-----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, Qw+3h9XhJ9+IJkmEprUiUUnvH0D4a8YOkisZIe39eKYog9YXoU8IWxp+Kn7qosSC qrYJ7BZ6a8CopXNoOZGSEg== 0000811716-96-000003.txt : 19960515 0000811716-96-000003.hdr.sgml : 19960515 ACCESSION NUMBER: 0000811716-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEQUENT COMPUTER SYSTEMS INC /OR/ CENTRAL INDEX KEY: 0000811716 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 930826369 STATE OF INCORPORATION: OR FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15627 FILM NUMBER: 96563918 BUSINESS ADDRESS: STREET 1: 15450 SW KOLL PKWY STREET 2: ED02-803 CITY: BEAVERTON STATE: OR ZIP: 97006-6063 BUSINESS PHONE: 5036265700 MAIL ADDRESS: STREET 1: 15450 SW KOLL PKWY STREET 2: ED02 -803 CITY: BEAVERTON STATE: OR ZIP: 97006-6063 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 30, 1996 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: 0-15627 SEQUENT COMPUTER SYSTEMS, INC. (Exact name of registrant as specified in its charter) Oregon 93-0826369 (State or other jurisdiction (I.R.S. Employer of organization or incorporation) Identification Number) 15450 S.W. Koll Parkway Beaverton, Oregon 97006-6063 (Address of principal executive offices, including zip code) (503) 626-5700 (Registrant's 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 report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 33,464,317 common shares were issued and outstanding as of May 3, 1996. SEQUENT COMPUTER SYSTEMS, INC. PART I. FINANCIAL INFORMATION Page No. Item 1. Consolidated Financial Statements Consolidated Balance Sheets - March 30, 1996 and December 30, 1995 3 Consolidated Statements of Operations - Three months ended March 30, 1996 and April 1, 1995 4 Consolidated Statements of Changes In Shareholders' Equity - January 1, 1994 through March 30, 1996 5 Consolidated Statements of Cash Flows - Three months ended March 30, 1996 and April 1, 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 11 - Statement regarding computation of earnings per share. (b) No reports on Form 8-K were filed by the Company during the fiscal quarter ended March 30, 1996. SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - Unaudited (in thousands, except per share amounts) Mar. 30, 1996 Dec. 30, 1995 ASSETS Current assets: Cash and cash equivalents $ 68,083 $ 61,939 Restricted deposits 37,684 39,642 Receivables, net 144,431 178,322 Inventories 76,012 60,853 Prepaid royalties and other 17,568 13,464 Total current assets 343,778 354,220 Property and equipment, net 105,647 98,165 Capitalized software costs, net 48,107 45,381 Intangible assets and other, net 6,166 6,157 Total assets $ 503,698 $ 503,923 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 37,964 $ 41,146 Accounts payable and other 54,676 60,095 Accrued payroll 13,916 11,723 Unearned revenue 25,127 21,466 Income taxes payable 4,867 4,981 Current obligations under capital leases and debt 72 60 Total current liabilities 136,622 139,471 Other accrued expenses 2,630 2,158 Long-term obligations under capital leases and debt 9,337 9,106 Total liabilities 148,589 150,735 Shareholders' equity: Preferred stock, $.01 par, none outstanding -- -- Common stock, $.01 par, 33,454 and 33,221 shares outstanding 335 332 Paid-in capital 304,700 302,186 Retained earnings 53,543 52,945 Foreign currency translation adjustment (3,469) (2,275) Total shareholders' equity 355,109 353,188 Total liabilities and shareholders' equity $ 503,698 $ 503,923 See notes to consolidated financial statements. SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited (in thousands, except per share amounts) Three Months Ended Mar. 30, 1996 Apr. 1, 1995 Revenue: Product revenue $ 81,109 $ 81,981 Service revenue 39,636 34,118 Total revenue 120,745 116,099 Costs and expenses: Cost of products sold 38,653 38,930 Cost of service revenue 30,611 24,480 Research and development 12,262 9,416 Selling, general and admin. 38,245 34,107 Total costs and expenses 119,771 106,933 Operating income 974 9,166 Interest, net 213 73 Other, net (363) (730) Income before provision for income taxes 824 8,509 Provision for income taxes 226 2,556 Net income $ 598 $ 5,953 Net income per share $ 0.02 $ 0.18 Weighted average number of common and common equivalent shares outstanding 33,616 33,082 See notes to consolidated financial statements. SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - Unaudited (in thousands)
