UNITED STATES
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 QUARTER ENDED: November 30,1995
COMMISSION FILE NUMBER: 1-10228
CABLETRON SYSTEMS, INC.
Exact name of registrant as specified in its charter
DELAWARE 04-2797263
(State of incorporation) (I.R.S. Employer I.D.)
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 December 30, 1995 72,153,169 shares of the Registrant's Common
Stock were outstanding.
This document contains 13 pages
Exhibit index on page 12
INDEX
Page
Facing Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- November 30, 1995 and
February 28, 1995 3
Consolidated Statements of Income -- Three and nine
months ended November 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -- Nine months
ended November 30, 1995 and 1994 5
Notes to Consolidated Financial Statements -- November
30, 1995 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Index to the Exhibits 12
Exhibit 11 - Statement re: Computation of Per Share
Earnings 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CABLETRON SYSTEMS, INC.
Consolidated Balance Sheets
(in thousands of dollars)
(unaudited)
November 30, February 28,
Asset 1995 1995
Current Assets:
Cash and cash equivalents $140,984 $114,032
Short-term investments 140,878 130,563
Accounts receivable, net 127,168 91,411
Inventories 139,820 103,030
Deferred taxes 20,086 20,062
Prepaid expenses and other assets 25,580 11,998
Total current assets 594,516 471,096
Long-term investments 173,520 101,333
Property, plant and equipment, net 139,191 116,761
Capitalized software costs, net 386 730
Total assets $907,613 $689,920
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 38,120 $28,923
Accrued expenses 80,391 52,366
Income taxes payable 24,072 14,982
Total current liabilities 142,583 96,271
Deferred taxes 6,117 6,128
Total liabilities 148,700 102,399
Stockholders' equity
Preferred stock, $1.00 par value.
Authorized 2,000 shares; none issued - -
Common stock $0.01 par value. Authorized
240,000 shares; issued and outstanding
72,091 and 71,469 respectively 721 715
Additional paid-in capital 124,651 110,564
Retained earnings 634,709 477,780
760,081 589,059
Cumulative translation adjustment (1,144) (1,364)
Notes receivable, stockholders (24) (174)
Total stockholders' equity 758,913 587,521
Total liabilities and stockholders' equity $907,613 $689,920
See accompanying notes to the consolidated financial statements.
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except earnings per share)
(unaudited)
Three Months Ended Nine MonthsEnded
November 30, November 30,
1995 1994 1995 1994
Net sales $275,464 $210,013 $773,517 $584,712
Cost of sales 111,673 85,435 313,226 237,962
Gross profit 163,791 124,578 460,291 346,750
Operating expenses:
Research and development 29,554 22,003 83,434 60,350
Selling, general and
administrative 53,674 41,036 149,902 114,619
Total operating expenses 83,228 63,039 233,336 174,969
Income from operations 80,563 61,539 226,955 171,781
Interest income 4,594 2,421 12,260 6,631
Income before income taxes 85,157 63,960 239,215 178,412
Income taxes 29,294 22,130 82,285 61,957
Net income $55,863 $41,830 $156,930 $116,455
Net income per common share $0.78 $0.59 $2.19 $1.63
Weighted average number of
shares outstanding 71,988 71,503 71,726 71,451
See accompanying notes to the consolidated financial statements.
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Nine Months Ended
November 30, November 30,
1995 1994
Cash flows from operating activities:
Net income $156,930 $116,455
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 25,042 19,030
Recovery of losses on accounts
receivable (297) (915)
Forgiveness of notes receivables
from shareholders 151 131
(Gain) loss on disposal of property plant
and equipment (63) 131
Deferred taxes (35) -
Changes in assets and liabilities:
Accounts receivables (33,508) (11,060)
Inventories (36,739) (29,103)
Prepaid expenses and other assets (13,701) (1,808)
Accounts payable and accrued expenses 35,427 2,186
Income taxes payable 9,250 (4,454)
Common stock issued to employee
stock purchase plan 12,894 1,028
Net cash provided by operating
activities 155,351 100,529
Cash flows from investing activities:
Capital expenditures (47,111) (45,193)
Purchases of marketable securities (82,554) (25,100)
Net cash used in investing
activities (129,665) (70,293)
Cash flows from financing activities:
Proceeds from exercise of stock options 1,197 (1,115)
Net cash provided by (used in) financing
activities 1,197 (1,115)
Effect of exchange rate changes on cash 69 444
Net increase in cash and cash equivalents 26,952 29,565
Cash and cash equivalents, beginning of
period 114,032 54,563
Cash and cash equivalents, end of period $140,984 $84,128
Cash paid during the year for:
Income taxes $72,584 $57,197
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED 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:
11/30/95 2/28/95
Raw materials and supplies $43,323 $22,420
Work in process 28,808 22,869
Finished goods 67,689 57,741
Total inventories $139,820 $103,030
3. Proposed acquisition
On November 28, 1995, the Company announced it has entered into a letter
of intent to purchase certain assets and technology of SMC's Local Area
Network Switching business segment of the Enterprise Networks Business
Unit for $77.5 million in cash. The acquisition is subject to approval
by various regulatory agencies and the Board of Directors of SMC. It is
expected that the consummation of this transaction will occur in the fourth
quarter of fiscal 1996.
