================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1996.
OR
[ ] Transition report pursuant to Section 13(d) or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
__________ to __________.
Commission file number: 0-23296
CIDCO INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3500734
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
220 Cochrane Circle
Morgan Hill, CA 95037
(Address of principal executive offices and zip code)
(408) 779-1162
(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
----- -----
The number of shares outstanding of the Registrant's Common Stock on
November 8, 1996 was 14,355,487.
- --------------------------------------------------------------------------------
<PAGE>
CIDCO INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Balance sheet at September 30, 1996
and December 31, 1995 ...................................3
Income statement for the three and nine months
ended September 30, 1996 and 1995 .......................4
Statement of cash flows for the nine months
ended September 30, 1996 and 1995 .......................5
Notes to unaudited financial statements .....................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...........................10
SIGNATURES ...................................................................11
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIDCO INCORPORATED
BALANCE SHEET
(in thousands, except per share data)
Sept. 30, Dec. 31,
1996 1995
--------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 76,149 $ 19,290
Short-term investments ................................ 133,980 21,342
Accounts receivable, net of allowances for
doubtful accounts of $3,149 and $3,150 .............. 47,861 49,624
Inventories ........................................... 15,136 17,916
Deferred tax asset .................................... 2,974 2,974
Other current assets .................................. 2,553 1,146
-------- --------
Total current assets ................................ 278,653 112,292
Property and equipment, net .............................. 14,594 14,112
Other assets ............................................. 5,579 747
-------- --------
$298,826 $127,151
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 14,064 $ 11,373
Accrued compensation .................................. 1,275 2,795
Accrued liabilities ................................... 3,918 5,627
Accrued taxes payable ................................. 2,918 1,142
-------- --------
Total current liabilities ........................... 22,175 20,937
-------- --------
Convertable note payable ................................. 150,000 --
Stockholders' equity:
Common stock, $.01 par value; 35,000 shares authorized,
14,353 and 14,133 shares issued and outstanding .... 144 141
Additional paid-in capital ............................ 85,796 83,449
Retained earnings ..................................... 40,711 22,624
-------- --------
Total stockholder's equity .......................... 126,651 106,214
-------- --------
$298,826 $127,151
======== ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
CIDCO INCORPORATED
INCOME STATEMENT
(in thousands, except per share data; unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ -----------------------
1996 1995 1996 1995
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Sales .............................. $ 45,959 $ 46,611 $ 158,091 $ 142,314
Cost of sales ...................... 23,067 23,404 86,050 77,775
--------- --------- --------- ---------
Gross margin ....................... 22,892 23,207 72,041 64,539
--------- --------- --------- ---------
Operating expenses:
Research and development........ 3,193 2,722 9,688 6,821
Selling and marketing........... 10,275 9,489 28,509 25,605
General and administrative...... 1,824 1,572 5,643 4,164
--------- --------- --------- ---------
15,292 13,783 43,840 36,590
--------- --------- --------- ---------
Income from operations.............. 7,600 9,424 28,201 27,949
Interest income..................... 2,821 251 3,829 1,079
Interest expense.................... (1,521) -- (1,572) --
--------- --------- --------- ---------
Other Income, net................ 1,300 251 2,257 1,079
Income before income taxes.......... 8,900 9,675 30,458 29,028
Provision for income taxes.......... 3,560 3,870 12,183 11,611
--------- --------- --------- ---------
Net income.......................... $ 5,340 $ 5,805 $ 18,275 $ 17,417
========= ========= ========= =========
Earnings per share.................. $ 0.33 $ 0.39 $ 1.18 $ 1.16
========= ========= ========= =========
Weighted average shares............. 18,707 15,008 16,306 14,982
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
CIDCO INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<CAPTION>
Nine months ended
