stock at any time on a
share-for-share basis. At September 30, 1994, 1993 and 1992, 2,271,780,
2,466,231 and 2,705,670 shares, respectively, of Class B Stock were
outstanding.
On May 27, 1994, the Corporation completed the sale of 1,250,000 shares of
comon stock through a private placement offering. The sales price was $12.375
per common share. Net proceeds of $14.6 million were used to reduce debt and
to provide additional working capital.
- 26 -
27
9. INDUSTRY AND GEOGRAPHIC AREA INFORMATION
The Corporation operates solely in the data communications industry, where it
designs, assembles, markets, installs and services products that enable users
to build global, multimedia communications networks. These products include
network management systems, multiplexers and data sets for a wide range of
industrial, commercial and service corporations, government agencies, and
domestic and international communications common carriers.
Geographic area information for 1994, 1993 and 1992 is presented below (in
thousands):
Western
Hemisphere
1994 United States (except U.S.) Europe Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------
Revenues $157,685(1) $27,860 $25,445 $ - $210,990
Transfers between geo-
graphic areas 36,726 - 2,515 (39,241) -
Total revenues $194,411 $27,860 $27,960 $(39,241) $210,990
Operating profit(loss) $ 6,242 $ (513) $ (30) $ - $ 5,699
General corporate expenses,
net (4,789)
Interest expense (3,780)
Loss before income taxes
and accounting changes (2,870)
Total assets $149,983 $14,621 $15,660 $ - $180,264
Western
Hemisphere
1993 United States (except U.S.) Europe Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------
Revenues $160,508(1) $28,778 $22,561 $ - $211,847
Transfers between geo-
graphic areas 28,882 - - (28,882) -
Total revenues $189,390 $28,778 $22,561 $ (28,882) $211,847
Operating profit(loss) $13,180 $ (25) 1,364 $ - $ 14,519
General corporate expenses,
net (5,396)
Interest expense (1,982)
Income before income
taxes $ 7,141
Total assets $121,208 $ 8,018 $12,450 $ - $141,676
- - ------------------------------------------------------------------------------------------------------------
Western
Hemisphere
1992 United States (except U.S.) Europe Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------
Revenues $148,329(1) $27,465 $22,064 $ - $197,858
Transfers between geo-
graphic areas 26,568 - - (26,568) -
Total revenues $174,897 $27,465 $22,064 $(26,568) $197,858
Operating profit(loss) $ 13,018 $ (975) $(1,089) $ - $ 10,954
General corporate expenses,
net ( 5,065)
Interest expense (2,692)
Income before income
taxes $ 3,197
Total assets $107,949 $ 8,972 $10,733 $ - $127,654
===========================================================================================================
(1) Includes export sales by domestic operations of $25,126 ,$21,793 and $23,315
for fiscal 1994, 1993 and 1992, respectively.
Approximately $15.2 million, or 28.5%, of consolidated accounts receivable at
September 30, 1994 ($9.3 million, or 22.9%, at September 30, 1993) were
concentrated in telephone companies located in North America and Europe. These
receivables are not collateralized due to the high credit ratings and the
extensive financial resources available to such telephone companies.
-27-
28
10. EMPLOYEE INCENTIVE PLANS
STOCK OPTION PLANS
Officers and key employees may be granted incentive stock options at an
exercise price equal to or greater than the market price on the date of grant
and non-qualified stock options at an exercise price equal to or less than the
market price on the date of grant. Once granted, options become exercisable in
whole or in part after the first year and generally expire within ten years.
Under the terms of these stock option plans, the Corporation has reserved a
total of 2,997,837 shares of Common Stock in 1994 (2,832,096 in 1993).
