SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1997
Commission file number: 0-28082
KVH Industries, Inc.
(Exact name of Registrant as Specified in its Charter)
Delaware 05-0420589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Enterprise Center, Middletown, RI. 02842
(Address of principal executive offices)
(401) - 847 - 3327
(Registrant' telephone number, including area code)
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 registrant's
classes of common stock, as of the latest practicable date.
Date Class Outstanding shares
April 8, 1997 Common Stock, par value $0.01 per, share 7,042,120
KVH INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 .......................... 3
Consolidated Statements of Income for the
three months ended March 31, 1997 and 1996 .... 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 .... 5
Notes to Consolidated Financial Statements .... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . 7
PART II. OTHER INFORMATION ...................................... 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................ 9
SIGNATURES ...................................................... 10
Part I. Financial Information
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
Assets:
Current assets:
Cash and cash equivalents .......................... $ 7,967,580 7,005,682
Accounts receivable, net ........................... 4,907,307 6,130,567
Contract receivables ............................... 56,943 29,226
Costs and estimated earnings in excess of
billings on uncompleted contracts .................. 994,762 835,720
Inventories ........................................ 3,347,568 3,242,270
Prepaid expenses and other deposits ................ 81,760 179,705
Deferred income taxes .............................. 134,552 134,552
----------- -----------
Total current assets ............................. 17,490,472 17,557,722
----------- -----------
Property and equipment, net ........................ 4,015,673 3,881,088
Other assets, less accumulated amortization ........ 16,236 25,978
Deferred income taxes .............................. 88,861 88,862
----------- -----------
Total assets ....................................... $21,611,242 21,553,650
=========== ===========
Liabilities and stockholders' equity:
Current liabilities:
Current lease obligation ........................... $ $ 57,676
46,924
Accounts payable ................................... 1,373,309 1,031,309
Accrued expenses ................................... 1,014,077 1,371,193
Customer deposits .................................. 1,975,413 2,527,500
----------- -----------
Total current liabilities ........................ 4,409,723 4,987,678
----------- -----------
Obligations under capital leases, excluding
current installments ............................... 0 3,341
----------- -----------
Total liabilities ................................ 4,409,723 4,991,019
----------- -----------
Stockholders' equity:
Common stock ....................................... 70,421 69,932
Additional paid-in capital ......................... 14,919,216 14,884,806
Accumulated earnings ............................... 2,211,882 1,607,893
----------- -----------
Total stockholders' equity ....................... 17,201,519 16,562,631
----------- -----------
Total liabilities and stockholders' equity ......... $21,611,242 21,553,650
=========== ===========
See accompanying notes to financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
1997 1996
-------------- ------------------
Net sales $ 5,916,329 4,780,659
Cost of sales 3,179,029 2,692,389
-------------- ------------------
Gross profit 2,737,300 2,088,270
Operating expenses:
Research and development 605,946 609,721
Sales and marketing 779,099 858,221
Administration 476,551 316,135
-------------- ------------------
Income from operations 875,704 304,193
Other income(expense):
Other income (expense) (7,040) 1,251
Interest income, net 86,486 0
Foreign currency gain (loss) (3,874) 7,166
-------------- ------------------
Income before income taxes 951,276 312,610
Income tax expense 347,287 125,042
============== ==================
Net income $ 187,568
603,989
============== ==================
Per share information:
Income per share $ 0.08 0.03
Number of shares used in per
share calculation 7,492,614 5,736,812
See accompanying notes to consolidated financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
1997 1996
------------- ------------
Cash flow from operations:
Net income ....................................... $ 603,989 187,568
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 157,393 44,994
Provision for deferred taxes ..................... 0 116,150
Decrease in accounts and contract receivables .... 1,195,543 645,697
Decrease (increase) in costs and estimated
earnings in excess of billings on uncompleted
contracts ........................................ (159,042) 78,647
Increase in inventories .......................... (105,298) (612,250)
Decrease in prepaid expenses and other
deposits ......................................... 97,945 53,488
Increase in accounts payable ..................... 342,000 338,226
Decrease in accrued expenses ..................... (357,116) (18,397)
Decrease in customer deposits .................... (552,087) (150,000)
----------- -----------
Net operating cash provided by
operating activities ............................ 1,223,327 684,123
----------- -----------
Cash flow from investing activities:
Capital expenditures ............................. (282,235) (482,620)
----------- -----------
Net cash (used in) investing activities: ......... (282,235) (482,620)
----------- -----------
Cash flow from financing activities:
Deferred registration cost ....................... 0 (494,598)
Repayments of obligations under capital lease .... (14,093) (12,692)
Proceeds from issuance of capital stock, exercise
of warrants and stock options .................... 34,899 598
----------- -----------
Net cash provided by (used in) ................... 20,806 (506,692)
financing activities
Net increase (decrease) in cash and cash
equivalents ...................................... 961,898 (305,189)
----------- -----------
Cash and cash equivalents at beginning of period . 7,005,682 895,677
Cash and cash equivalents at end of period ....... $ 7,967,580 590,488
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ........ $ 1,237 966
See the accompanying notes to consolidated financial statements.
