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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest
event reported): January 26, 1995
NETWORK SYSTEMS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-9691 41-1231031
- ------------------- ------------------------ -------------------
(State of or (Commission File Number) (IRS Employer
other jurisdiction Identification No.)
of incorporation)
7600 Boone Avenue North, Minneapolis, MN 55428
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(Address of principal executive offices)
612-424-4888
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(Registrant's telephone number)
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Item 5. OTHER EVENTS.
1994 Financial Results.
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The Company issued a press release on January 26, 1995 announcing its 1994
financial results. A copy of this press release is attached as an exhibit to
this Report and is incorporated by reference herein.
Class Action Lawsuit.
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The Company issued a press release dated January 27, 1995 announcing that the
Company had received notice that a complaint had been filed against the Company
and its directors in Delaware Chancery Court alleging that the directors
breached their fiduciary duty in connection with the pending merger between the
Company and Storage Technology Corporation. The complaint asserts that it was
filed on behalf of the Company's stockholders and seeks to enjoin the
consumation of the merger with StorageTek or, in the event the merger is
consumated, to recover damages. A copy of this press release is attached as an
exhibit to this Report and is incorporated by reference herein.
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Item 7. EXHIBITS
99.1 Press Release dated January 26, 1995.
99.2 Press Release dated January 27, 1995.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETWORK SYSTEMS CORPORATION
Date: January 27, 1995 By:
---------------------------
Malcolm D. Reid
Vice President, Secretary
and General Counsel
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FOR IMMEDIATE RELEASE
Contacts: Julia Samsal or Paul JJ Payack
800-672-7670 612/424-1555
612/424-1649 Internet: [email protected]
Internet: julie.samsal@network. com
Web Server: HTTP://www.network.com
NETWORK SYSTEMS CORPORATION REPORTS 1994
FOURTH QUARTER AND YEAR-END RESULTS
Minneapolis, January 26, 1995--Network Systems Corporation (NASDAQ-NMS:
NSCO), a leader in the high-performance internetworking marketplace, today
announced unaudited results for the three- and twelve-months periods ended
December 31, 1994.
Reported revenues for the fourth quarter ended December 31, 1994, were $55.3
million, down 18 percent from the $67.1 million recorded in the fourth quarter
of the prior year. The net loss was $26.5 million after taxes (87 cents per
share). This includes a pre-tax charge of $8 million related to an expense
reduction program, as previously announced in December 1994, and other
expenses, partially related to the transition to new products, including
inventory and receivable writedowns and increased development expenses. In
addition, consistent with operating results for the quarter and the year, the
company increased deferred tax-asset valuation reserves during the quarter.
This compares to a net loss of $5.1 million (17 cents per share) in the fourth
quarter of 1993. The fourth quarter of 1993 included a $15.6 million charge for
the acquisition of Bytex and associated restructuring. For the year, revenues
increased 7 percent to $231.8 million from $215.6 million recorded for the
prior year. For the year, the net loss was $23.8 million after taxes (79 cents
per share), including the restructing charge and the valuation reserve on
deferred tax assets compared to net income of $2.2 million (7 cents per share)
in the prior year.
"While these are disappointing results, these measures will help keep NSC
lean and should enable us to compete more effectively in the months ahead,"
said Michael F.G. Ashby, Chief Operating Officer. "We believe our results can,
in part, be attributed to uncertainty over our planned merger with StorageTek,
particularly true in the U.S. field, where we lost a number of sales
representatives following the merger announcement. However, the situation has
been stabilized, and we are currently close to nearly full field staffing."
The $8 million charge covered a worldwide workforce reduction on the order of
10 percent that was completed in mid-January, and the cost of the abandonment
of certain fixed assets and leases related to these actions.
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The cost of transition to our new products and other expenses have
significantly added to our loss in the fourth quarter. These costs include
approximately $1.3 million of additional development costs related to the final
stages of our new internetworking products to be introduced in early 1995;
obsolesence reserves of approximately $1.4 million as a result of both the
reduced revenue for the quarter and the transition to our new products, an
additional provision of approximately $1.5 million related to bad debts
identified in the fourth quarter, and $1.4 million related to our cancellation
of an OEM contract in the quarter.
As discussed earlier, the company increased deferred tax asset valuation
reserves during the fourth quarter. These additional reserves (relating
principally to previously established deferred tax assets) increased the fourth
quarter and year-to-date income tax expense by approximately $7.2 million. In
addition, the company recorded no tax benefit relating to the 1994 operating
loss.
The reductions in force excluded key field sales and service functions, as
well as key development projects. NSC is in the final stages of the most
extensive development effort in its history, which will result in eight new
products being introduced in 1995. Five of these product launches will occur in
the first quarter. These products, which address some of the fastest- growing
segments of the internetworking marketplace, include the Enterprise Routing
Switch(TM) (ERS(TM)), the Bytex 7700 Port-Switching Ethernet Hub(TM), and the
Security Router(TM).
Michael Ashby said, "We are exiting 1994 with a strong balance sheet and a
healthy cash position and have received notification of an approximate $17
million refund from the IRS before the end of the first quarter. By
aggressively cutting expenses in the first quarter, the corporation will more
quickly return to fiscal health as our newly revitalized product line is rolled
out during 1995," Michael Ashby concluded, "As a company, we are convinced that
our new product set, together with the merger with StorageTek that we expect to
complete shortly, will help us realize our vision."
