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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-22804
ACTIVE VOICE CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1235111
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2901 THIRD AVENUE, SUITE 500 98121-9800
SEATTLE, WASHINGTON (Zip Code)
(Address of principal executive offices)
(206) 441-4700
(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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS FEBRUARY 3, 1997
Common Stock, No Par Value 4,601,403
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<PAGE>
ACTIVE VOICE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited) 3
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 13
SIGNATURE PAGE 14
EXHIBITS 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------- --------------------------
1996 1995 1996 1995
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $13,354,815 $12,437,348 $36,590,745 $34,136,214
Cost of goods sold 5,662,027 4,722,913 15,136,725 12,594,095
------------- ------------- ----------- ------------
Gross profit 7,692,788 7,714,435 21,454,020 21,542,119
Operating expenses:
Research and development 1,742,914 1,461,675 4,951,392 4,015,391
Sales and marketing 3,289,380 3,094,107 9,570,867 8,300,209
General and administrative 1,159,267 1,092,825 3,338,999 3,177,139
------------- ------------- ----------- ------------
Total operating expenses 6,191,561 5,648,607 17,861,258 15,492,739
------------- ------------- ----------- ------------
Operating income 1,501,227 2,065,828 3,592,762 6,049,380
Interest income 197,056 186,809 580,290 509,763
------------- ------------- ----------- ------------
Income before income taxes 1,698,283 2,252,637 4,173,052 6,559,143
Income tax provision 538,969 709,503 1,330,469 2,066,103
------------- ------------- ----------- ------------
Net income $ 1,159,314 $ 1,543,134 $ 2,842,583 $ 4,493,040
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
Net income per common share $0.25 $0.33 $0.61 $0.97
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
Average number of common
and common equivalent
shares outstanding 4,642,652 4,652,196 4,630,240 4,645,352
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ACTIVE VOICE CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,524,193 $ 3,389,760
Marketable securities 6,800,732 7,216,738
Accounts receivable, less allowances 9,907,852 8,628,280
Inventories 7,189,906 5,482,704
Deferred tax asset 1,273,978 1,023,324
Prepaid expenses and other assets 761,662 774,316
------------- ------------
Total current assets 29,458,323 26,515,122
Furniture and equipment, net 2,230,097 2,094,480
Investments 8,398,455 8,461,607
Other assets 219,742 328,503
------------- ------------
Total assets $40,306,617 $37,399,712
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,457,045 $ 2,138,073
Accrued compensation and benefits 1,515,048 1,871,755
Other accrued expenses 880,432 762,340
Income taxes payable 442,581 830,888
------------- ------------
Total current liabilities 5,295,106 5,603,056
Commitments
Stockholders' equity:
Preferred stock, no par value:
Authorized shares - 2,000,000 - none outstanding
Common stock, no par value:
Authorized shares - 10,000,000
Issued shares, including repurchased shares - 4,976,933 16,931,207 16,790,931
Retained earnings 20,172,147 17,301,477
------------- ------------
37,103,354 34,092,408
Less 384,530 and 421,988 shares repurchased at
December 31, and March 31, 1996, respectively,
at cost (2,091,843) (2,295,752)
------------- ------------
Total stockholders' equity 35,011,511 31,796,656
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Total liabilities and stockholders' equity $40,306,617 $37,399,712
------------- ------------
------------- ------------
</TABLE>
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. See notes to consolidated financial
statements.
