<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
(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, 1998 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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-2748530
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 945-8600
N/A
(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 the Company's common stock as of August 6,
1998 was 113,591,756.
This document consists of 21 pages, excluding exhibits, of which this is page 1.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <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........ 6-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Results of Operations....................................... 14-16
Liquidity and Capital Resources............................. 16-17
Recent Accounting Pronouncements............................ 17
Year 2000................................................... 18
Factors Affecting Future Operating Results.................. 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 20
Signatures........................................................... 21
</TABLE>
2
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
--------------------------------
(RESTATED:
NOTES 1 AND 9)
JUNE 30, JUNE 30,
1998 1997
----------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net revenues................................................ $180,630 $271,442
Cost of revenues............................................ 79,738 107,494
-------- --------
Gross profit................................................ 100,892 163,948
-------- --------
Operating expenses:
Research and development.................................. 43,997 38,982
Sales, marketing and administrative....................... 49,825 49,279
Write-off of acquired in-process technology............... 45,482 --
Restructuring and other charges........................... 30,263 --
-------- --------
Total operating expenses.................................... 169,567 88,261
-------- --------
Income (loss) from operations............................... (68,675) 75,687
Interest income............................................. 9,133 6,958
Interest expense............................................ (3,067) (3,060)
-------- --------
Income (loss) before provision (benefit) for income taxes... (62,609) 79,585
Provision (benefit) for income taxes........................ (3,860) 19,896
-------- --------
Net income (loss)........................................... $(58,749) $ 59,689
======== ========
Net income (loss) per common share:
Basic..................................................... $ (0.51) $ 0.53
-------- --------
Diluted................................................... $ (0.51) $ 0.51
-------- --------
Shares used in computing net income (loss) per share:
Basic..................................................... 114,200 112,008
-------- --------
Diluted................................................... 114,200 122,181
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(RESTATED: (RESTATED:
NOTES 1 AND 9) NOTE 1)
JUNE 30, MARCH 31,
1998 1998
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 403,187 $ 227,183
Marketable securities..................................... 278,332 470,199
Accounts receivable, net.................................. 116,679 136,476
Inventories............................................... 57,148 71,297
Prepaid expenses and other................................ 81,824 85,939
---------- ----------
Total current assets.............................. 937,170 991,094
Property and equipment, net................................. 200,946 194,798
Other assets................................................ 115,707 89,337
---------- ----------
$1,253,823 $1,275,229
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 4,700 $ --
Current portion of long-term debt......................... -- 850
Note payable.............................................. -- 17,640
Accounts payable.......................................... 30,768 48,047
Accrued liabilities....................................... 84,691 73,947
---------- ----------
Total current liabilities......................... 120,159 140,484
---------- ----------
Long-term debt:
Long-term debt, net of current portion.................... 17,640 --
Convertible subordinated notes............................ 230,000 230,000
---------- ----------
Total long-term debt.............................. 247,640 230,000
Contingencies (Note 13)
Stockholders' equity:
Common stock.............................................. 116 114
Additional paid-in capital................................ 335,289 295,263
Retained earnings......................................... 550,619 609,368
---------- ----------
Total stockholders' equity........................ 886,024 904,745
---------- ----------
$1,253,823 $1,275,229
========== ==========
</TABLE>
4
<PAGE> 5
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
--------------------------
(RESTATED:
NOTES 1 AND 9)
JUNE 30, JUNE 30,
1998 1997
-------------- --------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 28,144 $117,176
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of certain net assets in connection with
acquisitions, net......................................... (34,126) --
Investments in property and equipment....................... (14,422) (36,748)
Decreases (increases) in marketable securities, net......... 191,867 (41,878)
-------- --------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES........ 143,319 (78,626)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... 5,391 12,024
Principal payments on debt.................................. (850) (850)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 4,541 11,174
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 176,004 49,724
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 227,183 318,075
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $403,187 $367,799
======== ========
</TABLE>
5
<PAGE> 6
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated interim financial statements have been prepared on a consistent
basis with the March 31, 1998 audited consolidated financial statements and
include all adjustments, consisting of only normal recurring adjustments, except
as described in Notes 8 through 10, necessary to provide a fair statement of the
results for the interim periods presented. These interim financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended March 31, 1998. For presentation purposes, the Company has indicated
its first quarter as having ended on June 30, whereas in fact, the Company's
first quarter of fiscal 1999 ended on July 3, 1998 and its first quarter of
fiscal 1998 ended on July 4, 1997. The results of operations for the three month
period ended June 30, 1998, are not necessarily indicative of the results to be
expected for the entire year.
