SECURITIES & 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 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-9487
CORCOM, INC
(Exact name of registrant as specified in its charter)
Illinois 36-2307626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
844 E. Rockland Road, Libertyville, Illinois 60048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 680-7400
NOT APPLICABLE
Former name, former address and former fiscal year if changed
since last report.
Indicate by checkmark 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 the last practicable date.
Common Stock, No Par Value - 3,823,143 Shares as of October 10, 1997
Exhibit Index on Page 9
CORCOM, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - September 27, 1997 3
(unaudited) and December 31, 1996
Consolidated Condensed Statements of Operations (unaudited) 4
for the 13 weeks and 39 weeks ended September 27, 1997 and
September 28, 1996
Consolidated Condensed Statements of Cash Flows (unaudited) 5
for the 39 weeks ended September 27, 1997 and
September 28, 1996
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7-8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Not
Market Risk Applicable
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
Exhibit 11.1 - Computation of Earnings per Share 10
Exhibit 27.1 - Financial Data Schedule (EDGAR ONLY) N/A
PART I. FINANCIAL INFORMATION
CORCOM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, except Share Data)
September 27, December 31,
1997 1996
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 7,392 $ 4,789
Accounts receivable (net) 4,669 4,688
Inventories - Note B 6,998 6,691
Deferred income tax benefit, net 1,345 2,000
Other current assets 586 682
Total current assets 20,990 18,850
PROPERTY, PLANT & EQUIPMENT - AT COST 19,028 18,391
Less accumulated depreciation & amortization 14,542 14,014
4,486 4,377
TOTAL ASSETS $25,476 $23,227
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 58 $ 59
Accounts payable 1,428 1,368
Other accrued liabilities 1,874 1,728
Total current liabilities 3,360 3,155
LONG TERM DEBT 59 102
STOCKHOLDERS' EQUITY
Common stock, no par value:
Authorized 10,000,000 shares; issued
3,858,543 shares in 1997 and 3,815,543
shares in 1996 14,129 14,057
Retained earnings 8,480 6,023
Accumulated exchange rate adjustments (301) (110)
22,308 19,970
Less cost of common stock in treasury -
35,400 shares in 1997 and none in 1996 (251) 0
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $25,476 $23,227
See notes to Consolidated Condensed Financial Statements.
CORCOM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share data)
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
Sept 27, Sept 28, Sept 27, Sept 28,
1997 1996 1997 1996
--------- --------- --------- ---------
Net Sales $ 8,463 $ 7,626 $27,259 $24,446
Costs and expenses
Cost of sales 5,183 4,814 16,709 15,278
Engineering expenses 307 302 978 912
Selling, administrative
& other expenses 1,952 1,775 5,966 5,488
Interest expense 2 3 8 11
Interest income (83) (34) (198) (81)
Earnings before income
tax 1,102 766 3,796 2,838
Income tax provision
(benefit) 376 (268) 1,339 (763)
Net earnings $ 726 $ 1,034 $ 2,457 $ 3,601
Average number of common
and common equivalent
shares outstanding 3,960,391 3,984,724 3,956,570 3,968,707
Net earnings per common
and common equivalent
share - Note C $ .18 $ .26 $ .62 $ .91
Cash dividends have not been declared in the periods covered by these
statements.
See notes to Consolidated Condensed Financial Statements.
CORCOM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Thirty-nine Weeks Ended
-----------------------
Sept 27, Sept 28,
1997 1996
---------- ----------
OPERATING ACTIVITIES
Net cash flows from operating activities $ 3,883 $ 4,667
INVESTING ACTIVITIES
Additions to property, plant &
equipment (net) (1,057) (864)
FINANCING ACTIVITIES
Treasury stock purchases (251) 0
Stock options exercised 72 89
Repayments of notes payable & long
term debt (44) (272)
Proceeds from borrowings under notes
payable & long term debt 0 230
TOTAL FINANCING ACTIVITIES (223) 47
INCREASE IN CASH AND CASH EQUIVALENTS 2,603 3,850
Cash and cash equivalents at beginning
of year 4,789 887
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,392 $ 4,737
See notes to Consolidated Condensed Financial Statements
CORCOM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in a format provided by the instructions to Form 10-Q
and Rule 10-01 or Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
thirty-nine weeks ended September 27, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1996.