4
<PAGE>
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
--------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,842,583 $4,493,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 644,071 633,676
Provisions for accounts receivable 510,000 606,000
Deferred income taxes (282,069) (251,199)
Loss on disposal of equipment 10,921 27,452
Changes in operating assets and liabilities:
Increase in accounts receivable (1,789,572) (2,990,998)
Increase in inventories (1,707,202) (1,234,773)
Decrease (increase) in prepaid expenses and
other assets 121,415 (47,676)
Increase in accounts payable 318,972 247,358
Increase (decrease) in other liabilities (541,949) 891,162
------------- ------------
Net cash provided by operating activities 127,170 2,374,042
INVESTING ACTIVITIES
Purchases of marketable securities and investments (4,079,440) (4,007,515)
Proceeds from sale and maturity of marketable securities 4,650,997 2,904,955
Purchases of furniture and equipment (790,609) (822,401)
------------- ------------
Net cash used in investing activities (219,052) (1,924,961)
FINANCING ACTIVITIES
Repurchase of common stock (20,625)
Proceeds from employee stock option and stock
purchase plans 226,315 432,098
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Net cash provided by financing activities 226,315 411,473
------------- ------------
Increase in cash and cash equivalents 134,433 860,554
Cash and cash equivalents at beginning of period 3,389,760 649,553
------------- ------------
Cash and cash equivalents at end of period $3,524,193 $1,510,107
------------- ------------
------------- ------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ACTIVE VOICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Active Voice
Corporation and subsidiary (the Company) are unaudited. In the opinion of
the Company's management, the financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly
the financial information set forth therein. Results of operations for the
three month and nine month periods ended December 31, 1996 are not
necessarily indicative of future financial results.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Accordingly, these financial statements should be read in conjunction with
the Company's annual report on Form 10-K for the year ended March 31, 1996.
2. INVENTORIES
Inventories are comprised of the following:
December 31, March 31,
1996 1996
------------ ------------
Computer equipment $4,918,813 $2,544,034
Custom component parts 1,596,389 2,211,527
Supplies 674,704 727,143
------------ ------------
$7,189,906 $5,482,704
------------ ------------
------------ ------------
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Active Voice Corporation (the Company) is a leading manufacturer of PC-based
voice processing systems and computer telephone integration (CTI) products.
The Company's products are sold worldwide through a network of independent
telecommunications dealers and computer resellers. The Company markets three
principal products: Repartee, Replay Plus and Replay. Repartee, the Company's
flagship and most feature rich product, offers the largest call handling
capacity. In addition, Repartee serves as the base for TeLANophy, a suite of
the Company's CTI modules which provide complete call management and unified
messaging capabilities. Replay Plus, the Company's mid-priced product, offers
most of the voice processing features found in Repartee with the exception of
the CTI functionality. The Company's Replay product provides basic voice
processing features at a price point attractive to the small business market.
CERTAIN STATEMENTS IN THIS QUARTERLY REPORT (FOR EXAMPLE, STATEMENTS USING
THE EXPRESSIONS, "THE COMPANY BELIEVES" OR "THE COMPANY ANTICIPATES" AND
OTHER SIMILAR STATEMENTS) CONTAIN "FORWARD LOOKING" INFORMATION (AS DEFINED
IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995) INVOLVING RISKS AND
UNCERTAINTIES, INCLUDING WITHOUT LIMITATION, PROJECTIONS FOR SALES AND
EXPENDITURES, AND VARIOUS BUSINESS ENVIRONMENT AND TREND PROJECTIONS. ACTUAL
FUTURE RESULTS AND TRENDS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF
FACTORS, INCLUDING, BUT NOT LIMITED TO, THE RISKS DISCUSSED IN DOCUMENTS
FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. INVESTORS
ARE ENCOURAGED TO CONSIDER THE RISKS DETAILED IN THOSE FILINGS. THE COMPANY
ASSUMES NO OBLIGATION TO RELEASE PUBLICLY ANY CHANGES TO THESE "FORWARD
LOOKING STATEMENTS" THAT MAY ARISE FROM THE DEVELOPMENT OF UNANTICIPATED
EVENTS OR CIRCUMSTANCES THAT OCCUR AFTER THE DATE OF THE ORIGINAL PROJECTION.
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Net sales $13,355 $12,437 7.4% $36,591 $34,136 7.2%
- ----------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996
Net sales to the Company's domestic dealer network in the three months ended
December 31, 1996 decreased approximately 11% from the corresponding period
in the prior fiscal year, representing 63.2% of total net sales compared to
76.3% of total net sales in the corresponding prior period. Unit sales of
Replay Plus decreased by approximately 30% between comparable quarters.
