-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TTRo/BjnCSDIJlgiKfq6f5qXo7bZqYEvHlr5wxSPJSsC4gZD3V3CBpZOUpJXnWSl HeP/Ftj9EibH0hGgsENowg== 0000950148-99-000449.txt : 19990310 0000950148-99-000449.hdr.sgml : 19990310 ACCESSION NUMBER: 0000950148-99-000449 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MRV COMMUNICATIONS INC CENTRAL INDEX KEY: 0000887969 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 061340090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-11174 FILM NUMBER: 99560636 BUSINESS ADDRESS: STREET 1: 8943 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187679044 MAIL ADDRESS: STREET 1: 8943 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q/A 1 FORM 10-Q/A (06/30/1998) 1 *SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (Amendment No. 1) [X] Quarterly Report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1998 [ ] Transition Report pursuant to section 13 or 15(d) of the Securities Exchange Act. For the transition period from _______________ to ______________ Commission file number 0-25678 ------------------------------ MRV Communications, Inc. (Exact name of registrant as specified in its charter) Delaware 06-1340090 (State of other jurisdiction (IRS Employer of incorporation or organization) identification no.) 8943 Fullbright Ave., Chatsworth, CA 91311 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (818) 773-9044 - -------------------------------------------------------------- Check whether the issuer:(1)has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act 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 June 30, 1998, there were 26,519,721 shares of Common Stock, $.0034 par value per share, outstanding. 2 MRV COMMUNICATIONS, INC. Form 10-Q/A June 30, 1998 INDEX
PAGE NUMBER ----------- PART I FINANCIAL INFORMATION Item 1: Financial Statements: Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 (audited) 3 Condensed Consolidated Statements of Income (unaudited) for the Six Months and Three Months ended June 30, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months ended June 30, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION 11 Item 2: Changes in Securities. 11 Item 6: Exhibits and Reports on Form 8-K 12 SIGNATURE 14
As used in this Report, "MRV" or the "Company" refers to MRV Communications, Inc. and its consolidated subsidiaries. 2 3
MRV COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 1998 1997 (unaudited) (audited) - ------------------------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS: Cash & cash equivalents $ 116,971 $ 19,428 Short-term investments 21,651 36,413 Accounts receivable, net of reserves of $6,337 in 1998 and $4,252 in 1997 60,636 47,258 Inventories 45,389 41,689 Deferred income taxes 8,567 2,280 Other current assets 7,570 7,248 - ------------------------------------------------------------------------------------------------------------------------------ Total current assets 260,784 154,316 PROPERTY AND EQUIPMENT - At cost, net of depreciation and amortization 19,470 8,183 OTHER ASSETS: Intangible assets, including goodwill 31,126 5,077 Investments 16,971 62,382 Deferred income taxes 6,112 6,231 Loan acquisition costs and other 4,409 47 - ------------------------------------------------------------------------------------------------------------------------------ $ 338,872 $ 236,236 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of financing lease obligations $ 141 $ 111 Accounts payable 27,406 30,439 Accrued liabilities 11,700 8,429 Accrued restructuring costs 8,713 - Deferred revenue 4,876 293 Income taxes payable 4,723 3,485 - ------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 57,559 42,757 LONG-TERM LIABILITIES Convertible debentures 100,000 -- Capital lease obligations, net of current portion 882 788 Deferred income taxes 425 -- Other long-term liabilities 1,579 2,065 - ------------------------------------------------------------------------------------------------------------------------------ Total long term liabilities 102,886 2,853 MINORITY INTERESTS 2,633 657 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value: 1,000 shares authorized no shares outstanding -- -- Common stock, $0.0034 par value: 40,000,000 shares authorized and 26,520 shares outstanding in 1998 and 26,360 shares outstanding in 1997 90 88 Additional paid-in capital 183,324 175,874 Retained earnings (deficit) (7,058) 14,635 Cumulative translation adjustments (562) (628) - ------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 175,794 189,969 - ------------------------------------------------------------------------------------------------------------------------------ $ 338,872 $ 236,236 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes 3 4 MRV COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Six Months Ended Three Months Ended --------------------------------------------- --------------------------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 (Unaudited) (Unaudited) (Unaudited) (Unaudited) - ----------------------------------------------------------------------------------------- --------------------------------------- REVENUES, net $ 126,568 $ 75,092 $ 65,742 $ 39,528 - ----------------------------------------------------------------------------------------- --------------------------------------- COSTS AND EXPENSES: Cost of goods sold 70,754 43,061 36,749 22,885 Research and development expenses 10,525 5,789 5,282 3,041 Selling, general and administrative expenses 23,926 12,007 12,326 6,232 Purchased technology in progress 20,633 -- -- -- Restructuring costs 23,194 -- -- -- - ----------------------------------------------------------------------------------------- --------------------------------------- Operating (loss) income (22,464) 14,235 11,385 7,370 Interest expense related to convertible debentures and acquisition -- 427 -- 19 Other income (expense), net 1,374 119 690 285 Provision for income taxes 363 4,305 3,531 2,367 Minority interests 240 70 16 60 - ----------------------------------------------------------------------------------------- --------------------------------------- NET INCOME (LOSS) $ (21,693) $ 9,552 $ 8,528 $ 5,209 - ----------------------------------------------------------------------------------------- --------------------------------------- NET INCOME (LOSS) PER SHARE Basic $ (0.82) $ 0.42 $ 0.32 $ 0.23 Diluted $ (0.82) $ 0.38 $ 0.30 $ 0.21 - ----------------------------------------------------------------------------------------- --------------------------------------- SHARES USED IN PER - SHARE CALCULATION Basic 26,440 22,501 26,492 22,812 Diluted 26,440 24,892 28,536 25,206 - ----------------------------------------------------------------------------------------- ---------------------------------------
See accompanying notes 4 5 MRV COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED IN THOUSANDS)
Six Months Ended June 30, --------------------------------------------------- 1998 1997 ---------------------- ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (21,693) $ 9,552 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 2,901 735 Interest related to convertible debentures and acquisition -- 427 Purchased technology in progress 20,633 -- Minority interests' share of income 240 70 Decrease (increase) in: Accounts receivable 6,779 (8,484) Inventories 5,339 (3,026) Deferred income taxes (5,636) 20 Other assets 891 369 Increase (decrease) in: Accounts payable (20,670) 4,921 Accrued liabilities (10,559) (1,864) Accrued restructuring 8,713 (1,062) Income taxes payable (818) 755 Deferred revenue 938 (1,026) Accrued severance pay (611) 131 ---------------------- ----------------------- Net cash (used in) provided by operating activities (13,553) 1,518 ---------------------- ----------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (4,117) (373) Purchases of investments (4,058) (31,178) Proceeds from sale of investments 64,231 23,856 Cash used in acquisitions, net of cash received (41,936) -- ---------------------- ----------------------- Net cash provided by (used in) investing activities 14,120 (7,695) ---------------------- ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 451 3,114 Repurchase of common stock -- (4,230) Proceeds from issuance of convertible debentures, net of loan acquisition costs 96,423 -- Principal payments on capital lease obligations 30 (172) ---------------------- ----------------------- Net cash provided by (used in) financing activities 96,904 (1,288) ---------------------- ----------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 72 (320) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 97,543 (7,785) CASH AND CASH EQUIVALENTS, beginning of period 19,428 14,641 ---------------------- ----------------------- CASH AND CASH EQUIVALENTS, end of period $ 116,971 $ 6,856 ---------------------- -----------------------
See accompanying notes 5 6 MRV COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL Basis of Presentation - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented if such financial statements were prepared in accordance with generally accepted accounting principles. These statements should be read in conjunction with the audited financial statements presented in the Company's Annual Report or Form 10-K for the year ended December 31, 1997. In the opinion of management, these interim financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the financial position and results of operations for each of the periods presented. The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full year. 2. PURCHASED TECHNOLOGY IN PROGRESS Although MRV Communications, Inc. reported its first, second and third quarter results of 1998 in accordance with established accounting practice and valuations of purchased technology in progress provided by independent valuators, these valuations have been reconsidered in light of very recent Securities and Exchange Commission guidance regarding valuation methodology. Based on this new valuation methodology, the value of the purchased technology in progress related to the Xyplex acquisition has been reduced to $20,633,000 and the amount of goodwill has been increased by $9,938,000. 3. NET EARNINGS (LOSS) PER SHARE The following schedule summarizes the information used to compute net income per common share for the six months and three months ended June 30, 1998 and 1997 (in thousands):