NOTE B - INVENTORIES
Major classes of the Company's inventories are as follows (in thousands):
September 27, December 31,
1997 1996
------------- ------------
Finished products $ 2,434 $ 2,693
Materials & work-in-process 4,564 3,998
$ 6,998 $ 6,691
NOTE C - EARNINGS PER SHARE
Net earnings per common and common equivalent share are based upon the
weighted average number of shares of common stock and common stock equivalents
(dilutive stock options) outstanding during each period.
NOTE D - INCOME TAXES
The components of the net deferred tax asset, tax effected, recognized in the
accompanying balance sheet as of September 27, 1997 are as follows (in
thousands):
Deferred tax assets $1,625
Less: valuation reserve ( 280)
Net deferred tax assets $1,345
NOTE E - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
revises the disclosure requirements and increases the comparability of EPS
data on an international basis by simplifying the existing computational
guidelines in APB Opinion No. 15. The pronouncement will require the Company
to present both basic and diluted EPS for net income on the face of the income
statement and is effective for the Company's year ended December 31, 1997.
The Company believes that any earnings per share adjustment from the
application of this statement will not be material to the current method of
computing earnings per share.
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," No. 130, "Reporting Comprehensive Income
Summary," and No. 131, "Disclosures about Segments of an Enterprise and
Related Information," are also effective to the Company's year ended December
31, 1997. The Company does not believe these statements will have a material
impact on its financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Third Quarter 1997 vs. Third Quarter 1996
CORCOM's net sales for the third quarter of 1997 were $8,463,000, an increase
of 11.0% from the $7,626,000 reported for the third quarter of 1996. This
increase was the result of volume increases in the Company's North American
commercial filter business. North American revenue represented over 78% of
total revenue in the third quarter of 1997 and was up 17.4% over the
comparable number in 1996 as a result of the continued strength in this
segment of the overall electronics market. European sales, which represents
approximately 19% of total third quarter 1997 revenue, were down 10% from
their 1996 level. There were no appreciable price changes year to year.
Cost of sales for the current quarter improved to 61.2% of net sales compared
to 63.1% for the year ago period. Certain peso-based costs at the Company's
main manufacturing plant in Juarez, Mexico have increased year to year as a
result of the inflation in this currency over the past year. This cost
increase, however, has been more than offset by the contribution margin of
the increased sales volume in 1997. Since a portion of the Company's costs
are peso-based, the Company's manufacturing costs could rise further if the
value of the peso increases relative to the dollar, or if inflation in Mexico
escalates.
Engineering expenses, at $307,000 in the third quarter of 1997, were about the
same as the $302,000 reported in the third quarter of 1996. Selling,
administrative and other expenses rose in 1997 to $1,952,000 from the
$1,775,000 reported in the third quarter of 1996. The largest components of
this increase were higher commission and selling expenses on the higher level
of volume, and increased incentive compensation costs computed on the higher
level of earnings.
Net interest income in the third quarter of 1997 was $81,000, compared to
$31,000 for the year ago period, the result of higher cash investments in
1997.
The Company's pre-tax earnings for the third quarter of 1997 were $1,102,000
as compared with $766,000 for the third quarter of 1996. The reasons for the
improvement are discussed above.
The income tax provision in the third quarter of 1997, at $376,000, represents
a normal statutory provision based on current pretax earnings. This compares
to a net income tax benefit of $268,000 in the third quarter of 1996. The
principal component of this benefit was a reversal of part of the valuation
allowance against the deferred tax asset related to existing tax net operating
loss (NOL) carryforwards at the beginning of 1996. This was a one-time
benefit experienced in 1996 only and was not repeatable in 1997.
After tax, the Company's net earnings for the third quarter of 1997 were
$726,000 ($0.18 per share). This compares to net earnings in the year ago
period of $1,034,000 ($0.26 per share). The average number of common and
common equivalent shares outstanding as of September 27, 1997 were 3,960,391,
a decrease of 24,333 from the 3,984,724 shares reported as of September 28,
1996. The decrease was mainly due to the repurchase by the Company of 35,400
shares of its common stock so far in 1997, partially offset by the issuance of
additional shares on exercise of stock options by certain key employees over
the past year and the dilutive effect of existing unexercised stock options.
Results of Operations - First Three Quarters 1997 vs. First Three
Quarters 1996
CORCOM's net sales for the first three quarters of 1997 were $27,259,000, an
increase of 11.5% from the $24,446,000 reported for the first three quarters
of 1996. This increase was the result of volume increases in the Company's
North American and European commercial filter businesses. North American
revenue represented over 76% of total revenue in the first three quarters of
1997 and was up 14.2% over the comparable number in 1996 as a result of the
continued strength of this segment of the overall electronics market.
