<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_____________________
(Mark One)
[X] Quarterly Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 1995
OR
[ ] Transition Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NO. 0-11007
EMULEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0300558
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
(Address of principal executive offices) (Zip Code)
(714) 662-5600
(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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of October 26, 1995, the registrant had 5,934,903 shares of common stock
outstanding.
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<PAGE> 2
EMULEX CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
October 1, 1995 and July 2, 1995 2
Condensed Consolidated Statements of Operations
Three months ended October 1, 1995
and October 2, 1994 3
Condensed Consolidated Statements of Cash Flows
Three months ended October 1, 1995
and October 2, 1994 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 8
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
October 1, July 2,
Assets 1995 1995
- ------ ---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,237 $10,308
Accounts and notes receivable, net 8,073 12,896
Inventories, net 15,158 14,261
Prepaid expenses 1,668 1,199
Income tax receivable 273 350
------- -------
Total current assets 31,409 39,014
Property, plant and equipment, net 8,321 8,451
Other assets 78 85
------- -------
$39,808 $47,550
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current installments of capitalized
lease obligations $ 245 $ 243
Accounts payable 4,786 8,371
Accrued liabilities 4,795 5,282
Net liabilities - discontinued operations 7 74
------- -------
Total current liabilities 9,833 13,970
Capitalized lease obligations,
excluding current installments 191 253
Deferred income taxes 2,262 2,649
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued; 150,000 shares designated as
Series A Junior Participating, $.01 par value; none issued - -
Common stock, $.20 par value; 20,000,000 shares
authorized; 5,929,883 and 5,860,923 issued
and outstanding at October 1, 1995 and
July 2, 1995, respectively 1,186 1,172
Additional paid-in capital 6,325 6,014
Retained earnings 20,011 23,492
------- -------
Total stockholders' equity 27,522 30,678
------- -------
$39,808 $47,550
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
October 1, October 2,
1995 1994
---------- ----------
<S> <C> <C>
Net revenues $ 10,448 $18,511
Cost of sales 7,154 10,981
-------- -------
Gross profit 3,294 7,530
Operating expenses:
Engineering and development 3,043 2,548
Selling and marketing 2,973 2,848
General and administrative 1,236 1,404
Amortization of goodwill - 84
-------- -------
Total operating expenses 7,252 6,884
-------- -------
Operating income (loss) (3,958) 646
Nonoperating income 90 97
-------- -------
Income (loss) before income taxes (3,868) 743
Provision for (benefit from) income taxes (387) 74
------- -------
Net income (loss) $(3,481) $ 669
======= =======
Net income (loss) per common
and common equivalent share $ (0.59) $ 0.11
======= =======
Weighted average number of common
and common equivalent shares 5,898 5,975
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
Continuing Operations October 1, October 2,
- --------------------- 1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Income (loss) from continuing operations $(3,481) $ 669
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation and amortization 541 792
Loss on disposal of property, plant and equipment 16 15
Provision for doubtful accounts 22 38
Change in assets and liabilities:
Accounts receivable 4,801 (1,553)
Inventories (897) 224
Accounts payable (3,585) 977
Accrued liabilities (487) 132
Income tax receivable 77 14
Deferred income taxes (387) 75
Deferred income - (1)
Prepaid expenses and other assets (462) (98)
------- -------
Net cash provided by (used in) operating activities (3,842) 1,284
------- -------
Cash flows from investing activities
- ------------------------------------
Proceeds from sale of property, plant and equipment 124 2
Additions to property, plant and equipment (551) (566)
------- -------
Net cash used in investing activities (427) (564)
------- -------
Cash flows from financing activities
- ------------------------------------
Principal payments under capital leases (60) (78)
Proceeds from issuance of common stock 325 228
------- -------
Net cash provided by financing activities 265 150
------- -------
Net cash provided by (used in) continuing operations (4,004) 870
Net cash used in discontinued operations (67) (57)
------- -------
Net increase (decrease) in cash and cash equivalents (4,071) 813
Cash and cash equivalents at beginning of period 10,308 6,772
------- -------
Cash and cash equivalents at end of period $ 6,237 $ 7,585
======= =======
Supplemental disclosures:
- -------------------------
Cash paid during the period (related to continuing
and discontinued operations) for:
Interest $ 5 $ 8
Income taxes 32 1
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
EMULEX CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (which are normal recurring accruals)
necessary to present fairly the financial position as of October 1, 1995
and July 2, 1995, and the results of operations for the three months
ended October 1, 1995 and October 2, 1994. References to amounts are in
thousands, except share data, unless otherwise specified.
