SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
Commission file number 0-20008
VTEL CORPORATION
A DELAWARE CORPORATION IRS EMPLOYER ID NO. 74-2415696
108 WILD BASIN ROAD
AUSTIN, TEXAS 78746
(512) 314-2700
The registrant 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
has been subject to such filing requirements for the past 90 days.
At December 1, 1997 the registrant had outstanding 23,010,019 shares of its
Common Stock, $0.01 par value.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VTEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
OCTOBER 31, JULY 31,
1997 1997
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents $ 6,098 $ 4,757
Short-term investments 13,528 20,299
Accounts receivable, net of allowance for doubtful
accounts of $10,708 and $10,722 at
October 31, 1997 and July 31, 1997 39,862 43,707
Inventories 22,450 22,244
Prepaid expenses and other current assets 2,427 2,891
--------- ---------
Total current assets 84,365 93,898
Property and equipment, net 22,673 21,660
Intangible assets, net 12,528 12,768
Other assets 2,131 2,809
--------- ---------
$ 121,697 $ 131,135
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 18,072 25,699
Accrued merger and other expenses 6,984 9,704
Accrued compensation and benefits 4,193 4,552
Other accrued liabilities 3,393 3,070
Deferred revenue 12,017 11,345
--------- ---------
Total current liabilities 44,659 54,370
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 authorized;
none issued or outstanding -- --
Common stock, $.01 par value; 40,000,000 authorized;
22,935,000, and 22,873,000 issued and outstanding
at October 31, 1997 and July 31, 1997 229 229
Additional paid-in capital 254,917 254,880
Accumulated deficit (178,114) (178,234)
Cumulative translation adjustment 60 5
Unearned compensation (54) (115)
--------- ---------
l stockholders' equity 77,038 76,765
--------- ---------
$ 121,697 $ 131,135
========= =========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE
Three Months Ended
October 31,
1997 1996
REVENUES:
Products $ 34,312 $ 39,111
Services and other 9,917 10,655
-------- --------
44,229 49,766
-------- --------
COST OF SALES:
Products 17,778 22,384
Services and other 6,479 7,269
-------- --------
24,257 29,653
-------- --------
Gross margin 19,972 20,113
-------- --------
Selling, general and administrative 14,521 15,701
Research and development 5,126 6,118
Amortization of intangible assets 240 240
-------- --------
Total operating expenses 19,887 22,059
-------- --------
Income (loss) from operations 85 (1,946)
-------- --------
OTHER INCOME (EXPENSE):
Interest income 221 612
Other (174) (327)
-------- --------
47 285
-------- --------
Net income (loss) before provision
for income taxes 132 (1,661)
Provision for income taxes (12) (19)
-------- --------
Net Income (loss) $ 120 $ (1,680)
======== ========
Net income (loss) per share $ 0.01 $ (0.08)
======== ========
Weighted average shares outstanding 23,469 21,259
======== ========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
FOR THE
THREE MONTHS ENDED
OCTOBER 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 120 $ (1,680)
Adjustments to reconcile net income (loss)
to net cash from operations:
Depreciation and amortization 2,192 2,926
Provision for doubtful accounts 22 37
Amortization of unearned compensation 61 (206)
Amortization of deferred gain -- --
Foreign currency translation (gain) loss 119 (39)
(Increase) decrease in accounts receivable 3,823 (5,127)
(Increase) decrease in inventories (206) 2,244
Decrease in prepaid expenses and other
current assets 464 271
Decrease in accounts payable (7,627) (1,790)
Decrease in accrued expenses (2,756) (979)
Increase in deferred revenues 672 261
Increase in accrued expenses, discontinued
operations -- 319
------- ---------
Net cash used in operating activities (3,116) (3,763)
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net short-term investment activity 6,771 7,641
Net purchase of property and equipment (2,965) (2,193)
Decrease in capitalized software -- 90
Decrease in other assets 678 30
------- -------
Net cash provided by investing activities 4,484 5,568
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit agreements -- 515
Net proceeds from issuance of stock 37 5,747
Purchase of treasury stock -- (3,742)
Sale of treasury stock -- 280
------- -------
Net cash provided by financing activities 37 2,800
------- -------
Effect of translation exchange rates on cash (64) (113)
------- -------
Net increase in cash and equivalents 1,341 4,492
Cash and equivalents at beginning of period 4,757 1,973
------- -------
Cash and equivalents at end of period $ 6,098 $ 6,465
======= =======
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VTEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
VTEL Corporation ("VTEL" or the "Company") designs, manufactures, markets
and supports multimedia digital visual communication systems. The Company's
systems integrate traditional video and audio conferencing with additional
functions, including the sharing of PC software applications and the
transmission of high-resolution images and facsimiles. Through the use of the
Company's multi-media digital visual communication systems, users are able to
replicate more closely the impact and effectiveness of face-to-face meetings,
education and training classes and certain medical consultations.
