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SECURITIES AND 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 March 31, 1997.
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: 0-8574
MICROWAVE POWER DEVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3622306
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
49 Wireless Boulevard
Hauppauge, New York 11788-3935
(Address of principal executive offices, including zip code)
(516) 231-1400
(Registrant's telephone number, including area code)
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 ____.
As of May 1, 1997, there were 10,375,000 shares outstanding of the registrant's
Common Stock, $.01 par value.
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<PAGE>
MICROWAVE POWER DEVICES, INC.
INDEX
PART I -- FINANCIAL INFORMATION Page No.
- ------------------------------- --------
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets --
March 31, 1997 and December 31, 1996 ......................... 3
Consolidated Statements of Operations --
Three months ended March 31, 1997 and 1996 ................... 4
Consolidated Statements of Cash Flows --
Three months ended March 31, 1997 and 1996 ................... 5
Notes to Consolidated Financial Statements ................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 7
PART II -- OTHER INFORMATION
- ----------------------------
ITEM 6. Exhibits and Reports on Form 8-K ............................... 10
SIGNATURES ............................................................. 11
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<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................................. $ 562 $ 1,149
Accounts receivable, net of allowance for doubtful accounts of $76 .................... 7,518 7,482
Inventories, net ...................................................................... 15,210 14,362
Prepaid expenses and other current assets ............................................. 856 657
Deferred income taxes ................................................................. 361 345
-------- --------
Total current assets ............................................................. 24,507 23,995
PROPERTY, PLANT AND EQUIPMENT, net ......................................................... 7,835 8,057
INTANGIBLE ASSETS, net ..................................................................... 438 369
INVESTMENT IN MARKETABLE SECURITIES AND OTHER
LONG-TERM ASSETS ........................................................................ 1,021 1,015
DEFERRED INCOME TAXES ...................................................................... 5,458 5,454
-------- --------
$ 39,259 $ 38,890
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ..................................................... $ 645 $ 45
Accounts payable ...................................................................... 3,037 5,103
Accrued liabilities ................................................................... 2,769 2,696
-------- --------
Total current liabilities ........................................................ 6,451 7,844
-------- --------
LONG-TERM DEBT ............................................................................. 14,503 12,744
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding .................................................... -- --
Common stock, $.01 par value; 25,000,000 shares authorized;
10,375,000 shares issued and outstanding ........................................... 104 104
Additional paid-in capital ............................................................ 23,276 23,276
Notes receivable from shareholders .................................................... (225) (225)
Retained earnings ..................................................................... (4,850) (4,853)
-------- --------
Total shareholders' equity ....................................................... 18,305 18,302
-------- --------
$ 39,259 $ 38,890
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 3
<PAGE>
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the Three Months Ended
--------------------------
March 31, March 31,
1997 1996
-------- --------
NET SALES ........................................ $ 10,004 $ 11,259
COST OF SALES .................................... 7,507 8,270
-------- --------
Gross profit ........................... 2,497 2,989
-------- --------
OPERATING EXPENSES:
General and administrative .................. 857 903
Selling ..................................... 710 1,077
Research and development .................... 647 1,965
-------- --------
2,214 3,945
-------- --------
Income (loss) from operations .......... 283 (956)
INTEREST EXPENSE, net ............................ 279 166
-------- --------
Income (loss) before income taxes ...... 4 (1,122)
PROVISION (BENEFIT) FOR INCOME TAXES ............. 1 (359)
-------- --------
Net income (loss) ...................... $ 3 $ (763)
======== ========
PER SHARE INFORMATION:
Net income (loss) per common share .......... $ 0.00 $ (0.07)
======== ========
Weighted average common shares outstanding .. 10,382 10,375
======== ========
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
March 31, March 31,
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .................................................................. $ 3 $ (763)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................................. 298 299
Deferred income taxes ......................................................... (20) (367)
Loss on sale of property, plant and equipment ................................. -- --
Changes in operating assets and liabilities:
Accounts receivable ........................................................... (36) 4,368
Inventories ................................................................... (848) (2,489)
Prepaid expenses and other assets ............................................. (198) 175
Accounts payable and accrued liabilities ...................................... (1,993) (17)
------- -------
Net cash provided by (used in) operating activities ...................... (2,794) 1,206
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment .................................... (58) (226)
Proceeds from sale of property, plant and equipment ........................... -- 15
Investment in marketable securities ........................................... (6) (6)
------- -------
Net cash used in investing activities .................................... (64) (217)
------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt .................................................. 2,700 --
Net repayments on revolving line of credit .................................... (341) (981)
Deferred financing costs ...................................................... (88) --
------- -------
Net cash provided by (used in) financing activities ...................... 2,271 (981)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................ (587) 8
CASH AND CASH EQUIVALENTS, beginning of year ............................................ 1,149 388
------- -------
CASH AND CASH EQUIVALENTS, end of period ................................................ $ 562 $ 396
======= =======
SUPPLEMENTAL DATA:
Cash paid for interest ............................................................. $ 301 $ 194
======= =======
Cash paid for income taxes ......................................................... $ 21 $ 3
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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MICROWAVE POWER DEVICES, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(in thousands, except share and per share data)
(unaudited)
1. Reference is made to the Notes to Consolidated Financial Statements
contained in the Company's December 31, 1996 audited consolidated financial
statements included in the Company's 1996 Annual Report and the Company's 1996
Annual Report on Form 10-K filed with the SEC on March 28, 1997. In the opinion
of Management, the interim unaudited financial statements included herein
reflect all adjustments necessary, consisting of normal recurring adjustments,
for a fair presentation of such data on a basis consistent with that of the
audited data presented therein. The results of consolidated operations for
interim periods are not necessarily indicative of the results to be expected for
a full year.
