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Davidson & Associates Inc – ‘10-Q’ for 3/31/96

As of:  Wednesday, 5/15/96   ·   For:  3/31/96   ·   Accession #:  898430-96-1984   ·   File #:  0-21280

Previous ‘10-Q’:  None   ·   Next & Latest:  ‘10-Q/A’ on 6/13/96 for 3/31/96

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/15/96  Davidson & Associates Inc         10-Q        3/31/96    2:20K                                    Donnelley R R & S… 05/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Form 10-Q Dated 3/31/96                               12     37K 
 2: EX-27       Article 5 - FDS                                        2      7K 


10-Q   —   Form 10-Q Dated 3/31/96
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Condensed Consolidated Financial Statements
7Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
11Item 6. Exhibits and Reports on Form 8-K
12Signature
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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 TOTAL NUMBER OF PAGES 12 ----- FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------ ----- COMMISSION FILE NUMBER 0-21280 ------------------------------------------------------------------------------- DAVIDSON & ASSOCIATES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------------------------------------------------------------- CALIFORNIA 33-0067635 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 19840 PIONEER AVE. TORRANCE, CA 90503 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) TELEPHONE NUMBER (310) 793-0600 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 ------------------------------------------ AS OF MARCH 31, 1996 THERE WERE 35,233,463 SHARES OF THE REGISTRANTOS COMMON, $.00025 PAR VALUE, STOCK OUTSTANDING. 1
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DAVIDSON & ASSOCIATES, INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets At March 31, 1996 and December 31, 1995............ 3 Condensed Consolidated Statements of Income Three months ended March 31, 1996 and 1995........................................... 4 Condensed Consolidated Statements of Cash Flow Three Months ended March 31, 1996 and 1995........................................... 5 Notes to Condensed Consolidated Financial Statements............................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 7 PART II. OTHER INFORMATION........................................ 11 Signature.................................................. 12 2
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DAVIDSON & ASSOCIATES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) [Enlarge/Download Table] March 31, 1996 December 31, 1995 Unaudited (a) Audited ----------------------------------- ASSETS Current assets: Cash and cash equivalents $3,082 $3,130 Marketable Investment Securities 15,702 14,669 Accounts receivable (net) 29,171 36,902 Inventories 8,306 11,792 Prepaid expenses and other current assets 1,760 1,341 ------- ------- Total current assets 58,021 67,834 Deferred Tax Asset 5,324 5,324 Net property and equipment, at cost 8,188 8,054 Intangible assets, net of accumulated amortization 1,662 1,780 Other assets 2,863 2,804 ------- ------- $76,058 $85,796 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable 3,946 13,032 Accrued expenses 6,149 7,737 Deferred revenue 262 199 Income taxes payable 2,665 4,124 ------- ------- Total current liabilities 13,022 25,092 Minority interest in subsidiaries 929 1,049 Shareholders' equity Common stock 9 9 Additional paid-in capital 35,886 35,486 Retained earnings 26,212 24,160 ------- ------- Net shareholders' equity 62,107 ------- ------- $76,058 $85,796 ======= ======= (a) Amounts for Davidson & Associates, Inc. as of December 31, 1995 have been restated to include the balances from Condor (recently renamed Blizzard North). See accompanying notes to Condensed Financial Statements. 3
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DAVIDSON & ASSOCIATES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) (Unaudited) (a) (b) [Download Table] Three Months Ended March 31, 1996 1995 ---------------------- Net revenues $29,203 $25,622 Cost of revenues 11,192 11,985 ------- ------- Gross profit 18,011 13,637 Operating expenses: Research and development 6,087 4,499 Selling, general and administrative 9,132 7,452 ------- ------- Total operating expenses 15,219 11,951 ------- ------- Operating income 2,792 1,686 Other income 179 134 ------- ------- Net earnings before income taxes 2,971 1,820 Provision for income taxes 1,019 603 ------- ------- Net earnings before minority interest 1,952 1,217 Minority interest in net loss of subsidiary (119) 0 ------- ------- Net earnings $2,071 $1,217 ======= ======= Net earnings per share $0.06 $0.03 ======= ======= Shares used in computing net earnings per share (b) 35,712 35,116 (a) Amounts for Davidson & Associates, Inc. for the period ended March 31, 1995 have been restated to include Maverick and Condor (recently renamed Blizzard North). (b) All per share data has been adjusted to reflect a 2-for-1 stock split issued to shareholders on September 6, 1995. See accompanying notes to Condensed Financial Statements. 4
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DAVIDSON & ASSOCIATES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) [Download Table] Three months ended March 31, ------------------ 1996 1995 Cash flows from operating activities: Net earnings $ 2,071 $ 1,217 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 684 502 Changes in current assets and current liabilities (2,483) (1,401) ------- ------- Net cash provided by operating activities: 272 318 Cash flows from investing activities: Capital expenditures (700) (1,292) ------- ------- Net cash used by investing activities: (700) (1,292) Cash flows from financing activities: Proceeds from issuance of common stock 400 258 S-Corporation tax distributions by pooled companies (20) (70) ------- ------- Net cash provided by financing activities 380 188 Net (decrease) in cash and cash equivalents (48) (786) Cash and cash equivalents at end of period 3,130 3,864 ------- ------- Cash and cash equivalents at end of period $ 3,082 $ 3,078 ======= ======= See accompanying notes to Condensed Consolidated Financial Statements. 5