The following summarizes activity in fiscal 1992, 1993 and 1994 under these
stock option plans:
Shares Option Price
- - ---------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1991 (866,526 exercisable) 1,803,660 $2.00 to $8.00
Options granted 649,545 3.75 to 3.82
Options exercised (1,500) 3.44 to 3.69
Options canceled or expired (315,525) 3.34 to 5.69
- - ---------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1992 (909,236 exercisable) 2,136,180 $2.00 to $ 8.00
Options granted 824,200 3.62 to 14.50
Options exercised (444,561) 2.00 to 5.75
Options canceled or expired (70,802) 3.81 to 8.00
- - ---------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1993 (873,394 exercisable) 2,445,017 $2.00 to $14.50
Options granted 660,097 8.63 to 19.94
Options exercised (473,992) 2.00 to 11.63
Options canceled or expired (84,925) 3.62 to 15.50
- - ---------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1994 ( 871,075 exercisable) 2,546,197 $2.00 to $19.94
=========================================================================================================
STOCK PURCHASE PLAN
The Corporation has a stock purchase plan to encourage employees to participate
in the Corporation's future growth. At September 30, 1994, 553,691 shares were
reserved for purchase by employees through payroll deductions regularly
accumulated over six-month payment periods. At the end of each payment period,
Common Stock is purchased at 85% of the market value of the stock on the first
or last day of the payment periods, whichever is lower. However, the purchase
of Common Stock under this plan is prohibited if 85% of the market value of the
Common Stock is less than the book value per share. Note 8, "Stockholders'
Equity," presents the historical activity under this plan.
* * * * *
No charges are made to income for stock purchases or incentive stock options
granted or exercised under the stock purchase and stock option plans. When
shares are purchased under the stock purchase plan or issued upon exercise of
incentive stock options, the excess of amounts paid over par value is credited
to capital in excess of par value.
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29
EMPLOYEE RETIREMENT SAVINGS AND DEFERRED PROFIT SHARING PLAN
Under the retirement savings provisions of the Corporation's retirement plan,
established under Section 401(k) of the Internal Revenue Code, employees are
generally eligible to contribute to the plan after six months of continuous
service, in amounts determined by the plan. The Corporation contributes an
additional 50% of the employee contribution up to certain limits (not to exceed
1.5% of total eligible compensation). Employees become fully vested in the
Corporation's contributions after five years of continuous service, death,
disability or upon reaching age 65. The amounts charged to expense for the
years ended September 30, 1994, 1993 and 1992 were $838,800, $808,800 and
$601,400, respectively.
The deferred profit sharing provisions of the plan include retirement and other
related benefits for substantially all of the Corporation's full-time
employees. Contributions under the plan are funded annually and are based, at
a minimum, upon a formula measuring profitability in relation to revenues.
Additional amounts may be contributed at the discretion of the Corporation.
There was no contribution for fiscal 1994. The Corporation's contributions for
fiscal 1993 and 1992 were $357,050 and $156,600, respectively.
11. LEASING SUBSIDIARY
The Corporation's consolidated financial statements include the accounts of its
wholly-owned leasing subsidiary, DataComm Leasing Corporation. The leasing
subsidiary purchases equipment for lease to others from General DataComm, Inc.,
its sole supplier.
The following represents the condensed financial information of DataComm
Leasing Corporation (in thousands):
Financial Condition
September 30, 1994 1993
- - --------------------------------------------------------------------------------------------
Current assets $ 2,276 $ 2,272
Noncurrent assets 2,637 3,135
Due from General DataComm, Inc. 27,443 24,315
- - --------------------------------------------------------------------------------------------
Total assets $32,356 $29,722
- - --------------------------------------------------------------------------------------------
Current liabilities $ 876 $ 863
Noncurrent liabilities 23 66
Stockholder's equity 31,457 28,793
- - --------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $32,356 $29,722
============================================================================================
Results of Operations
Years ended September 30, 1994 1993 1992
- - --------------------------------------------------------------------------------------------
Net revenues $6,713 $ 7,524 $7,411
- - --------------------------------------------------------------------------------------------
Income before income taxes $4,388 $ 5,206 $5,634
============================================================================================
LEASE FINANCING PROGRAMS
DataComm Leasing Corporation maintains agreements with financial institutions
whereby certain finance lease receivables are transferred with full recourse.
