<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For Quarter ended March 31, 1996 Commission File No. 0-24303
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2162982
- - ------------------------ --------------------------------
(State of Incorporation) (I.R.S. Employer Identification)
44084 Riverside Parkway Landsdowne Business Center, Leesburg, VA 22075
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (703) 729-6400
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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 twelve months and (2) has been subject to such filing requirements
for the past ninety days.
yes X no
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 9, 1996:
Class Number of Shares Outstanding
Common Stock, Par Value $.01 Per Share 14,902,472 Shares
Note: This is Page 1 of a document consisting of 13 pages.
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31, 1996 (Unaudited) and December 31, 1995....................... 3
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, 1996 and 1995............................. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)........................ 5
Three Months Ended March 31, 1996 and 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)................... 6-7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......... 8-9
PART II: OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K......................................... 10
SIGNATURES............................................................... 11
EXHIBIT- 11 COMPUTATION OF NET INCOME PER SHARE......................... 12
EXHIBIT 27-FINANCIAL DATA SCHEDULE....................................... 13
</TABLE>
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
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(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,343 $ 3,352
Accounts receivable - trade, less allowances
($521 -1996 and $449 -1995) 11,625 8,068
Notes receivable from related parties 2,000 7,125
Inventories 3,464 2,769
Other assets 1,301 1,295
Deferred taxes 375 375
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Total current assets 25,108 22,984
Property, plant and equipment, net 3,186 2,933
Goodwill 1,568 1,583
Other assets 1,091 1,116
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Total Assets $30,953 $28,616
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 630 $ 862
Accrued expenses 2,145 2,707
Notes payable to related party 1,000 1,000
Notes payable 700 949
Income taxes payable 2,490 1,473
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Total current liabilities 6,965 6,991
Non-current liabilities:
Notes payable to related party 1,000 1,000
Deferred taxes 177 177
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Total liabilities 8,142 8,168
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Stockholders' equity:
Common stock, par value $.01 a share; authorized - 30,000,000
shares; issued and outstanding,14,902,000 shares - 1996
and 14,733,000 shares - 1995 149 147
Additional paid-in capital 9,301 9,058
Retained earnings (from December 31,1993) 13,361 11,243
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Total stockholders' equity 22,811 20,448
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Total Liabilities and Stockholders' Equity $30,953 $28,616
======= =======
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1996 1995
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(UNAUDITED)
<S> <C> <C>
Net sales $ 11,109 $ 9,780
Cost of sales 4,087 3,815
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Gross profit 7,022 5,965
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Expenses:
Selling 1,655 1,546
Product development and engineering 1,208 1,066
General and administrative 949 772
Interest income, net (119) (160)
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Total expenses 3,693 3,224
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Pre-tax income 3,329 2,741
Income tax expense 1,211 1,096
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Net income $ 2,118 $ 1,645
======== ========
Net income per common share $ 0.14 $ 0.11
======== ========
Average common shares outstanding 15,457 15,334
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
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(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,118 $ 1,645
Adjustments to reconcile net income
to cash from operating activities:
Depreciation and amortization 233 163
Cash provided by (used in) changes in working
capital items:
Receivables (3,557) 401
Inventories (695) (725)
Other current assets and other assets 19 (2)
Accounts payable (232) 241
Accrued expenses (562) 634
Income taxes payable 1,017 60
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Cash provided by (used in) operating activities (1,659) 2,417
Investing activities:
Decrease (increase) in notes receivable from related parties, net 5,125 (845)
Expenditures for property, plant and equipment (471) (257)
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Cash provided by (used in) investing activities 4,654 (1,102)
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Financing activities:
Exercise of stock options 245 711
Decrease in notes payable (249) --
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Cash provided by (used in) financing activities (4) 711
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Increase (decrease) in cash and cash equivalents 2,991 2,026
Cash - beginning of period 3,352 2,473
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Cash - end of period $ 6,343 $ 4,499
======= =======
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 25 $ 38
Income taxes $ 203 $ 1,037
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1996, the consolidated
statements of income for the three months ended March 31, 1996 and 1995,
and the consolidated statements of cash flows for the three months ended
March 31, 1996 and 1995 have been prepared in accordance with generally
accepted accounting principles by the Company without audit. In the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows for all periods presented
have been made. Interim results are not necessarily indicative of results
expected for the full year.