2. Earnings per share for the three months ended March 31, 1997 includes
the dilutive effect of 7,268 weighted average outstanding options; it does not
include the impact of other outstanding options as the effect of their inclusion
would be anti-dilutive.
Earnings per share for the three months ended March 31, 1996 does not
include the impact of outstanding options as the effect of their inclusion would
be anti-dilutive.
3. The following stock options were granted, cancelled or exercised during
the first quarter of 1997 under either the 1995 or 1996 Stock Option Plans:
Granted Cancelled Exercised
------- ------------- ---------
193,715 @ $2.875 1,875 @ $8.00 None
4. Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement establishes standards for computing and presenting earnings per share
("EPS"), replacing the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of operations. Under this new standard, Basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently required fully diluted EPS. SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
Microwave Power Devices, Inc. ("Microwave Power Devices" or the "Company")
commenced operations in 1967. During the past 30 years, the Company has
designed, manufactured and marketed high power, solid-state, radio frequency
("RF") and microwave power amplifiers and related subsystems for military,
medical, satellite and, most recently, wireless telecommunications applications.
The Company historically has been dependent upon the military market as its
principal source of revenue. In 1992, as the military market was declining, the
Company increased the scope of its business and entered commercial markets,
thereby broadening its product offerings. The Company now develops precision
high-power amplifiers for a variety of commercial uses.
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation, information appearing under Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Factors set forth in the Company's Annual Report on Form 10-K, filed
March 28, 1997, under Item 1, "Business - Risk Factors," together with other
factors that appear with the forward-looking statements, or in the Company's
other Securities and Exchange Commission filings, including its Registration
Statement on Form S-1 dated September 29, 1995, could affect the Company's
actual results and could cause the Company's actual results to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company in this Quarterly Report on Form 10-Q.
Results of Operations --
First Quarters Ended March 31, 1997 and March 31, 1996
Net Sales. Net sales decreased by 11% to $10.0 million in the first quarter
of 1997 from $11.3 million in the first quarter of 1996. This sales decrease was
primarily due to lower shipments of the Company's commercial products which were
partially offset by higher shipments of the Company's military products. Sales
of commercial products decreased by 35% to $6.3 million in the first quarter of
1997 from $9.7 million in the first quarter of 1996, representing 63% and 86%,
respectively, of net sales in such periods. The commercial sales decrease was
predominantly due to lower shipments to one wireless telecommunications original
equipment manufacturer ("OEMs") which were partially offset by higher shipments
to one satellite communications OEM and one wireless telecommunications OEM. The
lower wireless telecommunications shipments were predominantly caused by a break
in production with the Company's South Korean customer. Initial shipments for a
follow-on order with this customer began in March 1997. Sales of military
products increased by 136% to $3.7 million in the first quarter of 1997 from
$1.6 million in the first quarter of 1996, representing 37% and 14%,
respectively, of net sales in such periods. The military sales increase was
predominantly due to greater market demand for one Republic product, initial
hardware shipments for another Republic product and an overall modest resurgence
of shipments to U.S. prime contractors for various military products.
International sales decreased by 52% to $2.7 million in the first quarter
of 1997 from $5.7 million in the first quarter of 1996, totaling 27% of net
sales in the first quarter of 1997 compared to 50% in the first quarter of 1996.
The decrease in international sales was predominantly due to lower foreign
wireless telecommunications OEM business caused by the above described break in
production which more than offset higher Republic foreign military business. In
the first quarter of 1997, sales to two domestic commercial OEMs (Customer B and
Customer D) accounted for 28% and 19%, respectively, of the Company's net sales.
In the first quarter of 1996, sales to a
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foreign commercial OEM (Customer A) and a domestic commercial OEM (Customer B)
accounted for 48% and 15%, respectively, of the Company's net sales.