The underlying equipment is retained as collateral by DataComm Leasing
Corporation. Proceeds received by the leasing subsidiary from the transfer of
such receivables amounted to $3,618,000, $4,193,000 and $3,751,000 for fiscal
1994, 1993
-29-
30
and 1992, respectively. The balance of all transferred receivables which were
due to be paid by the original lessees under the remaining lease terms as of
September 30, 1994 and 1993 amounted to $6,836,000 and $7,129,000,
respectively.
12. RESTRUCTURING OF OPERATIONS
The Corporation remains obligated for a leased industrial facility, located in
Connecticut, which was vacated in 1988 as part of a cost reduction program.
The Corporation anticipates that reserves, in the total amount of $2,848,250 at
September 30, 1994, of which $2,256,189 are classified as a current liability,
are adequate to cover the estimated future costs to carry the facility through
the end of its lease term, December 31, 1995.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands except per share data
Fiscal 1994 First Second Third Fourth
- - -------------------------------------------------------------------------------------------------------------------
Revenues $48,050 $48,032 $54,903 $60,005
Gross profit 22,806 22,802 25,563 29,487
Operating income (loss) (851) (1,602) 575 2,539
Income (loss) before cumulative
effect of accounting
changes (1,876) (810) (502) 1,293
Net income (loss)(1) $(2,309) $ (810) $ (502) $ 1,293
Earnings (loss) per share before
before cumulative effect
of accounting changes(2) $ (0.11) $ (0.05) $ (0.03) $ 0.07
Earnings (loss) per share(2) $ (0.14) $ (0.05) $ (0.03) $ 0.07
===================================================================================================================
Fiscal 1993 First Second Third Fourth
- - -------------------------------------------------------------------------------------------------------------------
Revenues $54,272 $54,295 $51,267 $52,013
Gross profit 25,216 25,606 25,076 25,544
Operating income 2,313 2,724 1,953 2,007
Net income $ 1,551 $ 1,918 $ 1,283 $ 1,364
Earnings per share $ 0.10 $ 0.11 $ 0.07 $ 0.08
===================================================================================================================
(1) First quarter 1994 net loss includes charges totaling $(433), resulting
from the adoption of Financial Accounting Standards Nos. 106 and 112,
effective October 1, 1993. As originally reported, net loss for the first
quarter was $(1,993), or $(0.12) per share.
(2) Earnings (loss) per share amounts for each quarter are required to be
computed independently and, in 1994, did not equal the full-year loss-per-share
amounts.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
-30-
31
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 1995 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, 1994.
Name POSITION AGE
- - ---- -------- ---
Charles P. Johnson Chairman of the Board of Directors 67
and Chief Executive Officer
Ross A. Belson President and Chief Operating Officer 58
Frederick R. Cronin Vice President, Technology and a Director 63
Robert S. Smith Vice President, Business Development 61
William S. Lawrence Vice President, Finance and Chief Financial Officer 51
James R. Arcara Vice President, Corporate Operations 59
Dennis J. Nesler Vice President and Treasurer 51
Rick L. Mantz Vice President, Engineering 48
Michael C. Thurk Senior Vice President, Marketing 42
William G. Henry Corporate Controller 45
August J. Hof Vice President, Manufacturing Operations 44
Eric A. Amster Vice President, U.S. Federal and Commercial Sales 40
V. Jay Damiano Vice President, U.S. Telecomm Sales 49
Howard S. Modlin Secretary and a Director 63
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 1987. Before joining
the Corporation, Mr. Belson held executive positions at Adage and Lexidata.
Mr. Frederick R. Cronin, Vice President, Technology, has served in executive
capacities since the founding of the Corporation.
-31-
32
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, Vice President, Finance and Chief Financial Officer,
has served in his present capacity since joining the Corporation in April 1977.
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. Rick L. Mantz, Vice President, Engineering, has served in this capacity
since joining the Corporation in 1988. From October 1985, Mr. Mantz served as
Assistant Vice President of Engineering at Timeplex, Inc.
Mr. Michael C. Thurk, Senior Vice President, Marketing, joined the Corporation
in January 1994. Before that time, Mr. Thurk held various positions within the
networking business of Digital Equipment Corporation over a period of fourteen
years. Mr. Thurk's most recent position at Digital was Vice President of the
Telecommunications Business segment.
