-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fk8xadouqMaqyhZZK4agqpkkGOgxJhKE2bCNc5R2CLVf/bkOFORwdeuzUSVYFQEA 7a7MoHpEb/lTj26DK/qK/Q== 0000891618-97-004846.txt : 19971208 0000891618-97-004846.hdr.sgml : 19971208 ACCESSION NUMBER: 0000891618-97-004846 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19971205 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAPTEC INC CENTRAL INDEX KEY: 0000709804 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 942748530 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-24557 FILM NUMBER: 97732867 BUSINESS ADDRESS: STREET 1: 691 S MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089458600 MAIL ADDRESS: STREET 1: 691 SOUTH MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 424B3 1 PROSPECTUS SUPPLEMENT DATED NOVEMBER 26, 1997 1 PROSPECTUS SUPPLEMENT DATED NOVEMBER 26, 1997 (To Prospectus dated June 24, 1997, and the Prospectus Supplements dated August 4, 1997, August 20, 1997, and October 1, 1997) ADAPTEC, INC. U.S. $230,000,000 4 3/4% Convertible Subordinated Notes due February 1, 2004 and Shares of Common Stock Issuable Upon Conversion Thereof ----------------------- This Prospectus Supplement together, with the Prospectus and Prospectus Supplements listed above, is to be used by certain holders of the above-referenced securities or by their transferees, pledgees, donees or their successors in connection with the offer and sale of the above referenced securities. 2 The table captioned "Selling Securityholders" commencing on page 52 of the Prospectus is hereby amended to reflect the following additions and changes.
NUMBER OF SHARES OF REBY PRINCIPAL AMOUNT OF NOTES COMMON STOCK BENEFICIALLY BENEFICIALLY OWNED OWNED AND OFFERED SELLING SECURITYHOLDER OFFERED HEREBY HEREBY(1)(2) - ------------------------------------------------------ ------------------------- ------------------------- Credit Suisse First Boston Corporation................ 150,000 2,903 Bear Stearns & Co., Inc (3) (4)....................... 1,500,000 29,036 Collective Employees Benefit Trust - Convertible Bond Fund Trust 375,000 7,259 Everen Securities..................................... 350,000 6,775 Nicholas-Applegate Income & Growth Fund............... 984,000 19,047 Wake Forest University................................ 219,000 4,239 Engineers Joint Pension Fund.......................... 138,000 2,671 Boston Museum of Fine Art............................. 36,000 696 San Diego County Convertible.......................... 1,166,000 22,570 Robertson Stephens & Co., LLP (4)..................... 1,159,000 22,435 Highmark Convertible Security Fund.................... 675,000 13,066 UBS Securities........................................ 2,560,000 49,554
(1) Includes shares of Common Stock issuable upon conversion of the Notes. (2) Assumes a conversion price of $51.66 per share, and a cash payment in lieu of any fractional share interest; such conversion price is subject to adjustment as described under "Description of Notes -- Conversion." Accordingly the number of shares of Common Stock issuable upon conversion of the Notes may increase or decrease from time to time. Under the terms of Indenture, fractional shares will not be issued upon conversion of the Notes; cash will be paid in lieu of fractional shares, if any. (3) Bear Sterns & Co., Inc. acted as the lead manager of the Company's Convertible Note Offering. (4) Represents additional shares being sold. The information on the following pages is added to the Prospectus. 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTH SIX MONTH PERIOD ENDED PERIOD ENDED --------------------- --------------------- SEPT. SEPT. SEPT. SEPT. 30, 30, 30, 30, 1997 1996 1997 1996 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues.................................... $278,088 $215,043 $549,530 $417,057 Cost of revenues................................ 104,530 92,550 212,024 178,596 -------- -------- -------- -------- Gross profit.................................... 173,558 122,493 337,506 238,461 -------- -------- -------- -------- Operating expenses: Research and development...................... 42,117 30,633 81,099 58,480 Selling, marketing and administrative......... 53,228 35,936 102,507 69,860 Write-off of acquired in-process technology and other.................................. -- 42,405 -- 68,905 -------- -------- -------- -------- Total operating expenses........................ 95,345 108,974 183,606 197,245 -------- -------- -------- -------- Income from operations.......................... 78,213 13,519 153,900 41,216 Interest income, net of interest expense........ 5,412 2,266 9,310 4,933 -------- -------- -------- -------- Income before provision for income taxes........ 83,625 15,785 163,210 46,149 Provision for income taxes...................... 20,906 14,548 40,802 26,998 -------- -------- -------- -------- Net income...................................... $ 62,719 $ 1,237 $122,408 $ 19,151 ======== ======== ======== ======== Net income per share............................ $ 0.53 $ 0.01 $ 1.04 $ 0.17 ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding............................ 119,051 113,640 118,030 112,508 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 3 4 ADAPTEC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