These financial statements do not include all disclosures associated
with annual financial statements. Accordingly, these statements should be
read in conjunction with the Company's financial statements and notes
thereto contained in the Company's Form 10-K for the year ended December
31, 1995.
On May 23,1995 the Board of Directors declared a two-for-one stock
split which was effective June 9, 1995. All references to the number of
shares, price per share, and net income per common share have been
adjusted to reflect the effect of the split.
(B) INVENTORIES
Inventories are stated at the lower of standard cost, which
approximates actual cost (FIFO basis) or market and consist of the
following:
<TABLE>
<CAPTION>
($000's) MARCH 31, DECEMBER 31,
1996 1995
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<S> <C> <C>
Raw materials $2,565 $1,924
Work-in-progress 715 738
Finished goods 184 107
------ ------
$3,464 $2,769
====== ======
</TABLE>
(C) RELATED PARTY TRANSACTIONS
During 1993, Safeguard and the Company entered into an agreement
whereby the Company would lend to Safeguard a portion of its excess cash
and receive a negotiated interest rate which was higher than the rate the
Company might realize by independently investing the funds, but which was
less than Safeguard's cost of funds. Interest accrues on the unpaid
principal balance at the Safeguard cost of funds less 1%. Principal and
unpaid interest is payable within three business days on demand by the
Company. At March 31, 1996 and December 31, 1995, the principal balance on
this note was $2,000,000 (equal to the amount due Safeguard on certain
notes due June 1996 and June 1997) and $7,125,000, respectively.
6
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1996 increased 14% compared
to the same period in 1995. Net income increased by 29%, primarily the result of
higher sales, modestly higher margins and maintaining relatively flat operating
expenses as a percentage of sales.
The following table sets forth, for the periods indicated, selected statements
of income data as a percentage of net sales:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
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1996 1995
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<S> <C> <C>
Net Sales
Echo canceller products 80% 83%
Teleconferencing products 20 17
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Total net sales 100 100
Cost of sales 37 39
---- ----
Gross Profit 63 61
Expenses
Selling 15 16
Product development & engineering 11 11
General and administrative 8 8
Interest income, net (1) (2)
---- ----
Total expenses 33 33
---- ----
Pre-tax income 30% 28%
==== ====
</TABLE>
Sales of echo cancellers were particularly strong in Europe, North
America and Latin America. The revenue increases in these regions were
attributable to large shipments to Alcatel, Nokia, Kapsch Aktiengesellschaft and
TRT in Europe, and Ameritech Cellular and Motorola in North America. It is
anticipated that the Company will continue to benefit from the growth in
worldwide digital telecommunications markets by capitalizing on the Company's
voice enhancement product strategies.
Teleconferencing unit sales increased primarily due to the sales of the
Call Port. Teleconferencing sales volume and revenue increased over the first
quarter of 1995, however the average selling price of the teleconferencing
product line decreased.
7
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
Backlog may fluctuate since echo canceller products represent capital
purchases for the Company's customer and may be effected by seasonal and other
business cycles and order cancellation. The Company typically fills orders for
its products within 7 to 60 days of the receipt of the purchase order. Customers
usually purchase products on an as-needed basis, and accordingly, the Company
generally has less than two-months net sales in backlog. Backlog consists of
purchase orders received by the Company with a schedule of deliveries within
twelve months of the purchase order date. Written commitments without delivery
schedules are not considered in calculating backlog.
The Company charges a 20% re-stocking fee for purchase order
cancellation except in cases where the cancellation request was made greater
than 30 days prior to the scheduled delivery date and no prior cancellation
request had been delivered by the prospective customer. Backlog at April 30,
1996 is approximately $9.5 million compared to approximately $5.0 million at
December 31, 1995. The Company expects that all of this backlog will be filled
during the current year.
Gross profit as a percentage of net sales improved to 63% for the
quarter ended March 31, 1996 as compared to 61% for the comparable period in
1995. The increase in the gross profit percentage is due to greater sales of
higher margin echo canceller products without a significant increase in
manufacturing overhead spending.
Selling expense remains flat in dollar terms, but decreased to 15% of
sales in 1996 compared to 16% in the first quarter of 1995 as sales increased by
14%. The Company has continued to expand its sales and marketing functions to
support the Company's plans for growth of its echo canceller and teleconference
products. Selling programs were increased to expand sales in Europe, North
America and the Asia Pacific regions.
