-----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, DTeSw7TgtxBFdXLhLl4NuvlYV2F3KLW945010gQXv8cvwx44nIxU2qSlZS4rUECS niz0HIzV6YW10ioVQLBRWQ== 0000893877-97-000107.txt : 19970222 0000893877-97-000107.hdr.sgml : 19970222 ACCESSION NUMBER: 0000893877-97-000107 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADISYS CORP CENTRAL INDEX KEY: 0000873044 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930945232 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26844 FILM NUMBER: 97537188 BUSINESS ADDRESS: STREET 1: 15025 SW KOLL PARKWAY CITY: BEAVERTON STATE: OR ZIP: 97006 BUSINESS PHONE: 5036461800 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission file number 0-26844 RADISYS CORPORATION (Exact name of registrant as specified in its charter) OREGON 93-0945232 (State or other jurisdiction of (I.R.S Employer Incorporation or Organization) Identification Number) 5445 N.E. Dawson Creek Drive Hillsboro, OR 97124 (Address of principal executive offices, including zip code) (503) 615-1100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock 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 the filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. (X) Aggregate market value of the voting stock held by non-affiliates of the Registrant at February 6, 1997: $195,680,352. For purposes of the calculation executive officers, directors and holders of 10% or more of the outstanding Common Stock are considered affiliates. Number of shares of Common Stock outstanding as of February 6, 1997: 7,391,556. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K into Document which Incorporated ------------------------------- ---------------------- Proxy Statement for 1997 Annual Part III Meeting of Shareholders 1 RADISYS CORPORATION FORM 10-K TABLE OF CONTENTS Part I - ------ Item 1 Business 3 Item 2 Properties 9 Item 3 Legal Proceedings 9 Item 4 Submission of Matters to a Vote of Security Holders 9 Item 4(a) Executive Officers of the Registrant 9 Part II - ------- Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters 11 Item 6 Selected Financial Data 11 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8 Financial Statements and Supplementary Data 14 Item 9 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 15 Part III - -------- Item 10 Directors and Executive Officers of the Registrant 15 Item 11 Executive Compensation 15 Item 12 Security Ownership of Certain Beneficial Owners and Management 15 Item 13 Certain Relationships and Related Transactions 15 Part IV - ------- Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 16 Signatures 30 2 PART I ITEM 1. BUSINESS RadiSys Corporation ( "RadiSys" or the "Company") is a significant independent designer and manufacturer of embedded computer solutions used by original equipment manufacturers ("OEMs") for products in the manufacturing automation, telecommunications, medical devices, transportation, retail/office automation, and the test and measurement industries. Unlike general purpose computers, embedded computer solutions are incorporated into systems and equipment to provide a single or a limited number of critical system control functions and are generally integrated into larger automated systems. RadiSys' embedded computers are based upon the Intel x86 architecture and are typically capable of running PC-compatible operating systems and application software. The Company offers a broad spectrum of solutions, including application-specific embedded computer subsystems, board-level modules and chip-level products. On April 29, 1996, the Company purchased substantially all of the assets of Intel Corporation ("Intel") that were dedicated to the design, manufacture and sale of all standard and custom Multibus I and Multibus II products ("Multibus") (collectively the "Acquisition"). In addition, pursuant to the terms of the Acquisition, Intel licensed Intel's iRMX real time operating software system ("iRMX") to the Company. Embedded Computer Market Embedded computers are a key segment of the broad electronics market and form the backbone and control system for many types of today's electronics systems requiring advanced capabilities for human interface, data analysis and system communications and control. Embedded computers differ from general purpose computers, such as PCs, in several key respects. First, embedded computers are closely integrated into larger systems, perform a single or limited number of complex applications and adhere to specific requirements regarding size, reliability and ability to withstand the demands of extreme environmental conditions. Additionally, embedded computers are design-intensive solutions that require substantial engineering know-how and a comprehensive understanding of the specific end product into which they are to be incorporated. Embedded computer solutions are incorporated into a broad range of products, including blood analyzers, patient monitors, ultrasound machines, voice message systems, local area network routers, cellular base stations, semiconductor manufacturing equipment, electronics assembly equipment, metal grinding equipment, anticollision systems, intelligent highway systems, locomotive motor control devices, bar code scanners, point of sale terminals and automated teller machines. Unlike PC products, which have experienced and will likely continue to experience short product cycles, a typical embedded computer solution has a relatively long product life, with most designs lasting through the life cycles of the products into which they are integrated, often three to seven or more years. The embedded computer market can be segmented by annual unit volume. At unit volumes of above about 50,000 units per year, OEMs generally decide to produce their own solutions. At low unit volumes of less than 500 units per year, where customized requirements such as space, cost, functionality and power usually cannot be met efficiently by OEMs, such OEMs typically use off-the-shelf catalog bus/board products. In the intermediate segment (between 500 and 50,000 units per year), unit volumes are sufficient to support a significant design effort but are not large enough to take advantage of very high volume manufacturing channels or to support custom semiconductor designs. Industry applications contained within this intermediate segment of the market include manufacturing automation equipment, telecommunications equipment, medical devices, transportation systems, retail automation equipment and test and measurement equipment. Based on industry sources, the Company believes sales of embedded computer solutions into the intermediate segment of the embedded computer market represented over two-thirds of dollar sales in the total embedded computer market in 1996. In recent years, the increasing complexity of electronics subsystems and components, together with a widespread trend in many industries to rationalize internal manufacturing resources, has led to a significant growth in the outsourcing of the design and manufacture of electronics subsystems and components by major OEMs. As a result, the Company believes there is a significant opportunity for independent manufacturers to provide OEMs with cost-effective, reliable and high value-added embedded computer solutions. 3 Strategy The Company's objective is to be the leading supplier of embedded computer solutions to major OEMs in the manufacturing automation, telecommunications, medical devices, transportation systems, test and measurement, and retail/office automation industries. The key elements of the Company's strategy to achieve this objective are: LEVERAGE INTEL X86 EXPERTISE IN EMBEDDED COMPUTER MARKET. RadiSys combines the technical expertise of hundreds of man-years of Intel x86 architecture experience with a close working relationship with Intel to design and manufacture innovative Intel-based solutions for its OEM customers. The Company intends to capitalize on the widespread acceptance of the Intel x86 architecture, the availability of powerful yet inexpensive software, and the development of flexible I/O and peripheral devices to increase adoption of Intel x86 architecture as the preferred solution of OEMs. Additionally, the Company and Intel's Computer Enhancement Group are working together to develop and market chip-level and board-level products for the embedded computer market in order to facilitate the implementation of x86 designs into a broadening array of new OEM end products. FOCUS ON THE HIGH VOLUME OEM MARKET. The Company is targeting the segment of the embedded computer market where product volumes typically range from 500 to 50,000 units annually. The Company believes this segment includes the largest number of OEM products requiring embedded computer solutions, and that sales of embedded computer solutions into this market segment represent over two-thirds of the aggregate dollar volume of annual embedded computer product sales. The Company also believes that the need for complex, customer-specific embedded computers within this segment typically requires considerable design and manufacturing expertise, which are the Company's core strengths and the combination of which are frequently unavailable from traditional design and manufacturing sources. EXPAND LONG-TERM OEM SALES OPPORTUNITIES. The Company seeks to develop and expand long-term relationships with OEMs where it acts as a "virtual division" by developing a close working relationship in which the OEM views RadiSys as playing an integral role in its product development processes. This approach allows the OEM to outsource the design and manufacture of its embedded computer solutions while continuing to control and coordinate this process. At the same time, this approach provides RadiSys with the opportunity to achieve attractive unit sales volumes for products with relatively long life cycles and also provides RadiSys with access to new product opportunities. PROVIDE BROAD SET OF TECHNICAL SOLUTIONS TO MEET CUSTOMER-SPECIFIC NEEDS. The Company provides a high degree of design, product, and manufacturing flexibility to address the needs of its customers for customized solutions in a wide range of applications. The Company provides products with a variety of physical form factors and levels of integration, from application-specific embedded computer subsystems to board-level modules to chip-level products. The Company also offers a broad range of solutions from standard products to custom solutions and maintains a large and expanding library of designs, containing specifications, logic designs, firmware, device driver software, test specifications, and manufacturing rules. The Company believes that its broad range of solutions is critical to its ability to find the solution that best fits its customers' technical and business needs. CAPITALIZE ON MANUFACTURING EXPERTISE. The Company is ISO9001 certified and its high quality manufacturing facility, its sophisticated control systems, and its advanced test processes enable it to meet its customers' demands for highly reliable and rugged products. By both designing