Quarterly Report (SEC form 10-Q)
Source:
biz.yahoo.com
November 09, 2000
CHYRON CORP (CHY)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
From time to time, including in this Quarterly Report on Form
10-Q, the Company may publish forward-looking statements
relating to such matters as anticipated financial
performance, business prospects, technological developments,
changes in the industry, new products, research and
development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe
harbor for such forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual
results to differ from the anticipated results or other
expectations expressed in the Company's forward-looking
statements. The risks and uncertainties that may affect the
operations, performance, development and results of the
Company's business include, without limitation, the
following: product concentration in a mature market,
dependence on the emerging digital market and the industry's
transition to DTV and HDTV, consumer acceptance of DTV and
HDTV, resistance within the broadcast or cable industry to
implement DTV and HDTV technology, acceptance of the
Company's new media service products, rapid technological
changes, new technologies that could render certain Chyron
products to be obsolete, a highly competitive environment,
competitors with significantly greater financial resources,
new product introductions by competitors, seasonality,
fluctuations in quarterly operating results, ability to
maintain adequate levels of working capital, ability to
maintain its NYSE listing, expansion into new markets and the
Company's ability to successfully implement its acquisition
and strategic alliance strategy.
Results of Operations
This discussion should be read in conjunction with the
Consolidated Financial Statements including the Notes
thereto.
Comparison of the Three and Nine Months Ended September 30,
2000 and 1999
Sales for the quarter ended September 30, 2000 were $14
million, a decrease of $2.8 million, or 16.7% over the $16.8
million reported for the third quarter of 1999. Sales for the
nine months ended September 30, 2000 were $44.9 million, a
decrease of $3.1 million or 6.4% over the $48 million
reported for the first nine months of 1999. Third quarter
2000 revenues consisted of $6.8 million from the graphics
division and $7.2 million from the media management division.
This compares to last year's third quarter breakdown of $8.4
million in each of the divisions. Revenues during the nine
month periods ended September 30, 2000 and 1999 consisted of
$20.7 million and $21.5 million, respectively, from the
graphics division and $24.2 million and $26.5 million,
respectively, from the media management division.
The graphics division is experiencing a transition. Duet is
gaining acceptance in the U.S. and in Europe and shipments
this quarter were the highest to date. This is, however, at
the expense of the iNFiNiT! family of products which it is
replacing. The Company's stillstore product, Aprisa, also
gained momentum in 2000. In addition, last year's periods
included a substantial number of system upgrades, in part to
insure that customers were Y2K compliant. In the third
quarter of 2000 the Company recorded revenues associated with
the Sydney Olympics of approximately $1 million.
Overall media management revenues in the quarter were lower
due to the near completion of a major contract for an
expanded routing system and the effect of declining foreign
currency exchange rates on U.K. revenues. Also impacting the
nine month revenues is the disappointing rollout of digital
television in Europe resulting in lower than expected
customer demand for media management products and the reduced
value of the Euro against the British pound and the decision
to discount prices to remain competitive.
The Company generated nominal revenues in the third quarter
of 2000 in connection with its new media division. This
division, which can now offer streaming media services such
as consultancy, equipment installation, encoding and
webcasting, has begun to build a customer base in the U.K.
and U.S.A.
Gross margins for the third quarter of 2000 increased to 50%
from 48% in the comparable quarter in 1999. Gross margins for
the nine month periods in 2000 and 1999, were 47% and 46%
respectively, exclusive of a $2.2 million write-down of
inventory in 1999. Margins in the graphics sector improved,
in large part, to products provided to the Olympics and lower
overhead costs. Margins in the media management division have
declined due to the level of discounting in the international
market due to competition and the reduced value of the Euro,
but were offset, to a lesser degree by lower costs associated
with product redesigns.
Selling, general and administrative (SG&A) expenses increased
by $0.8 million, or 12%, to $7.7 million in the quarter ended
September 30, 2000 compared to $6.9 million in the third
quarter of 1999. SG&A expenses decreased by $0.5 million, or
2%, to $21.1 million in the first nine months of 2000
compared to $21.6 million for the first nine months of 1999.
