<PAGE> 1
UNITED STATES
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 June 30, 1995 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 0-15071
ADAPTEC, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2748530
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(State of Incorporation) (I.R.S. Employer
Identification No.)
691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 945-8600
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N/A
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(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
The number of shares outstanding of common stock as of July 21, 1995 was
51,665,921.
This document consists of 13 pages of which this is page 1.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1 Financial Statements:
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes To Condensed Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Results of Operations 8-10
Liquidity and Capital Resources 10-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE> 3
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
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Three Month Period Ended
June 30 July 1
(in thousands, except per share data) 1995 1994
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<S> <C> <C>
Net revenues $138,025 $106,061
Cost of revenues 56,666 51,173
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Gross profit 81,359 54,888
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Operating expenses:
Research and development 18,227 13,453
Sales and marketing 17,077 13,811
General and administrative 7,142 5,518
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Total operating expenses 42,446 32,782
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Income from operations 38,913 22,106
Interest income, net of interest expense 2,638 1,351
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Income before provision for income taxes 41,551 23,457
Provision for income taxes 10,388 5,865
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Net income $ 31,163 $ 17,592
================================================================================
Net income per share $ .58 $ .33
================================================================================
Weighted average common and common equivalent
shares outstanding 53,942 53,944
================================================================================
</TABLE>
See accompanying notes.
3
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ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
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June 30 March 31
1995 1995*
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 83,937 $ 66,835
Marketable securities 191,690 179,911
Accounts receivable, net 65,804 56,495
Inventories 31,666 31,712
Prepaid expenses and other 13,983 15,519
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Total current assets 387,080 350,472
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Property and equipment, net 69,786 67,863
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Other assets 17,000 17,373
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$473,866 $435,708
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,400 $ 3,400
Accounts payable 16,718 22,008
Accrued liabilities 49,612 31,006
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Total current liabilities 69,730 56,414
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Long-term debt, net of current portion 6,800 7,650
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Shareholders' equity:
Common stock 140,535 140,191
Retained earnings 256,801 231,453
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Total shareholders' equity 397,336 371,644
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$473,866 $435,708
================================================================================
</TABLE>
See accompanying notes.
* Amounts are derived from the March 31, 1995 audited financial statements.
4
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ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Three Month Period Ended
June 30 July 1
(in thousands) 1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,163 $ 17,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,560 3,134
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (9,309) 7,142
Decrease in inventories 46 3,959
Decrease in prepaid expenses 1,536 6,268
Decrease (increase) in other assets 255 (4,349)
Decrease in accounts payable (5,290) (3,048)
Increase in accrued liabilities 18,606 4,762
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NET CASH PROVIDED BY OPERATING ACTIVITIES 40,567 35,460
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,365) (14,075)
Investment in marketable securities, net (11,779) (1,981)
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NET CASH USED FOR INVESTING ACTIVITIES (17,144) (16,056)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,294 1,245
Repurchase of common stock (7,765) (6,886)
Principal payments on debt (850) (850)
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NET CASH USED FOR FINANCING ACTIVITIES (6,321) (6,491)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 17,102 12,913
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 66,835 35,387
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 83,937 $ 48,300
====================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
(unaudited)
1. Basis of Presentation
In the opinion of management, the unaudited condensed consolidated
financial statements included herein have been prepared on the same basis
as the March 31, 1995 audited consolidated financial statements and
include all adjustments, consisting of only normal recurring adjustments,
necessary to fairly state the information set forth herein. Certain prior
year amounts have been reclassified to conform to the current year
presentation. The results of operations for the three month period ended
June 30, 1995 are not necessarily indicative of the results to be
expected for the entire year.