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DAVIDSON & ASSOCIATES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (unaudited) 1. Basis of Presentation --------------------- The condensed consolidated financial statements for the three months ended March 31, 1996 and 1995 are unaudited and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Davidson's Annual Report (Form 10-K) for the year ended December 31, 1995. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results for the entire year ending December 31, 1996. 2. Earnings Per Share ------------------ Per share data is based on the weighted average number of common shares and dilutive common stock equivalents outstanding for the period. On March 18, 1996, Davidson acquired by merger all of the outstanding shares of Condor, Inc. (subsequently renamed Blizzard North) in exchange for 225,409 shares of Davidson's common stock. This merger is being accounted for on a pooling-of-interests basis and all share and per share information has been restated to reflect the effect of the merger. 6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with the consolidated financial statements and the notes thereto and in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in Davidson's Annual Report (Form 10-K) for the year ended December 31, 1995. This analysis is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events. Overview Davidson & Associates, Inc. is an educational software company that develops, publishes, manufactures and distributes high-quality educational software products for home and school use. On March 7, 1996, Davidson acquired by merger all of the outstanding shares of Condor, Inc. (subsequently renamed Blizzard North). Blizzard North develops entertainment software for platforms which include Windows, DOS, 3DO's M2 System, Sega and Nintendo. The acquisition of Blizzard North is being accounted for on a pooling-of-interests basis. All financial information included in this report has been restated to include Blizzard North's operating results. In February 1996, Davidson announced that it signed a definitive merger agreement with CUC International Inc., a technology-driven retail and membership services company based in Stamford, CT. All regulatory filings have been submitted and federal agencies are currently reviewing the transaction which is anticipated to close in July 1996. Each Davidson share will be converted into .85 shares of CUC stock in the merger. As is typical in the consumer software industry, the Company's business is highly seasonal. Net revenues and operating income are highest during the third and fourth quarters and are lowest in the first and second quarters. This seasonal pattern is primarily due to the increased demand for the company's products during the year-end holiday selling season. Other factors that contribute to fluctuations in quarterly operating results include the timing of new product introductions, competitive offerings, product shipments, product returns, catalog printing and promotional programs. In addition, quarterly operating results are affected by changes in the market acceptance and sales of existing products. There can be no assurance that new products will be introduced by the Company in a timely manner, will achieve any significant degree of market acceptance, or that such acceptance will be sustained for any significant period. The operating results for any quarter are not necessarily indicative of results for any future period. 7
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Results of Operations Net Revenues. Davidson's net revenues increased 14% to $29.2 million in the first quarter of 1996 from $25.6 million in the first quarter of 1995. For the quarter ended March 31, 1996, core publishing net revenues increased 53% ($6.5 million), affiliate label net revenues decreased 97% ($3.2 million) and distribution revenues increased 2% ($240 thousand). The increase in core publishing revenues is attributable to strong sales of the company's traditional consumer educational products, such as the Blaster line, the Fisher Price line and the continuing success of the company's consumer entertainment title, Warcraft II: Tides of Darkness. The significant decrease in affiliated label net revenues is attributable to the previously announced termination of distribution for Simon & Schuster and Impressions Software, Inc. Distribution revenues increased only modestly over the prior year as the Company continues to experience weak demand in the school channel as well as seasonal factors which resulted in a low level of reorders by NewMedia Express' two customers, Toys "R" Us and The Neostar Group. Cost of revenues. Cost of revenues includes cost of goods sold and royalties paid to developers and affiliated label publishers. Cost of revenues decreased 7% from $12 million in the comparable quarter of 1995 to $11.2 million in the quarter ended March 31, 1996. The gross profit margin for 1996 increased to 62% from 53% in the prior year. This increase is primarily attributable to the net revenue mix. Affiliated label net revenues accounted for .03% of total net revenues for the first quarter of 1996 as compared to 12.7% of total net revenues for the first quarter of 1995. Affiliated label net revenues carry a substantially lower gross profit margin than core Davidson products. Research and development. Research and development expenses increased approximately 35% to $6.1 million in the first quarter of 1996 from $4.5 million in the first quarter of 1995. This increase was primarily due to the increase in the size of Davidson's internal development staff as part of Davidson's continued focus on the development of more technically sophisticated products and an increase in the number of ongoing product development projects. As a percentage of net revenues, research and development expenses increased to 21% in the first quarter of 1996 from 18% in the first quarter of 1995. This increase was largely attributable to increased product flow and to the acquisitions of development centers such as Blizzard North and FUNNYBONE Interactive. As of March 31, 1996, Davidson had 296 employees dedicated to research and development activities. Davidson expects to release approximately 30 new titles during 1996 as compared to 23 titles for 1995. The company continues to aggressively invest in research and development, and expects to continue this trend for the remainder of 1996. Selling, general and administrative. Selling, general and administrative expenses increased approximately 23% to $9.1 million in the first quarter of 1996 from $7.5 million in the first quarter of 1995. This increase was largely attributable to increases in 8
