<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 June 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 June 30, 1998, there were 26,519,721 shares of Common Stock, $.0034 par
value per share, outstanding.
<PAGE> 2
MRV COMMUNICATIONS, INC.
Form 10-Q/A June 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1: Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997 (audited) 3
Condensed Consolidated Statements of Income (unaudited)
for the Six Months and Three Months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six Months ended June 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 2: Changes in Securities. 11
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURE 14
</TABLE>
As used in this Report, "MRV" or the "Company" refers to MRV Communications,
Inc. and its consolidated subsidiaries.
2
<PAGE> 3
<TABLE>
<CAPTION>
MRV COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, December 31,
1998 1997
(unaudited) (audited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 116,971 $ 19,428
Short-term investments 21,651 36,413
Accounts receivable, net of
reserves of $6,337 in 1998 and $4,252 in 1997 60,636 47,258
Inventories 45,389 41,689
Deferred income taxes 8,567 2,280
Other current assets 7,570 7,248
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 260,784 154,316
PROPERTY AND EQUIPMENT - At cost,
net of depreciation and amortization 19,470 8,183
OTHER ASSETS:
Intangible assets, including goodwill 31,126 5,077
Investments 16,971 62,382
Deferred income taxes 6,112 6,231
Loan acquisition costs and other 4,409 47
- ------------------------------------------------------------------------------------------------------------------------------
$ 338,872 $ 236,236
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of financing lease obligations $ 141 $ 111
Accounts payable 27,406 30,439
Accrued liabilities 11,700 8,429
Accrued restructuring costs 8,713 -
Deferred revenue 4,876 293
Income taxes payable 4,723 3,485
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 57,559 42,757
LONG-TERM LIABILITIES
Convertible debentures 100,000 --
Capital lease obligations, net of current portion 882 788
Deferred income taxes 425 --
Other long-term liabilities 1,579 2,065
- ------------------------------------------------------------------------------------------------------------------------------
Total long term liabilities 102,886 2,853
MINORITY INTERESTS 2,633 657
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value:
1,000 shares authorized no shares outstanding -- --
Common stock, $0.0034 par value:
40,000,000 shares authorized and
26,520 shares outstanding in 1998
and 26,360 shares outstanding in 1997 90 88
Additional paid-in capital 183,324 175,874
Retained earnings (deficit) (7,058) 14,635
Cumulative translation adjustments (562) (628)
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 175,794 189,969
- ------------------------------------------------------------------------------------------------------------------------------
$ 338,872 $ 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>
Six Months Ended Three Months Ended
--------------------------------------------- ---------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
REVENUES, net $ 126,568 $ 75,092 $ 65,742 $ 39,528
- ----------------------------------------------------------------------------------------- ---------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 70,754 43,061 36,749 22,885
Research and development
expenses 10,525 5,789 5,282 3,041
Selling, general and
administrative expenses 23,926 12,007 12,326 6,232
Purchased technology
in progress 20,633 -- -- --
Restructuring costs 23,194 -- -- --
- ----------------------------------------------------------------------------------------- ---------------------------------------
Operating (loss) income (22,464) 14,235 11,385 7,370
Interest expense related to
convertible debentures
and acquisition -- 427 -- 19
Other income (expense), net 1,374 119 690 285
Provision for income taxes 363 4,305 3,531 2,367
Minority interests 240 70 16 60
- ----------------------------------------------------------------------------------------- ---------------------------------------
NET INCOME (LOSS) $ (21,693) $ 9,552 $ 8,528 $ 5,209
- ----------------------------------------------------------------------------------------- ---------------------------------------
NET INCOME (LOSS) PER SHARE
Basic $ (0.82) $ 0.42 $ 0.32 $ 0.23
Diluted $ (0.82) $ 0.38 $ 0.30 $ 0.21
- ----------------------------------------------------------------------------------------- ---------------------------------------
SHARES USED IN PER - SHARE CALCULATION
Basic 26,440 22,501 26,492 22,812
Diluted 26,440 24,892 28,536 25,206
- ----------------------------------------------------------------------------------------- ---------------------------------------
</TABLE>
See accompanying notes
4
<PAGE> 5
MRV COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------------------
1998 1997
---------------------- -----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (21,693) $ 9,552
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
Depreciation and amortization 2,901 735
Interest related to convertible debentures and acquisition -- 427
Purchased technology in progress 20,633 --
Minority interests' share of income 240 70
Decrease (increase) in:
Accounts receivable 6,779 (8,484)
Inventories 5,339 (3,026)
Deferred income taxes (5,636) 20
Other assets 891 369
Increase (decrease) in:
Accounts payable (20,670) 4,921
Accrued liabilities (10,559) (1,864)
Accrued restructuring 8,713 (1,062)
Income taxes payable (818) 755
Deferred revenue 938 (1,026)
Accrued severance pay (611) 131
---------------------- -----------------------
Net cash (used in) provided by operating activities (13,553) 1,518
