-----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, P09xm7P0WX3T+Wl38XNr8tTnSo5Omg1hcR33JTKVDZnOmv32vfBojt9CqE0ZxnbC R6abC754AdSQcmBh2SYrNg== 0000893877-99-000346.txt : 19990518 0000893877-99-000346.hdr.sgml : 19990518 ACCESSION NUMBER: 0000893877-99-000346 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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-Q SEC ACT: SEC FILE NUMBER: 000-26844 FILM NUMBER: 99625081 BUSINESS ADDRESS: STREET 1: 5445 NE DAWSON CREEK DR CITY: HILLSBORO STATE: OR ZIP: 97124 BUSINESS PHONE: 5036461800 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1999 or ( ) Transition report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition period from ---------- to ----------. Commission file number: 0-26844 RADISYS CORPORATION (Exact name of registrant as specified in its charter) Oregon 93-0945232 (State or other jurisdiction (I.R.S. Employer of organization or incorporation) Identification Number) 5445 NE Dawson Creek Drive Hillsboro, OR 97124 (Address of principal executive offices, including zip code) (503) 615-1100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of common stock outstanding as of May 10, 1999 was 7,952,557. RADISYS CORPORATION PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheet - March 31, 1999 and December 31, 1998 3 Consolidated Statement of Operations - Three months ended March 31, 1999 and 1998 4 Consolidated Statement of Changes In Shareholders' Equity - December 31, 1996 through March 31, 1999 5 Consolidated Statement of Cash Flows - Three months ended March 31, 1999 and 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
RadiSys Corporation Consolidated Balance Sheet (in thousands, except share amounts) ASSETS March 31 December 31, 1999 1998 ------------- ------------- (unaudited) Current assets Cash and cash equivalents $ 14,348 $ 38,831 Accounts receivable 23,995 19,603 Other receivables 110 216 Inventories 21,928 15,706 Other current assets 1,555 1,662 Deferred income taxes 419 ------------- ------------- Total current assets 62,355 76,018 Equipment, net of accumulated depreciation of $11,026 and $10,377 11,538 11,759 Goodwill and intangible assets 23,274 3,003 Other assets 4,072 3,674 ------------- ------------- Total assets $ 101,239 $ 94,454 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 10,848 $ 7,848 Income taxes payable 2,127 850 Accrued wages and bonuses 1,942 1,653 Accrued sales discounts 806 748 Deferred revenue 700 548 Deferred income taxes 190 Other accrued liabilities 398 556 Current portion of capital lease obligation 281 277 ------------- ------------- Total current liabilities 17,102 12,670 ------------- ------------- Obligations under capital lease 88 ------------- ------------- Total liabilities 17,102 12,758 ------------- ------------- Commitments and contingent liabilities Shareholders' equity Common stock, 50,000,000 shares authorized, 7,935,764 and 7,841,738 shares issued and outstanding 51,916 51,108 Accumulated other comprehensive income: Cumulative translation adjustment (1,194) (1,115) Retained earnings 33,415 31,703 ------------- ------------- Total shareholders' equity 84,137 81,696 ------------- ------------- Total liabilities and shareholders' equity $ 101,239 $ 94,454 ============= ============= See accompanying notes to cosolidated financial statements.
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RadiSys Corporation Consolidated Statement of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, March 31, 1999 1998 -------------- -------------- Revenues $ 31,559 $ 33,663 Cost of sales 20,285 21,544 -------------- -------------- Gross Profit 11,274 12,119 Research and development 4,633 3,536 Selling, general and administrative 4,427 4,102 -------------- -------------- Income from operations 2,214 4,481 Interest income, net 304 326 -------------- -------------- Income before income tax provision 2,518 4,807 Income tax provision 806 1,682 -------------- -------------- Net income $ 1,712 $ 3,125 ============== ============== Net income per share (basic) $ 0.22 $ 0.40 ============== ============== Net income per share (diluted) $ 0.21 $ 0.39 ============== ============== See accompanying notes to cosolidated financial statements.
