-----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, Iu0ncT6lbWpSV3tkn2YKD24iEAUk3mesgGTU+Yc2KqY5gPXQhH7ED3at8hqnDFGv 1O0k2mzGGSpyQIAeSu6q5Q== 0000950148-97-002845.txt : 19971117 0000950148-97-002845.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950148-97-002845 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD 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 SEC ACT: SEC FILE NUMBER: 001-11174 FILM NUMBER: 97718220 BUSINESS ADDRESS: STREET 1: 8917 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187739044 MAIL ADDRESS: STREET 1: 8943 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1997 [ ] 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.) 8917 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 October 22, 1997, there were 26,563,802 shares of Common Stock, $.0034 par value per share, outstanding. 2 MRV COMMUNICATIONS, INC. Form 10-Q September 30, 1997 INDEX
PAGE NUMBER ----------- PART I FINANCIAL INFORMATION Item 1: Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 (audited) 3 Condensed Consolidated Statements of Operations (unaudited) for the Nine and Three Months ended September 30, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 7 SIGNATURE 11
As used in this Report, "MRV" or the "Company" refers to MRV Communications, Inc. and its wholly owned consolidated subsidiaries. 2 3 MRV COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
- ------------------------------------------------------------------------------------------------- September 30, December 31, 1997 1996 (unaudited) (audited) - ------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash & Cash Equivalents $ 10,109 $ 14,641 Short-term investments 46,767 17,659 Accounts receivable, net of reserves of $2,534 in 1997 and $2,404 in 1996 35,111 24,296 Inventories 23,972 18,238 Deferred income taxes 2,832 2,660 Other current assets 3,777 4,377 - ------------------------------------------------------------------------------------------------- Total current assets 122,568 81,871 PROPERTY AND EQUIPMENT - At cost, net of depreciation and amortization 6,099 6,248 OTHER ASSETS: Goodwill 2,510 2,788 Investments 73,024 -- Deferred income taxes 4,284 6,036 OTHER 21 -- - ------------------------------------------------------------------------------------------------- $ 208,506 $ 96,943 - ------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of capital lease obligations $ 36 $ 119 Accounts payable 17,058 11,328 Accrued liabilities 6,440 6,389 Accrued restructuring costs 253 3,549 Customer Deposits 176 1,500 Income taxes payable 2,027 2,013 - ------------------------------------------------------------------------------------------------- Total current liabilities 25,990 24,898 LONG-TERM LIABILITIES Convertible debentures -- 17,325 Capital lease obligations, net of current portion 901 1,035 Other long-term liabilities 744 532 - ------------------------------------------------------------------------------------------------- Total long term liabilities 1,645 18,892 MINORITY INTERESTS 937 852 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value: no shares outstanding -- -- Common stock, $0.0033 par value: 40,000,000 shares authorized and 26,222,109 shares outstanding in 1997 and 21,745,481 shares outstanding in 1996 87 72 Additional paid-in capital 172,579 60,164 Retained earnings (Deficit) 7,524 (7,950) Cumulative translation adjustments (256) 15 - ------------------------------------------------------------------------------------------------- Total stockholders' equity 179,934 52,301 - ------------------------------------------------------------------------------------------------- $ 208,506 $ 96,943 - -------------------------------------------------------------------------------------------------
See accompanying notes. 3 4 MRV COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data)
Nine Months Ended Three Months Ended ------------------------------- -------------------------------- September 30, September 30, September 30, September 30, 1997 1996 1997 1996 (Unaudited) (Unaudited) (Unaudited) (Unaudited) - -------------------------------------------------------------------------------------------------------------------- REVENUES, net $ 117,071 $ 57,779 $ 41,979 $ 22,664 - -------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of goods sold 66,866 33,682 23,805 13,282 Research and development expenses 9,094 5,787 3,305 2,111 Selling, general and administrative expenses 18,745 8,808 6,738 3,713 Purchased technology in progress -- 17,795 -- 17,795 Restructuring costs -- 6,974 -- 6,974 - -------------------------------------------------------------------------------------------------------------------- Operating income (loss) 22,366 (15,267) 8,131 (21,211) Interest expense related to convertible debentures and acquistion 427 2,236 -- 2,236 Other income, net 460 296 341 132 Provision (credit) for income taxes 6,840 (5,982) 2,535 (7,865) Minority interests 85 117 15 54 - -------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 15,474 $ (11,342) $ 5,922 $ (15,504) - -------------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) PER SHARE: $ 0.62 $ (0.59) $ 0.23 $ (0.79) - -------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING: 25,049,905 19,312,171 25,901,567 19,686,685 - --------------------------------------------------------------------------------------------------------------------
