-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Xyk7A3+F7vPM2q/jw+ZFZsyJX8XsGGb9Zv8Q0DuMc4fWue1zznJFrkyTK42rc1JB V1QXQ1xPmnFHVTlpvEeW+g== 0000891618-95-000038.txt : 19950515 0000891618-95-000038.hdr.sgml : 19950515 ACCESSION NUMBER: 0000891618-95-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941230 FILED AS OF DATE: 19950208 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAPTEC INC CENTRAL INDEX KEY: 0000709804 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942748530 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15071 FILM NUMBER: 95506446 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 10-Q 1 FORM 10-Q 1 UNITED STATES 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 December 30, 1994 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 number 0-15071 ADAPTEC, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-2748530 (State of Incorporation) (I.R.S. Employer Identification No.) 691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 945-8600 N/A (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 ----- ----- The number of shares outstanding of common stock as of January 20, 1995 was 51,371,948. This document consists of 13 pages of which this is page 1. 2 TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes To Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations 8-10 Liquidity and Capital Resources 10-11 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------- Three Month Nine Month Period Ended Period Ended ------------ ------------ Dec. 30 Dec. 31 Dec. 30 Dec. 31 (in thousands, except per share data) 1994 1993 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- Net revenues $123,367 $96,071 $336,002 $270,491 Cost of revenues 51,804 47,381 152,138 139,328 - ----------------------------------------------------------------------------------------------------------------------------- Gross profit 71,563 48,690 183,864 131,163 - ----------------------------------------------------------------------------------------------------------------------------- Operating expenses: Research and development 14,835 10,776 43,181 28,629 Sales and marketing 15,805 12,094 43,387 33,513 General and administrative 6,024 5,628 17,161 13,599 - ----------------------------------------------------------------------------------------------------------------------------- Total operating expenses 36,664 28,498 103,729 75,741 - ----------------------------------------------------------------------------------------------------------------------------- Income from operations 34,899 20,192 80,135 55,422 Shareholder settlement -- -- -- (2,409) Interest income, net of interest expense 1,639 902 4,470 2,565 - ----------------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes 36,538 21,094 84,605 55,578 Provision for income taxes 9,135 5,274 21,152 13,896 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 27,403 $ 15,820 $ 63,453 $ 41,682 ============================================================================================================================= Net income per share $ .52 $ .29 $ 1.19 $ .78 ============================================================================================================================= Weighted average common and common equivalent shares outstanding 52,958 53,928 53,364 53,354 =============================================================================================================================
See accompanying notes. 3 4 ADAPTEC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
- ---------------------------------------------------------------------------------------------------------------- December 30 March 31 (in thousands) 1994 1994* - ---------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 64,295 $ 35,387 Marketable securities 151,928 147,620 Accounts receivable, net 56,406 55,334 Inventories 28,682 38,940 Prepaid expenses 13,481 15,979 - ---------------------------------------------------------------------------------------------------------------- Total current assets 314,792 293,260 - ---------------------------------------------------------------------------------------------------------------- Property and equipment, at cost 91,404 72,114 Less accumulated depreciation and amortization (26,526) (20,592) - ---------------------------------------------------------------------------------------------------------------- Property and equipment, net 64,878 51,522 - ---------------------------------------------------------------------------------------------------------------- Other assets 18,472 13,693 - ---------------------------------------------------------------------------------------------------------------- $398,142 $358,475 ================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,400 $ 3,400 Accounts payable 12,172 19,654 Accrued liabilities 31,844 15,435 - ---------------------------------------------------------------------------------------------------------------- Total current liabilities 47,416 38,489 - ---------------------------------------------------------------------------------------------------------------- Long-term debt, net of current portion 8,500 11,050 - ---------------------------------------------------------------------------------------------------------------- Long-term liability 11,340 11,320 - ---------------------------------------------------------------------------------------------------------------- Shareholders' equity: Common stock 129,276 138,347 Retained earnings 201,504 159,299 Cumulative translation adjustment 106 (30) - ---------------------------------------------------------------------------------------------------------------- Total shareholders' equity 330,886 297,616 - ---------------------------------------------------------------------------------------------------------------- $398,142 $358,475 ================================================================================================================