and manufacturing embedded computer solutions, the Company offers its customers a stable, long-term source of supply, a single point of accountability, design expertise, and reduced time-to-market. Products RadiSys designs and manufactures embedded computer solutions based on the Intel x86 architecture to address the specific requirements of its OEM customers. A typical solution combines the level of integration, degree of customization and specified form factors and standards required to meet the customer's needs. INTEGRATION. The level of integration of the Company's products ranges from complete solutions in the form of application-specific embedded computer subsystems to board-level modules to chip-level products. The Company provides 4 its customers with alternative solutions at each of these three levels based on the customers' needs, and uses products developed at lower levels of integration as components of more highly integrated designs. Application-specific embedded computers are subsystems designed to function without additional configuration by the OEM. These subsystems can be specific integrated configurations of standard products, semi-custom products, or highly integrated single-board-solutions. Application-specific embedded computers generally range in price from $500 to $4,000. The Company has approximately 100 application-specific embedded computers in production. Board-level modules are usually designed to be components of larger systems employing standard modular bus structures. These modules consist of printed circuit boards such as processor boards and I/O interfaces, backplanes (interconnect boards), power supplies and mechanical packaging. Modules are typically sold to OEM customers who have designed a complete system comprising boards purchased from the Company along with other boards purchased from other suppliers and still others designed in-house. Board-level products typically range in price from about $300 to over $3,000. The Company has over 150 module products in production supporting the Multibus I, Multibus II, VME architectures as well as Baby AT and ATX form factor baseboards. Chip-level products, like modules, are used as components for higher levels of integration and as products for direct sale to customers who build their own board-level solutions. RadiSys has introduced three companion chips, supporting Intel's family of long-lived embedded processors. The RadiSys R300EX and R380EX embedded system controllers support the Intel386 EX(TM) embedded processor, which is a highly integrated version of the standard Intel386 developed specifically for embedded design. The RadiSys R400EX is newly introduced and supports the Intel486(TM) family of embedded processors, including SX, DX2, and DX4 versions as well as Intel's ultra-low power 486. Intel continues to make specific versions of the Intel 486 available to the embedded market because of its wide acceptance in embedded designs. The Company's companion chips make product designs with the Intel386 EX and the family of Intel 486 processors easier, smaller, and less expensive by integrating design features essential to embedded designers such as integrated real time clock, watch-dog-timer, IDE disk controllers, serial ports, and chip selects, in addition to traditional companion chip features such as memory control, I/O chip interfacing, and timing control, all in a single integrated device. CUSTOMIZATION. The degree of customization of the Company's products ranges from modifications of standard products, to custom solutions comprised solely of newly developed modules. The Company uses its extensive design experience and large design library to create products with varying degrees of customization. The Company believes that the degree of customization will tend to increase in the future. FORM FACTORS AND STANDARDS. The form factors and standards of the Company's products represent a large set of product parameters that characterize specific product and customer needs. The Company has expertise across a broad range of form factors, microprocessors, software environments and communication standards including, but not limited to, EMC, PC/104, ISA bus, PCI bus, PCMCIA, SBC, VME bus, VXI bus and Multibus. SOFTWARE. The Company announced in 1996 the formation of a new Embedded Software Operation (ESO) which will focus on OEM software platforms specific to the embedded market. ESO is focused on extending Microsoft Windows NT with real-time capabilities. "Real-time" is the term typically used to describe those applications on the upper end of embedded applications that require system response times in the sub-millisecond range. The Company expects to release its software product in late second quarter of 1997. Sales and Marketing The Company typically experiences long life cycles for products designed for its OEM customers. RadiSys views the design process as an opportunity to build long-term OEM customer relationships. In the initial phases of the relationship, considerable attention is given to the establishment of communications links, such as electronic mail, to enable the customer's and the Company's sales and engineering staffs to interact on a real-time or rapid response basis. The Company believes that close and frequent communication during the design process allows RadiSys to operate as a "virtual division" within the customer's internal organization. RadiSys' in-depth understanding of embedded computer technology and 5 applications assists the customer in resolving its overall product design issues while regular customer feedback enables RadiSys to increase and continually refresh its understanding of its customer's specific design requirements. The Company markets its products primarily in North America, Western Europe and Japan. In 1996, the Company had only one customer whose sales exceeded 10% of total revenues; Electrocom Automation accounted for 10.1% of 1996 sales. In North America, products are sold principally by a direct sales force. The Company has U.S. regional offices in Philadelphia and San Jose. Each region has a regional sales manager, and four to six sales and applications engineers. The field sales force is supported by approximately 24 factory-based applications engineers, product marketing personnel and sales support personnel. In addition, the Company's management plays a key role in the Company's marketing and selling efforts. In Japan, the Company sells its products through a wholly owned Japanese subsidiary, RadiSys K.K., that markets the Company's products directly and through several distributors in Japan. In Europe, the Company sells its products through wholly owned subsidiaries in the United Kingdom, RadiSys UK Ltd., and RadiSys International and through approximately 23 distributors throughout Europe. RadiSys has regional sales offices in Swindon, United Kingdom; Munich, Germany; and Eindhoven, Netherlands. In 1994, 1995 and 1996, international sales represented approximately 16%, 17% and 27%, respectively, of revenues. Substantially all of the Company's international sales are denominated in U.S. dollars The Company has established distributor relationships with Anthem, Arrow/Schweber Electronics, Pioneer-Standard Electronics, Inc., and Wyle Electronics in North America and approximately 23 distributors in Europe to market the Company's chip-level and Multibus products. Research, Development and Engineering The Company believes its research, development and engineering expertise represents an important competitive advantage. The Company's research, development and engineering staff at December 31, 1996 consisted of 74 engineers, 92% of whom hold degrees in a technology related field, and 37 technicians. Most of the Company's research, development and engineering efforts are focused on joint projects with its OEM customers resulting in the development of custom products. For these projects, the Company's engineering staff works closely with the customer and the customers generally pay the Company non-recurring engineering fees as certain milestones are attained. From time to time, the Company also engages in joint research and development of other products with certain of its customers and other parties. The Company is engaged in research and development of additional chip-level products designed to give the Company's board-level products additional competitive advantages in terms of functionality, cost, reliability, reduced time-to-market and increased product life longevity and to capitalize on the Company's expertise in embedded computer system design by providing innovative chips to meet the requirements of OEM customers. The Company typically retains the rights to any technology developed as a part of the design process. In some cases, the Company agrees to share technology rights, including manufacturing rights, with the customer, but generally retains nonexclusive rights to use the technology. The embedded computer market is subject to rapid technological development, product innovation and competitive pressures. Consequently, the Company has invested and will continue to invest resources in the research and development of (i) building blocks such as embedded modules, platforms, chips and low-level firmware, (ii) application-specific embedded computers for specific customers and (iii) design processes and tools. In 1994, 1995 and 1996, the Company invested $2.1 million, $3.3 million and $8.2 million, respectively, on research and development. 