See accompanying notes. 4 5 MRV COMMUNICATIONS, INC. CONDENSED CONSOLDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)
Nine months ended September 30, ---------------------------- 1997 1996 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 15,474 $(11,342) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,167 493 Purchased technology in progress -- 17,795 Interest related to convertible debentures and acquisition 427 2,236 Provision for losses on accounts receivable 130 822 Minority interest in subsidiary 85 117 Change in assets and liabilities: (Decrease) increase in: Accounts receivable (10,945) (8,012) Inventories (5,734) (4,735) Deferred income taxes 1,580 (7,977) Other assets 579 (1,932) Increase (decrease) in: Accounts payable 5,730 1,257 Accrued liabilities and restructuring costs (3,245) 6,546 Income taxes payable 14 339 Customer deposits (1,324) -- Deferred rent -- (8) - ---------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 3,938 (4,401) - ---------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (740) (2,494) Purchases of investments (131,044) (21,449) Redemption of investments 28,912 10,749 Restricted cash -- 1,202 Net cash used in acquisitions -- (13,282) - ---------------------------------------------------------------------------------------- Net cash used in investing activities (102,872) (25,274) - ---------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 98,908 3,744 Proceeds from issuance of convertible debentures -- 30,000 Repurchase of common stock (4,230) -- Repayment of capital lease obligation (217) -- Other long-term liabilities 212 115 - ---------------------------------------------------------------------------------------- Net cash provided by financing activities 94,673 33,859 - ---------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (271) 41 Net (decrease) increase in cash and cash equivalents (4,532) 4,225 Cash and cash equivalents at beginning of period 14,641 1,951 - ---------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 10,109 $ 6,176 - ----------------------------------------------------------------------------------------
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, 1996. 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. NET EARNINGS PER SHARE Net earnings per share are based upon the weighted average number of shares outstanding during each of the periods, including the dilutive effect of common stock equivalents. Weighted average shares outstanding include the common stock equivalents of the convertible debentures, stock options and warrants outstanding during the period and net income for the purpose of calculating earnings per share is consequently adjusted for the interest payable to debenture holders. 6 7 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.
Nine Months Ended Three Months Ended September September September September 30, 30, 30, 30, 1997 1996 1997 1996 (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUES, net 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- COSTS AND EXPENSES: Cost of goods sold 57.1 58.3 56.7 58.6 Research and development expenses 7.8 10.0 7.9 9.3 Selling, general and administrative expenses 16.0 15.2 16.1 16.4 Purchased technology in progress 0.0 30.8 0.0 78.5 Restructuring costs 0.0 12.1 0.0 30.8 Other income, net 0.4 0.5 0.8 0.6 Provision (credit) for income taxes 5.8 (10.4) 6.0 (34.7) Minority interests 0.1 0.2 0.0 (0.2) ----- ----- ----- ----- NET INCOME 13.2% (19.6)% 14.1% (68.4)% ----- ----- ----- -----
Revenues Revenues for the three and nine months ended September 30, 1997 were $41,979,000 and $117,071,000, respectively, as compared to revenues for the three and nine months ended September 30, 1996 of $22,664,000 and $57,779,000, respectively. The changes represented increases of $19,315,000 or 85% for the quarter ended September 30, 1997 over the quarter ended September 30, 1996 and $59,292,000 or 103% for the nine months ended September 30, 1997 over the nine months ended September 30, 1996. Revenues increased as a result of greater marketing efforts and greater market acceptance of the Company's products, both domestically and internationally. International sales accounted for approximately 58% of revenues for the quarter and nine months ended September 30, 1997, as compared to 56% and 50% of revenues for the quarter and nine months ended September 30, 1996, respectively. International sales, as a percentage of total revenues, increased mainly as a result of increased sales, marketing and support resources in place in Europe and increased sales to the Pacific Rim region. Sales of networking products represented approximately 76% and 75% of total sales during the quarter and nine months ended September 30, 1997, respectively, compared to approximately 70% and 67% for the quarter and nine months ended September 30, 1996. Gross Profit Gross profit for the quarter and nine months ended September 30, 1997 were $18,174,000 and $50,205,000, respectively, compared to gross profit for the quarter and nine months ended September 30, 1996 of $9,382,000 and $24,097,000 for the quarter and nine