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UNITED STATES
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 September 26,
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 No. 0-25826
HARMONIC LIGHTWAVES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0201147
(State of incorporation) (I.R.S. Employer Identification No.)
549 Baltic Way
Sunnyvale, CA 94089
(408) 542-2500
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------
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 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 September 26, 1997 there were 10,407,503 shares of the Registrant's Common
Stock outstanding.
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HARMONIC LIGHTWAVES, INC.
Index
PART I - FINANCIAL INFORMATION
<TABLE>
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Page
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Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at September 26, 1997
and December 31, 1996.......................................................................3
Condensed Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 26, 1997 and September 27, 1996.............................................4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 26, 1997 and September 27, 1996...................................................5
Notes to Condensed 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....................................................12
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HARMONIC LIGHTWAVES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,938 $ 16,410
Accounts receivable, net 21,995 12,643
Inventories 14,360 14,782
Prepaid expenses and other assets 2,419 1,315
-------- --------
Total current assets 48,712 45,150
Property and equipment, net 10,416 8,751
Other assets 122 732
-------- --------
$ 59,250 $ 54,633
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,725 $ 5,604
Accrued liabilities 5,236 5,388
-------- --------
Total current liabilities 9,961 10,992
-------- --------
Stockholders' equity (deficit)
Preferred stock, $.001 par value, 5,000,000 shares
authorized; no shares issued or outstanding -- --
Common Stock, $.001 par value, 50,000,000 shares authorized;
10,407,503 and 10,040,036 shares issued and outstanding 10 10
Capital in excess of par value 55,869 54,579
Accumulated deficit (6,599) (10,948)
Currency translation 9 --
-------- --------
Total stockholders' equity 49,289 43,641
-------- --------
$ 59,250 $ 54,633
======== ========
</TABLE>
The accompanying notes are integral part of these financial statements.
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HARMONIC LIGHTWAVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $17,545 $16,670 $57,092 $41,397
Cost of sales 9,646 8,846 30,466 22,602
------- ------- ------- -------
Gross profit 7,899 7,824 26,626 18,795
------- ------- ------- -------
Operating expenses:
Research and development 2,852 2,617 8,519 6,548
Sales and marketing 3,332 2,732 9,907 6,968
General and administrative 1,355 865 3,597 2,325
------- ------- ------- -------
Total operating expenses 7,539 6,214 22,023 15,841
------- ------- ------- -------
Income from operations 360 1,610 4,603 2,954
Interest and other income
(expense), net 126 223 514 744
------- ------- ------- -------
Income before income taxes 486 1,833 5,117 3,698
Provision for income taxes 73 92 768 185
------- ------- ------- -------
Net income $ 413 $ 1,741 $ 4,349 $ 3,513
======= ======= ======= =======
Net income per share $ 0.04 $ 0.15 $ 0.38 $ 0.31
======= ======= ======= =======
Weighted average common
shares and equivalents 11,588 11,577 11,573 11,427
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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HARMONIC LIGHTWAVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
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SEPTEMBER 26, SEPTEMBER 27,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,349 $ 3,513
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization 2,496 1,803
Changes in assets and liabilities:
Accounts receivable (9,352) (6,891)
Inventories 422 (1,221)
Prepaid expenses and other assets (494) (2,221)
Accounts payable (879) 3,403
Accrued liabilities (152) 1,576
-------- --------
Net cash used in operating activities (3,610) (38)
-------- --------
Cash flows used in investing activities for the
acquisition of property and equipment (4,161) (5,017)
-------- --------
Cash flows provided by financing activities from
issuance of common stock, net 1,290 629
-------- --------
Effect of exchange rate changes on cash and 9 --
equivalents
Net decrease in cash and cash equivalents (6,472) (4,426)
Cash and cash equivalents at beginning of period 16,410 22,126
-------- --------
Cash and cash equivalents at end of period $ 9,938 $ 17,700
======== ========
Supplemental schedule of cash flow information and
noncash financing activities
Income taxes paid during the period $ 288 $ 134
</TABLE>
The accompanying notes are an integral part of these financial statements.
