-----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, bE0Nxw92x5iAydHwRHy/Hgp6RU8r61q2xouwihNoaFKpEu69wH5i8/0wexR48PxA g2fLhrlthuxlZKq1O12EGA== 0000723610-94-000009.txt : 19940829 0000723610-94-000009.hdr.sgml : 19940829 ACCESSION NUMBER: 0000723610-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940703 FILED AS OF DATE: 19940817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRATUS COMPUTER INC CENTRAL INDEX KEY: 0000723610 STANDARD INDUSTRIAL CLASSIFICATION: 7373 IRS NUMBER: 042697554 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10405 FILM NUMBER: 94544787 BUSINESS ADDRESS: STREET 1: 55 FAIRBANKS BLVD CITY: MARLBORO STATE: MA ZIP: 01752 BUSINESS PHONE: 5084602000 MAIL ADDRESS: STREET 1: 55 FAIRBANKS BLVD CITY: MARLBORO STATE: MA ZIP: 01752 10-Q 1 Securities and Exchange Commission Washington, D.C. 20549 =========================================================================== Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended July 3, 1994 Commission File Number 0-12064 =========================================================================== Stratus Computer, Inc. (Exact name of registrant as specified in its Charter) Massachusetts No. 04-2697554 (State of Incorporation) (I.R.S. Employer Identification No.) 55 Fairbanks Boulevard, Marlborough, Massachusetts 01752 (Address of principal executive office) (Zip) (508) 460-2000 (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____. Number of Common Shares outstanding at the latest practicable date, August 5, 1994: 24,286,244. =========================================================================== STRATUS COMPUTER, INC. INDEX TO 10-Q Part I Financial information Consolidated statements of income - three months ended July 3, 1994 and July 4, 1993 Consolidated balance sheets - July 3, 1994 and January 2, 1994 Consolidated statements of cash flows - six months ended July 3, 1994 and July 4, 1993 Notes to consolidated financial statements Management's Discussion and Analysis of Financial Condition and Results of Operations Part II Other information Legal Proceedings Submission of Matters to a Vote of Security Holders Exhibits and reports on Form 8-K Signatures PART I - FINANCIAL INFORMATION Item 1 - FINANCIAL STATEMENTS STRATUS COMPUTER, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Quarter Ended Six Months Ended ----------------------- ------------------------- July 3, July 4, July 3, July 4, 1994 1993 1994 1993 -------- -------- --------- -------- Revenues: Product sales $105,149 $95,250 $203,670 $182,719 Service 39,230 28,854 76,116 56,033 -------- -------- -------- -------- Total revenues 144,379 124,104 279,786 238,752 Costs and expenses: Product cost of sales 43,908 36,827 87,948 71,807 Service expense 20,525 15,965 40,086 30,836 Research and development expense 21,569 19,492 42,325 39,029 Selling, general and administrative expenses 38,921 36,100 77,160 71,409 ------- ------- ------- ------- Total costs and expenses 124,923 108,384 247,519 213,081 ------- ------- ------- ------- Operating income 19,456 15,720 32,267 25,671 Other income 1,984 1,365 3,234 2,579 ------- ------- ------- ------- Income before provision for income taxes 21,440 17,085 35,501 28,250 Provision for income taxes 4,073 3,587 6,745 5,932 -------- -------- -------- -------- Net income $17,367 $13,498 $28,756 $22,318 ======== ======== ======== ======== Net income per common share $.71 $.57 $1.17 $.94 ======== ======== ======== ======== Weighted average number of shares of common stock and common stock equivalents 24,540 23,754 24,540 23,670 ======== ======== ======== ======== See accompanying notes.
STRATUS COMPUTER, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) July 3, January 2, ASSETS 1994 1994 - - ---------------------------------- ---------- ---------- (Unaudited) Current assets: Cash and cash equivalents $208,166 $191,005 Accounts receivable, net 146,332 151,105 Inventories: Finished products 23,148 16,854 Work-in-process 5,673 10,899 Parts and assemblies 12,612 12,153 -------- -------- 41,433 39,906 Other current assets 26,439 26,105 -------- -------- Total current assets 422,370 408,121 Property, plant and equipment, at cost 273,055 246,293 Less: accumulated depreciation 168,350 143,610 -------- -------- Net property, plant and equipment 104,705 102,683 Other assets, net 48,639 47,727 -------- -------- Total assets $575,714 $558,531 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY - - ------------------------------------ Current liabilities: Accounts payable $18,686 $16,346 Accrued expenses 34,152 38,190 Income taxes payable 22,327 30,103 Short-term borrowings and obligations 5,465 4,372 Deferred revenue 17,951 19,817 -------- -------- Total current liabilities 98,581 108,828 Long-term obligations 7,514 10,879 Deferred gain on sale-leasback of land/building 2,583 2,864 Stockholders' equity: Common stock, $.01 par value, 150,000,000 shares authorized, 24,377,189 and 24,047,391 shares issued and outstanding, respectively 244 240 Junior common stock, $.01 par value, 500,000 shares authorized - - Additional paid-in capital 174,379 168,095 Retained earnings 298,340 269,584 Cumulative translation adjustment (1,386) (1,959) -------- -------- 471,577 435,960 Less: 155,400 shares in treasury, at cost (4,541) - --------- -------- Total stockholders' equity 467,036 435,960 -------- -------- Total liabilities and stockholders' equity $575,714 $558,531 ======== ======== See accompanying notes.
STRATUS COMPUTER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended ------------------ July 3, July 4, 1994 1993 --------- --------- Cash flows from operating activities: Net income $28,756 $22,318 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,498 20,843 Add (deduct) changes in working capital: Decrease in accounts receivable 11,730 18,172 Decrease in inventory 270 6,328 Decrease in accounts payable and accrued liabilities (14,190) (6,966) Increase/(decrease) in income taxes payable (7,497) 1,373 (Increase)/decrease in other working capital items 1,293 (1,702) -------- -------- Net cash provided by operating activities 44,860 60,366 Cash flows from investing activities: Acquisition of property, plant and equipment (17,971) (19,865) Acquisition of other long-term assets (9,360) (9,643) -------- -------- Net cash used in investing activities (27,331) (29,508) Cash flows from financing activities: Net proceeds and benefits from employee stock plans 6,288 9,023 Purchase of treasury stock (4,541) - Reduction of long-term debt and capital lease obligations (2,636) (1,553) --------- -------- Net cash provided by (used in) financing activities (889) 7,470 Effect of exchange rate changes on cash 521 (214) --------- --------- Net increase in cash and cash equivalents 17,161 38,114 Cash and cash equivalents at beginning of year 191,005 134,962 -------- -------- Cash and cash equivalents at end of period $208,166 $173,076 ========= ========= See accompanying notes. STRATUS COMPUTER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 3, 1994 and July 4, 1993 (Unaudited) (In thousands) 1. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. The information herein should be read in conjunction with the annual report on Form 10-K for the year ended January 2, 1994. It is management's opinion that the accompanying statements reflect all adjustments necessary for a fair presentation of the results for this interim period and the comparable periods presented. Certain amounts in the consolidated financial statements for the prior years have been reclassified to conform to the current year presentation. Such reclassifications had no effect on previously reported results of operations. 2. Primary earnings per share is based on the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding. Fully diluted earnings per share has not been separately presented as the amount does not differ significantly from primary earnings per share. 3. There were no non-cash investing and financing activities for the first six months of 1994 or 1993. The Company made interest payments of $557 and $291 and tax payments of $15,425 and $4,850 in the first six months of 1994 and 1993, respectively. STRATUS COMPUTER, INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Revenues Net revenues of $144,379 for the second quarter of 1994 increased 16% over the corresponding period in 1993. For the first six months of 1994, total revenues were $279,786, an increase of 17% over the same 1993 period. The Company's product revenue, exclusive of revenues generated by the three software subsidiaries acquired during the fourth quarter of 1993, increased 5% for the second quarter and 6% for the first six months of 1994 compared to the same prior year periods. These software subsidiaries contributed $4,941 and $9,338 in the second quarter and first six months of 1994, respectively. This incremental revenue contributed an additional 5% to product revenue growth in each of the periods. Exclusive of revenue from the Company's three software subsidiaries, direct product revenue increased 4% for