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RadiSys Corporation Consolidated Statement of Changes in Shareholders' Equity (in thousands, except share amounts) Common stock Cumulative Total --------------------- translation Retained Comprehensive Shares Amount Warrants adjustment earnings Total Income ---------- --------- ---------- ----------- --------- -------- ------------- Balances, December 31, 1996 7,388,410 45,061 1,200 (329) 10,846 56,778 Exercise of warrants 166,667 1,200 (1,200) Shares issued pursuant to benefit plans 165,018 1,605 1,605 Tax effect of options exercised 513 513 Stock issued for acquisition 83,500 2,409 2,409 Translation adjustment (848) (848) (848) Net income for the year 15,425 15,425 15,425 ---------- --------- ---------- ----------- --------- -------- ----------- Balances, December 31, 1997 7,803,595 50,788 - (1,177) 26,271 75,882 Comprehensive Income, year ended 1997 $ 14,577 =========== Shares issued pursuant to benefit plans 158,143 1,965 1,965 Repurchase of common stock (120,000) (1,802) (1,802) Tax effect of options exercised 157 157 Translation adjustment 62 62 62 Net income for the year 5,432 5,432 5,432 ---------- --------- ---------- ----------- --------- -------- ----------- Balances, December 31, 1998 7,841,738 51,108 - (1,115) 31,703 81,696 Comprehensive Income, year ended 1998 $ 5,494 =========== Shares issued pursuant to benefit plans 94,026 808 808 Translation adjustment (79) (79) (79) Net income for the period 1,712 1,712 1,712 ---------- --------- ---------- ----------- --------- -------- ----------- Balances, March 31, 1999 (unaudited) 7,935,764 $ 51,916 $ - $ (1,194)$ 33,415 $ 84,137 ========== ========= ========== =========== ========= ======== Comprehensive Income, three months ended March 31, 1999 (unaudited) $ 1,633 =========== See accompanying notes to cosolidated financial statements.
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RadiSys Corporation Consolidated Statement of Cash Flows (in thousands) (unaudited) Three Months Ended March 31, March 31, 1999 1998 ------------- ------------- Cash flows from operating activities: Net Income $ 1,712 $ 3,125 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 1,601 1,152 Deferred income taxes (609) (542) Net changes in current assets and current liabilities: Decrease (increase) in accounts receivable (4,392) (3,219) Decrease (increase) in other receivables 106 (238) Decrease (increase) in inventories 234 1,895 Decrease (increase) in other current assets 107 294 Increase (decrease) in accounts payable 3,000 (3,677) Increase (decrease) in income taxes payable 1,277 2,142 Increase (decrease) in accrued wages and bonuses 289 (1,452) Increase (decrease) in accrued sales discounts 58 (226) Increase (decrease) in deferred revenue 152 (53) Increase (decrease) in other accrued liabilities (158) 173 ------------- ------------- Net cash provided by (used for) operating activities 3,377 (626) ------------- ------------- Cash flows from investing activities: Business acquisitions (27,513) - Capital expenditures (222) (1,910) Capitalized software production costs and other assets (770) (705) ------------- ------------- Net cash used for investing activities (28,505) (2,615) ------------- ------------- Cash flows from financing activities: Issuance of common stock, net 808 1,098 Payments on capital lease obligation (84) (45) ------------- ------------- Net cash provided by financing activities 724 1,053 ------------- ------------- Effect of exchange rate changes on cash (79) (609) ------------- ------------- Net decrease in cash and cash equivalents (24,483) (2,797) Cash and cash equivalents, beginning of period 38,831 23,993 ------------- ------------- Cash and cash equivalents, end of period $ 14,348 $ 21,196 ============= ============= See accompanying notes to cosolidated financial statements.
6 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share amounts) (unaudited) 1. Basis of Presentation The accompanying consolidated financial statements are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of results for the interim periods. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. The results of operations for interim periods are not necessarily indicative of the results for the entire year. Reclassifications have been made to amounts in prior years to conform to current year presentation. These changes had no impact on previously reported results of operations or shareholders' equity. 2. Accounts Receivable Trade accounts receivable are net of an allowance for doubtful accounts of $565 and $624 at March 31, 1999 and December 31, 1998, respectively. The Company's customers are concentrated in the technology industry. 3. Inventories Inventories consist of the following: Mar 31, Dec 31, 1999 1998 --------- -------- Raw Materials $ 13,529 $ 9,789 Work in Process 1,906 1,223 Finished Goods 6,493 4,694 --------- -------- $ 21,928 $ 15,706 ========= ========
7 4. Property and Equipment Property and equipment consists of the following: Mar 31, Dec 31, 1999 1998 --------- --------- Land $ 1,391 $ 1,391 Manufacturing Equipment 10,248 9,992 Office Equipment 8,228 8,056 Leasehold Improvements 2,697 2,697 --------- --------- 22,564 22,136 Less: Accum. Depr. 11,026 10,377 --------- --------- $ 11,538 $ 11,759 ========= =========
5. Earnings 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. Weighted average shares consist of the following: For the three months ended Mar 31, Mar 31, 1999 1998 ----- ----- Weighted Average Shares (basic) 7,879 7,838 Effect of Dilutive Stock Options 422 218 ----- ----- Weighted Average Shares (diluted) 8,301 8,056 ===== =====