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HARMONIC LIGHTWAVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements include all adjustments
(consisting only of normal recurring adjustments) which Harmonic Lightwaves,
Inc. (the "Company") considers necessary for a fair presentation of the results
of operations for the interim periods covered and the financial condition of the
Company at the date of the balance sheets. The quarterly financial information
is unaudited. This Quarterly Report on Form 10-Q should be read in conjunction
with the Company's audited consolidated financial statements contained in the
Company's Annual Report on Form 10-K which was filed with the Securities and
Exchange Commission on March 28, 1997. The interim results presented herein are
not necessarily indicative of the results of operations that may be expected for
the full fiscal year ending December 31, 1997, or any other future period.
NOTE 2 - INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials....................... $ 2,981 $ 3,104
Work-in-process..................... 4,307 4,704
Finished goods...................... 7,072 6,974
======= =======
$14,360 $14,782
======= =======
</TABLE>
NOTE 3 - NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options and warrants (using the treasury
stock method). Common equivalent shares are excluded from the computation if
their effect is antidilutive.
NOTE 4 - RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings Per Share." SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the financial
statements for all entities with complex capital structures. SFAS 128 requires
adoption for fiscal periods ending after December 15, 1997. Pro forma disclosure
of basic EPS and diluted EPS for the current reporting and comparable period in
the prior year is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
NET INCOME PER SHARE - PRO FORMA 1997 1996 1997 1996
- -------------------------------- ---------------------------- ----------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Basic net income per share........ $ 0.04 $ 0.17 $ 0.42 $ 0.35
======== ======== ======== ========
Diluted net income per share...... $ 0.04 $ 0.15 $ 0.38 $ 0.31
======== ======== ======== ========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Harmonic Lightwaves, Inc. ("Harmonic" or the "Company") is a worldwide supplier
of highly integrated fiber optic transmission, digital headend and element
management systems for the delivery of interactive services over broadband
networks. The Company designs, manufactures and markets optical transmitters,
nodes, receivers, digital video compression and modulation equipment and element
management hardware and software. These products are used by major
communications providers, such as cable television operators, in bi-directional
networks.
In September 1997, the Company announced that it had entered into an agreement
to acquire N. M. New Media Communication Ltd. ("New Media"). In connection with
the acquisition, Harmonic will issue 1,037,911 shares of its Common Stock to the
shareholders of New Media, and will assume all of New Media's outstanding stock
options. [See "Factors That May Affect Results of Operations - Risks Associated
with New Media Acquisition."] The acquisition will be accounted for under the
purchase method of accounting, and Harmonic expects to recognize a substantial
portion of the acquisition cost as a one-time charge for in-process technology
in the quarter in which the transaction is completed. The transaction is
currently expected to be completed in the last week of December 1997 or the
first week of January 1998.
This Quarterly Report on Form 10-Q contains 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. Such statements include expectations as to
future operating results, future expenditures, future cash requirements, future
industry conditions and new product development. Actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of factors, including those set forth under "Factors That May Affect
Future Results Of Operations" below and elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Net Sales
The Company's net sales increased 5% from $16.7 million in the third quarter of
1996 to $17.5 million in the third quarter of 1997. For the nine month periods,
net sales increased 38% from $41.4 million in the first nine months of 1996 to
$57.1 million in the first nine months of 1997. The growth in net sales in both
periods was attributable to higher unit sales of the Company's receiver and
return path products and sales of the 1550 nm MAXLink transmission system, which
began shipment during the second quarter of 1996. These factors were partially
offset by lower unit sales of the PWRLink and YAGLink transmitters. The lower
sales of YAGLink transmitters was due in part to the increasing acceptance of
1550 nm transmitters among cable operators for broadcast transmission.
In the third quarter of 1997, both domestic and international sales increased
over the levels achieved in the third quarter of 1996, but were lower than sales
in the second quarter of 1997. The lower domestic and international sales in the
third quarter compared to the second quarter of 1997 were due principally to a
slow-down in capital spending in the industry. These factors include
consolidation and system exchanges by domestic cable customers, which generally
has the effect of delaying certain system upgrades, uncertainty related to
development of industry standards for digital transmission, evaluation by many
cable customers as to which advanced services and system architectures to
provide and use, and emphasis on marketing and customer service strategies by
certain international customers to increase their subscriber base instead of
continued construction of networks. International sales represented 54% of net
sales in the third quarter of 1997 compared to 55% of net sales in the third
quarter of 1996.