See accompanying notes. * Amounts are derived from the March 31, 1994 audited financial statements. 4 5 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
- --------------------------------------------------------------------------------------------------------- Nine Month Period Ended ----------------------- December 30 December 31 (in thousands) 1994 1993 - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 63,453 $ 41,682 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,671 8,384 Provision for inventory reserves and doubtful accounts 5,142 4,163 Changes in assets and liabilities: Increase in accounts receivable (1,222) (13,973) Decrease (increase) in inventories 5,266 (1,429) Decrease in prepaid expenses 2,498 5,339 Increase in other assets (4,910) (11,426) Decrease in accounts payable (7,482) (7,589) Increase in accrued liabilities and long-term liability 16,429 8,984 - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 88,845 34,135 - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (22,760) (11,723) Sales of (investment in) marketable securities, net (4,308) 4,763 - --------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (27,068) (6,960) - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 6,229 5,529 Repurchase and retirement of common stock (36,548) -- Principal payments on long-term debt (2,550) (2,122) - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (32,869) 3,407 - --------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 28,908 30,582 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,387 19,345 - --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,295 $ 49,927 =========================================================================================================
See accompanying notes. 5 6 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 30, 1994 (unaudited) 1. Basis of Presentation In the opinion of management, the unaudited condensed consolidated interim financial statements included herein have been prepared on the same basis as the March 31, 1994 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The results of operations for the three and nine month periods ended December 30, 1994 are not necessarily indicative of the results to be expected for the entire year. 2. Supplemental Disclosures of Cash Flows Cash paid for interest and income taxes is as follows (in thousands):
Nine Month Period Ended ----------------------- December 30 December 31 1994 1993 ---- ---- Interest $ 877 $1,008 Income taxes $18,643 $8,680
3. Cash, Cash Equivalents, and Marketable Securities Effective at the beginning of fiscal 1995, Adaptec, Inc. (the Company) adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), which requires investment securities to be classified as either held-to-maturity, trading or available-for-sale. Management has determined its entire marketable securities portfolio to be classified as available-for-sale. Under SFAS 115, for those investments classified as available-for-sale any temporary difference between an investment's cost and its fair value should be recorded as a separate component of shareholders' equity. At December 30, 1994, the fair value of the Company's marketable securities approximated cost. 4. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory are (in thousands):
December 30 March 31 1994 1994 ---- ---- Purchased parts and sub-assemblies $ 9,623 $14,674 Work in process 3,823 12,486 Finished goods 15,236 11,780 ------- ------- $28,682 $38,940 ======= =======
6 7 5. Net Income Per Share Net income per share for the three and nine month periods ended December 30, 1994 and December 31, 1993, is computed under the treasury stock method using the weighted average number of common and common equivalent shares from dilutive stock options outstanding during the respective periods. The financial statements have been retroactively restated to reflect a two for one split of the Company's common stock in January 1994. 6. Income Taxes For the three and nine month periods ended December 30, 1994 and December 31, 1993, the Company's effective tax rate differed from the federal statutory rate primarily due to income earned in Singapore where the Company is not currently subject to income tax. The Company's pioneer status in Singapore expires during fiscal 1996. 7. Stock Repurchase Program In fiscal year 1995, the Board of Directors authorized the repurchase of up to 4 million shares of the Company's common stock in open market or negotiated transactions. During the nine-month period ended December 30, 1994, the Company repurchased and retired 2 million shares at an aggregate cost of $37 million. As of December 30, 1994, 2 million shares remained available for repurchase under the stock repurchase program. 