-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nG+qi7tEo+D8qwLkIIwL7g/T51l94UL2LWY6I3ZCD4Q8GtLBb8PnoyvjlUvMw5dx AxY5lnIw9YmQlIR/9AL97A== 0000950135-95-001501.txt : 199507110000950135-95-001501.hdr.sgml : 19950711 ACCESSION NUMBER: 0000950135-95-001501 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950528 FILED AS OF DATE: 19950710 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELCO SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000736893 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 942178777 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12622 FILM NUMBER: 95552887 BUSINESS ADDRESS: STREET 1: 63 NAHATAN ST CITY: NORWOOD STATE: MA ZIP: 02062 BUSINESS PHONE: 6175510300 MAIL ADDRESS: STREET 1: 63 NAHATAN ST CITY: NORWOOD STATE: MA ZIP: 02062 FORMER COMPANY: FORMER CONFORMED NAME: TELCO SYSTEMS INC DATE OF NAME CHANGE: 19880208 10-Q 1 TELCO SYSTEMS, INC 3RD QUARTER REPORT 1 3rd Quarter FY'95 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- (Mark One) {X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MAY 28, 1995 ------------ 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 0-12622 ------- TELCO SYSTEMS, INC ------------------ (Exact name of registrant as specified in its charter) Delaware 94-2178777 ------------------------------ ------------------- (State or other jurisdiction (I.R.S. employer incorporation or organization) identification no.)
63 NAHATAN STREET, NORWOOD, MASSACHUSETTS 02062 ------------------------------------------------ (Address of principal executive offices) Registrant's telephone number, including area code: (617) 551-0300 -------------- NO CHANGE ------------------------------------------------------------------------- (Former name, former address and former fiscal year, if change since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Classes Outstanding at July 3, 1995 ---------------------------- --------------------------- Common Stock, $.01 par value 10,149,610
1 2 TELCO SYSTEMS, INC. INDEX REPORT ON FORM 10-Q FOR QUARTER ENDED May 28, 1995
Page Number ------------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements ------- -------------------- Consolidated Balance Sheets May 28, 1995 and August 28, 1994 3 Consolidated Statements of Operations Three and nine months ended May 28, 1995 and May 29, 1994 4 Consolidated Statements of Cash Flows Nine months ended May 28, 1995 May 29, 1994 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of ------- Financial Condition and Results of Operations 7-9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 ------- -------------------------------- SIGNATURE(S) 11
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ------- -------------------- TELCO SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
May 28, 1995 August 28, 1994 -------------- --------------- Assets ------ Current assets: Cash and equivalents....................... $17,120 $15,262 Short-term investments..................... 10,524 10,946 Accounts receivable, net................... 11,683 15,064 Inventories, net........................... 19,356 15,244 Other current assets....................... 3,475 2,905 ------- ------- Total current assets.................... 62,158 59,421 ------- ------- Plant and equipment, at cost.................... 41,542 39,861 Less accumulated depreciation.............. 30,794 27,745 ------- ------- Net plant and equipment................. 10,748 12,116 ------- ------- Intangible and other assets, net................ 10,689 10,665 ------- ------- Total assets............................ $83,595 $82,202 ======= ======= Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable........................... $3,909 $5,519 Payroll and payroll related liabilities.............................. 2,781 3,436 Other accrued liabilities.................. 5,386 7,256 ------- ------- Total current liabilities............... 12,076 16,211 ------- ------- Restructuring and other long-term liabilities................................... 3,598 4,443 Shareholders' Equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares outstanding at May 28, 1995 and August 28, 1994..... -- -- Common stock, $.01 par value, 24,000,000 shares authorized; shares outstanding: 10,149,610 at May 28, 1995; 9,649,051 at August 28, 1994............. 101 96 Capital in excess of par value.............. 70,852 66,343 Accumulated deficit......................... (3,032) (4,891) ------- ------- Total shareholders' equity............... 67,921 61,548 ------- ------- Total liabilities and shareholders' equity.................. $83,595 $82,202 ======= =======
See accompanying notes to consolidated financial statements. 3 4 TELCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended ---------------------- ----------------------- May 28, May 29, May 28, May 29, 1995 1994 1995 1994 --------- --------- --------- --------- Sales: Fiber optic transmission products............ $ 8,631 $11,904 $27,665 $34,537 Customer premise network access equipment.... 10,811 13,017 37,704 35,407 Internetworking products..................... 1,214 1,119 4,381 2,560 -------- ------- ------- ------- 20,656 26,040 69,750 72,504 Cost and expenses: Cost of products sold........................ 11,060 14,200 37,507 40,700 Research and development..................... 4,992 4,334 13,315 11,619 Sales, marketing and administration.......... 5,930 5,749 17,439 16,949 Amortization of intangible assets............ 196 207 582 621 Interest expense............................. -- 53 -- 216 Interest income.............................. (457) (281) (1,202) (585) -------- ------- ------- ------- 21,721 24,262 67,641 69,520 -------- ------- ------- ------- (Loss) income before income taxes............ (1,065) 1,778 2,109 2,984 Income tax (benefit) provision ............. (125) 178 250 298 -------- ------- ------- ------- Net (loss) income ........................... $ (940) $ 1,600 $ 1,859 $ 2,686 ======== ======= ======= ======= Average number of shares and equivalents..... 10,098,015 10,028,349 10,329,089 9,797,452 (Loss) earnings per share.................... $ (.09) $ .16 $ .18 $ .27