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sales and marketing personnel required to support increased sales and more products. As a percentage of net revenues, selling, general and administrative expenses increased to 31% in the first quarter of 1996 from 29% in the same period of 1995. This increase was primarily attributable to the fact that, in the first quarter of 1996, core publishing revenues represented 64% of total revenues, as compared to 48% of total revenues for the first quarter of 1995. Core publishing revenues require a higher level of marketing and sales support than affiliated labels. Other income. Other income increased to $178,000 for the first quarter of 1996 from $134,000 in the first quarter of 1995. This increase was primarily due to higher levels of cash invested during the quarter. Provision for income taxes. Davidson's effective tax rate was estimated to be approximately 34% in the first quarter of 1996 compared to 33% for the comparable quarter in the prior year. The 1996 income tax rate was less than the statutory rate (federal and state), primarily due to foreign earnings taxed at a lower rate. The 1995 income tax rate was less than the statutory rate (federal and state), primarily due to income from acquired companies which, prior to their acquisition by Davidson, had elected to be taxed as S corporations. Minority interest in net income (loss) of subsidiary. This represents Mattel's 25% share of the net earnings (loss) from NewMedia Express. Net income. Net income increased 70% to $2.1 million in the first quarter of 1996 from $1.2 million in the first quarter of 1995. As discussed above, the increase in net income was due to growth in the net revenues and an improvement in the gross profit margin, partially offset by higher research and development, and selling, general and administrative expenses. Liquidity and Capital Resources Cash, cash equivalents, and marketable investment securities increased $1 million to $18.8 million during the first quarter of 1996 from $17.8 million at December 31, 1995. Davidson's working capital increased approximately $1.9 million during the first quarter of 1996 to $44.6 million at March 31, 1996 from $42.7 million at December 31, 1995 and accounts receivable, net decreased $8.1 million to $28.8 million. These trends are consistent with Davidson's seasonal business. The higher revenues typically generated by the holiday selling season during the third and fourth quarters increased Davidson's receivables at year end. As these holiday season receivables are collected during the seasonably slower first quarter, Davidson's cash increases and receivables decline. Excess cash balances are generally invested in readily marketable investment securities. Inventories decreased $3.5 million to $8.3 million at March 31, 1996 from $11.8 million at December 31, 1995. The decrease in inventories was primarily attributable to the seasonal factors mentioned in the previous paragraph. 9
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Accounts payable and accrued expenses decreased $10.7 million from $20.8 million at December 31, 1995 to $10.1 million at March 31, 1996. The decrease in these current liabilities is also attributable to the seasonal factors mentioned above. Davidson uses its working capital to finance ongoing operations and to fund the expansion and development of its product lines. In addition, Davidson evaluates from time to time acquisitions of products or companies that complement Davidson's business. During March 1996, the company began negotiations to purchase a warehouse facility in Torrance, California for $9.3 million. This transaction is expected to close during the second quarter and marketable securities will be liquidated to fund this purchase. Management believes the existing cash balances, readily marketable investment securities, and cash generated from operations will be sufficient to meet Davidson's liquidity and capital needs for the next twelve months. 10
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PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) THE FOLLOWING EXHIBIT IS FILED AS PART OF THIS REPORT: 27 Financial Data Schedule (b) Reports on Form 8-K: Form 8-K was filed February 21, 1996 announcing the signing of a definitive merger agreement with CUC International Inc. Form 8-K was filed on March 12, 1996 announcing the acquisition of Condor, Inc. in a stock-for-stock merger pursuant to an Agreement and Plan of Reorganization. 11
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SIGNATURE 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 duly authorized. DAVIDSON & ASSOCIATES, INC. (Registrant) Dated: May 8, 1996 s/ Jack R. Allewaert -------------------- Jack R. Allewaert Vice President, Chief Financial Officer 12

Dates Referenced Herein   and   Documents Incorporated by Reference

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This ‘10-Q’ Filing    Date First  Last      Other Filings
12/31/966
Filed on:5/15/96
5/8/9612
For Period End:3/31/9611010-Q/A
3/18/966
3/12/9611
3/7/967
2/21/9611
12/31/95210
9/6/954
3/31/9526
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