6 Manufacturing The Company currently manufactures most of the board-level products it sells. The Company builds its products in a highly automated ISO9001 certified manufacturing plant at its headquarters in Hillsboro, Oregon. This plant encompasses surface-mount technology ("SMT") board assembly, test, mechanical assembly and shipping. ISO9001 certification is the international designation, developed by the International Standards Organization, a pan-governmental agency, for demonstrating that the Company's systems support the production of high quality products. The Company has three automated lines for SMT board assembly, which are based on equipment purchased primarily from Universal Instruments. The first line is optimized for higher mix, lower volume products. With a higher product mix, the line can produce approximately 3,000 boards per month and is production worthy of 0.5mm (19 mil) ultra-fine-pitch SMT. The second and third lines use a fully inline, full vision stencil printer and other inline equipment, can produce approximately 11,000 boards per month and are production worthy of 0.4mm (15 mil) ultra-fine-pitch SMT. The Company estimates that, as currently configured, the three lines have sufficient capacity on multiple-shift operation to handle planned demand well into 1997. Each of the lines is modular and thus readily expandable by adding additional inline equipment. Because the products into which embedded computers are integrated typically have long life cycles, dynamic stress testing of embedded computer products must be particularly exacting to ensure the reliability of such products. The Company believes its test processes represent a significant competitive advantage in this area. The Company uses a variety of commercial and proprietary bed-of-nails, in-circuit and functional test equipment. Most products also pass through highly accelerated stress screening. The stress screening process detects early lifetime failures by subjecting products to a series of cycles of rapid temperature change, and random mechanical vibration while the products are running a self-test program and are being monitored. The Company has equipment to perform temperature, humidity, and vibration analysis of products. The Company relies on external suppliers for bare printed-circuit board fabrication, machine-inserted throughole circuit boards, semiconductor components, mechanical assemblies, and semiconductor foundry services. Although many of the raw materials and much of the equipment used in the Company's manufacturing operation are available from a number of alternate sources, certain of these components are obtained from a single supplier or a limited number of suppliers. The Company is dependent on third parties for a continuing supply of the components it uses in the manufacture of its products. For example, the Company is dependent solely on Intel for the supply of microprocessors and other components and depends on Maxim Integrated Products, Inc., Cirrus Logic, Inc. and Xilinx, Inc. as sole source suppliers for other components, for some of which the Company would encounter difficulty in locating alternative sources of supply. The Company relies on a third party foundry to produce its core logic chip product offerings. There is no assurance that the third party will be willing or able to supply the Company with sufficient core logic chips to meet its needs in the future or, if the party were not to meet the Company's needs, that the Company could obtain satisfactory core logic chips from alternative sources in sufficient quantities and at acceptable prices. Competition The embedded computer industry is highly competitive and fragmented, and the Company's competitors differ depending on product type, geographic market and application type. The Company believes that, from a customer's perspective, the main competitive factors in the embedded computer industry are product cost, product quality, design effectiveness, time-to-market, and long-term stability of both the product and the supplier. Because many OEM customers view their embedded computer requirements from a make versus buy perspective, the Company often competes against its OEM customers' ability to design and manufacture satisfactory embedded computer products in-house. A customer may be capable of manufacturing an embedded computer product at lower cost and with better quality control than the Company can, and may wish to use underutilized internal design and manufacturing resources. On the other hand, if the OEM customer wishes to rely on outside expertise, desires quicker time-to-market, is lacking internal design and/or manufacturing resources, and wishes to avoid certain issues of product stability, new technologies, and redesign due to end-of-life components, the customer may opt to purchase the Company's embedded computer solution. 7 Off-the-shelf product manufacturers comprise a second set of competitors, although this product segment is highly fragmented by physical and electrical form factor. Electronics contract manufacturers form a third set of potential competitors, although most have no specific product or application design expertise and simply manufacture to a third party's design. Finally, the Company competes against embedded computer systems that rely on non-Intel-based architectures, including the Power PC architecture manufactured by IBM and Motorola. Motorola's 68000 family of microprocessors has achieved relative dominance of the embedded computer market for applications requiring a VME bus form factor. Backlog As of December 31, 1996, the Company's backlog was approximately $33.6 million, as compared to $13.9 million as of December 31, 1995. The Company believes the increase in backlog is primarily due to increased sales which partly resulted from the acquisition of Multibus and iRMX in April 1996. The Company includes in its backlog all purchase orders scheduled for delivery within twelve months, although a majority of the backlog is typically scheduled for delivery within 90 days. Intellectual Property The Company has two Multibus patents, but relies principally on trade secrets for protection of its intellectual property. The Company believes, however, that its financial performance will depend much more on the pace of its product development and its relationships with its customers than upon such protection. The Company has no pending claims against it alleging any possible infringement of patents or other intellectual property rights of others. Employees As of December 31, 1996, the Company had 356 employees, of which 280 were regular employees and 76 were agency temporary employees or contractors. The Company is not subject to any collective bargaining agreement, has never been subject to a work stoppage, and believes that its relations with employees are good. Forward Looking Statements Except for the historical statements and information, this Annual Report on Form 10-K contains and from time to time the Company may issue forward looking statements that involve a number of risks and uncertainties. The following 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; uncertainty of market development; dependence on a limited number of OEM customers; dependence on limited or sole source suppliers; dependence on the relationship with Intel; dependence on Intel's support of the embedded computer market; lower than expected customer orders; competitive factors, including increased competition, new product offerings by competitors and price pressures; the availability of parts and components at reasonable prices; changes in product mix; dependence on proprietary technology; technological difficulties and resource constraints encountered in developing new products; and product shipment interruptions due to manufacturing difficulties. See Items 7 and 14 of this report. The forward looking statements contained in this Annual Report on Form 10-K regarding industry trends, product development and introductions, and liquidity and future business activities should be considered in light of these factors. 8 ITEM 2. PROPERTIES The Company leases an aggregate of approximately 80,000 square feet of office and manufacturing space in one building in Hillsboro, Oregon and 20,000 square feet of office space in Beaverton, Oregon. The Company also leases five small sales offices in the U.S. and one each in Swindon, United Kingdom, Yokohama, Japan, Eindhoven, the Netherlands and Munich, Germany. Total lease costs of all these facilities are approximately $1.1 million per year, plus certain building operating expenses. The Company is in the process of negotiating an agreement to lease an engineering design center facility of approximately 50,000 square feet to be located adjacent to the Company's headquarters and manufacturing facility in Hillsboro, Oregon. This facility will be built to the Company's specifications and is expected to be ready for occupancy in early 1998. In January 1997, the Company purchased an additional parcel of land adjacent to its headquarters and manufacturing facility for future expansion. ITEM 3. LEGAL PROCEEDINGS The Company and Dr. Glenford J. Myers have been named as defendant in Taylor vs. RadiSys Corporation, et al., filed July 26, 1996, in the Circuit Court of the State of Oregon, in Washington County. Mr. Taylor, a former employee officer of the Company, alleges that he was wrongfully terminated by the Company in violation of a contract of employment and in retaliation for reporting internally alleged accounting discrepancies. In this lawsuit, the defendant is claiming damages of not less than $2,000,000. Subsequent to the filing of this lawsuit, the Securities and Exchange Commission asked the Company voluntarily to provide certain information related to its financial statements and Mr. Taylor's allegations, and the Company promptly complied with that request. The Company believes there is no substance to these allegations and that the ultimate result in this lawsuit will not have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 4(a) EXECUTIVE OFFICERS OF THE REGISTRANT As of February 6, 1997, the names, ages and positions held by the directors and executive officers of the Company were as follows:
Name Age Position with the Company ---- --- ------------------------- Dr. Glenford J. Myers 50 Chairman of the Board, President and Chief Executive Officer Ronald A. Dilbeck 43 Vice President and General Manager, Integrated Products Division Robert A. Patterson 44 Vice President of Marketing John Sonneborn 39 Vice President of Manufacturing Brian V. Turner 37 Vice President of Finance and Administration, and Chief Financial Officer Stephen J. Verleye 41 Vice President and General Manager, System Products Division John D. Watkins 48 Executive Vice President of Worldwide Sales
9 Dr. Glenford J. Myers co-founded the Company in March 1987 and has served as the Company's Chairman of the Board, President and Chief Executive Officer since that time. From 1981 to 1987, he held various management positions with Intel, including Manager of Microprocessor Product Line Architecture and Manager of the Microprocessor Strategic Business Segment. While at Intel, Dr. Myers had primary management responsibility for the feasibility and design of Intel's 386 and 80960 microprocessor chips, both of which became industry standards in their respective application areas. From 1968 to 1981, Dr. Myers held various engineering and management positions with IBM. Dr. Myers holds a Ph.D. from the Polytechnic Institute of New York, M.S. from Syracuse University and B.S.E.E. from Clarkson College. Ronald A. Dilbeck joined the Company in May 1996 as its Vice President and General Manager, Integrated Products Division (IPD). From 1994 to 1996, Mr. Dilbeck was President and Chief Executive Officer of nCUBE, Inc. From 1983 to 1994, he held various engineering management positions, the most recent being Director of Integration Services. Mr. Dilbeck holds an M.S.E.E. from Washington State University and B.S.E.E. and B.S. Mathematics from Oregon State University. Robert A. Patterson joined the Company in April 1987 as its Vice President of Marketing. Mr. Patterson left the Company in January 1992 to become Vice President of Marketing of Star Semiconductor Corporation. From March 1994, to September 1994, he was a marketing manager at Kulicke & Soffa Industries, Inc. Mr. Patterson rejoined the Company in October 1994. From 1976 to 1987, Mr. Patterson held various marketing roles at Intel. Mr. Patterson holds a B.S. and M.S. from the University of Pennsylvania and M.B.A. from the Wharton School. John Sonneborn joined the Company