8. Legal Matters In December 1990, several suits were filed against the Company, its directors and certain of its officers alleging violations of federal securities laws and negligent misrepresentation. A consolidated class action complaint, which sought unspecified money damages, was filed in the San Jose Division of the United States District Court, Northern District of California on February 21, 1991. The Company settled this action on July 29, 1993 by a letter agreement. The letter agreement, among other things, provided for payments by the Company and the insurance carrier by August 9, 1993. These payments were made as scheduled and are currently maintained in interest-bearing escrow accounts. The court has dismissed the action with prejudice. Since the payments were made, the parties have been negotiating the terms of a formal stipulation of settlement to be filed with the Court. 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 Nine Month Period Ended Period Ended ------------ ------------ Dec. 30 Dec. 31 Dec. 30 Dec. 31 1994 1993 1994 1993 ---- ---- ---- ---- Net revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 42.0 49.3 45.3 51.5 ----- ----- ----- ----- Gross profit 58.0 50.7 54.7 48.5 ----- ----- ----- ----- Operating expenses: Research and development 12.0 11.2 12.9 10.6 Sales and marketing 12.8 12.6 12.9 12.4 General and administrative 4.9 5.8 5.1 5.0 ----- ----- ----- ----- 29.7 29.6 30.9 28.0 ----- ----- ----- ----- Income from operations 28.3 21.1 23.8 20.5 Shareholder settlement -- -- -- (0.9) Interest income, net 1.3 0.9 1.4 0.9 ----- ----- ----- ----- Income before provision for income taxes 29.6 22.0 25.2 20.5 Provision for income taxes 7.4 5.5 6.3 5.1 ----- ----- ----- ----- Net income 22.2% 16.5% 18.9% 15.4% ===== ===== ===== =====
Net Revenues Net revenues increased 28% to $123 million in the third quarter of fiscal 1995 and 24% to $336 million in the first nine months of fiscal 1995, from $96 million and $270 million in the corresponding periods of fiscal 1994. The majority of this growth resulted from increased shipments of the Company's SCSI host adapters, as the penetration of SCSI in desktop personal computers and file servers increased compared to the prior year. A significant portion of the increase in shipments was a result of the Company benefiting from the acceptance of its PCI-to-SCSI host adapters in high performance microcomputers. Offsetting increased net revenues generated from host adapters was a decrease in sales of the company's disk controller integrated circuits (IC's) compared with the corresponding quarter in the prior year. 8 9 Gross Margin Gross margin for the third quarter and the first nine months of fiscal 1995 increased to 58% and 55% from 51% and 49% in the comparable periods of fiscal 1994, respectively. Gross margin was favorably affected by the mix of products shipped, primarily consisting of continued increases in shipments of the Company's host adapters as compared to disk controller IC's. The Company enjoyed the benefits of improved designs and continued to experience component cost reductions combined with increased manufacturing efficiencies that also contributed to the increased gross margins. The Company's ability to maintain current gross margins can be significantly affected by factors such as the mix of products shipped, competitive price pressures, the timeliness of volume shipments of new products and the Company's ability to achieve manufacturing cost reductions. Operating Expenses Expenditures for research and development increased as a percentage of net revenues to 12% and 13% in the third quarter and first nine months of fiscal 1995 from 11% in both the comparable periods of fiscal 1994, respectively. Actual spending for research and development increased from the same periods of fiscal 1994 by 38% to $15 million in the third quarter and 51% to $43 million in the first nine months of fiscal 1995. These increases are primarily a result of enhancements of current products and the continued development of next generation SCSI host adapters, software products, and next generation IC's. The Company anticipates that research and development expenditures will increase in absolute dollars over the remainder of the fiscal year. Sales and marketing expenses approximating 13% of net revenues were essentially the same for both the third quarter and first nine months of each fiscal year. Actual sales and marketing expenses increased from the corresponding periods of fiscal 1994 by 31% to $16 million in the third quarter and 29% to $43 million in the first nine months of fiscal 1995. This was mainly due to increased staffing levels in both marketing and sales to maintain the Company's competitive position in the expanding personal computer and file server markets. An additional contributing factor was increased advertising and promotional expenses aimed at generating increased demand for the Company's products. The Company anticipates that sales and marketing expenses will increase in absolute dollars for the remainder of fiscal 1995 primarily due to increased headcount and continued advertising and promotional expenses to generate increased demand for the Company's products. General and administrative expenses as a percentage of net revenues remained relatively consistent in the third quarter and first nine months of fiscal 1995 from the comparable fiscal 1994 periods. Actual spending increased from a year ago primarily due to costs associated with increased staffing levels. Shareholder Settlement During the second quarter of fiscal 1994 the Company entered into a letter agreement to settle a shareholder class action lawsuit resulting in an aggregate payment of $2.4 million. See Note 8 to the Condensed Consolidated Financial Statements for further discussion of the shareholder settlement. 