SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
or
[ ] 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. 0-22598
ORTEL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3494360
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2015 WEST CHESTNUT STREET, ALHAMBRA, CALIFORNIA 91803-1542
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (818) 281-3636
not applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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
---- ----
As of July 31, 1996, there were 11,447,950 shares of the registrant's $.001
par value Common Stock outstanding.
ORTEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page(s)
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1996 (unaudited) and April 30, 1996 (audited)... 3
Condensed Consolidated Statements of Income
(unaudited) for the three months ended July 31,
1996 and 1995............................................ 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended July 31, 1996
and 1995................................................. 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 11
Signatures.............................................................. 12
Index to Exhibits....................................................... 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORTEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
July 31, April 30,
1996 1996
----------- ----------
ASSETS (unaudited) (audited)
- - ------
Current assets:
Cash and cash equivalents................... $16,109 $15,573
Short-term investments...................... 21,196 23,299
Accounts receivable, net.................... 10,998 9,024
Other receivables........................... 1,274 668
Inventories................................. 9,819 9,736
Prepaid and other current assets............ 2,239 2,339
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Total current assets......................... 61,635 60,639
Property, equipment and improvements (net)... 14,532 13,396
Intangible assets............................ 2,192 1,804
Other assets................................. 1,399 1,618
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Total assets................................. $79,758 $77,457
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable............................ $ 4,394 $ 3,470
Accrued liabilities......................... 3,549 5,539
Income taxes payable........................ 1,173 503
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Total current liabilities.................... 9,116 9,512
Deferred income.............................. 469 456
Deferred income taxes........................ 1,168 1,032
Notes payable................................ -- 6
Minority interest............................ 208 177
Stockholders' equity:
Preferred stock, $.001 par value;
authorized 5,000,000 shares, none
issued and outstanding..................... -- --
Common stock, $.001 par value,
authorized 25,000,000 shares,
issued and outstanding 11,447,950 and
11,358,810 at July 31, 1996 and April
30, 1996, respectively..................... 11 11
Additional paid-in capital.................. 51,784 51,369
Retained earnings........................... 18,184 16,397
Loans receivable............................ (1,203) (1,506)
Unrealized gains on investments............. (29) --
Cumulative effect of foreign currency
translation................................ 50 3
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Net stockholders' equity..................... 68,797 66,274
------- -------
Total liabilities and stockholders' equity... $79,758 $77,457
======= =======
See accompanying notes to condensed consolidated financial statements.
3
ORTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except share data)
Three Months Ended
July 31,
---------------------
1996 1995
-------- --------
Revenues............................................. $17,252 $14,423
Cost of revenues..................................... 8,898 7,337
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Gross profit....................................... 8,354 7,086
Operating expenses:
Research and development........................... 2,558 2,258
Sales and marketing................................ 2,391 1,824
General and administrative......................... 1,205 766
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Total operating expenses......................... 6,154 4,848
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Operating income..................................... 2,200 2,238
Other income, net.................................... 454 463
------- -------
Income before income taxes......................... 2,654 2,701
Provision for income taxes........................... 867 1,017
------- -------
Net income......................................... $ 1,787 $ 1,684
======= =======
Shares and common equivalent shares
used in computation of net income per
share (000s)........................................ 12,605 12,352
======= =======
Net income per share................................. $ .14 $ .14
======= =======
See accompanying notes to condensed consolidated financial statements.
4
ORTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended
---------------------
July 31, July 31,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 1,787 $ 1,684
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization........... 992 700
Gain on disposal of equipment........... -- (10)
Minority interest in subsidiaries....... 31 23
Changes in operating assets and
liabilities:
(Increase) decrease in:
Receivables............................... (2,580) 2,077
Inventories............................... (83) ( 964)
Prepaid expenses and other assets......... 319 (256)
Increase (decrease) in:
Accounts payable and accrued liabilities.. (1,072) (2,509)
Deferred income........................... 13 --
Income taxes payable...................... 806 860
------- -------
Net cash (used in) provided by
operating activities...................... 213 1,605
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (2,054) (2,042)
Proceeds from sale of equipment............. -- 19
Intangible assets........................... (462) --
Short-term investments...................... 2,103 (3,153)
Increase in valuation of short-term
investments................................ (29) --
------- -------
Net cash provided by (used in)
investing activities....................... (442) (5,176)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net........................................ 415 465
Notes receivable from stockholders.......... 303 (574)
------- -------
Net cash provided by (used in)
financing activities....................... 718 (109)
Effect of exchange rate changes on cash..... 47 (61)
------- -------
Net increase (decrease) in cash and
equivalents................................ 536 (3,741)
Cash and cash equivalents at beginning
of period.................................. 15,573 23,804
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Cash and cash equivalents at end of
period..................................... $16,109 $20,063
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.................................. $ 1 $ 1
Income taxes.............................. $ 41 $ 365
See accompanying notes to condensed consolidated financial statements.