in August 1996 as its Vice President of Manufacturing. From 1981 to 1996, Mr. Sonneborn held various operations and engineering positions at Tektronix, Inc., lastly as the Director of Quality for the Measurement Business Division. Mr. Sonneborn holds a B.S. in Applied and Engineering Physics from Cornell University. Brian V. Turner joined the Company in October 1995 as its Vice President of Finance. Mr. Turner was appointed Chief Financial Officer and Vice President of Finance and Administration in December 1995. From 1982 to October 1995, Mr. Turner held various positions with Price Waterhouse LLP. Mr. Turner is a certified public accountant and holds a B.B.A. in Accounting and a B.A. in Political Science from the University of Washington. John D. Watkins joined the Company in December 1988 as the Chief Financial Officer and Vice President of Finance and Administration. In September 1994, Mr. Watkins was appointed to Executive Vice President and assumed responsibilities for sales. From 1984 to 1988, Mr. Watkins was Chief Operating Officer of Interconnect Technology, Inc., an electronics manufacturing company. Mr. Watkins is a certified public accountant. Mr. Watkins holds a B.S. in Economics from Portland State University. Stephen J. Verleye joined the Company in September 1993 as Vice President of Marketing, and subsequently served as the Company's Vice President of Business Development. Mr. Verleye was appointed Vice President and General Manager, System Products Division in May 1996. From 1986 to 1993, Mr. Verleye held various marketing management roles at Sequent Computer Systems, Inc., the most recent being Director of Product Marketing. From 1977 to 1986, Mr. Verleye held various sales and marketing roles at Intel. Mr. Verleye holds a B.S.E.E. from the University of Notre Dame. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's Common Stock has been traded on the Nasdaq National Market since the Company's initial public offering under the symbol "RSYS". The following table sets forth, for the periods indicated, the highest and lowest closing sale prices for the Common Stock, as reported by the Nasdaq National Market. High Low ---- --- 1995 Fourth Quarter (from October 20, 1995) $15 $10 3/8 1996 First Quarter $18 1/2 $ 9 Second Quarter $37 $15 Third Quarter $51 1/8 $20 Fourth Quarter $74 1/2 $38 3/4 On February 6, 1997, the last reported sale price of the Common Stock on the Nasdaq National Market was $42. The Company has never paid any cash dividends on its Common Stock and does not expect to declare cash dividends on the Common Stock in the foreseeable future. The Company's current policy is to retain all of its earnings to finance future growth. As of February 6, 1997, there were approximately 146 holders of record of the Company's Common Stock. The Company believes that the number of beneficial owners is substantially greater than the number of record holders because a large portion of the Company's outstanding Common Stock is held of record in broker "street names" for the benefit of individual investors. ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data) Year Ended December 31, 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Consolidated Statement of Operations Data: Revenues $10,194 $15,351 $20,241 $35,025 $81,043 Gross profit 4,443 5,938 8,336 12,033 33,655 Income from operations 116 663 1,334 2,018 13,603 Net income 284 767 1,365 1,516 9,546 Net income per share 0.08 0.20 0.35 0.35 1.30 Weighted average shares outstanding 3,768 3,823 3,884 4,355 7,362 Consolidated Balance Sheet Data: Working Capital $ 5,793 $ 6,804 $ 7,917 $31,808 $45,830 Total Assets 8,894 9,712 12,367 39,112 80,253 Long term obligations, excluding 884 648 current portion Total shareholders' equity 7,317 8,126 9,649 34,819 56,778
11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Total revenue was $81.0 million for 1996, compared to $35.0 million for 1995. Net income was $9.5 million for 1996, an increase of 530% from $1.5 million for 1995. Revenues and net income increased primarily due to the purchase of Multibus and iRMX from Intel in April 1996 and higher revenues from design wins ramping into production during 1996. Net income for 1996 was also materially affected by the increase in the Company's effective tax rate from 30.7% in 1995 to 35% in 1996. Except for the historical statements and information, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward looking statements that involve a number of risks and uncertainties. The following 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; uncertainty of market development; dependence on a limited number of OEM customers; dependence on limited or sole source suppliers; dependence on the relationship with Intel; dependence on Intel's support of the embedded computer market; lower than expected customer orders; competitive factors, including increased competition, new product offerings by competitors and price pressures; the availability of parts and components at reasonable prices; changes in product mix; dependence on proprietary technology; technological difficulties and resource constraints encountered in developing new products; and product shipment interruptions due to manufacturing difficulties. The forward looking statements contained in this MD&A regarding industry trends, product development and introductions, and liquidity and future business activities should be considered in light of these factors. On April 29, 1996, the Company purchased substantially all of the assets of Intel that were dedicated to the design, manufacture and sale of all standard and custom Multibus I and Multibus II products ("Multibus") (collectively the "Acquisition"). In addition, pursuant to the terms of the Acquisition, Intel licensed Intel's iRMX real time operating software system ("iRMX") to the Company. The Acquisition was accounted for using the purchase method. The results of operations for Multibus have been included in the financial statements since the date of acquisition. Results of Operations The following table sets forth certain operating data as a percentage of revenues for the years ended December 31, 1994, 1995 and 1996.
Year Ended December 31, 1994 1995 1996 ---- ---- ---- Revenues 100.0% 100.0% 100.0% Cost of sales 58.8 65.6 58.5 -------- -------- -------- Gross margin 41.2 34.4 41.5 Research and development 10.5 9.4 10.1 Selling, general and administrative 24.1 19.2 14.6 -------- -------- -------- Income from operations 6.6 5.8 16.8 Interest income, net 0.5 0.5 1.3 -------- -------- -------- Income before income tax provision 7.1 6.3 18.1 Income tax provision 0.3 2.0 6.3 -------- -------- -------- Net income 6.8% 4.3% 11.8% ======== ======== ========
Years Ended December 31, 1994, 1995, and 1996 Revenues. Revenues increased 131% to $81.0 million for 1996 from $35.0 million for 1995. The increase in revenues in 1996 resulted primarily from the acquisition of Multibus from Intel on April 29, 1996 and from volume increases in OEM sales. Additionally, included within revenues for 1996 is $1.4 million of royalty payments from Intel in connection with backlog retained by Intel pursuant to the terms of the Acquisition. Revenues increased 73% to $35.0 million for 1995 from $20.2 million for 1994. The increase for 1995 was primarily the result of the onset of significant custom OEM sales. This reflects historical trends in which the Company initially focused its sales effort on standard board-level products offered through sales representatives to a wide variety of customers who typically purchased in relatively small unit volumes. In 1992, the Company began to focus significantly more effort on selling to large and mid-sized OEMs by substantially increasing its direct sales force. As a result of this change in focus, revenues increased substantially. 12 However, because of the relatively long sales cycles associated with OEM customers, increases in both absolute revenues and the percentage of revenues represented by OEM sales have occurred gradually over time. For 1996, sales to the Company's 25 largest customers constituted 73% of revenues, as compared to 80% and 70% for 1995 and 1994, respectively. GROSS MARGIN. Gross margin for 1996 increased to 41.5% from 34.4% for 1995 primarily as a result of royalties received from Intel for backlog retained in connection with the Multibus acquisition, component price decreasing faster than price changes to the Company's customers, the mix of product sold through distributors versus direct sales, and product mix for 1996 consisting of a larger portion of higher margin products shipped relative to lower margin products shipped. Additionally, included within cost of goods sold for 1996 is $1.3 million of inventory valuation adjustments that resulted from purchase accounting in connection with the Multibus acquisition. Gross margins are expected to return to targeted levels in future periods, which are lower than those achieved in 1996. Gross margin decreased to 34.4% for 1995 from 41.2% for 1994 primarily as a result of increased OEM sales. OEM sales are characterized by longer product life cycles and generally lower gross margins that can vary throughout the product life cycle. Gross margins are typically lower in the early stages of production for OEM sales and have the potential to improve over time. The Company establishes gross margin targets based on the nature of the sales it is pursuing and the desire to establish new OEM relationships by pricing aggressively to achieve key sales. However, many of the factors affecting gross margins, such as variances in unit volumes and timing of orders and component cost, are difficult or impossible to predict and can cause the Company to be subject to unplanned margin variances. Gross margins on OEM sales are also particularly sensitive to changes in customer mix because of both margin variances among individual products and the relative importance of a single large sale on overall operating results. To mitigate the effect of short-term margin variances, the Company may employ "step pricing" techniques in which unit prices decline over the life of the product to reflect anticipated production efficiencies and/or component cost reductions, or various "cost sharing" or "cost plus" pricing techniques that serve to reduce the margin risk to the Company. Indirect manufacturing costs have steadily decreased from 1994 through 1996 as a result of increases in operating efficiencies associated with higher unit production volumes. RESEARCH AND DEVELOPMENT. Research and development expenses increased 149% to $8.2 million for 1996 from $3.3 million for 1995, primarily as a result of increased investment in new product development and costs of enhancements to existing products. Also included within research and development for 1996 is $225,000 to expense in-process research and development acquired in connection with the Multibus acquisition. The Company continues to invest in new design wins for OEM customers and the dollar increases reflect steady increases in the number of employees working in research and development. Research and development expenses increased 55% to $3.3 million for 1995 from $2.1 million for 1994. This increase reflected the Company's continued investment in new product development and costs of enhancements to existing products. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased 76% to $11.8 million for 1996 from $6.7 million for 1995, and 38% to $6.7 million for 1995 from $4.9 million for 1994. Selling, general and administrative expense have increased primarily as a result of increased personnel, facilities, and travel, to support higher levels of sales since 1994 and to support the acquired Multibus operations in 1996. Selling, general and administrative expenses have declined as a percentage of revenues to 14.6% for 1996, from 19.2% and 24.1% for 1995 and 1994, respectively, primarily as a result of operating efficiencies achieved by spreading fixed costs over a larger revenue base, offset partially by increases in costs required to expand international operations. INTEREST INCOME, NET. Interest income, net increased 537% to $1.1 million for 1996 from $0.2 million for 1995, and increased 81% for 1995 from $94,000 for 1994. The increases for 1996 and 1995 were primarily the result of interest income earned from the net proceeds of the Company's initial public offering in October 1995. These increases were partially offset in 1995 by increased interest expense as a result of the Company entering into a long-term lease agreement in the second quarter of 1995 to finance certain capital equipment, and the Company drawing down on its line of credit agreement in the third quarter of 1995. INCOME TAX PROVISION. The income tax provisions for 1996, 1995 and 1994 reflect effective income tax rates of 35%, 30.7%, and 4.4%, respectively. The increases in the provision for income tax are primarily attributable to the exhaustion of the majority of the Company's tax loss carryforwards in 1994 and the depletion of tax credits in 1995. 13 Liquidity and Capital Resources As of December 31, 1996, the Company had $24.6 million in cash and short-term investment grade securities, which represents the Company's principal source of liquidity. As of December 31, 1996, the Company had working capital of approximately $45.8 million. The working capital balance increased primarily due to cash generated from operations and the increase in accounts receivable and inventories as a result of the acquisition of Multibus in April 1996. Net cash provided by or (used for) operating activities was $10,622, $(2,961), and $672 for 1996, 1995 and 1994, respectively. The increase in net cash provided by operating activities in 1996 was largely attributable to enhanced profitability offset by increases in accounts receivable of $13.4 million and in inventories of $5.9 million. These increases were largely attributable to expansion of the Company's operations, including the acquisition of Multibus in April 1996. Commencing September 30, 1996, the Company entered into a new $10.0 million line of credit with a bank. Amounts outstanding under the line of credit will accrue interest at an annual rate equal to the lender's prime rate. The Company has not drawn any funds under this line of credit. Capital expenditures were $7,240, $2,972, and $984 in 1996, 1995 and 1994, respectively. These capital expenditures were primarily for the purchase of leasehold improvements, manufacturing equipment, and plant modernization. The Company moved to a new headquarters and manufacturing facility in October 1996. In addition to certain tenant improvements and furniture and fixtures which will be purchased in connection with this new facility, the Company purchased in early 1996 two adjacent parcels of land and in early 1997 one adjacent parcel of land for future expansion. Capital expenditures for the next 12 months, including expenditures related to a second engineering building, are expected to range from $4.0 million to $7.0 million. The Company believes its existing cash and cash equivalents and cash from operations will be sufficient to fund its operations for at least the next 12 months. Because the Company's capital requirements cannot be predicted with certainty, there is no assurance that the Company will not require additional financing prior to the expiration of 12 months. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements Page Independent Accountants' Report 16 Consolidated Statement of Operations for years ended December 31, 1994, 1995 and 1996 17 Consolidated Balance Sheets at December 31, 1995 and 1996 18 Consolidated Statement of Changes in Shareholders' Equity for years ended December 31, 1994, 1995 and 1996 19 Consolidated Statement of Cash Flows for years ended December 31, 1994, 1995 and 1996 20 Notes to Consolidated Financial Statements 21 14
Quarterly Financial Data (Unaudited) (In thousands, except per share amounts) Year Ended December 31, 1995 Year Ended December 31, 1996 ---------------------------- ---------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Revenues $6,673 $8,169 $9,540 $10,643 $11,065 $20,034 $22,459 $27,485 Gross profit 2,454 2,852 3,269 3,458 3,667 8,066 10,453 11,469 Income from operations 252 327 688 751 634 2,795 4,910 5,264 Net income 203 222 461 630 550 1,996 3,379 3,621 Net income per share 0.05 0.06 0.11 0.11 0.09 0.27 0.43 0.46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Certain information required by Part III is omitted from this Report in that the Registrant will file its definitive proxy statement for the Annual Meeting of Stockholders to be held on May 20, 1997, pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement"), not later than 120 days after the end of the fiscal year covered by this Report, and certain information included in the Proxy Statement is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to directors of the Company is included under "Election of Directors" in the Company's Proxy Statement and is incorporated herein by reference. Information with respect to executive officers of the Company is included under Item 4(a) of Part I of this Report. Information with respect to Section 16(a) of the Securities and Exchange Act is included under "Compliance with Section 16(a) of the Exchange Act" in the Company's Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is included under "Executive Compensation" in the Company's Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management is included under "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information with respect to certain relationships and related transactions is included under "Certain Relationships and Related Transactions" in the Company's Proxy Statement and is incorporated herein by reference. 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of RadiSys Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in shareholders' equity, and of cash flows present fairly, in all material respects, the financial position of RadiSys Corporation and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Portland, Oregon January 27, 1997 16
CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 1994 1995 1996 ---- ---- ---- Revenues $ 20,241 $ 35,025 $ 81,043 Cost of sales 11,905 22,992 47,388 ---------- ---------- ---------- Gross profit 8,336 12,033 33,655 Research and development 2,130 3,301 8,222 Selling, general and administrative 4,872 6,714 11,830 ---------- ---------- ---------- Income from operations 1,334 2,018 13,603 Interest income, net 94 170 1,083 ---------- ---------- ---------- Income before income tax provision 1,428 2,188 14,686 Income tax provision 63 672 5,140 ---------- ---------- ---------- Net income $ 1,365 $ 1,516 $ 9,546 ========== ========== ========== Net income per share $ 0.35 $ 0.35 $ 1.30 ========== ========== ========== Weighted average number of common and common equivalent shares outstanding 3,884 4,355 7,362 ========== ========== ========== The accompanying notes are an integral part of this statement.
17
CONSOLIDATED BALANCE SHEET (in thousands, except share amounts) December 31, 1995 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 10,236 $ 24,626 Short term investments 10,922 Accounts receivable 6,869 20,265 Other receivables 139 3,396 Inventories 6,380 17,834 Other current assets 374 742 Deferred income taxes 297 1,794 --------------- ------------- Total current assets 35,217 68,657 Property and equipment 3,179 11,171 Other assets 716 425 --------------- ------------- Total assets $ 39,112 $ 80,253 =============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,790 $ 11,461 Income taxes payable 147 2,996 Accrued wages and bonuses 783 2,230 Accrued warranty costs 334 1,227 Accrued sales discounts 1,360 Other accrued liabilities 141 2,139 Notes payable 1,200 Current portion of capital lease obligation 214 214 --------------- ------------- Total current liabilities 3,409 22,827 --------------- ------------- Obligations under capital lease 884 648 --------------- ------------- Commitments and contingencies Shareholders' equity: Common stock, no par value, 15,000,000 shares authorized 6,014,709 and 7,388,410 shares issued and 33,627 45,061 outstanding Warrants 1,200 Cumulative translation adjustment (108) (329) Retained earnings 1,300 10,846 --------------- ------------- Total shareholders' equity 34,819 56,778 --------------- ------------- Total liabilities and shareholders' equity $ 39,112 $ 80,253 =============== ============= The accompanying notes are an integral part of this statement.
18
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands, except share amounts) Page 1 of 2 Preferred Stock Series A Series B Series C Common Stock Shares Amount Shares Amount Shares Amount Shares Amount Warrants ------ ------ ------ ------ ------ ------ ------ ------ -------- Balances, December 31, 1993 355,556 1,500 1,820,988 $ 4,917 2,159,504 $ 2,973 1,372,752 $ 322 $ Collection of note receivable Shares issued pursuant to benefit plans 111,328 156 Issuance of common stock 3,030 10 Repurchase of common stock (4,910) (13) Net income for the year ------- ------ --------- ------ --------- ------ --------- ------ -------- Balances, December 31, 1994 355,556 1,500 1,820,988 4,917 2,159,504 2,973 1,482,200 475 Shares issued pursuant to benefit plans 58,524 106 Issuance of common stock 2,175,000 23,656 Conversion of preferred stock (355,556) (1,500) (1,820,988) (4,917) (2,159,504) (2,973) 2,298,985 9,390 Translation adjustment Net income for the year ------- ------ --------- ------ --------- ------ --------- ------ -------- Balances, December 31, 1995 0 0 0 0 0 0 6,014,709 33,627 Shares issued pursuant to 73,701 365 benefit plans Tax effect of options exercised 569 Translation adjustment Stock issued for acquisition 1,300,000 10,500 Warrants issued for acquisition 1,200 Net income for the year ------- ------ --------- ------ --------- ------ --------- ------ -------- Balances, December 31, 1996 0 $ 0 0 $ 0 0 $ 0 7,388,410 $45,061 $ 1,200 ======= ====== ========= ====== ========= ====== ========= ======= ======== The accompanying notes are an integral part of this statement.
