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 March 31, 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 May 1, 1996
was 14,210,742.
<PAGE>
CIDCO INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements:
Balance sheet at March 31, 1996
and December 31, 1995 .............................3
Income statement for the
three months ended March 31, 1996 and 1995 ........4
Statement of cash flows for the
three months ended March 31, 1996 and 1995 ........5
Notes to 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
<TABLE>
<CAPTION>
CIDCO INCORPORATED
BALANCE SHEET
(in thousands, except per share data)
March 31, December 31,
1996 1995
----------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 30,665 $ 19,290
Short-term investments ............................................. 26,266 21,342
Accounts receivable, net of allowances
for doubtful accounts of $2,100 and $6,259 ....................... 42,226 49,624
Inventories......................................................... 12,085 17,916
Deferred tax asset ................................................. 2,974 2,974
Other current assets ............................................... 1,256 1,146
---------- ----------
Total current assets ............................................. 115,472 112,292
Property and equipment, net ........................................... 13,423 14,112
Other assets .......................................................... 2,251 747
---------- ----------
$ 131,146 $ 127,151
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 7,734 $ 11,373
Accrued compensation ............................................... 1,750 2,795
Accrued liabilities................................................. 2,969 5,627
Accrued taxes payable .............................................. 5,376 1,142
---------- ----------
Total current liabilities ........................................ 17,829 20,937
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 35,000 shares authorized,
14,056 and 14,033 shares issued and outstanding................... 142 141
Additional paid-in capital.......................................... 84,102 83,449
Retained earnings................................................... 29,073 22,624
---------- ----------
Total stockholders' equity....................................... 113,317 106,214
---------- ----------
$ 131,146 $ 127,151
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CIDCO INCORPORATED
INCOME STATEMENT
(in thousands, except per share data; unaudited)
Three months ended
March 31,
1996 1995
---------- -------
<S> <C> <C>
Sales ................................................................ $ 51,686 $ 49,542
Cost of sales ........................................................ 29,063 27,422
--------- ---------
Gross margin ......................................................... 22,623 22,120
--------- ---------
Operating expenses:
Research and development ......................................... 3,124 1,981
Selling and marketing ............................................ 7,263 8,537
General and administrative ....................................... 1,686 1,334
--------- ---------
12,073 11,852
--------- ---------
Income from operations ............................................... 10,550 10,268
Other income, net .................................................... 400 450
--------- ---------
Income before income taxes ........................................... 10,950 10,718
Provision for income taxes ........................................... 4,380 4,287
--------- ---------
Net income .......................................................... $ 6,570 $ 6,431
========= =========
Earnings per share ................................................... $ 0.44 $ 0.43
========= =========
Weighted average shares............................................... 15,016 14,950
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CIDCO INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands; unaudited)
Three months ended
March 31,
1996 1995
---------- ---------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income ........................................................ $ 6,570 $ 6,431
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation .................................................... 1,300 753
Changes in assets and liabilities:
Accounts receivable ........................................... 7,398 (13,033)
Inventories ................................................... 5,831 (547)
Other current assets .......................................... (110) (993)
Other assets .................................................. (1,504) (7)
Accounts payable .............................................. (3,639) (1,904)
Accrued compensation .......................................... (1,045) (262)
Accrued liabilities ........................................... (2,658) 2,284
Accrued taxes payable ......................................... 4,234 3,018
--------- ---------
Net cash provided by (used in) operating activities ....... 16,377 (4,260)
--------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment ............................. (611) (1,618)
Purchase of short-term investments ................................ (5,045) (7,884)