5
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company without audit (except for the balance sheet
information as of April 30, 1996, which was derived from audited consolidated
financial statements) and, in the opinion of management, contain all adjustments
necessary to present fairly the consolidated financial position at July 31,
1996, and the condensed consolidated results of operations and cash flows for
the three-month periods ended July 31, 1996, and July 31, 1995, in accordance
with generally accepted accounting principles. Certain information and footnote
disclosures normally included in financial statements have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission, although the Company believes that the disclosures in the
consolidated financial statements are adequate to ensure the information
presented is not misleading. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
included in the Company's annual report for the fiscal year ended April 30,
1996.
The results of operations for the three-month period ended July 31, 1996,
are not necessarily indicative of the results to be expected for the entire
fiscal year.
2. Per Share Information
---------------------
Net income per share is based on the weighted average common and common
equivalent shares outstanding for each period including common shares issuable
upon the exercise of stock options.
Net income per share for all periods presented is summarized as follows (in
thousands, except per share data):
Three-Month Period
Ended July 31
--------------------
1996 1995
-------- --------
Net income........................................ $ 1,787 $ 1,684
======= =======
Weighted average shares outstanding:
Common shares issued.............................. 11,405 11,210
Stock options..................................... 1,200 1,142
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12,605 12,352
======= =======
Net income per share.............................. $ .14 $ .14
======= =======
For the three-month periods ended July 31, 1996 and 1995, fully diluted
income per share did not differ materially from primary income per share;
accordingly, fully diluted income per share has not been presented.
3. Income taxes
------------
Income taxes for the respective periods were computed using the effective
tax rate estimated to be applicable for the fiscal year, which is subject to
ongoing review and evaluation by management.
6
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
4. Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following (in thousands):
July 31, 1996 April 30, 1996
--------------- ---------------
(unaudited) (audited)
Raw materials........... $2,614 $2,617
Work-in-process......... 6,957 6,797
Finished goods.......... 248 322
------ ------
$9,819 $9,736
====== ======
5. Cash and cash equivalents
-------------------------
Cash consists of cash and cash equivalents (defined as marketable securities
with original maturities of 90 days or less) in the amount of $16.1 million and
$15.6 million as of July 31, 1996 and April 30, 1996, respectively, and short-
term investments (marketable securities with maturities of more than 90 days) of
$21.2 million and $23.3 million as of July 31, 1996, and April 30, 1996,
respectively. Under Financial Accounting Standards Board Statement 115, the
Company has classified its short-term investments as available-for-sale.
Available-for-sale securities are stated at market value and unrealized holding
gains and losses, net of the related tax effect, are excluded from earnings and
are reported as a separate component of stockholders' equity until realized. A
decline in the market value of the security below cost that is deemed other than
temporary is charged to earnings resulting in the establishment of a new cost
basis for the security.
7
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the unaudited condensed consolidated
financial statements included herein. The discussion in this section contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in this Item.
RESULTS OF OPERATIONS
The following table sets forth the statements of income as a percentage of
revenues.
Three Months Ended
January 31,
------------------
1996 1995
-------- --------
Revenues 100.0% 100.0%
Cost of revenues 51.6 50.9
----- -----
Gross profit 48.4 49.1
Operating expenses:
Research and development 14.8 15.7
Sales and marketing 13.8 12.6
General and administrative 7.0 5.3
----- -----
Total operating expenses 35.6 33.6
----- -----
Operating income 12.8 15.5
Other income, net 2.6 3.2
----- -----
Income before income taxes 15.4 18.7
Provision for income taxes 5.0 7.0
----- -----
Net income 10.4% 11.7%
===== =====
The Company's quarterly operating results have fluctuated and may continue
to fluctuate as a result of factors including changes in market demand, prices
of the Company's or its competitors' products, increased competition, new
product introduction by the Company or its competition, market acceptance of new
or existing products, manufacturing yields, the cost and availability of
components, the mix of the Company's customer base or sales channels, the mix of
products sold, the level of international sales and general economic conditions.
