0000891618-95-000450.txt : 19950811 0000891618-95-000450.hdr.sgml : 19950811 ACCESSION NUMBER: 0000891618-95-000450 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 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: 95560572 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 June 30, 1995 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 July 21, 1995 was 51,665,921. 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 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
-------------------------------------------------------------------------------- Three Month Period Ended June 30 July 1 (in thousands, except per share data) 1995 1994 -------------------------------------------------------------------------------- Net revenues $138,025 $106,061 Cost of revenues 56,666 51,173 -------------------------------------------------------------------------------- Gross profit 81,359 54,888 -------------------------------------------------------------------------------- Operating expenses: Research and development 18,227 13,453 Sales and marketing 17,077 13,811 General and administrative 7,142 5,518 -------------------------------------------------------------------------------- Total operating expenses 42,446 32,782 -------------------------------------------------------------------------------- Income from operations 38,913 22,106 Interest income, net of interest expense 2,638 1,351 -------------------------------------------------------------------------------- Income before provision for income taxes 41,551 23,457 Provision for income taxes 10,388 5,865 -------------------------------------------------------------------------------- Net income $ 31,163 $ 17,592 ================================================================================ Net income per share $ .58 $ .33 ================================================================================ Weighted average common and common equivalent shares outstanding 53,942 53,944 ================================================================================
See accompanying notes. 3 4 ADAPTEC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
-------------------------------------------------------------------------------- June 30 March 31 1995 1995* -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 83,937 $ 66,835 Marketable securities 191,690 179,911 Accounts receivable, net 65,804 56,495 Inventories 31,666 31,712 Prepaid expenses and other 13,983 15,519 -------------------------------------------------------------------------------- Total current assets 387,080 350,472 -------------------------------------------------------------------------------- Property and equipment, net 69,786 67,863 -------------------------------------------------------------------------------- Other assets 17,000 17,373 -------------------------------------------------------------------------------- $473,866 $435,708 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,400 $ 3,400 Accounts payable 16,718 22,008 Accrued liabilities 49,612 31,006 -------------------------------------------------------------------------------- Total current liabilities 69,730 56,414 -------------------------------------------------------------------------------- Long-term debt, net of current portion 6,800 7,650 -------------------------------------------------------------------------------- Shareholders' equity: Common stock 140,535 140,191 Retained earnings 256,801 231,453 -------------------------------------------------------------------------------- Total shareholders' equity 397,336 371,644 -------------------------------------------------------------------------------- $473,866 $435,708 ================================================================================
See accompanying notes. * Amounts are derived from the March 31, 1995 audited financial statements. 4 5 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
------------------------------------------------------------------------------------ Three Month Period Ended June 30 July 1 (in thousands) 1995 1994 ------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 31,163 $ 17,592 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,560 3,134 Changes in assets and liabilities: Decrease (increase) in accounts receivable (9,309) 7,142 Decrease in inventories 46 3,959 Decrease in prepaid expenses 1,536 6,268 Decrease (increase) in other assets 255 (4,349) Decrease in accounts payable (5,290) (3,048) Increase in accrued liabilities 18,606 4,762 ------------------------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 40,567 35,460 ------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (5,365) (14,075) Investment in marketable securities, net (11,779) (1,981) ------------------------------------------------------------------------------------ NET CASH USED FOR INVESTING ACTIVITIES (17,144) (16,056) ------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 2,294 1,245 Repurchase of common stock (7,765) (6,886) Principal payments on debt (850) (850) ------------------------------------------------------------------------------------ NET CASH USED FOR FINANCING ACTIVITIES (6,321) (6,491) ------------------------------------------------------------------------------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 17,102 12,913 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 66,835 35,387 ------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 83,937 $ 48,300 ====================================================================================
See accompanying notes. 5 6 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1995 (unaudited) 1. Basis of Presentation In the opinion of management, the unaudited condensed consolidated financial statements included herein have been prepared on the same basis as the March 31, 1995 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. Certain prior year amounts have been reclassified to conform to the current year presentation. The results of operations for the three month period ended June 30, 1995 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):
Three Month Period Ended --------------------------- June 30 July 1 1995 1994 ------- ------ Interest $212 $327 Income taxes $459 $ 83
3. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory are (in thousands):
June 30 March 31 1995 1995 ------- -------- Raw materials $15,600 $12,230 Work in process 5,108 5,839 Finished goods 10,958 13,643 ------- ------- $31,666 $31,712 ======= =======
4. Net Income Per Share Net income per share for the three month periods ended June 30, 1995 and July 1, 1994, 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. 6 7 5. Income Taxes For the three month periods ended June 30, 1995 and July 1, 1994, 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 in the current fiscal year. The Company is currently pursuing an extension of its pioneer status with the Singapore government. 6. Stock Repurchase Program During the three month period ended June 30, 1995, the Company repurchased 260,000 shares at an aggregate cost of $7.8 million. As of June 30, 1995, 1.7 million shares remained available for repurchase under the stock repurchase program. 7. Legal Matters A consolidated class action lawsuit, Tolan, et al v. Adler, et al, ----------------------------- alleging federal securities law violations and negligent misrepresentation and seeking unspecified monetary damages, was filed in the San Jose Division of the United States District Court, Northern District of California on February 21, 1991. The action was settled by letter agreement on July 29, 1993. The Company made all payments required under the terms of the letter agreement. This action was settled and dismissed pursuant to the Court's Final Judgment and Order of Dismissal on May 15, 1995. 8. Subsequent Events Subsequent to June 30, 1995, the Company entered into the following transactions: On July 5, 1995, the Company acquired all of the outstanding capital stock of Trillium Research, Incorporated, a Macintosh developer of RAID software for $3 million in cash. On July 13, 1995, the Company acquired all of the outstanding capital stock of Future Domain Corporation for $25 million in cash. Future Domain is a privately held company that designs, manufactures and markets desktop I/O products. On July 26, 1995, the Company agreed to acquire all of the outstanding capital stock of Incat Systems Software USA, Incorporated (Incat) for 385,078 shares of the Company's common stock and future financial consideration contingent upon certain performance criteria. The effective date and closing date of this transaction currently has not been determined. Incat develops and markets application and I/O software for recordable CD peripherals. These acquisitions will be recorded using the purchase method of accounting. Accordingly, the purchase price for each acquisition will be allocated to the acquired assets and assumed liabilities based on their estimated fair values as of the date of each respective acquisition. The Company, with the assistance of independent appraisers, is in the process of determining the fair value of the assets and liabilities related to each acquisition. The Company believes a portion of the purchase price for each acquisition will be assigned to in-process research and development which will be written off in the second quarter of fiscal 1996. Also, the Company believes a portion of the purchase price may be allocated to goodwill which would be amortized over the corresponding benefit period. The interim financial statements as of June 30, 1995 and for the three month period then ended do not include the effects of these transactions. 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 Period Ended ------------------------- June 30 July 1 1995 1994 ------- ------ Net revenues 100.0% 100.0% Cost of revenues 41.1 48.3 ----- ----- Gross profit 58.9 51.7 ----- ----- Operating expenses: Research and development 13.2 12.7 Sales and marketing 12.3 13.0 General and administrative 5.2 5.2 ----- ----- 30.7 30.9 ----- ----- Income from operations 28.2 20.8 Interest income, net 1.9 1.3 ----- ----- Income before provision for income taxes 30.1 22.1 Provision for income taxes 7.5 5.5 ----- ----- Net income 22.6% 16.6% ===== =====
Net Revenues Net revenues increased 30% to $138 million in the first quarter of fiscal 1996 from $106 million in the first quarter of fiscal 1995. This growth was primarily attributable to increased shipments of the Company's host adapters which increased 58% compared to the same period a year ago. This increase reflects growth in the high-performance microcomputer markets, an increase in the use of diverse peripherals in microcomputer systems, and the Company's favorable position in both OEM and distributor channels. Although shipments of the Company's integrated circuits (ICs) increased from the fourth quarter of fiscal 1995, such shipments decreased compared to the first quarter of fiscal 1995. 8 9 Gross Profit Gross margin for the first quarter of fiscal 1996 increased to 59% compared to 52% in the same period of fiscal 1995. Gross margin was favorably affected primarily by the mix of products shipped, which included a greater percentage of host adapter shipments. The Company also continued to experience component cost reductions through its continued global contract pricing efforts. Additionally, the Company enjoyed benefits from improved product designs that contributed to the increased gross margin. The Company's ability to maintain current gross margin 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 as a percentage of net revenues were 13% for the first quarter in both fiscal 1996 and fiscal 1995. Actual spending for research and development increased 35% to $18 million in the first quarter of fiscal 1996 from $13 million in the same period a year ago. This increase is a result of the Company's continued investment in its core SCSI business together with its ongoing commitment to the development of new technologies including ATM, RAID, Serial I/O, and infrared. The Company anticipates that research and development expenses will continue to increase in absolute dollar amounts for the remainder of fiscal 1996 as a result of its investment in these and various future technologies. Sales and marketing expenses as a percentage of net revenues were 12% in the first quarter of fiscal 1996 decreasing slightly compared to the same period a year ago. Actual spending for sales and marketing increased 24% to $17 million in the first