<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 March 31, 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
of Incorporation of Organization) Identification No.)
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<CAPTION>
<S> <C>
44084 Riverside Parkway Landsdowne Business Center, Leesburg, VA 22075
- - ------------------------------------------------------------------- --------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
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 May 7, 1997:
Class Number of Shares Outstanding
Common Stock, Par Value $.01 Per Share 15,147,072 Shares
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
PAGE
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PART I: FINANCIAL INFORMATION
-----------------------------
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31, 1997 (Unaudited) and December 31, 1996.........................3
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, 1997 and 1996...............................4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)..........................5
Three Months Ended March 31, 1997 and 1996
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
--------------------------
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
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<TABLE>
<CAPTION>
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARES)
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
---------------------- ----------------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,592 $ 9,251
Short term investments 7,608 7,518
Accounts receivable - trade, less allowances
($752 -1997 and $684 -1996) 12,549 10,065
Inventories 3,167 3,301
Other current assets 1,157 1,109
---------------------- ----------------------
Total current assets 35,073 31,244
Property, plant and equipment
Building and leasehold improvements 314 314
Machinery and equipment 5,958 5,115
Furniture and fixtures 1,009 970
---------------------- ----------------------
7,281 6,399
Less accumulated depreciation 2,970 2,577
---------------------- ----------------------
4,311 3,822
Other long term assets 2,431 2,492
---------------------- ----------------------
Total Assets $ 41,815 $ 37,558
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 768 $ 733
Accrued expenses 2,643 2,675
Income taxes payable 3,443 2,184
---------------------- ----------------------
Total current liabilities 6,854 5,592
Non-current liabilities:
Deferred taxes 167 167
---------------------- ----------------------
Total liabilities 7,021 5,759
---------------------- ----------------------
Stockholders' equity:
Common stock, par value $.01 a share; authorized - 100,000,000
shares; issued and outstanding,15,498,000 shares - 1997
and 15,128,000 shares - 1996 155 151
Additional paid-in capital 10,743 10,657
Retained earnings (from December 31, 1993) 23,896 20,991
---------------------- ----------------------
Total stockholders' equity 34,794 31,799
---------------------- ----------------------
Total Liabilities and Stockholders' Equity $ 41,815 $ 37,558
====================== ======================
See accompanying notes to the unaudited consolidated financial statements.
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3
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------------------
1997 1996
------------------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 16,007 $11,109
Cost of sales 5,499 4,087
------------------------- ------------------
Gross profit 10,508 7,022
------------------------- ------------------
Expenses:
Selling 3,039 1,655
Product development and engineering 1,907 1,208
General and administrative 1,216 949
Interest income, net (193) (119)
------------------------- ------------------
Total expenses 5,969 3,693
------------------------- ------------------
Pre-tax income 4,539 3,329
Income tax expense 1,634 1,211
------------------------- ------------------
Net income $ 2,905 $ 2,118
========================= ==================
Net income per common share $ 0.19 $ 0.14
========================= ==================
Average common shares outstanding 15,510 15,457
========================= ==================
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
1997 1996
------------------ ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,905 $2,118
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization 459 233
Changes provided by (used in) operating activities:
Receivables (2,484) (3,557)
Inventories 134 (695)
Other current assets and other assets (53) 19
Accounts payable 35 (232)
Accrued expenses (32) (562)
Income taxes payable 1,259 1,017
------------------ ----------------
Cash provided by (used in) operating activities 2,223 (1,659)
------------------ ----------------
Investing activities:
Decrease in notes receivable from related parties, net - 5,125
Purchase of short term investments (90)
Expenditures for property, plant and equipment (882) (471)
------------------ ----------------
Cash provided by (used in) investing activities (972) 4,654
------------------ ----------------
Financing activities:
Exercise of stock options 90 245
Debt repayment related to TTI purchase - (249)
------------------ ----------------
Cash provided by (used in) financing activities 90 (4)
------------------ ----------------
Increase in cash and cash equivalents 1,341 2,991
Cash and cash equivalents - beginning of year 9,251 3,352
------------------ ----------------
Cash and cash equivalents-end of period $10,592 $6,343
================== ================
Supplemental disclosure of cash flow information
Cash paid for:
Interest - $ 25
Income taxes $ 144 $ 203
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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, 1997, the consolidated
statements of income for the three months ended March 31, 1997 and 1996,
and the consolidated statements of cash flows for the three months ended
March 31, 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) MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
Raw materials $2,309 $2,263
Work-in-progress 631 786
Finished goods 227 252
------------------ ----------------
$3,167 $3,301
================== ================
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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, 1997 increased 44% compared to
the same period in 1996. Net income increased by 37%, primarily the result of
higher sales and higher gross margins which have been offset with increased
operating expenses.
