<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to __________
Commission File No. 0-14805
MICROCOM, INC.
(Exact name of registrant as specified in its charter)
________________________
MASSACHUSETTS 04-2710644
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 RIVER RIDGE DRIVE 02062-5028
NORWOOD, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 551-1000
________________________
Indicate by check ( X ) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of June 30, 1995:
15,120,442.
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<TABLE>
MICROCOM, INC.
TABLE OF CONTENTS
<S> <C>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS.......................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS................................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS................................ 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................ 7
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K..................................... 9
SIGNATURES........................................................... 11
</TABLE>
2
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PART I. FINANCIAL INFORMATION
<TABLE>
MICROCOM, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
(In thousands)
JUNE 30, 1995 MARCH 31, 1995
------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents................................................. $ 44,082 $ 863
Accounts receivable, less allowance for doubtful accounts of $250.... 26,150 22,183
Inventories.......................................................... 16,318 16,248
Prepaid expenses and other current assets............................ 879 822
-------- --------
Total current assets................................................ 87,429 40,116
Property and equipment, net........................................... 5,679 5,683
Other assets, net..................................................... 12,910 11,989
-------- --------
$106,018 $ 57,788
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases and short-term debt............ $ 278 $ 12,543
Accounts payable..................................................... 10,985 6,923
Accrued expenses..................................................... 4,655 2,918
-------- --------
Total current liabilities........................................... 15,918 22,384
-------- --------
Long-term portion of capitalized leases............................... 89 122
-------- --------
Stockholders' equity:
Common stock, $.01 par value, authorized - 30,000 shares,
issued - 16,101 shares at June 30, 1995 and 12,088 shares
at March 31, 1995................................................... 161 121
Capital in excess of par value....................................... 113,872 61,223
Stock loans - related parties........................................ (2,680) (1,942)
Unrealized gain (loss) on marketable securities...................... 634 (33)
Accumulated deficit.................................................. (19,474) (21,589)
Treasury stock, at cost, 981 shares.................................. (2,613) (2,613)
Cumulative translation adjustment.................................... 111 115
-------- --------
Total stockholders' equity.......................................... 90,011 35,282
-------- --------
$106,018 $ 57,788
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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<TABLE>
MICROCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
<CAPTION>
(In thousands, except per share amounts)
1995 1994
---- ----
<S> <C> <C>
Net sales.................................................. $28,555 $21,315
Cost of sales.............................................. 15,802 11,727
------- -------
Gross margin............................................... 12,753 9,588
------- -------
Operating expenses:
Research and development.................................. 3,378 2,214
Sales and marketing....................................... 5,174 4,814
General and administrative................................ 1,129 1,103
------- -------
Total operating expenses................................. 9,681 8,131
------- -------
Income from operations..................................... 3,072 1,457
Interest income............................................ 4 60
Interest and other expense, net............................ (588) (134)
------- -------
Income before income taxes................................. 2,488 1,383
Income taxes............................................... 373 207
------- -------
Net income................................................. $ 2,115 $ 1,176
======= =======
Net income per share....................................... $ .17 $ .11
======= =======
Weighted average number of shares outstanding.............. 12,708 11,166
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
<TABLE>
MICROCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
<CAPTION>
(Unaudited)
(In thousands)
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 2,115 $ 1,176
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................ 1,775 1,500
Changes in assets and liabilities:
Accounts receivable, net................................................ (3,967) (3,199)
Inventories............................................................. (70) (4,656)
Prepaid expenses and other current assets............................... (57) 162
Accounts payable and accrued expenses................................... 5,421 3,465
Accrued restructuring costs............................................. -- (218)
-------- -------
Net cash provided by (used in) operating activities.................... 5,217 (1,770)
-------- -------
Cash flows used in investing activities:
Capitalized software development costs and purchased technology.......... (1,117) (936)
Purchase of property and equipment....................................... (565) (670)
Other assets............................................................. (43) --
-------- -------
Net cash used in investing activities............................ (1,725) (1,606)
-------- -------
Cash flows used in financing activities:
Proceeds from public offering, net........................................ 50,418 --
Payment on capitalized leases............................................. (83) (74)
Banker acceptance on inventory purchases.................................. (195) (70)
Repayment of stock loans.................................................. 147 --
(Payments) borrowings under the revolving credit line, net................ (12,020) 745
Exercise of stock options and employee stock purchase plan................ 1,460 93
-------- -------
Net cash provided by financing activities.............................. 39,727 694
-------- -------
Net increase (decrease) in cash and equivalents............................ 43,219 (2,682)
Cash and equivalents at beginning of period................................ 863 5,342
-------- -------
Cash and equivalents at end of period...................................... $ 44,082 $ 2,660
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
($ in thousands)
NOTE 1. BASIS FOR PRESENTATION
The consolidated balance sheet as of June 30, 1995 and the related consolidated
statements of operations and cash flows for the quarters ended June 30, 1995
and 1994, are unaudited. In the opinion of management, all adjustments
necessary for the fair presentation of such financial statements have been
included, such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full fiscal year.