SMC's Enterprise Networks Business Unit is a supplier of fast LAN
technologies including 10/100 Fast Ethernet Switches.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of the Third Quarter ended November 30, 1995 vs Third Quarter
ended November 30, 1994
Cabletron Systems' worldwide net sales of $275.5 million for the fiscal
quarter ended November 30, 1995 represented a 31.2 percent increase over
net sales of $210.0 million reported in the same quarter of the
preceding year. The increase was primarily the result of higher sales of
Multi Media Access Centers (MMAC (TM)) and related items, inclusive of
MMAC Plus which is the next generation intelligent switching hubs, and small
stackable hubs. International sales as a percentage of total net sales
decreased slightly to 29.6 percent in the quarter ended November 30, 1995
from 30.2 percent for the same quarter of the preceding fiscal year.
Gross profit as a percentage of net sales for the three months ended
November 30, 1995 increased slightly to 59.5 percent compared to 59.3
percent for the quarter ended November 30, 1994 predominantly due to
decreasing material costs.
Research and development costs for the three months ended November 30,
1995 increased to $29.6 million compared to $22.0 million for the same
quarter of the preceding fiscal year. As a percentage of net sales,
spending for research and development increased to 10.7 percent from
10.5 percent. The higher spending for research and development reflected
increased numbers of software and hardware engineers hired and associated
costs related to the development of new products, inclusive of MMAC Plus.
Spending for selling, general and administrative expenses for the three
months ended November 30, 1995 increased to $53.7 million compared to
$41.0 million for the same period of the preceding fiscal year. As a
percentage of net sales, spending for selling, general and administration
was 19.5 percent compared to 19.5 percent for the same period of the
preceding fiscal year. The absolute increase in spending was the result of
increases in both the inside and outside sales forces in the United
States and overseas and other administrative expenses which were primarily
volume related.
Net interest income for the three months ended November 30, 1995 was
4.6 million, compared to $2.4 million in the same period of the preceding
fiscal year. The increase in interest income resulted from higher interest
rates and increased cash reserves.
Income before income taxes increased to $85.2 million compared to $64.0
million for the same period of the prior fiscal year. As a percentage of
net sales, income before income taxes increased to 30.9 percent from 30.5
percent from the same period of the preceding fiscal year, primarily due
to decreasing material costs and increased interest income.
For the three months ended November 30, 1995 net income of $55.9 million
represented an increase of 33.7 percent from $41.8 million for the same
period of the preceding fiscal year.
Results of the Nine Months ended November 30, 1995 vs Nine Months ended
November 30, 1994
Cabletron Systems' worldwide net sales of $773.5 million for the nine
months ended November 30, 1995 represented a 32.3 percent increase over
net sales of $584.7 million reported for the same period of the preceding
fiscal year. The increase was primarily the result of higher sales of
Multi Media Access Centers (MMAC (TM)) and related items, inclusive of
MMAC Plus which is the next generation intelligent switching hubs and
small stackable hubs. International sales as a percentage of total net
sales increased to 29.9 percent from 28.3 percent for the same period
of the preceding fiscal year.
Gross profit as a percentage of net sales for the nine months ended
November 30, 1995 was 59.5 percent compared to 59.3 percent for the
nine months ended November 30, 1994. This increase was predominantly
due to decreasing raw material costs.
Research and development costs for the nine months ended November 30,
1995 increased to $83.4 million compared to $60.4 million for the same
period of the preceding fiscal year. As a percentage of net sales,
spending for research and development increased to 10.8 percent from
10.3 percent compared to the same period of the preceding fiscal year.