Foreign Retained Currency Preferred Stock Common Stock Paid-in Earnings Trans- Shares Amount Shares Amount Capital (Deficit) lation Total Balance, January 1, 1994 -- $ -- 30,245 $ 302 $ 265,910 $ (15,262) $ (7,462) $ 243,488 Common shares issued -- -- 1,115 12 12,235 -- 12,247 Net income -- -- -- -- -- 33,134 -- 33,134 Foreign currency translation adjustment -- -- -- -- -- -- 2,326 2,326 Balance, December 31, 1994 -- $ -- 31,360 $ 314 $ 278,145 $ 17,872 $ (5,136) $ 291,195 Common shares issued -- -- 1,798 18 18,298 -- 18,316 Tax benefit of option exercises -- -- -- -- 4,743 -- -- 4,743 Conversion of debentures -- -- 63 -- 1,000 -- -- 1,000 Net income -- -- -- -- -- 35,073 -- 35,073 Foreign currency translation adjustment -- -- -- -- -- -- 2,861 2,861 Balance, Dec. 30, 1995 -- $ -- 33,221 $ 332 $ 302,186 $ 52,945 $ (2,275) $ 353,188 Common shares issued -- -- 233 3 2,468 2,471 Tax benefit of option exercises -- -- -- -- 46 -- -- 46 Net income -- -- -- -- -- 598 -- 598 Foreign currency translation adjustment -- -- -- -- -- -- (1,194) (1,194) Balance, March 30, 1996 -- -- 33,454 $ 335 $ 304,700 $ 53,543 $ (3,469) $ 355,109 See notes to consolidated financial statements. SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited (in thousands) Three Months Ended Mar. 30, 1996 Apr. 1, 1995 Operating activities: Net income $ 598 $ 5,953 Reconciliation of net income to net cash provided by operating activities - Depreciation and amortization 14,641 12,434 Changes in assets and liabilities - Receivables, net 33,891 16,053 Inventories (15,159) (4,834) Prepaid expenses (4,104) (3,947) Accounts payable and other (5,419) (2,353) Accrued payroll 2,193 (4,112) Unearned revenue 3,660 3,048 Income taxes payable (113) 1,494 Deferred income taxes 7 892 Other, net 405 (497) Net cash provided by operating activities 30,600 24,131 Investing activities: Restricted deposits 1,957 (2,092) Purchases of property and equipment, net (17,220) (13,818) Capitalized software costs (7,531) (5,646) Foreign currency translation (1,194) 2,693 Net cash used for investing activities (23,988) (18,863) Financing activities: Notes payable, net (3,182) 2,092 Proceeds (payments) under capital lease obligations 244 (432) Long-term debt, net -- 505 Stock issuance proceeds, net 2,470 4,508 Net cash (used) provided by financing activities (468) 6,673 Net increase in cash and cash equivalents 6,144 11,941 Cash and cash equivalents at beginning of period 61,939 46,291 Cash and cash equivalents at end of period $ 68,083 $ 58,232 See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 30, 1996 Basis of Presentation The accompanying consolidated financial statements are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report and Form 10-K for the fiscal year ended December 30, 1995. The Company's fiscal year is based on a 52-53 week calendar ending the Saturday closest to December 31. The accompanying consolidated financial statements include the accounts of Sequent Computer Systems, Inc. and its wholly owned subsidiaries (the Company or Sequent). All significant intercompany accounts and transactions have been eliminated. The results for interim periods are not necessarily indicative of the results for the entire year. Accounts Receivable At March 30, 1996, accounts receivable in the accompanying consolidated balance sheet is net of $11.4 million received by the Company under its two year agreement to sell its domestic accounts receivables. Inventories Inventories consist of the following: (in thousands) Mar. 30, Dec. 30, 1996 1995 Raw Materials $ 16,969 $ 9,385 Work in Process 2,222 1,736 Finished Goods 56,821 49,732 $ 76,012 $ 60,853 Property and Equipment Property and equipment consist of the following: (in thousands) Mar. 30, Dec. 30, 1996 1995 Land $ 5,037 $ 5,037 Operational Equipment 143,442 134,897 Furniture and Office Equipment 71,094 67,010 Leasehold Improvements 16,251 15,974 235,824 222,918 Less Accum. Depr. & Amort. 