<PAGE> 1
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
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, 1997
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from
__________________to________________.
Commission file no. 0-24303
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-2162982
(State of Incorporation or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation of Organization) No.)
45085 University Drive Ashburn, VA 20147-2745
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code: (703) 729-6400
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______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 7, 1997:
Class Number of Shares Outstanding
Common Stock, Par Value $.01 Per Share 15,327,728 Shares
<PAGE> 2
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30, 1997 (Unaudited) and December 31, 1996..................... 3
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three and Nine Months Ended September 30, 1997 and 1996.................. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)........................ 5
Nine Months Ended September 30, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)................... 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 7-9
PART II: OTHER INFORMATION
ITEM 6: 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
2
<PAGE> 3
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $16,205 $ 9,251
Short term investments 7,792 7,518
Accounts receivable - trade, less allowances
($905-1997 and $684-1996) 14,679 10,065
Inventories 3,135 3,301
Other current assets 1,163 1,109
------- -------
Total current assets 42,974 31,244
Property, plant and equipment
Building and leasehold improvements 482 314
Machinery and equipment 7,213 5,115
Furniture and fixtures 1,404 970
------- -------
9,099 6,399
Less accumulated depreciation 3,833 2,577
------- -------
5,266 3,822
Other long term assets 2,320 2,492
------- -------
Total Assets $50,560 $37,558
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,597 $ 733
Accrued expenses 3,839 2,675
Income taxes payable 3,002 2,184
------- -------
Total current liabilities 8,438 5,592
Non-current liabilities:
Deferred taxes 167 167
------- -------
Total liabilities 8,605 5,759
------- -------
Stockholders' equity:
Common stock, par value $.01 a share; authorized - 100,000,000 shares;
issued and outstanding, 15,287,000 shares - 1997
and 15,128,000 shares - 1996 153 151
Additional paid-in capital 11,198 10,657
Retained earnings (from December 31, 1993) 30,604 20,991
------- -------
Total stockholders' equity 41,955 31,799
------- -------
Total Liabilities and Stockholders' Equity $50,560 $37,558
======= =======
</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>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 19,111 $ 14,102 $ 52,886 $ 38,376
Cost of sales 6,961 5,228 19,019 14,119
-------- -------- -------- --------
Gross profit 12,150 8,874 33,867 24,257
-------- -------- -------- --------
Expenses:
Selling 3,049 2,209 9,037 5,969
Product development and engineering 2,480 1,741 6,714 4,645
General and administrative 1,367 1,208 3,895 3,263
Interest income, net (336) (108) (799) (333)
-------- -------- -------- --------
Total expenses 6,560 5,050 18,847 13,544
-------- -------- -------- --------
Pre-tax income 5,590 3,824 15,020 10,713
Income tax expense 2,012 1,379 5,407 3,870
-------- -------- -------- --------
Net income $ 3,578 $ 2,445 $ 9,613 $ 6,843
======== ======== ======== ========
Net income per common share $ 0.23 $ 0.16 $ 0.62 $ 0.44
======== ======== ======== ========
Average common shares outstanding 15,584 15,479 15,538 15,472
======== ======== ======== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE> 5
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,613 $ 6,843
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization 1,435 936
Changes provided by (used in) operating activities:
Receivables (4,614) (3,232)
Inventories 166 (750)
Other current assets and other assets (61) 445
Accounts payable 864 58
Accrued expenses 1,164 274
Income taxes payable 818 525
-------- --------
Cash provided by operating activities 9,385 5,099
-------- --------
Investing activities:
Decrease in notes receivable from related parties, net -- 7,125
Purchase of short term investments (274) (2,500)
Expenditures for property, plant and equipment (2,700) (1,453)
-------- --------
Cash provided by (used in) investing activities (2,974) 3,172
-------- --------
Financing activities:
Exercise of stock options 543 509
Decrease in notes payable -- (2,249)
-------- --------
Cash provided by (used in) financing activities 543 (1,740)
-------- --------
Increase in cash and cash equivalents 6,954 6,531
Cash and cash equivalents - beginning of period 9,251 3,352
-------- --------
Cash and cash equivalents - end of period $ 16,205 $ 9,883
======== ========
Supplemental disclosure of cash flow information Cash paid for:
Interest $ -- $ 61
Income taxes $ 4,590 $ 3,345
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
The consolidated balance sheet as of September 30, 1997, the
consolidated statements of income for the three and nine months ended
September 30, 1997 and 1996, and the consolidated statements of cash flows
for the nine months ended September 30, 1997 and 1996 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, 1996.