Six Months Ended Three Months Ended -------------------------------- ---------------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------- ------------- ----------- ---------- Weighted number of common shares used to compute 26,440 22,501 26,492 22,812 basic earnings (loss) per share Weighted common share equivalents -- 2,391 2,044 2,394 ------ ------ ------ ------ Weighted number of common shares used to compute diluted earnings (loss) per share 26,440 24,892 28,536 25,206 ====== ====== ====== ======
4. COMPREHENSIVE INCOME On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." For year-end financial statements, SFAS 130 requires the display of comprehensive income, which is the total of net income and all other non-owner changes in equity, in a financial statement with the same prominence as other consolidated financial statements. In addition, the standard encourages companies to display the components of other comprehensive income below the total for net income. The following schedule summarizes comprehensive income for the six months and three months ended June 30, 1998 and 1997 (in thousands):
Six Months Ended Three Months Ended ------------------------------- ------------------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 (Unaudited) (Unaudited) (Unaudited) (Unaudited) -------- -------- -------- -------- Net (loss) income $(21,693) $ 9,552 $ 8,528 $ 5,209 Translation adjustment 66 (230) 146 (14) -------- -------- -------- -------- Comprehensive (loss) income $(21,627) $ 9,232 $ 8,674 5,195 ======== ======== ======== ========
The cumulative translation adjustment at June 30, 1998 was $(562,000). 5. PRO FORMA FINANCIAL DATA On January 30, 1998, MRV completed an acquisition from Whittaker Corporation ("Whittaker") of all of the outstanding capital stock of Whittaker Xyplex, Inc. a Delaware corporation (the "Xyplex Acquisition"). Whittaker Xyplex, Inc., (whose name the Company has since changed to NBase Xyplex, Inc.) is a holding corporation owning all of the outstanding capital stock of Xyplex, Inc., a Massachusetts corporation ("Xyplex"). Xyplex is a leading provider of access solutions between enterprise networks and wide area network and/or Internet service providers ("ISPs"). The purchase price paid to Whittaker consisted of $35,000,000 in cash and three-year warrants to purchase up to 500,000 shares of Common Stock of the Company at an exercise price of $35 per share. 6 7 As a result of the acquisition, the Company adopted a restructuring plan in March 1998. The plan calls for reduction of workforce, closing of certain facilities, elimination of particular product lines, settlement of distribution agreements and other costs. The Company provided $23,194,000 for the costs of the restructuring. Management estimates that $20,633,000 of the purchase price represents purchased technology in process that has not yet reached technological feasibility and has no alternative future use. Accordingly, this amount was expensed in the Consolidated Statement of Operations upon consummation of the acquisition. The following unaudited pro forma summary sets forth results of operations of excluding the non-recurring charges for purchased technology in progress and restructuring resulting from the Xyplex Acquisition as if the acquisition took place at the beginning of each period presented (in thousands, expect per share information):
Six Months Ended Three Months Ended -------------------------------------------- ------------------------------------------ June 30, June 30, June 30, June 30, 1998 1997 1998 1997 (Unaudited) (Unaudited) (Unaudited) (Unaudited) -------------------------------------------- ------------------------------------------ OPERATING INCOME $ 21,363 $ 14,235 $ 11,385 $ 7,370 NET INCOME $ 15,868 $ 9,552 $ 8,528 $ 4,801 - --------------------------------------------------------------------------- ------------------------------------------ NET INCOME PER SHARE Basic $ 0.60 $ 0.42 $ 0.32 $ 0.21 Diluted $ 0.56 $ 0.38 $ 0.30 $ 0.19 - --------------------------------------------------------------------------- ------------------------------------------ SHARES USED IN PER SHARE CALCULATION Basic 26,440 22,501 26,492 22,812 Diluted 28,493 24,892 28,536 25,206 - --------------------------------------------------------------------------- ------------------------------------------
7 8 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth for the periods indicated statements of operations data of the Company expressed as a percentage of revenues.