The Company's systems are built upon a system platform which is based on
industry-standard, PC-compatible open hardware and software architecture. By
leveraging this open architecture design, the Company is able to integrate into
the videoconference PC-compatible hardware and software applications which allow
users to customize the systems to meet their unique needs. The PC-architecture
also provides a natural pathway to connect the Company's digital visual
communication systems onto local area networks (LANs) and wide area networks
(WANs) thereby leveraging the rapidly expanding network infrastructures being
deployed in organizations throughout the world. Also complementing this open
architecture is the Company's compliance with emerging industry standards. The
Company's open architecture and compliance with data and telecommunications
standards permit the incorporation of new functions through software upgrades,
thereby extending the useful life of the user's investment.
The Company primarily distributes its systems to a domestic and
international marketplace through third parties. The Company's headquarters and
production facilities are in Austin, Texas.
NOTE 1 - GENERAL AND BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and accordingly, do not include all information and
footnotes required under generally accepted accounting principles for complete
financial statements. In the opinion of management, these interim financial
statements contain all adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of the financial position of the
Company as of October 31, 1997 and the results of the Company's operations and
its cash flows for the three month period ended October 31, 1997. The results
for interim periods are not necessarily indicative of results for a full fiscal
year.
On May 23, 1997, shareholders of VTEL and Compression Labs, Incorporated, a
Delaware corporation ("CLI"), approved the merger (the "Merger") of VTEL-Sub,
Inc., a Delaware corporation and direct wholly-owned subsidiary of VTEL ("Merger
Sub"), with and into CLI, pursuant to an Agreement and Plan of Merger and
Reorganization (the "Merger Agreement"), with CLI becoming a direct wholly-owned
subsidiary of VTEL. As a result of the Merger, (a) the outstanding shares of
CLI's common stock were converted into the right to receive 0.46 shares of
common stock of VTEL for each share of CLI common stock converted (or cash in
lieu of fractional shares otherwise deliverable in respect thereof), and (b) the
outstanding shares of CLI Series C Preferred Stock were converted into the right
to receive 3.15 shares of VTEL common stock for each share of CLI preferred
stock converted (or cash in lieu of fractional shares otherwise deliverable in
respect thereof). The CLI shares were exchanged for a total of 8,424,741 shares
of VTEL common stock.
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The acquisition was accounted for as a pooling of interests and
accordingly, the consolidated financial statements have been restated for all
periods to include the accounts of CLI. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements (including the notes thereto) contained in the Company's 1997 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
November 12, 1997.
NOTE 2 - INVENTORIES
Inventories consist of the following:
OCTOBER 31, July 31,
1997 1996
(DOLLARS IN THOUSANDS)
Raw materials $10,267 $ 9,493
Work in process 1,262 4,143
Finished goods 9,878 7,490
Finished goods held for evaluation and rental and loan
agreements 1,043 1,118
------- -------
$22,450 $22,244
======= =======
Finished goods held for evaluation consists of completed multi-media
communication systems used for demonstration and evaluation purposes, which are
generally sold during the next 12 months.