September 30,
1996 1995
--------- --------
<S> <C> <C>
Cash flows provided by operating activities:
Net income ......................................................... $ 18,275 $ 17,417
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation ..................................................... 3,954 3,554
Deferred income taxes ............................................ -- (900)
Changes in assets and liabilities:
Accounts receivable ............................................ 1,763 (20,831)
Inventories .................................................... 2,780 (9,875)
Other current assets ........................................... (1,407) (940)
Other assets ................................................... (4,832) (72)
Accounts payable ............................................... 2,691 1,162
Accrued compensation ........................................... (1,520) 475
Accrued liabilities ............................................ (1,709) 4,053
Income taxes payable ........................................... 1,776 (112)
--------- ---------
Net cash used in operating activities ...................... 21,771 (6,069)
--------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment .............................. (4,436) (10,044)
Purchase of short-term investments ................................. (112,826) (6,702)
--------- ---------
Net cash used in investing activities ...................... (117,262) (16,746)
--------- ---------
Cash flows provided by financing activities:
Proceeds from issuance of convertible notes ........................ 150,000 --
Issuance of common stock, net of issuance costs .................... 2,350 711
--------- ---------
Net cash provided by financing activities .................. 152,350 711
--------- ---------
Net increase (decrease) in cash and cash equivalents .................. 56,859 (22,104)
Cash and cash equivalents at beginning of period ...................... 19,290 28,224
--------- ---------
Cash and cash equivalents at end of period ............................ $ 76,149 $ 6,120
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................. $ 1,572 $ --
========= =========
Cash paid for income taxes ......................................... $ 9,835 $ 12,623
========= =========
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain on investments ..................................... $ 188 $ 251
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
<PAGE>
CIDCO INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1-- BASIS OF PRESENTATION
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for those periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial information should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1995 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission. Results for the interim period are
not necessarily indicative of results for the entire year.
NOTE 2--INVENTORIES
Inventories, stated at the lower of cost or market, consisted of (in
thousands):
September 30, December 31,
1996 1995
----------- ----------
Raw Materials ............................... $ 54 $ 247
Finished Goods .............................. 15,082 17,669
---------- ----------
$ 15,136 $ 17,916
========== ==========
NOTE 3--LONG TERM DEBT
On June 28, 1996, the Company issued $150 million of 3.75% Convertible
Subordinated Notes due June 30, 2003. The notes are convertible into the
Company's Common Stock at a conversion rate of one share of Common Stock for
each $41.00 principal amount of the notes. The note agreement contains covenants
which, among other matters, restrict or limit the ability of the Company to pay
dividends or incur indebtedness. Interest on the notes is payable quarterly
commencing September 30, 1996. The Company incurred debt issuance costs of
approximately $3.2 million which are included in other assets and being
amortized over the term of the notes. The notes are considered common stock
equivalents in the calculation of earnings per share as presented in Exhibit
11.1.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition And Results
of Operations
The following information should be read in conjunction with the interim
financial statements and the notes thereto in Part I, Item 1 of this Quarterly
Report.
The discussion and analysis which follows and contains trend analysis and
other forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of changes in the
economy, changes in the Company's product mix and other factors which may be
beyond the Company's control. In addition, a number of Regional Bell Operating
Companies have recently announced merger plans. The Company is unable to assess
the future effect on the Company of these mergers, if consummated, and of other
possible consolidations and changes in the telecommunications industry.