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the current presentation.
2. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement has no impact on the
Company's net income (loss) or stockholders' equity. SFAS 130 requires
components of comprehensive income, including unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, to be reported in the financial statements. These amounts are not
material to the Company's financial statements for the periods presented.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information". This statement establishes standards
for the way companies report information about operating segments in their
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
disclosures prescribed by SFAS 131 were adopted in the Company's fiscal 1999
Annual Report on Form 10-K.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires recognition of all derivatives as assets or liabilities and measurement
of those instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 2000. The Company will adopt this statement in the
first quarter of fiscal 2001 but does not expect the adoption of SFAS 133 to
have a material impact on the Company's financial position, results of
operations or cash flows.
6
<PAGE> 7
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
-------- ---------
<S> <C> <C>
Raw materials............................................... $12,521 $17,728
Work in process............................................. 10,298 18,415
Finished goods.............................................. 34,329 35,154
------- -------
$57,148 $71,297
======= =======
</TABLE>
5. LINES OF CREDIT
In May, 1998, the Company assumed a $6.8 million unsecured revolving line
of credit in conjunction with the purchase of Ridge Technologies, Inc. ("Ridge")
(Note 9). The Company is required to maintain certain financial ratios among
other restrictive covenants. The Company was in compliance with all such
covenants as of June 30, 1998. As of June 30, 1998, $4.7 million was drawn
against the line. The Company intends to pay down and terminate the line of
credit in the second quarter of fiscal 1999.
The Company had available an unsecured $17.0 million revolving line of
credit that was to expire on December 31, 1998. No borrowings were outstanding
under this line of credit as of March 31, 1998, and no borrowings were made
during the first quarter of fiscal 1999. In June 1998, the Company terminated
this line of credit.
6. LONG-TERM DEBT
In June 1992, the Company entered into a $17.0 million term loan agreement
bearing interest at 7.65%, with principal and interest payable in quarterly
installments of $850,000. In the first quarter of fiscal 1999, the Company paid
the remaining outstanding principal and interest due on the loan.
7. TAIWAN SEMICONDUCTOR MANUFACTURING AGREEMENTS
In each of fiscal years 1996 through 1998, the Company entered into
agreements with Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC"), including
Option I, Option II and Option III Agreements, which provide the Company with
guaranteed capacity for wafer fabrication in exchange for advance payments by
the Company. The Company records the prepayments as either prepaid expenses or
other assets based upon the amount expected to be utilized in the next 12
months. As wafers are received from TSMC, the prepaid expenses balance is
reclassified to inventory.
During fiscal 1998, the Company entered into the Option III agreement with
TSMC which provided the Company with a guarantee of increased capacity for wafer
fabrication in return for advance payments totaling $35.3 million. The Company
signed a non-interest bearing promissory note for the $35.3 million which became
due in two equal installments. The first installment was paid in January 1998.
In the first quarter of fiscal 1999, the Company and TSMC amended the promissory
note to extend, indefinitely, the second installment which was originally due in
June 1998. Management does not anticipate paying the second installment within
one year, therefore, the note payable has been reclassified as long-term debt as
of June 30, 1998.