NOTE 3 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares and common share equivalents
outstanding (if dilutive) during each period using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Earnings per Share." The new
standard, which is effective for financial statements issued for periods ending
after December 31, 1997, establishes standards for computing and presenting
earnings per share (EPS) and requires restatement of all prior period EPS data
represented upon adoption. The Company will implement this standard in the
second quarter of fiscal 1998. The implementation of the standard will result in
the presentation of a basic EPS calculation in the consolidated financial
statements as well as a diluted EPS calculation. If the Company had adopted the
new standard for the first quarter of fiscal 1998, basic EPS would have been
$0.01 per share and diluted EPS would have approximated the EPS of $0.01
presented in the accompanying consolidated statement of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On May 23, 1997, shareholders of VTEL and Compression Labs, Incorporated, a
Delaware corporation ("CLI"), approved the merger (the "Merger") of VTEL-Sub,
Inc., a Delaware corporation and direct wholly-owned subsidiary of VTEL ("Merger
Sub"), with and into CLI, pursuant to an Agreement and Plan of Merger and
Reorganization (the "Merger Agreement"), with CLI becoming a direct wholly-owned
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CORPDAL:95409.1 22768-00022
subsidiary of VTEL. As a result of the Merger, (a) the outstanding shares of
CLI's common stock were converted into the right to receive 0.46 shares of
common stock of VTEL for each share of CLI common stock converted (or cash in
lieu of fractional shares otherwise deliverable in respect thereof), and (b) the
outstanding shares of CLI Series C Preferred Stock were converted into the right
to receive 3.15 shares of VTEL common stock for each share of CLI preferred
stock converted (or cash in lieu of fractional shares otherwise deliverable in
respect thereof). The CLI shares were exchanged for a total of 8,424,741 shares
of VTEL common stock. The acquisition was accounted for as a pooling of
interests and accordingly, the consolidated financial statements have been
restated for all periods to include the accounts of CLI.
The restatement of the consolidated financial information combines the
financial information of VTEL and CLI giving retroactive effect to the Merger as
if the two companies had operated as a single company for the three months ended
October 31, 1996. However, the two companies operated independently prior to the
Merger, and the historical changes and trends in the financial condition and
results of operations of these two companies resulted from independent
activities. Nonetheless, the following management's discussion and analysis of
financial condition and results of operations attempts to relate the activities
which resulted in the changes in financial condition and results of operations
of the combined company, taking into consideration that a trend or change in the
historical results of the combined entity was caused by many events related to
each individual company operating independently as competitors. The financial
information presented on a historical restated basis is not indicative of the
financial condition and results of operations that may have been achieved in the
past or will be achieved in the future had the companies operated historically
as a single entity.
The following review of the Company's financial position and results of
operations for the three month periods ended October 31, 1997 and 1996 should be
read in conjunction with the Company's 1997 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on November 12, 1997.
RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated the
percentage of revenues represented by certain items in the Company's Condensed
Consolidated Statement of Operations:
FOR THE THREE
MONTHS ENDED
OCTOBER 31,
1997 1996
Revenues 100% 100%
Gross margin 45 40
Selling, general and administrative 33 32
Research and development 12 12
Total operating expenses 45 44
Other income, net -- 1
Net income (loss) -% (3)%
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THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
Revenues. Revenues for the quarter ended October 31, 1997 decreased to
$44.2 million from $49.8 million in the quarter ended October 31, 1996, a
decrease of $5.6 million or 11%. The decrease in revenues is the combination of
an increase in unit sales of the Company's Enterprise Series Architecture(TM)
(ESA)-based products coupled with a decline in the sale of the products of the
Company's wholly-owned subsidiary, CLI, during the quarter ended October 31,
1997, which resulted in an overall decline in unit sales. CLI's unit sales had
been declining since the quarter ended October 31, 1996 and the decline was
further exacerbated with the transition by the combined Company to the sale of
the ESA-based products. Additionally, revenues decreased during the quarter
ended October 31, 1997 as a result of a decline in sales of the Company's
multipoint control unit sales.
The following table summarizes the Company's group system unit sales activity:
FOR THE THREE
MONTHS ENDED
OCTOBER 31, JULY 31,
1997 1997
Large group digital visual communication systems 917 841
Small group digital visual communication systems 48 74
Multipoint control units 20 43
----- ------
Total units 985 958
===== ======
International sales contributed approximately 22% of product revenues for
the quarter ended October 31, 1997 as compared to 21% in the quarter ended
October 31, 1996.
While the Company strives for consistent revenue growth, there can be no
assurance that consistent revenue growth or profitability can be achieved.
Consistent with many companies in the technology industry, the Company's
business model is characterized by a very high degree of operating leverage. The
Company's expense levels are based, in part, on its expectations as to future
revenue levels, which are difficult to predict partly due to the Company's
strategy of distributing its products through resellers. Because expense levels
are based on the Company's expectations as to future revenues, the Company's
expense base is relatively fixed in the short term. If revenue levels are below
expectations, operating results may be materially and adversely affected and net
income is likely to be disproportionately adversely affected. In addition, the
Company's quarterly and annual results may fluctuate as a result of many
factors, including price reductions, delays in the introduction of new products,
delays in purchase decisions due to new product announcements by the Company or
its competitors, cancellations or delays of orders, interruptions or delays in
supplies of key components, changes in reseller base, customer base, business or
product mix and seasonal patterns and other shifts of capital spending by
customers. There can be no assurance that the Company will be able to increase
or even maintain its current level of revenues on a quarterly or annual basis in
the future. Due to all of the foregoing factors, it is possible that in one or
more future quarters the Company's operating results will be below the
expectations of public securities market analysts. In such event, the price of
the Company's Common Stock would likely be materially adversely affected.