In addition, since a significant portion of the Company's business is derived
from orders placed by a few large customers, the timing of such orders has
caused and may continue to cause material fluctuations in the Company's business
and operating results.
8
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Revenues
The following table highlights certain aspects of the Company's revenues for
the three-month periods ended July 31, 1996 and 1995.
Three Months Ended
July 31,
-------------------
1996 1995
------- -------
Revenues (thousands)................ $17,252 $14,423
======= =======
As a percent of revenues:
Broadband products.................. 79.2% 72.9%
Other products...................... 20.8 27.1
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Total.......................... 100.0% 100.0%
======= =======
Geographic coverage:
Domestic............................ 69.8% 72.4%
International....................... 30.2 27.6
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Total.......................... 100.0% 100.0%
======= =======
Revenues of $17.3 million for the first quarter ended July 31, 1996
increased by $2.8 million or 20% from $14.4 million in the comparable quarter of
the previous year. Total revenues of $13.7 million from broadband customers
increased by $3.2 million or 30% compared to the prior year period of $10.5
million due primarily to renewed strength within the Company's core broadband
customer base and the addition of a new domestic broadband customer. Revenues of
$3.6 million from the sale of products for wireless, satellite communications,
and all other applications, decreased $324,000 or 8% compared to the prior year
period.
Sales to international customers of $5.2 million or approximately 30% of
revenues for the first quarter of fiscal 1997 increased by $1.2 million or 31%
from $4.0 million in the prior year period. Sales made through the Company's
subsidiaries in Germany, France and Sweden accounted for approximately 55% of
these total international revenues.
Gross Profit
Gross profit of $8.4 million for the first quarter of fiscal 1997
represented 48.4% of revenue compared to 49.1% in the comparable period last
year. The decrease in gross margin is primarily related to including the
results of Avitec AB of Sweden acquired in March, 1996. The Company expects
that the results of Avitec will continue to impact year-to-year gross margin
comparisons.
9
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Research and Development
Research and development expenditures of $2.6 million for the first quarter
of fiscal 1997 increased by $300,000 or 13% from the comparable period last
year. With a 20% increase in revenue, research and development as a percent of
revenue decreased from 15.7% in the first quarter of fiscal 1996 to 14.8% in the
first quarter of fiscal 1997.
The Company nets research and development contract revenues against research
and development costs. The total of such contract revenue for the first
quarters of fiscal 1997 and 1996 were $661,000 and $222,000, respectively.
Sales and Marketing
Sales and marketing expenditures of $2.4 million for the first quarter of
fiscal 1997 increased by $567,000 or 31% from $1.8 million for the comparable
quarter last year, and increased as a percent of revenues from 12.6% for the
first quarter of fiscal 1996 to 13.8% for the first quarter of fiscal 1997. The
increase in spending primarily reflects additional spending for advertising and
product promotion including product literature and trade shows as well as
increased personnel.
General and Administrative
General and administrative expenditures of $1.2 million for the first
quarter of fiscal 1997 increased by $439,000 or 57% from $766,000 for the
comparable period last year and increased as a percent of revenues from 5.3% for
the first quarter of fiscal 1996 to 7.0% for the first quarter of fiscal 1997.
The increase over the prior year period is primarily related to including the
administrative costs of Avitec and the amortization of intangibles assets
related to that acquisition which occurred in the fourth quarter of fiscal year
1996.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1996, the Company had working capital of $52.5 million,
including $16.1 million in cash and $21.2 million in short-term investments.
For the year-to-date period ended July 31, 1996, the Company's operating
activities used cash of $.2 million. Cash from operating activities includes
net income of $1.8 million plus depreciation of $.9 million offset by an
increase in working capital requirements.
As of July 31, 1996, the Company maintained an unsecured line of credit of
$13.0 million consisting of a revolving line of credit totaling $5.0 million
expiring on May 1, 1997 and a non-revolving line of credit totaling $8.0 million
with a term repayment option expiring on December 31, 1996. In addition, the
Company has a $2.0 million unsecured credit facility with another banking
institution which expires on September 30, 1996. Interest rates under credit
facilities vary according to market rates of interest. There were no amounts
outstanding under any of these credit facilities as of July 31, 1996.
The Company anticipates that cash, short-term investments and anticipated
funds from operations will satisfy the Company's projected working capital and
capital expenditure requirements through at least fiscal 1997.
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
Reference is hereby made to the Exhibit Index commencing on page 13.
b. No reports were filed on Form 8-K during the quarter ended July 31,
1996.
11
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.
