SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark
One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended JUNE 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT ACT OF 1934
Commission file number 0-9487
CORCOM, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2307626
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
844 E. Rockland Road, Libertyville, Illinois 60048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, incl area code: (847) 680-7400
NOT APPLICABLE
Former name, former address and former fiscal yr. if changed
Indicate by checkmark 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 last practicable date.
Common Stock, No Par Value - 3,792,543 Shares as of July 17, 1996
Exhibit Index on Page 9
Page 1 of 11
CORCOM, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
June 29, 1996 (unaudited) and December
31, 1995 3
Consolidated Condensed Statements of
Operations (unaudited)--for the 13 weeks
and 26 weeks ended June 29, 1996 and
July 1, 1995 4
Consolidated Condensed Statements of Cash
Flows (unaudited) - for the 26 weeks ended
June 29, 1996 and July 1, 1995 5
Notes to Consolidated Condensed Financial Stmts 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 11.1 - Computation of Earnings per Share 11
Exhibit 27.1 - Financial Data Schedule (EDGAR ONLY)
Page 2 of 11
PART I. FINANCIAL INFORMATION
CORCOM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
ASSETS June 29, December 31,
1996 1995
(unaudited)
CURRENT ASSETS
Cash & cash equivalents $ 3,222 $ 887
Accounts receivable (net) 4,988 5,157
Inventories--Note B 6,865 7,071
Other current assets 650 531
Total current assets 15,725 13,646
PROPERTY, PLANT AND EQUIPMENT--AT COST 17,314 16,810
Less accumulated depreciation & amortization 13,484 13,062
3,830 3,748
Deferred income tax asset (net) 600 0
TOTAL ASSETS $20,155 $17,394
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 54 $ 54
Accounts payable 1,496 1,023
Other accrued liabilities 1,360 1,690
Notes payable 51 0
Total current liabilities 2,961 2,767
LONG TERM DEBT 134 162
STOCKHOLDERS' EQUITY
Common stock, no par value:
Authorized 10,000,000 shares; issued 3,792,543
shares in 1996 and 3,658,543 shares in 1995 14,025 13,942
Retained earnings 3,118 551
Accumulated exchange rate adjustments (83) (28)
17,060 14,465
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $20,155 $17,394
See notes consolidated condensed financial statements
Page 3 of 11
CORCOM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share data)
Thirteen Weeks Ended Twenty-six Weeks Ended
June 29 July 1 June 29 July 1
1996 1995 1996 1995
Net sales $8,507 $7,691 $16,820 $14,611
Costs and expensed
Cost of sales 5,334 4,739 10,464 9,203
Engineering expense 299 321 610 619
Selling, administrative
and other expenses 1,844 1,781 3,713 3,383
Interest expense 4 35 8 60
Interest income (28) 0 (47) (1)
7,453 6,876 14,748 13,264
Earnings before income tax 1,054 815 2,072 1,347
Income tax provision
(benefit) (249) 74 (495) 100
Net earnings $1,303 $ 741 $ 2,567 $ 1,247
Average number of common
and common equivilent
shares outstanding 3,993,234 3,848,890 3,962,934 3,821,533
Net earnings per common
and common equivilent
share - Note C $0.33 $0.19 $0.65 $0.33
Cash dividends have not been declared in the periods covered by these
statements
See notes ot Consolidated Condensed Financial Statements
Page 4 of 11
Corcom, Inc.
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In thousands)
Twenty-six Weeks Ended
June 29, 1996 July 1, 1995
OPERATING ACTIVITIES
Net cash flows from operating activities $ 2,762 $ 1,471
INVESTING ACTIVITIES
Additions to property, plant, & equipment (net) (533) (1,105)
FINANCING ACTIVITIES
Stock options excercised 83 95
Repayments of notes payable and long term debt (207) (603)
Proceeds from borrowings under notes payable
and long term debt 230 227
Change in cash overdraft 77
TOTAL FINANCING ACTIVITIES 106 (204)
INCREASE IN CASH AND CASH EQUIVALENTS 2,335 162
Cash and cash equivalents at beginning of year 887 202
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,222 $364
See notes to Consolidated Condensed Financial Statements
Page 5 of 11
Corcom, Inc.
Notes to Consolidated Condensed Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in a format provided by the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the twenty-six weeks ended June 29, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1995.
NOTE B - INVENTORIES
Major classes of the Company's inventories are as follows (in thousands):
June 29, 1996 December 31, 1995
Finished products $2,733 $3,033
Materials and work-in-process 4,132 4,038
6,865 7,071
NOTE C - EARNINGS PER SHARE
Net earnings per common and common equivalent share are based upon the
weighted average number of shares of common stock and common stock
equivalents (dilutive stock options) outstanding during each period. Primary
and fully diluted amounts per share are the same for each period presented.
NOTE D - INCOME TAXES
The provision for income taxes in 1996 as a percentage of earnings before
income taxes is less than the federal statutory rate due principally to the
effect of utilization of net operating loss carryovers.