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Gross margin. Gross margin as a percentage of total revenues in the quarter
ended October 31, 1997 was 45%, an increase from the 40% gross margin generated
in the quarter ended October 31, 1996. The products of the Company's
wholly-owned subsidiary, CLI, generally have a lower gross margin than the
products of VTEL. During the three months ended October 31, 1996, the Company's
restated combined revenues consisted of a higher proportion of revenues from CLI
which resulted in a lower gross margin on a combined basis. During the three
months ended October 31, 1997, the products that were previously developed by
CLI represented a smaller proportion of total product revenues due to the
transition of the Company's combined product offering to the Company's ESA-based
products. The higher proportion of products revenues from the ESA platform
products resulted in a higher blended gross margin.
Although the Company expects gross margins to remain flat during fiscal
1998, it continues to expect gross margin pressures due to price competitiveness
in the industry, shifts in the product sales mix and anticipated offerings of
new products which may carry a lower gross margin. The Company expects that
overall price competitiveness in the industry will continue to become more
intense as users of videoconferencing systems attempt to balance performance,
functionality and cost. The Company's gross margin is subject to fluctuation
based on pricing, production costs and sales mix.
Selling, general and administrative. Selling, general and administrative
expenses decreased by $1.2 million, or 8%, from $15.7 million for the quarter
ended October 31, 1996 to $14.5 million for the quarter ended October 31, 1997.
Selling, general and administrative expenses as a percentage of revenues were
32% and 33% for the three months ended October 31, 1996 and 1997, respectively.
The decrease in the amount of selling, general and administrative expenses is
due to the combination of VTEL and its wholly-owned subsidiary, CLI, subsequent
to the Merger and the elimination of duplicate costs. Selling, general and
administrative expenses as a percentage of revenues were slightly higher during
the quarter ended October 31, 1997 in comparison with the quarter ended October
31, 1996 due to a larger percentage decrease in revenues than the decrease in
selling, general and administrative expenses.
Research and development. Research and development expenses decreased by
$1.0 million, or 16%, from $6.1 million for the quarter ended October 31, 1996
to $5.1 million in the quarter ended October 31, 1997. Research and development
expenses as a percentage of revenues were 12% and 12% for the three months ended
October 31, 1996 and 1997, respectively. The decrease in the amount of research
and development expenses is due to the combination of VTEL and its wholly-owned
subsidiary, CLI, subsequen to the Merger such that the Company is focusing its
research and development activities on a single product platform, the ESA
platform. The Company was able to reduce total research and development expenses
by limiting its development efforts to the development of its family of products
on a single product platform while still investing a higher amount in research
and development activities related to its ESA platform since the Company is able
to redirect a portion of the research and development expense related to the
products developed by its wholly-owned subsidiary, CLI, to the ESA platform
thereby leveraging the development activities of both companies. Research and
development expenses as a percentage of revenues were the same during the
quarter ended October 31, 1997 in comparison with the quarter ended October 31,
1996 due to a larger percentage decrease in revenues than the decrease in
research and development expenses.
Although the percentage of revenues invested by the Company in research and
development may vary from period to period, the Company is committed to
investing in its research and development programs. Future research and
development expenses is expected to increase as revenues increase.
Other income, net. Other income, net decreased by $0.24 million, or 84%,
from $0.29 million for the quarter ended October 31, 1996 to $0.05 million for
the quarter ended October 31, 1997. The decrease in other income, net is
attributable to lower interest income earned during the quarter ended October
31, 1997 on the Company's cash and investment balances as a result of a decrease
in such balances due to the planned cash requirements associated with the
combination of VTEL and CLI subsequent to the Merger.
Net income (loss). The Company generated net income of $0.12 million, or
$.01 per share, during the quarter ended October 31, 1997 compared to a net loss
of $1.7 million, or $.08 per share, during the quarter ended October 31, 1996.
