8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) November 6, 2003

Digi International Inc.
(Exact name of Registrant as specified in its charter)

Delaware	0-17972	41-1532464
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

11001 Bren Road East Minnetonka, Minnesota	55343
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (952) 912-3444

TABLE OF CONTENTS

	Item 7. Exhibits. The following Exhibit is being furnished herewith:
	Item 12. Results of Operations and Financial Condition.
SIGNATURES
EXHIBIT INDEX
EX-99 Press Release

Item 7. Exhibits. The following Exhibit is being furnished herewith:

99 Press Release dated November 6, 2003.

Item 12. Results of Operations and Financial Condition.

On November 6, 2003, Digi International Inc. (the “Company”) reported its financial results for its fiscal year ended September 30, 2003. See the Company’s press release dated November 6, 2003, which is furnished as Exhibit 99 and incorporated by reference in this Current Report on Form 8-K.

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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.

		DIGI INTERNATIONAL INC.
Date:	November 6, 2003	By /s/ Subramanian Krishnan Subramanian Krishnan Senior Vice President, Chief Financial Officer and Treasurer

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EXHIBIT INDEX

No.	Exhibit	Manner of Filing
99	Press Release dated November 6, 2003.	Filed Electronically

4 EX-99 3 c80746exv99.htm EX-99 PRESS RELEASE

Digi International Reports Fourth Quarter and Fiscal 2003 Results

(Minneapolis, November 6, 2003) - Digi International® Inc. (NASDAQ: DGII) today reported fourth fiscal quarter 2003 revenue of $26.3 million, compared to $25.1 million in the fourth fiscal quarter of 2002. Revenue for the quarter was slightly above the upper end of management’s recently updated guidance of $26.0 - - $26.2 million.

Revenue from Digi Connectware products was $18.3 million for the fiscal fourth quarter of 2003. Device Networking products, which include NetSilicon and the Device Server product lines, contributed $8.0 million for the quarter.

Digi reported net income of $1.8 million for the fourth fiscal quarter of 2003, or $0.09 per diluted share, compared to a net loss of $4.4 million, or $0.20 per diluted share, during the fourth fiscal quarter of 2002. Earnings per diluted share exceeded the upper end of management’s recently updated guidance of $0.07 — $0.08.

Digi completed the 2003 fiscal year with revenues of $102.9 million, compared to revenues of $101.5 million in fiscal year 2002. As previously announced, Digi adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (SFAS 142), effective October 1, 2002. Digi recorded a non-cash goodwill impairment charge of $43.9 million. The charge is reported as a cumulative effect of a change in accounting principle. Including the impact of SFAS 142, Digi recorded a GAAP net loss of $37.3 million, or $1.76 per diluted share in fiscal 2003, compared to a net loss of $12.8 million, or $0.65 per diluted share in fiscal 2002. Digi reported income before the cumulative effect of the accounting change of $6.6 million, or $0.31 per diluted share. Income before the cumulative effect of the accounting change for fiscal year 2003 exceeded management’s recently updated guidance of $0.28 to $0.30.

Gross margin in the fiscal fourth quarter of 2003 was 59.1% compared to 55.9% in the fiscal fourth quarter of 2002. Gross margin for fiscal year 2003 was 59.6%, compared to 54.7% from the previous year. The increase in 2003 is due to the introduction and expansion of higher margin networking connectivity products in both the Connectware and Device Networking segments. Certain of the Company’s mature products that generate high margins also continued to perform well in fiscal 2003.

Total operating expenses in the fiscal fourth quarter of 2003 were $14.0 million compared to $20.6 million in the fiscal fourth quarter of 2002. Operating expenses for the full fiscal year 2003 totaled $55.6 million, compared to $77.3 million in fiscal year 2002. The decrease in 2003 operating expenses is primarily due to restructuring activities that took place at the end of fiscal 2002, in addition to cost controls that have been in place

Digi International Reports Fourth Quarter and Fiscal 2003 Results — Page 2

throughout fiscal 2003. The cost saving measures undertaken at the end of fiscal 2002, combined with the continuing cost controls that were in place in fiscal 2003 resulted in savings of $11.7 million in sales and marketing, research and development, general and administrative expenses, and intangibles amortization in 2003.