Gross Profit
Gross profit increased from $7.8 million (47% of net sales) in the third quarter
of 1996 to $7.9 million (45% of net sales) in the third quarter of 1997 and from
$18.8 million (45% of net sales) in the first nine months of 1996 to $26.6
million (47% of net sales) in the first nine months of 1997. The decrease in
gross profit percentage during the third quarter of 1997 compared to the third
quarter of 1996 was principally due to lower production
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volumes, start-up costs for the new digital products and higher manufacturing
period expenses. The increase in gross profit percentage during the first nine
months of 1997 compared to the first nine months of 1996 was due primarily to
lower manufacturing costs of the Company's MAXLink products, which commenced
shipment during the second quarter of 1996, and improved margins on return path
products resulting from product design changes. These factors were partially
offset by lower selling prices of certain products.
Research and Development
Research and development expenses increased from $2.6 million in the third
quarter of 1996 to $2.9 million in the third quarter of 1997 but remained
constant as a percentage of sales at 16%, reflecting higher sales. For the nine
month periods, research and development expenses increased from $6.5 million in
1996 (16% of net sales) to $8.5 million in 1997 (15% of net sales). The
increases in research and development expenses in absolute dollars in both
periods were principally attributable to increased headcount, particularly at
the Company's Israeli subsidiary, which is developing Harmonic's digital headend
products. The Company anticipates that research and development expenses will
continue to increase substantially in absolute dollars, although such expenses
may vary as a percentage of net sales.
Sales and Marketing
Sales and marketing expenses increased from $2.7 million (16% of net sales) in
the third quarter of 1996 to $3.3 million (19% of net sales) in the third
quarter of 1997. For the nine month periods, sales and marketing expenses
increased from $7.0 million to $9.9 million, but remained constant as a
percentage of net sales at 17%, reflecting higher sales levels. The increases in
expenses in absolute dollars in both periods were primarily due to higher
headcount associated with expansion of the direct sales force and the customer
service and technical support organizations, as well as higher promotional
expenses. The Company anticipates that sales and marketing expenses will
continue to increase substantially in absolute dollars, although such expenses
may vary as a percentage of net sales.
General and Administrative
General and administrative expenses increased from $0.9 million (5% of net
sales) in the third quarter of 1996 to $1.4 million (8% of net sales) in the
third quarter of 1997. For the nine month periods, general and administrative
expenses increased from $2.3 million to $3.6 million, but remained constant as a
percentage of net sales at 6%. The increases in expenses in absolute dollars in
both periods were principally attributable to costs of supporting the Company's
growth in headcount and operations and providing for a higher accounts
receivable reserve. The Company expects to incur higher levels of general and
administrative costs in the future, although such expenses may vary as a
percentage of net sales.
Other Income (Expense)
Other income (expense), consisting principally of interest income, was $0.1
million and $0.5 million in the three and nine month periods respectively, ended
September 26, 1997, compared to $0.2 million and $0.7 million in the
corresponding periods of 1996. The decreases in both periods in 1997 were
principally due to less interest earned on lower average cash balances.
Income Taxes
The provisions for income taxes for both periods of 1996 and 1997 are based on
an estimated effective annual tax rate of 5% and 15%, respectively. The increase
in effective rate in 1997 compared to 1996 is due primarily to the expectation
that the Company's net operating loss carryovers will be fully utilized during
1997. The Company's effective tax rate for 1996 resulted from federal and state
alternative minimum taxes.
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LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was approximately $0.0 million and $3.6 million for the
nine months ended September 27, 1996 and September 26, 1997, respectively. The
increase in cash used in operations was primarily due to higher accounts
receivable, partially offset by higher net income and cash generated from
reduction in inventory. The increase in accounts receivable during the first
nine months of 1997 was attributable principally to the pattern of sales in the
third quarter of 1997, which were concentrated in the latter part of the quarter
compared to the fourth quarter of 1996, in which sales were concentrated in the
first part of the quarter, and slower collections from certain customers.