The financial statements are presented as permitted by Form 10-Q and do not
contain certain information included in the Company's annual consolidated
financial statements.
<TABLE>
NOTE 2. INVENTORIES
<CAPTION>
JUNE 30, 1995 MARCH 31, 1995
------------- --------------
<S> <C> <C>
Raw materials....................... $ 2,975 $ 4,557
Finished goods...................... 13,343 11,691
------- -------
$16,318 $16,248
======= =======
</TABLE>
<TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
<CAPTION>
Depreciable Life
JUNE 30, 1995 MARCH 31, 1995 in Years
------------- -------------- ----------------
<S> <C> <C> <C>
Computer equipment and software.............. $ 9,361 $ 9,503 2-7
Machinery and equipment...................... 2,898 2,937 3-7
Furniture and fixtures....................... 1,521 1,458 8
Leasehold improvements....................... 1,838 1,830 Life of Lease
------- --------
15,618 15,728
Accumulated depreciation and amortization.... (9,939) (10,045)
------- --------
$ 5,679 $ 5,683
======= ========
</TABLE>
<TABLE>
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Cash received (paid for):
Income taxes........................................ $ (85) $ (32)
Interest expense.................................... (470) (103)
Items not effecting cash:
Stock loans......................................... 811 446
Unrealized gain (loss) on marketable securities..... 667 (83)
</TABLE>
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Sales - In the first quarter of fiscal 1996, net sales increased by
$7,240,000, or 34%, from the same period in fiscal 1995. The increase was
primarily attributable to increased sales of central site remote network access
products, particularly the Company's High Density Management System (HDMS). A
significant portion of HDMS sales were made to Sprint Corporation, which
accounted for 24% of net sales, and another major telecommunications carrier
which accounted for 12% of net sales in the first quarter of fiscal 1996.
Sales of the Company's V.34 modems increased by approximately $3,700,000, as
compared to the previous fiscal year.
International sales were $8,644,000 in the first quarter of fiscal 1996,
representing 30% of net sales, as compared to $4,086,000 in the first quarter
of fiscal 1995, or 19% of net sales. The increase in fiscal 1996 international
sales was primarily due to increased modem sales.
Gross Margin - Gross margin as a percentage of net sales was 45% in the first
quarter of both fiscal 1996 and fiscal 1995.
Research and Development - Research and development costs in the first quarter
of fiscal 1996 were $3,378,000 as compared to $2,214,000 in the first quarter
of fiscal 1995. As a percentage of net sales, research and development
expenses increased to 12% in the first quarter of fiscal 1996 from 10% in the
comparable period of the previous fiscal year. The increase in research and
development expenses was principally due to the hiring of additional
engineering personnel and increased consulting and contract professional fees
relating to continued product development.
Sales and Marketing - In the first quarter of fiscal 1996, sales and marketing
expenses increased by $360,000, or 7%, over the same period in fiscal 1995 due
to increased variable selling expenses resulting from increased net sales. As
a percentage of net sales, sales and marketing expenses decreased to 18% in the
first quarter of fiscal 1996 from 23% in the prior fiscal year as net sales
increased at a higher rate than sales and marketing expenses.
General and Administrative - In the first quarter of fiscal 1996, general and
administrative expenses were $1,129,000, or 4% of net sales, as compared to
$1,103,000, or 5% of net sales, in the prior fiscal year. The decrease in such
expenses as a percentage of net sales was the result of the Company increasing
net sales at a higher rate than general and administrative expenses.
Interest Income and Expense - Interest income decreased in the first quarter of
fiscal 1996 by $56,000 and interest and other expense increased by $454,000 to
$588,000. The increase in interest and other expense was primarily a result of
interest paid on increased borrowings under the Company's revolving credit
facility.
Income Taxes - The Company's effective tax rate was 15% for both periods
reported. The difference between the statutory rate and the effective tax rate
reflects the utilization of a portion of the Company's net operating loss carry
forwards. At March 31, 1995, the Company had available $21,509,000 in net
operating loss carry forwards, which may be used to offset future taxable
income, and $3,959,000 in research and development credit carry forwards, which
may be used to offset future taxes payable. These carry forwards expire
through 2009 and are subject to review and possible adjustment by the Internal
Revenue Service.