7
<PAGE> 8
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STATEMENT OF OPERATIONS
Restructuring and other charges includes (in thousands):
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED
JUNE 30, 1998
------------------
<S> <C>
Acquisition related costs (Note 9).......................... $21,463
Restructuring charges (Note 10)............................. 8,800
-------
Total....................................................... $30,263
=======
</TABLE>
9. RELATED PARTY TRANSACTIONS AND BUSINESS COMBINATIONS
In April 1998, the Company purchased read channel and preamplifier ASIC
technologies ("ASIC technologies") from Analog Devices, Inc. ("ADI") for $34.4
million in cash. Grant Saviers, former Chairman and CEO of the Company, is a
director of ADI. Additionally, in May 1998, the Company purchased Ridge for 1.2
million shares of the Company's common stock valued at $21.2 million and assumed
stock options valued at $13.1 million. Prior to the acquisition, the Company
owned a 19.9% interest in Ridge with a carrying value of approximately $1.5
million. The $1.5 million carrying value is net of an approximate $3.5 million
write-down of the investment balance taken in the third quarter of fiscal 1998
for an identified impairment. Grant Saviers, former Chairman and CEO of the
Company, was a director of Ridge. The Company accounted for both acquisitions
using the purchase method of accounting. Additionally, the Company incurred $1.2
million in professional fees, including finance, accounting, legal and appraisal
fees, related to the acquisitions, which were capitalized as part of the
purchase price of the transactions.
As previously reported in the Company's Report on Form 10-Q for the quarter
ended June 30, 1998, the purchase of Ridge and the acquisition of ASIC
technologies from ADI, resulted in a first quarter write-off of acquired
in-process technology charge of $39.4 million and $26.4 million, respectively.
In the fourth quarter of fiscal 1999, the Company reduced its estimate of the
amount allocated to acquired in-process technology from the purchase of ASIC
technologies from ADI by $20.3 million from $26.4 million previously reported to
$6.1 million. Amortization of intangibles increased approximately $1.7 million
in the first quarter of fiscal 1999 from $2.8 million to $4.5 million. Basic and
diluted net loss per share for the first quarter of fiscal 1999 was impacted by
the restatement as follows:
<TABLE>
<CAPTION>
PRIOR TO SUBSEQUENT TO
FISCAL 1999 RESTATEMENT RESTATEMENT
- ----------- ----------- -------------
<S> <C> <C>
First quarter:
Basic.................................................... $(0.68) $(0.51)
Diluted.................................................. $(0.68) $(0.51)
</TABLE>
The Company allocated amounts to acquired in-process technology in the
first quarter of fiscal 1999 in a manner consistent with widely recognized
appraisal practices at the date of the acquisition of ASIC technologies from
ADI. Subsequent to the acquisition, the Securities and Exchange Commission
("SEC") staff expressed views that took issue with certain appraisal practices
generally employed in determining the fair value of the acquired in-process
technology that was the basis for the Company's measurement of the acquired
in-process technology charge. The charge of $26.4 million associated with ASIC
technologies purchased from ADI, as first reported, was based upon assumptions
and appraisal methodologies the SEC has since announced it does not consider
appropriate.
As a result of computing the acquired in-process technology using the SEC
preferred methodology, the Company decided to revise the amount originally
allocated to acquired in-process technology relating to the acquisition of ASIC
technologies from ADI in this Report on Form 10-Q/A for the first quarter ended
8
<PAGE> 9
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1998. The Company has also revised its results of operations in its
Reports on Form 10-Q for the second and third quarters of fiscal 1999, ended
September 30, 1998 and December 31, 1998, respectively, previously filed with
the SEC.
The $6.1 million allocation of the purchase price to acquired in-process
technology from ASIC technologies purchased from ADI was determined by
identifying research projects, including read channel and preamplifier ASIC
technologies, in areas for which technological feasibility had not been
established and no alternative future uses existed. The value was determined by
estimating the expected cash flows from the projects once commercially viable,
discounting the net cash flows back to their present value and then applying a
percentage of completion to the calculated value as defined below.