Mr. William G. Henry, Corporate Controller, has served in this capacity since
joining the Corporation in 1984.
Mr. August J. Hof, Vice President, Manufacturing Operations since June 1989,
joined the Corporation in 1985 as Printed Circuit Board Plant Manager.
Mr. Eric A. Amster, Vice President, U.S. Federal and Commercial Sales, was
elected officer of the Corporation in August 1993. He joined the Corporation
in the sales organization in 1981 and has held positions of increasing
responsibility since that time.
Mr. V. Jay Damiano, Vice President, U.S. Telecomm Sales, was elected 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. Howard S. Modlin, Secretary, an attorney and partner of the firm of
Weisman, Celler, Spett & Modlin, has been Secretary and counsel to the
Corporation since its formation.
-32-
33
ITEM 11. EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS WITH
MANAGEMENT
To be filed by amendment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
To be filed by amendment.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS
During the period October 1, 1987 through September 30, 1991, the Corporation
granted unsecured loans to Messrs. Charles P. Johnson (Chairman of the Board),
Frederick R. Cronin (Vice President, Technology) and Robert S. Smith (Vice
President, Business Development) in the amounts of $453,045, $100,000 and
$200,000, respectively, which were due January 31, 1995, April 14, 1994 and
April 14, 1994, respectively. During fiscal 1994, Messrs. Johnson, Cronin and
Smith repaid their respective balances in full and were not indebted to the
Corporation at September 30, 1994. All loans were made for the personal needs
of the respective executive officers.
During fiscal 1989, Mr. Rick L. Mantz (Vice President, Engineering) was granted
a secured loan by the Corporation in the maximum amount of $75,000. Mr.
Mantz's loan was secured by a third mortgage on a property located in
Southbury, Connecticut and bore interest at the rate of 9% per annum, payable
bi-weekly. During fiscal 1994, Mr. Mantz's final principal balance of $18,750
was forgiven in accordance with the loan terms. The loan was made for the
personal needs of Mr. Mantz pursuant to employment negotiations at the time he
was hired by the Corporation.
BUSINESS RELATIONSHIPS WITH DIRECTORS
During the fiscal year ended September 30, 1994, $700,000 in fees were paid to
the law firm of which Howard S. Modlin is a partner.
-33-
34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial statements and schedules of the registrant and its subsidiaries are listed in the accompanying "Index to
Financial Statements and Schedules" on page F-1 hereof and are filed as part of this Report.
(2) All Exhibits.
3.1 Restated Certificate of Incorporation of the Corporation.(1)
3.2 Amended and Restated By-Laws of the Corporation.(2)
10.1 Capital Equipment Financing Agreement between General DataComm, Inc. and Societe Generale Financial Corporation.(3)
10.2 Transfer of Receivables Agreement between DataComm Leasing Corporation and Sanwa Business Credit Corporation.(4)
10.3 1979 Employee Stock Purchase Plan.(5)
10.4 1983 Stock Option Plan.(6)
10.5 1984 Incentive Stock Option Plan.(7)
10.6 1985 Stock Option Plan.(8)
10.7 Amendment to the 1984 Incentive Stock Option Plan.(9)
10.8 Amendments to the 1984 Incentive Stock Option Plan.(10)
10.9 Retirement Savings and Deferred Profit Sharing Plan.(11)
10.1 Capital Equipment Financing Agreement between General DataComm, Inc. and Center Capital Corporation.(12)
10.11 Capital Equipment Financing Agreement between General DataComm Industries, Inc. and Hewlett Packard Company.(13)
10.12 Capital Equipment Financing Agreement between General DataComm Industries, Inc. and General Electric Capital
Corporation.(14)
10.13 1991 Stock Option Plan.(15)
10.14 Credit Agreement between General DataComm Industries, Inc. and The Chase Manhattan Bank.(16)
10.15 Second Amended and Restated Revolving Credit Term Loan and Security Agreement between General DataComm Industries, Inc.
et al. and
The Bank of New York et al.(17)
11. Calculation of Earnings Per Share for the fiscal years ended September 30, 1992 through 1994, inclusive.
13. Annual Report to Stockholders for the year ended September 30, 1994. The 1994 Annual Report to Stockholders will be
furnished for the information of the Commission and is not deemed "filed." (To be filed by amendment.)