19a
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands, except share amounts) Page 2 of 2 Cumulative Retained Notes translation (deficit) receivable adjustment earnings Total ---------- ---------- -------- ----- Balances, December 31, 1993 $ (5) $ $ (1,581) $ 8,126 Collection of note receivable 5 5 Shares issued pursuant to benefit plans 156 Issuance of common stock 10 Repurchase of common stock (13) Net income for the year 1,365 1,365 ---------- ---------- -------- ------ Balances, December 31, 1994 0 (216) 9,649 Shares issued pursuant to benefit plans 106 Issuance of common stock 23,656 Conversion of preferred stock Translation adjustment (108) (108) Net income for the year 1,516 1,516 ---------- ---------- -------- ------ Balances, December 31, 1995 0 (108) 1,300 34,819 Shares issued pursuant to 365 benefit plans Tax effect of options exercised 569 Translation adjustment (221) (221) Stock issued for acquisition 10,500 Warrants issued for acquisition 1,200 Net income for the year 9,546 9,546 ---------- ---------- -------- ------ Balances, December 31, 1996 $ 0 $ (329) $ 10,846 $56,778 ========== ========== ======== ======= The accompanying notes are an integral part of this statement.
19b
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Year Ended December 31, 1994 1995 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 1,365 $ 1,516 $ 9,546 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 893 1,435 2,286 Deferred income taxes (260) (37) (1,497) Net changes in current assets and current liabilities: Increase in accounts receivable (1,781) (3,053) (13,396) Decrease in other receivables 1,543 Increase in inventories (520) (3,136) (5,857) (Increase) decrease in other assets (157) (163) 87 Increase in accounts payable 607 252 9,671 Increase (decrease) in income tax payable 298 (151) 2,849 Increase in accrued wages and bonuses 137 218 1,447 Increase in accrued warranty costs 56 114 893 Increase in accrued sales discounts 1,360 Increase in other accrued liabilities 34 44 1,690 ---------- ---------- ---------- Net cash provided by (used for) operating activities 672 (2,961) 10,622 ---------- ---------- ---------- Cash flows from investing activities: (Increase) decrease in short term investments (10,922) 10,922 Capital expenditures (984) (1,704) (7,240) Capitalized software production costs (319) (626) (391) ---------- ---------- ---------- Net cash (used for) provided by investing activities (1,303) (13,252) 3,291 ---------- ---------- ---------- Cash flows from financing activities: Proceeds from line of credit 1,700 Repayment of line of credit (1,700) Issuance of common stock, net 153 23,762 934 Payments received on shareholder notes 5 Payments on capital lease obligation (170) (236) ---------- ---------- ---------- Net cash provided by financing activities 158 23,592 698 ---------- ---------- ---------- Effect of exchange rate changes on cash (108) (221) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents (473) 7,271 14,390 Cash and cash equivalents, beginning of period 3,438 2,965 10,236 ---------- ---------- ---------- Cash and cash equivalents, end of period $ 2,965 $ 10,236 $ 24,626 ========== ========== ========== The accompanying notes are an integral part of this statement.
20 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share amounts) 1. Significant Accounting Policies Organization of the Company RadiSys Corporation (the Company) was incorporated in March 1987 under the laws of the State of Oregon for the purpose of developing, producing and marketing computer system (hardware and software) products for embedded computer applications in manufacturing automation, medical, transportation, telecommunications and test equipment marketplaces. Principles of consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Cash and cash equivalents Cash and cash equivalents include short-term investments with an original maturity of less than three months. Revenue recognition The Company recognizes revenue from non-distributor product sales upon shipment. For sales through distributors, the Company recognizes revenue upon shipment of the Company's product from the distributor. The Company may grant certain sales discounts to distributors. Such sales discounts are accrued at the time revenues are recorded for distributor sales. Accounts receivable Trade accounts receivable are net of an allowance for doubtful accounts of $233 and $706 at December 31, 1995 and 1996, respectively. The Company's customers are concentrated in the technology industry. Therefore, the Company's operations and collection of its accounts receivable are directly associated with the results of the technology industry. Inventories Inventories are stated at the lower of cost or market. The Company uses the first-in, first-out (FIFO) method to determine cost. Inventories consist of: December 31, -------------------------- 1995 1996 ---- ---- Raw materials $ 3,835 $ 12,555 Work in process 270 3,538 Finished goods 2,275 1,741 ------------ ------------ $ 6,380 $ 17,834 ============ ============ 21 The Company periodically evaluates its inventory in terms of obsolete or slow-moving items. Inventories are net of a reserve for obsolete and slow-moving items of $110 and $529 at December 31, 1995, and 1996, respectively. Property and Equipment Property and equipment is recorded at cost and depreciated for financial reporting purposes on a straight-line basis over estimated useful lives of three to five years. Equipment under capital leases is amortized on a straight-line basis over the shorter of the lease term or the economic life of the underlying asset. Ordinary maintenance and repair expenditures are charged to expense when incurred. Equipment recorded under capital leases at December 31, 1996 totaled $1,268 with accumulated amortization of $402. Research and development Expenditures for research and development are expensed as incurred. Computer software production costs Software production costs incurred subsequent to establishment of technological feasibility, but before release to customers, are capitalized. Upon general release of the product, cost capitalization is terminated and the accumulated costs are amortized based on the greater of the proportion of current revenues to total revenue estimates for the related product, or straight-line amortization over the remaining estimated economic life of the product not to exceed two years. Unamortized software production costs of $582 and $338 are included in other assets at December 31, 1995 and 1996, respectively. Amortization of software production costs in 1995 and 1996 aggregated $378 and $452, respectively. Cash flows For purposes of the Consolidated Statement of Cash Flows, the Company made cash payments for income taxes of $0, $547 and $3,205 for the years ended December 31, 1994, 1995 and 1996, respectively. The Company entered into capital leases aggregating $1,268 during 1995. These capital expenditures and the related financing have been excluded from the Consolidated Statement of Cash Flows. Fair value of financial assets and liabilities The Company estimates the fair value of its monetary assets and liabilities based upon the existing interest rates related to such assets and liabilities compared to the current market rates of interest for instruments of a similar nature and degree of risk. The Company estimates that all of its monetary assets and liabilities approximate fair value as of December 31, 1995 and 1996. Foreign currency translation Assets and liabilities of international operations are translated into U.S. dollars at current exchange rates. Income and expense accounts are translated into U.S. dollars at average rates of exchange prevailing during the period. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are taken directly to a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in income. 22 Certain risks and uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Recapitalization Effective August 22, 1995, the Company's shareholders approved a 1 for 3.3 reverse stock split. The reverse stock split, applied retroactively, reduced the number of common shares issued and outstanding. All references in the accompanying consolidated financial statements to the number of common shares, per share amounts and options exercisable into common stock have been restated to reflect the reverse stock split. Net income per share Net income per share is based on the weighted average number of shares of common stock and common stock equivalents (stock options and warrants) outstanding during the periods, computed using the treasury stock method for stock options and warrants. In accordance with Staff Accounting Bulletin Number 83 of the Securities and Exchange Commission, stock options granted at prices below the proposed initial public offering price and shares of common stock issued during the twelve-month period immediately preceding the initial public offering have been considered outstanding for all periods using the treasury stock method and the initial public offering price. 2. Income Taxes The provision for income taxes consists of the following:
Year Ended December 31, 1994 1995 1996 ---- ---- ---- Currently payable: Federal $ 267 $ 532 $ 5,417 State 56 182 1,220 --------- --------- --------- 323 714 6,637 --------- --------- --------- Deferred: Federal 119 201 (1,180) State 51 (14) (198) --------- --------- --------- 170 187 (1,378) --------- --------- --------- Decrease in valuation allowance (430) (229) (119) --------- --------- --------- Total provision $ 63 $ 672 $ 5,140 ========= ========= =========
The Company utilized $713, $10, and $15 in net operating loss carryforwards in 1994, 1995 and 1996, respectively. 23 The provision for income tax differs from the amount computed by applying the statutory federal income tax rate to pretax income as a result of the following differences:
Year Ended December 31, 1994 1995 1996 ---- ---- ---- Statutory federal tax rate 34.0% 34.0% 35.0% Increase (decrease) in rates resulting from: State taxes 5.0 5.0 4.5 Deferred tax asset valuation allowance (36.1) (10.3) (0.8) Other 1.5 2.0 (3.7) ----- ----- ----- Effective tax rate 4.4% 30.7% 35.0% ===== ===== =====
Deferred tax assets are comprised of the following components:
December 31, 1995 1996 -------- -------- Warranty reserve $ 136 $ 491 Accrued expenses 810 Credit carryforwards 257 Other 23 493 -------- -------- Gross deferred tax asset 416 1,794 Deferred tax asset valuation allowance (119) -------- -------- Net deferred tax asset $ 297 $ 1,794 ======== ========
3. Property and Equipment
December 31, 1995 1996 ---- ---- Land $ 33 $ 1,230 Manufacturing Equipment 3,654 8,472 Office Equipment 3,040 5,548 Leasehold Improvements 284 1,129 ---------- ----------- 7,011 16,379 Less: Accumulated Depreciation 3,832 5,208 ========== =========== $ 3,179 $ 11,171 ========== ===========
4. Commitments and Contingencies Line of Credit Commencing September 30, 1996, the Company entered into a $10.0 million unsecured line of credit, with an interest rate based upon the lower of the IBOR plus 1.25 to 2.0% or the bank's prime rate. The line of credit expires on September 30, 1997. The Company has not drawn any funds under this line of credit. 24 Operating leases The Company leases its facilities and office equipment under non-cancelable operating leases which require minimum lease payments as follows at December 31, 1996: Year Ending Operating December 31, leases ------------ ------ 1997 $ 1,094 1998 1,042 1999 1,050 2000 1,044 2001 899 Thereafter 10,922 -------- $ 16,051 ======== Rent expense related to these operating leases aggregated $342, $352 and $330 in 1994, 1995 and 1996, respectively. During 1995, the Company entered into capital leases for certain manufacturing equipment. The minimum payments under these leases are as follows: Year Ending Capital December 31, leases ------------ ------ 1997 $ 289 1998 289 1999 289 2000 75 --------- 942 Less: amount representing interest (80) --------- Present value of lease payments 862 Less: portion due in the next year (214) --------- Long-term portion of capital lease obligation $ 648 ========= Litigation In July 1996, a former officer of the Company filed suit for wrongful termination. This suit seeks damages of not less than $2,000,000. The Company believes that there is no substance to this claim and does not believe this claim will have a material adverse effect on the Company's financial position or results of operations. 25 5. Export Sales and Major Customers Export sales were $3,239, $6,061 and $22,072 in 1994, 1995 and 1996, respectively. Such export sales were made to customers in the following countries:
Year Ended December 31, Country 1994 1995 1996 - ------- ---- ---- ---- Japan $ 960 $ 678 $ 2,542 The Netherlands 303 1,912 4,865 Sweden 1,361 395 3,600 Switzerland 517 2,534 3,678 Other 98 542 7,387 -------- -------- -------- Total $ 3,239 $ 6,061 $ 22,072 ======== ======== ========
One customer accounted for 10.4% and 10.1% of 1995 and 1996 sales, while no single customer accounted for more than 10 percent of 1994 sales. 6. Shareholders' Equity Common stock On October 20, 1995, the Company sold 2,175,000 shares of common stock in an initial public offering. Net proceeds to the Company, after deducting underwriting discounts and offering expenses, was approximately $23.7 million. In connection with such offering, all outstanding shares of preferred stock and preferred stock warrants were converted into 2,298,985 shares of common stock. Stock option plan During 1988 and 1995, the shareholders approved stock option plans. First time options granted to new employees become exercisable one-third annually, with no options exercisable in the first year following the grant date. Options granted to existing employees are not exercisable until between the second and fourth anniversary of the date of grant. The difference between the fair market value of the Company's common stock and the option exercise price at the date of grant, if material, is recorded as compensation expense ratably over the vesting period of the related options. Compensation expense related to the stock option plan for the years ended December 31, 1994, 1995 and 1996 was immaterial. The table below summarizes the Company's stock option activity:
1994 1995 1996 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- --------- --------- ---------- --------- -------- Beginning balance 260,914 1.68 177,796 2.45 359,321 7.71 Granted 89,030 3.30 247,307 9.98 515,052 34.00 Canceled (60,820) 2.36 (7,258) 2.80 (51,308) 12.30 Exercised (111,328) 1.40 (58,524) 1.81 (45,424) 3.91 ======== ========= ========= ========== ========= ======== Ending Balance 177,796 2.45 359,321 7.71 777,641 26.08 ======== ========= ========= ========== ========= ========
26 The following table sets forth the exercise price range, number of shares, weighted average exercise price, and remaining contractual lives by groups of similar price and grant date:
Weighted Number of Weighted Average Remaining Exercise Price Range Shares Average Price Contractual Life ----------------------------- ------------- -------------- ---------------- $0 - $13.50 356,517 $ 8.10 6.41 $14.50 - $25.50 112,250 $23.72 7.57 $26.00 - $44.50 128,200 $35.52 5.37 $45.50 - $58.50 180,574 $56.33 5.86 $68.88 100 $68.88 4.83 ============= ============== =============== 777,641 $26.08 6.31 ============= ============== ===============
Options exercisable at December 31, 1996 totaled 380,591 shares at a weighted average exercise price of $11.75. Options available for grant at December 31, 1996 totaled 439,530 shares. Employee stock purchase plan In December 1995, the Company established an Employee Stock Purchase Plan (ESPP). Under the plan, the Company is authorized to sell up to 250,000 shares of common stock in a series of eighteen month offerings. Substantially all employees are eligible to receive rights under the plan. The purchase price is the lesser of 85% of the fair market value of the common stock on date of grant or on the purchase date. During 1995 and 1996, the Company issued 0 and 28,277 shares under the plan, respectively. Statement of Financial Accounting Standards No. 123 ("SFAS 123") The Company has elected to account for its stock based compensation under Accounting Principles Board Opinion No. 25; however, as required by SFAS 123 the Company has computed for pro forma disclosure purposes the value of options granted during 1995 and 1996 using the Black-Scholes option pricing model. The weighted average assumptions used for stock option grants for 1995 and 1996 were a risk free interest rate of 5.5% and 6%, respectively, an expected dividend yield of 0% and 0%, respectively, an expected life of 5 years and 4 years, respectively, and an expected volatility of 0% and 50%, respectively. The weighted average assumptions used for ESPP rights for 1996 was a risk free interest rate of 5.7%, an expected dividend yield of 0%, an expected life of 1.5 years and an expected volatility of 50%. The weighted-average fair value of ESPP rights granted in 1996 was $242. Options were assumed to be exercised upon vesting for purposes of this valuation. Adjustments are made for options forfeited prior to vesting. For the years ended December 31, 1995 and 1996, the total value of the options granted was computed to be $612 and $9,205, respectively, which would be amortized on a straight line basis over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS 123, the Company's net income and pro forma net income per share would have been reported as follows:
Year Ended Year Ended December 31, 1995 December 31, 1996 ------------------------------- -------------------------------- Net Income Earnings per Share Net Income Earnings per Share ---------- ------------------ ---------- ------------------ As Reported $1,516 $0.35 $9,546 $1.30 Pro Forma $1,510 $0.35 $8,533 $1.19
27 The effects of applying SFAS 123 for providing pro forma disclosure for 1995 and 1996 are not likely to be representative of the effects on reported net income and earnings per share for future years since options vest over several years and additional awards are made each year. 7. Multibus Acquisition On April 29, 1996, the Company purchased substantially all of the assets of Intel Corporation ("Intel") that were dedicated to the design, manufacture and sale of all standard and custom Multibus I and Multibus II products ("Multibus") (collectively the "Acquisition"). In addition, pursuant to the terms of the Acquisition, Intel licensed certain Intel software to the Company. The purchase price consisted of 1,300,000 shares of the Company's common stock ("Common Stock") and warrants to purchase an additional 300,000 shares of Common Stock exercisable within 24 months at prices per share ranging from $13.50 to $15.00, plus an aggregate of $1.2 million in cash to be paid in 1997. The Acquisition was accounted for using the purchase method. The results of operations for Multibus have been included in the financial statements since the date of acquisition. The aggregate purchase price of $13.2 million (including direct costs of acquisition) was allocated to purchased inventory, equipment and in-process research and development. Included within cost of goods sold for 1996 is $1.3 million of inventory valuation adjustments that resulted from purchase accounting and within research and development for 1996 is $225,000 to expense in-process research and development acquired in connection with the Multibus acquisition. The non cash portions have been excluded from the accompanying Consolidated Statement of Cash Flows. Included within other