Net cash flows. The net cash flows from the identified projects were based
on estimates of revenues, cost of sales, research and development costs,
selling, general and administrative costs, royalty costs and income taxes from
those projects. These estimates were based on the assumptions mentioned below.
The research and development costs included in the model reflect costs to
complete development of technologies acquired and sustain projects, but excluded
costs to bring acquired in-process projects to technological feasibility.
The estimated revenues were based on management projections of the acquired
in-process projects for read channel and preamplifier ASIC products and the
business projections were compared and found to be in line with industry
analysts' forecasts of growth in substantially all of the relevant markets.
Estimated total revenues from the majority of the acquired in-process technology
product areas were expected to peak in fiscal 2001 and decline from 2002 into
2003 as other new products are expected to become available. These projections
were based on estimates of market size and growth, expected trends in
technology, and the nature and expected timing of new product introductions by
the Company and its competitors.
Projected gross margins were based on management's estimates and are in
line with the Company's business which acquired ASIC technologies from ADI. The
estimated selling, general and administrative costs were in line with comparable
company averages within the industry at approximately 14% of revenues. Research
and development costs were consistent with ADI's historical cost structure.
Discount rate. Discounting the net cash flows back to their present value
was based on cost of capital for start up companies and well managed venture
capital funds which typically have similar risks and returns on investments. The
cost of capital used in discounting the net cash flows from acquired in-process
technology was 25%. Higher required rates of return which would correspond to
higher risk may be somewhat mitigated by the Company's expertise in the disk
drive market.
Percentage of completion. The percentage of completion for the projects
was determined using costs incurred by ADI prior to the acquisitions to date
compared to the remaining research and development to be completed to bring the
projects to technological feasibility. The Company estimates, as of the
acquisition date, the projects in aggregate were approximately 71% complete and
the aggregate costs to complete are $11.0 million ($8.0 million in fiscal 1999
and $3.0 million in fiscal 2000). Substantially all of the acquired in-process
technology projects were expected to be completed and generating revenues within
two years following the acquisition date.
The Company and its advisors believe that the restated acquired in-process
technology charge relating to ASIC technologies purchased from ADI of $6.1
million is valued consistently with the SEC staff's current views regarding
valuation methodologies. There can be no assurances, however, that the SEC staff
will not take issue with any assumptions used in the Company's valuation model
and require the Company to further revise the amount allocated to acquired
in-process technology.
The Company accounted for its acquisitions in Ridge and ASIC technologies
purchased from ADI using the purchase method of accounting. Excluding the $45.5
million write-off of acquired in-process technology,
9
<PAGE> 10
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as restated, the aggregate impact of the acquisitions was not material to the
Company's financial position and results of operations from the acquisition
date.
The allocation of the Company's aggregate purchase price to the tangible
and identifiable intangible net assets acquired and liabilities assumed is
summarized below. The allocations were based on independent appraisals and
estimates of fair values (in thousands):
<TABLE>
<S> <C>
Net tangible liabilities.................................... $(2,752)
In-process technology....................................... 45,482
Goodwill and other intangible assets:
Goodwill.................................................. 25,078
Covenant not to compete................................... 2,200
Acquired employees........................................ 1,375
-------
28,653
-------
Net assets acquired......................................... $71,383
=======
</TABLE>
The tangible liabilities assumed exceeded the tangible assets acquired,
which comprised primarily a line of credit (Note 5), accounts payable and fixed
assets. Acquired in-process technology was written-off in the period in which
the acquisitions were completed, and the goodwill and other intangible assets
are being amortized over respective benefit periods ranging from two to three
years.
In February 1998, the Company entered into an agreement to purchase all of
the outstanding stock of Symbios, Inc., a wholly-owned subsidiary of Hyundai
Electronics America ("HEA"). In June 1998, the Company and HEA mutually agreed
to terminate the agreement. The Company paid a $7.0 million termination fee and
approximately $6.7 million in nonconsummation fees to HEA. Additionally, the
Company incurred approximately $7.8 million in other acquisition related
charges, including legal, consulting and other costs. In the first quarter of
fiscal 1999, the $21.5 million in fees associated with this terminated
acquisition were expensed and are included in "Restructuring and other charges"
in the Condensed Consolidated Statements of Operations.