(B) INVENTORIES
Inventories are stated at the lower of cost, on a FIFO basis, or
market and consist of the following:
<TABLE>
<CAPTION>
($000's) SEPTEMBER 30, DECEMBER 31,
1997 1996
------ ------
<S> <C> <C>
Raw materials $1,780 $2,263
Work-in-progress 929 786
Finished goods 426 252
------ ------
$3,135 $3,301
====== ======
</TABLE>
6
<PAGE> 7
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
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, selected statements
of income data as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
Transmission products 92% 86% 93% 85%
Teleconferencing products 8 14 7 15
---- ---- ---- ----
Total net sales 100 100 100 100
Cost of sales 36 37 36 37
---- ---- ---- ----
Gross Profit 64 63 64 63
Operating expenses
Selling 16 16 18 15
Product development and engineering 13 12 13 12
General and administrative 7 9 7 9
Interest income, net (2) (1) (1) (1)
---- ---- ---- ----
Total expenses 34 36 36 35
---- ---- ---- ----
Pre-tax income 30% 27% 28% 28%
==== ==== ==== ====
</TABLE>
Net sales for the quarter ended September 30, 1997 increased
36% compared to the same period in 1996. Sales of transmission products
increased by 43% over the prior year for the quarter and 48% for the nine
month period. The Company's continuing growth in sales and profits is
driven by world-wide growth in telecommunications infrastructure. With
current sales in over 70 countries, the company benefits from this global
trend. In the most recent quarter, Asian sales were 24% of total sales,
while Europe, North America and Latin America were 39%, 31% and 6%
respectively. All regions showed positive growth. Sales of
teleconferencing products decreased from the third quarter of 1996 by 21%
and 30% for the nine month period. The Company has decided to move away
from dealer-based distribution channels for its conferencing products and
pursue an OEM-based strategy.
7
<PAGE> 8
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
Backlog as of September 30, 1997 was $8.5 million compared to December
31, 1996 of $5.7 million. Backlog may fluctuate since transmission
products represent capital purchases for the Company's customers and may
be affected by the scheduling of large orders by customers. 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.
Gross profit as a percentage of net sales was 64% for the quarter and
the nine month period ended September 30, 1997, as compared to 63% for
both the quarter and nine month period in 1996. Despite price competition
in both new and existing markets, the increase in sales volumes and the
reduction of product cost has enabled the Company to increase gross
profit margins.
Selling and marketing expenses increased for the three months ended
September 30, 1997 by $840, remaining at 16% of net sales for the quarter
and by $3,068 to 18% for the nine months ended September 30, 1997 as
compared to 15% for the nine month period in 1996. The increase in
selling and marketing expenses was primarily a result of building its
organization in the Asia Pacific Rim. Product development expenses
increased for the three and nine months ended September 30, 1997 by $739
and $2,069, respectively, while increasing as a percentage of net sales
to 13% for the quarter and nine month period as compared to 12% for the
quarter ended and nine month period in 1996. General and administrative
expense increased for the three and nine months ended September 30, 1997
by $159 and $632, respectively, decreasing to 7% of net sales for the
three and nine months ended September 30, 1997. There has been an
increase in personnel to support the overall Company growth.
The Company's forward looking statements of expected growth revenue
are subject to various risks, such as an unanticipated general decline in
infrastructure investment in developing countries or worldwide reductions
in telecommunications expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company has cash and short term investments totaling $24.0
million. The Company continues to generate sufficient cash from
operations to fund its working capital needs and capital expenditures.
