<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
[X] Quarterly Report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30,
1998
[ ] Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act.
For the transition period from _______________ to ______________
Commission file number 0-25678
MRV Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1340090
(State of other jurisdiction (IRS Employer
of incorporation or organization) identification no.)
8943 Fullbright Ave., Chatsworth, CA 91311
(Address of principal executive offices) (Zip Code)
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 September 30, 1998, there were 26,646,121 shares of Common Stock, $.0034
par value per share, outstanding.
<PAGE> 2
MRV COMMUNICATIONS, INC.
Form 10-Q/A September 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1: Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 (audited) 3
Condensed Consolidated Statements of Operations (unaudited)
for the Nine Months and Three Months ended September 30,
1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Nine Months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION 11
Item 6: Exhibits and Reports on Form 8-K 11
SIGNATURE 12
</TABLE>
As used in this Report, "MRV" or the "Company" refers to MRV Communications,
Inc. and its consolidated subsidiaries.
2
<PAGE> 3
MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997
(unaudited) (audited)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 24,104 $ 19,428
Short-term investments 32,008 36,413
Accounts receivable, net of
reserves of $7,016 in 1998 and $4,252 in 1997 57,232 47,258
Inventories 49,711 41,689
Deferred income taxes 8,315 2,280
Other current assets 5,320 7,248
- -------------------------------------------------------------------------------------------------------
Total current assets 176,690 154,316
PROPERTY AND EQUIPMENT - At cost,
net of depreciation and amortization 20,903 8,183
OTHER ASSETS:
Intangible Assets, including goodwill 30,525 5,077
Investments 101,105 62,382
Deferred income taxes 6,112 6,231
Loan acquisition costs and other 4,736 47
- -------------------------------------------------------------------------------------------------------
$ 340,071 $ 236,236
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of financing lease obligations $ 214 $ 111
Accounts payable 31,165 30,439
Accrued liabilities 12,665 8,429
Accrued restructuring costs 8,253 --
Deferred revenue 4,024 293
Income taxes payable 1,213 3,485
- -------------------------------------------------------------------------------------------------------
Total current liabilities 57,534 42,757
LONG-TERM LIABILITIES
Convertible debentures 100,000 --
Capital lease obligations, net of current portion 982 788
Deferred income taxes 378 --
Other long-term liabilities 3,571 2,065
- -------------------------------------------------------------------------------------------------------
Total long term liabilities 104,931 2,853
MINORITY INTERESTS 2,762 657
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value:
1,000 shares authorized no shares outstanding -- --
Common stock, $0.0034 par value:
40,000 shares authorized and
26,646 shares outstanding in 1998
and 26,360 shares outstanding in 1997 91 88
Additional paid-in capital 180,994 175,874
Treasury stock (60) --
Retained earnings (deficit) (5,710) 14,635
Cumulative translation adjustments (471) (628)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 174,844 189,969
- -------------------------------------------------------------------------------------------------------
$ 340,071 $ 236,236
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
3
<PAGE> 4
MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
- ------------------------------------------------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
REVENUES, net $ 189,192 $ 117,071 $ 62,624 $ 41,979
- ------------------------------------------------------------------------- ------------------------------
COSTS AND EXPENSES:
Cost of goods sold 109,098 66,866 38,344 23,805
Research and development
expenses 17,337 9,094 6,812 3,305
Selling, general and
administrative expenses 39,775 18,745 15,849 6,738
Purchased technology in progress 20,633 -- -- --
Restructuring costs 23,194 -- -- --
- ------------------------------------------------------------------------- ------------------------------
Operating (loss) income (20,845) 22,366 1,619 8,131
Interest expense related to 1,370 427 1,370 --
convertible debt
Other income (expense), net 3,282 460 1,908 341
Provision for income taxes 1,042 6,840 679 2,535
Minority interests 370 85 130 15
- ------------------------------------------------------------------------- ------------------------------
NET (LOSS) INCOME $ (20,345) $ 15,474 $ 1,348 $ 5,922
- ------------------------------------------------------------------------- ------------------------------
NET (LOSS) EARNINGS PER SHARE
BASIC $ (0.77) $ 0.68 $ 0.05 $ 0.25
DILUTED $ (0.77) $ 0.61 $ 0.05 $ 0.23
- ------------------------------------------------------------------------- ------------------------------
SHARES USED IN PER
SHARE CALCULATION
BASIC 26,497 22,779 26,609 23,321
DILUTION 26,497 25,576 27,390 26,119
- ------------------------------------------------------------------------- ------------------------------
</TABLE>
See accompanying notes
4
<PAGE> 5