Additions to property, plant and equipment were approximately $5.0 million and
$4.2 million in the first nine months of 1996 and 1997, respectively. The
decrease in capital expenditures in 1997 compared to 1996 was due principally to
leasehold improvements and the acquisition of furniture and fixtures in 1996 in
connection with the new corporate headquarters in Sunnyvale, California which
the Company occupied in August 1996. The Company expects to spend a total of
approximately $5.0 million on capital expenditures in 1997, primarily for
manufacturing and test equipment.
As of September 26, 1997, the Company had cash and cash equivalents of $9.9
million. During the third quarter, the Company renegotiated its bank line of
credit, which now provides for up to $12.0 million in borrowings, and entered
into a $3.0 million equipment term loan facility. The bank line and equipment
term loan expire in October 1998. There were no outstanding borrowings during
the third quarter of 1997.
The Company believes that its existing liquidity sources and anticipated funds
from operations will satisfy its cash requirements for at least the next twelve
months.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Potential Fluctuations in Future Operating Results
The Company's operating results have fluctuated and may continue to fluctuate in
the future, on an annual and a quarterly basis, as a result of a number of
factors, many of which are outside of the Company's control, including the level
of capital spending in the cable television industry, changes in the regulatory
environment, changes in market demand, the timing of customer orders,
competitive market conditions, lengthy sales cycles, new product introductions
by the Company or its competitors, market acceptance of new or existing
products, the cost and availability of components, the mix of the Company's
customer base and sales channels, the mix of products sold, development of
custom products, the level of international sales and general economic
conditions. In addition, in each of the first three quarters of 1997, the
Company has recognized a substantial portion of its revenues in the last month
of the quarter. The Company establishes its expenditure levels for product
development and other operating expenses based on projected sales levels, and
expenses are relatively fixed in the short term. Accordingly, variations in
timing of sales has caused, and may in the future cause, significant
fluctuations in operating results. In addition, because a significant portion of
the Company's business is derived from orders placed by a limited number of
large customers, the timing of such orders can also cause significant
fluctuations in the Company's operating results. If sales are below expectations
in any given quarter, the adverse impact of the shortfall on the Company's
operating results may be magnified by the Company's inability to adjust spending
to compensate for the shortfall.
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Dependence on Key Customers and End Users
Historically, a substantial majority of the Company's sales have been to
relatively few customers. Sales to the Company's ten largest customers in 1995,
1996 and the first nine months of 1997 accounted for approximately 80%, 72% and
59%, respectively, of its net sales. Due in part to the consolidation of
ownership of domestic cable television systems, the Company expects that sales
to relatively few customers will continue to account for a significant
percentage of export sales for the foreseeable future. Harmonic has adopted a
strategy to sell to major domestic customers through its own direct sales force
and domestic OEM and distributor revenues were a smaller percentage of net sales
in the first three quarters of 1997 than they have been in prior years.
Substantially all of the Company's sales are made on a purchase order basis, and
none of the Company's customers has entered into a long-term agreement requiring
it to purchase the Company's products. The loss of, or any reduction in orders
from, a significant customer would have a material adverse effect on the
Company's business and operating results.
Dependence on Cable Television Industry Capital Spending
To date, substantially all of the Company's sales have been derived, directly or
indirectly, from sales to cable television operators. Demand for the Company's
products depends to a significant extent upon the magnitude and timing of
capital spending by cable television operators for constructing, rebuilding or
upgrading their systems. The capital spending patterns of cable television
operators are dependent on a variety of factors, including access to financing,
cable television operators' annual budget cycles, the status of federal, local
and foreign government regulation of telecommunications and television
broadcasting, overall demand for cable television services, competitive
pressures (including the availability of alternative video delivery technologies
such as satellite broadcasting), discretionary customer spending patterns and
general economic conditions. The Company believes that the consolidation of
ownership of domestic cable television systems, by acquisition and system
exchanges, together with uncertainty over regulatory issues, particularly the
debate over the provisions of the Telecommunications Act of 1996, caused delays
in capital spending by major domestic MSOs during the second half of 1995 and
first quarter of 1996. The Company's net sales in the third quarter of 1997 were
adversely affected by a slow-down in spending by cable television operators. In
addition, cable television capital spending can be subject to the effects of
seasonality, with fewer construction and upgrade projects typically occurring in
winter months and otherwise being affected by inclement weather.
