<PAGE>
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 Quarter Ended May 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10228
CABLETRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2797263
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) identification no.)
35 Industrial Way, Rochester, New Hampshire 03867
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (603) 332-9400
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 July 6, 1995 there were 71,638,946 shares the Registrant's common
stock outstanding.
This document contains 12 pages
Exhibit index on page 11
<PAGE>
INDEX
CABLETRON SYSTEMS, INC.
Page
No.
Facing Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - May 31, 1995 and February 28,1995 3
Consolidated Statements of Income - Three months ended May 31,
1995 and 1994 4
Consolidated Statements of Cash Flows - Three months ended
May 31, 1995 and 1994 5
Notes to Consolidated Financial Statements - May 31, 1995 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Index to the Exhibits 11
Exhibit 11 - Statement re: Computation of Per Share Earnings 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CABLETRON SYSTEMS, INC.
Consolidated Balance Sheets
(in thousands of dollars)
(unaudited)
May 31, February 28,
Assets 1995 1995
Current Assets:
Cash and cash equivalents $ 75,464 $114,032
Short-term investments 157,740 130,563
Accounts receivable, net 108,592 91,411
Inventories 109,504 103,030
Deferred taxes 20,075 20,062
Prepaid expenses and other assets 12,703 11,998
Total current assets 484,078 471,096
Long-term investments 161,676 101,333
Property, plant and equipment, net 127,209 116,761
Capitalized software costs, net 623 730
Total assets $773,586 $689,920
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 37,717 $ 28,923
Accrued expenses 55,414 52,366
Income taxes payable 37,224 14,982
Total current liabilities 130,355 96,271
Deferred taxes 6,117 6,128
Total liabilities 136,472 102,399
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized
2,000 shares; none issued - -
Common stock $0.01 par value. Authorized
80,000 shares; issued and outstanding 71,570
and 71,469 respectively 716 715
Additional paid-in capital 111,643 110,564
Retained earnings 526,080 477,780
638,439 589,059
Cumulative translation adjustment (1,151) (1,364)
Notes receivable, stockholders (174) (174)
Total stockholders' equity 637,114 587,521
Total liabilities and stockholders' equity $773,586 $689,920
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except earnings per share)
Three Months Ended
(unaudited)
May 31, 1995 May 31, 1994
Net sales $240,754 $180,655
Cost of sales 97,433 73,598
Gross profit 143,321 107,057
Operating expenses:
Research and development 26,019 18,137
Selling, general and administrative 47,298 35,505
Total operating expenses 73,317 53,642
Income from operations 70,004 53,415
Interest income 3,625 2,042
Income before income taxes 73,629 55,457
Income taxes 25,328 19,297
Net income $48,301 $36,160
Net income per common share $0.68 $0.51
Weighted average number of shares outstanding 71,500 71,405
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Three Months Ended
(unaudited)
May 31, 1995 May 31, 1994
Cash flows from operating activities:
Net income $48,301 $36,160
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,505 5,511
Provision for (recovery of) losses
on accounts receivable 3,051 (1,125)
Gain on disposal of property plant
and equipment - 79
Deferred taxes (23) -
Changes in assets and liabilities:
Accounts receivables (17,376) 245
Inventories (6,297) (8,393)
Prepaid expenses and other assets (635) (2,195)
Accounts payable and accrued expenses 8,300 (7,154)
Income taxes payable 22,236 15,820
Net cash provided by operating
activities 66,062 38,948
Cash flows from investing activities:
Capital expenditures (18,660) (14,001)
Purchases of marketable securities (87,491) 18,970
Net cash (used in) provided by
investing activities (106,151) 4,969
Cash flows from financing activities:
Proceeds from exercise of stock options 1,079 468
Net cash provided by financing
activities 1,079 468
Effect of exchange rate changes on cash 442 150
Net (decrease) increase in cash and cash
equivalents (38,568) 44,535
Cash and cash equivalents, beginning of
period 114,032 54,563
Cash and cash equivalents, end of period $75,464 $98,098
Supplemental information:
Cash paid during the year for:
Income taxes $ 2,885 $3,533
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Accounting Policy
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments consisting of normal
accruals necessary for a fair presentation of the results of operations for
the interim periods presented have been reflected herein. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.
2. Inventories
The components of inventory are as follows:
5/31/95 2/28/95
Raw materials $25,625 $22,420
Work in process 30,932 22,869
Finished goods $51,947 57,741
Total inventories $109,504 $103,030
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cabletron Systems' worldwide net sales of $240.8 million for the
fiscal quarter ended May 31, 1995 represented a 33.2 percent increase
over net sales of $180.7 million reported in the first quarter of the
preceding year. The increase was primarily the result of higher sales
of Multi Media Access Center (MMAC) and related items, inclusive of
MMAC Plus, the next generation intellegent switching hubs, and small
stackable hubs. International sales increased $24.0 million, or 49.5
percent, over the same quarter of the preceding year. As a percentage
of net sales, international sales were 30.1 percent in the fiscal
quarter ended May 31, 1995 compared to 26.8 percent for the same quarter
of the preceding year.
