<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X]Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 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
COMMON STOCK, PAR VALUE $.20 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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 May 8, 1995, the registrant had 5,808,691 shares of
common stock outstanding.
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EMULEX CORPORATION AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
April 2, 1995 and July 3, 1994
Condensed Consolidated Statements of Operations
Three and nine months ended April 2, 1995
and March 27, 1994
Condensed Consolidated Statements of Cash Flows
Nine months ended April 2, 1995
and March 27, 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
<CAPTION>
April 2, July 3,
Assets 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $13,495 $ 6,772
Accounts and notes receivable, net 11,262 9,756
Inventories, net 8,049 8,938
Prepaid expenses 1,375 449
Income tax receivable 221 237
Total current assets 34,402 26,152
Property, plant and equipment, net 8,479 8,246
Intangible and other assets, net 1,843 2,956
$44,724 $37,354
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of capitalized
lease obligations $ 240 $ 251
Accounts payable 5,326 3,015
Accrued liabilities 5,381 5,433
Net liabilities - discontinued operations 184 524
Total current liabilities 11,131 9,223
Capitalized lease obligations,
excluding current installments 313 506
Deferred income taxes 3,989 2,065
Deferred income - 1
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; 5,790,933 and 5,578,461 issued
and outstanding at April 2, 1995 and
July 3, 1994, respectively 1,158 1,116
Additional paid-in capital 5,740 4,889
Retained earnings 22,393 19,554
Total stockholders' equity 29,291 25,559
$44,724 $37,354
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
April 2, March 27, April 2, March 27,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net revenues $19,104 $16,230 $55,892 $43,235
Cost of sales 11,017 9,295 32,516 27,831
Gross profit 8,087 6,935 23,376 15,404
Operating expenses:
Engineering and development 2,709 2,044 7,781 6,162
Selling and marketing 3,206 3,063 8,963 10,185
General and administrative 1,311 1,449 4,147 3,850
Amortization of goodwill 84 84 252 382
Impairment of goodwill - - - 1,001
Consolidation charges - - - 2,413
Total operating expenses 7,310 6,640 21,143 23,993
Operating income (loss) 777 295 2,233 (8,589)
Nonoperating income 194 17 921 43
Income (loss) from continuing
operations before income taxes 971 312 3,154 (8,546)
Provision for (benefit from) income
taxes 97 - 315 (104)
Income (loss) from continuing
operations 874 312 2,839 (8,442)
Discontinued operations:
Loss from discontinued operations,
net of income tax - (315) - (4,558)
Loss on disposal of discontinued
operations, net of income tax - (93) - (2,994)
Net income (loss) $ 874 $ (96) $2,839 $(15,994)
Income (loss) from continuing
operations per common and
common-equivalent share $ 0.14 $ 0.06 $0.46 $ (1.53)
Loss from discontinued operations
and disposal of discontinued
operations, net of income tax,
per common and common-equivalent
share - (0.08) - (1.36)
Net income (loss) per common and
common-equivalent share $ 0.14 $(0.02) $ 0.46 (2.89)
Weighted-average number of common
and common-equivalent shares 6,251,000 5,548,000 6,116,000 5,530,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
Continuing Operations April 2, March 27,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $2,839 $(8,442)
Adjustments to reconcile net income (loss)
from continuing operations to net cash
provided by (used in) operating activities:
Depreciation, amortization and goodwill impairment 2,351 4,298
Loss on disposal of property, plant and equipment 144 1,473
Provision for doubtful accounts 77 373
Changes in assets and liabilities:
Accounts receivable (1,583) (1,037)
Inventories 889 3,747
Accounts payable 2,311 (747)
Accrued liabilities (52) (136)
Income tax receivable 16 50
Deferred income taxes 1,924 (475)
Deferred income (1) (13)
Prepaid expenses and other assets (646) 15
Net cash provided by (used in) operating
activities 8,269 (894)
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 5 10
Additions to property, plant and equipment (1,900) (1,256)
Additions to intangibles - (1,019)
Net cash used in investing activities (1,895) (2,265)
Cash flows from financing activities:
Principal payments under capital leases (204) (514)
Payments on short-term notes payable, net - (1,610)
Proceeds from issuance of common stock 893 591
Net cash provided by (used in) financing activities 689 (1,533)
Net cash provided by (used in) continuing operations 7,063 (4,692)
Net cash used in discontinued operations (340) (8,914)
Net increase (decrease) in cash and cash equivalents 6,723 (13,606)
Cash and cash equivalents at beginning of period 6,772 18,363
Cash and cash equivalents at end of period $13,495 $ 4,757
Supplemental disclosures:
Cash paid during the period (related to continuing
and discontinued operations) for:
Interest $23 $318
Income taxes 6 889
Capital lease additions - 400
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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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 April 2, 1995
and July 3, 1994, and the results of operations for the
three and nine months ended April 2, 1995 and March 27,
1994 and the statements of cash flows for the nine months
then ended. Interim results for the three and nine
months ended April 2, 1995 are not necessarily indicative
of the results that may be expected for the year ending
July 2, 1995. References to amounts are in thousands,
except share data, unless otherwise specified.