---------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,117) (373)
Purchases of investments (4,058) (31,178)
Proceeds from sale of investments 64,231 23,856
Cash used in acquisitions, net of cash received (41,936) --
---------------------- -----------------------
Net cash provided by (used in) investing activities 14,120 (7,695)
---------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 451 3,114
Repurchase of common stock -- (4,230)
Proceeds from issuance of convertible debentures,
net of loan acquisition costs 96,423 --
Principal payments on capital lease obligations 30 (172)
---------------------- -----------------------
Net cash provided by (used in) financing activities 96,904 (1,288)
---------------------- -----------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS 72 (320)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 97,543 (7,785)
CASH AND CASH EQUIVALENTS,
beginning of period 19,428 14,641
---------------------- -----------------------
CASH AND CASH EQUIVALENTS,
end of period $ 116,971 $ 6,856
---------------------- -----------------------
</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 EARNINGS (LOSS) PER SHARE
The following schedule summarizes the information used to compute net income per
common share for the six months and three months ended June 30, 1998 and 1997
(in thousands):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------------- ----------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Weighted number of common shares used to compute 26,440 22,501 26,492 22,812
basic earnings (loss) per share
Weighted common share equivalents -- 2,391 2,044 2,394
------ ------ ------ ------
Weighted number of common shares used to compute
diluted earnings (loss) per share 26,440 24,892 28,536 25,206
====== ====== ====== ======
</TABLE>
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 six months and three months ended June 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net (loss) income $(21,693) $ 9,552 $ 8,528 $ 5,209
Translation adjustment 66 (230) 146 (14)
-------- -------- -------- --------
Comprehensive (loss) income $(21,627) $ 9,232 $ 8,674 5,195
======== ======== ======== ========
</TABLE>
The cumulative translation adjustment at June 30, 1998 was $(562,000).
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 network and/or Internet
service providers ("ISPs"). The purchase price paid to Whittaker consisted of
$35,000,000 in cash and three-year warrants to purchase up to 500,000 shares
of Common Stock of the Company at an exercise price of $35 per share.
6
<PAGE> 7
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, expect per share
information):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------------------------- ------------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
OPERATING INCOME $ 21,363 $ 14,235 $ 11,385 $ 7,370
NET INCOME $ 15,868 $ 9,552 $ 8,528 $ 4,801
- --------------------------------------------------------------------------- ------------------------------------------
NET INCOME PER SHARE
Basic $ 0.60 $ 0.42 $ 0.32 $ 0.21
Diluted $ 0.56 $ 0.38 $ 0.30 $ 0.19
- --------------------------------------------------------------------------- ------------------------------------------
SHARES USED IN PER SHARE CALCULATION
Basic 26,440 22,501 26,492 22,812
Diluted 28,493 24,892 28,536 25,206
- --------------------------------------------------------------------------- ------------------------------------------
</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>
Six Months Ended Three Months Ended
------------------------------------------ --------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- --------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
REVENUES, net 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 55.9 57.3 55.9 57.9
Research and develop-
ment expenses 8.3 7.7 8.0 7.7
Selling, general and
administrative expenses 18.9 16.0 18.7 15.8
Purchased technology
in progress 16.3 -- -- --
Restructuring costs 18.3 -- -- --
- --------------------------------------------------------------------------------- --------------------------------------
Operating (loss) income (17.7) 19.0 17.4 18.6
Interest expense related to
convertible debentures
and acquisition -- 0.6 -- 0.0
Other income (expense), net 1.1 0.2 1.0 0.7
Provision for income taxes 0.3 5.7 5.4 6.0
Minority interests 0.2 0.1 0.0 0.2
- --------------------------------------------------------------------------------- --------------------------------------
NET INCOME (LOSS) (17.1)% 12.7% 13.0% 13.2%
- --------------------------------------------------------------------------------- --------------------------------------
</TABLE>
Revenues
Revenues for the three and six months ended June 30, 1998 were $65,742,000 and
$126,568,000, respectively, as compared to revenues for the three and six months
ended June 30, 1997 of $39,528,000 and $75,092,000, respectively. The changes
represented increases of $26,214,000 or 66.3% for the quarter ended June 30,
1998 over the quarter ended June 30, 1997 and $51,476,000 or 68.6% for the six
months ended June 30, 1998 over the six months ended June 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 60% and 62% of
revenues for the quarter and six months ended June 30, 1998, respectively, as
compared to 58% and 57% of revenues for the quarter and six months ended June
30, 1997, respectively. International sales, as a percentage of total revenues,
increased mainly because of increased sales, marketing and support resources in
place in Europe. Sales of networking products represented approximately 82%
of total sales for both the quarter and six months ended June 30, 1998
compared to approximately 75% of total sales during each of the quarter and six
months ended June 30, 1997.