Network Systems Corporation (NASDAQ: NSCO) is a leader in providing high
performance, heterogeneous, secure Networks-on- Demand(TM) creating virtual
networks across the enterprise from the data center to the desktop. Network
Systems Corporation and Storage Technology Corporation have entered into an
agreement to merge. NSC consists of the Network Systems Corporation, Bytex(R)",
Bus-Tech(R)" and TMD(R)"; Bus-Tech and Bytex were acquired during 1993, and TMD
Software, which was acquired in 1994. Network Systems and TMD are headquartered
in Minneapolis; Bytex (with switching hub technology) and Bus-Tech (with
channel expertise) in Boston. NSC has 11 international subsidiaries and sales
and service in more than 30 countries. Network Systems, an ISO 9001-certified
company, posted 1993 revenues of $215 million.
Note to Editors: Network Systems, NSC, Bytex, and BUS-TECH are registered
trademarks of the Network Systems Corporation. ERS, Enterprise Routing Switch,
Networks-on-Demand, and Security Router are trademarks of the NSC.
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NETWORK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
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1994 1993 1994 1993
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(IN THOUSANDS EXCEPT PER-SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES:
Product.............................. $ 37,007 $ 50,082 $158,834 $150,280
Services............................. 18,323 17,028 72,922 65,278
-------- -------- -------- --------
Total revenues..................... 55,330 67,110 231,756 215,558
COST OF REVENUES:
Product.............................. 23,121 23,441 77,866 66,770
Services............................. 12,202 11,409 46,447 42,320
-------- -------- -------- --------
Total cost of revenues............. 35,323 34,850 124,313 109,090
GROSS PROFIT........................... 20,007 32,260 107,443 106,468
OPERATING EXPENSES:
Research and development............. 9,957 8,388 36,272 27,762
Selling, general, and administrative. 21,871 19,349 79,749 68,499
Amortization of intangibles ......... 625 417 2,499 417
Acquisition, restructuring, and ac-
quired research and development
costs............................... 8,000 15,642 8,000 15,642
-------- -------- -------- --------
Total operating expenses........... 40,453 43,796 126,520 112,320
INCOME (LOSS) FROM OPERATIONS.......... (20,446) (11,536) (19,077) (5,852)
INTEREST INCOME, NET................... 861 1,499 3,817 7,339
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES...... (19,585) (10,037) (15,260) 1,487
PROVISION FOR (BENEFIT FROM) INCOME
TAXES................................. 6,940 (4,960) 8,560 (720)
-------- -------- -------- --------
NET INCOME (LOSS)...................... $(26,525) $ (5,077) $(23,820) $ 2,207
======== ======== ======== ========
EARNINGS PER COMMON AND COMMON EQUIVA-
LENT SHARE............................ $ (0.87) $ (0.17) $ (0.79) $ 0.07
Common and common equivalent shares
used in the calculation of earnings
per share............................. 30,366 29,707 30,120 30,118
</TABLE>
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NETWORK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, DECEMBER 31,
1994 1993(1)
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(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and short-term investments and marketable secu-
rities.............................................. $ 27,633 $ 33,813
Trade receivables, net............................... 58,778 64,495
Other receivables.................................... 1,995 5,531
Inventories.......................................... 21,686 26,599
Other current assets................................. 9,586 26,029
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Total current assets............................. 119,678 156,467
Net property, plant, and equipment................... 53,304 43,849
Goodwill and other intangible assets, net............ 39,207 36,534
Income tax deposits, including interest.............. 17,611 39,804
Other assets......................................... 39,639 28,827
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$269,439 $305,481
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Liabilities and Stockholders' Equity:
Current liabilities.................................. $ 42,761 $ 56,637
Long-term debt....................................... -- 1,000
Deferred compensation................................ 12,962 11,852
Deferred income taxes................................ -- 3,360
Other long-term liabilities.......................... 8,301 9,251
Total stockholders' equity....................... 205,415 223,381
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$269,439 $305,481
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</TABLE>
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1 The balance sheet at December 31, 1993, has been condensed from the audited
financial statements.
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[LETTERHEAD OF NETWORK SYSTEMS CORPORATION APPEARS HERE]
FOR IMMEDIATE RELEASE
Contacts: Julia Samsal or Paul JJ Payack
800-672-7670 612-424-1555
Internet: [email protected] or [email protected]
Web Server: HTTP://www.network.com
NETWORK SYSTEMS CORPORATION (NSC)
ANNOUNCES DEVELOPMENTS RELATED TO STORAGETEK MERGER
Minneapolis, January 27--Network Systems Corporation (NASDAQ: NSCO) today
announced that, in connection with its merger agreement with the Storage
Technology Corporation (STK) of Louisville, Colorado, NSC intends to mail next
week a supplement to the Proxy Statement/Prospectus previously sent to its
stockholders and intends to reschedule the special meeting of stockholders
currently planned for February 8, 1995. A new meeting date will be announced
next week.
In a related matter, NSC today announced that it has received notice that a
complaint has been filed against Network Systems and its board directors in the
state Chancery Court in Delaware.
The complaint asserts that it was filed on behalf of Network Systems'
shareholders and alleges that the directors breached their fiduciary duty in
connection with the pending merger between Network Systems and Storage
Technology Corporation. The plaintiff seeks to enjoin the consummation of the
merger with StorageTek or, in the event the merger is consummated, to recover
damages.
Network Systems believes that the allegations contained in the complaint are
without merit and intends to defend this lawsuit vigorously.