DATE: September 12, 1996 ORTEL CORPORATION
(Registrant)
By: /s/Wim H.J. Selders
-------------------
Wim H.J. Selders,
President and Chief Executive Officer
By: /s/Stephen K. Workman
---------------------
Stephen K. Workman,
Vice President, Finance and Chief Financial
Officer
12
EXHIBIT INDEX
Exhibit No. Document Description Reference
- - ----------- -------------------- ---------
3.1 Certificate of Incorporation. (Note 1)
3.2 Bylaws of Ortel Corporation. (Note 1)
10.1 Lease, dated September 23, 1991,
between Ortel Corporation and Rim
Development Co. (Note 1)
10.2 Lease, dated May 20, 1994, between
Ortel Corporation and Wai Fong Un. (Note 1)
10.3 Consulting Agreement, dated January 3,
1994, between Ortel Corporation and
Wayne Tyler. (Note 1)
10.4 Consulting Agreement, dated March 2,
1990, as amended, between Ortel
Corporation and Amnon Yariv. (Note 1)
10.5 Employment Agreement, dated September
14, 1990, between Ortel Corporation and
Wim H.J. Selders. (Note 1)
10.6 Employment Agreement, dated September
14, 1990, between Ortel Corporation and
Israel Ury. (Note 1)
10.7 Employment Agreement, dated September
14, 1990, between Ortel Corporation and
Nadav Bar-Chaim. (Note 1)
10.8 1981 Incentive Stock Option Plan of
Ortel Corporation. (Note 1)
10.9 1990 Stock Option Plan of Ortel
Corporation. (Note 1)
10.10 Loan Agreement, dated September 30,
1993, between Ortel Corporation and
First Interstate Bank. (Note 1)
10.11 Form of Indemnification Agreement. (Note 1)
10.12 Common Stock Purchase Agreement, dated
March 26, 1990, between Sumitomo Cement
Co., Ltd. and Ortel Corporation. (Note 1)
10.13 Key Shareholders Agreement, dated as of
March 26, 1990, among Wim H.J. Selders,
Dr. Ury, Dr. Yariv, Dr. Bar-Chaim,
Sumitomo Cement Co., Ltd., The Ury
Family Trust and Ortel Corporation. (Note 1)
10.14 Agreement Concerning Certain Financial
and Business Arrangements, dated as of
March 26, 1990 between Sumitomo Cement
Co., Ltd. and Ortel Corporation. (Note 1)
10.15 Voting Agreement of Sumitomo Cement
Co., Ltd., dated as of March 26, 1990
between Sumitomo Cement Co., Ltd. and
Ortel Corporation. (Note 1)
10.16 Agreement dated as of November 19,
1993, between Ortel Corporation and
General Instrument Corporation. (Note 1)
10.17 Agreement, dated as of January 24,
1994, between Ortel Corporation and
General Instrument Corporation. (Note 1)
13
Exhibit No. Document Description Reference
- - ----------- -------------------- ---------
10.18 Modification Agreement, dated 1985,
between Ortel Corporation and certain
investors. (Note 1)
10.19 Class A Common Stock Purchase
Agreement, dated as of December 14,
1981, between Ortel Corporation and
certain investors. (Note 1)
10.20 1994 Equity Participation Plan of Ortel
Corporation. (Note 1)
10.21 Severance Agreement, dated as of August
26, 1994, between Ortel Corporation and
Stephen K. Workman. (Note 1)
10.22 Stock Purchase Agreement dated March
12, 1996 between Hakan Samuelsson and
Ortel Corporation. (Note 2)
10.23 Stock Purchase Agreement dated March
12, 1996 between Christa Samuelsson and
Ortel Corporation. (Note 2)
10.24 Loan Agreement, dated June 2, 1995
between Ortel Corporation and Bank of
America. (Note 3)
10.25 Amendment to Loan Agreement dated
September 30, 1995 between Ortel
Corporation and First Interstate Bank. (Note 3)
11.1 Statement Regarding Computation of Per
Share Earnings. (Note 1)
21.1 Subsidiaries of Ortel Corporation. (Note 3)
23.1 Consent of KPMG Peat Marwick LLP. (Note 3)
27 Financial Data Schedule
__________
Note 1 Previously filed by the Registrant in Registration No. 33-79188
and incorporated by reference herein pursuant to Rule 12b-32 of
the Exchange Act.
Note 2 Previously filed by the Registrant in its 8-K filing dated March
26, 1996.
Note 3 Previously filed by the Registrant in its 10-K filing dated April
30, 1996.
14