SG&A expenses in the core businesses declined as a result of
the Q2 1999 restructuring and have continued to be reduced,
primarily in the area of personnel as the reduction in force
year over year is another 10% in the third quarter. These
savings have been offset by the Company's expenditures, of
approximately $1.7 million in Q3 2000, to implement its
strategy in the new media marketplace. This division now
employs 29 people. The Company anticipates that its efforts,
and consequently its costs, will grow in future quarters as a
result.
Research and development (R&D) costs in the third quarter of
2000 are less than the comparable 1999 levels by
approximately $0.1 million. R&D costs decreased during the
first nine months of 2000 compared to the same period in 1999
by $0.4 million. The revised product strategy implemented at
the end of the second quarter of 1999 resulted in the
elimination of effort associated with non-strategic products,
thereby reducing costs. Recently, efforts in this area have
been redirected to graphics and streaming products for the
Internet and Interactive TV.
Interest and other expense, net increased in the three months
ended September 30, 2000 as compared to 1999 by $0.08
million. Interest expense increased by approximately $0.07
million as a result of greater interest rates but was offset
to a lesser degree by lower average borrowings. Interest
income increased by $0.2 million due to interest earned on
monies raised in a private placement in April 2000. Also
included in this caption is the net impact of foreign
exchange transactions for the three months ended September
30, 2000 and 1999 which was a loss of $0.13 million and a
gain of $0.08 million, respectively.
Interest and other expense, net, increased $0.8 million
during the nine month period ended September 30, 2000 as
compared to 1999. This increase was due primarily to a non-
cash charge of $0.5 million resulting from the Company's
decision to satisfy an interest obligation related to its
subordinated debentures.
The Company did not record a tax benefit in the three and
nine months periods of 2000 relative to its operating loss.
In the second quarter of 1999 the Company established a full
valuation allowance against its U.S. deferred tax assets to
recognize the uncertainty surrounding its realizability.
Until the Company has U.S. taxable income, no additional
benefit will be realized.
Liquidity and Capital Resources
At September 30, 2000, the Company had cash on hand of $14.8
million and working capital of $33.2 million.
In April 2000, as discussed in the notes to the financial
statements, the Company raised $20 million in connection with
a private placement of 3,076,923 shares of common stock. The
Company is utilizing the net proceeds, of approximately $18.2
million, to invest in efforts associated primarily with
sales, marketing, research and development and the pursuit of
strategic alliances in connection with its new media
business.
As set forth in the Consolidated Statements of Cash Flows,
the Company used $5.7 million in cash from operations during
the nine months ended September 30, 2000 as compared to using
$1.0 million in cash for the comparable 1999 period. The
utilization of cash from operations during the nine month
period ended September 30, 2000 results primarily from the
realization of the net loss and the increase in accounts
receivable and inventory balances. The increase in accounts
receivable during such period results from the $1.3 million
increase in the volume of sales in the third quarter of 2000
as compared to the fourth quarter of 1999 and the timing of
receipt of certain milestone payments. Inventory balances at
the end of the third quarter of 2000 were higher due to the
additional product required for the 2000 Olympic summer games
and for demonstration purposes.
Cash used to acquire property and equipment in the nine month
period in 2000 totaled $1 million of which $0.5 million
relates to the infrastructure to support the Company's new
media initiatives. The Company also utilized $3.4 million in
cash to paydown its credit facility, received $0.7 million
from the issuance of common stock as a result of exercises of
options and warrants and $0.6 million from the sale of
investments.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
The Company is exposed to currency risk in the normal course
of business related to investments in its foreign
subsidiaries and the level of sales to foreign customers. For
the three months ended September 30, 2000 and 1999, sales to
foreign customers were 41% and 40% of total sales,
respectively. Substantially all sales generated outside of
the U.S. are denominated in British pounds sterling. The net
impact of foreign exchange transactions for the three months
ended September 30, 2000 and 1999 were a loss of $0.13
million and a gain of $0.08 million, respectively. |