See accompanying notes to consolidated financial statements. 4 5 TELCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Nine months ended ----------------------------------------- May 28, 1995 May 29, 1994 ------------ ------------ INCREASE (DECREASE) IN CASH AND EQUIVALENTS Cash flows from operating activities: Net income ............................................. $ 1,859 $ 2,686 Depreciation and amortization........................... 4,278 4,166 Change in assets and liabilities: Accounts receivable................................... 3,381 1,825 Refundable income tax................................. -- 2,060 Inventories........................................... (4,112) 1,338 Other current assets.................................. (570) 52 Intangible and other assets........................... (923) (224) Accounts payable and other current liabilities........ (4,135) (706) Long-term liabilities................................. (845) (1,398) ------ ------ Net cash (used in) provided by operating activities... (1,067) 9,799 ------ ------ Cash flows from investing activities: Additions to plant and equipment, net................. (2,011) (1,868) Purchase of short-term investments.................... (12,567) -- Maturities of short-term investments.................. 12,989 -- ------ ------ Net cash (used in) investing activities............... (1,589) (1,868) ------ ------ Cash flows from financing activities: Proceeds from sale of common shares under employee stock plans.......................... 4,514 1,722 Payments on long-term liabilities..................... -- (4,000) ------ ------ Net cash provided by (used in) financing activities... 4,514 (2,278) ------ ------ Increase in cash and equivalents.......................... 1,858 5,653 Cash and equivalents at beginning of year................. 15,262 21,788 ------ ------ Cash and equivalents at end of period..................... $17,120 $27,441 ======= =======
See accompanying notes to consolidated financial statements. 5 6 TELCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - The consolidated financial statements of Telco Systems, Inc. (the Company) included in this report reflect all adjustments (consisting of only normally recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position at May 28, 1995 and the consolidated statements of income and cash flows for the nine month periods ended May 28, 1995 and May 29, 1994. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the year. Certain notes and other information have been condensed or omitted from these interim financial statements. The statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the Telco Systems, Inc. Annual Report on Form 10-K for the year ended August 28, 1994. Note 2 - Inventories, net (dollars in thousands)
May 28, 1995 August 28, 1994 ------------ --------------- Raw materials.................... $ 9,415 $ 6,656 Work-in-process.................. 3,500 2,305 Finished goods................... 6,441 6,283 ------- ------- $19,356 $15,244 ======= =======
Note 3 - Shares Outstanding Changes in shares outstanding:
Nine Months Ended ----------------- May 28, 1995 May 29, 1994 ------------ ------------ Outstanding at beginning of period... 9,649,051 9,345,660 Options exercised.................. 444,554 242,736 Employee stock purchase plan....... 56,005 53,079 ---------- --------- Outstanding at end of period......... 10,149,610 9,641,475 ========== =========
6 7 PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth for the period indicated (i) percentages which certain items reflected in the financial data bear to sales of the Company and (ii) the percent change of such items as compared to the indicated prior period. See Consolidated Statements of Operations.
Percentage of Sales Percentage Increase (Decrease) ------------------- ------------------------------ Third Quarter Nine Months Third Quarter Nine Months 1995 1994 1995 1994 1995 VS. 1994 1995 VS. 1994 ---- ---- ---- ---- ------------- ------------- Net sales...................... 100.0% 100.0% 100.0% 100.0% (20.7%) (3.8%) Costs and expenses: Costs of products sold....... 53.6% 54.5% 53.8% 56.1% (22.1%) (7.8%) Research and development..... 24.2% 16.6% 19.1% 16.0% 15.2% 14.6% Sales, marketing and administration............. 28.7% 22.1% 25.0% 23.4% 3.1% 2.9% Amortization of intangible assets..................... .9% .8% .8% .9% (5.3%) (6.3%) Interest expense............. -- .2% -- .3% -- -- Interest income.............. (2.2%) (1.1%) (1.7%) (.8%) 62.6% 105.5% ------- ------ ------ ----- ----- ------ Total costs and expenses....... 105.2% 93.2% 97.0% 95.9% (10.5%) 2.7% ------ ----- ----- ----- ------- ---- (Loss) income before income taxes................. (5.2%) 6.8% 3.0% 4.1% -- (29.3%) Income tax (benefit) provision.................... (.6%) .7% .4% .4% -- (16.1%) ----- --- --- --- Net (loss) income ............. (4.6%) 6.1% 2.6% 3.7% -- (30.8%) ====== ==== ==== ====