Domestic dealer net sales for the quarter ended December 31, 1995 included a
large one-time sale of Replay Plus units to a new customer which was
replacing unsatisfactory competing products at its own end-user sites. The
absence of a similar sale in the three months ended December 31, 1996
accounted for greater than one-half of both the decrease in unit sales of
Replay Plus and the overall decrease in domestic dealer net sales. Unit
sales of Repartee increased approximately 40% between the quarter ended
December 31, 1996 and the similar period in the preceding fiscal year. The
Company attributes this increase to successful promotional programs,
including a sales presentation road show and direct incentives to customer
sales representatives implemented during the last six months of calendar year
1996.
7
<PAGE>
Net sales to original equipment manufacturers (OEM's) increased by
approximately 105% during the three months ended December 31, 1996 compared
to the three months ended December 31, 1995. Net sales to OEM customers
represented 18.6% of total net sales for the three months ended December 31,
1996, compared to 9.7% of total net sales for the three months ended December
31, 1995. The aggregate increase in net sales in the OEM channel was
primarily attributable to a greater than 450% increase in unit sales of
Replay. The majority of the increased Replay unit sales were attributable to
the successful launch of product and related inventory stocking purchases
associated with a recently signed OEM customer. A 90% decline in unit sales
of Repartee, primarily to a single OEM customer, partially offset the
increased revenue from sales of Replay. During December 1996, the Company
announced an agreement with Tadiran Telecommunications, Ltd. to integrate the
Repartee voice processing system with Tadiran's Coral telephone systems. The
agreement also provides for Tadiran to market TeLANophy. As of December 31,
1996, the Company had five domestic OEM relationships. The largest OEM
customer accounted for approximately 44% of OEM sales and approximately 8% of
total net sales for the three months ended December 31, 1996.
Net sales to international customers increased by approximately 40% during
the three months ended December 31, 1996, compared to the corresponding
period in the preceding fiscal year, reflecting increased penetration of
existing international voice processing markets and the successful
introduction of new products for international OEM customers. International
net sales represented 18.2% of total net sales for the three months ended
December 31, 1996, compared to 14.0% of total net sales for the three months
ended December 31, 1995. Repartee unit sales increased by approximately 70%
from the comparable prior year quarter, while revenues increased by more than
130% due to pricing stability and a shift in the product mix toward larger
average port size systems. The increase in net sales from Repartee comprised
more than 65% of the total increase in international net sales. Beyond the
usual risks associated with foreign sales (currency fluctuations and
restrictions; export-import regulations; customs matters; foreign collection
problems; and military, political and transportation risks), the Company's
international sales involve additional governmental regulation, product
adaptations to local languages and switching systems, and uncertainties
arising from local business practices and cultural considerations.
During the three months ended December 31, 1996, revenue from TeLANophy
modules alone were not significant (less than 5%); however, the Company has
experienced growing demand for TeLANophy capable systems and related client
desktop software over the last twelve months. The Company is pursuing a new
channel of distribution for these products and is in the process of
developing new initiatives to sell client desktop software directly to its
substantial installed end user customer base.
The Company experiences significant quarterly variability in the level of
sales through its three distinct distribution channels. The diversification
provided by these three channels has in the past reduced the quarterly
volatility of aggregate net sales.
NINE MONTHS ENDED DECEMBER 31, 1996
Net sales to the domestic dealer network were essentially unchanged in the
nine months ended December 31, 1996 from the corresponding period in the
prior fiscal year. Domestic dealer net sales represented 68.1% of total net
sales for the nine months ended December 31, 1996, compared to 72.7% of total
net sales for the nine months ended December 31, 1995. A greater than 65%
increase in unit sales of Replay and higher revenues from TeLANophy software
were offset by approximately a 10% decrease in unit sales of Replay Plus.
During the nine months ended December 31, 1996, the Company shipped the first
100 Replay Plus units under its previously announced agreement with
Montgomery Ward Co.