Results of Operations
The following table sets forth for the periods indicated the percentage of
sales represented by certain line items in the Company's income statement:
As a Percentage of Sales
Three months ended Nine months ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- ---------
Sales .......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales .................. 50.2 50.2 54.4 54.7
-------- -------- -------- ---------
Gross margin ................... 49.8 49.8 45.6 45.3
-------- -------- -------- ---------
Operating expenses:
Research and development .... 6.9 5.8 6.1 4.8
Selling and marketing ....... 22.4 20.4 18.0 18.0
General and administrative .. 4.0 3.3 3.6 2.9
-------- -------- -------- ---------
33.3 29.5 27.7 25.7
-------- -------- -------- ---------
Income from operations ......... 16.5 20.3 17.9 19.6
Interest income................. 6.1 0.5 2.4 0.8
Interest expense................ (3.3) -- (1.0) --
-------- -------- -------- ---------
Other income, net............... 2.8 0.5 1.4 0.8
-------- -------- -------- ---------
Income before income taxes ..... 19.3 20.8 19.3 20.4
Provision for income taxes ..... 7.7 8.3 7.7 8.2
-------- -------- -------- ---------
Net income ..................... 11.6% 12.5% 11.6% 12.2%
======== ======== ======== =========
7
<PAGE>
Sales
Sales decreased slightly to $46.0 million in the third quarter of 1996 from
$46.6 million in the third quarter of 1995. The decrease resulted primarily from
lower retail and OEM sales, offset by increases in sales to Bell Atlantic and
direct marketing programs with Southwestern Bell. The average selling prices and
unit volumes stayed relatively constant. For the nine months ended September 30,
1996, sales increased 11% to $158.1 million from $142.3 million for the same
period in 1995. The nine month increase was due to higher unit sales to Bell
Atlantic and direct marketing programs with Southwestern Bell, which were offset
by lower OEM, international and retail sales. For the nine months ended
September 30, 1996, unit sales increased slightly as did average selling prices,
the latter due to increased phone sales.
Gross margin
Cost of sales includes primarily the cost of finished goods purchased from
the Company's offshore contract manufacturers. It also includes all costs
associated with procuring, warehousing and distributing the Company's inventory,
as well as, costs associated with returned product. Gross margin as a percentage
of sales was 49.8% in both the third quarter of 1996 and the third quarter of
1995. Gross margin for the nine months ended September 30, 1996 was 45.6%, a
slight increase from 45.3% in the corresponding 1995 period. Historically, 49.8%
is a high gross margin for the Company. In 1996, direct marketing program sales
contributed to this high gross margin, but such sales also carry higher
marketing expenses. Gross margin for the third quarter of 1995 was high
primarily due to high sales to fulfillment customers and a higher proportion of
high-end adjunct units shipped in the quarter. The Company expects gross margins
to vary in the future due to changes in sales mix by distribution channel and
product mix. The Company believes gross margins may decline over time as a
result of increased pricing pressures.
Research and development expenses
Research and development expenses primarily consist of salaries for
research and development personnel and associated personnel benefits, in
addition to tooling and supplies for research and development activities. The
Company's policy is to expense all research and development expenditures as
incurred except for certain investments for tooling. Research and development
expenses increased 17.3% to $3.2 million in the third quarter 1996 from $2.7
million in the third quarter of 1995. For the nine months ended September 30,
1996, research and development expenses were $9.7 million, an increase of 42.0%
over $6.8 million for the same period in 1995. These increases primarily
resulted from increased spending on personnel working on development projects,
such as an ADSI terminal, cordless telephones and an Internet phone. Research
and development expenses as a percentage of sales increased from 5.8% in the
quarter ended September 30, 1995 to 6.9% in the equivalent period of 1996 and
from 4.8% in the nine months ended September 30, 1995 to 6.1% in the same period
of 1996. The Company expects that research and development expenditures will
remain at the same level during the remainder of 1996.
Selling and marketing expenses
Selling and marketing expenses represent primarily personnel costs,
telephone and electronic data exchange expenses, promotional costs and travel
expenses for marketing personnel. Selling and marketing expenses increased from
$9.5 million in the quarter ended September 30, 1995 to $10.3 million in the
comparable period of 1996. Selling and marketing expenses increased from $25.6
million in the nine months ended September 30, 1995 to $28.5 million in the same
period of 1996. As a percentage of sales, selling and marketing expenses
increased from 20.4% in the quarter ended September 30, 1995 to 22.4% in the
like period of 1996, and remained 18% for the nine month periods ended September
30, 1995 and 1996. These increases were due principally to the Company
significantly expanding its promotion of intelligent network services through
several direct mail, direct response television and telemarketing campaigns
resulting in increased advertising and telemarketing agency costs, offset
partially by decreases in referral fees and sales commissions. Referral fees
declined due to renegotiation of the Ameritech contract in 1995 and sales
commissions declined due to a reduction in the number of sales representatives
used in certain geographical areas of the retail market. While the Company
anticipates that selling and marketing expenses as a percentage of sales will
continue in the near term at approximately the current level, variations in
sales mix by distribution channel could cause such percentage to vary in the
future.