130,177 124,753 $ 105,647 $ 98,165 Research and Development Amortization of capitalized software costs, generally based on a three-year life, was $4.8 million and $3.7 million for the three month periods ended March 30, 1996 and April 1, 1995, respectively. Notes Payable The Company has an unsecured line of credit agreement with a group of banks which provides short-term borrowings of up to $50 million. The line of credit agreement extends through May 30, 1996. No borrowings were outstanding at March 30, 1996. The Company has a short-term borrowing agreement with a foreign bank as a hedge to cover certain foreign currency exposures. At March 30, 1996, maximum borrowings allowed under the agreement were approximately $55.0 million. Borrowings under the agreement are denominated in various foreign currencies. Proceeds from the borrowings are converted into U.S. dollars and placed in a term deposit account with the foreign bank. Amounts outstanding were $37.7 million at March 30, 1996. The Company has a short-term borrowing agreement with a domestic bank for an additional hedging facility to cover certain foreign currency exposures for a maximum of $10 million, excluding foreign currency fluctuations. No borrowings were outstanding at March 30, 1996. In addition to the above borrowing agreements, the Company maintains certain other miscellaneous borrowing arrangements with a foreign bank aggregating $.3 million at March 30, 1996. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes" (FAS 109). The effective tax rate differs from the statutory tax rate principally due to tax benefits from the Company's foreign sales corporation and tax benefits related to the utilization of net operating loss carryforwards. Earnings Per Share See Exhibit 11 for the computation of average shares outstanding and earnings per share. Significant Customers The Company had no single customer that represented greater than 10% of total revenue for the quarters ending March 30, 1996 or April 1, 1995. Geographic Segment Information Export and foreign revenue was $64 million (53% of total revenue) for the three months ended March 30, 1996. Export and foreign revenue was $58 million (50% of total revenue) for the corresponding period in 1995. The Company's United States operations generated operating income of $1.3 million for the three months ended March 30, 1996 and $11.4 million for the corresponding period in 1995. Foreign operations generated operating losses of $.3 million and $2.2 million for the three months ended March 30, 1996 and April 1, 1995, respectively. Forward Looking Statements Information included in Management's Discussion and Analysis of Financial Conditions and Results of Operations regarding product development schedules and planned expenditure levels constitute forward-looking statements that involve a number of risks and uncertainties. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements: business conditions and growth in the electronics industry and general economies, both domestic and international; lower than expected customer orders, delays in receipt of orders or cancellation of orders; competitive factors, including increased competition, new product offerings by competitors and price pressures; the availability of third party parts and supplies at reasonable prices; changes in product mix and the mix between product and service revenue; significant quarterly performance fluctuations due to the receipt of a significant portion of customer orders and product shipments in the last month of each quarter; and product shipment interruptions due to manufacturing problems. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS March 30, 1996 GENERAL Total revenue was $120.7 million in the first quarter of 1996 compared to $116.1 million in the first quarter of 1995. Net income was $.6 million in the first quarter of 1996 compared to $6.0 million in the first quarter of 1995. Factors contributing to the decrease in net income included substantial investments made by the Company in the first quarter of 1996 for expansion of its sales channels and development of its NUMA-Q product technology, as well as lower margin service increasing as a percentage of total revenue. Consistent with historical results, the Company experienced reduced first quarter end-user orders compared to the preceding fourth quarter. REVENUE (dollars in millions) Three Months Ended Mar. 30, % Apr. 1, 1996 Chg 1995 End-user product revenue $ 76.2 (4)% $ 79.0 Service revenue 39.6 16% 34.1 Total end-user revenue 115.8 2% 113.1 OEM product revenue 4.9 63% 3.0 Total revenue $ 120.7 4% $ 116.1 Export and Foreign Revenue $ 64.0 10% $ 58.0 End-user product revenue decreased 4% in the first quarter of 1996 over the corresponding quarter of 1995. A factor impacting comparison between quarters included a significant order from a single customer received