The following table sets forth, for the periods indicated, selected statements
of income data as a percentage of net sales:
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<CAPTION>
QUARTER ENDED
MARCH 31,
---------------------------------------
1997 1996
---------------- ------------------
<S> <C> <C>
Net Sales
Transmission products 92 % 85 %
Teleconferencing products 8 15
---------------- ------------------
Total net sales 100 100
Cost of sales 34 37
---------------- ------------------
Gross Profit 66 63
Operating expenses
Selling 19 15
Product development and engineering 12 11
General and administrative 7 8
Interest income, net (1) (1)
---------------- ------------------
Total expenses 37 33
---------------- ------------------
Pre-tax income 28 % 30 %
================ ==================
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Sales of transmission products were strong in all regions, all
registering double-digit growth. Sales were particularly strong in the
Pacific Rim where sales growth was in excess of 200%. The revenue
increases were attributable to large shipments to Alcatel, Nokia, and Lier
Electronics in Europe, and to Cisco, DSC and AT&T Wireless in North
America. The majority of the transmission product increases came from the
integrated and EC-6000 product lines, which combined, increased 78% over
the prior year. 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 sales decreased from the first quarter of 1996 by 25%
due to a 46% decline in sales for the Conference Master, a 39% decline in
Callport sales, partially offset by a 40% increase in Voicecrafter sales.
Sales declines for these product lines were primarily due to increased
competition in this marketplace. This increased competition resulted in
decreased volume and decreased selling price.
7
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
Backlog may fluctuate since transmission products represent capital
purchases for the Company's customers and may be affected 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. Backlog as of March 31, 1997 were $7.6 million
compared to December 31, 1996 of $5.7 million.
Gross profit as a percentage of net sales improved to 66% for the
quarter ended March 31, 1997 as compared to 63% for the comparable period
in 1996. The increase in gross profit margins of 3% over last year is due
primarily to favorable overhead and labor variances. The mix of higher
margin products, including software products contributed to this
increased margin.
Selling expenses increased by $1.4 million, while increasing to 19%
of sales compared to 15% in the comparable period of 1996. The increase
in selling and marketing expenses was a result of significant expansion
in both marketing and sales personnel. This included the hiring of the
vice-president of marketing, expansion in the Technical Assistance Center
and staffing to support China, Singapore and Japan. General and
administrative expenses remained constant at 8% of sales in 1997.
Product development and engineering expenses were at 12% of sales
during the first quarter 1997 compared to 11% during the same quarter of
1996. The Company continues to increase its investments in product
development to remain competitive in the telecommunications market, which
has resulted in slightly increased expenses as a percentage of net sales.
During the first quarter, the Company announced several new products at
the Cellular Telephone Industry Association (CTIA) show in San Francisco.
Coherent's new wireless echo cancelling platform is the industry's first
product that not only eliminates traditional wireline echo in digital
wireless systems like PCS, but also cancels acoustic echo and noise that
is generated on the handset side of the wireless system. Also announced
at CTIA was c/mor(TM), the Company's network management system for the
centralized configuration and management of all echo cancellers in a
system. This new product is especially useful in helping a network
operator reduce costs by keeping expert staff to a minimum and reducing
the need to travel to remote locations.