7 8 TELCO SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SALES AND NET INCOME - Sales for the third quarter of fiscal 1995 were $20.7 million, a decrease of 21% compared with the third quarter of fiscal 1994. For the first nine months of fiscal 1995, sales were $69.8 million, down 4% compared with the first nine months of last year. These decreases resulted as the Company experienced order delays for both fiber optic tranmission products and network access equipment. Internetworking product sales which represented 6% of total sales in both the third quarter and nine month period increased 8% and 71%, respectively, due to increased demand for the Company's LAN/WAN optimized product. The Company recorded a net loss of ($.9) million or ($.09)per share for the third quarter of fiscal 1995 which compares to net income of $1.6 million or $.16 per share in the third quarter of last year. For the first nine months of fiscal 1995, net income was $1.9 million or $0.18 per share compared with $2.7 million or $0.27 per share in the year ago period. The reduced net income results for the third quarter and nine month period was principally related to lower sales volume of both transmission products and network access equipment and record spending on research and development programs for new products. COSTS OF PRODUCTS SOLD - For the third quarter of fiscal 1995, costs of products sold represented 54% of sales compared with 55% of sales in the third quarter of last year. For the year to date period, costs of products sold represented 54% of sales in fiscal 1995 and 56% of sales in fiscal 1994. The improved gross margins in both the quarter and year to date periods were principally related to a favorable mix of product sales. RESEARCH AND DEVELOPMENT - Research and development expense was $5.0 million and $13.3 million in the third quarter and first nine months of fiscal 1995, respectively. This represented an increase of 15% over the comparable periods of last year due to increased spending for ATM/SONET multiplexers and intelligent network access products. As a percent of sales, research and development represented 24% in the third quarter and 19% in the nine month periods of fiscal 1995, up from 17% and 16% in the comparable periods of fiscal 1994, respectively. SALES, MARKETING AND ADMINISTRATION - Sales, marketing and administration expense was $5.9 million and $17.4 million in the third quarter and first nine months of fiscal 1995, respectively, and represented a 3% increase for both the third quarter and nine month periods. INTEREST INCOME - Interest income was $.5 million and $1.2 million for the third quarter and nine month periods of fiscal 1995. This reflects an increase of 63% compared to the third quarter of last year and 105% increase for the nine month period. These increases resulted from higher interest earned on a higher level of cash and short term investments during the current year. INCOME TAX (BENEFIT) PROVISION - The Company is providing for income tax at an effective tax rate of 12% for fiscal 1995. The estimated effective tax rate used in fiscal 1995 approximates the 10% effective tax rate used in the prior year period and reflects utilization of net operating loss carryforwards and tax credits earned in prior years. LIQUIDITY AND CAPITAL RESOURCES - During the first nine months of fiscal 1994, cash and equivalents increased $1.8 million and short-term investments decreased ($0.4) million, for a net increase of $1.4 million, resulting in a quarter-end total for cash and short-term investments of $27.6 million. 8 9 The increase of $1.8 million in cash and equivelants during the first nine months of fiscal 1995 reflected use by operating activities and investing activities of ($1.1) million and ($1.6) million of cash, respectively, offset by $4.5 million of cash provided by financing activities, primarily the proceeds of employee stock option exercises. For the nine month period of last year, cash and equivalents increased $5.7 million to $22.4 million. This increase in fiscal 1994 resulted from cash provided by operating activities of $9.8 million, and was partially offset by cash used in investing activities and financing activities of ($1.9) million and ($2.3) million, respectively. For the first nine months of fiscal 1995, cash used in operating activities of ($1.1) million decreased ($10.9) million from the comparable period of last year. This decrease resulted primarily from increased inventory levels and reduced accounts payable and other current liabilities. Cash used in investing activities was ($1.6) million for the first nine months of fiscal 1995, reflecting an increase in expenditures for plant and equipment and a decrease in short-term investments. Cash provided by financing activities was $4.5 million from employee stock plan proceeds. The Company maintains a $10 million line of credit with the Bank of Boston which expires on July 31, 1995. The Company is currently negotiating an extension beyond the current expiration date. At May 29, 1995 the Company had no borrowings under this line of credit and currently has no other debt outstanding. Management believes that existing cash and future funds provided by operating activities will be adequate to satisfy operating cash requirements. 9 10 TELCO SYSTEMS, INC. PART II. OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports filed on Form 8-K ------- -------------------------------------- (b) The Company filed no reports on Form 8-K during the fiscal quarter for which this report is filed. 10 11 TELCO SYSTEMS, INC. SIGNATURE(S) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELCO SYSTEMS, INC. By: /s/ Daniel A. DiPietro ---------------------- Daniel A. DiPietro Vice President and Corporate Controller Principal Accounting Officer Date: July 6, 1995 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS AUG-27-1995 MAY-28-1995 1 17,120 10,524 11,683 0 19,356 62,158 41,542 30,794 83,595 12,076 0 101 0 0 67,820 83,595 20,656 20,656 11,060 21,721 0 0 0 (1,065) (125) (940) 0 0 0 (940) (.09) (.09)
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