8
<PAGE>
General and administrative expenses
General and administrative expenses represent primarily salaries, benefits
and other expenses associated with the finance and administrative functions of
the Company. General and administrative expenses increased from $1.6 million in
the quarter ended September 30, 1995 to $1.8 million in the comparable period of
1996. For the nine months ended September 30, 1996, general and administrative
expenses were $5.6 million versus $4.2 million for the same period in 1995. As a
percentage of sales, general and administrative expenses increased to 4.0% in
the quarter ended September 30, 1996 from 3.3% in the comparable period of 1995,
and in the first nine months of 1996, general and administrative expenses were
3.6% of sales, an increase from the prior year's 2.9%. The quarterly increase
reflects higher salary and recruiting costs. In addition, higher legal expenses
and spending on information systems contributed to the nine month increase. The
Company believes that general and administrative expenditures will remain at
approximately the same level during the remainder of 1996.
Provision for income taxes
The provision for income taxes for all periods in 1996 and 1995 reflects a
rate of 40%.
Liquidity and capital resources
The Company's cash, cash equivalents and short-term investments increased
$169 million during the nine months ended September 30, 1996, primarily due to
the investment of $150 million by Forstmann Little & Co. in the form of newly
issued convertible debt in June 1996 and operating profits.
As of May 1996, the Company increased its line of credit to $25.0 million
from $20.0, none of which has been drawn down; however, the Company does use the
line of credit for standby letters of credit related to the purchase of
inventory from offshore contract manufacturers. Total outstanding letters of
credit as of September 30, 1996 were $9.9 million. The line is secured by the
Company's assets.
The Company had working capital of $256.5 million as of September 30,1996
as compared to $91.4 million at December 31, 1995. The Company's current ratio
improved from 5.4 to 1, as of December 31, 1995, to 12.6 to 1, as of September
30, 1996. Planned capital expenditures for the remainder of 1996 are not
expected to be material. The Company believes its current cash, cash
equivalents, short-term investments and line of credit will satisfy the
Company's working capital and capital expenditure requirements at least through
the next twelve months.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits at page 12 below.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three
months ended September 30, 1996.
10
<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.
CIDCO INCORPORATED
November 8, 1996 By:/s/Paul G. Locklin
- ---------------- ------------------
Date Paul G. Locklin
President and Chief Executive Officer
November 8, 1996 /s/Scott C. McDonald
- ---------------- --------------------
Date Scott C. McDonald
Executive Vice President,
Chief Operating and Financial Officer
and Secretary
November 8, 1996 /s/Richard D. Kent
- ---------------- ------------------
Date Richard D. Kent
Vice President, Corporate Controller
and Chief Accounting Officer
11
<PAGE>
<TABLE>
CIDCO INCORPORATED
INDEX TO EXHIBITS
<CAPTION>
Exhibits Page
-------- ----
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation. (1) --
3.2 Amended and Restated By-Laws. (1) --
4.1 Second Amendment to Revolving Credit Loan Agreement dated October 13,1995 between --
Registrant and Comerica Bank. (4)
10.4 Patent License Agreement dated as of May 1, 1989 between the Registrant and American --
Telephone and Telegraph Company. (1)
10.5 Form of Indemnification Agreement. (1) --
