SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 1, 1994
Commission file no. 1-7713
AMDAHL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1728548
(State of incorporation) (I.R.S. Employer
Identification No.)
1250 East Arques Avenue
Sunnyvale, California 94088-3470
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (408) 746-6000
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
Number of shares of common stock, $.05 par value, outstanding at
August 10, 1994: 115,721,774.
<PAGE>
PART I. FINANCIAL INFORMATION
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited consolidated financial statements reflect,
in the opinion of management, all adjustments (which, other than
the accounting change described in the notes and the restructuring
charges described in Management's Discussion and Analysis of
Financial Condition and Results of Operations, include only normal
recurring adjustments) necessary to present fairly the financial
position as of the dates and results of operations for the periods
indicated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
the Securities and Exchange Commission rules and regulations.
Amdahl Corporation (the Company) believes the information included
in the following report on Form 10-Q, when read in conjunction with
the financial statements and related notes included in the
Company's 1993 Annual Report to Stockholders, not to be misleading.
The results of operations for the six months ended July 1, 1994,
are not necessarily indicative of results for the entire year
ending December 30, 1994.
<PAGE>
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 1, 1994 AND DECEMBER 31, 1993
----------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 375,611 $ 149,484
Short-term investments 91,210 103,585
Receivables, net of allowances 279,980 307,747
Inventories -
Purchased materials 98,347 134,615
Systems in process 170,592 233,560
Finished goods 87,525 142,527
Prepaid expenses and deferred tax benefit 54,371 53,629
----------- -----------
Total current assets 1,157,636 1,125,147
----------- -----------
Long-term receivables and other assets 46,124 45,620
----------- -----------
Property and equipment, at cost
Leased systems 53,448 60,229
System spares 398,055 418,057
Production and data processing equipment 484,420 667,137
Office furniture, equipment, and improvements 145,783 158,062
Land and buildings 156,263 177,791
----------- -----------
1,237,969 1,481,276
Less - Accumulated depreciation and amortization (828,305) (979,856)
----------- -----------
Property and equipment, net 409,664 501,420
----------- -----------
$ 1,613,424 $ 1,672,187
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Notes payable and short-term debt $ 6,403 $ 137,056
Accounts payable 49,729 54,331
Accounts payable - stockholder (Fujitsu Limited) 38,770 18,092
Accrued liabilities 524,469 561,281
----------- -----------
Total current liabilities 619,371 770,760
----------- -----------
Long-term debt - stockholder (Fujitsu Limited) 80,000 -
----------- -----------
Long-term liabilities 45,279 52,208
----------- -----------
Deferred income taxes 56,573 59,013
----------- -----------
Stockholders' equity:
Common stock, $.05 par value -
Authorized - 200,000,000 shares
Outstanding - 115,545,000 at July 1, 1994
and 114,578,000 shares at December 31, 1993 5,777 5,729
Additional paid-in capital 513,009 507,895
Retained earnings 287,290 267,664
Cumulative translation adjustments 8,380 8,918
Unrealized holding losses on securities (2,255) -
----------- -----------
Total stockholders' equity 812,201 790,206
----------- -----------
$ 1,613,424 $ 1,672,187
=========== ===========
</TABLE>
<PAGE>
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per common share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JULY 1, 1994 JUNE 25, 1993
------------- --------------
<S> <C> <C>
REVENUES
Equipment sales $ 253,722 $ 321,567
Equipment lease, maintenance and other 143,187 141,639
------------- -------------
396,909 463,206
------------- -------------
COST OF REVENUES
Equipment sales 173,084 234,063
Equipment lease, maintenance and other 83,311 89,741
------------- -------------
256,395 323,804
------------- -------------
Gross margin 140,514 139,402
------------- -------------
OPERATING EXPENSES
Engineering and development 51,302 85,736
Marketing, general and administrative 78,675 84,421
------------- -------------
129,977 170,157
------------- -------------
Income (loss) from operations 10,537 (30,755)
------------- -------------
INTEREST
Income 4,847 6,199
Expense (2,218) (5,043)
------------- -------------
2,629 1,156
------------- -------------
<PAGE>
Income (loss) before provision for