Net Income and Net Income Per Share - For the reasons stated above, net income
for the first quarter of fiscal 1996 was $2,115,000 as compared to net income
of $1,176,000 for the first quarter of fiscal 1995, and net income per share
for the first quarter of fiscal 1996 was $.17 as compared to $.11 for the first
quarter of fiscal 1995.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 1995, the Company completed a public offering of 3,480,000 shares
of its common stock at $15.625 per share. The proceeds to the Company after
deducting underwriting commissions and other expenses of the offering were
$50,418,000. Approximately $12,000,000 of the offering proceeds was used to
repay the indebtedness under the Company's credit facility.
As of June 30, 1995, the Company had $44,082,000 in cash and equivalents. In
addition, the Company had a bank revolving credit facility which allowed the
Company to borrow up to an amount (the "Maximum Borrowing Amount") equal to the
lesser of (i) $16,000,000 or (ii) an amount based on the Company's eligible
accounts receivable and inventory. The Maximum Borrowing Amount is reduced by
amounts which may be drawn on outstanding letters of credit and bankers'
acceptances and by a percentage of the Company's exposure under foreign
currency exchange contracts. Interest on borrowings is at the banks' prime
rate (9% at June 30, 1995) plus 2%. At June 30, 1995, the Company was
contingently liable with respect to $6,687,000 in outstanding letters of credit
and its bank credit availability was approximately $9,290,000. Under the terms
of the credit facility, which expires in March 1996 and is secured by
substantially all of the Company's assets, the Company is required to comply
with certain covenants, including maintaining minimum levels of profitability,
tangible net worth and liquidity and not exceeding specified debt to net worth
ratios. The terms of the credit facility also prohibit the Company from paying
cash dividends. At June 30, 1995 the Company was in compliance with all
covenants.
Since its inception, the Company has met its liquidity requirements through
cash provided by operations, product line dispositions, public and private
stock offerings, lease arrangements for facilities and equipment and short-term
borrowings from banks. Management believes that its cash and equivalents, line
of credit availability, and cash provided by operations will be adequate to
meet the Company's liquidity requirements through fiscal 1997.
FOREIGN CURRENCY HEDGING
To date, all of the Company's transactions (including customer sales and
purchases from vendors) have been denominated in U.S. dollars, except for an
immaterial amount of customer sales denominated in U.K. pounds sterling. The
Company has hedged the currency risk associated with these foreign sales by
entering into forward contracts. The gains or losses on such contracts are
deferred until the contracts are settled and are then recognized as other
income or expense. The Company had $115,000 and $375,000 in foreign currency
contracts at June 30, 1995 and 1994, respectively. The Company had no material
unrealized gains or losses on these contracts.
8
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
Exhibit 11.0 - Calculation of net income per share.
Exhibit 27.0 - Financial Data Schedule
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the
period covered by this report.
9
<PAGE> 10
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.
DATE: AUGUST 12, 1995 BY: /s/ Roland D. Pampel
------------------------- --------------------------------------------
Roland D. Pampel, President
Chief Executive Officer and Director
DATE: AUGUST 12, 1995 BY: /s/ Peter J. Minihane
------------------------- --------------------------------------------
Peter J. Minihane, Executive Vice President
Chief Financial Officer and Treasurer
11
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<TABLE>
EXHIBIT 11.0
MICROCOM, INC.
CALCULATION OF NET INCOME PER SHARE
FOR THE QUARTERS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
<CAPTION>
(In thousands, except per share amounts)
1995 1994
---- ----
<S> <C> <C>
Net income........................................................... $ 2,115 $ 1,176
======= =======
Reconciliation of average number of shares outstanding to the
amount used in net income per share computation:
Weighted average number of shares outstanding...................... 11,549 10,576
Assumed exercise of stock options.................................. 1,159 590
------- -------
Weighted average number of shares outstanding, as adjusted......... 12,708 11,166
======= =======
Net income per share................................................. $ .17 $ .11
======= =======
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,160
<SECURITIES> 39,922
<RECEIVABLES> 26,150
<ALLOWANCES> 250
<INVENTORY> 16,318
<CURRENT-ASSETS> 87,429
<PP&E> 5,679
<DEPRECIATION> 569
<TOTAL-ASSETS> 106,018
<CURRENT-LIABILITIES> 15,918
<BONDS> 0
<COMMON> 161
0
0
<OTHER-SE> 90,011
<TOTAL-LIABILITY-AND-EQUITY> 106,018
<SALES> 28,555
<TOTAL-REVENUES> 28,555
<CGS> 15,802
<TOTAL-COSTS> 15,802
<OTHER-EXPENSES> 9,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 584
<INCOME-PRETAX> 2,488
<INCOME-TAX> 373
<INCOME-CONTINUING> 2,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,115
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