Six Months Ended Three Months Ended ------------------------------------------ -------------------------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 (Unaudited) (Unaudited) (Unaudited) (Unaudited) - --------------------------------------------------------------------------------- -------------------------------------- REVENUES, net 100.0% 100.0% 100.0% 100.0% Cost of goods sold 55.9 57.3 55.9 57.9 Research and develop- ment expenses 8.3 7.7 8.0 7.7 Selling, general and administrative expenses 18.9 16.0 18.7 15.8 Purchased technology in progress 16.3 -- -- -- Restructuring costs 18.3 -- -- -- - --------------------------------------------------------------------------------- -------------------------------------- Operating (loss) income (17.7) 19.0 17.4 18.6 Interest expense related to convertible debentures and acquisition -- 0.6 -- 0.0 Other income (expense), net 1.1 0.2 1.0 0.7 Provision for income taxes 0.3 5.7 5.4 6.0 Minority interests 0.2 0.1 0.0 0.2 - --------------------------------------------------------------------------------- -------------------------------------- NET INCOME (LOSS) (17.1)% 12.7% 13.0% 13.2% - --------------------------------------------------------------------------------- --------------------------------------
Revenues Revenues for the three and six months ended June 30, 1998 were $65,742,000 and $126,568,000, respectively, as compared to revenues for the three and six months ended June 30, 1997 of $39,528,000 and $75,092,000, respectively. The changes represented increases of $26,214,000 or 66.3% for the quarter ended June 30, 1998 over the quarter ended June 30, 1997 and $51,476,000 or 68.6% for the six months ended June 30, 1998 over the six months ended June 30, 1997. Revenues increased as a result of a larger sales force, greater marketing efforts and greater market acceptance of the Company's products, both domestically and internationally. International sales accounted for approximately 60% and 62% of revenues for the quarter and six months ended June 30, 1998, respectively, as compared to 58% and 57% of revenues for the quarter and six months ended June 30, 1997, respectively. International sales, as a percentage of total revenues, increased mainly because of increased sales, marketing and support resources in place in Europe. Sales of networking products represented approximately 82% of total sales for both the quarter and six months ended June 30, 1998 compared to approximately 75% of total sales during each of the quarter and six months ended June 30, 1997. 8 9 Gross Profit Gross profit for the quarter and six months ended June 30, 1998 were $28,993,000 and $55,814,000, respectively, compared to a gross profit of $16,643,000 and $32,031,000 for the quarter and six months ended June 30, 1997, respectively. The changes represented increases of $12,350,000 and $23,783,000 for the quarter and six months ended June 30, 1998, respectively, or 74.2% for both the quarter and six months ended June 30, 1998 over the quarter and six months ended June 30, 1997. Gross Profit as a percentage of revenues increased from 42.1% and 42.7% during the quarter and six months ended June 30, 1997, respectively, to 44.1% during each of the quarter and six months ended June 30, 1998 as a result of increased sales of higher margin products. Research and Development Research and development ("R&D") expenses were $5,282,000 and $10,525,000, and represented 8.0% and 8.3% of revenues, for the quarter and six months ended June 30, 1998, respectively. R&D expenses were $3,041,000 and $5,789,000 for the three months and six months ended June 30, 1997, respectively, and represented 7.7% of revenues for both periods. The increases of 73.7% and 81.8% in R&D spending during the quarter and six months ended June 30, 1998 over the comparable periods in 1997 were attributable to the continued development of, as well as for new projects involving, the Company's networking and fiber optic products. The Company intends to continue to invest in the research and development of new products. Management believes that the ability of the Company to develop and commercialize new products is an important competitive factor. Selling, General and Administrative Selling, general and administrative ("SG&A") expenses increased to $12,326,000 and $23,926,000 for the quarter ended and six months ended June 30, 1998 from $6,232,000 and $12,007,000 for the quarter ended June 30, 