2.Inventories
Inventories, net, are summarized as follows:
April 2, July 3,
1995 1994
Raw materials $4,275 $5,024
Work in process 1,900 1,448
Finished goods 1,874 2,466
$8,049 $8,938
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 (6,251,000 and 6,116,000 shares for
the three and nine months ended April 2, 1995
respectively). 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. The primary and fully diluted income
(loss) per share computations are approximately the same.
4.Reclassifications
Certain reclassifications have been made to the March 27,
1994 presentation to conform with the April 2, 1995
presentation.
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Part I. Item 2.
<TABLE>
EMULEX CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table sets forth 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.
<CAPTION>
Percentage of Net Revenues Percentage of Net Revenues
For the Three Months Ended For the Nine Months Ended
April 2, March 27, April 2, March 27,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.7 57.3 58.2 64.4
Gross profit 42.3 42.7 41.8 35.6
Operating expenses:
Engineering and development 14.2 12.6 13.9 14.3
Selling and marketing 16.8 18.9 16.0 23.5
General and administrative 6.8 8.9 7.4 8.9
Amortization of goodwill 0.4 0.5 0.5 0.9
Impairment of goodwill - - - 2.3
Consolidation charges - - - 5.6
Total operating expenses 38.2 40.9 37.8 55.5
Operating income (loss) 4.1 1.8 4.0 (19.9)
Nonoperating income 1.0 0.1 1.6 0.1
Income (loss) from continuing
operations before income taxes 5.1 1.9 5.6 (19.8)
Provision for (benefit from)
income taxes 0.5 - 0.5 ( 0.3)
Income (loss) from continuing
operations 4.6 1.9 5.1 (19.5)
Discontinued operations:
Loss from discontinued operations,
net of income tax - (1.9) - (10.6)
Loss on disposal of discontinued
operations, net of income tax - (0.6) - (6.9)
Net income (loss) 4.6% (0.6)% 5.1% (37.0)%
</TABLE>
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Net Revenues
Net revenues for the quarter ended April 2, 1995 increased
$2.9 million, or 17.7 percent, from the comparable quarter
of the prior year. The increase was primarily due to
increases in printer server product family revenues of $2.3
million, or 42.0 percent, over the same quarter of the prior
year. Additionally, network access server revenue, composed
of communication servers, network software, and intelligent
wide area network (WAN) adapters, increased $0.4 million, or
4.1 percent, over the comparable quarter of the prior year,
reflecting continuing growth in intelligent WAN adapter
sales offset by maturation in the communications server
sector. OEM storage revenue for the quarter ended April 2,
1995 increased $0.1 million due to end-of-life products
sales. Other revenue increased $0.1 million compared to the
same quarter of the prior year.
Net revenues for the nine months ended April 2, 1995
increased $12.7 million, or 29.3 percent, versus the
comparable prior year's period. The increase was primarily
due to increases in printer server product family revenues
of $11.8 million, or 97.5 percent, and increases in network
access server revenue of $2.2 million, or 8.1 percent versus
the comparable prior year's period. These increases were
partially offset by decreased revenues in OEM storage
products and other revenues of $1.1 million and $0.2
million, respectively.
Emulex has broadened its line of printer server and WAN
board products to attempt to limit fluctuations in its
quarterly results of operations; however, the Company's
results of operations remain subject to severe fluctuations
due to cyclical changes in OEM customer demand.
Cost of Sales
The cost of sales percentage of net revenues for the quarter
ended April 2, 1995 was 57.7 percent as compared to 57.3
percent for the same quarter of the prior year. This
increase in the cost of goods sold percentage was primarily
the result of lower margins associated with a higher mix
percentage of printer server products, and increased volume
of lower margin models in the WAN adapter product line.
This increase in cost of goods sold percentage was largely
offset by improved manufacturing efficiencies due to higher
volumes.
The cost of sales as a percentage of net revenues for the
nine months ended April 2, 1995 was 58.2 percent as compared
to 64.4 percent for the comparable period of the prior year.
Excluding $1.7 million of charges taken during the nine
month period ended March 27, 1994 to write down the
Company's inventories to net realizable value and to write
off certain fixed assets no longer in use, the cost of sales
as a percentage of net revenues for the current nine month
period ended April 2, 1995 declined 2.2 percent from the
comparable period of the prior year. This decrease in the
cost of goods sold percentage was primarily the result of
improved manufacturing efficiencies due to cost controls and
increased volumes, partially offset by lower margins
associated with a higher mix percentage of printer server
products and reduced margins in the WAN adapter product line
due to a shift in mix to higher volume, lower margin models.