2. Inventories
Inventories, net, are summarized as follows:
<TABLE>
<CAPTION>
October 1, July 2,
1995 1995
--------- -------
<S> <C> <C>
Raw materials $ 7,068 $ 9,223
Work in process 2,376 2,036
Finished goods 5,714 3,002
------- -------
$15,158 $14,261
======= =======
</TABLE>
3. Net Income (Loss) per Share
Net income (loss) per common and common equivalent share was computed
based on the weighted average number of common and common equivalent
shares outstanding during the periods presented (5,898,000 for the quarter
ended October 1, 1995). The Company has granted certain stock options
which have been treated as common share equivalents in computing both
primary and fully diluted income per share. Common stock equivalents
have been excluded from the calculation of both primary and fully diluted
loss per share for the three months ended October 1, 1995, as the effect
would have been antidilutive. The primary and fully diluted income
(loss) per share computations are approximately the same.
5
<PAGE> 7
Part I. Item 2.
EMULEX CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table sets forth the percentage of net revenues represented by
selected items from the Condensed Consolidated Statements of Operations. This
table should be read in conjunction with the Condensed Consolidated Financial
Statements included elsewhere herein.
<TABLE>
<CAPTION>
Percentage of Net Revenues
For the Three Months Ended:
-------------------------------
October 1, October 2,
1995 1994
--------- ---------
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of sales 68.5 59.3
----- -----
Gross profit 31.5 40.7
Operating expenses:
Engineering and development 29.1 13.8
Selling and marketing 28.5 15.4
General and administrative 11.8 7.6
Amortization of goodwill - 0.4
----- -----
Total operating expenses 69.4 37.2
----- -----
Operating income (loss) (37.9) 3.5
Nonoperating income 0.9 0.5
----- -----
Income (loss) before income taxes (37.0) 4.0
Provision for (benefit from) income taxes ( 3.7) 0.4
----- -----
Net income (loss) (33.3)% 3.6%
===== =====
</TABLE>
NET REVENUES
Net revenues for the quarter ended October 1, 1995 decreased $8,063, or 43.6
percent, from the comparable quarter a year earlier. This decrease in net
revenues resulted primarily from lower sales to original equipment
manufacturers (OEMs), which were approximately $2,100 in the first quarter of
the current year, down approximately $9,200, or 81.4 percent, from the level
recorded in the first quarter a year earlier. This decline in OEM revenues is
primarily attributable to a combined $7,400 reduction in sales to Xerox, Cisco
Systems and Reuters. In the quarter a year earlier, the Company shipped Xerox
a large initial stocking order of printer servers, whereas shipments to Xerox
in the first quarter of the current year were negligible. The Company has
received orders for delivery in the second quarter for Xerox's next generation
of printer servers. Additionally, one product reached the end of its life
cycle with Cisco Systems, and sales to Reuters declined because Reuters
completed a modernization program involving Emulex's intelligent wide area
network (WAN) adapters earlier than anticipated in European markets. While
Emulex believes that it will be asked to participate in Reuters' future WAN
applications in other geographic regions, there can be no assurance that any
such business will, in fact, be awarded to Emulex.
6
<PAGE> 8
From a product line perspective, compared to the quarter a year earlier printer
server revenues declined $4,832, or 58.8 percent, network access revenues
declined $4,678, or 50.6 percent, and other miscellaneous product line revenues
declined $157, or 14.9 percent. Partially offsetting these decreases were $132
of revenues generated by the Company's emerging Fibre Channel products and
$1,472 from the sale of certain components that had been engineered out of the
Company's products.