In light of the anticipated development of new wireless service
markets, the Company will increase its operating expenses to position the
Company for future growth, especially in the United States, Latin America
and Asia. The Company intends to increase expenses in personnel and
related operating expenses only to the extent that it is able to maintain
the current return on sales. 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 $18.2
million. Short term investments are generally limited to obligations of
the U.S. Government and its agencies with a maturity of less than one
year. The Company continues to generate sufficient cash from operations
to fund its working capital needs and capital expenditures. The Company's
operating activities provided $2.2 million of cash for the three months
ended March 31, 1997 as compared to using cash of $1.7 million during the
same period in 1996. The increase in net income, slightly lower levels of
inventory and improved cash collections contributed to the positive cash
flow from operating activities. Days outstanding in accounts receivable
increased from approximately 40 days at the quarter ended December 31,
1996 to 52 days for the quarter ended March 31, 1997 due to various
administrative processing delays in collections from several major
customers. There have been subsequent cash receipts on these delayed
collections. Inventory turns remain at approximately 7.
Capital expenditures for the quarter ended March 31, 1997 were
$882,000. Management anticipates that capital expenditures for 1997 will
approximate three to five million dollars, predominantly for the
investment in product development and improvements related to the new
facility, as described below.
8
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COHERENT COMMUNICATIONS SYSTEMS CORPORATION
The Company has agreed to lease a new facility for its worldwide
headquarters in Leesburg, Virginia. Construction of the facility
commenced in September 1996 and is expected to be completed in September
1997. The Company's lease will be for a term of 15 years, beginning upon
the completion date of the facility. The Company has terminated the lease
of the existing Virginia headquarters in accordance with the lease
provision and is not subject to significant cancellation costs.
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 March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
Per Share". This statement establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, earlier application is not permitted. This Statement
requires restatement of all prior-period EPS data presented. The Company
is currently evaluating the impact, if any, adoption of SFAS No. 128 will
have on its financial statements.
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/ Joan E. Cominski
---------------------------
Joan E. Cominski
Principal Financial Officer
Date: May 14, 1997
11
<PAGE> 12
EXHIBIT INDEX
Exhibit No. Description
11 Computation of Net Income Per Share
27 Financial Data Scheudle
<PAGE> 1
COHERENT COMMUNICATIONS SYSTEMS CORPORATION
NET INCOME PER COMMON SHARE-EXHIBIT 11
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<CAPTION>
QUARTER ENDED
MARCH 31,
---------------------------------------------------
1997 1996
----------------------- -----------------------
<S> <C> <C>
Net income available for
common stockholders $2,905,000 $2,118,000
======================= =======================
Average common shares outstanding 15,127,000 14,733,000
Average common share equivalents:
Options 383,000 724,000
----------------------- -----------------------
Average number of common and
common share equivalents outstanding 15,510,000 15,457,000
======================= =======================
Net income per common share 0.19 0.14
----------------------- -----------------------
</TABLE>
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, 1997
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,592
<SECURITIES> 7,608
<RECEIVABLES> 13,301
<ALLOWANCES> 752
<INVENTORY> 3,167
<CURRENT-ASSETS> 35,073
<PP&E> 7,281
<DEPRECIATION> 2,970
<TOTAL-ASSETS> 41,815
<CURRENT-LIABILITIES> 6,854
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 34,639
<TOTAL-LIABILITY-AND-EQUITY> 41,815
<SALES> 16,007
<TOTAL-REVENUES> 16,007
<CGS> 5,499
<TOTAL-COSTS> 5,499
<OTHER-EXPENSES> 6,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,539
<INCOME-TAX> 1,634
<INCOME-CONTINUING> 2,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,905
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