SEPTEMBER 30, MARCH 31, 1997 1997 ------------- ---------- (IN THOUSANDS) Current assets: Cash and cash equivalents........................................ $ 256,605 $ 318,075 Marketable securities............................................ 414,402 230,366 Accounts receivable, net......................................... 160,644 132,571 Inventories...................................................... 49,574 53,184 Prepaid expenses and other....................................... 76,441 83,752 --------- --------- Total current assets..................................... 957,666 817,948 Property and equipment, net........................................ 183,887 141,599 Other assets....................................................... 97,077 83,947 --------- --------- $ 1,238,630 $1,043,494 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt................................ $ 2,550 $ 3,400 Note payable..................................................... 35,280 -- Accounts payable................................................. 50,724 52,400 Accrued liabilities.............................................. 83,551 68,519 --------- --------- Total current liabilities................................ 172,105 124,319 --------- --------- Convertible subordinated notes and long-term debt, net of current portion.......................................................... 230,000 230,850 --------- --------- Shareholders' equity: Common stock..................................................... 277,626 251,834 Retained earnings................................................ 558,899 436,491 --------- --------- Total shareholders' equity............................... 836,525 688,325 --------- --------- $ 1,238,630 $1,043,494 ========= =========
See accompanying notes to condensed consolidated financial statements. 4 5 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTH PERIOD ENDED ------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1996 ------------- ------------- (IN THOUSANDS) Net Cash Provided by Operating Activities......................... $ 155,318 $ 71,433 --------- -------- Cash Flows From Investing Activities: Purchase of certain net assets in connection with acquisitions accounted for under the purchase method of accounting........... -- (75,365) Purchases of property and equipment............................... (56,844) (43,445) (Purchases) sales of marketable securities........................ (184,036) 46,269 --------- -------- Net Cash Used for Investing Activities............................ (240,880) (72,541) --------- -------- Cash Flows From Financing Activities: Payment of short-term note........................................ -- (46,200) Proceeds from issuance of common stock............................ 25,792 10,614 Principal payments on debt........................................ (1,700) (1,700) --------- -------- Net Cash Provided by (Used for) Financing Activities.............. 24,092 (37,286) --------- -------- Net Decrease in Cash and Cash Equivalents......................... (61,470) (38,394) Cash and Cash Equivalents at Beginning of Period.................. 318,075 91,211 --------- -------- Cash and Cash Equivalents at End of Period........................ $ 256,605 $ 52,817 ========= ========
See accompanying notes to condensed consolidated financial statements. 5 6 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements have been prepared on a consistent basis with the March 31, 1997 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to provide a fair statement of the results for the interim periods presented. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 1997. For presentation purposes, the Company has indicated its second quarter as having ended on September 30, whereas in fact, the Company's second quarter of fiscal 1998 ended on October 3, 1997 and its second quarter of fiscal 1997 ended on September 27, 1996. The results of operations for the six month period ended September 30, 1997 are not necessarily indicative of the results to be expected for the entire year. 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory are as follows (in thousands):
SEPTEMBER 30, MARCH 31, 1997 1997 ------------- --------- Raw materials........................................ $11,209 $12,958 Work in process...................................... 19,540 14,370 Finished goods....................................... 18,825 25,856 ------- ------- $49,574 $53,184 ======= =======