quarter of fiscal 1996 from $14 million in the corresponding period in fiscal 1995. This spending increase was mainly due to increased staffing levels and increased advertising and promotional activities. The Company anticipates that sales and marketing expenses will increase in absolute dollar amounts for the remainder of fiscal 1996 due to increased staffing levels and various advertising and promotional programs aimed at introducing new technologies and generating demand for the Company's products in the microcomputer and file server markets. General and administrative expenses remained consistent as a percentage of net revenues at 5% in the first quarter in both fiscal 1996 and 1995. Actual spending increased compared to the respective period in fiscal 1995 primarily due to costs associated with increased staffing levels to support the Company's growth. Interest and Income Taxes Interest income, net of interest expense, in the first quarter of fiscal 1996 was $2.6 million representing a 95% increase compared to the respective period in the prior year. This increase is mainly a result of increased average investment balances. The Company's effective tax rate was 25% in the first quarter for both fiscal years. As discussed under Note 8 of the Notes to Condensed Consolidated Financial Statements in this report, in July 1995 the Company acquired Trillium Research, Incorporated for $3 million in cash and Future Domain Corporation for $25 million in cash. Also, in July 1995, the Company signed an agreement to acquire Incat Systems Software USA, Incorporated for 385,078 shares of the Company's common stock and future financial consideration contingent upon certain performance criteria. The Company currently expects that this acquisition will be completed in the quarter ending September 29, 1995. 9 10 These acquisitions will be accounted for using the purchase method of accounting. The Company, with the assistance of independent appraisers, is in the process of determining the fair value of assets and liabilities related to each acquisition. The Company believes a portion of the purchase price for each acquisition will be assigned to in-process research and development which will be written off in the second quarter of fiscal 1996. Also, the Company believes a portion of the purchase price may be allocated to goodwill and amortized over the corresponding benefit period. The Company's results of operations may be affected in the future by a variety of factors, including changes in product mix, competitive pricing pressures, fluctuations in manufacturing yields, availability of components, changes in product costs, timing of new product introductions and market demand for these products, cancellation or rescheduling of orders by its customers, and the accounting effect of acquisitions of other companies or businesses that the Company may make from time to time. In addition, the Company's results from operations could be affected by international and domestic economic conditions and technology changes in the markets in which it competes. The effect of inflation on the Company's results of operations has not been material in the period discussed. Liquidity and Capital Resources Operating Activities Net cash generated by operations for the first quarter of fiscal 1996 was $41 million compared with $35 million for the corresponding quarter of fiscal 1995. During the first quarter of fiscal 1996 the majority of funds generated from operations consisted of $31 million of net income adjusted by non-cash items including depreciation and amortization of $4 million. An increase in accrued liabilities totaling $19 million also contributed to favorable cash flows. The majority of the increase was due to the timing of income tax payments. Primarily offsetting these increases in cash flows was an increase in accounts receivable of $9 million, mainly resulting from an increase in revenue. Additionally accounts payable decreased by $5 million primarily related to the timing of vendor payments. During the corresponding period of fiscal 1995, the majority of funds generated from operations resulted from $18 million of net income and decreases in accounts receivable, inventories, and prepaid expenses totaling $17 million. Investing Activities During the first quarter of fiscal 1996 the Company continued to invest in the purchase of equipment for product development, IC testing and board level production. The Company also invested in leasehold improvements to facilitate its continuing growth in the current fiscal year. In the first quarter of fiscal year 1995, the Company purchased various buildings and land for $8 million. In fiscal 1996, the Company also continued to invest proceeds from operating activities in marketable securities consisting mainly of various U.S. government and municipal securities. 10 11 Financing Activities During the first quarter of fiscal 1996 and fiscal 1995, the Company received proceeds from common stock issued under the employee stock option and employee stock purchase plans totaling $2.3 million and $1.2 million, respectively. Repurchases of common stock made by the Company during the same periods totaled $7.8 million and $6.9 million, respectively. The Company anticipates that capital expenditures for the remainder of fiscal 1996 will be approximately $25 million. The funds for these expenditures are expected to be generated from operations as well as working capital presently on hand. The Company may also require additional funds for increased manufacturing capacity, technology investments, or acquisitions of complementary businesses, products or technologies. The Company believes that 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 anticipated operations at least through fiscal 1996. 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: 8/4/95 ------ /s/ Andrew J. Brown --------------------------------------- Andrew J. Brown, Corporate Controller (Principal Accounting Office) Date: 8/4/95 ------ 13 EX-27 2 FINANCIAL DATA
5 1,000 0 3-MOS MAR-31-1996 APR-01-1995 JUN-30-1995 1 83,937 191,690 70,234 4,430 31,666 387,080 100,395 30,609 473,866 69,730 6,800 140,535 0 0 256,801 473,866 138,025 138,025 56,666 56,666 42,446 0 224 41,551 10,388 31,163 0 0 0 31,163 .58 .58