(benefit from) income taxes 13,166 (29,599)
PROVISION FOR (BENEFIT FROM) INCOME TAXES 650 (5,900)
------------- -------------
NET INCOME (LOSS) $ 12,516 $ (23,699)
============= =============
PER COMMON SHARE AMOUNTS:
Net income (loss) $ .11 $ (.21)
============= =============
Average outstanding shares 117,409 113,713
============= =============
DIVIDENDS PER COMMON SHARE $ - $ .0125
============= =============
</TABLE>
<PAGE>
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per common share amounts)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JULY 1, 1994 JUNE 25, 1993
------------- --------------
<S> <C> <C>
REVENUES
Equipment sales $ 489,438 $ 574,654
Equipment lease, maintenance and other 286,262 269,265
------------- -------------
775,700 843,919
------------- -------------
COST OF REVENUES
Equipment sales 344,061 448,899
Equipment lease, maintenance and other 162,056 172,909
------------- -------------
506,117 621,808
------------- -------------
Gross margin 269,583 222,111
------------- -------------
OPERATING EXPENSES
Engineering and development 106,783 174,751
Marketing, general and administrative 147,881 175,879
Restructuring charges - 243,000
------------- -------------
254,664 593,630
------------- -------------
Income (loss) from operations 14,919 (371,519)
------------- -------------
INTEREST
Income 9,883 12,841
Expense (4,526) (11,274)
------------- -------------
5,357 1,567
------------- -------------
<PAGE>
Income (loss) before provision for
(benefit from) income taxes 20,276 (369,952)
PROVISION FOR (BENEFIT FROM) INCOME TAXES 650 (97,800)
------------- -------------
Income (loss) before change in accounting principle 19,626 (272,152)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - 8,746
------------- -------------
NET INCOME (LOSS) $ 19,626 $ (263,406)
============= =============
PER COMMON SHARE AMOUNTS:
Income (loss) before change in accounting principle $ .17 $ (2.40)
Effect of change in accounting principle - .08
------------- -------------
Net income (loss) $ .17 $ (2.32)
============= =============
Average outstanding shares 117,301 113,483
============= =============
DIVIDENDS PER COMMON SHARE $ - $ .0250
============= =============
</TABLE>
<PAGE>
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JULY 1, 1994 JUNE 25, 1993
------------- --------------
<S> <C> <C>
Cash and cash equivalents at beginning of period $ 149,484 $ 173,012
------------- --------------
Cash flows from operating activities:
Net income (loss) 19,626 (263,406)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 71,128 107,036
Restructuring charges - 243,000
Deferred income tax provision (2,317) (15,212)
(Gain) loss on dispositions of property, plant
and equipment (4,669) 1,860
Decrease in receivables 29,075 280,820
(Increase) decrease in inventories 184,094 (12,672)
Increase in prepaid expenses and deferred
tax benefit (1,084) (58,303)
(Increase) decrease in long-term receivables
and other assets (998) 6,512
Increase (decrease) in accounts payable 16,570 (60,032)
Decrease in accrued liabilities (39,456) (67,437)
Decrease in long-term liabilities (6,760) (999)
------------- --------------
Net cash provided by operating activities 265,209 161,167
------------- --------------
Cash flows from investing activities:
(Increase) decrease in short-term investments 10,120 (2,234)
Increase in long-term investments - (48,533)
Capital expenditures:
Leased systems (10,924) (8,151)
System spares (2,669) (47,918)
Other property and equipment (25,135) (15,789)
Proceeds from dispositions of property,
plant and equipment 32,886 25,946
------------- --------------
Net cash provided by (used for) investing activities 4,278 (96,679)
------------- --------------
Cash flows from financing activities:
Decrease in notes payable and short-
term debt (333) (124,834)
Repayments of borrowings under revolving
credit agreement (130,000) (25,000)
Long-term borrowings 80,000 -
Sale of common stock and exercise of options 5,162 5,294
Dividends paid - (4,249)
------------- --------------
Net cash used for financing activities (45,171) (148,789)
------------- --------------
Effect of exchange rate changes on cash 1,811 (1,326)
------------- --------------
Net increase (decrease) in cash and cash equivalents 226,127 (85,627)
------------- --------------
Cash and cash equivalents at end of period $ 375,611 $ 87,385
============= ==============
</TABLE>
<PAGE>
AMDAHL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying interim financial statements and related notes
should be read in conjunction with the financial statements and
related notes included in the Company's 1993 Annual Report to
Stockholders.