Gross Profit. Gross profit decreased by 16% to $2.5 million in the first
quarter of 1997 from $3.0 million in the first quarter of 1996. The Company's
gross profit margin (gross profit as a percentage of net sales) also decreased
to 25.0% in the first quarter of 1997 from 26.5% in the first quarter of 1996.
This decrease was primarily due to higher commercial warranty expense
(specifically for the Company's multi-channel, Cellular-CDMA product) and a
lower gross profit margin on the Company's multi-channel product line (the
result of competitive pricing pressures) which were partially offset by higher
gross profit margins which the Company is experiencing on its satellite
communications program (the result of engineering and manufacturing
efficiencies). By the end of the first quarter of 1997, the majority of the
technical problems encountered with the Company's multi-channel, Cellular-CDMA
product have been addressed, product returns seem to be diminishing and product
reliability appears to be improving.
Certain of the Company's inventory costing techniques involve developing a
standard cost which estimates the average, or standard, cost per unit over the
extended life cycle of a product. Such costs include labor, material, other
direct costs and related overheads. If the extended life cycle of a product does
not materialize or if there is no reasonable certainty that product maturation
will take place within the near future, write-offs of work-in-process inventory
would be required. Such write-offs could materially adversely affect the
Company's gross profit and results of operations.
Certain of the purchase orders or contracts comprising backlog at March 31,
1997 set forth product specifications not yet achieved by the Company that would
require the Company to complete additional product development. Failure to
develop products meeting such specifications could lead to the cancellation of
the related purchase orders or contracts. The reduction, delay or cancellation
of orders or contracts from one or more significant customers could materially
adversely affect the Company's business, financial condition and results of
operations.
There can be no assurances that gross profit will improve. If the Company
is not able to reduce its production costs to the extent anticipated, or to
introduce new products with greater margins, and if average selling prices
decline beyond current expectations, the Company's gross profit and results of
operations could be materially adversely affected. The Company's gross profit
may also be affected by a variety of other factors, including the mix of systems
and equipment sold; production, reliability or quality problems; and price
competition.
General and Administrative Expenses. General and administrative expenses
remained relatively stable at $0.9 million in both the first quarters of 1997
and 1996, representing 8.6% and 8.0%, respectively, of net sales.
Selling Expenses. Selling expenses decreased by 34% to $0.7 million in the
first quarter of 1997 from $1.1 million in the first quarter of 1996,
representing 7.1% and 9.6%, respectively, of net sales. The decrease in selling
expenses resulted primarily from lower sales representative commissions, the
result of product sales mix variations, and, to a lesser extent, lower accrued
sales incentive expenses. In addition, advertising and trade show expenses
decreased but were fully offset by increased bid and proposal expenses.
Research and Development Expenses. Research and development expenses
decreased by 67% to $0.6 million in the first quarter of 1997 from $2.0 million
in the first quarter of 1996, representing 6.5% and 17.4%, respectively, of net
sales. This decrease resulted primarily from decreased military and wireless
telecommunications product development. Military research and development
expenses decreased predominantly as a result of the Company shipping initial
hardware to a foreign military OEM, late in 1996, for a Republic MRES 2000
simulator product. In the military environment, customer funding of product
development costs is typical. The Republic MRES 2000 program was an exception,
however, as the Company funded a large majority of this product development
effort throughout 1996. The Company believes that the continued introduction of
new products is essential to its competitiveness, especially in the wireless
telecommunications market, and is committed to continued investment in research
and development. The Company views the decrease in wireless telecommunications
research and development expenses as a short term solution to assist in reducing
costs to match reduced wireless revenue. Fundamental to this effort was a
temporary reallocation of some of the Company's
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engineering and technology resources to either revenue producing or
customer-funded product development. This action enabled the Company to leverage
its other commercial and military product lines while insuring a continued and
focused emphasis on critical wireless telecommunications development projects.
Research and development expenses should rise commensurate with revenues in the
coming quarter.
Interest Expense. Interest expense increased by 68% to $0.28 million in the
first quarter of 1997 from $0.17 million in the first quarter of 1996, primarily
reflecting increased borrowings under the Company's credit facility.
Provision for Income Taxes. The Company's effective tax rate increased to
40.0% in the first quarter of 1997 from 32.0% in the first quarter of 1996. The
lower tax rate in the first quarter of 1996 was due to the Company's recognition
of the anticipated partial use of previously generated unrecorded NOLs to offset
then anticipated full year 1996 taxable income.
Liquidity and Capital Resources
In the fourth quarter of 1995, the Company successfully completed its IPO,
raising net proceeds to the Company of approximately $20.4 million from the
Company's sale of 2,875,000 shares of Common Stock, including the exercise of
the underwriters' over-allotment option. Since the IPO, the Company had financed
its operations and met its capital requirements through the following two
sources: (i) a credit facility and (ii) cash provided by operating activities.