Highly Competitive Industry
The market for cable television transmission equipment is extremely competitive
and has been characterized by rapid technological change. Most of the Company's
competitors are substantially larger and have greater financial, technical,
marketing and other resources than the Company. Many of such large competitors
are in a better position to withstand any significant reduction in capital
spending by cable television operators. In addition, many of the Company's
competitors have more long standing and established relationships with domestic
and foreign cable television operators than does the Company. There can be no
assurance that the Company will be able to compete successfully in the future or
that competition will not have a material adverse effect on the Company's
business and operating results.
Rapid Technological Change
The market for the Company's products is relatively new, making it difficult to
accurately predict the market's future growth rate, size and technological
direction. In view of the evolving nature of this market, there can be no
assurance that cable television operators, telephone companies or other
suppliers of broadband services will not decide to adopt alternative
architectures or technologies that are incompatible with the Company's products,
which would have a material adverse effect on the Company's business and
operating results.
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The broadband communications markets are characterized by continuing
technological advancement. To compete successfully, the Company must design,
develop, manufacture and sell new products that provide increasingly higher
levels of performance and reliability. As new markets for broadband
communications equipment continue to develop, the Company must successfully
develop new products for these markets in order to remain competitive. For
example, to compete successfully in the future, the Company believes that it
must successfully develop and introduce products that will facilitate the
processing and transmission of digital signals over optical networks. While the
Company has announced and demonstrated initial products for digital
applications, there can be no assurance that the Company will successfully
complete development of, or successfully introduce, products for digital
applications, or that such products will achieve commercial acceptance. In
addition, in order to successfully develop and market its planned products for
digital applications, the Company may be required to enter into technology
development or licensing agreements with third parties. Although many companies
are often willing to enter into such technology development or licensing
agreements, there can be no assurance that such agreements will be negotiated on
terms acceptable to the Company, or at all. The failure to enter into technology
development or licensing agreements, when necessary, could limit the Company's
ability to develop and market new products and could have a material adverse
effect on the Company's business and operating results.
The failure of the Company to successfully develop and introduce new products
that address the changing needs of the broadband communications market could
have a material adverse effect on the Company's business and operating results.
In addition, there can be no assurance that the successful introduction by the
Company of new products will not have an adverse effect on the sales of the
Company's existing products. For instance, an emerging trend in the domestic
market toward narrowcasting (targeted delivery of advanced services to small
groups of subscribers) is causing changes in the network architectures of some
cable operators. This may have the effect of changing the Company's product mix
toward lower price transmitters, which could adversely affect the Company's
gross margins.
Sole or Limited Sources of Supply
Certain components and subassemblies necessary for the manufacture of the
Company's products are obtained from a sole supplier or a limited group of
suppliers. The reliance on sole or limited suppliers and the Company's
increasing reliance on subcontractors involve several risks, including a
potential inability to obtain an adequate supply of required components or
subassemblies and reduced control over pricing, quality and timely delivery of
components or subassemblies. The Company does not maintain long-term agreements
with any of its suppliers or subcontractors. An inability to obtain adequate
deliveries or any other circumstance that would require the Company to seek
alternative sources of supply could affect the Company's ability to ship its
products on a timely basis, which could damage relationships with current and
prospective customers and could have a material adverse effect on the Company's
business and operating results. The Company believes that investment in
inventories will constitute a significant portion of its working capital in the
future. As a result of such investment in inventories, the Company may be
subject to an increasing risk of inventory obsolescence in the future, which
would materially and adversely affect its business and operating results.
Risks of International Operations
Sales to customers outside of the United States in 1995, 1996 and the first nine
months of 1997 represented 65%, 57% and 61% of net sales, respectively, and the
Company expects that international sales will continue to represent a
substantial portion of its net sales for the foreseeable future. In addition,
the Company has an Israeli subsidiary that engages primarily in research and
development. International operations are subject to a number of risks,
including changes in foreign government regulations and telecommunications
standards, export license requirements, tariffs and taxes, other trade barriers,
fluctuations in currency exchange rates, difficulty in collecting accounts
receivable, difficulty in staffing and managing foreign operations and political
and economic instability. While international sales are typically denominated in
U.S. dollars, fluctuations in currency exchange
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rates could cause the Company's products to become relatively more expensive to
customers in a particular country, leading to a reduction in sales or
profitability in that country. Payment cycles for international customers are
typically longer than those for customers in the United States. There can be no
assurance that foreign markets will continue to develop or that the Company will
receive additional orders to supply its products for use in foreign broadband
systems.