The components of the net deferred tax asset, tax effected, recognized in the
accompanying balance sheet as of June 29, 1996 are as follows (in thousands):
Deferred tax assets $2,945
Less: valuation reserve (2,345)
Net deferred tax assets $ 600
Page 6 of 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Results of Operations - Second Quarter 1996 vs. Second Quarter 1995
CORCOM's net sales for the second quarter of 1996 were $8,507,000, an increase
of 10.6% from the $7,691,000 reported for the second quarter of 1995. This
increase was the result of volume increases in the Company's North American
and European commercial filter businesses. North American revenue represented
over 76% of total revenue in the second quarter of 1996 and was up 7.3% over
the comparable number in 1995 as a result of the continued strength in this
segment of the overall electronics market. European sales, which represents
approximately 20% of total second quarter 1996 revenue, was up 30.5% in 1996
over 1995. This increase is attributable to the more stringent 1996 European
RFI/EMI testing regulations which went into effect January 1st of this year.
There were no appreciable price changes year to year.
Cost of sales for the current quarter were 62.7% of net sales compared to
61.6% for the year ago period. Certain peso-based costs at the Company's
main manufacturing plant in Juarez, Mexico have increased year to year as a
result of the inflation in this currency over the past year. Since a portion
of the Company's costs are peso-based, the Company's manufacturing costs could
rise further if the value of the peso increases relative to the dollar, or if
inflation in Mexico escalates.
Engineering expenses, at $299,000 in the second quarter of 1996, were slightly
lower than the $321,000 reported in the second quarter of 1995. Selling,
administrative and other expenses rose in 1996 to $1,844,000 from the
$1,781,000 reported in the second quarter of 1995. The largest components of
this increase were higher commission expenses on the higher level of volume,
and increased incentive compensation costs computed on the higher level of
earnings.
Interest expense in the second quarter of 1996 was $4,000, compared to
$35,000 for the year ago period, the result of lower borrowings on the
Company's line of credit. Interest income in 1996 period was $28,000 compared
with no interest income in the second quarter of 1995, the result of cash
investments in 1996 which were not present in 1995.
The Company's pre-tax earnings for the second quarter of 1996 were $1,054,000
as compared with $815,000 for the second quarter of 1995. The reasons for the
improvement are discussed above.
The Company recorded a net income tax credit of $249,000 in the second quarter
of 1996 as compared to a net income tax expense of $74,000 in the second
quarter of 1995. The principal component of the 1996 credit was a $300,000
reversal of part of the valuation allowance which existed as of December 31,
1995 as related to existing tax net operating loss (NOL) carryforwards. As
the uncertainty of realizing the benefits of these NOL's lessened after a
profitable second quarter, the need to keep a valuation allowance lessened as
well, and 25% of the estimated full year 1996 valuation allowance reversal
was taken in the second quarter of 1996.
After tax, the Company's net earnings for the second quarter of 1996 were
$1,303,000 ($.33 per share). This compares to net earnings in the year ago
period of $741,000 ($.19 per share). The average number of common and common
equivalent shares outstanding as of June 29, 1996 were 3,993,234, an increase
of 144,344 from the 3,848,890 shares reported as of July 1, 1995. The
increase was the result of the issuance of additional shares on exercise of
stock options by certain key employees over the past year and the dilutive
effect of existing unexercised stock options.
Results of Operations - First Half 1996 vs. First Half 1995
CORCOM's net sales for the first half of 1996 were $16,820,000, an increase of
15.1% from the $14,611,000 reported for the first half of 1995. This increase
was the result of volume increases in the Company's North American and
European commercial filter businesses. North American revenue represented
over 74% of total revenue in the first half of 1996 and was up 9.3% over the
comparable number in 1995 as a result of the continued strength of this
segment of the overall electronics market. European sales, which represents
approximately 23% of total first half 1996 revenue, was up 44% in 1996 over
1995. This increase is attributable to the more stringent 1996 European
RFI/EMI testing regulations which went into effect January 1st of this year.
There were no appreciable price changes year to year.
Page 7 of 11
Cost of sales for the first half of 1996 were 62.2% of net sales compared to
63.0% for the year ago period. Certain peso-based costs at the Company's main
manufacturing plant in Juarez, Mexico have increased year to year as a result
of the inflation in this currency over the past year. This cost increase,
however, has been more than offset by the contribution margin of the increased
sales volume in 1996. Since a portion of the Company's costs are peso-based,
the Company's manufacturing costs could rise further if the value of the peso
increases relative to the dollar, or if inflation in Mexico escalates.
Engineering expenses, at $610,000 in the first half of 1996, were about the
same as the $619,000 reported in the first half of 1995. Selling,
administrative and other expenses rose in 1996 to $3,713,000 from the
$3,383,000 reported in the first half of 1995. The largest components of this
increase were higher commission expenses on the higher level of volume, and
increased incentive compensation costs computed on the higher level of
earnings.
Interest expense in the first half of 1996 was $8,000, compared to $60,000 for
the year ago period, the result of lower borrowings on the Company's line of
credit. Interest income in the first half of 1996 period was $47,000 compared
to interest income of $1,000 in the first half of 1995, the result of higher
cash investments in 1996.