3. NET INCOME PER SHARE The Company's net income per share, weighted average common and common equivalent shares outstanding, and other share information included in these interim financial statements reflect the two-for-one split of its common stock approved by its Board of Directors in November 1996. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, (SFAS 128) "Earnings Per Share," which the Company is required to adopt beginning in the third quarter of fiscal 1998. Under SFAS 128 primary earnings per share will be replaced by basic earnings per share and the dilutive effect of stock options will be excluded. Fully diluted earnings per share will be replaced with diluted earnings per share. The statement requires retroactive presentation of all earnings per share amounts. Following are pro forma disclosures of basic and diluted earnings per share as if the Company had applied SFAS 128 during the periods presented below:
THREE MONTH PERIOD SIX MONTH PERIOD ENDED ENDED ----------------------- ----------------------- SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 1997 1996 1997 1996 --------- --------- --------- --------- Pro forma basic earnings per share............ $0.56 $0.01 $1.09 $0.18 Pro forma diluted earnings per share.......... $0.52 $0.01 $1.03 $0.17
4. INCOME TAXES Income tax provisions for interim periods are based on estimated annual income tax rates. The effective income tax rate varies from the U.S. federal statutory income tax rate primarily due to income earned in Singapore where the Company is subject to a significantly lower effective tax rate. 6 7 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 5. ACQUISITIONS On April 9, 1996, the Company acquired, for $32 million cash, certain assets and the ongoing business of Western Digital's Connectivity Solutions Group (CSG), a supplier of silicon solutions for the SCSI disk drive market. On June 28, 1996, the Company acquired certain technologies from Corel, Inc. for $12 million cash. Included in these technologies was Corel's CD creator product for the CD-recordable software market. Additionally, on September 16, 1996, the Company acquired, for $31 million cash and $15 million in stock, Data Kinesis, Inc. (DKI), a developer of software for improving system performance in file management and RAID applications. The Company accounted for these acquisitions using the purchase method of accounting, and excluding the $67 million write-off of purchased in-process technology from these companies, the aggregate impact on the Company's results of operations from the acquisition date was not material. The allocation of the Company's aggregate purchase price to the tangible and identifiable intangible assets acquired was based on independent appraisals and is summarized as follows (in thousands): Tangible assets............................................ $10,135 In-process technology...................................... 67,200 Goodwill................................................... 14,370 ------- Assets acquired............................................ $91,705 =======
The tangible assets acquired were primarily comprised of inventory and fixed assets. Acquired in-process technology was written off in the periods in which the acquisitions were completed, and the goodwill is being amortized over respective benefit periods ranging from three to five years. On August 12, 1996, the Company completed its acquisition of Cogent Data Technologies, Inc. (Cogent), a provider of high-performance Fast Ethernet products for the networking market. The Company acquired all of the outstanding capital stock of Cogent in exchange for 1.3 million shares of its common stock. Additionally, the Company incurred $1.7 million in professional fees related to this acquisition which have been included in "write-off of acquired in-process technology and other." The Company has recorded this acquisition using the pooling method of accounting. Cogent's historical operations have not been material to the Company's consolidated financial statements and, therefore, have not been reflected in the Company's consolidated financial results prior to the acquisition. Beginning at the date of acquisition, the book value of the acquired assets and assumed liabilities as well as the results of Cogent's operations, all of which are not material to the Company have been combined with those of the Company. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth the items in the condensed consolidated statements of operations as a percentage of net revenues:
THREE MONTH SIX MONTH PERIOD ENDED PERIOD ENDED ----------------------- ----------------------- SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 1997 1996 1997 1996 --------- --------- --------- --------- Net revenues........................................... 100.0% 100.0% 100.0% 100.0% Cost of revenues....................................... 37.6 43.0 38.6 42.8 ----- ----- ----- ----- Gross margin........................................... 62.4 57.0 61.4 57.2 ----- ----- ----- ----- Operating expenses: Research and development............................. 15.2 14.3 14.8 14.0 Selling, marketing and administrative................ 19.1 16.7 18.6 16.8 Write-off of acquired in-process technology and other............................................. -- 19.7 -- 16.5 ----- ----- ----- ----- 34.3 50.7 33.4 47.3 ----- ----- ----- ----- Income from operations................................. 28.1 6.3 28.0 9.9 Interest income, net of interest expense............... 2.0 1.0 1.7 1.2 ----- ----- ----- ----- Income before provision for income taxes............... 30.1 7.3 29.7 11.1 Provision for income taxes............................. 7.5 6.7 7.4 6.5 ----- ----- ----- ----- Net income............................................. 22.6% 0.6% 22.3% 4.6% ===== ===== ===== =====
NET REVENUES Net revenues were $278 million for the second quarter of fiscal 1998 and $550 million for the first half of fiscal 1998, representing increases of 29% and 32%, respectively, over the corresponding periods of fiscal 1997. This growth in net revenues was primarily attributable to increased shipments of the Company's host adapters and proprietary integrated circuits (ICs) used in peripheral technology solutions compared to the same periods a year ago. These increases reflect growth in the high-performance microcomputer markets, continued demand for SCSI in the client/server environment, the ongoing deployment of sophisticated operating systems, and an increase in the use of diverse peripherals in microcomputer systems compared to the corresponding prior year period. GROSS MARGIN Gross margins for the second quarter and the first half of fiscal 1998 were 62% and 61%, respectively, compared to 57% for the three months ended September 30, 1996 and first half of fiscal 1997. The percentage increase is primarily due to the mix of products shipped, which included increased shipments of the Company's higher margin SCSI host adapters. Gross margin also increased due to the Company's continued focus on component cost reductions and on improving manufacturing efficiencies. OPERATING EXPENSES As a percentage of net revenues, expenditures for research and development remained at approximately 15% for both the second quarter and first half of fiscal 1998 compared to 14% for the corresponding periods of fiscal 1997. In absolute dollars, spending for research and development increased 37% to $42 million for the second quarter of fiscal 1998 and 39% to $81 million for the first half of fiscal 1998. This increased spending is a result of the Company's ongoing commitment to invest in its core products as well as newer hardware and software products incorporating IEEE 1394, Fibre Channel, optical standards, and CD recordable software solutions. As a percentage of revenues, selling, marketing and administrative expenses was 19% for the second quarter and first half of fiscal 1998 compared with 17% for the corresponding periods of fiscal 1997. In absolute 8 9 dollars, spending for selling, marketing and administrative expenses increased 48% to $53 million for the second quarter of fiscal 1998 and 47% to $103 million for the first half of fiscal 1998. The increase in spending was primarily a result of increased staffing levels to support the Company's worldwide growth and increased advertising and promotional programs. During the first half of fiscal 1997, the Company acquired complementary businesses recorded under the purchase method of accounting, resulting in write-offs of acquired in-process technology of $42 million and $67 million for the second quarter and first half of fiscal 1997, respectively. During the first half of fiscal 1998, the Company did not complete any acquisitions. INTEREST AND INCOME TAXES Interest income, net of interest expense, increased 139% to $5.4 million for the second quarter of fiscal 1998 and 89% to $9.3 million for the first half of fiscal 1998. The increase was primarily due to higher average cash and marketable securities balances as a result of proceeds received in connection with $230 million of Convertible Subordinated Notes that the Company issued in February 1997, offset by higher interest expense as a result of higher average outstanding debt balances. The Company recorded a provision for income taxes of $20.9 million and $40.8 million for the second quarter and first half of fiscal 1998, respectively, representing 25% of income before income taxes compared with 92% and 59% for the corresponding periods in fiscal 1997. The rates in the prior fiscal year were higher than the 25% rate primarily due to book write-offs of acquired in-process technology which are not deductible for tax purposes. The difference between the Company's effective tax rate and the U.S. statutory rate is primarily due to income earned in Singapore where the Company is subject to a significantly lower effective tax rate. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Net cash generated from operating activities for the first half of fiscal 1998 totaled $155 million compared to $71 million generated in the corresponding period of fiscal 1997. The increase is primarily attributable to net income for the first half of fiscal 1998 of $122 million compared with $19 million for the first half of fiscal 1997 reflecting the impact of a $67 million non-recurring write-off of acquired in-process technology. Operating cash flows for the first half of fiscal 1998 were also increased by the receipt of two amounts totaling $25.7 million that had been previously classified as prepaid expenses. These payments consisted of a refund of a deposit totaling $14.7 million from Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") and $11 million received from Lucent Technologies, Inc. ("Lucent") under an agreement in which the Company sold equipment that it had previously purchased in connection with a separate agreement. INVESTING ACTIVITIES Purchases of property and equipment of $57 million during the first half of fiscal 1998 included an investment of $11 million for land located in Irvine, California to provide for the Company's future growth and $16 million relating to the implementation of new information systems. During the first half of fiscal 1998 and 1997, the Company continued to make various building and leasehold improvements to its facilities and to invest in equipment for product development and manufacturing to support increased demand for its products and future business requirements. During the first half of fiscal 1997, the Company paid a total of $75 million cash for the acquisition of CSG, DKI, and certain technologies from Corel, Inc. The Company anticipates capital expenditures relating to property and equipment will total approximately $50 million for the remainder of fiscal 1998. The Company may also make investments in increased wafer fabrication capacity or for acquisitions of complimentary businesses, products, or technologies. 9 10 During the first half of fiscal 1998 the Company continued to invest significant amounts of funds in marketable securities, consisting of various taxable and tax advantaged securities. During the corresponding period of fiscal 1997, the Company sold marketable securities to help fund its acquisitions. FINANCING ACTIVITIES During April 1997, the Company entered into an agreement with TSMC whereby the Company will make advance payments totaling $35 million to secure additional wafer capacity for future technology through 2001. The Company signed a $35 million promissory note for the advance payments, which becomes due in two equal installments in January 1998 and June 1998. During the first half of fiscal 1997, the Company paid a short term note of $46 million due to TSMC in return for guaranteed future wafer capacity. During the first half of fiscal 1998 and fiscal 1997, the Company received proceeds from common stock issued under the employee stock option and employee stock purchase plans totaling $26 million and $11 million, respectively. At September 30, 1997, the Company's principal sources of liquidity consisted of $671 million of cash, cash equivalents and marketable securities and an unsecured $17 million revolving line of credit which expires on December 31, 1998. The Company believes existing working capital, together with expected cash flows from operations and available sources of bank, equity, debt and equipment financing, will be sufficient to support its operations through fiscal 1998. FORWARD LOOKING STATEMENTS AND RISK FACTORS Forward looking statements contained in this discussion and analysis, including statements related to anticipated capital expenditures and the sufficiency of the Company's capital resources, and which may from time to time be made by the Company and its representatives, are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Factors that may cause the Company's actual results in future periods to be materially different from statements made include, but are not limited to, cancellations or postponements of orders, shifts in the mix of the Company's products and sales channels, changes in pricing policies by the Company's suppliers, interruption in the supply of custom integrated circuits, the market acceptance of new and enhanced versions of the Company's products and the timing of acquisitions of other business products and technologies and any associated charges to earnings. In addition, there are risks associated with dependence on the high-performance microcomputer market, the computer peripherals market, technological change, dependence on new products, dependence on wafer suppliers and other subcontractors, acquisitions, implementations of new information systems, competition, issues related to distributors, dependence on key personnel, international operations, intellectual property protection and disputes, the need for interoperability and volatility of stock price. For a more complete discussion of these factors, refer to the Risk Factors included in the Company's 1997 Annual Report on Form 10-K for the year ended March 31, 1997. 10 -----END PRIVACY-ENHANCED MESSAGE-----