the second quarter and 7% for the first six months of 1994 over the same prior year periods. For the quarter, this reflects a variety of factors including 21% domestic growth rate, led by sales in the telecommunications, financial services and gaming industries. Also, international direct product revenue decreased 20% from 1993's second quarter. Within Europe for the second quarter, revenue increases in France, Holland, and Italy were offset by declines in Belgium, Germany, and the United Kingdom. In the Asia/Pacific region, revenues declined 27% over the prior years second quarter. Product revenue from indirect channels increased 14% and 2% in the 1994 second quarter and the first six months compared to the same prior year periods. For the quarter, sales to Olivetti increased 376% compared to the same 1993 period, and were 7% of total product revenue. This was caused by a migration of sales from the Company's lower end to higher end systems. Product revenue from international distributors decreased 10% from the prior year's second quarter while sales to NEC increased by 35% for the second quarter when compared to 1993. Total service revenue increased 36% in both the second quarter and first six months of 1994 over the corresponding periods in the previous year. This growth was due to the increased service and education provided to the expanding customer base. The Company's three software subsidiaries contributed $4,924 and $9,522, or 17 percentage points of the growth in total service revenue for the second quarter and first six months, respectively. Cost of Sales The gross margin on product revenue of 58% and 57% for the second quarter and first six months of 1994 declined three and four percentage points, respectively, from the gross margin on product revenue achieved in the corresponding 1993 periods. This was primarily the result of higher discounting due to competitive pressures, as well as a higher proportion of mid-range and low-end RISC-based systems shipped during the 1994 periods versus 1993. The gross margin on service revenue was 48% for the second quarter and 47% for the first six months of 1994. This compares to the 45% service margin realized in the second quarter and first six months of 1993. This increase in the service margin percentage was primarily due to the service revenue growth, combined with well-managed expense growth in the service organization. Other Operating Expenses Total operating expenses for the second quarter of 1994 increased 9% over the corresponding 1993 period. As a percentage of net revenues, operating expenses decreased by 3 percentage points in the second quarter of 1994 to 42% compared to 1993's second quarter. For the first six months of 1994, total operating expenses grew 8% over the corresponding 1993 period, but declined as a percentage of net revenues from 46% to 43%. Research and development expense in the second quarter of 1994 increased $2,077, or 11%, from the second quarter of 1993. The total amount of the increase was attributable to the Company's three software subsidiaries. For the first six months, research and development expense increased $3,296, or 8% from 1993. As a percentage of net revenues, R&D expense declined one percentage point, to 15%, for the second quarter and first six months of 1994, respectively, compared to the same 1993 periods due mainly to the Company's continued focus on strong cost controls. Stratus has a commitment to provide comprehensive hardware and software solutions to the online computing marketplace where availability is a critical need. Throughout 1994, the Company will continue to develop the next generation of RISC machines. In addition, the Company will continue the transition to open systems technology by increasing the functionality of FTX, its UNIXrSystem V Release 4 operating system, and integrating open architecture standards into its hardware platforms. For the second quarter of 1994, selling, general and administrative expenses increased $2,821, or 8%, over the same 1993 period. The three software subsidiaries contributed $4,424 to this increase in SG&A expenses. This increase was mitigated by savings of $1,603 due to the continued focus on strong cost controls throughout the Company. For the first six months, selling, general and administrative expenses increased $5,751, or 8%, compared to the same 1993 period. Total SG&A expenses were 27% and 28% of net revenues, down two percentage points, for the 1994 second quarter and first six months, respectively, as