During fiscal 1998, the Company purchased $1.0 million in preferred stock,
and entered into a development and license agreement with a venture stage
company whose founder and CEO, Larry Boucher, is a director of the Company and
who recently was appointed interim CEO of the Company, following the resignation
of Grant Saviers. Two other directors of the Company are also directors of the
venture stage company.
10. RESTRUCTURING
In the first quarter of fiscal 1999, in connection with management's plan
to reduce costs and improve operating efficiencies, the Company recorded a
restructuring charge of $8.8 million. The restructuring charge was comprised
primarily of severance and benefits related to the involuntary termination of
approximately 550 employees, of which approximately 36% were based in the United
States and the remainder were based in Singapore.
10
<PAGE> 11
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth an analysis of the components of the
restructuring charges recorded in the first quarter of fiscal 1999 (in
thousands):
<TABLE>
<CAPTION>
SEVERANCE
AND ASSET OTHER
RESTRUCTURING CHARGES BENEFITS WRITE-OFFS CHARGES TOTAL
--------------------- --------- ---------- ------- ------
<S> <C> <C> <C> <C>
Severance and benefits....................... $6,800 $ -- $ -- $6,800
Property and equipment write-offs............ -- 950 -- 950
Other charges................................ -- -- 1,050 1,050
------ ---- ------ ------
TOTAL JUNE 30, 1998.......................... $6,800 $950 $1,050 $8,800
====== ==== ====== ======
</TABLE>
The following table sets forth the Company's restructuring reserves as of
June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
SEVERANCE
AND ASSET OTHER
RESTRUCTURING RESERVES BENEFITS WRITE-OFFS CHARGES TOTAL
---------------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C>
Restructuring charges....................... $ 6,800 $ 950 $1,050 $ 8,800
Cash paid................................... (3,244) -- -- (3,244)
Non-cash charges............................ (296) (950) -- (1,246)
------- ----- ------ -------
BALANCE AT JUNE 30, 1998.................... $ 3,260 $ -- $1,050 $ 4,310
======= ===== ====== =======
</TABLE>
The Company anticipates the remaining reserve balance of $4.3 million at
June 30, 1998, will be substantially paid out by December 31, 1998.
11. NET INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share," in the third quarter of fiscal 1998. It
replaces the presentation of primary net income (loss) per share with a
presentation of basic net income (loss) per share. It also requires dual
presentation of basic and diluted net income (loss) per share on the face of the
financial statements for all entities with complex capital structures.
Basic net income (loss) per share is computed by dividing net income (loss)
available to common stockholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period and excludes the
dilutive effect of stock options. Diluted net income (loss) per share gives
effect to all dilutive potential common shares outstanding during the period. In
computing diluted net income (loss) per share, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options under the treasury stock method. All prior period
net income (loss) per share amounts have been presented to conform to the
provisions of this statement.
11
<PAGE> 12
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations assuming the standard
was applied during all periods presented below.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED THREE MONTH PERIOD ENDED
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BASIC INCOME (LOSS) PER
SHARE
Net income (loss)
available to common
stockholders............ $(58,749) 114,200 $(0.51) $59,689 112,008 $0.53
====== =====
EFFECT OF DILUTIVE
SECURITIES
Common stock
equivalents............. -- -- -- 5,721
4 3/4% Convertible
Subordinated Notes...... -- -- 2,133 4,452
-------- ------- ------- -------
DILUTED INCOME (LOSS) PER
SHARE
Net income (loss)
available to common
stockholders and assumed
conversions............. $(58,749) 114,200 $(0.51) $61,822 122,181 $0.51
======== ======= ====== ======= ======= =====
</TABLE>
The basic and diluted weighted average common shares outstanding for the
three month period ended June 30, 1998 excludes 1,242,000 restricted shares
issued in conjunction with the acquisition of Ridge (Note 9).