21. List of subsidiaries.
(1) Incorporated by reference from Form 10-Q for quarter ended June 30,
1988, Exhibit 3.1. 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 10.2 to Form 10-Q for quarter
ended June 30, 1989.
(4) Incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter
ended June 30, 1989.
-34-
35
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Incorporated by reference from Exhibit 10.19 to Form 10-K for year
ended September 30, 1987.
(10) Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter
ended December 31, 1987.
(11) Incorporated by reference from Form S-8, Registration Statement No.
33-37266.
(12) Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter
ended December 31, 1991 and Exhibit 28.2 to Form 10-Q for quarter
ended March 31, 1992.
(13) Incorporated by reference from Exhibit 28.3 to Form 10-Q for quarter
ended March 31, 1992 and from Exhibit 28.3 to Form 10-Q for quarter
ended June 30, 1992.
(14) Incorporated by reference from Exhibit 28.4 to Form 10-Q for quarter
ended June 30, 1992 and from Exhibit 28.4 to Form 10-Q for quarter
ended December 31, 1992.
(15) Incorporated by reference from Form S-8, Registration Statement No.
33-53150, from Form S-8, Registration Statement No. 33-62716 and from
Form S-8, Registration Statement No. 33-53201.
(16) Incorporated by reference from Exhibit 10.21 to Form 10-K for the year
ended September 30, 1993.
(17) Incorporated by reference from Exhibit 28.1 to Form 10-Q for the
quarter ended June 30, 1994.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
-35-
36
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
----------------------------------
William S. Lawrence
Vice President, Finance and
Principal Financial Officer
Dated: November 4, 1994
-36-
37
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
- - --------- ----- ----
CHARLES P. JOHNSON Chairman of the November 4, 1994
- - ------------------------------ Board and Chief
CHARLES P. JOHNSON Executive Officer
WILLIAM S. LAWRENCE Vice President, Finance November 4, 1994
- - ------------------------------ and Principal Financial
WILLIAM S. LAWRENCE Officer
WILLIAM G. HENRY Corporate Controller November 4, 1994
- - ------------------------------
WILLIAM G. HENRY
HOWARD S. MODLIN Director and Secretary November 4, 1994
- - -----------------------------
HOWARD S. MODLIN
LEE M. PASCHALL Director November 4, 1994
- - -----------------------------
LEE M. PASCHALL
FREDERICK R. CRONIN Director and November 4, 1994
- - ----------------------------- Vice President, Technology
FREDERICK R. CRONIN
JOHN L. SEGALL Director November 4, 1994
- - -----------------------------
JOHN L. SEGALL
-37-
38
GENERAL DATACOMM INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
ITEM 14(A)
FINANCIAL STATEMENTS AND SCHEDULES INCLUDED PAGE
- - ------------------------------------------- ----
Consolidated Balance Sheets at September 30,
1994 and 1993. 17
Consolidated Statements of Operations and Earnings Reinvested
for the Years Ended September 30, 1994, 1993 and 1992. 18
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1994, 1993 and 1992. 19
Notes to Consolidated Financial Statements 20
Report of Independent Accountants F-2
Consent of Independent Accountants F-3
Consolidated Financial Statement Schedules:
II. Amounts receivable from related parties and
underwriters, promoters and employees other
than related parties for the years ended
September 30, 1994, 1993 and 1992. F-4
V. Property, plant and equipment for the years ended
September 30, 1994, 1993 and 1992. F-5
VI. Accumulated depreciation and amortization of
property, plant and equipment for the years
ended September 30, 1994, 1993 and 1992. F-6
VIII. Valuation and qualifying accounts for the years
ended September 30, 1994, 1993 and 1992. F-7
X. Supplementary income statement information
for the years ended September 30, 1994, 1993
and 1992. F-8
FINANCIAL STATEMENTS AND SCHEDULED OMITTED
Financial statements and schedules other than those 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
39
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF GENERAL DATACOMM INDUSTRIES, INC.