during the first quarter of 1995. During 1995 and 1996, the Company's service revenue continued to increase in dollar amount and as a percentage of total revenue primarily due to the growing customer base and associated customer service/maintenance contracts, as well as the Company's emphasis on professional services consulting. Total service revenue was $39.6 million in the first quarter of 1996 compared to $34.1 million in the first quarter of 1995. The increase was due to significant revenue increases in Europe, specifically in the United Kingdom. The Company has continued to benefit from its significant investment in developing worldwide sales and distribution channels. International revenue increased as a percentage of total revenue from 50% in 1995 to 53% in 1996, the majority of which is from Europe (particularly the United Kingdom), with the balance coming from Asia-Pacific and Canada. COST OF SALES (dollars in millions) Three Months Ended Mar. 30, Apr. 1, 1996 1995 Costs of products sold $ 38.7 $ 38.9 As a percentage of product revenue 47.7% 47.5% Costs of service revenue $ 30.6 $ 24.5 As a percentage of service revenue 77.2% 71.8% The factors influencing gross margins in a given period include unit volumes (which affect economies of scale), product configuration mix, changes in component and manufacturing costs, product pricing and the mix between product and service revenue. Total cost of sales as a percentage of total revenue increased both in 1996 and 1995 primarily due to product mix with lower margin professional service increasing as a percentage of total revenue. The Company's continued investment in growing its consulting services business contributed to the increase of cost of service as a percentage of service revenue. RESEARCH AND DEVELOPMENT (dollars in millions) Three Months Ended Mar. 30, % Apr. 1, 1996 Change 1995 Research and Development $ 12.3 31% $ 9.4 As a percentage of total revenue 10% 8% Software costs capitalized $ 7.5 34% $ 5.6 The Company has continued to invest significantly in new product development in addition to ongoing enhancements to existing products. Research and development costs as a percentage of total revenue were approximately 8% for 1995, 1994 and 1993, increasing to 10% in the first quarter of 1996. Consistent with its expectations and plans for 1996, management made significant investments during the first quarter of 1996 in order to deliver its next-generation (NUMA-Q) products into the market by the end of 1996. Software costs capitalized increased in the first quarter of 1996 as a result of the effect of greater emphasis on hardware development for future products. The Company has continued its focus on software design for computing solutions and its next-generation products, resulting in greater investments in software development and products. SELLING, GENERAL AND ADMINISTRATIVE (dollars in millions) Three Months Ended Mar. 30, % Apr. 1, 1996 Chg 1995 Selling, general and administrative $ 38.2 12% $ 34.1 As a percentage of total revenue 32% 29% Consistent with its plans for 1996, the Company's selling, general and administrative costs increased both in dollars and as a percentage of revenue in the first quarter of 1996 over the corresponding quarter in 1995. The Company has made substantial investments to strengthen its worldwide sales force and to strategically position itself for the delivery of the NUMA-Q product line beginning in late 1996. INTEREST AND OTHER, NET (dollars in millions) Three Months Ended Mar. 30, Apr. 1, 1996 1995 Interest, net $ 0.2 $ 0.1 Other, net (0.4) (0.7) Provision for income taxes 0.2 2.6 Interest income in the first quarter in 1996 was primarily generated from restricted deposits held at foreign and domestic banks, short-term investments and cash and cash equivalents. Interest expense includes costs related to Convertible Debentures, foreign currency hedging loans and capital lease obligations. Other expense consists primarily of net gains and losses on sale of assets. The provision for income taxes includes benefits related to the Company's foreign sales corporation and the utilization of available domestic and foreign tax attributes carried forward from prior years. The effective tax rate for the first quarter of 1996 was 27%, compared to 30% for the first quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES Working capital was $207.2 million at