8
<PAGE> 9
Gross Profit
Gross profit for the quarter and six months ended June 30, 1998 were $28,993,000
and $55,814,000, respectively, compared to a gross profit of $16,643,000 and
$32,031,000 for the quarter and six months ended June 30, 1997, respectively.
The changes represented increases of $12,350,000 and $23,783,000 for the quarter
and six months ended June 30, 1998, respectively, or 74.2% for both the quarter
and six months ended June 30, 1998 over the quarter and six months ended June
30, 1997. Gross Profit as a percentage of revenues increased from 42.1% and
42.7% during the quarter and six months ended June 30, 1997, respectively, to
44.1% during each of the quarter and six months ended June 30, 1998 as a result
of increased sales of higher margin products.
Research and Development
Research and development ("R&D") expenses were $5,282,000 and $10,525,000, and
represented 8.0% and 8.3% of revenues, for the quarter and six months ended June
30, 1998, respectively. R&D expenses were $3,041,000 and $5,789,000 for the
three months and six months ended June 30, 1997, respectively, and represented
7.7% of revenues for both periods. The increases of 73.7% and 81.8% in R&D
spending during the quarter and six months ended June 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 $12,326,000
and $23,926,000 for the quarter ended and six months ended June 30, 1998 from
$6,232,000 and $12,007,000 for the quarter ended June 30, 1997. As a percentage
of revenues, SG&A increased from 15.8% and 16.0% for the quarter and six months
ended June 30, 1997, respectively, to 18.7% and 18.9% for the quarter and six
months ended June 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; Interest Expense
Purchased technology in progress for the six months ended June 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. Restructuring costs during the six
months ended June 30, 1998 were $23,194,000. The restructuring costs in the
first six 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 June 30, 1998 or quarter and six months ended June 30, 1997. The
Company did, however, incur charges of $19,000 and $427,000 during the quarter
and six months ended June 30, 1997, respectively, 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 periods after June 30,
1997 as the outstanding principal and accrued interest were paid in full at
April 4, 1997 through conversion into Common Stock.
Net Income (Loss)
The Company reported net income (loss) of $8,528,000 and ($21,693,000) during
the three and six months ended June 30, 1998, respectively, compared to net
income of $5,209,000 and $9,552,000 during the three and six months ended June
30, 1997. Net income increased by $3,319,000 or 63.7% for the three months ended
June 30, 1998 over the three months ended June 30, 1997. Net income for the six
months ended June 30, 1998 would have been $15,868,000, excluding $43,827,000 of
charges, associated with the Xyplex Acquisition, as compared to net
9
<PAGE> 10
income of $9,979,000, excluding non-recurring charges of $427,000 relating to
interest expenses attributable to financing the acquisition of the Fibronics
business. Excluding these non-recurring, net income increased by $6,316,000 or
66.1% for the six months ended June 30, 1998 over the six months ended June 30,
1997.
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 percent, 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, at 5 percent per annum, 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
$138,622,000 at June 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 six months ended June 30, 1998 was
$13,553,000. The funds were used primarily to purchase technology in progress
and for restructuring costs in connection with the Xyplex Acquisition. Net cash
provided by investing activities for the six months ended June 30, 1998 was
$14,120,000. Cash provided by the sale of investments to finance the Xyplex
acquisition accounted for most of the cash provided by investing activities
for the six months ended June 30, 1998 and cash used in the Xyplex acquisition
accounted for most of the cash used in investing activities for the same period.