9 10 Interest and Income Taxes Interest income, net of interest expense, increased 82% to $1.6 million in the third quarter and 74% to $4.5 million in the first nine months of fiscal 1995 compared with the respective periods in fiscal 1994. This was a result of increased average investment balances, continued principal paydowns on debt, and higher average interest rates. The Company's effective tax rate was 25% in the third quarter and first nine months of each fiscal year. The Company's results of operations may be affected in the future by a variety of factors, including changes in product mix, competitive pressures on prices, fluctuations in manufacturing yields, product cost increases, the timing of introduction and market demand for new products, operating expenses, and the cancellation or rescheduling of orders by its customers. The Company's results of operations will continue to be affected by technology changes in the markets in which it competes and by general economic conditions. Liquidity and Capital Resources Operating Activities Net cash generated by operations for the first nine months of fiscal 1995 was $89 million compared with $34 million for the first nine months of fiscal 1994. During the first nine months of fiscal 1995, the majority of funds generated from operations resulted from $63 million of net income adjusted by non-cash items including depreciation and amortization of $10 million. Additionally contributing to favorable operating cash flows was a decrease in inventories of $5 million, and an increase in accrued liabilities and a long-term liability totaling $16 million. The decrease in inventories is primarily a result of meeting increased host adapter demand. Primarily offsetting this was a decrease in accounts payable of $7 million. The decrease in accounts payable is mainly related to timing of vendor payments for inventories and capital equipment. During the corresponding period of fiscal 1994, the majority of funds generated from operations resulted from $42 million of net income adjusted by non-cash items including depreciation and amortization of $8 million. Also contributing to positive cash flows was an increase in accrued liabilities and a long-term liability of $9 million. Offsetting this were increased accounts receivable of $14 million resulting from increased revenues during the third quarter of fiscal 1994, and a decrease in accounts payable of $8 million primarily due to the timing of payments for inventories and capital equipment purchases. Investing Activities The Company continues to invest in the purchase of equipment for product development, IC testing and board level production. Additionally during fiscal 1995, the Company purchased land and buildings for $8 million to support additional staffing requirements in engineering, sales and marketing. In the first nine months of fiscal 1994, the primary equipment purchases were for manufacturing and test equipment. During the first nine months of fiscal 1995, the Company also increased its marketable securities portfolio. 10 11 Financing Activities During the first nine months of fiscal 1995 and 1994, the Company received proceeds from Common Stock issued under the employee stock option and employee stock purchase plans totaling $6.2 million and $5.5 million, respectively. During fiscal 1995, the Company's Board of Directors approved the repurchase of up to 4 million shares of the Company's common stock. The Company repurchased 2 million shares for $37 million during the first nine months of fiscal 1995. The Company anticipates capital expenditures of approximately $5 million for the remainder of fiscal 1995. The sources of funds for these capital expenditures are expected to be funds generated from operations as well as working capital on hand. The Company believes existing working capital, together with expected cash flows from operations and available sources of bank and equipment financing, will be sufficient to support the Company's operations through fiscal 1996. The effect of inflation on the Company's results of operations has not been material in the period discussed. 11 12 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K No Reports on Form 8-K were filed during the quarter. 12 13 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. ADAPTEC, INC. --------------------------------------- Registrant /s/ PAUL G. HANSEN --------------------------------------- Paul G. Hansen, Vice-President, Finance and Chief Financial Officer (Principal Financial Officer), Assistant Secretary Date: February 3, 1995 /s/ ANDREW J. BROWN --------------------------------------- Andrew J. Brown, Corporate Controller (Principal Accounting Officer) Date: February 3, 1995 13 EX-27 2 EX-27
5 1,000 0 3-MOS MAR-31-1995 OCT-01-1994 DEC-30-1994 1 64,295 151,928 60,832 4,426 28,682 314,792 91,404 26,526 398,142 47,416 8,500 129,276 0 0 201,610 398,142 123,367 123,367 51,804 51,804 36,664 0 308 36,538 9,135 27,403 0 0 0 27,403 .52 .52
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