Item 1. Financial Statements.
KVH INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(Unaudited)
(1.) The accompanying consolidated financial statements of KVH Industries, Inc.
and subsidiary (the "Company") for the periods ended March 31, 1997 and March
31, 1996 have been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. These financial statements have not been audited by independent public
accountants, but include all adjustments (consisting of only normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial condition, results of operations and cash flows
for such periods. These consolidated financial statements do not include all
disclosures associated with annual financial statements and accordingly should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K dated March 24,
1997 as filed with the Securities and Exchange Commission, a copy of which is
available from the Company upon request.
(2.) Inventories (in thousands of dollars) at March 31, 1997 and December 31,
1996 include the costs of material, labor and factory overhead. Inventories are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:
1997 1996
Raw materials ................................. $2,093 $1,888
Work in process ............................... 364 714
Finished goods ................................ 891 640
$3,348 $3,242
(3.) In May of 1996 the Company purchased a 75,000 square foot facility for
$2,000,000. Manufacturing operations were relocated to the new facility upon
completion of the first phase of facility renovations in January of 1997. The
manufacturing renovation phase cost approximately $700,000. The Company is in
the process of completing the remaining facility renovations that are estimated
to cost approximately $1,000,000. When the second phase of renovations are
completed in the second half of 1997, the remainder of the Company's operations
will be relocated to the new facility. Upon relocation of operations to the new
facility, the Company's 27,000 square foot existing facility will be utilized as
warehouse space.
(4.) Income tax expense has been calculated using an estimated tax rate of 37%
for the three months ended March 31, 1997 and 40% for the three months ended
March 31, 1996. The decrease in the rate in 1997 arises from the application of
the research and development tax credits against the current income tax
liability. The tax rates utilized in the calculation of income tax expense
differ from the federal statutory rate of 34% primarily due to state income tax
expense net of the associated federal tax benefit.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"SafeHarbor" statement under the Private Securities Litigation Reform Act of
1995.
With the exception of historical information, the matters discussed in this
Quarterly Report on Form 10-Q include certain forward looking statements that
involve risks and uncertainties. Among the risks and uncertainties to which the
Company is subject are the risks associated with managing the Company's
inventory in light of product life cycles and technological change, the
Company's relationship with its significant customers, market acceptance of new
product offerings in the emerging mobile satellite communications market,
reliance on satellite networks, reliance on a limited number of products and
customers, dependence on key personnel and fluctuations in annual and quarterly
performance. As a consequence of these factors the actual results realized by
the Company could differ materially from the statements made herein.
Shareholders of the Company are cautioned not to place undue reliance on forward
looking statements made in the Quarterly Report on Form 10-Q. This report should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K dated March 24,
1997 as filed with the Securities and Exchange Commission, a copy of which is
available from the Company upon request.
NET INCOME AND EARNINGS PER SHARE - Net income and earnings per share for
the three months ended March 31, 1997 and 1996 were $603,989 and $0.08 per share
and $187,568 and $0.03 per share respectively. Earnings per share increased
$0.05 per share despite a 31% increase in the number of shares used in the per
share calculation. The share increase results primarily from shares issued as a
result of the Company's initial public offering in April 1997.
NET SALES - Net sales grew $1,135,670 or a 24% increase when compared with
first quarter 1996 revenues of $4,780,659. Navigation product sales represented
94% of the sales increase while mobile satellite communications products
represented 6% of the first quarter increase. Navigation sales increases
resulted from shipments of TACNAV products to the governments of Sweden, the
United States and Canada. TACNAV product shipments are scheduled throughout the
remainder of 1997. Communications sales increases result from shipments of the
TracPhone to American Mobile Satellite Corporation ("AMSC"). The remainder of
the AMSC TracPhone shipments will occur in the second quarter of 1997. AMSC has
not exercised additional options available under the contract and the Company
does not anticipate additional orders this year.