We have audited the consolidated financial statements and financial statement
schedules of General DataComm Industries, Inc. And Subsidiaries listed in Item
14(a) of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
General DataComm Industries, Inc. And Subsidiaries as of September 30, 1994 and
1993, and the consolidated results of their operations and their cash flows for
the years ended September 30, 1994, 1993 and 1992, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Notes 1 and 6 to the consolidated financial statements,
effective October 1, 1993 the Corporation changed its methods of accounting for
post-retirement benefits other than pensions, post-employment benefits and
income taxes.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
October 19, 1994
F-2
40
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
General Datacomm Industries, Inc. and Subsidiaries on Form S-8 (File Nos.
2-92929, 33-21027, 33-36351, 33-37266, 33-43050, 33-53150, 33-62716 and
33-53201) and on Form S-3 (File No. 33-54417) of our report, which includes an
explanatory paragraph for certain accounting changes, dated October 19, 1994, on
our audits of the consolidated financial statements and financial statement
schedules of General Datacomm Industries, Inc. and Subsidiaries as of September
30, 1994 and 1993 and for the years ended September 30, 1994, 1993, and 1992,
which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
November 4, 1994
F-3
41
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED
SEPTEMBER 30, 1994, 1993 AND 1992
Balance
Beginning Balance at End
Name of Debtor of Period Additions Deductions of Period
-------------- -------------- --------- ---------- --------------
1994 CHARLES P. JOHNSON $175,000 (b) $ -- $175,000 $ --
------------ --------- -------- ------------
Chairman of the Board
of Directors and Chief
Executive Officer,
General DataComm Industries, Inc.
ROBERT S. SMITH $ 65,000 (c) $ -- $ 65,000 $ --
------------ --------- -------- ------------
Vice President,
Business Development,
General DataComm Industries, Inc.
1993 CHARLES P. JOHNSON $453,045 (a) $ -- $278,045 $175,000 (b)
------------ --------- -------- ------------
Chairman of the Board
of Directors and Chief
Executive Officer,
General DataComm Industries, Inc.
ROBERT S. SMITH $100,000 (c) $ -- $ 35,000 $ 65,000 (c)
------------ --------- -------- ------------
Vice President,
Business Development,
General DataComm Industries, Inc.
1992 CHARLES P. JOHNSON $453,045 (a) $ -- $ -- $453,045 (a)
------------ --------- -------- ------------
Chairman of the Board
of Directors and Chief
Executive Officer,
General DataComm Industries, Inc.
ROBERT S. SMITH $100,000 (c) $ -- $ -- $100,000 (c)
------------ --------- -------- ------------
Vice President,
Business Development,
General DataComm Industries, Inc.
(a) Represents seven individual $50,000 and one $103,045 unsecured notes
receivable, each of which bears interest at the rate of 7.65% per annum
as of September 30, 1991, and September 30, 1992. These loans were
scheduled to mature at dates ranging from December 1993 through February
1995.
(b) Represents one unsecured note receivable, which bears interest at the
rate of 5.81% per annum at September 30, 1993. The loan, which was due
January 31, 1995, was paid in full in February 1994.
(c) Represents one unsecured note receivable, which bears interest at the
rate of 7.65% per annum at September 30, 1993. The loan, which was due
in April 1994, was paid in full in March 1994.