Gross profit as a percentage of net sales for the three months ended
May 31, 1995 was 59.5 percent, up .2 percent as compared to the same
quarter of the preceding fiscal year.
Research and development costs increased to $26.0 million compared to
$18.1 million for the same quarter of the prior fiscal year. As a
percentage of net sales, spending for research and development
increased to 10.8 percent from 10.0 percent for the same quarter of
the preceding year. The higher spending for research and development
reflected the hiring of additional software and hardware engineers and
associated costs related to development of new products.
Spending for selling, general and administrative expenses for the
three months ended May 31, 1995 increased to $47.3 million compared
to $35.5 million for the same period of the preceding year. The
increase in absolute spending dollars was predominantly due to
increased sales volume. As a percentage of net sales, spending for
selling, general and administration remained unchanged at 19.6 percent.
Net interest income in the current period was $3.6 million, compared
to $2.0 million in the same period last year. Interest income in both
periods reflect returns on invested cash, marketable securities and
investments. The increase in interest income resulted from higher
interest rates and increased cash reserves.
Income before income taxes increased to $73.6 million compared to
$55.5 million for the same period of the prior fiscal year. As a
percentage of net sales, income from operations before income taxes
decreased to 30.6 percent from 30.7 percent from the same period of
the prior fiscal year, primarily due to increased research and
development spending.
For the period ended May 31, 1995, net income of $48.3 million
represented an increase of 33.4 percent from $36.2 million for the
same quarter a year ago.
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities increased $49.0
million from $345.9 million at February 28, 1995 to $394.9 million
at May 31, 1995, primarily as the result of favorable operating
results offset in part by capital investments for future development
and sales growth.
Accounts receivable at May 31, 1995 were $108.6 million compared to
$91.4 million at February 28, 1995. Average days sales outstanding
(DSO) were 38 days for the quarter ended May 31, 1995 compared to 33
days of sales in accounts receivable at February 28, 1995. The increase
was a result of the Company offering less stringent payment terms for
some of its higher volume customers.
The Company has historically maintained higher levels of inventory
than its competitors in the LAN industry in order to implement its
policy of shipping most orders requiring immediate delivery within
24 to 48 hours. Worldwide inventories at May 31, 1995 were $109.5
million, or 98 days of inventory, compared to $103.0 million , or
104 days of inventory at the end of the prior fiscal year. The
decrease in days in inventory from the quarter ended February 28,
1995 was due to the increase in sales volume offset, in part, by the
absolute dollar increase in inventory.
Capital expenditures for the first quarter of fiscal 1996 were $18.7
million compared to $14.0 million for the same period of the preceding
year. Capital expenditures the first three months of fiscal year 1996
included approximately $4.5 million for building costs of which $3.8
million was for the purchase of a 114,000-square-foot engineering
building, $2.9 million for computer related equipment and $1.0 million
for manufacturing and other related equipment.
Current liabilities at May 31, 1995 were $136.5 million compared to
$102.4 million at the end of the prior fiscal year. This increase was
mainly due to the growth in operations and the timing of disbursements.
In the opinion of management, internally generated funds from operations
and existing cash, cash equivalents and short-term investments will
prove adequate to support the Company's working capital and capital
expenditure requirements for the next twelve months.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
[a] There were no reports on Form 8-K filed during the quarter ended
May 31, 1995.
[b] Exhibit 11 - Statement re: Computation of Per Share Earnings
(page 12 of this report)
<PAGE>
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.
CABLETRON SYSTEMS, INC.
Registrant
July 5, 1995 /s/ Craig R. Benson
Date Craig R. Benson
Chairman of the Board,Treasurer,
and Chief Operating Officer
July 5, 1995 /s/ David J. Kirkpatrick
Date David J. Kirkpatrick
Director of Finance and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
11.1 Statement regarding computation of per share earnings 12
<PAGE>
<PAGE>
EXHIBIT 11.1
CABLETRON SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For period ended May 31, 1995 and 1994
(in thousands of dollars, except per share amounts)
(unaudited)
Three Months Ended
May 31,
1995 1994
NET INCOME PER COMMON SHARE - (non-dilutive)
Net income $48,301 $36,160
Weighted average common shares outstanding 71,500 71,405
Reported net income per common share $0.68 $0.51
NET INCOME PER COMMON SHARE - (full dilution)
Net income $48,301 $36,160
Weighted average common shares outstanding 71,500 71,405
Add net additional common shares upon exercise
of common stock options 1,323 1,238
Adjusted average common shares outstanding 72,823 72,643
Net income per common share - (full dilution) $0.66 $0.50
<PAGE>