8
<PAGE>
Net sales to OEM's increased by approximately 28% during the nine months
ended December 31, 1996 compared to the comparable period in the prior fiscal
year. Net sales to OEM customers represented 16.1% and 13.4% of total net
sales for the nine month periods ended December 31, 1996 and 1995,
respectively. Net sales of the Replay product increased by greater than 300%
between the nine month period ended December 31, 1996 and the comparable
period of the prior fiscal year, due primarily to increased unit sales. The
increase in Replay net sales was partially offset by a 95% decline in unit
sales of Repartee kits. The largest OEM customer accounted for approximately
50% of OEM sales and approximately 8% of total net sales for the nine months
ended December 31, 1996.
Net sales to international customers increased by approximately 23% during
the nine months ended December 31, 1996, compared to the corresponding period
in the preceding fiscal year. International net sales represented 15.8% of
total net sales for the nine months ended December 31, 1996, compared to
13.9% of total net sales for the nine months ended December 31, 1995. The
largest factor contributing to the increase in international net sales was a
greater than 150% increase in unit sales of Replay, partially offset by lower
average selling prices due to price discounting. All products within the
international sales channel experienced revenue growth during the nine month
period ended December 31, 1996 over the comparable prior year period.
GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Gross profit $7,693 $7,714 (0.3%) $21,454 $21,542 (0.4%)
Percentage of net sales 57.6% 62.0% 58.6% 63.1%
- --------------------------------------------------------------------------------------------
</TABLE>
The Company's gross margin varies in part depending upon the mix of
higher-margin voiceboard-and-software kit sales (offered in all sales
channels) and software-only sales (available only to OEM customers) as
opposed to turnkey system sales (which include the cost of a PC and other
related hardware). The proportion of sales contributed by each distribution
channel also affects the overall gross margin, as international sales have
historically had higher gross margins than the other distribution channels.
The decreases in gross margin between the three month and nine month periods
ended December 31, 1996 in comparison to the comparable periods in fiscal
1996 were primarily attributable to a shift in the product sales mix toward
the lower margin Replay product line, particularly in the OEM sales channel.
A 25% price reduction on Replay implemented during the third quarter of
fiscal 1996 contributed to the shift in sales mix and reduced the gross
margin on Replay units, as did the success of Replay products released for
two of the Company's newer OEM customers. Lower unit sales of Repartee kits
in the OEM channel also contributed to the decline in gross margin.
Management expects that gross margins will continue to decline steadily as a
result of price competition and further shifts in product mix.
9
<PAGE>
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Research and development $1,743 $1,462 19.2% $4,951 $4,015 23.3%
Percentage of net sales 13.1% 11.8% 13.5% 11.8%
- ------------------------------------------------------------------------------------------
</TABLE>
The increases in research and development expenses, both in dollar amounts
and as a percentage of net sales between comparable periods, were primarily
attributable to an increase in project-based contract development staff and
engineering and development personnel. The increase in contract staff and
engineering personnel was primarily attributable to the Company's continuing
effort to localize products for new international markets, as well as
customization of products for new OEM customers and strategic partners and
new product development, particularly CTI-related products. During the nine
months ended December 31, 1996, the Company made several significant product
announcements including Message Integration for the Novell GroupWise
client/server e-mail system, ViewMail for Microsoft Exchange and multilingual
TeLANophy products for the desktop. The Company also completed development
and began shipping the industry's first commercially available voice
processing systems with an HTML-based (hypertext markup language) interface
during the quarter ended December 31, 1996. The new Replay 3.0 and Replay
Plus 6.7 graphical HTML interfaces enable system managers to administer voice
mail using Microsoft Explorer or Netscape Navigator web browsers. The HTML
interface also greatly simplifies product localization for global markets.
The Company believes that the international market for voice processing
equipment has significant growth opportunities, but that localization of
products will be necessary in order to successfully penetrate this market.