F-4
42
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
Balance at Balance
Beginning Additions Translation Other at End
of Period at Cost Retirements Adjustments Changes(a) of Period
---------- --------- ----------- ----------- ---------- ---------
1994
- - ----
Land $ 1,745 $ 5 $ -- $ 14 $ -- $ 1,764
Buildings and
improvements 24,307 2,349 (425) 185 642 27,058
Test equipment,
fixtures and
field spares 43,183 5,591 (2,062) 272 28 47,012
Machinery and
equipment 35,390 3,589 (1,507) 142 908 38,522
-------- -------- -------- ------- ------ --------
$104,625 $ 11,534 $ (3,994) $ 613 $1,578 $114,356
======== ======== ======== ======= ====== ========
1993
- - ----
Land $ 250 $ 1,500(b) $ -- $ (5) $ -- $ 1,745
Buildings and
improvements 11,152 13,395(b) (54) (186) -- 24,307
Test equipment,
fixtures and
field spares 53,694 3,680 (13,333) (858) -- 43,183
Machinery and
equipment 33,129 3,803 (1,105) (437) -- 35,390
-------- -------- -------- ------- ------ --------
$ 98,225 $ 22,378 $(14,492) $(1,486) $ $104,625
======== ======== ======== ======= ====== ========
1992
- - ----
Land $ 250 $ -- $ -- $ -- $ -- $ 250
Buildings and
improvements 10,970 173 (2) 11 -- 11,152
Test equipment,
fixtures and
field spares 51,637 4,254 (2,183) (14) -- 53,694
Machinery and
equipment 30,906 2,730 (372) (135) -- 33,129
-------- -------- -------- ------- ------ --------
$ 93,763 $ 7,157 $ (2,557) $ (138) $ -- $ 98,225
======== ======== ======== ======= ====== ========
(a) Reflects property, plant and equipment at cost associated with the
November 1993 acquisition of Netcomm Limited.
(b) Includes the purchase of the Company's principal manufacturing facility
and corporate headquarters in September 1993 for $14,473, which was
partially financed by mortgages in the amount of $11,925.
F-5
43
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT
AND EQUIPMENT FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
Additions
Balance at Charged to Balance
Beginning Costs and Translation Other at End
of Period Expenses Retirements Adjustments Changes(a) of Period
--------- --------- ----------- ----------- ---------- --------
1994
- - ----
Buildings and
improvements $ 7,157 $ 1,285 $ (416) $ 37 $ 83 $ 8,130
Test equipment,
fixtures and
field spares 34,259 3,583 (2,016) 221 13 36,076
Machinery and
equipment 25,968 3,908 (1,372) 99 439 29,042
------- ------- -------- ------- ------ --------
$67,384 $ 8,776 $ (3,804) $ 357 $ 535 $ 73,248
======= ======= ======== ======= ====== ========
1993
- - ----
Buildings and
improvements $ 5,994 $ 1,304 $ (54) $ (87) $ -- $ 7,157
Test equipment,
fixtures and
field spares 44,572 3,458 (13,113) (658) -- 34,259
Machinery and
equipment 24,145 3,223 (1,090) (310) -- 25,968
------- ------- -------- ------- ------ --------
$74,711 $ 7,985 $(14,257) $(1,055) $ -- $ 67,384
======= ======= ======== ======= ====== ========
1992
- - ----
Buildings and
improvements $ 4,767 $ 1,219 $ (1) $ 9 $ -- $ 5,994
Test equipment,
fixtures and
field spares 42,205 4,279 (1,879) (33) -- 44,572
Machinery and
equipment 21,388 3,188 (324) (107) -- 24,145
------- ------- -------- ------- ------ --------
$68,360 $ 8,686 $ (2,204) $ (131) $ -- $ 74,711
======= ======= ======== ======= ====== ========
(a) Reflects accumulated depreciation and amortization associated with
the November 1993 acquisition of Netcomm Limited.
Note: Depreciation and amortization is computed on the straight-line method
over the following estimated useful lives:
Buildings and improvements - 3 to 30 years
Test equipment, fixtures and field spares - 3 to 10 years
Machinery and equipment - 2 to 10 years
F-6
44
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses Deductions (b) of Period
--------- -------- -------------- ---------
1994
Allowance for doubtful
receivables (a) $1,575 $ 339 $ 296 $1,618
------ ------ ------ ------
1993
Allowance for doubtful
receivables (a) $1,597 $ 504 $ 526 $1,575
------ ------ ------ ------
1992
Allowance for doubtful
receivables (a) $2,212 $ 627 $1,242 $1,597
------ ------ ------ ------
- - --------------------
(a) Deducted from asset accounts.
(b) Uncollectible accounts written off, net of recoveries.