The higher spending for research and development reflected increased
numbers of software and hardware engineers hired and associated costs
related to development of new products.
Spending for selling, general and administrative expenses for the nine
months ended November 30, 1995 increased to $149.9 million compared to
$114.6 million for the same period of the preceding fiscal year. As a
percentage of net sales, spending for selling, general and administration
decreased to 19.4 percent from 19.6 for the same period of the preceding
fiscal year. The absolute increase in spending was the result of increases
in both the inside and outside sales forces in the United States and
overseas and other administrative expenses which were primarily volume
related. As a percentage of sales, selling and general administrative
expenses decreased slightly due to a net gain on sale of securities in
the second quarter of fiscal year 1996.
Net interest income for the nine months ended November 30, 1995 was
12.3 million compared to $6.6 million in the same period of the preceding
fiscal year. The increase in interest income resulted from higher interest
rates and increased cash reserves.
Income before income taxes for the nine months ended November 30, 1995
increased to $239.2 million compared to $178.4 million for the same period
of the prior fiscal year. As a percentage of net sales, income before income
taxes increased to 30.9 percent from 30.5 percent from the same period of
the prior fiscal year, primarily due to decreasing material costs and a
net gain on sale of securities in the second quarter of fiscal year 1996.
Net income of $156.9 million represented an increase of 34.7 percent
from $116.5 million for the same period a year ago.
Liquidity and Capital Resources
Cash and cash equivalents and long term investments increased $109.5
million from $345.9 million at February 28, 1995 to $455.4 million at
November 30, 1995, primarily due to favorable operating results.
Accounts receivable at November 30, 1995 were $127.2 million compared
to $91.4 million at February 28, 1995. Days sales outstanding increased
to 40 days compared to 33 days at the end of the prior fiscal year. The
increase was predominantly due to the increase in sales and the
timing of collections. The 40 days sales outstanding is more indicative
of what to expect in future periods.
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 inventory at November 30, 1995 was $139.8 million, or 104 days
of inventory, compared to $103.0 million, or 104 days of inventory at the
end of the prior fiscal year. The increase in absolute inventory dollars
was predominantly due to build up in inventory due to the development of
new products and the general expansion in global distribution.
Capital expenditures for the first nine months ended November 30, 1995
were $47.1 million compared to $45.2 million for the same period of the
preceding year. Capital expenditures the first nine months of fiscal 1996
included approximately $7.3 million for building costs of which
approximately $6.0 million was for the purchase and remodeling of a
114,000-square-foot engineering building. Additionally, another $14.5
million was spent on computer and computer related equipment, $3.8 million
for manufacturing and related equipment and $3.9 million was spent on
expanding global sales operations.
Current liabilities at November 30, 1995 were $142.6 million compared
to $96.3 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Statement re: Computation of Per Share Earnings (page
13 of this report).
(b) There were no reports on Form 8-K filed during the quarter ended
November 30, 1995.
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)
December 28, 1995 /s/ Craig R.Benson
(Date) Craig R. Benson
Chairman of the Board,Treasurer
and Chief Operating Officer
December 28, 1995 /s/ David Kirkpatrick
(Date) David Kirkpatrick
Director of Finance and Chief
Financial Officer
Exhibit Index
Page
Exhibit 11 Statement re: Computation of Per Share Earnings 13
EXHIBIT 11
CABLETRON SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the periods ended November 30, 1995 and 1994
(in thousands, except per share amount)
(unaudited) (unaudited)
Three Months Nine Months
Ended Ended
November 30, November 30,
1995 1994 1995 1994
Net Income Per Common Share
(non-dilutive)
Net income $55,863 $41,830 $156,930 $116,455
Weighted average common shares
outstanding 71,988 71,503 71,726 71,451
Reported net income per common
share $0.78 $0.59 $2.19 $1.63
Net Income Per Common Share
(full dilution)
Net income $55,863 $41,830 $156,930 $116,455
Average common shares outstanding 71,988 71,503 71,726 71,451
Add: additional common shares upon
exercise of stock options, net of
purchase of treasury stock 2,135 1,151 2,135 1,151
Adjusted average common shares
outstanding 74,123 72,654 73,861 72,602
Net income per common share
(full dilution) $0.75 $0.58 $2.12 $ 1.60
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