months ended September 30, 1996, respectively. The changes represented increases of $8,792,000 or 93.7% for the quarter ended September 30, 1997 over the quarter ended September 30, 1996 and $26,108,000 or 108% for the nine months ended September 30, 1997 over the nine months ended September 30, 1996. Gross Profit as a percentage of revenues increased from 41.4% and 41.7% during the quarter and nine months ended September 30, 1996, respectively, to 43.3% and 42.9% 7 8 during the quarter and nine months ended September 30, 1997 as a result of increased sales of higher margin products such as the MegaSwitch family of products as well as lower cost production techniques. Research and Development Research and development ("R&D") expenses were $3,305,000 and $2,111,000 and represented 7.9% and 9.3% of revenues for the quarters ended September 30, 1997 and 1996, respectively. R&D expenses were $9,094,000 and $5,787,000 and represented 7.8% and 10.0% of revenues for the nine months ended September 30, 1997 and 1996, respectively. In the case of absolute dollars, the 57% increases in R&D spending during the quarter and nine months ended September 30, 1997 over the comparable periods in 1996 were attributable to the continued development of the Company's networking and fiber optic products including Ethernet/Fast Ethernet/Gigabit Ethernet switches, Gigahub modules and fiber optic components. Additional costs were also associated with the hiring of additional research and development personnel and consultants. R&D expenses as a percentage of revenues declined from 9.3% and 10.0% of revenues during the quarter and nine months ended September 30, 1996, respectively, to 7.9% and 7.8% of revenues for the quarter and nine months ended September 30, 1997. These decreases were primarily caused because the Company's revenues during the periods increased at a faster rate than R&D expenses. 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 a key competitive factor. Selling, General and Administrative Selling, general and administrative ("SG&A") expenses increased to $6,738,000 for the quarter ended September 30, 1997 from $3,713,000 for the quarter ended September 30, 1996. As a percentage of revenues, SG&A decreased from 16.4% for the quarter ended September 30, 1996 to 16.1% for the quarter ended September 30, 1997. SG&A expenses increased to $18,745,000 for the nine months ended September 30, 1997 from $8,808,000 for the nine months ended September 30, 1996. As a percentage of revenues, SG&A increased from 15.2% for the nine months ended September 30, 1996 to 16.0% for the nine months ended September 30, 1997. The increases in SG&A expense, both in dollar amounts and as a percentage of sales during the nine months ended September 30, 1997, were due primarily to substantially increased marketing efforts as well as additional personnel and overhead costs in additional and expanded locations. The decrease in SG&A as a percentage of revenues during the three months ended September 30, 1997 from the three months ended September 30, 1996 was because the Company's revenues during the three months ended September 30, 1997 increased at a faster rate than SG& A expenses during the quarter. Interest Expense Related to Convertible Debentures and Acquisition In September 1996, the Company completed a private placement of $30,000,000 principal amount of convertible Debentures. See "Liquidity and Capital Resources," below. To give effect to the accounting treatment announced by the staff of the Securities and Exchange Commission at the March 13, 1997 meeting of the Emerging Issues Task Force relevant to the Company's issuance of the Debentures having "beneficial conversion" features, the value of the fixed discount has been reflected in the Company's financial statements at and for the quarter and nine months ended September 30, 1996 and the nine months ended September 30, 1997 as additional interest expense and such fixed discount was accreted through the first possible conversion date of the respective issuance. The Company did not need to report charges relating to the issuance of the Debentures in the quarter ended September 30, 1997 as the outstanding principal and accrued interest were paid in full at April 4, 1997 through conversion into Common Stock. See "Liquidity and Capital Resources" below. Net Income Net income increased to $5,922,000 and $15,474,000 for the quarter and nine months ended September 30, 1997, respectively, from net losses of $15,504,000 and $11,342,000 for the quarter and nine months ended September 30, 1996, respectively. Net losses during the quarter and nine months ended September 30, 1996 were the result of aggregate charges of $27,005,000 during each of the periods related to the Company's acquisition of Fibronics from Elbit, 8 9 including charges from purchased technology in progress, restructuring costs and the interest on the Debentures. LIQUIDITY AND CAPITAL RESOURCES In September 1996, the Company completed a private placement of $30,000,000 principal amount of Debentures. The Debentures were convertible into Common Stock at a discount from the market price at the time of conversion. At April 4, 1997, principal and accrued interest on the Debentures had been paid in full