Digi’s cash and cash equivalents and marketable securities balance at the end of the quarter was $57.6 million, an increase of $3.1 million from the end of the prior quarter. The increase is primarily a result of cash generated from operations of $6.8 million, offset partially by net cash used in financing activities of $3.5 million to pay down long-term debt in its European operations and partially replace it with lower-interest, short-term borrowing. Days sales outstanding (DSO) was at 32 days for fiscal 2003, compared to 33 days for fiscal 2002. Digi’s cash per share, defined as cash and cash equivalents and marketable securities divided by September 30, 2003 shares outstanding of 20,242,491, was $2.85. Tangible book value per share was $4.06.

“The Digi team put together four quarters of positive operating income and operating cash flow in fiscal 2003,” said Joe Dunsmore, Chairman, President and CEO of Digi.

The fiscal 2003 highlights:

• NetSilicon launched NET+Works® 6.0, the latest version of a fully integrated, royalty-free, NET+Works software suite for embedded device networking.

• NetSilicon introduced an ARM 9 NET+ARM processor for embedded device networking. The NS9750 is the highest performance, most integrated NET+ARM processor available.

• NetSilicon introduced an ARM 7 NET+ARM processor for embedded device networking. The NS7520 is a very low cost, yet high performance NET+ARM processor.

• NetSilicon announced a distribution agreement with Nu Horizons, naming Nu Horizons the exclusive North American distribution partner and a non-exclusive distribution partner in Asia for NetSilicon’s award winning NET+ARM® family of 32-bit microprocessors and NET+Works® software development tools.

• Digi launched Wavespeed/S wireless serial adapter, the first device of its kind suitable for mission-critical applications, offering EIA-232 serial cable replacement with a wireless alternative that increases user mobility.

• Digi released the Digi Connect ME™, the most powerful and customizable embedded networking solution available, as well as one of the smallest.

Digi International Reports Fourth Quarter and Fiscal 2003 Results — Page 3

• Digi began shipping its newly released Digi TS™ W family of one-, two-, and four-port serial to wireless Ethernet device servers, the first in a series of products to ship with 802.11b wireless connectivity.

• The Digi CM™ console server began providing a secure graphical user interface for easy out-of-band management of the Microsoft Windows Server 2003 family of servers.

• Digi’s AnywhereUSB® Remote I/O Concentrator was chosen as one of the three finalists in PC Magazine’s Awards for Technical Excellence, further validating Inside Out Networks’ position as an industry leader in providing USB connectivity solutions.

• The Digi One IA RealPort™ received the Control Engineering Editors’ Choice Award.

• Digi signed an agreement with Lantronix to dismiss the patent infringement and trade secret lawsuits between the companies. The companies also agreed to cross license certain patents.

• Digi repurchased 2.4 million common shares from Sorrento Networks, resulting in the acquisition of all of Sorrento’s equity interest in Digi.

First Quarter and Fiscal 2004 Guidance

Digi expects first quarter 2004 revenue to be in the range of $25 to $26 million and anticipates earnings per diluted share to be in the range of $0.04 to $0.06. For the full fiscal year 2004, Digi forecasts revenue to increase over fiscal year 2003 revenue by 2% to 7%. Digi expects earnings per diluted share for fiscal 2004 to be $0.26 to $0.32. Fiscal year 2003 earnings per diluted share includes $0.09 relating to the tax benefits of net operating loss carryforwards recorded in fiscal 2003. Earnings per diluted share for fiscal 2004 are expected to increase by 18% to 45% over fiscal 2003 earnings per diluted share before the cumulative effect of the accounting change related to the adoption of SFAS 142 and the tax benefits of the net operating loss carryforwards.