Operating Expenses
Operating expenses for the quarter ended April 2, 1995
increased $0.7 million, or 10.1 percent, from the comparable
quarter in the prior year. As a percent of revenue,
operating expenses decreased 2.7 percent from the same
quarter of the prior fiscal year to 38.2 percent as a result
of the increase in revenues.
Engineering and development expenses for the quarter ended
April 2, 1995 increased $0.7 million, or 32.5 percent, over
the comparable quarter of the prior year. During the third
quarter of fiscal 1994, $0.2 million of software development
costs were eligible to be capitalized, which further reduced
that period's engineering and development expense. No
engineering development costs were eligible for
capitalization in the third quarter of fiscal 1995. Selling
and marketing expenses remained essentially unchanged,
increasing $0.1 million, or 4.7 percent, as compared to the
same quarter of the prior year. General and administrative
expenses for the third quarter of fiscal 1995 decreased $0.1
million, or 9.5 percent, from the comparable period of the
prior year.
Operating expenses for the nine months ended April 2, 1995
decreased $2.9 million, or 11.9 percent, from the comparable
period of the prior year. The fiscal 1994 expenses include
a $2.4 million consolidation charge, and a $1.0 million
charge to reflect the partial impairment of goodwill
associated with the Company's acquisition of its
InterConnections Inc. subsidiary in October 1991. Excluding
these charges, the current year's operating expenses
increased approximately $0.5 million, or 2.7 percent, from
the same period of the prior year.
Engineering and development expenses increased $1.6 million,
or 26.3 percent, over the same period of the prior year,
primarily as a result of $1.1 million of software
development costs which were eligible for capitalization
during the fiscal 1994 period. No software development
costs were eligible to be capitalized during the fiscal 1995
period. The remaining increase was costs associated with
increases in head count and new product development costs.
Sales and marketing expenses decreased $1.2 million, or 12.0
percent, primarily due to decreases in salaries and wages of
$0.5 million, a reduction in bad debt expense by $0.2
million, reductions in fixed costs of $0.3 million, and a
reduction in other expenses of $0.3 million, partially
offset by increased advertising expense of $0.1 million.
General and administrative costs increased $0.3 million, or
7.7 percent, over the comparable period of the prior year.
In the first eight months of fiscal 1994 the Company shared
its general and administrative expenses with QLogic
Corporation, a subsidiary of the Company spun off to
stockholders during the third quarter of fiscal 1994.
Excluding this cost sharing from the fiscal 1994 expenses,
general and administrative spending decreased $0.4 million,
or 9.5 percent. Amortization of goodwill decreased
approximately $0.1 million due to the partial impairment of
goodwill previously discussed.
Liquidity and Capital Resources
The Company has financed its recent working capital needs
and capital expenditure requirements primarily from
internally generated funds, and facilities and equipment
leases. At April 2, 1995, the Company had cash and cash
equivalents of $13.5 million, an increase of $6.7 million
compared with July 3, 1994. A material component of the
increase in cash and cash equivalents was the receipt by the
Company in November, 1994 of a $1.5 million federal income
tax refund and $0.5 million of accrued interest related to a
loss generated in fiscal 1990.
The Company has an unsecured domestic line of credit of up
to $5.0 million with Silicon Valley Bank. There were no
borrowings under the domestic line of credit at April 2,
1995.
The Company believes that its existing cash balances,
facilities and equipment leases, cash flows from operating
activities, and its line of credit should be sufficient to
satisfy its anticipated operating and capital expenditure
requirements for the foreseeable future.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b)The registrant has not filed any reports on Form 8-K during
the quarter for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Date: May 12, 1995
EMULEX CORPORATION
By: /s/ Paul F. Folino
Paul F. Folino
President and Chief Executive Officer
By: /s/ Walter J. McBride
Walter J. McBride
Sr. Vice President & Chief Financial Officer
(Principal Financial & Chief Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EMULEX
CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT
OF OPERATIONS FOR THE PERIOD ENDED APRIL 2, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-02-1995
<PERIOD-END> APR-02-1995
<CASH> 13,495
<SECURITIES> 0
<RECEIVABLES> 11,262
<ALLOWANCES> 0
<INVENTORY> 8,049
<CURRENT-ASSETS> 34,402
<PP&E> 8,479
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,724
<CURRENT-LIABILITIES> 11,131
<BONDS> 313
<COMMON> 1,158
0
0
<OTHER-SE> 28,133
<TOTAL-LIABILITY-AND-EQUITY> 44,724
<SALES> 55,892
<TOTAL-REVENUES> 55,892
<CGS> 32,516
<TOTAL-COSTS> 32,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,154
<INCOME-TAX> 315
<INCOME-CONTINUING> 2,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,839
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