RELATIONSHIP WITH FUJITSU LIMITED
During the second quarter of 1994 the Company recognized equipment
sales to Fujitsu Limited (Fujitsu) under distributorship
arrangements which contributed $6,529,000 and $2,455,000 to
equipment sales and gross margin, respectively, compared to
$1,699,000 and $875,000 in the second quarter of 1993 ($18,526,000
and $6,677,000 for the first six months of 1994 and $2,569,000 and
$1,233,000 for the first six months of 1993). Amounts due from
Fujitsu included in receivables were $5,819,000 and $35,931,000 as
of July 1, 1994 and December 31, 1993, respectively.
In the second quarters of 1994 and 1993 the Company charged
engineering and development expense $548,000 and $770,000
($2,038,000 and $1,722,000 for the first six months of 1994 and
1993), respectively, for services and materials supplied by
Fujitsu.
In January 1994 the Company and Fujitsu entered into an agreement
under which Fujitsu would provide loans to the Company in an
aggregate amount not to exceed $100,000,000. Such loans bear
interest at a rate based upon the London Interbank Offered Rate.
Any outstanding loan balance is payable to Fujitsu on January 28,
1997. At July 1, 1994, $80,000,000 was outstanding under this
agreement. Interest expense associated with the loan was $794,000
and $1,604,000 in the second quarter and first six months of 1994,
respectively.
SUPPLEMENTARY CASH FLOW DISCLOSURE
Income taxes of $30,005,000 were refunded to the Company in the
first six months of 1994, and income taxes of $2,614,000 were paid
by the Company in the first six months of 1993. Interest paid on
all borrowings was $3,836,000 and $10,845,000 for the first six
months of 1994 and 1993, respectively.
<PAGE>
AMDAHL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read
in conjunction with the Management's Discussion and Analysis
included in the Company's 1993 Annual Report to Stockholders.
Results of Operations
Second quarter of 1994 compared to second quarter of 1993:
Revenues decreased 14% to $396,909,000 in the second quarter of
1994 from $463,206,000 in the second quarter of 1993, and decreased
8% in the first half of 1994 as compared to the first half of 1993.
Equipment sales decreased 21% in the second quarter of 1994 from
the second quarter of 1993 and decreased 15% in the first half of
1994 from the first half of 1993. Equipment sales of the 5995M
mainframe computers decreased due primarily to continued
competitive pricing pressures. This price decline, however, was at
a rate less severe than the declines experienced in 1992 and 1993,
which the Company believes indicates an improved balance between
supply and demand in the mainframe marketplace in the first half of
1994. Equipment sales of the older 5995A line of mainframe
computers and of the Company's storage products decreased primarily
due to pricing declines. Equipment lease, maintenance and other
revenues increased 1% in the second quarter of 1994 from the second
quarter of 1993 (6% in the first six months of 1994 as compared to
the first six months of 1993) reflecting increased maintenance
revenues from a larger customer installed base.