At June 30, 1998, options to purchase 17,965,000 shares of common stock
were outstanding, however, the stock options and the 4 3/4% Convertible
Subordinated Notes were not included in the computations of diluted weighted
average common shares outstanding for the first quarter of fiscal 1999 because
they were anti-dilutive.
At June 30, 1997, additional options to purchase 615,000 shares of common
stock were outstanding but were not included in the computations of diluted net
income per share because the options' exercise price was greater than the
average market price of the common shares during the quarter.
12. INCOME TAXES
Income tax provisions (benefits) for interim periods are based on estimated
annual income tax rates. Generally, the Company's effective income tax rate has
been 25%. The difference between the Company's effective income tax rate and the
U.S. federal statutory income tax rate is primarily due to income earned in
Singapore where the Company is subject to a significantly lower effective tax
rate. The effective tax rate used to calculate the income tax benefit for the
period presented is lower than 25% primarily because of book write-offs relating
to acquired in-process technology which are not deductible for tax purposes.
13. CONTINGENCIES
A class action lawsuit has been filed in the United States District Court
for the Northern District of California against the Company and certain of its
officers and directors. The actions all allege that the Company made false and
misleading statements at various times during the period between April 1997 and
January 1998 in violation of the federal securities laws. The complaint does not
set forth purported damages. In addition, a derivative action has been filed in
the Superior Court of the State of California against the Company and certain of
its officers and directors, alleging that the individual defendants improperly
profited from transactions in the Company's stock during the same time period
referenced by the class action lawsuit.
12
<PAGE> 13
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes the lawsuit and derivative action are without merit and
intends to defend itself vigorously.
The IRS is currently auditing the Company's federal income tax returns for
fiscal 1994 to 1996. No proposed adjustments have been received for these years.
The Company believes sufficient taxes have been provided and that the ultimate
outcome of the IRS audits will not have a material adverse impact on the
Company's financial position or results of operations.
14. SUBSEQUENT EVENTS
On July 30, 1998, Grant Saviers, Chairman of the Board of Directors
("Board") and CEO, resigned. The Board appointed Company founder and Board
member, Larry Boucher, as interim CEO. The Company has initiated a search for a
permanent CEO. In addition, John Adler, former Adaptec Chairman and CEO, has
been named to the Board.
On January 20, 1998, the Company's Board approved a stock repurchase
program under which the Company is authorized to purchase up to 10 million
shares of its common stock from time to time in the open market. In July 1998,
the Company reinstated this stock repurchase program, which was suspended during
the period of the now terminated Symbios acquisition.
13
<PAGE> 14
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
--------------------
JUNE 30, JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
Net revenues................................................ 100.0% 100.0%
Cost of revenues............................................ 44.1 39.6
----- -----
Gross margin................................................ 55.9 60.4
----- -----
Operating expenses:
Research and development.................................. 24.4 14.4
Sales, marketing and administrative....................... 27.6 18.1
Write-off of acquired in-process technology............... 25.2 --
Restructuring and other charges........................... 16.7 --
----- -----
Total operating expenses.................................. 93.9 32.5
----- -----
Income (loss) from operations............................... (38.0) 27.9
Interest income............................................. 5.1 2.5
Interest expense............................................ (1.7) (1.1)
----- -----
Income (loss) before provision (benefit) for income taxes... (34.6) 29.3
Provision (benefit) for income taxes........................ (2.1) 7.3
----- -----
Net income (loss)........................................... (32.5)% 22.0%
===== =====
</TABLE>
SEC Comment Letter. On June 8, 1999, the Company received a comment letter
from the Securities and Exchange Commission ("SEC") relating to certain previous
1934 Act filings with the SEC, primarily comments about disclosure in the
Company's Management's Discussion and Analysis and Notes to Consolidated
Financial Statements. The Company had addressed the comments in its response to
the SEC dated June 16, 1999 and has incorporated such comments into its
disclosures in this Report on Form 10-Q/A for the quarter ended June 30, 1998 to
the extent practicable. However, there can be no assurance that the SEC will not
take exception with the Company's responses and disclosures and require that the
Company file additional responses and disclosures in its periodic reports.