Digi International Reports Fourth Quarter and Fiscal 2003 Results — Page 4

Digi International Inc.
Condensed Consolidated Statement of Operations
For the three months and year ended September 30, 2003 and 2002
(In thousands, except per share and share amounts)

			Three months ended						Year ended
			2003			2002			2003			2002
Net sales			$	26,320		$	25,083		$	102,926		$	101,536
Cost of sales				10,766			11,065			41,580			46,012
Gross margin				15,554			14,018			61,346			55,524
Operating expenses:
	Sales and marketing			6,346			6,893			24,734			28,808
	Research and development			4,177			5,435			15,968			19,530
	General and administrative			2,404			3,311			9,039			11,611
	Goodwill and intangibles amortization			1,282			2,294			6,485			7,945
	In-process research and development			—			—			—			3,100
	Loss on sale of MiLAN business			—			—			—			3,617
	Restructuring			(164	)		2,696			(600	)		2,696
		Total operating expenses		14,045			20,629			55,626			77,307
	Gain from forgiveness of grant payable			255			—			553			1,068
Operating income (loss)				1,764			(6,611	)		6,273			(20,715	)
Other income, net				186			322			296			1,255
Income (loss) before income taxes and cumulative effect of accounting change				1,950			(6,289	)		6,569			(19,460	)
Income tax provision (benefit)				145			(1,933	)		(23	)		(6,675	)
Net income (loss) before cumulative effect of accounting change				1,805			(4,356	)		6,592			(12,785	)
Cumulative effect of accounting change				—			—			(43,866	)		—
Net income (loss)			$	1,805		$	(4,356	)	$	(37,274	)	$	(12,785	)
Income (loss) per common share, basic:
	Before cumulative effect of accounting change		$	0.09		$	(0.20	)	$	0.31		$	(0.65	)
	Cumulative effect of accounting change			—			—			(2.09	)		—
			$	0.09		$	(0.20	)	$	(1.77	)	$	(0.65	)
Income (loss) per common share, assuming dilution:
	Before cumulative effect of accounting change		$	0.09		$	(0.20	)	$	0.31		$	(0.65	)
	Cumulative effect of accounting change			—			—			(2.07	)		—
			$	0.09		$	(0.20	)	$	(1.76	)	$	(0.65	)
Weighted average common shares, basic				20,212,105			22,227,871			21,028,611			19,674,516
Weighted average common shares, assuming dilution				20,602,753			22,227,871			21,150,540			19,674,516

Digi International Reports Fourth Quarter and Fiscal 2003 Results — Page 5

Digi International Inc.
Condensed Consolidated Balance Sheet
(In thousands)

				September 30, 2003		September 30, 2002
ASSETS
Current assets:
	Cash and cash equivalents			$	57,633	$	58,151
	Accounts receivable, net				10,842		10,518
	Inventories				10,437		12,491
	Other				4,873		5,141
			Total current assets		83,785		86,301
Property, equipment and improvements, net					19,888		21,539
Intangible assets, net					23,603		71,686
Net deferred tax assets					4,224		—
Other					1,040		1,302
			Total assets	$	132,540	$	180,828
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
		Short-term borrowing		$	1,983	$	—
	Current portion of long-term debt				—		891
	Accounts payable				5,742		6,591
	Accrued expenses and income taxes payable				18,250		13,653
	Restructuring accruals				17		2,504
			Total current liabilities		25,992		23,639
		Long-term debt			—		4,989
	Net deferred tax liabilities				685		1,020
Total liabilities					26,677		29,648
Total stockholders’ equity					105,863		151,180
			Total liabilities and stockholders’ equity	$	132,540	$	180,828

Digi International Reports Fourth Quarter and Fiscal 2003 Results — Page 6

Digi International Inc.
Condensed Consolidated Statement of Cash Flows
For the three months and year ended September 30, 2003

(in thousands)