2. Supplemental Disclosures of Cash Flows
Cash paid for interest and income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Three Month Period Ended
---------------------------
June 30 July 1
1995 1994
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<S> <C> <C>
Interest $212 $327
Income taxes $459 $ 83
</TABLE>
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory are (in thousands):
<TABLE>
<CAPTION>
June 30 March 31
1995 1995
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<S> <C> <C>
Raw materials $15,600 $12,230
Work in process 5,108 5,839
Finished goods 10,958 13,643
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$31,666 $31,712
======= =======
</TABLE>
4. Net Income Per Share
Net income per share for the three month periods ended June 30, 1995 and
July 1, 1994, is computed under the treasury stock method using the
weighted average number of common and common equivalent shares from
dilutive stock options outstanding during the respective periods.
6
<PAGE> 7
5. Income Taxes
For the three month periods ended June 30, 1995 and July 1, 1994, the
Company's effective tax rate differed from the federal statutory rate
primarily due to income earned in Singapore where the Company is not
currently subject to income tax. The Company's pioneer status in
Singapore expires in the current fiscal year. The Company is currently
pursuing an extension of its pioneer status with the Singapore
government.
6. Stock Repurchase Program
During the three month period ended June 30, 1995, the Company
repurchased 260,000 shares at an aggregate cost of $7.8 million. As of
June 30, 1995, 1.7 million shares remained available for repurchase under
the stock repurchase program.
7. Legal Matters
A consolidated class action lawsuit, Tolan, et al v. Adler, et al,
-----------------------------
alleging federal securities law violations and negligent
misrepresentation and seeking unspecified monetary damages, was filed in
the San Jose Division of the United States District Court, Northern
District of California on February 21, 1991. The action was settled by
letter agreement on July 29, 1993. The Company made all payments required
under the terms of the letter agreement. This action was settled and
dismissed pursuant to the Court's Final Judgment and Order of Dismissal
on May 15, 1995.
8. Subsequent Events
Subsequent to June 30, 1995, the Company entered into the following
transactions:
On July 5, 1995, the Company acquired all of the outstanding capital
stock of Trillium Research, Incorporated, a Macintosh developer of RAID
software for $3 million in cash.
On July 13, 1995, the Company acquired all of the outstanding capital
stock of Future Domain Corporation for $25 million in cash. Future Domain
is a privately held company that designs, manufactures and markets
desktop I/O products.
On July 26, 1995, the Company agreed to acquire all of the outstanding
capital stock of Incat Systems Software USA, Incorporated (Incat) for
385,078 shares of the Company's common stock and future financial
consideration contingent upon certain performance criteria. The effective
date and closing date of this transaction currently has not been
determined. Incat develops and markets application and I/O software for
recordable CD peripherals.
These acquisitions will be recorded using the purchase method of
accounting. Accordingly, the purchase price for each acquisition will be
allocated to the acquired assets and assumed liabilities based on their
estimated fair values as of the date of each respective acquisition. The
Company, with the assistance of independent appraisers, is in the process
of determining the fair value of the assets and liabilities related to
each acquisition. The Company believes a portion of the purchase price
for each acquisition will be assigned to in-process research and
development which will be written off in the second quarter of fiscal
1996. Also, the Company believes a portion of the purchase price may be
allocated to goodwill which would be amortized over the corresponding
benefit period. The interim financial statements as of June 30, 1995 and
for the three month period then ended do not include the effects of these
transactions.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the items in the condensed consolidated
statements of operations as a percentage of net revenues:
<TABLE>
<CAPTION>
Three Month Period Ended
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June 30 July 1
1995 1994
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<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of revenues 41.1 48.3
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Gross profit 58.9 51.7
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Operating expenses:
Research and development 13.2 12.7
Sales and marketing 12.3 13.0
General and administrative 5.2 5.2
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30.7 30.9
----- -----
Income from operations 28.2 20.8
Interest income, net 1.9 1.3
----- -----
Income before provision for
income taxes 30.1 22.1
Provision for income taxes 7.5 5.5
----- -----
Net income 22.6% 16.6%
===== =====
</TABLE>
Net Revenues
Net revenues increased 30% to $138 million in the first quarter of fiscal 1996
from $106 million in the first quarter of fiscal 1995. This growth was primarily
attributable to increased shipments of the Company's host adapters which
increased 58% compared to the same period a year ago. This increase reflects
growth in the high-performance microcomputer markets, an increase in the use of
diverse peripherals in microcomputer systems, and the Company's favorable
position in both OEM and distributor channels. Although shipments of the
Company's integrated circuits (ICs) increased from the fourth quarter of fiscal
1995, such shipments decreased compared to the first quarter of fiscal 1995.