F-7
45
GENERAL DATACOMM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
CHARGED TO EXPENSE
------------------
Years Ended September 30: 1994 1993 1992
---- ---- ----
Advertising $4,524,000 $3,510,000 $3,310,000
Amounts for maintenance and repairs, depreciation and amortization of
intangible assets, taxes other than income or payroll taxes and royalties are
not presented, as such amounts are presented elsewhere in the financial
statements or notes thereto, or were less than 1% of total revenues in each of
the three periods presented.
F-8
46
EXHIBIT INDEX
-------------
Exhibit
No. Description
- - ------- -----------
(a)(1) Financial statements and schedules of the registrant and its subsidiaries are listed in the accompanying "Index to
Financial Statements and Schedules" on page F-1 hereof and are filed as part of this Report.
(2) All Exhibits.
3.1 Restated Certificate of Incorporation of the Corporation.(1)
3.2 Amended and Restated By-Laws of the Corporation.(2)
10.1 Capital Equipment Financing Agreement between General DataComm, Inc. and Societe Generale Financial Corporation.(3)
10.2 Transfer of Receivables Agreement between DataComm Leasing Corporation and Sanwa Business Credit Corporation.(4)
10.3 1979 Employee Stock Purchase Plan.(5)
10.4 1983 Stock Option Plan.(6)
10.5 1984 Incentive Stock Option Plan.(7)
10.6 1985 Stock Option Plan.(8)
10.7 Amendment to the 1984 Incentive Stock Option Plan.(9)
10.8 Amendments to the 1984 Incentive Stock Option Plan.(10)
10.9 Retirement Savings and Deferred Profit Sharing Plan.(11)
10.1 Capital Equipment Financing Agreement between General DataComm, Inc. and Center Capital Corporation.(12)
10.11 Capital Equipment Financing Agreement between General DataComm Industries, Inc. and Hewlett Packard Company.(13)
10.12 Capital Equipment Financing Agreement between General DataComm Industries, Inc. and General Electric Capital
Corporation.(14)
10.13 1991 Stock Option Plan.(15)
10.14 Credit Agreement between General DataComm Industries, Inc. and The Chase Manhattan Bank.(16)
10.15 Second Amended and Restated Revolving Credit Term Loan and Security Agreement between General DataComm Industries, Inc.
et al. and
The Bank of New York et al.(17)
11. Calculation of Earnings Per Share for the fiscal years ended September 30, 1992 through 1994, inclusive.
13. Annual Report to Stockholders for the year ended September 30, 1994. The 1994 Annual Report to Stockholders will be
furnished for the information of the Commission and is not deemed "filed." (To be filed by amendment.)
21. List of subsidiaries.
27. Financial Data Schedule.
(1) Incorporated by reference from Form 10-Q for quarter ended June 30,
1988, Exhibit 3.1. 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 10.2 to Form 10-Q for quarter
ended June 30, 1989.
(4) Incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter
ended June 30, 1989.
47
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Incorporated by reference from Exhibit 10.19 to Form 10-K for year
ended September 30, 1987.
(10) Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter
ended December 31, 1987.
(11) Incorporated by reference from Form S-8, Registration Statement No.
33-37266.
(12) Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter
ended December 31, 1991 and Exhibit 28.2 to Form 10-Q for quarter
ended March 31, 1992.
(13) Incorporated by reference from Exhibit 28.3 to Form 10-Q for quarter
ended March 31, 1992 and from Exhibit 28.3 to Form 10-Q for quarter
ended June 30, 1992.
(14) Incorporated by reference from Exhibit 28.4 to Form 10-Q for quarter
ended June 30, 1992 and from Exhibit 28.4 to Form 10-Q for quarter
ended December 31, 1992.
(15) Incorporated by reference from Form S-8, Registration Statement No.
33-53150, from Form S-8, Registration Statement No. 33-62716 and from
Form S-8, Registration Statement No. 33-53201.
(16) Incorporated by reference from Exhibit 10.21 to Form 10-K for the year
ended September 30, 1993.
(17) Incorporated by reference from Exhibit 28.1 to Form 10-Q for the
quarter ended June 30, 1994.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.