MRV COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
- --------------------------------------------------------------------------------------------------
September 30, September 30,
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (20,345) $ 15,474
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
Depreciation and amortization 4,041 1,167
Interest related to convertible debentures and acquisition -- 427
Purchased technology in progress 20,633 --
Minority interests' share of income 370 85
Changes in assets and liabilities, net
of effects from acquisitions
Decrease (increase) in:
Accounts receivable 12,193 (10,815)
Inventories 1,209 (5,734)
Deferred income taxes (5,431) 1,580
Other assets 381 579
Increase (decrease) in:
Accounts payable (18,417) 5,730
Accrued liabilities (9,702) (3,245)
Accrued restructuring 8,253 --
Income taxes payable (4,328) 14
Deferred revenue 86 (1,324)
Accrued severance pay 1,381 --
- ---------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (9,676) 3,938
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (5,277) (740)
Purchases of investments (132,574) (131,044)
Proceeds from sale of investments 98,255 28,912
Cash used in acquisitions, net of cash received (44,007) --
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (83,603) (102,872)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 1,226 98,908
Repurchase of common stock (60) (4,230)
Proceeds from issuance of convertible debentures,
net of loan acquisition costs 96,423 --
Principal payments on capital lease obligations 203 (217)
Other (13) 212
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 97,779 94,673
- ---------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS 176 (271)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,676 (4,532)
CASH AND CASH EQUIVALENTS,
beginning of period 19,428 14,641
- ---------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of period $ 24,104 $ 10,109
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
5
<PAGE> 6
MRV COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Basis of Presentation - The accompanying unaudited condensed consolidated
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, 1997.
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. PURCHASED TECHNOLOGY IN PROGRESS
Although MRV Communications, Inc. reported its first, second and third quarter
results of 1998 in accordance with established accounting practice and
valuations of purchased technology in progress provided by independent
valuators, these valuations have been reconsidered in light of very recent
Securities and Exchange Commission guidance regarding valuation methodology.
Based on this new valuation methodology, the value of the purchased technology
in progress related to the Xyplex acquisition has been reduced to $20,633,000
and the amount of goodwill has been increased by $9,938,000.
3. NET (LOSS) EARNINGS PER SHARE
The following schedule summarizes the information used to compute net income per
common share for the nine months and three months ended September 30, 1998 and
1997 (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Weighted number of common shares used to compute
basic earnings (loss) per share 26,497 22,779 26,609 23,321
Weighted common share equivalents -- 2,797 781 2,798
------ ------ ------ ------
Weighted number of common shares used to compute
diluted earnings (loss) per share 26,497 25,576 27,390 26,119
====== ====== ====== ======
</TABLE>
The effect of the convertible subordinated debentures issued on June 26, 1998,
for the nine months and three months ended September 30, 1998 would be
anti-dilutive and is therefore excluded.
4. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." For year-end financial statements, SFAS 130 requires the display of
comprehensive income, which is the total of net income and all other non-owner
changes in equity, in a financial statement with the same prominence as other
consolidated financial statements. In addition, the standard encourages
companies to display the components of other comprehensive income below the
total for net income. The following schedule summarizes comprehensive income for
the nine months and three months ended September 30, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net (loss) income $(20,345) $15,474 $ 1,348 $ 5,922
Translation adjustment 157 (271) 91 (95)
-------- ------- ------- -------
Comprehensive (loss) income $(20,188) $15,203 $ 1,439 $ 5,827
======== ======= ======= =======
</TABLE>
The cumulative translation adjustment at September 30, 1998 was $(471,000).
5. PRO FORMA FINANCIAL DATA
On January 30, 1998, MRV completed an acquisition from Whittaker Corporation
("Whittaker") of all of the outstanding capital stock of Whittaker Xyplex, Inc.
a Delaware corporation (the "Xyplex Acquisition"). Whittaker Xyplex, Inc.,
(whose name the Company has since changed to NBase Xyplex, Inc.) is a holding
corporation owning all of the outstanding capital stock of Xyplex, Inc., a
Massachusetts corporation ("Xyplex"). Xyplex is a leading provider of access
solutions between enterprise networks and wide area networks and/or Internet
service providers ("ISPs"). The purchase price paid to Whittaker consisted of
$35,000,000 in cash and three-
6
<PAGE> 7
year warrants to purchase up to 500,000 shares of Common Stock of the Company at
an exercise price of $35 per share.
