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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 quarterly period ended June 30, 1996
[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act.
For the transition period from _______________ to ______________
Commission file number 1-11174
MRV Communications, Inc.
(Exact name of registrant as specified in its charter)_
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<S> <C>
Delaware 06-1340090
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(State of other jurisdiction (IRS Employer
of incorporation or organization) identification no.)
8917 Fullbright Ave., Chatsworth, CA 91311
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(Address of principal executive offices) (Zip Code)
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Issuer's telephone number, including area code: (818) 773-9044
Check whether the issuer:(1)has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act 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 August 12, 1996 there were 19,748,776 shares of Common Stock,
$.0034 par value per share, outstanding.
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MRV COMMUNICATIONS, INC.
Form 10-Q June 30, 1996
INDEX
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PAGE NUMBER
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PART I FINANCIAL INFORMATION
Item 1: Financial Statements:
Condensed Consolidated Balance Sheets as of December 31,
1995 and June 30, 1996 (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 1995 and 1996 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1995 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
PART II OTHER INFORMATION 9
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MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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<CAPTION>
December 31, June 30,
1995 1996
- --------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
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CURRENT ASSETS
Cash $ 1,951 $ 3,453
Short-term investments 1,000 -
Restricted cash 6,272 1,778
Accounts receivable, net of
reserves of $825 in 1995 and $1,518 in 1996 10,780 19,541
Inventories 8,382 15,856
Deferred income taxes 804 946
Other current assets 608 1,888
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Total current assets 29,797 43,462
Property And Equipment- At cost,
net of depreciation and amortization 2,060 4,606
Other Assets:
Deferred income taxes 925 850
Other 525 914
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$ 33,307 $ 49,832
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,342 $ 12,342
Accrued liabilities 2,221 2,828
Income taxes payable 1,215 1,938
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Total current liabilities 7,778 17,108
DEFERRED RENT 46 40
OTHER LONG TERM DEBT 225 358
DEFERRED INCOME TAXES - 85
CAPITAL LEASE OBLIGATION - 1,083
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS - 744
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value:
1,000,000 shares authorized
no shares outstanding - -
Common stock, $.0034 par value:
40,000,000 shares authorized
19,048,586 shares outstanding in
1995 and 19,289,774 in 1996 63 64
Additional paid-in capital 23,491 24,484
Retained earnings 1,704 5,866
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Total stockholders' equity 25,258 30,414
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$ 33,307 $ 49,832
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See accompanying notes
3
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MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share data)
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<CAPTION>
3 Months Ended 6 Months Ended
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June 30, June 30, June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
REVENUES, net $ 8,310 $ 19,586 $ 15,047 $ 35,115
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COSTS AND EXPENSES:
Cost of goods sold 4,835 11,411 9,095 20,400
Research and development
expenses 800 1,992 1,502 3,676
Selling, general and
administrative expenses 1,454 2,959 2,371 5,095
Purchased technology
in progress 6,211 - 6,211 -
Restructuring costs 1,465 - 1,465 -
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Operating (loss) income (6,455) 3,224 (5,597) 5,944
Other income 181 84 408 164
(Credit) Provision for
income taxes (1,567) 962 (1,187) 1,883
Minority interests - - - 63
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NET (LOSS) INCOME $ (4,707) $ 2,346 $ (4,002) $ 4,162
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EARNINGS PER SHARE $ (0.25) $ 0.11 $ (0.22) $ 0.19
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Weighted average number of
common shares outstanding 18,492,078 22,203,980 18,124,080 22,046,738
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See accompanying notes
4
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MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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<CAPTION>
6 Months Ended
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June 30, June 30,
1995 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,002) $ 4,162
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 99 263
(Increase) decrease in:
Accounts receivable (2,833) (8,761)
Inventories (2,378) (7,474)
Deferred income taxes (1,928) 18
Other assets 298 (1,297)
Increase (decrease) in:
Accounts payable 304 8,000
Accrued liabilities 3,105 607
Income taxes payable (169) 723
Deferred rent (1) (6)
Minority interest - 744
Other long term debt - 133
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Net cash used in
operating activities (7,505) (2,888)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,012) (2,774)
Purchases of intangible assets (567) (407)
Restricted Cash - 4,494
Assumption of capital lease - 1,083
Purchase of investments (12,409) -
Redemption of short-term
investments 6,040 1,000
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Net cash (used in) provided by
investing activities (7,948) 3,396
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock 13,369 994
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Net cash provided by
financing activities 13,369 994
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Net decrease in cash (2,084) 1,502
Cash at beginning of period 4,045 1,951
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Cash at end of period 1,961 3,453
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See accompanying notes.