6. ARTIC Business Unit Acquisition On March 1, 1999, the Company purchased certain assets of International Business Machines Corporation ("IBM") dedicated to the design, manufacture and sale of IBM's ARTIC communications coprocessor adapter hardware and software for wide area network and other telephony applications ("ARTIC Business Unit") (collectively the "Acquisition"). The purchase price consisted of an aggregate of $27.0 million in cash consideration. The Acquisition was accounted for using the purchase method. The results of operations for ARTIC Business Unit have been included in the financial statements since the date of acquisition. The aggregate purchase price of $27.5 million, including direct costs of acquisition, was allocated to purchased inventory, furniture and equipment, patents and goodwill related to the excess of the purchase price over the fair value of the tangible assets acquired. 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 three-month periods, after giving effect to adjustments for amortization of patents and goodwill, estimated reduction of interest income and the estimated impact on the income tax provision. The unaudited pro forma financial statements are not necessarily indicative of what actual results would have been had the ARTIC Business Unit acquisition occurred at the beginning of the respective periods. The unaudited pro forma information should be read in conjunction with the Current Report of the 8 Company on Form 8-K dated March 1, 1999 and the Current Report of the Company on Form 8-K/A filed April 22, 1999. Three Months Ended Mar 31, Mar 31, 1999 1998 -------- -------- (unaudited) Revenues $ 41,149 $ 43,191 Net Income $ 3,952 $ 4,032 Net income per share (basic) $ .50 $ .51 Net income per share (diluted) $ .48 $ .50
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Total revenue was $31.6 million for the three months ended March 31, 1999 compared to $33.7 million for the three months ended March 31, 1998. Net income was $1.7 million for the three months ended March 31, 1999 compared to $3.1 million for the three months ended March 31, 1998. On March 1, 1999, the Company purchased certain assets of International Business Machines Corporation ("IBM") million dedicated to the design, manufacture and sale of IBM's ARTIC communications coprocessor adapter hardware and software for wide area network and other telephony applications. The purchase price, including direct acquisition costs, was $27.5 million. The acquisition was accounted for using the purchase method. The results of operations for this acquisition have been included in the financial statements since the date of the acquisition. Information contained in this Quarterly Report on Form 10-Q and statements that may be made in the future by the Company's management regarding future industry trends, the Company's expected revenues and anticipated gross margins, the Company's future development and introduction of products, and the Company's future liquidity, development, and business activities constitute 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, including conditions precipitated by the Asian economies; 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 Corporation ("Intel"); dependence on Intel's support of the embedded computer market; lower than expected customer orders or variations in customer order patterns due to changes in demand for customers' products and customer and channel inventory levels; 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. 9 REVENUES Three Months Ended ------------------ (in thousands, except percentage amounts) March 31, Percentage March 31, 1999 Change 1998 ---- ------ ---- Revenues $31,559 (6%) $33,663
The decrease in revenues for the three months ended March 31, 1999 compared to the three months ended March 31, 1998 resulted primarily from a significant decrease in sales from one OEM customer, offset by sales related to the ARTIC Business Unit acquisition on March 1, 1999, design wins ramping into production and volume increases in other OEM sales. COST OF GOODS SOLD Three Months Ended ------------------ (in thousands, except percentage amounts) March 31, Percentage March 31, 1999 Change 1998 ---- ------ ---- Cost of Goods Sold $20,285 (6%) $21,544 As a Percentage of Revenues 64% 64%
Cost of goods sold decreased for the three months ended March 31, 1999 compared to the three months ended March 31, 1998 primarily as a result of the lower revenues. Cost of goods sold as a percentage of revenues remained stable despite a larger portion of lower margin product relative to higher margin product shipped during the first quarter of 1999 compared to the first quarter of 1998, offset by higher margin products related to the ARTIC Business Unit acquisition on March 1, 1999. RESEARCH AND DEVELOPMENT Three Months Ended ------------------ (in thousands, except percentage amounts) March 31, Percentage March 31, 1999 Change 1998 ---- ------ ---- Research and Development $4,633 31% $3,536 As a Percentage of Revenues 15% 11%
The dollar increases in research and development expenses were primarily the result of increased investment in new product development, costs of enhancements to existing products and engineers brought on by the ARTIC Business Unit acquisition on March 1, 1999. 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. 10 SELLING, GENERAL AND ADMINISTRATIVE Three Months Ended ------------------ (in thousands, except percentage amounts) March 31, Percentage March 31, 1999 Change 1998 ---- ------ ---- Selling, General & Admin. $ 4,427 8% $ 4,102 As a Percentage of Revenues 14% 12%
Selling, general and administrative expenses have increased in dollar amount in the three months ended March 31, 1999 compared to the three months ended March 31, 1998, primarily as a result of increased personnel, facilities and travel costs to support higher levels of sales and amortization associated with the ARTIC Business Unit acquisition on March 1, 1999. The increase as a percentage of revenues was primarily the result of the amortization associated with the ARTIC Business Unit acquisition on March 1, 1999. INTEREST INCOME, NET AND INCOME TAX PROVISION Three Months Ended ------------------ (in thousands, except percentage amounts) March 31, Percentage March 31, 1999 Change 1998 ---- ------ ---- Interest Income, net $ 304 (7%) $ 326 Income Tax Provision $ 806 (52%) $1,682