8
<PAGE> 9
Gross Profit
Gross margin for the first quarter of fiscal 1996 increased to 59% compared to
52% in the same period of fiscal 1995. Gross margin was favorably affected
primarily by the mix of products shipped, which included a greater percentage of
host adapter shipments. The Company also continued to experience component cost
reductions through its continued global contract pricing efforts. Additionally,
the Company enjoyed benefits from improved product designs that contributed to
the increased gross margin. The Company's ability to maintain current gross
margin can be significantly affected by factors such as the mix of products
shipped, competitive price pressures, the timeliness of volume shipments of new
products and the Company's ability to achieve manufacturing cost reductions.
Operating Expenses
Expenditures for research and development as a percentage of net revenues were
13% for the first quarter in both fiscal 1996 and fiscal 1995. Actual spending
for research and development increased 35% to $18 million in the first quarter
of fiscal 1996 from $13 million in the same period a year ago. This increase is
a result of the Company's continued investment in its core SCSI business
together with its ongoing commitment to the development of new technologies
including ATM, RAID, Serial I/O, and infrared. The Company anticipates that
research and development expenses will continue to increase in absolute dollar
amounts for the remainder of fiscal 1996 as a result of its investment in these
and various future technologies.
Sales and marketing expenses as a percentage of net revenues were 12% in the
first quarter of fiscal 1996 decreasing slightly compared to the same period a
year ago. Actual spending for sales and marketing increased 24% to $17 million
in the first quarter of fiscal 1996 from $14 million in the corresponding period
in fiscal 1995. This spending increase was mainly due to increased staffing
levels and increased advertising and promotional activities. The Company
anticipates that sales and marketing expenses will increase in absolute dollar
amounts for the remainder of fiscal 1996 due to increased staffing levels and
various advertising and promotional programs aimed at introducing new
technologies and generating demand for the Company's products in the
microcomputer and file server markets.
General and administrative expenses remained consistent as a percentage of net
revenues at 5% in the first quarter in both fiscal 1996 and 1995. Actual
spending increased compared to the respective period in fiscal 1995 primarily
due to costs associated with increased staffing levels to support the Company's
growth.
Interest and Income Taxes
Interest income, net of interest expense, in the first quarter of fiscal 1996
was $2.6 million representing a 95% increase compared to the respective period
in the prior year. This increase is mainly a result of increased average
investment balances. The Company's effective tax rate was 25% in the first
quarter for both fiscal years.
As discussed under Note 8 of the Notes to Condensed Consolidated Financial
Statements in this report, in July 1995 the Company acquired Trillium Research,
Incorporated for $3 million in cash and Future Domain Corporation for $25
million in cash. Also, in July 1995, the Company signed an agreement to acquire
Incat Systems Software USA, Incorporated for 385,078 shares of the Company's
common stock and future financial consideration contingent upon certain
performance criteria. The Company currently expects that this acquisition will
be completed in the quarter ending September 29, 1995.
9
<PAGE> 10
These acquisitions will be accounted for using the purchase method of
accounting. The Company, with the assistance of independent appraisers, is in
the process of determining the fair value of assets and liabilities related to
each acquisition. The Company believes a portion of the purchase price for each
acquisition will be assigned to in-process research and development which will
be written off in the second quarter of fiscal 1996. Also, the Company believes
a portion of the purchase price may be allocated to goodwill and amortized over
the corresponding benefit period.