5
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MRV COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION - The accompanying unaudited condensed financial
statements have been prepared in accordance with the requirements of Form
10-Q and, therefore, do not include all information and footnotes which
would be presented if such financial statements were prepared in
accordance with generally accepted accounting principles. These
statements should be read in conjunction with the audited financial
statements presented in the Company's Annual Report or Form 10-K for the
year ended December 31, 1995.
In the opinion of management, these interim financial statements reflect
all normal and recurring adjustments necessary for a fair presentation of
the financial position and results of operations for each of the periods
presented. The results of operations and cash flows for such periods are
not necessarily indicative of results to be expected for the full year.
2. NET EARNINGS PER SHARE - Net earnings per share are based upon the
weighted average number of shares outstanding during each of the periods.
There is no significant difference between primary and fully diluted
earnings per share.
3. STOCK SPLIT - On July 11, 1996, Stockholders authorized an additional
20,000,000 shares and a two for one stock split. The date of record for
the stock split was July 29, 1996 and the distribution date was July 31,
1996. All outstanding shares, weighted average numbers of shares
outstanding, and earnings per share calculations in this document have
been adjusted to reflect the two for one stock split.
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ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statements of
operations data of the Company expressed as a percentage of revenues.
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3 Months Ended 6 Months Ended
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June 30 June 30
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1995 1996 1995 1996
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Revenues, net 100% 100% 100% 100%
Cost of goods sold 58 58 60 58
Gross profit 42 42 40 42
Operating expenses:
Research and development 10 10 10 11
Selling, general and administrative 17 15 16 15
Purchased technology in progress 75 - 41 -
Restructuring costs 17 - 10 -
Operating income (77) 17 (37) 17
Other income, net 2 - 3 1
Income before taxes (75) 17 (34) 17
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Revenues
Revenues for the three and six months ended June 30, 1996 were $19,586,000 and
$35,115,000, respectively, as compared to $8,310,000 and $15,047,000 for the
three and six months ended June 30, 1995. The changes represented increases of
$11,276,000 or 136 percent for the three months ended June 30, 1996 and
$20,068,000 or 133 percent for the six months ended June 30, 1996.
Revenues increased as a result of greater marketing efforts and greater market
acceptance of the Company's products, both domestically and internationally.
International sales accounted for approximately 51 and 46 percent of revenues
for the three and six months ended June 30, 1996 as compared to 39 and 33
percent of revenues for the three and six months ended June 30, 1995.
International sales, as a percentage of total revenues, increased because of
greater market acceptance for the Company's products overseas.
Gross Profit
Gross Profit for the three and six months ended June 30, 1996 was $8,175,000 and
$14,715,000, respectively, as compared to $3,475,000 and $5,952,000 for the
three and six months ended June 30, 1995. The changes represented an increase
of $4,700,000 or 135 percent for the three months ended June 30, 1996 and an
increase of $8,763,000 or 147 percent for the six months ended June 30, 1996.
Gross Profit as a percentage of revenues increased from 40 percent for the six
months ended June 30, 1995 to 42 percent for the six month period ending June
30, 1996. The increase in gross margin resulted from improvements in costs of
production. Gross Profit as a percentage of revenues for the three months ended
June 30, 1995 and 1996 was unchanged at 42 percent.
Research and Development
Research and development ("R&D") expenses were $1,992,000 and $800,000,
respectively, and represented 10 percent of revenues for each of the quarters
ended June 30, 1996 and 1995. For the six months ended June 30, 1996 and 1995,
R&D expenses were $3,676,000 and $1,502,000, which represented 11 percent and 10
percent, respectively. The 149 and 145 percent increase in R&D spending for the
three and six months ended June 30, 1996, respectively, was attributable to the
continued development of the Company's fiber optic and networking products,
including new stand-alone LAN products, as well as to costs associated with the
hiring of additional research and development personnel and consultants.
Management believes that the ability of the Company to develop and commercialize
new products is a key competitive factor.