March 30, 1996 compared to $214.7 million at December 30, 1995. The Company's current ratio at March 30, 1996 and December 30, 1995 was 2.5:1. During the first quarter of 1996, cash and cash equivalents increased $6.1 million. The Company continues to invest in property and equipment ($17.2 million, net), and capitalized software ($7.5 million). Other uses of funds were net decreases in accounts payable and other ($5.4 million), increases in inventories ($15.2 million), net payments on notes payable ($3.2 million) and increases in prepaid expenses ($4.1 million). Primary sources of funds were decreases in net accounts receivables ($33.9 million), depreciation and amortization ($14.6 million), increases in unearned revenue ($3.7 million), increases in accrued payroll and other accrued liabilities ($2.6 million), and stock issuance proceeds from employee stock purchases and stock option plans ($2.5 million). The Company has a $20 million receivable sales facility with a group of banks. At March 30, 1996 accounts receivable in the accompanying consolidated balance sheet is net of $11.4 million received by the Company under this agreement to sell its domestic accounts receivable. The Company continues to maintain a $50 million revolving line of credit agreement. The line is unsecured and extends through May 30, 1996. The line contains certain financial covenants and prohibits the Company from paying dividends without the lenders' consent. No borrowings were outstanding under the line of credit as of March 30, 1996. The Company maintains a short-term borrowing agreement with a foreign bank to cover foreign currency exposures. Maximum borrowings allowed under the foreign bank agreement were $55.0 million, of which $37.7 million was outstanding at March 30, 1996 (based on currency exchange rates on such date). The Company maintains a short-term borrowing agreement with a domestic bank as an additional hedging facility to cover certain foreign currency exposures. At March 30, 1996, no borrowings were outstanding under this agreement. In addition to the above borrowing agreements, the Company maintains miscellaneous borrowing arrangements with a foreign bank of which $.3 million was outstanding at March 30, 1996. Management expects that current funds, funds from operations, and the bank lines of credit will provide adequate resources to meet the Company's anticipated cash requirements during 1996 resulting from its operations and planned investments in its sales force and NUMA-Q product technology. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEQUENT COMPUTER SYSTEMS, INC. ________________________________ Robert S. Gregg Sr. Vice President of Finance and Chief Financial Officer Date: May 14, 1996 EXHIBIT INDEX Sequential Exhibit No. Description Page No. 11 Statement regarding computation of earnings per share 15 SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES STATEMENT SHOWING CALCULATION OF AVERAGE COMMON SHARES OUTSTANDING AND EARNINGS PER AVERAGE COMMON SHARE (in thousands, except per share amounts) Three Months Ended March 30, 1996 April 1, 1995 Weighted average number of common shares outstanding 33,298 31,494 Application of the "treasury stock" method to the stock option and employee stock purchase plans 318 1,587 Weighted average of common stock equivalent shares attributable to convertible debentures 575 639 Total common and common equivalent shares, assuming full dilution 34,191 33,720 Net income $ 598 $ 5,953 Add: Interest on convertible debentures, net of applicable income taxes 119 133 Net income, assuming full dilution $ 717 $ 6,086 Net income per common share, assuming full dilution (A) $ 0.02 $ 0.18 (A) In accordance with generally accepted accounting principles, fully-diluted earnings per share may not exceed primary earnings per share. The difference between primary and fully-diluted earnings per share is due to rounding. The computation of primary net income per common share is not included as the computation can be clearly determined from the material contained in this report. EX-27 2
5 3-MOS DEC-28-1996 MAR-30-1996 105,767,000 0 147,235,000 2,804,000 76,012,000 343,778,000 235,824,000 130,177,000 503,698,000 136,622,000 9,337,000 335,000 0 0 354,774,000 503,698,000 81,109,000 120,745,000 38,653,000 69,264,000 50,507,000 0 669,000 0 226,000 0 0 0 0 598,000 0.02 0.02
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