GROSS PROFIT - Gross profit increased $649,030 or 31% in the first quarter
of 1997 when compared with the first quarter of 1996. Gross profit as a
percentage of net sales represented 46% of net sales in 1997 and 44% of net
sales in 1996. The improvement in gross profit results from the shipment of a
greater proportion of higher margin TACNAV systems in the first quarter as a
result of the Swedish TACNAV order.
OPERATING EXPENSES - Research and development remained relatively unchanged
when compared with the first quarter of 1996. Research and development costs are
anticipated to rise slightly throughout the year. Sales and marketing expense
decreased $79,122 or 9% in the first quarter of 1997 when compared with the
first quarter of 1996. The decrease in sales and marketing expense in the first
quarter of 1997 resulted from a reduction of product introduction costs that
were incurred in first quarter of 1996 and did not reoccur in 1997. Sales and
marketing expense is anticipated to increase throughout 1997 in response to new
product introductions and costs associated with establishing new geographic
markets. General and administrative expense increased by $160,416 or 51% in the
first quarter of 1997 when compared with the first quarter of 1996. General and
administrative cost increases result from costs incurred as a consequence of
becoming a publicly traded company such as: directors' and officers' insurance,
legal fees and investor relations costs. General and administrative costs are
anticipated to increase gradually throughout 1997.
OTHER INCOME (EXPENSE) - Other income (expense) is made up of interest
expense income net, other other income (expense), and foreign currency
translation gains. The year to year change in other income (expense) is
immaterial. The increase in interest income resulted from the investment of the
proceeds of the initial public offering in fully-guaranteed, government
short-term securities.
INCOME TAXES - Income tax expense increased $222,245 or 178% in the first
quarter of 1997 when compared with the first quarter of 1996. The income tax
rate decreased by 3% in 1997 from approximately 40% in 1996 due to the
application of research and development tax credits to the current tax
liability.
LIQUIDITY AND CAPITAL RESOURCES - Working capital increased by $510,705 in
the first quarter of 1997 from December 31, 1996 due to the liquidation of
customer deposits associated with the shipment of navigation defense orders.
Cash and cash equivalents were $7,967,580 and $7,005,682 on March 31, 1997 and
December 31, 1996 respectively. The Company believes that cash generated from
operations, amounts available under its revolving bank borrowing facility and
the net proceeds of the initial public offering will be sufficient to fund its
necessary operations and planned capital expenditures for at least the next
twelve months.
CAPITAL EXPENDITURES - Net fixed assets increased approximately $134,585 in
the first quarter of 1997 when compared with December 31, 1996. The increase in
fixed assets is made up primarily of capital improvements associated with the
renovation of the Company's new 75,000 square foot facility. The Company
believes the remaining renovations related to the new facility will cost
approximately $1,000,000.
OTHER MATTERS - In March of 1997, the Financial Accounting Standards Board
issued Statement Number 128, "Earnings Per Share", which establishes standards
of computing and presenting earnings per share. The Company will adopt the
provisions of this new standard effective December 31, 1997, and all prior
periods will be restated. The effect of adoption will not have a material impact
on the Company's financial condition, results of operations or cash flows.
Part II. Other Information
Item 1. Legal Proceedings.
None
Item 6. Exhibits and reports on Form 8-K.
1. Exhibit 11 - Computation of Earnings Per Common Share: Three Months
Ended March 31, 1997 and 1996.
2. Exhibit 27 - Financial Data Schedule: Three Months Ended March 31, 1997.
3. No reports on Form 8-K were filed during the quarter for which this
report was filed.
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.
KVH Industries, Inc.
By: /s/ Richard C. Forsyth
Richard C. Forsyth
(Chief Financial and Accounting Officer)
Date: April 17, 1997
Exhibit 11
KVH INDUSTRIES INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
(unaudited)
For the three months
ended March 31,
1997 1996
----------- ----------
Net Earnings 604 187
Shares:
Weighted average number of 7,014 1,616
common shares outstanding
Additional shares assuming conversion of:
Convertible preferred stock 0 3,245
Stock options and warrants 478 876
=========== ==========
Average common shares 7,492 5,737
outstanding and equivalents
=========== ==========
Net earnings per common share $0.08 $0.03
5
3-MOS
DEC-31-1997
MAR-31-1997
7,967,580
0
5,039,580
132,446
3,347,568
17,490,472
5,782,363
1,766,690
21,611,242
4,409,723
0
0
0
70,421
17,131,098
21,611,242
5,916,329
5,916,329
3,179,029
3,179,029
1,786,024
0
0
951,276
347,287
603,989
0
0
0
603,989
.08
.08