The Company generated cash and short term investments of $7.2 million for
nine months ended September 30, 1997 as compared to an increase in of
$9.0 million for the nine months during the same period in 1996. The
increase in net income is offset by increases in working capital and
capital expenditures related to the growth of the business. Capital
expenditures for the three and nine months ended September 30, 1997 were
$1.4 million and $2.7 million, respectively. Management anticipates that
the company will continue to expend capital in product development,
management information systems and improvements related to its growth.
8
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
In August, 1997, the Company moved to a new leased facility for its
worldwide headquarters in Ashburn, Virginia. The Company's lease will be
for a term of 15 years. The Company has terminated the lease of its
previous Leesburg, Virginia headquarters.
The Company currently anticipates that cash generated from
operations, existing cash balances and amounts available under an unused,
uncommitted $10,000,000 bank line of credit will be sufficient to satisfy
its operating cash needs through 1997. 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard No. 128, Earnings Per
Share (Statement 128). Statement 128 supersedes Accounting Principles
Board Opinion No. 15, Earnings Per Share (APB 15), and specifies the
computation, presentation, and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential
common stock. Statement 128 replaces the presentation of primary and
fully diluted EPS with a presentation of basic and diluted EPS,
respectively. Statement 128 is effective for financial statements for
both interim and annual periods ending after December 15, 1997. The
calculation of EPS under APB and Statement 128 for the three and nine
months ended June 30, 1997 and 1996 was:
<TABLE>
<CAPTION>
APB 15 Statement 128
------ -------------
Primary Fully Diluted Basic Diluted
--------- ------------- ----- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Three months ended Sept. 30, 1997 $.23 $.23 $.23 $.23
Nine months ended Sept. 30, 1997 $.62 $.62 $.63 $.62
Three months ended Sept. 30, 1996 $.16 $.16 $.16 $.16
Nine months ended Sept. 30, 1996 $.44 $.44 $.46 $.44
</TABLE>
Also during 1997, the FASB issued pronouncements relating to the
presentation and disclosure of information related to the Company's
capital structure, comprehensive income and segment data. The Company is
required to adopt the provisions relating to capital structure for the
year ending December 31, 1997, if applicable, and the provisions of the
other pronouncements, if applicable, for the year ending December 31,
1998. The adoption of these pronouncements will not have an impact on the
Company's financial position and results of operations, but may change
the presentation of certain of the Company's financial statements and
related notes and data thereto.
9
<PAGE> 10
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
<PAGE> 11
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/ Melba G. Chan
----------------------------------------
Melba G. Chan
Vice-President and Chief Financial Officer
Date: November 12, 1997
11
<PAGE> 12
EXHIBIT INDEX
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
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income available for
common stockholders $ 3,578 $ 2,445 $ 9,613 $ 6,843
======= ======= ======= =======
Average common shares outstanding 15,252 15,002 15,201 14,925
Average common share equivalents:
Options 332 477 337 547
------- ------- ------- -------
Average number of common and
common share equivalents outstanding 15,584 15,479 15,538 15,472
======= ======= ======= =======
Net income per common share 0.23 0.16 0.62 0.44
------- ------- ------- -------
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,205
<SECURITIES> 7,792
<RECEIVABLES> 15,584
<ALLOWANCES> 905
<INVENTORY> 3,135
<CURRENT-ASSETS> 42,974
<PP&E> 9,099
<DEPRECIATION> 3,833
<TOTAL-ASSETS> 50,560
<CURRENT-LIABILITIES> 8,438
<BONDS> 0
153
0
<COMMON> 0
<OTHER-SE> 41,802
<TOTAL-LIABILITY-AND-EQUITY> 50,560
<SALES> 52,886
<TOTAL-REVENUES> 52,886
<CGS> 19,019
<TOTAL-COSTS> 19,019
<OTHER-EXPENSES> 18,847
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,020
<INCOME-TAX> 5,407
<INCOME-CONTINUING> 9,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,613
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