The sale of the Notes in the 1998 Private Placement accounted for substantially
all of the $96,904,000 of cash provided by financing activities during the six
months ended June 30, 1998.
Accounts receivable were $60,636,000 at June 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 U.S.
Inventories were $45,389,000 at June 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 MRV'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.
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
10
<PAGE> 11
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 2. Change in Securities
(a) Not applicable
(b) Not applicable
(c) On June 26, 1998, the Company sold $100,000,000 principal amount of
5 percent convertible subordinated notes due 2003 (the "Notes") in a 144A
private placement to qualified institutional investors (the "Initial
Purchasers") at 100% of their principal amount, less a selling discount to the
Initial Purchasers of 3 percent of the principal amount.
Exemption from registration requirements is claimed under the
Securities Act of 1933 (the "Securities Act") in reliance on Section 4(2) of the
Securities Act or Rule 506 of Regulation D promulgated thereunder. The Initial
Purchasers had adequate access to information about the Company and represented
to the Company that they were qualified institutional investors within the
meaning of Rule 144A under the Securities Act and that they offered the Notes,
and will offer and sell the Notes, only: (i) inside the United
11
<PAGE> 12
States to persons whom they reasonably believe are "qualified institutional
buyers" in accordance with Rule 144A or (ii) to non-U.S. persons pursuant to
offers and sales that occur outside the United States in accordance with
Regulation S under the Securities Act. Appropriate legends were affixed to the
certificates evidencing the Notes in such transaction.
The notes have a five-year term and are not callable for the first
three years. At any time prior to maturity or redemption, 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 percent, for a total of approximately 3.7 million shares of common stock of
the Company.
Item 6. Exhibits and Reports of Form 8-K.
(a) The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
4.1 Purchase Agreement, dated June 23, 1998, between the Company and
Prudential Securities Incorporated and Bear, Stearns & Co. Inc. relating
to the Notes.*
4.2 Indenture, dated as of June 26, 1998, between the Company and American
Stock Transfer & Trust Company, as Trustee, relating to the Notes.*
4.3 Specimen of Restricted Global Security*
4.4 Registration Rights Agreement dated June 26, 1998 between the Company
and Prudential Securities Incorporated and Bear, Stearns & Co. Inc.
relating to the shares of Common Stock issuable upon conversion of the
Notes.*
27 Financial Data Schedule
</TABLE>
- -----------------
* Previously filed.
(b) The following Reports on Form 8-K were filed during the quarter for
which this report was filed:
o Form 8-K/A dated April 17, 1998 supplementing and completing
registrant's Form 8-K filed February 13, 1998 by filing the
following financial statements of Xyplex, Inc. and pro forma
financial per Item 7 of Form 8-K:
FINANCIAL STATEMENTS
Audited Financial Statements At October 31, 1997 And 1996
And For The Year Ended October 31, 1997 And The Period April 10, 1996 To October
31, 1996
Report of Independent Auditors (Ernst & Young LLP
Balance Sheets at October 31, 1997 and 1996
Statements of Operations for the year ended October 31, 1997
and the period April 10, 1996 to October 31, 1996
Statements of Changes in Stockholders Equity for the year
ended October 31, 1997 and the period April 10, 1996 to October 31, 1996
Statements of Cash Flows for the year ended October 31, 1997
and the period April 10, 1996 to October 31, 1996
Notes to Financial Statements
Audited Financial Statements At April 9, 1996 And For The
Period January 1, 1996 To April 9, 1996
Report of Independent Auditors (Coopers & Lybrand L.L.P)
Balance Sheet at April 9, 1996
Statement of Loss for the period January 1, 1996 to April 9,
1996
Statement of Parent Company Investment
12
<PAGE> 13
Statement of Cash Flows for the period January 1, 1996 to
April 9, 1996
Notes to Financial Statements
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Financial Statements
Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1997
Unaudited Pro Forma Statement of Operations for the year
ended December 31, 1997
Notes and Assumptions to Unaudited Pro Forma Consolidated
Financial Statements
o Form 8-K dated June 29, 1998 reporting information under Item 5.
13
<PAGE> 14
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 March 9, 1999.
MRV COMMUNICATIONS, INC.
By: /s/ EDMUND GLAZER
----------------------------------------------
Edmund Glazer
Vice President of Finance and Administration
and Chief Financial Officer
14
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0
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