As a result of the acquisition, the Company adopted a restructuring plan in
March 1998. The plan calls for reduction of workforce, closing of certain
facilities, elimination of particular product lines, settlement of distribution
agreements and other costs. The Company provided $23,194,000 for the costs of
the restructuring.
Management estimates that $20,633,000 of the purchase price represents purchased
technology in process that has not yet reached technological feasibility and has
no alternative future use. Accordingly, this amount was expensed in the
Consolidated Statement of Operations upon consummation of the acquisition.
The following unaudited pro forma summary sets forth results of operations of
excluding the non-recurring charges for purchased technology in progress and
restructuring resulting from the Xyplex Acquisition as if the acquisition took
place at the beginning of each period presented (in thousands, except per share
information):
SELECTED PRO FORMA INFORMATION (prior to non-recurring charges)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
OPERATING INCOME $22,982 $22,366 $ 1,619 $ 8,131
NET INCOME $17,216 $15,474 $ 1,348 $ 5,922
NET INCOME PER SHARE - BASIC $ 0.65 $ 0.68 $ 0.05 $ 0.25
NET INCOME PER SHARE - DILUTED $ 0.62 $ 0.61 $ 0.05 $ 0.23
- ---------------------------------------------------------------------------- -----------------------------
SHARES USED IN PER SHARE CALCULATION
BASIC 26,497 22,779 26,609 23,321
DILUTED 27,771 25,576 27,390 26,119
- ---------------------------------------------------------------------------- -----------------------------
</TABLE>
7
<PAGE> 8
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.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
REVENUES, net 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------- ------------------------------
COSTS AND EXPENSES:
Cost of goods sold 57.7 57.1 61.2 56.7
Research and development
expenses 9.2 7.8 10.9 7.9
Selling, general and
administrative expenses 21.0 16.0 25.3 16.1
Purchased technology in progress 10.9 -- -- --
Restructuring costs 12.2 -- -- --
- -------------------------------------------------------------------------- ------------------------------
Operating (loss) income (11.0) 19.1 2.6 19.4
Interest expense related to
convertible debt 0.7 0.4 2.1 --
Other income (expense), net 1.7 0.4 3.0 0.8
Provision for income taxes 0.6 5.8 1.1 6.0
Minority interests 0.2 0.1 0.2 0.0
- -------------------------------------------------------------------------- ------------------------------
NET (LOSS) INCOME (10.8)% 13.2% 2.2% 14.1%
========================================================================== ==============================
</TABLE>
Revenues
Revenues for the three and nine months ended September 30, 1998 were $62,624,000
and $189,192,000, respectively, as compared to revenues for the three and nine
months ended September 30, 1997 of $41,979,000 and $117,071,000, respectively.
The changes represented increases of $20,645,000 or 49.2% for the quarter ended
September 30, 1998 over the quarter ended September 30, 1997 and $72,121,000 or
61.6% for the nine months ended September 30, 1998 over the nine months ended
September 30, 1997. Revenues increased as a result of a larger sales force,
greater marketing efforts and greater market acceptance of the Company's
products, both domestically and internationally. International sales accounted
for approximately 58% and 60% of revenues for the quarter and nine months ended
September 30, 1998, respectively, as compared to 58% of revenues for both the
quarter and nine months ended September 30, 1997. Sales of networking products
represented approximately 81% and 82% of total sales during the quarter and nine
months ended September 30, 1998 compared to approximately 76% and 75% of total
sales during the quarter and nine months ended September 30, 1997, respectively.
The increase in sales of networking products during the quarter and
8
<PAGE> 9
nine months ended September 30, 1998 over the comparable periods in 1997 was the
result of an increased number of networking products available for sale and a
larger sales, marketing and customer support organization to support such sales.
Gross Profit
Gross profit for the quarter and nine months ended September 30, 1998 were
$24,280,000 and $80,094,000, respectively, compared to a gross profit of
$18,174,000 and $50,205,000 for the quarter and nine months ended September 30,
1997, respectively. The changes represented increases of $6,106,000 or 33.6% and
$29,889,000 or 59.5% for the quarter and nine months ended September 30, 1998,
respectively, over the quarter and nine months ended September 30, 1997. Gross
profit as a percentage of revenues decreased from 43.3% and 42.9% during the
quarter and nine months ended September 30, 1997, respectively, to 38.8% and
42.3% during the quarter and nine months ended September 30, 1998 as a result of
intense price competition from competitors. The Company had planned to
compensate for such price competition by introducing new lower cost products
during the quarter; however, it was unable to complete those products in time.