1997. As a percentage of revenues, SG&A increased from 15.8% and 16.0% for the quarter and six months ended June 30, 1997, respectively, to 18.7% and 18.9% for the quarter and six months ended June 30, 1998, respectively. The increases in SG&A expense, both in dollar amounts and as a percentage of sales, are due primarily to substantially increased marketing efforts as well as increased personnel and overhead costs in expanded locations. Purchased Technology in Progress and Restructuring Costs; Interest Expense Purchased technology in progress for the six months ended June 30, 1998 of $20,633,000 was related to R&D projects of Xyplex in progress at the time of the Xyplex Acquisition on January 30, 1998. Restructuring costs during the six months ended June 30, 1998 were $23,194,000. The restructuring costs in the first six months of 1998 were associated with a plan adopted by the Company in March, 1998 calling for the reduction of workforce, closing of certain facilities, elimination of particular product lines, settlement of distribution agreements and other costs. The Company did not incur these charges in the quarter ended June 30, 1998 or quarter and six months ended June 30, 1997. The Company did, however, incur charges of $19,000 and $427,000 during the quarter and six months ended June 30, 1997, respectively, as additional interest expense related to the issuance in 1996 of convertible subordinated debentures (the "Debentures"), proceeds from which were used to finance the Company's acquisition of the Fibronics business in 1996. The Company did not report charges relating to the issuance of the Debentures for periods after June 30, 1997 as the outstanding principal and accrued interest were paid in full at April 4, 1997 through conversion into Common Stock. Net Income (Loss) The Company reported net income (loss) of $8,528,000 and ($21,693,000) during the three and six months ended June 30, 1998, respectively, compared to net income of $5,209,000 and $9,552,000 during the three and six months ended June 30, 1997. Net income increased by $3,319,000 or 63.7% for the three months ended June 30, 1998 over the three months ended June 30, 1997. Net income for the six months ended June 30, 1998 would have been $15,868,000, excluding $43,827,000 of charges, associated with the Xyplex Acquisition, as compared to net 9 10 income of $9,979,000, excluding non-recurring charges of $427,000 relating to interest expenses attributable to financing the acquisition of the Fibronics business. Excluding these non-recurring, net income increased by $6,316,000 or 66.1% for the six months ended June 30, 1998 over the six months ended June 30, 1997. LIQUIDITY AND CAPITAL RESOURCES In September 1997, the Company completed a follow-on public offering of 2,785,000 shares of Common Stock raising net proceeds of approximately $93,320,000. In June 1998, the Company sold an aggregate $100,000,000 principal amount of 5% convertible subordinated notes due 2003 (the "Notes") in a private placement raising net proceeds of $96,423,000 (the "1998 Private Placement"). The Notes are convertible into Common Stock of the Company at a conversion price of $27.0475 per share (equivalent to a conversion rate of approximately 36.97 shares per $1,000 principal amount of notes), representing an initial conversion premium of 24 percent, for a total of approximately 3.7 million shares of common stock of the Company. The Notes have a five-year term and are not callable for the first three years. Interest on the Notes, at 5 percent per annum, is payable semi-annually on June 15 and December 15, commencing on December 15, 1998. Cash and cash equivalents and short-term investments totaled approximately $138,622,000 at June 30, 1998. Such cash and cash equivalents and short-term investments, as well as cash flow from operations, are the Company's principal sources of liquidity. Net cash used in operating activities for the six months ended June 30, 1998 was $13,553,000. The funds were used primarily to purchase technology in progress and for restructuring costs in connection with the Xyplex Acquisition. Net cash provided by investing activities for the six months ended June 30, 1998 was $14,120,000. Cash provided by the sale of investments to finance the Xyplex acquisition accounted for most of the cash provided by investing activities for the six months ended June 30, 1998 and cash used in the Xyplex acquisition accounted