The Company's results of operations may be affected in the future by a variety
of factors, including changes in product mix, competitive pricing pressures,
fluctuations in manufacturing yields, availability of components, changes in
product costs, timing of new product introductions and market demand for these
products, cancellation or rescheduling of orders by its customers, and the
accounting effect of acquisitions of other companies or businesses that the
Company may make from time to time. In addition, the Company's results from
operations could be affected by international and domestic economic conditions
and technology changes in the markets in which it competes. The effect of
inflation on the Company's results of operations has not been material in the
period discussed.
Liquidity and Capital Resources
Operating Activities
Net cash generated by operations for the first quarter of fiscal 1996 was $41
million compared with $35 million for the corresponding quarter of fiscal 1995.
During the first quarter of fiscal 1996 the majority of funds generated from
operations consisted of $31 million of net income adjusted by non-cash items
including depreciation and amortization of $4 million. An increase in accrued
liabilities totaling $19 million also contributed to favorable cash flows. The
majority of the increase was due to the timing of income tax payments. Primarily
offsetting these increases in cash flows was an increase in accounts receivable
of $9 million, mainly resulting from an increase in revenue. Additionally
accounts payable decreased by $5 million primarily related to the timing of
vendor payments.
During the corresponding period of fiscal 1995, the majority of funds generated
from operations resulted from $18 million of net income and decreases in
accounts receivable, inventories, and prepaid expenses totaling $17 million.
Investing Activities
During the first quarter of fiscal 1996 the Company continued to invest in the
purchase of equipment for product development, IC testing and board level
production. The Company also invested in leasehold improvements to facilitate
its continuing growth in the current fiscal year. In the first quarter of fiscal
year 1995, the Company purchased various buildings and land for $8 million. In
fiscal 1996, the Company also continued to invest proceeds from operating
activities in marketable securities consisting mainly of various U.S. government
and municipal securities.
10
<PAGE> 11
Financing Activities
During the first quarter of fiscal 1996 and fiscal 1995, the Company received
proceeds from common stock issued under the employee stock option and employee
stock purchase plans totaling $2.3 million and $1.2 million, respectively.
Repurchases of common stock made by the Company during the same periods totaled
$7.8 million and $6.9 million, respectively.
The Company anticipates that capital expenditures for the remainder of fiscal
1996 will be approximately $25 million. The funds for these expenditures are
expected to be generated from operations as well as working capital presently on
hand. The Company may also require additional funds for increased manufacturing
capacity, technology investments, or acquisitions of complementary businesses,
products or technologies. The Company believes that existing working capital,
together with expected cash flows from operations and available sources of bank
and equipment financing, will be sufficient to support the Company's anticipated
operations at least through fiscal 1996.
11
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter.
12
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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.
ADAPTEC, INC.
---------------------------------------
Registrant
/s/ Paul G. Hansen
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Paul G. Hansen, Vice-President, Finance
and Chief Financial Officer
(Principal Financial Officer),
Assistant Secretary
Date: 8/4/95
------
/s/ Andrew J. Brown
---------------------------------------
Andrew J. Brown, Corporate Controller
(Principal Accounting Office)
Date: 8/4/95
------
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 83,937
<SECURITIES> 191,690
<RECEIVABLES> 70,234
<ALLOWANCES> 4,430
<INVENTORY> 31,666
<CURRENT-ASSETS> 387,080
<PP&E> 100,395
<DEPRECIATION> 30,609
<TOTAL-ASSETS> 473,866
<CURRENT-LIABILITIES> 69,730
<BONDS> 6,800
<COMMON> 140,535
0
0
<OTHER-SE> 256,801
<TOTAL-LIABILITY-AND-EQUITY> 473,866
<SALES> 138,025
<TOTAL-REVENUES> 138,025
<CGS> 56,666
<TOTAL-COSTS> 56,666
<OTHER-EXPENSES> 42,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224
<INCOME-PRETAX> 41,551
<INCOME-TAX> 10,388
<INCOME-CONTINUING> 31,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,163
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