Research and Development
Research and development ("R&D") expenses were $6,812,000 and $17,337,000, and
represented 10.9% and 9.2% of revenues, for the quarter and nine months ended
September 30, 1998, respectively. R&D expenses were $3,305,000 and $9,094,000,
and represented 7.9% and 7.8% of revenues for the quarter and nine months ended
September 30, 1997, respectively. The increases of $3,507,000 or 106.1% and
$8,243,000 or 90.6% in R&D spending during the quarter and nine months ended
September 30, 1998 over the comparable periods in 1997 were attributable to the
continued development of, as well as for new projects involving, the Company's
networking and fiber optic products. The Company intends to continue to invest
in the research and development of new products. Management believes that the
ability of the Company to develop and commercialize new products is an important
competitive factor.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased to $15,849,000
and $39,775,000 for the quarter ended and nine months ended September 30, 1998
from $6,738,000 and $18,745,000 for the quarter and nine months ended September
30, 1997. As a percentage of revenues, SG&A increased from 16.1% and 16.0% for
the quarter and nine months ended September 30, 1997, respectively, to 25.3% and
21.0% for the quarter and nine months ended September 30, 1998, respectively.
The increases in SG&A expense, both in dollar amounts and as a percentage of
sales, are due primarily to substantially increased marketing efforts as well as
increased personnel and overhead costs in expanded locations.
Purchased Technology in Progress and Restructuring Costs
Purchased technology in progress for the nine months ended September 30, 1998 of
$20,633,000 was related to R&D projects of Xyplex in progress at the time of the
Xyplex Acquisition on January 30, 1998, which had not yet reached technological
feasibility and for which the Company had no alternative future use.
Restructuring costs during the nine months ended September 30, 1998 were
$23,194,000. The restructuring costs in the first nine months of 1998 were
associated with a plan adopted by the Company in March 1998 calling for the
reduction of workforce, closing of certain facilities, elimination of particular
product lines, settlement of distribution agreements and other costs. The
Company did not incur these charges in the quarter ended September 30, 1998 or
quarter and nine months ended September 30, 1997.
Interest Expense Related to Convertible Debt
On June 26, 1998, the Company sold $100,000,000 principal amount of 5%
convertible subordinated notes due 2003 (the "Notes") in a 144A private
placement to qualified institutional investors at 100% of their principal
amount, less a selling discount of 3% of the principal amount. This resulted in
interest expense of $1,370,000 for both the three and nine months ended
September 30, 1998. The Company incurred a charge of $427,000 during the nine
months ended September 30, 1997 as additional interest expense related to the
issuance in 1996 of convertible subordinated debentures (the "Debentures"),
proceeds from which were used to finance the Company's acquisition of the
Fibronics business in 1996. The Company did not report charges relating to the
issuance of the Debentures for the quarter ended September 30, 1997 as the
outstanding principal and accrued interest were paid in full at April 4, 1997
through their conversion into Common Stock.
9
<PAGE> 10
Net Income (Loss)
The Company reported net income (loss) of $1,348,000 and ($20,345,000) during
the three and nine months ended September 30, 1998, respectively, compared to
net income of $5,922,000 and $15,474,000 during the three and nine months ended
September 30, 1997. Net income decreased by $4,574,000 for the three months
ended September 30, 1998 over the three months ended September 30, 1997. Net
income for the nine months ended September 30, 1998 would have been $17,216,000,
excluding $43,827,000 of charges, associated with the Xyplex Acquisition, as
compared to net income of $15,474,000.
LIQUIDITY AND CAPITAL RESOURCES
In September 1997, the Company completed a follow-on public offering of
2,785,000 shares of Common Stock raising net proceeds of approximately
$93,320,000. In June 1998, the Company sold an aggregate $100,000,000 principal
amount of 5% convertible subordinated notes due 2003 (the "Notes") in a private
placement raising net proceeds of $96,423,000 (the "1998 Private Placement").