GROSS PROFIT
The gross profit percentage for the first quarter of the current year was 31.5
percent compared to 40.7 percent in the same period a year earlier. This
decrease in gross profit percentage is primarily attributable to lower
absorption of manufacturing overhead due to the lower level of activity
experienced in the first quarter of the current year.
OPERATING EXPENSES
Operating expenses for the quarter ended October 1, 1995 increased by $368, or
5.3 percent, in comparison to the comparable quarter a year earlier.
Engineering and development expenses increased $495, or 19.4 percent, over the
prior year as the Company continued to support its new product development
programs. Sales and marketing expenses increased $125, or 4.4 percent,
compared to the quarter a year earlier as personnel was added in key areas.
General and administrative expenses declined $168, or 12.0 percent, as the
result of selective reductions in administrative staff. In the fourth quarter
of fiscal 1995, the Company wrote off all of its goodwill and other intangible
assets. As a result, amortization of goodwill, which was $84 in the first
quarter of fiscal 1995, was $0 in the first quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its recent working capital needs and capital
expenditure requirements from internally generated funds, facilities leases and
equipment leases. At October 1, 1995, the Company had cash and cash
equivalents of $6,237, down $4,071 from July 2, 1995.
The Company has an unsecured domestic line of credit of up to $5,000 with
Silicon Valley Bank. There were no borrowings under the domestic line of
credit at October 1, 1995.
The Company believes that its existing cash balances, facilities and equipment
leases, anticipated cash flows from operating activities and its line of credit
should be sufficient to satisfy its operating and capital expenditure
requirements for the foreseeable future.
POTENTIAL FLUCTUATION IN FINANCIAL RESULTS
Most of the Company's customers order products for immediate delivery and,
therefore, a substantial amount of the Company's net sales in each quarter
results from orders booked that quarter. Accordingly, the Company's quarterly
net sales and operating results may vary significantly as a result of, among
other things, the volume and timing of orders received during a quarter,
variations in product or channel sales mix (which may not indicate a trend),
increased competition, announcements or introductions of new products by the
Company or its competitors, changes in costs of components, delays in
production schedules and changes in economic or other conditions affecting
customers or end users of the Company's products. Accordingly, the Company's
historical financial performance is not necessarily a meaningful indicator of
future results and, in general, management expects that the Company's financial
results may vary from period to period.
7
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule.
(b) The registrant has not filed any reports on Form 8-K during the period for
which this report is filed.
8
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 27, 1995
EMULEX CORPORATION
By: /s/ Paul F. Folino
-------------------------------------
Paul F. Folino
President and Chief Executive Officer
By: /s/ Walter J. McBride
-------------------------------------
Walter J. McBride
Senior Vice President & Chief
Financial Officer (Principal
Financial & Chief Accounting
Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EMULEX
CORPORATION AND SUBSIDIARIES' CONDENSED CONSOLIDATED BALANCE SHEET, STATEMENT OF
OPERATIONS AND STATEMENT OF CASH FLOWS FOR THE THREE-MONTH PERIOD ENDED OCTOBER
1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> OCT-01-1995
<CASH> 6,237
<SECURITIES> 0
<RECEIVABLES> 8,073
<ALLOWANCES> 0
<INVENTORY> 15,158
<CURRENT-ASSETS> 31,409
<PP&E> 8,321
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,808
<CURRENT-LIABILITIES> 9,833
<BONDS> 191
<COMMON> 1,186
0
0
<OTHER-SE> 26,336
<TOTAL-LIABILITY-AND-EQUITY> 39,808
<SALES> 10,448
<TOTAL-REVENUES> 10,448
<CGS> 7,154
<TOTAL-COSTS> 7,154
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,868)
<INCOME-TAX> (387)
<INCOME-CONTINUING> (3,481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,481)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