Product development and engineering expenses increased by 13% in the
first quarter 1996 compared to 1995, primarily a result of investments in voice
enhancement software products. The Company continues to increase investments in
product development to remain competitive in the telecommunications market.
Product development and engineering expenses have remained constant as a
percentage of net sales because of rapid sales growth.
General and administrative expenses remained flat at 8% of sales in
1996. Sales growth has been achieved with relatively small increases in general
and administrative expenses. The decrease in the effective tax rate was due to
tax benefits recorded on export sales in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to generate sufficient cash from operations to
fund its working capital needs and relatively nominal capital expenditures. The
Company's operating activities used $1.7 million of cash for the three months
ended March 31, 1996 as compared to providing cash of $2.4 million during the
same period in 1995. Days outstanding in Accounts Receivables increased from
approximately 55 days at the quarter ended December 31, 1995 to 94 days for the
quarter ended March 31, 1996 due to various administrative processing delays in
collections from several major customers. There have been no significant changes
to sales terms. Additionally, inventory levels have increased slightly to
accomodate the increased sales activity.
Capital expenditures for the quarter ended March 31, 1996 were
$471,000. Management anticipates that capital expenditures for 1996 will
approximate $2.5-$3.0 million dollars, primarily for the acquistion of product
development and manufacturing equipment.
The Company lends a portion of its excess cash to Safeguard and
receives a negotiated rate of interest which is higher than the rate the Company
could realize from independently investing the funds. The loan bears interest at
the Safeguard cost of funds less one percent and is payable within three
business days including accrued interest. The outstanding principal balance as
of March 31, 1996 was $2,000,000, which is equal to the amount owed Safeguard on
a certain note due in installments in June 1996 and June 1997.
8
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
The Company currently anticipates that cash generated from operations,
the balance of the demand loan receivable from Safeguard, existing cash balances
and amounts available under an unused $5,000,000 line of credit will be
sufficient to satisfy its operating cash needs through 1996. Should the business
progress more rapidly than expected, the Company believes that additional bank
credit would be available to fund operating and capital requirements. In
addition, the Company could consider additional public or private debt or equity
financing to fund future growth opportunities.
9
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of net income per share
Exhibit 27-Financial Data Schedule
(b) Reports on Form 8-K
None
No other applicable items.
10
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
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.
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
By: /s/ MICHAEL P. GENDRON
----------------------------------------
Michael P. Gendron
Vice-President & Chief Financial Officer
Date: May 13, 1995
11
<PAGE> 12
EXHIBIT INDEX
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Exhibit 11 - Computation of net income per share
Exhibit 27 - Financial Data Schedule
<PAGE> 1
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
NET INCOME PER COMMON SHARE- EXHIBIT 11
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
-----------------------------
1996 1995
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<S> <C> <C>
Net income available for
common stockholders $ 2,118,000 $ 1,645,000
=========== ===========
Average common shares outstanding 14,733,000 13,746,000
Average common share equivalents:
Options 724,000 1,588,000
----------- -----------
Average number of common and
common share equivalents outstanding 15,457,000 15,334,000
=========== ===========
Net income per common share 0.14 0.11
----------- -----------
</TABLE>
Average common shares outstanding for the quarter ended March 31, 1995 have been
restated to reflect the effect of the stock split June 9, 1995.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT MARCH 31, 1996
(UNAUDITED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,343
<SECURITIES> 2,000
<RECEIVABLES> 12,146
<ALLOWANCES> 521
<INVENTORY> 3,464
<CURRENT-ASSETS> 25,108
<PP&E> 4,888
<DEPRECIATION> 1,702
<TOTAL-ASSETS> 30,953
<CURRENT-LIABILITIES> 6,965
<BONDS> 0
0
0
<COMMON> 149
<OTHER-SE> 22,662
<TOTAL-LIABILITY-AND-EQUITY> 30,953
<SALES> 11,109
<TOTAL-REVENUES> 11,109
<CGS> 4,087
<TOTAL-COSTS> 4,087
<OTHER-EXPENSES> 3,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 3,329
<INCOME-TAX> 1,211
<INCOME-CONTINUING> 2,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,118
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