receivables is approximately $2.7 million related to inventories to be delivered by Intel to the Company by March 1997 pursuant to the Acquisition agreement. Included within accounts payable is approximately $1.3 million related to inventories purchased from Intel. The following unaudited pro forma information presents the results of operations of the Company as if the Acquisition had occurred as of the beginning of the respective periods, after giving effect to assumed increases in operating, research and development, and general and administrative costs to operate the business, depreciation of acquired fixed assets, expensing acquired in process research and development, and adjustments to reflect the estimated impact on tax expense of the Acquisition. The unaudited pro forma financial statements are not necessarily indicative of what actual results would have been had the Multibus acquisition occurred at the beginning of the respective periods. Year Ended December 31, 1995 1996 ---- ---- (unaudited) Revenues $ 110,152 $ 101,387 Net Income $ 6,857 $ 11,216 Earnings $ 1.15 $ 1.42 per share 28 (a)(2) Financial Statement Schedule - ------ ---------------------------- Page in Form 10-K ----------------- Schedule II - Valuation and Qualifying Accounts 31 Report of Independent Accountants on Financial Statement Schedule 32 (a)(3) Exhibits - ------ -------- Exhibit No. Description - ------- ----------- +2.1 Asset Purchase Agreement between Radisys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference as Exhibit 2.1 to the Company's Current Report on Form 8-K dated April 29, 1996. 2.2 List of omitted schedules to Asset Purchase Agreement between Radisys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference as Exhibit 2.2 to the Company's Current Report on Form 8-K dated April 29, 1996. 3.1 Second Restated Articles of Incorporation and Amendments thereto. Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-95892) (the "Form S-1"). 3.2 Restated Bylaws and amendments thereto. Incorporated by reference to Exhibit 3.2 to the Form S-1. 4.1 See Article IV of Exhibit 3.1 and Article VI of Exhibit 3.2 *10.1 1988 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.1 to the Form S-1. *10.2 1995 Stock Incentive Plan. Incorporated by reference to Exhibit 3.1 to the Form S-1. *10.3 1996 Employee Stock Purchase Plan. Incorporated by reference to Appendix A to the Company's Proxy Statement related to its annual meeting held on May 28, 1996, which was filed with the Securities and Exchange Commission on April 15, 1996. *10.4 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.3 to the Form S-1. *10.5 Form of Non-Statutory Stock Option Agreement. Incorporated by reference to Exhibit 10.4 to the Form S-1. 10.6 Sublease, dated July 13, 1992, between Sequent Computer Systems, Inc., and the Registrant and Consent Agreement related thereto. Incorporated by reference to Exhibit 10.6 to the Form S-1. 10.8 Lease between Registrant and Commercial Real Estate Company, L.L.C. dated December 15, 1995. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.9 Master Equipment Lease No. 10551, dated as of March 2, 1995, between U.S. Bancorp Leasing & Financial, as Lessor, and the Registrant, as Lessee, including Schedules 10551.001, 10551.002 and 10551.003, dated March 2, 1995, March 29, 1995 and May 23, 1995, respectively. Incorporated by reference to Exhibit 10.8 to the Form S-1. *10.10 Form of Indemnity Agreement. Incorporated by reference to Exhibit 10.9 to the Form S-1. 10.11 Revolving line of credit agreement between the Company and United States National Bank of Oregon dated September 12, 1996. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 22.1 List of Subsidiaries 23.1 Consent of Price Waterhouse LLP 27.1 Financial Data Schedule + Confidential treatment of portions of this document has been granted. * This Exhibit constitutes a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K - --- ------------------- No Current Reports on Form 8-K were filed during the quarter ended December 31, 1996. (c) See (a)(3) above. - --- ----------------- (d) See (a)(2) above. - --- ----------------- 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: February 12, 1997 RADISYS CORPORATION By: DR. GLENFORD J. MYERS ------------------------------------- Dr. Glenford J. Myers Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 12, 1997. Signature Title - --------- ----- DR. GLENFORD J. MYERS Chairman of the Board, - ------------------------- President and Dr. Glenford J. Myers Chief Executive Officer (Principal Executive Officer) BRIAN V. TURNER Vice President of Finance and Administration and - ------------------------- Chief Financial Officer Brian V. Turner (Principal Financial and Accounting Officer) Directors: JAMES F. DALTON Director - ------------------------- James F. Dalton RICHARD J. FAUBERT Director - ------------------------- Richard J. Faubert C. SCOTT GIBSON Director - ------------------------- C. Scott Gibson DR. WILLIAM W. LATTIN Director - ------------------------- Dr. William W. Lattin JEAN CLAUDE PETERSCHMITT Director - ------------------------- Jean Claude Peterschmitt 30
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Balance at beginning Charged to Balance at of costs and end of period expenses Deductions period -------- -------- -------- -------- Allowance for doubtful accounts: December 31, 1994 $ 64,000 $ 72,000 $(18,000) $ 118,000 December 31, 1995 118,000 163,000 (48,000) 233,000 December 31, 1996 233,000 548,000 (75,000) 706,000 Warranty reserve: December 31, 1994 164,000 158,000 (102,000) 220,000 December 31, 1995 220,000 466,000 (352,000) 334,000 December 31, 1996 334,000 1,154,000 (261,000) 1,227,000 Obsolescence reserve: December 31, 1994 124,000 95,000 (33,000) 186,000 December 31, 1995 186,000 125,000 (201,000) 110,000 December 31, 1996 110,000 449,000 (30,000) 529,000
31 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors and Shareholders of RadiSys Corporation Our audits of the consolidated financial statements referred to in our report dated January 27, 1997, also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Portland, Oregon January 27, 1997 32 EXHIBIT INDEX Exhibit Sequential No. Description Page No. - ------- ----------- ---------- +2.1 Asset Purchase Agreement between Radisys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference as Exhibit 2.1 to the Company's Current Report on Form 8-K dated April 29, 1996. 2.2 List of omitted schedules to Asset Purchase Agreement between Radisys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference as Exhibit 2.2 to the Company's Current Report on Form 8-K dated April 29, 1996. 3.1 Second Restated Articles of Incorporation and Amendments thereto. Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-95892) (the "Form S-1"). 3.2 Restated Bylaws and amendments thereto. Incorporated by reference to Exhibit 3.2 to the Form S-1. 4.1 See Article IV of Exhibit 3.1 and Article VI of Exhibit 3.2 *10.1 1988 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.1 to the Form S-1. *10.2 1995 Stock Incentive Plan. Incorporated by reference to Exhibit 3.1 to the Form S-1. *10.3 1996 Employee Stock Purchase Plan. Incorporated by reference to Appendix A to the Company's Proxy Statement related to its annual meeting held on May 28, 1996, which was filed with the Securities and Exchange Commission on April 15, 1996. *10.4 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.3 to the Form S-1. *10.5 Form of Non-Statutory Stock Option Agreement. Incorporated by reference to Exhibit 10.4 to the Form S-1. 10.6 Sublease, dated July 13, 1992, between Sequent Computer Systems, Inc., and the Registrant and Consent Agreement related thereto. Incorporated by reference to Exhibit 10.6 to the Form S-1. 10.8 Lease between Registrant and Commercial Real Estate Company, L.L.C. dated December 15, 1995. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.9 Master Equipment Lease No. 10551, dated as of March 2, 1995, between U.S. Bancorp Leasing & Financial, as Lessor, and the Registrant, as Lessee, including Schedules 10551.001, 10551.002 and 10551.003, dated March 2, 1995, March 29, 1995 and May 23, 1995, respectively. Incorporated by reference to Exhibit 10.8 to the Form S-1. *10.10 Form of Indemnity Agreement. Incorporated by reference to Exhibit 10.9 to the Form S-1. 10.11 Revolving line of credit agreement between the Company and United States National Bank of Oregon dated September 12, 1996. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 22.1 List of Subsidiaries 23.1 Consent of Price Waterhouse LLP 27.1 Financial Data Schedule + Confidential treatment of portions of this document has been granted. * This Exhibit constitutes a management contract or compensatory plan or arrangement. EX-22.1 2 LIST OF SUBSIDIARIES Exhibit 22.1 RADISYS CORPORATION LIST OF SUBSIDIARIES Subsidiary Jurisdiction of Incorporation --------------------------------- ----------------------------- RadiSys International Oregon RadiSys K.K. Japan RadiSys G.m.b.H. Germany RadiSys B.V. Netherlands RadiSys International Sales Corp. Barbados RadiSys SARL France RadiSys UK Limited United Kingdom EX-23.1 3 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-80577 and 333-00514) of RadiSys Corporation of our report dated January 27, 1997. We also consent to the incorporation by reference of our report on the Financial Statement Schedule. Price Waterhouse LLP Portland, Oregon February 12, 1997 EX-27 4 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 DEC-31-1997 24,626,000 0 20,971,000 (706,000) 17,834,000 68,657,000 16,379,000 (5,208,000) 80,253,000 22,827,000 0 0 0 45,061,000 11,717,000 80,253,000 81,043,000 81,043,000 47,388,000 20,052,000 0 0 1,083,000 14,686,000 5,140,000 9,546,000 0 0 0 9,546,000 1.30 1.30
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