for most of the cash used in investing activities for the same period. The sale of the Notes in the 1998 Private Placement accounted for substantially all of the $96,904,000 of cash provided by financing activities during the six months ended June 30, 1998. Accounts receivable were $60,636,000 at June 30, 1998 as compared to $47,258,000 at December 31, 1997. The increase in accounts receivable was primarily attributable to the increase in overall sales in Europe where terms of sale are traditionally longer than in the U.S. Inventories were $45,389,000 at June 30, 1998 as compared to $41,689,000 at December 31, 1997. The increase in inventories was primarily attributable to the Company's decision to add larger inventories to shorten lead times for customers and the Xyplex Acquisition. Management believes that MRV's inventory levels at various points in time may not necessarily be comparable to those of many other companies in its industry. This is because MRV conducts significant in-house manufacturing of various components used in its products and thus carries substantial raw materials and work-in-progress in addition to finished products in its inventories. In contrast, many competitors outsource to turnkey contract manufacturers substantial portions of their production requirements and thus do not include material amounts of raw materials or work in progress in inventories and may in some circumstances not even include finished products in inventory if the contract manufacturer ships directly to the competitors' customers. EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES The Company believes that the relatively moderate rate of inflation in the United States over the past few years has not had a significant impact on the Company's sales or operating results or on the prices of raw materials. However, in view of the Company's recent expansion of operations in Israel which has experienced substantial inflation, there can be no assurance that inflation in Israel will not have a materially adverse effect on the Company's operating results in the future. The Company's sales are currently denominated in U.S. dollars and to date its business has not been significantly affected by currency fluctuations or inflation. However, the Company conducts business in several different countries and thus fluctuations in currency exchange rates could cause the Company's products to become relatively more expensive in particular countries, leading to a reduction in sales in that country. In addition, inflation in such countries could increase the Company's expenses. To date, the Company has not hedged against currency exchange risks. In the future, the Company may engage in foreign currency 10 11 denominated sales or pay material amounts of expenses in foreign currencies and, in such event, may experience gains and losses due to currency fluctuations. The Company's operating results could be adversely affected by such fluctuations or as a result of inflation in particular countries where material expenses are incurred. YEAR 2000 Many existing computer programs, including some programs used by the Company, use only two digits to identify a year in the date field. These programs were designed without considering the impact of the upcoming change in the century. If not corrected, these computer applications and systems could fail or create erroneous results by, at, or after the year 2000. Based on the Company's investigation to date, management does not anticipate that the Company will incur material operating expenses or be required to incur material costs to be year 2000 compliant. To the extent the Company's systems are not fully year 2000 compliant, there can be no assurance that potential systems interruptions or the cost necessary to update software would not have a material adverse effect on the Company's business, financial condition, results or operations and business prospects. PART II - OTHER INFORMATION Item 2. Change in Securities (a) Not applicable (b) Not applicable (c) On June 26, 1998, the Company sold $100,000,000 principal amount of 5 percent convertible subordinated notes due 2003 (the "Notes") in a 144A private placement to qualified institutional investors (the "Initial Purchasers") at 100% of their principal amount, less a selling discount to the Initial Purchasers of 3 percent of the principal amount. Exemption from registration requirements is claimed under the