On February 13, 1997, the Company and IBJ Schroder Bank and Trust Company
("IBJ") entered into a $13.0 million credit facility consisting of a revolving
line of credit in the amount of $10.3 million and a term loan in the amount of
$2.7 million. The revolving line of credit and term loan bear interest at annual
rates equal to the prime rate plus 1.0% and the prime rate plus 1.25%,
respectively. The credit facility matures in February 2000 and automatically
renews for one-year periods thereafter, unless terminated by either the Company
or IBJ. Aggregate borrowings under the revolving line of credit are limited by a
borrowing base, which is calculated as the sum of 85% of eligible accounts
receivable and 40% of eligible raw materials and work-in-process inventories
(with borrowings based on aggregate eligible inventory limited to $6.0 million).
The credit facility is subject to customary covenants, including, among other
things, limitations with respect to incurring indebtedness, payment of dividends
and affiliate advances, and a provision for maintaining a certain fixed charge
coverage ratio.
Operating activities used net cash of $2.8 million and provided net cash of
$1.2 million in the first three months of 1997 and 1996, respectively. From
December 31, 1996 to March 31, 1997, inventory increased by $0.8 million while
accounts payable and accrued liabilities decreased by $2.0 million. The increase
in inventory was primarily due to an increase in work-in-process inventory for
commercial products and, to a lesser extent, reduced progress payments on
military contracts. The decrease in accounts payable and accrued liabilities was
primarily the result of an increase in the Company's credit facility thereby
allowing improved vendor payments. Investing activities, which consisted
primarily of equipment acquisitions, used net cash of $0.06 million and $0.22
million in the first three months of 1997 and 1996, respectively. Financing
activities, which consisted primarily of proceeds from long-term debt and net
repayments made on the revolving line of credit, provided net cash of $2.3
million and used net cash of $1.0 million in the first three months of 1997 and
1996, respectively.
Capital expenditures were $0.06 million and $0.23 million in the first
three months of 1997 and 1996, respectively. These expenditures were funded
primarily through cash provided by the Company's credit facility and cash
provided by operating activities, respectively. Principal expenditures for the
first three months of 1997 included computer equipment and engineering and
manufacturing test equipment. The Company anticipates making additional capital
expenditures of approximately $1.4 million during the remainder of 1997,
including the purchase of additional engineering and manufacturing test
equipment, computer equipment upgrades as well as continued enhancements to its
CAE/CAD systems.
As of March 31, 1997, the Company had working capital of approximately
$18.1 million, compared to approximately $16.2 million as of December 31, 1996.
Working capital as of March 31, 1997 included
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approximately $7.5 million and $15.2 million in accounts receivable and
inventory, respectively compared to December 31, 1996 working capital which
included approximately $7.5 million and $14.4 million in accounts receivable and
inventory, respectively. The Company's current ratio (ratio of current assets to
current liabilities) as of March 31, 1997 was 3.8:1, compared with a current
ratio of 3.1:1 as of December 31, 1996. As of March 31, 1997, the Company's debt
to equity ratio was 0.8:1, compared with a debt to equity ratio of 0.7:1 as of
December 31, 1996.
The Company believes that cash generated from operations, amounts available
under its credit facility, and/or third party financing will be sufficient to
fund necessary capital expenditures and to provide adequate working capital for
at least the next 12 months. There can be no assurance, however, that the
Company will not require additional financing prior to such date to fund its
operations, and, if required, that such financing will be available on
commercially reasonable terms. In addition, the Company may require additional
financing after such date to fund its operations.
PART II -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27.1 Financial Data Schedule.
(b) Form 8-K with respect to Item 5 and Item 7 was filed March 6, 1997.
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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.
MICROWAVE POWER DEVICES, INC.
(Registrant)
Dated: May 12, 1997 /s/Edward J. Shubel
---------------------- --------------------
By: Edward J. Shubel
President and CEO
Dated: May 12, 1997 /s/ Paul E. Donofrio
---------------------- --------------------
By: Paul E. Donofrio
Vice President Finance/CFO
(Principal Financial
and Accounting Officer)
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from consolidated financial statements found
on the Quarterly Report on Form 10-Q, March 31, 1997,
and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 562
<SECURITIES> 0
<RECEIVABLES> 7,594
<ALLOWANCES> 76
<INVENTORY> 15,210
<CURRENT-ASSETS> 24,507
<PP&E> 12,092
<DEPRECIATION> 4,257
<TOTAL-ASSETS> 39,259
<CURRENT-LIABILITIES> 6,451
<BONDS> 14,503
0
0
<COMMON> 104
<OTHER-SE> 18,201
<TOTAL-LIABILITY-AND-EQUITY> 39,259
<SALES> 10,004
<TOTAL-REVENUES> 10,004
<CGS> 7,507
<TOTAL-COSTS> 7,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279
<INCOME-PRETAX> 4
<INCOME-TAX> 1
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