Interest income, net includes interest income, interest expense, bank charges and foreign currency transaction gains or losses. Interest income, net decreased from recent quarters due to the cash payment associated with the ARTIC Business Unit acquisition on March 1, 1999. The decrease in the income tax provision is attributable to decreased net income before taxes and the decrease in the effective tax rate applied at 32% in 1999. The Company's effective tax rate was at approximately 35% in 1998. The decline in the effective tax rate from 1998 to 1999 was due to tax benefits from increased research and experimentation tax credits and an increase foreign operations taxed at favorable rates. YEAR 2000 ISSUES The Company recognizes the importance to its operations of Year 2000 issues and is working to maintain the availability and integrity of its financial systems and the reliability of its operational systems. In that regard, the Company has already attempted to identify all internal information technology ("IT") and non-IT systems which may be affected by the Year 2000 issues, as well as, third party IT and non-IT systems that the Company relies upon and the third parties' Year 2000 readiness. Within the last two years the Company has evaluated and upgraded or replaced the software and hardware underlying the Company's internal financial systems, manufacturing equipment and systems, product development tools and systems, internal and external communication systems, and desktop systems, as appropriate, to address Year 2000 readiness issues. The Company has also performed an in-depth analysis of all of its products. An analysis of each products' Year 2000 readiness is provided on the Company's website (http://www.radisys.com/). In addition, the Company has been in contact with all major external third party providers to assess their Year 11 2000 readiness; this includes third parties who provide financial, payroll, communications, component, and integration services to the Company. Subsequent to performing the above steps, the Company has and will continue to make certain investments in its systems, applications and products to address Year 2000 issues. The Company believes that it has completed the analysis of its Year 2000 readiness, completed the majority of mission-critical system upgrades and replacements it requires to be Year 2000 ready, and is now in the process of upgrading or replacing non-material and non-mission critical applications. The Company expects that it will continue to address Year 2000 readiness issues up to and including the Year 2000, and will react as appropriate to newly-identified issues. The Company is in the process of establishing contingency plans for material IT systems and third party providers that the Company relies upon. The total cost associated with required modifications to become Year 2000 compliant has not been and is not expected to be material to the Company's results of operations, liquidity and financial condition. The above statements contain certain risks and uncertainties. These risks and uncertainties could include the risk of unidentified bugs in the source code of prepackaged or custom software, misrepresentation by third party vendors, unidentified dependency upon a system that is not Year 2000 ready, unidentified non-IT systems, or misdiagnosed Year 2000 readiness in existing systems. Although the Company believes that its efforts described above have significantly reduced the risk that Year 2000 issues could significantly interrupt the Company's normal business operations or adversely affect the performance of the Company's products, due to general uncertainty inherent in the Year 2000 problem and in particular about the readiness of third parties, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, the Company had $14.3 million in cash and cash equivalents, which represents the Company's principal source of liquidity. The Company had working capital of approximately $45.3 million. The Company maintains a $10.0 million line of credit with a bank which has been extended to October 1999. The Company has not drawn any funds under this line of credit. Cash and cash equivalents decreased $24.5 million during the three months ended March 31, 1999 primarily as a result of the cash paid for the ARTIC Business Unit acquisition ($27.5 million) on March 1, 1999, increases in accounts receivable ($4.4 million) and capitalized software production costs and other assets ($.8 million). These decreases were offset by cash and cash equivalent increases from accounts payable ($3.0 million), net income ($1.7 million), depreciation and amortization ($1.6 million) and income taxes payable ($1.3 million). The Company believes that existing cash and cash equivalents and cash from operations will be sufficient to fund its operations for at least the next 12 months. 12 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K On March 4, 1999, the Company filed a Form 8-K dated March 1, 1999 reporting Item 2. On April 22, 1999, the Company filed a Form 8-K/A. 13 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RADISYS CORPORATION By: STEPHEN F. LOUGHLIN ------------------------------------- Date: May 14, 1999 Stephen F. Loughlin Vice President of Finance and Administration and Chief Financial Officer (Authorized officer and Principal Financial Officer) 14 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 14,348 0 23,995 565 21,928 62,355 11,538 11,026 101,239 17,102 0 0 0 51,916 32,221 101,239 31,559 31,559 20,285 9,060 0 0 304 2,518 806 1,712 0 0 0 1,712 0.22 0.21
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