The Company's pre-tax earnings for the first half of 1996 were $2,072,000 as
compared with $1,347,000 for the first half of 1995. The reasons for the
improvement are discussed above.
The Company recorded a net income tax credit of $495,000 in the first half of
1996 as compared to a net income tax expense of $100,000 in the first half of
1995. The principal component of the 1996 credit was a $600,000 reversal of
part of the valuation allowance which existed as of December 31, 1995 as
related to existing tax net operating loss (NOL) carryforwards. As the
uncertainty of realizing the benefits of these NOL's lessened after a
profitable first half, the need to keep a valuation allowance lessened as
well, and 50% of the estimated full year 1996 valuation allowance reversal was
taken in the first half of 1996.
After tax, the Company's net earnings for the first half of 1996 were
$2,567,000 ($.65 per share). This compares to net earnings in the year ago
period of $1,247,000 ($.33 per share). The average number of common and
common equivalent shares outstanding for the first six months of 1996 were
3,962,934 an increase of 144,401 from the 3,821,533 average shares reported
for the first six months of1995. The increase was the result of the
issuance of additional shares on exercise of stock options by certain key
employees over the past year and the dilutive effect of existing unexercised
stock options.
Liquidity and Capital Resources
As of June 29, 1996, the company had cash reserves on hand of $3,222,000 as
compared to $887,000 cash on hand as of December 31, 1995. In addition to
current cash reserves, the Company's loan agreement with American National
Bank and Trust Company of Chicago is still in place. This agreement is a one
year, unsecured line of credit with maximum borrowings of $4,000,000, or 80%
of eligible accounts receivable, whichever is less. Interest on this loan is
the Company's choice of either LIBOR plus one hundred fifty basis points, or
the Bank's prime rate. This agreement runs through December 31, 1996. There
were no borrowings against this agreement as of June 29, 1996.
The Company does not believe it will need to identify additional sources of
capital over the next year and feels that current cash reserves, cash provided
by operating activities, and the existing credit facility will be sufficient
to meet its operating needs and capital resource requirements.
Page 8 of 11
PART II. OTHER INFORMATION
CORCOM, INC.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders held May 23, 1996, the
following vote totals were tabulated:
1. Election of Directors
Nominees Number of Vots Votes Withheld
George B. Berry 2,956,686 5,600
Werner E. Neuman 2,956,686 5,600
David B. Pivan 2,956,186 6,100
Herbert L. Roth 2,956,186 6,100
James A. Steinback 2,956,686 5,600
Gene F. Straube 2,956,686 5,600
Renato Tagiuri 2,956,186 6,100
There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description Page
11.1 Computation of Earnings per share 12
27.1 Financial Data Schedule (EDGAR only) --
(b) The company did not file any reports on Form 8-K during the
thirteen week period ended June 29, 1996.
Page 9 of 11
CORCOM, INC.
SIGNATURES
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 thereunto duly authorized.
Corcom, Inc.
Dated: July 17, 1996 s/s Thomas J. Buns
By: Thomas J. Buns
Vice President & Treasurer
(Principal Financial Officer)
Page 10 of 11
EXHIBIT 11.1
CORCOM, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(In thousands, except per share data)
Thirteen Weeks Ended Twenty-six Weeks Ended
June 29 July 1 June 29 July 1
1996 1995 1996 1995
Net earnings per common and
common equivalent share:
Average shares outstanding 3,787 3,662 3,769 3,647
Additional shares assuming
exercise of dilutive stock
options-based on the treasury
stock method using average
market price 206 187 194 175
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 3,993 3,849 3,963 3,822
Net earnings $1,303 $ 741 $2,567 $1,247
Net earnings per common and
common equivalent share $0.33 $0.19 $0.65 $0.33
Near earnings per common and
common equivalent share -
assuming full dilution:
Average shares outstanding 3,787 3,662 3,769 3,647
Additional shares assuming
exercise of dilutive stock
options based on the treasury
stock method using the period
end price if higher than the
average market price 206 189 197 189
FULLY DILUTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 3,993 3,851 3,966 3,836
Net earnings $1,303 $ 741 $2,567 $1,247
Net earnings per common and
common equivalent shares $0.33 $0.19 $0.65 $0.33
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed balance sheet and consolidated condensed statement
of operations and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 3222
<SECURITIES> 0
<RECEIVABLES> 4988
<ALLOWANCES> 0
<INVENTORY> 6865
<CURRENT-ASSETS> 15725
<PP&E> 17314
<DEPRECIATION> 13484
<TOTAL-ASSETS> 20155
<CURRENT-LIABILITIES> 2961
<BONDS> 0
<COMMON> 14025
0
0
<OTHER-SE> 3035
<TOTAL-LIABILITY-AND-EQUITY> 20155
<SALES> 16820
<TOTAL-REVENUES> 16820
<CGS> 10464
<TOTAL-COSTS> 14748
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 2072
<INCOME-TAX> (495)
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</TABLE>