The Company continues to allocate significant resources to the development of
products for the international market. The Company also believes that in
order to remain competitive in a rapidly changing technological environment,
it will continue to be necessary to allocate significant resources to the
development of new products. The Company expects the dollar amount of
research and development expenditures to continue to increase for the
foreseeable future, and that these expenses as a percentage of sales will
vary from period to period.
SALES AND MARKETING
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
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<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Sales and marketing $3,289 $3,094 6.3% $9,571 $8,300 15.3%
Percentage of net sales 24.6% 24.9% 26.2% 24.3%
- -------------------------------------------------------------------------------------
</TABLE>
The increases in sales and marketing expenses during the three month and nine
month periods ended December 31, 1996 over the comparable periods in the
prior fiscal year were primarily attributable to increased
compensation-related expenses associated with growth in sales and marketing
personnel and increased commission expense due to higher sales levels. The
increase in personnel primarily reflected additions to the Company's domestic
and international sales force, and to a lesser extent, additional product
support representatives. Higher promotional costs, including promotional
literature, trade-show attendance, a marketing road show conducted during the
second quarter of fiscal 1997 to promote the Company's CTI product offerings,
and a targeted incentive program for customer sales representatives, also
contributed to the increase in sales and marketing expenses.
10
<PAGE>
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
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<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
General and administrative $1,159 $1,093 6.1% $3,339 $3,177 5.1%
Percentage of net sales 8.7% 8.8% 9.1% 9.3%
- ----------------------------------------------------------------------------------------
</TABLE>
The modest increases in general and administrative expenses during the three
month and nine month periods ended December 31, 1996 compared to the
corresponding periods in the prior fiscal year were primarily attributable to
increased compensation-related expenses due to an increase in general and
administrative personnel offset by lower general office overhead expenses.
General and administrative expenses, being relatively fixed in nature, can be
expected to fluctuate as a percentage of net sales from period to period.
INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest income $197 $187 5.5% $580 $510 13.8%
- --------------------------------------------------------------------------------
</TABLE>
The increases in interest income during the three month and nine month
periods ended December 31, 1996 over the comparable periods in the prior
fiscal year were primarily attributable to higher average invested cash and
marketable security balances and to a lesser extent, higher average yields
earned on investments.
INCOME TAX PROVISION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income tax provision $539 $710 (24.0%) $1,330 $2,066 (35.6%)
Effective tax rate 31.7% 31.5% 31.9% 31.5%
- -----------------------------------------------------------------------------------------
</TABLE>
Variations in the customary relationship between the income tax provision and
the statutory income tax rate of 34% result from certain nondeductible
expenses, tax exempt investment income, research and development tax credits,
and the benefit provided by the Company's foreign sales corporation. The
increases in the Company's effective tax rate for the three month and nine
month periods ended December 31, 1996 over the comparable periods in the
prior fiscal year were primarily attributable to declines in the research and
development tax credit and foreign sales corporation benefit as a percentage
of taxable income. The Company expects the effective tax rate to continue to
increase in the future due to the impact of declining research and
development tax credits, tax exempt interest income, and foreign sales
corporation benefits as a percentage of taxable income.
11
<PAGE>
NET INCOME AND NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 Change 1996 1995 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Net income $1,159 $1,543 (24.9%) $2,843 $4,493 (36.7%)
Percentage of net sales 8.7% 12.4% 7.8% 13.2%
Net income per share $0.25 $0.33 (24.7%) $0.61 $0.97 (36.5%)
- --------------------------------------------------------------------------------------------------------
</TABLE>
The decreases in net income and net income per share compared to the
comparable periods in the prior fiscal year were primarily attributable to
4.4% and 4.5% declines in gross margin percentages for the three month and
nine month periods ended December 31, 1996, respectively. In addition,
operating expenses increased by 15.3% in the nine month period ended December
31, 1996 compared to the comparable period in the prior fiscal year, which
was greater than the 7.2% increase in net sales. The number of common and
common equivalent shares outstanding was comparable in the three month and
nine month periods ended December 31, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and marketable securities and
investments decreased to $18,723,000, or 46.5% of total assets at December
31, 1996 from $19,068,000, or 51.0% of total assets at March 31, 1996. Cash
flow provided by operations totaled only $127,000 during the nine months
ended December 31, 1996 due to increases in accounts receivable and
inventories. The Company had net working capital of $24,163,000 at December
31, 1996.