					Three months			Year
					ended			ended
					September 30, 2003			September 30, 2003
Operating activities:
	Net income (loss)				$	1,805		$	(37,274	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
			Restructuring			(164	)		(600	)
			Depreciation of property and equipment			826			3,131
			Amortization of intangible and other assets			1,512			7,172
			Gain from forgiveness of grant payable			(255	)		(553	)
			Goodwill impairment charge			—			43,866
			Provision for doubtful accounts and product returns			(174	)		(134	)
			Provision for inventory obsolescence			337			1,248
				Deferred income taxes		—			(1,415	)
			Gain on sale of fixed assets			(1	)		(4	)
			Stock compensation			22			99
			Tax benefit related to the exercise of stock options			25			25
			Changes in operating assets and liabilities			2,909			226
				Total adjustments		5,037			53,061
				Net cash provided by operating activities		6,842			15,787
Investing activities:
		Purchase of held-to-maturity marketable securities, net				(4,610	)		(15,744	)
		Contingent purchase price payments related to business acquisitions				—			(2,018	)
		Proceeds from sale of fixed assets				—			6
		Purchase of property, equipment, intangibles, and improvements				(618	)		(1,697	)
				Net cash used in investing activities		(5,228	)		(19,453	)
Financing activities:
		Principal payments on long-term debt				(5,490	)		(6,787	)
		Short-term borrowing				1,983			1,983
		Purchase of treasury stock				—			(8,555	)
		Stock benefit plan transactions				432			884
				Net cash used in financing activities		(3,075	)		(12,475	)
Effect of exchange rate changes on cash and cash equivalents						(18	)		(121	)
Net decrease in cash and cash equivalents						(1,479	)		(16,262	)
Cash and cash equivalents, beginning of period						24,230			33,490
Cash and cash equivalents, end of period					$	22,751		$	17,228

Digi International Reports Fourth Quarter and Fiscal 2003 Results — Page 7

Fourth Quarter and Fiscal 2003 Conference Call Details

Digi invites all those interested in hearing management’s discussion of the quarter and year end to attend our fourth fiscal quarter 2003 conference call, scheduled for Thursday, November 6, 2003, at 4:00 p.m. CT, either by phone or on the Web. Participants can access the call directly at 888-489-9488. International participants may access the call by dialing 212-346-0135. A replay will be available for one week following the call by dialing 402-977-9140 and entering the following access code when prompted: 21164531. Participants may also access a live web cast of the conference call through the investor relations section of Digi’s Web site, www.digi.com.

About Digi International

Digi International, based in Minneapolis, is the leader in Connectware and makes device networking easy by developing products and technologies that are cost effective and easy to use. Digi markets its products through a global network of distributors and resellers, systems integrators and original equipment manufacturers (OEMs). For more information, visit Digi’s web site at www.digi.com, or call 800-344-4273 (U.S.) or 952-912-3444 (International).

Digi, Digi International, and the Digi logo are trademarks or registered trademarks of Digi International Inc. in the United States and other countries. All other brand names and product names are trademarks or registered trademarks of their respective owners.

Forward-looking Statements

This press release contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which generally can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” target,” “estimate,” “may,” “will,” “expect,” “plan,” “project,” “should,” or “continue” or the negative thereof or other variations thereon or similar terminology. Such statements are based on information available to management as of the time of such statements and relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company’s mission and vision. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, including risks related to the highly competitive market in which the Company operates; rapid changes in technologies that may displace products sold by the Company, declining prices of networking products, the Company’s reliance on distributors, delays in the Company’s product development efforts, uncertainty in consumer acceptance of the Company’s products, and changes in the Company’s level of revenue or profitability. These and other risks, uncertainties and assumptions identified from time to time in the Company’s filings with the Securities and Exchange Commission, including without limitation, its annual reports on Form 10-K for the year ended September 30, 2002 and its quarterly reports on Form 10-Q, could cause the Company’s future results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Many of such factors are

Digi International Reports Fourth Quarter and Fiscal 2003 Results — Page 8

beyond the Company’s ability to control or predict. These forward-looking statements speak only as of the date for which they are made. The Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

# # #

Digi International Contact
S. (Kris) Krishnan
(952) 912-3125
s_krishnan@digi.com Investors Contact
Laura Wyrick, Gino De Jesus, Dian Griesel
The Investor Relations Group
New York, NY
212-825-3210
mail@investorrelationsgroup.com

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