European sales, which represents approximately 22% of total first three
quarters 1997 revenue, was up 4.6% in 1997 over 1996. There were no
appreciable price changes year to date.
Cost of sales for the first three quarters of 1997 were 61.3% of net sales
compared to 62.5% for the year ago period. Certain peso-based costs at the
Company's main manufacturing plant in Juarez, Mexico have increased year to
year as a result of the inflation in this currency over the past year. This
cost increase, however, has been more than offset by the contribution margin
of the increased sales volume in 1997. Since a portion of the Company's
costs are peso-based, the Company's manufacturing costs could rise further if
the value of the peso increases relative to the dollar, or if inflation in
Mexico escalates.
Engineering expenses, at $978,000 in the first three quarters of 1996, were
slightly higher than the $912,000 reported in the first three quarters of 1996
as a result of higher prototype costs for new products under development.
Selling, administrative and other expenses rose in 1997 to $5,966,000 from
the $5,488,000 reported in the first three quarters of 1996. The largest
components of this increase were higher commission and selling expenses on the
higher level of volume, and increased incentive compensation costs computed
on the higher level of earnings.
Net interest income in the first three quarters of 1997 period was $190,000
compared to interest income of $70,000 in the first three quarters of 1996,
the result of higher cash investments in 1997.
The Company's pre-tax earnings for the first three quarters of 1997 were
$3,796,000 as compared with $2,838,000 for the first three quarters of 1996.
The reasons for the improvement are discussed above.
The income tax provision in the first three quarters of 1997, at $1,339,000,
represents a normal statutory provision based on current pretax earnings.
This compares to a net income tax benefit of $763,000 in the first three
quarters of 1996. The principal component of this benefit was a reversal of
part of the valuation allowance against the deferred tax asset related to
existing tax net operating loss (NOL) carryforwards at the beginning of 1996.
This was a one-time benefit experienced in 1996 only and was not repeatable in
1997.
After tax, the Company's net earnings for the first three quarters of 1997
were $2,457,000 ($0.62 per share). This compares to net earnings in the year
ago period of $3,601,000 ($0.91 per share). The average number of common and
common equivalent shares outstanding for the first nine months of 1997 were
3,956,570 a decrease of 12,137 from the 3,968,707 average shares reported for
the first nine months of 1996. The decrease was the result of the repurchase
by the Company of 35,400 shares of its common stock, partially offset by the
issuance of additional shares on exercise of stock options by certain key
employees over the past year and the dilutive effect of existing unexercised
stock options.
Liquidity and Capital Resources
As of September 27, 1997, the Company had cash and equivalents of $7,392,000
as compared to $4,789,000 as of December 31, 1996. In addition, the Company's
loan facility with American National Bank and Trust Company of Chicago is also
available. This agreement is a one year, unsecured line of credit with
maximum borrowings of $4,000,000, or 80% of eligible accounts receivable,
whichever is less. Interest on this loan is the Company's choice of either
LIBOR plus one hundred fifty basis points, or the Bank's prime rate. This
agreement runs through April 30, 1998. There were no borrowings during 1997.
On March 26, 1997, the Company announced that the Board of Directors had
approved a stock repurchase program for up to 200,000 shares of the Company's
common stock. In the third quarter, the Company purchased 1,000 shares of
stock at a cost of $8,000. The per share price of this transaction was $8.00
per share. On a year to date basis, the Company has repurchased 35,400 shares
of stock for $251,000. Per-share prices ranged from $6.50 to $8.00 and
averaged $7.09.
The Company does not believe it will need to identify additional sources of
capital over the next year and feels that current cash reserves, cash provided
by operating activities, and the existing credit facility will be sufficient
to meet its operating needs and capital resource requirements.
PART II - OTHER INFORMATION
CORCOM, INC.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit No. Description Page
---------- ----------------------------------- ----
11.1 Computation of Earnings Per Share 10
27.1 Financial Data Schedule (EDGAR only) N/A
b. The company did not file any reports on Form 8-K during the thirteen
week period ended September 27, 1997
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.
CORCOM, INC.
s/s Thomas J. Buns
by Thomas J. Buns
Vice President & Treasurer
(Principal Financial Officer)
Dated: October 20, 1997