10.6 Employment Agreement dated as of January 11, 1994 between the Registrant and Robert L. --
Diamond. (1)
10.7 Employment Agreement dated as of January 11, 1994 between the Registrant and Paul G. --
Locklin. (1)
10.8 Employment, Noncompetition and Nondisclosure Agreement between the Registrant and --
Steven L. Landry. (1)
10.9 Employment Agreement dated as of January 11, 1994 between the Registrant and Scott C. --
McDonald. (1)
10.12 Agreement dated November 20, 1990 between the Registrant and Ameritech Services Inc. (1) --
10.13 Agreement effective as of December 21, 1992 between the Registrant and Southwestern --
Bell Telephone Company. (1)
10.14 Lease dated August 15, 1993 between Thoits Bros., Inc. and the Registrant for 220 --
Cochrane Circle. (1)
10.16 Lease dated May 31, 1994, between Thoits Bros., Inc. and the Registrant for 225 --
Cochrane Circle, Units A, B, C, D, and E. (2)
10.17 Sublease dated November 18, 1994, between Thoits Bros. and the Registrant for 180 --
Cochrane Circle. (3)
10.18 Lease dated November 1, 1994, between Thoits Bros., Inc. and the Registrant for 105 --
Cochrane Circle, Units A, B, C, D, and E. (3)
10.19 Registrant's Amended and Restated 1993 Stock Option Plan. (1) --
10.20 Registrant's 1994 Directors' Stock Option Plan. (1) --
10.21 Registrant's 1994 Employee Stock Purchase Plan. (1) --
10.22 Agreement dated January 1, 1995 between the Registrant and Ameritech Services Inc. (4) --
10.23 Standard Form of Office Lease between Registrant and 400 Columbus Avenue, LLC dated May --
19, 1995. (4)
11.1 Computation of Earnings Per Share. 13
(1) Incorporated herein by reference to the Company's registration statement on Form S-1, File No. 33-74114.
(2) Incorporated herein by reference to the Company's Form 10-Q for the quarter ended June 30, 1994.
(3) Incorporated herein by reference to the Company's Form 10-K for the year ended December 31, 1994.
(4) Incorporated herein by reference to the Company's Form 10-Q for the quarter ended June 30, 1996.
</TABLE>
12
<PAGE>
<TABLE>
EXHIBIT 11.1
CIDCO INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income.............................................. $ 5,340 $ 5,805 $ 18,275 $ 17,417
Adjustment to net income to exclude interest expense on
convertible notes, net of income tax.................... 913 -- 943 --
--------- --------- --------- ---------
Adjusted net income..................................... $ 6,253 $ 5,805 $ 19,218 $ 17,417
========= ========= ========= =========
Weighted average shares outstanding:
Common Stock ........................................ 14,336 14,101 14,256 14,073
Common stock issuable upon exercise of stock options
712 907 790 909
Common stock issuable on conversion of convertible
notes ............................................... 3,659 -- 1,260 --
--------- --------- --------- ---------
Weighted average shares and equivalents outstanding ....
18,707 15,008 16,306 14,982
========= ========= ========= =========
Earnings per share...................................... $ 0.33 $ 0.39 $ 1.18 $ 1.16
========= ========= ========= =========
13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(In thousands, except per share data; unaudited)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 76,149
<SECURITIES> 133,980
<RECEIVABLES> 51,010
<ALLOWANCES> 3,149
<INVENTORY> 15,136
<CURRENT-ASSETS> 278,653
<PP&E> 14,594
<DEPRECIATION> 0
<TOTAL-ASSETS> 298,826
<CURRENT-LIABILITIES> 22,175
<BONDS> 150,000
0
0
<COMMON> 144
<OTHER-SE> 126,507
<TOTAL-LIABILITY-AND-EQUITY> 298,826
<SALES> 45,959
<TOTAL-REVENUES> 0
<CGS> 23,067
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,521)
<INCOME-PRETAX> 8,900
<INCOME-TAX> (3,560)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,340
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