During the quarter ended October 31, 1996, the Company's wholly-owned
subsidiary, CLI, incurred a net loss on a stand-alone basis of $2.6 million and
VTEL generated net income on a stand-alone basis of $0.95 million which resulted
in a restated combined net loss of $1.7 million. Subsequent to the Merger,
VTEL's management reduced the operating expenses of the combined company by
eliminating duplicate operating costs and leveraging the research and
development and selling, general and administrative expenses of the two
companies such that these expenses were focused on a single company development
platform and sales and marketing strategy. The result was a reduction in the
combined costs incurred by the two companies, which were investing amounts in
implementing tw corporate strategies when the companies operated as competitors,
and an increase in the amount of funds available to invest in a single company
plan.
Improvement in the Company's financial performance during the remainder of
fiscal year 1998 will depend on the Company's ability to continue to
significantly increase revenues through growth in the Company's distribution
channels and the successful introduction of its new products, to generate
improving gross margins and to control the growth of operating expenses. There
can be no assurances that the Company will be successful in achieving these
objectives during the remainder of fiscal year 1998.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, the Company had working capital of $39.7 million,
including $19.6 million in cash, cash equivalents and short-term investments.
Cash used in operating activities was $3.1 million for the quarter ended October
31, 1997 and primarily relates to decreases in accounts payable and accrued
liabilities, offset by a decrease in accounts receivable. The reduction in
accounts payable and accrued liabilities includes amounts for Merger and
other-related expenses which were accrued at July 31, 1997. Cash used in
operating activities was $3.8 million for the quarter ended October 31, 1996,
primarily due to an increase in accounts receivable and decreases in accounts
payable and accrued expenses. These increases were offset by a decrease in
inventories.
Cash flows from investing activities during the quarter ended October 31,
1997 were the result of capital expenditures of $3.0 million and net investment
activity from short-term investments which generated cash of $6.8 million. Cash
flows from investing activities during the quarter ended October 31, 1996 were
the result of capital expenditures of $2.2 million and net investment activity
from short-term investments which generated cash of $7.6 million. The Company
periodically generates cash from short-term investments as such investments are
utilized from time to time to provide cash needed to support the Company's
operations.
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CORPDAL:95409.1 22768-00022
Cash flows provided by financing activities during the quarter ended
October 31, 1997 were $0.04 million and related to sales of stock under the
Company's employee stock plans. Cash flows provided by financing activities
during the quarter ended October 31, 1996 were $2.8 million and related
primarily to borrowings made by the Company's wholly-owned subsidiary, CLI,
totaling approximately $0.5 million and stock offerings made by CLI netting
approximately $5.7 million. The Company also used cash to purchase approximately
$3.7 million of treasury shares.
At October 31, 1997, the Company had a $10.0 million revolving line of
credit available with a financial institution. No amounts have been drawn under
the line of credit. The Company has issued a letter of credit totaling $1.5
million under its revolving line of credit as a lease deposit on its facility in
San Jose. Subsequent to October 31, 1997, the Company signed a credit facility
with a banking syndicate that provides a $25.0 million revolving line of credit.
No amounts have been drawn under the syndicated line of credit.
The Company's principal sources of liquidity at October 31, 1997 consist of
$19.6 million of cash, cash equivalents and short-term investments and amounts
available under the Company's revolving line of credit. The Company believes
that existing cash and cash equivalent balances, short-term investments, cash
generated from sales of products and services and its revolving lines of credit
will be sufficient to meet the Company's cash and capital requirements for at
least the next 12 months.
GENERAL
The markets for the Company's products are characterized by a highly
competitive and rapidly changing environment in which operating results are
subject to the effects of frequent product introductions, manufacturing
technology innovations and rapid fluctuations in product demand. While the
Company attempts to identify and respond to these changes as soon as possible,
prediction of and reaction to such events will be an ongoing challenge and may
result in revenue shortfalls during certain period of time.
The Company's future results of operations and financial condition could be
impacted by the following factors, among others: trends in the videoconferencing
market, introduction of new products by competitors, increased competition due
to the entrance of other companies into the videoconferencing market -
especially more established companies with greater resources than those of the
Company, delay in the introduction of higher performance products, market
acceptance of new products introduced by the Company, price competition,
interruption of the supply of low-cost products from third-party manufacturers,
changes in general economic conditions in any of the countries in which the
Company does business, adverse legal disputes and delays in purchases relating
to federal government procurement.