Accounts receivable, net of allowances, increased to $9,908,000 at December
31, 1996 from $8,628,000 at March 31, 1996. Accounts receivable decreased by
approximately $800,000 from the quarter ended September 30, 1996 as the
Company addressed previously announced circumstances which led to the
significant increase in accounts receivable balances. Days' sales outstanding
decreased by approximately six days during the quarter ended December 31,
1996. Management believes that improvements in accounts receivable trends
will continue during the fourth quarter of fiscal year 1997. Inventory
levels increased to $7,190,000 at December 31, 1996 from $5,483,000 at March
31, 1996 as the Company began accumulating new hardware platforms for the
Replay 3.0 and Replay Plus 6.7 product roll-out planned for the fourth
quarter of fiscal 1997. In addition, the Company made a few large-quantity PC
component purchases during the quarter ended December 31, 1996 to take
advantage of volume based price discounts.
The Company made $791,000 in capital expenditures during the nine months
ended December 31, 1996, compared to $822,000 during the comparable period of
the prior fiscal year. The majority of the capital expenditures during the
nine months ended December 31, 1996 consisted of computer hardware and
software used to augment the Company's management information systems
infrastructure. Additional computer equipment was purchased for use in
research and development. The Company currently has no specific commitments
with respect to additional capital expenditures during the remainder of
fiscal 1997, but expects to spend an aggregate of approximately $1,100,000
for the year.
The Company believes that ongoing maturity of securities in its investment
portfolio, together with funds from operations will provide sufficient funds
to finance operations for the next several years.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1996.
13
<PAGE>
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.
Active Voice Corporation
(Registrant)
Date: February 14, 1997 By: /s/ Jose S. David
--------------------------
Jose S. David
Chief Financial Officer
Signing on behalf of registrant and
as principal financial officer
14
<PAGE>
EXHIBIT 11
ACTIVE VOICE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 4,583,352 4,528,488 4,573,841 4,506,619
Net effect of dilutive stock options
based on the treasury stock method
using average market price 59,300 123,708 56,399 138,733
---------- ---------- ---------- ----------
Total 4,642,652 4,652,196 4,630,240 4,645,352
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income $1,159,314 $1,543,134 $2,842,583 $4,493,040
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share amount $0.25 $0.33 $0.61 $0.97
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FULLY DILUTED
Average shares outstanding 4,583,352 4,528,488 4,573,841 4,506,619
Net effect of dilutive stock options
based on the treasury stock method
using the period end market price,
if higher than average market price 77,523 127,476 62,490 141,089
---------- ---------- ---------- ----------
Total 4,660,875 4,655,964 4,636,331 4,647,708
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income $1,159,314 $1,543,134 $2,842,583 $4,493,040
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share amount $0.25 $0.33 $0.61 $0.97
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,524
<SECURITIES> 6,801
<RECEIVABLES> 11,658
<ALLOWANCES> 1,750
<INVENTORY> 7,190
<CURRENT-ASSETS> 29,458
<PP&E> 5,383
<DEPRECIATION> 3,153
<TOTAL-ASSETS> 40,307
<CURRENT-LIABILITIES> 5,295
<BONDS> 0
0
0
<COMMON> 16,931
<OTHER-SE> 18,080
<TOTAL-LIABILITY-AND-EQUITY> 40,307
<SALES> 36,591
<TOTAL-REVENUES> 36,591
<CGS> 15,137
<TOTAL-COSTS> 15,137
<OTHER-EXPENSES> 17,861
<LOSS-PROVISION> 510
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,173
<INCOME-TAX> 1,330
<INCOME-CONTINUING> 2,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,843
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