The Notes are convertible into Common Stock of the Company at a conversion price
of $27.0475 per share (equivalent to a conversion rate of approximately 36.97
shares per $1,000 principal amount of notes), representing an initial conversion
premium of 24%, for a total of approximately 3.7 million shares of Common Stock
of the Company. The Notes have a five-year term and are not callable for the
first three years. Interest on the Notes is at 5% per annum and is payable
semi-annually on June 15 and December 15, commencing on December 15, 1998.
Cash and cash equivalents and short-term investments totaled approximately
$56,112,000 at September 30, 1998. Such cash and cash equivalents and short-term
investments, as well as cash flow from operations, are the Company's principal
sources of liquidity.
Net cash used in operating activities for the nine months ended September 30,
1998 was $9,676,000. The funds were used primarily to purchase technology in
progress and for restructuring costs in connection with the Xyplex Acquisition.
Net cash used in investing activities for the nine months ended September 30,
1998 was $83,603,000. Cash used in the Xyplex Acquisition accounted for most of
the cash used in investing activities for the nine months ended September 30,
1998 and cash provided by the sale of investments to finance the Xyplex
Acquistion accounted for most of the cash provided by investing activities for
the same period. The sale of the Notes in the 1998 Private Placement accounted
for substantially all of the $97,779,000 of cash provided by financing
activities during the nine months ended September 30, 1998.
Accounts receivable were $ 57,232,000 at September 30, 1998 as compared to
$47,258,000 at December 31, 1997. The increase in accounts receivable was
primarily attributable to the increase in overall sales in Europe where terms of
sale are traditionally longer than in the United States.
Inventories were $49,711,000 at September 30, 1998 as compared to $41,689,000 at
December 31, 1997. The increase in inventories was primarily attributable to the
Company's decision to add larger inventories to shorten lead times for customers
and the Xyplex Acquisition. Management believes that the Company's inventory
levels at various points in time may not necessarily be comparable to those of
many other companies in its industry. This is because MRV conducts significant
in-house manufacturing of various components used in its products and thus
carries substantial raw materials and work-in-progress in addition to finished
products in its inventories. In contrast, many competitors outsource to turnkey
contract manufacturers substantial portions of their production requirements and
thus do not include material amounts of raw materials or work in progress in
inventories and may in some circumstances not even include finished products in
inventory if the contract manufacturer ships directly to the competitors'
customers.
EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES
The Company believes that the relatively moderate rate of inflation in the
United States 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. However,
in view of the Company's recent expansion of operations in Israel which has
experienced substantial inflation, there can be no assurance that inflation in
Israel will not have a materially adverse effect on the Company's operating
results in the future.
10
<PAGE> 11
The Company's sales are currently denominated in U.S. dollars and to date its
business has not been significantly affected by currency fluctuations or
inflation. However, the Company conducts business in several different countries
and thus fluctuations in currency exchange rates could cause the Company's
products to become relatively more expensive in particular countries, leading to
a reduction in sales in that country. In addition, inflation in such countries
could increase the Company's expenses. To date, the Company has not hedged
against currency exchange risks. In the future, the Company may engage in
foreign currency denominated sales or pay material amounts of expenses in
foreign currencies and, in such event, may experience gains and losses due to
currency fluctuations. The Company's operating results could be adversely
affected by such fluctuations or as a result of inflation in particular
countries where material expenses are incurred.
YEAR 2000
Many existing computer programs, including some programs used by the Company,
use only two digits to identify a year in the date field. These programs were
designed without considering the impact of the upcoming change in the century.
If not corrected, these computer applications and systems could fail or create
erroneous results by, at, or after the year 2000. Based on the Company's
investigation to date, management does not anticipate that the Company will
incur material operating expenses or be required to incur material costs to be
year 2000 compliant. To the extent the Company's systems are not fully year 2000
compliant, there can be no assurance that potential systems interruptions or the
cost necessary to update software would not have a material adverse effect on
the Company's business, financial condition, results or operations and business
prospects.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits:
22. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this report
was filed.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of 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 March 9, 1999.
MRV COMMUNICATIONS, INC.
By: /s/ EDMUND GLAZER
-----------------------------------
Edmund Glazer
Vice President of Finance and
Administration and Chief Financial
Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 24,104
<SECURITIES> 133,113
<RECEIVABLES> 64,248
<ALLOWANCES> 7,016
<INVENTORY> 49,711
<CURRENT-ASSETS> 176,690
<PP&E> 26,053
<DEPRECIATION> 5,150
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0
0
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<INCOME-CONTINUING> (20,345)
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<NET-INCOME> (20,345)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