Due to the factors noted above and elsewhere in Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Company's past
earnings and stock price has been, and future earnings and stock price
potentially may be, subject to significant volatility, particularly on a
quarterly basis. Past financial performance should not be considered a reliable
indicator of future performance and investors are cautioned in using historical
trends to anticipate results or trends in future periods. Any shortfall in
revenue or earnings from the levels anticipated by securities analysts could
have an immediate and significant affect on the trading price of the Company's
Common Stock in any given period. Also, the Company participates in a highly
dynamic industry which often contributes to the volatility of the Company's
Common Stock price.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
Certain portions of this report contain forward-looking statements about
the business, financial condition and prospects of the Company. The actual
results of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties including,
without limitation, changes in demand for the Company's products and services,
changes in competition, economic conditions, interest rates fluctuations,
changes in the capital markets, changes in tax and other laws and governmental
rules and regulations applicable to the Company's business, and other risks
indicated in the Company's filing with the Securities and Exchange Commission.
These risks and uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict all of the risks and uncertainties
that could cause its actual results to differ materially from those indicated by
the forward-looking statements. When used in this report, the words " believes,"
"estimates," "plans," "expects," "anticipates" and similar expressions as they
relate to the Company or its management are intended to identify forward-looking
statements.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CLI is currently engaged in several legal proceedings relating to matters
arising prior to the Merger. There can be no assurance that CLI's legal
proceedings can be resolved favorably to CLI or VTEL. Such legal proceedings, if
continued for an extended period of time, could have an adverse effect upon
CLI's working capital and management's ability to concentrate on its business.
The Company had recorded an estimate of the costs to defend and discharge the
claims prior to the quarter ended October 31, 1997 and such contingent
liabilities are reflected as accrued expenses at October 31, 1997. In the
opinion of management, such reserves should be sufficient to discharge the
liabilities, if any. However, an unfavorable outcome in any one or several such
legal proceedings could have a material adverse effect on CLI and hence, VTEL.
In a complaint filed on December 20, 1993 in the United States District
Court in Dallas, Texas, Datapoint Corporation ("Datapoint") alleged that CLI had
infringed two United States patents owned by Datapoint relating to video
conferencing networks. The complaint seeks a judgment of infringement, monetary
damages, injunctive relief and attorneys' fees. CLI responded to the complaint
by denying the material allegations of the complaint and asserting affirmative
defenses. Discovery has commenced in the case. On September 27, 1995, CLI filed
a motion to construe the scope of the patent claims at issue in the litigation
so as to elucidate whether Datapoint could assert that CLI is infringing the
patents in suit or whether Datapoint's patents are invalid in light of the prior
art. In April 1996, a Special Master submitted a report which did not recommend
that the Court adopt CLI's position set forth in the motion. The Court in
September 1996 adopted the report of the Special Master that the claim of the
patents in suit be construed in a manner favorable to the plaintiff. The case is
expected to be set for trial in the spring of 1998. CLI is vigorously defending
the claims.
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In June 1997, Keytech, S.A. ("Keytech") filed suit against CLI in the
United States District Court in Tampa, Florida. Keytech was a distributor of
satellite encoder and decoder products manufactured by a division of CLI which
CLI sold in June 1996. Keytech has asserted that the equipment sold was
defective and did not conform to contract specifications and express and implied
warranties. Keytech has asserted damages in excess of $20 million based on its
allegations of breach of contract, breach of warranties and fraud. CLI has filed
an answer denying liability and has asserted cross-claims against Keytech for
amounts due and unpaid for equipment sold by CLI to Keytech.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
11
CORPDAL:95409.1 22768-00022
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VTEL CORPORATION
December 12, 1997 By: /s/Rodney S. Bond
---------------------------------
Rodney S. Bond
Vice President-Finance
(Chief Financial Officer
and Principal Accounting Officer)
12
CORPDAL:95409.1 22768-00022
5
0000884144
VTEL Corporation
1,000
U.S. Dollars
3-MOS
JUL-31-1998
AUG-1-1997
OCT-31-1997
1
6,098
13,528
50,570
(10,708)
22,450
84,365
57,031
(34,358)
121,697
44,659
0
0
0
255,146
(178,108)
121,697
44,229
44,229
(24,257)
(19,887)
47
0
0
132
(12)
120
0
0
0
120
.01
.01