Securities Act of 1933 (the "Securities Act") in reliance on Section 4(2) of the Securities Act or Rule 506 of Regulation D promulgated thereunder. The Initial Purchasers had adequate access to information about the Company and represented to the Company that they were qualified institutional investors within the meaning of Rule 144A under the Securities Act and that they offered the Notes, and will offer and sell the Notes, only: (i) inside the United 11 12 States to persons whom they reasonably believe are "qualified institutional buyers" in accordance with Rule 144A or (ii) to non-U.S. persons pursuant to offers and sales that occur outside the United States in accordance with Regulation S under the Securities Act. Appropriate legends were affixed to the certificates evidencing the Notes in such transaction. The notes have a five-year term and are not callable for the first three years. At any time prior to maturity or redemption, the Notes are convertible into common stock of the Company at a conversion price of $27.0475 per share (equivalent to a conversion rate of approximately 36.97 shares per $1,000 principal amount of Notes), representing an initial conversion premium of 24 percent, for a total of approximately 3.7 million shares of common stock of the Company. Item 6. Exhibits and Reports of Form 8-K. (a) The following exhibits are filed as part of this Report:
Exhibit No. Exhibit - ----------- ------- 4.1 Purchase Agreement, dated June 23, 1998, between the Company and Prudential Securities Incorporated and Bear, Stearns & Co. Inc. relating to the Notes.* 4.2 Indenture, dated as of June 26, 1998, between the Company and American Stock Transfer & Trust Company, as Trustee, relating to the Notes.* 4.3 Specimen of Restricted Global Security* 4.4 Registration Rights Agreement dated June 26, 1998 between the Company and Prudential Securities Incorporated and Bear, Stearns & Co. Inc. relating to the shares of Common Stock issuable upon conversion of the Notes.* 27 Financial Data Schedule
- ----------------- * Previously filed. (b) The following Reports on Form 8-K were filed during the quarter for which this report was filed: o Form 8-K/A dated April 17, 1998 supplementing and completing registrant's Form 8-K filed February 13, 1998 by filing the following financial statements of Xyplex, Inc. and pro forma financial per Item 7 of Form 8-K: FINANCIAL STATEMENTS Audited Financial Statements At October 31, 1997 And 1996 And For The Year Ended October 31, 1997 And The Period April 10, 1996 To October 31, 1996 Report of Independent Auditors (Ernst & Young LLP Balance Sheets at October 31, 1997 and 1996 Statements of Operations for the year ended October 31, 1997 and the period April 10, 1996 to October 31, 1996 Statements of Changes in Stockholders Equity for the year ended October 31, 1997 and the period April 10, 1996 to October 31, 1996 Statements of Cash Flows for the year ended October 31, 1997 and the period April 10, 1996 to October 31, 1996 Notes to Financial Statements Audited Financial Statements At April 9, 1996 And For The Period January 1, 1996 To April 9, 1996 Report of Independent Auditors (Coopers & Lybrand L.L.P) Balance Sheet at April 9, 1996 Statement of Loss for the period January 1, 1996 to April 9, 1996 Statement of Parent Company Investment 12 13 Statement of Cash Flows for the period January 1, 1996 to April 9, 1996 Notes to Financial Statements PRO FORMA FINANCIAL INFORMATION Unaudited Pro Forma Consolidated Financial Statements Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997 Unaudited Pro Forma Statement of Operations for the year ended December 31, 1997 Notes and Assumptions to Unaudited Pro Forma Consolidated Financial Statements o Form 8-K dated June 29, 1998 reporting information under Item 5. 13 14 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant certifies that it has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 9, 1999. MRV COMMUNICATIONS, INC. By: /s/ EDMUND GLAZER ---------------------------------------------- Edmund Glazer Vice President of Finance and Administration and Chief Financial Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS 6-MOS DEC-31-1998 JUN-30-1998 1 116,971 38,622 66,973 6,337 45,389 260,784 23,971 4,501 338,872 57,559 100,000 0 0 90 175,704 338,872 126,568 126,568 70,754 34,451 240 1,212 0 (21,330) 363 (21,693) 0 0 0 (21,639) (0.82) (0.82)
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