through their conversion into a total of 1,816,159 shares of Common Stock at an average conversion rate of $16.77 per share. As part of the private placement, the Company also issued to the investors three-year warrants to purchase an aggregate of up to 600,000 shares of Common Stock at a weighted average exercise price of $26.67 per share. In September 1996, the Company completed an acquisition (the "Fibronics Acquisition") from Elbit Ltd. ("Elbit") of certain of the assets and selected liabilities of Elbit's wholly-owned subsidiary, Fibronics Ltd. and its subsidiaries (collectively "Fibronics") related to Fibronics' computer networking and telecommunications businesses (the "Fibronics Business") in Germany, the United States, the United Kingdom, the Netherlands and Israel. The assets acquired included Fibronics' technology in progress and existing technology, its marketing channels, its GigaHub family of computer networking products and other rights. The purchase price for the Fibronics Business was approximately $22,800,000. The purchase price was paid using a combination of cash and shares of Common Stock of the Company. The cash was provided from a portion of the proceeds of the private placement of Debentures. Elbit subsequently resold the shares of Common Stock it received from the Company in the open market. Net cash provided by operating activities for the nine months ended September 30, 1997 was $3,938,000. Net cash provided by financing activities for the nine months ended September 30, 1997 were $94,673,000. The cash provided by financing activities came principally from the proceeds from the issuance of 2,785,000 shares of Common Stock upon completion of a follow-on public offering which were partially offset by the repurchase of the Common Stock from Elbit. Net cash used in investing activities for the nine months ended September 30, 1997 was $102,872,000. The cash used in investing activities was primarily used to purchase investments in U.S. Government securities. In November 1996, the Company completed a private placement of 200,000 shares of Common Stock to Intel Corporation ("Intel") for $4,000,000 ($20.00 per share). As part of the private placement, the Company issued to Intel three-year warrants to purchase up to an additional 500,000 shares of Common Stock at $20.00 per share. Of such warrants, warrants to purchase 200,000 shares of Common Stock are currently exercisable under certain conditions. In December 1996, Datapoint Corporation ("Datapoint") brought an action against NBase Communications, Inc., a subsidiary of the Company ("NBase") and several other defendants in the United States District Court for the Eastern District of New York alleging infringement of two of Datapoint's patents related to LANs, more particularly to claimed improved LANs which interoperatively combines additional enhanced capability and/or which provides multiple different operational capabilities. In the same lawsuit, Datapoint alleges that other defendants including Dayna Communications, Inc., Sun Microsystems, Inc., Adaptec, Inc., International Business Machines Corporation, Lantronix and SVEC America Computer Corporation have infringed the same two patents. The Company has been advised that several other companies, including Intel Corporation and Cisco Systems, Inc. have also had actions brought against them by Datapoint with respect to the same two patents. The action against NBase and its codefendants seeks, among other things, an injunction against the manufacture or sale or products which embody the inventions set forth in the two patents and single and treble damages for the alleged infringement. Datapoint's complaint also seeks to have the court determine that the named defendants shall serve as representatives of a defendant class of manufacturers, vendors and users of products allegedly infringing on Datapoint's claimed patents from which defendant class Datapoint seeks the same relief as from the individual defendants. The Company is cooperating with several of the defendants in pursuit of common defenses and believes it has meritorious defenses to this action. If a conclusion unfavorable to the Company is reached, however, Datapoint's claim could materially affect the business, operating results and financial condition of the Company. 9 10 In September 1997, the Company received proceeds of approximately $93,492,000 from the issuance of 2,785,000 shares of Common Stock upon completion of a follow-on public offering. INFLATION The Company believes that the relatively moderate rate of inflation 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. 10 11 SIGNATURE 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 November 13, 1997. MRV COMMUNICATIONS, INC. By: /s/ Edmund Glazer -------------------------------- Edmund Glazer Vice President of Finance and Administration and Chief Financial Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS AND CONDENSED CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 9-MOS DEC-31-1997 SEP-30-1997 10,109 119,791 37,645 2,534 23,972 122,568 8,446 2,347 208,506 25,990 0 0 0 87 179,847 208,506 117,071 117,071 66,866 27,339 0 130 427 22,366 6,840 15,474 0 0 0 15,474 0.62 0.62
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