The gross margin was 35% of revenues in the second quarter of 1994
and 30% in the second quarter of 1993 and was 35% of revenues in
the first half of 1994 and 26% in the first half of 1993. The
improvement in margins was primarily due to lower production costs
resulting from reductions in excess manufacturing capacity. In
addition, the provision charged to cost of equipment sales for
implementation of engineering changes to support IBM features on
certain shipped 5995M processors decreased. Also, gross margins on
maintenance service revenues improved, reflecting benefits from the
cost reduction actions taken in the field service organization in
1993.
Operating expenses declined $40 million or 24% from the second
quarter of 1993 to the second quarter of 1994 and were 33% and 37%
of revenues in the second quarters of 1994 and 1993 respectively.
Year-to-date operating expenses in 1994 and 1993, excluding first
quarter 1993 restructuring charges of $243,000,000, declined $96
million or 27% and were 33% and 42% of revenues in 1994 and 1993
respectively. Second quarter 1994 engineering and development
expenses decreased $34 million or 40% when compared to the second
quarter of 1993, primarily due to cancellation of certain of the
Company's product development activities and a reduction in the
scope of other development projects. Engineering and development
expenses also decreased due to the November 1993 agreement with
Fujitsu for the joint development of the next generation of IBM
compatible systems.
Second quarter 1994 net interest income increased $1,473,000 from
the second quarter of 1993 due primarily to decreased debt levels.
The decrease in interest expense was partially offset by decreased
interest income from lower levels of sales-type lease receivables.
In the second quarter of 1994 the effective income tax rate was 5%,
which reflected utilization of domestic and foreign net operating
loss carryforward benefits. The effective income tax rate was 20%
in the second quarter of 1993.
Although the Company's performance improved during the second
quarter of 1994 when compared to previous quarters in 1993 and the
first quarter in 1994, positive future results over the near term
will depend on a continuation of improved economic conditions in
the Company's primary markets, continued stabilization of pricing
for large mainframe systems, and the ability of the market for
mainframe systems to grow in the face of competition from smaller,
less costly computer systems. Also, stabilization of pricing is
dependent on continued balance between the supply of mainframe
systems and customer demand.
The Company believes that the restructuring actions which it took
in 1993 will bring its costs in line with anticipated levels of
business for the balance of 1994 and beyond. However, any
significant deterioration in these levels of business would likely
require the Company to make additional adjustments to expense
structures and associated restructuring charges.
In the latter part of 1993 the Company reorganized along lines of
business consisting of its compatible processors, storage products,
maintenance and consulting services, open systems and Huron
software businesses, in order to enable the Company to more
effectively enhance and expand its product offerings. Because of
the factors noted above affecting its traditional mainframe
business, the Company intends to rely increasingly on its ability
to utilize lower cost technologies in future compatible processor
products and on the ability of its newer lines of business to
contribute a higher percentage of revenues and profits to overall
operations. Successful implementation of this strategy is,
however, subject to the inherent risks associated with the
introduction of new technologies and with the entry into new
markets not related to the Company's traditional compatible
processor business.
Because of the uncertainties described in the preceding paragraphs,
the Company is unable to predict that it will be able to sustain
profitability over the near term.
In July 1994 International Business Machines Corporation (IBM) gave
the European Commission one year's advance notice of IBM's
intention to terminate the Undertaking which it entered into with
the Commission in 1984. The Undertaking called upon IBM to
disclose interface specifications related to its System 370/390
mainframe systems to qualified competitors, including Amdahl.
Since 1986 the Company has utilized specifications made available
pursuant to the Undertaking in maintaining compatibility with new
features and functions which IBM has announced from time to time.
At the present time the Company has no reason to believe that, upon
termination of the Undertaking, IBM will depart from its past
practice of disclosing interface specifications. However, a
failure by IBM to continue to disclose required information on a
timely basis would require Amdahl to rely extensively on
technically difficult reverse engineering procedures. In such a
case, should IBM continue to introduce significant architectural
changes to its System 390 mainframe systems, the ability of the
Company's products to remain compatible in the future on a timely
basis could be adversely impacted. The Company is unable to
predict what effect this would have on future operating results.