compared with the same 1993 periods. The Company's strategy in 1994 is to focus the sales organization on strategic markets within vertical industries, as well as continue to improve selling efficiencies and focus on strong cost management. Other Income Other income for the second quarter and first six months of 1994 increased $619 and $655, or 45% and 25%, over the same 1993 periods. Interest income continued to increase in both the second quarter and the first six months, in connection with the Company's larger cash balance. Interest expense increased in connection with the debt incurred for the acquisition of Isis Distributed Systems, Inc. in the fourth quarter of 1993, and was somewhat offset by the continued decline in capital lease activity. The effective tax rate decreased to 19% in 1994's second quarter and first six months from 21% in 1993's respective periods due to increased U.S. tax credits and a more favorable mix of foreign tax rates. Liquidity and Capital Resources At July 3, 1994, the Company had cash and cash equivalents of $208,166 which reflects a $17,161 increase over the balance at the beginning of the year. Profitable operations, improved collections on receivables, strong inventory controls, and capital generated through employee stock plans were the major factors in the increased cash balance, partially offset by the repurchase of 155,400 shares of common stock. The repurchase is part of a program to fund existing employee stock plans. In April 1994, the board of directors authorized the purchase of up to 1.2 million shares of Stratus common stock to be funded by normal working capital and to take place from time to time as market conditions warrant. The Company has a Multicurrency Revolving Credit Agreement providing up to $50 million of borrowings through March 1997. There have been no borrowings against this Agreement, and the Company anticipates no borrowings during the remainder of 1994. At July 3, 1994, the Company had $9,332 in outstanding debt related to the Isis acquisition and $177 in capital lease obligations. Certain subsidiaries have entered into credit arrangements with local banks, principally Overdraft Agreements, for the purpose of short-term liquidity management. Borrowings under these Agreements were $1,521 at July 3, 1994. The ratio of current assets to current liabilities for the Company as of July 3, 1994 was 4.3 to 1. Based upon its current cash position, and expected cash flow from operating activities supplemented by continued stock issuance from the Employee Stock Purchase Plan and stock option plans, management believes that the Company's capital resources are sufficient to meet its financial requirements for the foreseeable future. The Company plans to invest approximately $37 million in capital equipment and $25 million in capitalized software in 1994. In August 1994, as previously announced, the Company signed a letter of intent to acquire TCAM Systems, Inc. and its affiliated companies through the purchase of all outstanding shares for approximately $17 million in cash, plus additional consideration up to $15 million based upon TCAM's attainment of certain objectives over the next three years. The company will become a wholly-owned subsidiary and will be recorded using purchase accounting. UNIX is a registered trademark of UNIX System Laboratories, Inc. Stratus is a registered trademark of Stratus Computer, Inc. PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no material legal proceedings, either outstanding or pending, with respect to the Company. Item 4. Submission of Matters to a Vote of Security Holders On April, 19, 1994, the Annual Meeting of Stockholders was held and, in addition to the ratification of the selection of Ernst & Young as Independent Public Accountants, Messrs. Arthur Carr and William E. Foster were elected as Directors of the Company to serve for a three year term. A proposal was approved to amend the 1983 Stock Option Plan and the Non Qualified Common Stock Option Plan. A proposal to amend the Employee Stock Purchase Plan was also approved. Item 6. Exhibits and reports on Form 8-K No reports on Form 8-K have been filed during the second quarter ended July 3, 1994. 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 duly authorized. STRATUS COMPUTER, INC. (Registrant) Date August 12, 1994 ROBERT E. DONAHUE --------------- ------------------ Robert E. Donahue Vice President, Finance and Chief Financial Officer hereunto duly authorized -----END PRIVACY-ENHANCED MESSAGE-----