--------- ---------
Net cash used in investing activities ..................... (5,656) (9,502)
--------- ---------
Cash flows provided by financing activities:
Issuance of Common Stock........................................... 654 43
--------- ---------
Net cash provided by financing activities ................. 654 43
---------- ---------
Net increase (decrease) in cash and cash equivalents ................. 11,375 (13,719)
Cash and cash equivalents at beginning of period ..................... 19,290 28,224
--------- ---------
Cash and cash equivalents at end of period ........................... $ 30,665 $ 14,505
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes ........................................ $ 146 $ 1,269
========= =========
Supplemental disclosure of non-cash investing activities:
Unrealized gain (loss) on investments.............................. $ (121) $ 48
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
<PAGE>
CIDCO INCORPORATED
NOTES TO 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 most recent 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):
March 31, December 31,
1996 1995
---- ----
Raw Materials ........................... $ 232 $ 247
Finished Goods ............................. 11,853 17,669
-------- ---------
$ 12,085 $ 17,916
======== =========
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 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
March 31,
---------
1996 1995
---- ----
Sales ........................................ 100.0% 100.0%
Cost of sales ................................ 56.2 55.4
------ ------
Gross margin ................................. 43.8 44.6
------ ------
Operating expenses:
Research and development .................. 6.0 4.0
Selling and marketing ..................... 14.1 17.2
General and administrative ................ 3.3 2.7
------ ------
23.4 23.9
------ ------
Income from operations ....................... 20.4 20.7
Other income, net............................. 0.8 0.9
------ ------
Income before income taxes ................... 21.2 21.6
Provision for income taxes ................... 8.5 8.6
------ ------
Net income ................................... 12.7% 13.0%
====== ======
7
<PAGE>
Sales
Sales increased 4% to $51.7 million in the first quarter of 1996 from $49.5
million in the first quarter of 1995. Sales directly to telco customers
increased significantly due to a new program with Bell Atlantic. This was offset
by slight decreases in retail, fulfillment and OEM unit sales. The Company's
integrated feature phone accounted for 44% of sales in the first quarter of 1996
compared to 15% of sales in the first quarter of the prior year.
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 repairing returned product. Gross margin as a
percentage of sales decreased from 44.6% in the first quarter of 1995 to 43.8%
in the first quarter of 1996. This decline primarily represents the increase in
sales directly to telco customers which normally have a lesser margin than
fulfillment sales. 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 in certain distribution channels.
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 58% to $3.1
million in the quarter ended March 31, 1996, from $2.0 million in the first
quarter of 1995. This increase primarily resulted from increased spending on
personnel working on development projects, such as ADSI and cordless telephones.
Research and development expenses as a percentage of sales increased from 4.0%
in the quarter ended March 31, 1995 to 6.0% in the like period of 1996 due to
increased spending on development projects. The Company expects that research
and development expenditures will increase or continue at approximately 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 decreased from $8.5 million
in the quarter ended March 31, 1995 to $7.3 million in the comparable period of
1996. As a percentage of sales, selling and marketing expenses decreased from
17.2% in the quarter ended March 31, 1995 to 14.1% in the like period of 1996.
These decreases were due principally to the elimination of revenue sharing with
one of the Company's major fulfillment partners. The Company eliminated revenue
sharing with this fulfillment partner in the last quarter of 1995 through
contract renegotiation. Additionally, commissions to manufacturers'
representatives declined as the Company gradually converts to a direct sales
force. 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 $1.3 million in the
quarter ended March 31, 1995 to $1.7 million in the comparable period of 1996.
This increase reflects additional administrative staff required to support the
growth of the Company. As a percentage of sales, general and administrative
expenses increased to 3.3% in the quarter ended March 31, 1996 from 2.7% in the
comparable period of 1995, primarily due to increases in personnel costs. The
Company believes that general and administrative expenditures will increase or
continue at approximately the same level during the remainder of 1996.
Provision for income taxes
The provision for income taxes in the quarters ended March 31, 1996 and 1995
reflects a rate of 40%.