7
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Selling, General and Administrative
Selling, General and Administrative ("SG&A") expenses increased to $2,959,000
for the quarter ended June 30, 1996 from $1,454,000 for the quarter ended June
30, 1995. As a percentage of revenues, SG&A decreased from 17 percent to 15
percent for the period. For the six months ended June 30, 1996 and 1995 SG&A
increased to $5,095,000 from $2,371,000. As a percentage of sales SG&A
decreased from 16 to 15 percent for the six months ended June 30, 1995 and June
30, 1996, respectively. The decrease in SG&A expenses is due primarily to
savings obtained in the integration of the Company's computer networking
activities in the U.S. with the activities of the subsidiaries acquired in
1995.
Purchased Technology in Progress and Restructuring Costs
Purchased technology in progress for the three and six months ended June 30,
1995 was $6,211,000. The purchased technology is for R&D projects in progress
at the time of acquisition of assets from Galcom Networking, Ltd. and Ace-North
Hills. No such purchases were made in the comparable periods for 1996.
Restructuring costs during the three and six months ended June 30, 1995 were
$1,465,000. No such costs were incurred during the three and six months ended
June 30, 1996. The restructuring is associated with a plan adopted by the
Company on June 30, 1995 calling for the merger of the newly acquired
subsidiaries and the Company's LAN products division. The plan also calls for
the closure of some facilities, termination of redundant employees and
cancellation of representation agreements.
Net Income
Net Income increased from a loss of $4,707,000 for the quarter ended June 30,
1995 to net income of $2,346,000 for the quarter ended June 30, 1996. Net
Income increased from a loss of $4,002,000 for the six months ended June 30,
1995 to net income of $4,162,000 for the six months ended June 30, 1996. The
increases in net income in 1996 are primarily due to substantially increased
sales and the absence of the non- recurring charges incurred in 1995. The
non-recurring charges in 1995 were for the costs of purchased technology in
progress acquired in the acquisitions of subsidiaries and costs associated with
the adoption of a restructuring plan on June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended June 30, 1996
was $2,887,000 and $7,505,000 for same period in 1995. The funds were used
primarily in increased research and development, marketing expenses, and
increased inventories and receivables as a result of increased revenues. In
addition, for the period ended June 30, 1995 funds were used in the
purchase of technology in progress and restructuring costs in connection with
the acquisition of subsidiaries. Net cash provided by financing activities for
the six months ending June 30, 1995 and 1996 were $13,369,000 and $994,000,
respectively. In 1995, the cash provided by financing activities resulted
primarily from the issuance of 2,700,000 shares of common stock at $12.00 per
share less offering costs and the issuance of 819,972 shares in connection with
the purchase of assets from Ace-North Hills. Net cash used in investing
activities for the six months ended June 30, 1995 was $7,948,000. The
majority of cash used in investing activities in 1995 was for the purchase of
investments and the majority of cash provided by investing activities in the
same period was from the redemption of short-term investments. Net cash
provided by investing activities for the six months ended June 30, 1996 was
$3,396,000. The majority of cash provided by investing activities in 1996 was
from the cancellation of restrictions on cash. The majority of cash used in
investing activities during 1996 was for the purchase of property and
equipment.
Effects of Inflation
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on the Company's sales or
operating results, or on the prices of raw materials.
8
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings as of the date of this
report.
Item 2. Change in Securities
(a) Not applicable
(b) Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of matters to a vote of security Holders
Not applicable
Item 5. Other information
Not applicable
Item 6. Exhibits and reports on Form 8-K
(a) Not applicable
(b) No reports on Form 8-K were filed during the quarter
for which this report on form 10-Q is filed.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized
on May 13, 1996.
MRV COMMUNICATIONS, INC.
By: /s/ Noam Lotan
--------------------------------
Noam Lotan,
President
By: /s/ Edmund Glazer
--------------------------------
Edmund Glazer,
Chief Financial Officer
9
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,231
<SECURITIES> 0
<RECEIVABLES> 19,541
<ALLOWANCES> 1,518
<INVENTORY> 15,856
<CURRENT-ASSETS> 43,462
<PP&E> 5,591
<DEPRECIATION> 985
<TOTAL-ASSETS> 49,832
<CURRENT-LIABILITIES> 17,108
<BONDS> 1,083
0
0
<COMMON> 64
<OTHER-SE> 30,350
<TOTAL-LIABILITY-AND-EQUITY> 49,832
<SALES> 19,586
<TOTAL-REVENUES> 19,586
<CGS> 11,411
<TOTAL-COSTS> 16,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,308
<INCOME-TAX> 962
<INCOME-CONTINUING> 2,346
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,346
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
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