Management of Growth
The growth in the Company's business has placed, and is expected to continue to
place, a significant strain on the Company's limited personnel, management and
other resources. The Company's ability to manage any future growth effectively
will require it to attract, train, motivate and manage new employees
successfully, to integrate new employees into its overall operations, to retain
key employees and to continue to improve its operational, financial and
management systems. Any failure by the Company to manage effectively its future
growth could have a material adverse effect on the Company's business and
operating results.
The growth in the Company's business has placed, and is expected to continue to
place, a significant strain on the Company's limited personnel, management and
other resources. The Company's ability to manage any future growth effectively
will require it to attract, train and manage new employees successfully, to
integrate new employees into its overall operations, to retain key employees and
to continue to improve its operational, financial and management systems. Any
failure by the Company to manage effectively its future growth could have an
adverse effect on the Company's business and operating results.
Risks Associated with New Media Acquisition
In September 1997 the Company announced that it had entered into an agreement to
acquire N.M. New Media Communication Ltd. ("New Media"), a provider of broadband
high-speed data delivery software and hardware technology based in Tel Aviv,
Israel. Pursuant to the agreement, the Company will issue 1,037,911 shares of
Common Stock to the shareholders of New Media and will assume all of New Media's
outstanding stock options. The consummation of the New Media acquisition is
subject to a number of conditions, and there can be no assurance that the
acquisition will be consummated. The acquisition of New Media is subject to a
number of risks and uncertainties. These include, but are not limited to,
difficulties in combining and integrating the two companies' operations, product
lines and research and development efforts, the potential adverse effects of the
acquisition on relationships with customers, distributors, suppliers and other
business partners of the two companies, dependence on communications industry
capital spending, New Media's dependence on the evolution of wireless and
satellite broadband services, regulatory developments, rapid technological
change, the highly competitive nature of the telecommunciations industry, and
the Company's ability to successfully develop, manufacture and gain market
acceptance of new products, in particular its digital TRANsend products and the
products of New Media. Any failure on the part of the Company to successfully
integrate the operations of New Media could have a material adverse effect on
the Company's business and operating results.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<CAPTION>
Exhibit # Description of Document
--------- -----------------------
<S> <C>
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
B. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended September 26, 1997.
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SIGNATURE
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.
Dated: November 10, 1997
HARMONIC LIGHTWAVES, INC.
(Registrant)
By: /s/ Robin N. Dickson
------------------------------
Robin N. Dickson
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
<PAGE> 15
HARMONIC LIGHTWAVES, INC.
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
<S> <C>
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
HARMONIC LIGHTWAVES, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income $ 413 $ 1,741 $ 4,349 $ 3,513
======= ======= ======= =======
Weighted average shares outstanding:
Common stock 10,384 10,150 10,321 10,072
Common stock issuable upon exercise
of options and warrants 1,204 1,427 1,252 1,355
------- ------- ------- -------
Weighted average common
shares and equivalents 11,588 11,577 11,573 11,427
======= ======= ======= =======
Net income per share (1) $ 0.04 $ 0.15 $ 0.38 $ 0.31
======= ======= ======= =======
</TABLE>
(1) Computed in the manner described in Note 3 to Notes to Condensed
Consolidated Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 9,938
<SECURITIES> 0
<RECEIVABLES> 21,995
<ALLOWANCES> 0
<INVENTORY> 14,360
<CURRENT-ASSETS> 48,712
<PP&E> 10,416
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,250
<CURRENT-LIABILITIES> 9,961
<BONDS> 0
0
0
<COMMON> 55,879
<OTHER-SE> (6,590)
<TOTAL-LIABILITY-AND-EQUITY> 59,250
<SALES> 57,092
<TOTAL-REVENUES> 57,092
<CGS> 30,466
<TOTAL-COSTS> 30,466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,117
<INCOME-TAX> 768
<INCOME-CONTINUING> 4,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,349
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0
</TABLE>