Liquidity and capital resources
The Company's cash, cash equivalents and short-term investments increased $16.3
million during the quarter ended March 31, 1996, primarily due to decreases in
accounts receivable of $7.4 million, decreases in inventory balances of $5.8
million, earnings of $6.6 million and an increase in accrued taxes of $4.2
million. These increases in cash, cash equivalents and short-term investments
were offset by decreases in accounts payable of $3.6 million and accrued
liabilities of $2.6 million, and an increase in other assets of $1.5 million.
The Company expects accounts receivable as a percentage of current quarter sales
to increase slightly over the next three to nine months; however, accounts
receivable will fluctuate with timing of large fulfillment sales promotional
programs.
The Company has a credit line of $20.0 million, 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 March 31, 1996 were
$5.0 million. The line is secured by the Company's assets.
The Company had working capital of $97.6 million as of March 31, 1996 as
compared to $76.9 million at March 31, 1995. The Company's current ratio
improved from 3.3 to 1, as of March 31, 1995, to 6.5 to 1, as of March 31, 1996.
Capital expenditures in 1996 are expected to be funded from working capital
currently available. 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 through the end of 1996.
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 March 31, 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
May 10, 1996 By:/s/Paul G. Locklin
- ------------ ----------------------------
Date Paul G. Locklin
President and Chief Executive Officer
May 10, 1996 /s/Scott C. McDonald
- ------------ ---------------------------
Date Scott C. McDonald
Executive Vice President,
Chief Operating and Financial Officer
and Secretary
11
<PAGE>
CIDCO INCORPORATED
INDEX TO EXHIBITS
Exhibits Page
3.1 Amended and Restated Certificate of
Incorporation.(1) __
3.2 Amended and Restated By-Laws.(1) __
4 Loan and Security Agreement dated October 21,
1994 between Registrant and Comerica Bank.(2) __
4.1 Loan Revision/Extension Agreement dated March
2, 1995 between Registrant and Comerica Bank.(3) __
10.1 Securities Purchase Agreement dated May 4, 1993
among the Registrant, Robert L. Diamond, Paul
G. Locklin, Summit Ventures III, L.P., Summit
Investors II, L.P., Hancock Venture Partners III,
L.P., Crossroads DPT Limited Partnership, Crossroads
Capital II Limited Partnership and Crossroads SF
Limited Partnership. (1) __
10.2 Shareholders' Agreement dated as of May 4, 1993
among the Registrant, Robert L. Diamond, Paul G.
Locklin, Summit Ventures III, L.P., Summit
Investors II, L.P., Hancock Venture Partners
III, L.P., Crossroads DPT Limited Partnership,
Crossroads Capital II Limited Partnership and
Crossroads Limited Partnership. (1) __
10.3 Shareholder's Agreement dated as of May 4, 1993
among the Registrant, Steven L. Landry, Robert L.
Diamond, Paul G. Locklin, Summit Ventures III, L.P.,
Summit Investors II, L.P., Hancock Venture
Partners III, L.P., Crossroads DPT Limited Partner-
ship, Crossroads Capital II Limited Partnership and
Crossroads SF Limited Partnership.(1) __
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 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) __
12
<PAGE>
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 Director's Stock Option Plan. (1) __
10.21 Registrant's 1994 Employee Stock Purchase Plan. (1) __
(1) Incorporated herein by reference to the Company's registration statement on
Form S-1, Registration 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, 1995.
13
<PAGE>
<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> Mar-31-1996
<CASH> 30,665
<SECURITIES> 26,266
<RECEIVABLES> 50,585
<ALLOWANCES> 8,359
<INVENTORY> 12,085
<CURRENT-ASSETS> 115,472
<PP&E> 13,423
<DEPRECIATION> 0
<TOTAL-ASSETS> 131,146
<CURRENT-LIABILITIES> 17,829
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 113,175
<TOTAL-LIABILITY-AND-EQUITY> 131,146
<SALES> 51,686
<TOTAL-REVENUES> 0
<CGS> 29,063
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,950
<INCOME-TAX> (4,380)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,570
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