Financial Condition
July 1, 1994, compared to December 31, 1993:
The Company's net cash and investment position (cash and short-term
investments net of short-term and long-term borrowings) improved by
$264 million, from $117 million at December 31, 1993 to $381
million at July 1, 1994. Cash, cash equivalents and short-term
investments increased $214 million and borrowings decreased $50
million.
Receivables decreased $28 million primarily due to the collection
of income tax refunds in the second quarter of 1994. The Company's
continued efforts to reduce inventory levels resulted in a decline
of $154 million. Net property and equipment decreased $92 million
due to the downsizing of internal data centers as well as ongoing
depreciation charges.
Accounts payable to Fujitsu increased $21 million due primarily to
increased purchases of storage products inventory in the second
quarter of 1994.
Accrued liabilities includes accrued restructuring costs, which
decreased from $146 million at December 31, 1993 to $102 million at
July 1, 1994.
At December 31, 1993, $130,000,000 classified as short-term debt
was outstanding under the Company's revolving credit agreement with
a group of banks. This amount was repaid by the Company upon
expiration of the facility on January 31, 1994. At July 1, 1994,
$80,000,000 was outstanding under the Fujitsu loan agreement (see
Notes to the Consolidated Financial Statements).
Liquidity
The nature of the computer industry, combined with the current
economic environment, makes it very difficult for the Company to
predict future liquidity requirements with certainty. However, the
Company believes that internally generated cash and borrowings
under its loan agreement with Fujitsu will be adequate to finance
continuing operations, investments in plant and equipment,
inventories and spare parts, and expenditures for the development
of new products at least through the next twelve months, providing
that financial results are not significantly less favorable than
planned. The Company also expects that other sources of capital
will be available to meet any additional financing requirements
during and beyond 1994.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Defaults upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
(a) Annual Meeting of Stockholders was held on May 5,
1994.
(b) The vote for the nominated Directors was as follows:
NOMINEE IN FAVOR WITHHELD
------- -------- --------
John C. Lewis 103,261,196 2,330,076
E. Joseph Zemke 103,066,968 2,524,304
Keizo Fukagawa 103,298,242 2,293,030
E. F. Heizer, Jr. 103,289,978 2,301,294
Kazuto Kojima 103,290,733 2,300,539
R. Stanley Laing 103,276,410 2,314,862
Burton G. Malkiel 103,282,488 2,308,784
George G. Packard 103,305,316 2,285,956
Walter B. Reinhold 103,298,537 2,292,735
Takamitsu Tsuchimoto 103,294,208 2,297,064
J. Sidney Webb 103,270,410 2,320,862
(c) Other matters voted upon at the meeting were as
follows:
1. Ratification of the selection of Arthur
Andersen as independent public accountants for
1994 was approved as follows:
% of votes cast
---------------
For 104,964,237 (99.406%)
Against 347,220 ( 0.329%)
Abstain 279,815 ( 0.265%)
-----------
Total 105,591,272 voted on proposal
===========
<PAGE>
2. Approval of the 1994 Stock Incentive Plan was
as follows:
% of votes cast
---------------
For 68,524,730 (73.190%)
Against 24,708,540 (26.390%)
Abstain 392,818 ( 0.420%)
-----------
Total 93,626,088 voted on proposal
===========
Broker Non-
votes 11,965,184
Item 5. Other information:
Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Not applicable.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended July 1, 1994.
<PAGE>
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.
AMDAHL CORPORATION
Date: August 12, 1994 By: /s/ E. Joseph Zemke
----------------------
E. Joseph Zemke
President and
Chief Executive Officer
Date: August 12, 1994 By: /s/ Ernest B. Thompson
-------------------------
Ernest B. Thompson
Vice President and Controller
(Principal Accounting Officer)