Net Revenues. Net revenues were $180.6 million for the first quarter of
fiscal 1999 compared with $271.4 million for the corresponding quarter of fiscal
1998. The decrease was primarily due to the lower sales of the Company's SCSI
host adapters and peripheral technology solutions. The demand for SCSI and
peripheral technologies continues to be impacted by the trend to lower priced
PC's for mainstream corporate desktop applications and the turbulent disk drive
market, respectively.
Gross Margin. Gross margins for the first quarter of fiscal 1999 were 55.9%
compared to 60.4% for the first quarter of fiscal 1998. The decline in gross
margin is primarily due to manufacturing inefficiencies in overhead and labor
variances due to lower production volumes. The gross margin was also adversely
impacted by product mix.
Operating Expenses. As a percentage of net revenues, expenditures for
research and development increased to 24.4% for the first quarter of fiscal 1999
compared to 14.4% for the corresponding period of fiscal 1998. The increase as a
percentage of revenues is a direct result of the decline in net revenues. In
absolute dollars, spending for research and development increased 12.9% to $44.0
million for the first quarter of fiscal 1999. The total dollar increase in
spending is primarily due to the Company's acquisition of Ridge Technologies,
Inc. ("Ridge") and read channel and preamplifier ASIC technologies ("ASIC
technologies") purchased from Analog Devices, Inc. ("ADI").
14
<PAGE> 15
As a percentage of revenues, selling, marketing and administrative expenses
were 27.6% of net revenues for the first quarter of fiscal 1999 compared with
18.1% for the corresponding period of fiscal 1998. In absolute dollars, spending
for selling, marketing and administrative expenses increased 1.1% to $49.8
million for the first quarter of fiscal 1999. The increase as a percentage of
net revenues is attributable to the decline in net revenues, while the decrease
in total dollars is a result of both headcount and program reductions associated
with restructuring activities.
Write-off of In-process Technology. During the first quarter of fiscal
1999, the Company purchased complementary businesses recorded under the purchase
method of accounting, resulting in an aggregate write-off of acquired in-process
technology of $45.5 million.
As previously reported, the Company purchased Ridge and acquired the ASIC
technologies from ADI, which resulted in a first quarter write-off of acquired
in-process technology charge of $39.4 million and $26.4 million, respectively.
In the fourth quarter of fiscal 1999, the Company reduced its estimate of the
amount allocated to acquired in-process technology from the purchase of ASIC
technologies from ADI by $20.3 million from $26.4 million as previously reported
in the first quarter of fiscal 1999 to $6.1 million. Amortization of intangibles
increased approximately $1.7 million in the first quarter of fiscal 1999 from
$2.8 million to $4.5 million and is included in "Sales, marketing and
administrative" expenses in the Condensed Consolidated Statements of Operations.
Basic and diluted net loss per share for the first quarter of fiscal 1999 was
impacted by the restatement as follows:
<TABLE>
<CAPTION>
PRIOR TO SUBSEQUENT TO
FISCAL 1999 RESTATEMENT RESTATEMENT
- ----------- ----------- -------------
<S> <C> <C>
First quarter:
Basic.................................................... $(0.68) $(0.51)
Diluted.................................................. $(0.68) $(0.51)
</TABLE>
The Company allocated amounts to acquired in-process technology in the
first quarter of fiscal 1999 in a manner consistent with widely recognized
appraisal practices at the date of the acquisition of the ASIC technologies from
ADI. Subsequent to the acquisition, the SEC staff expressed views that took
issue with certain appraisal practices generally employed in determining the
fair value of the acquired in-process technology that was the basis for the
Company's measurement of the acquired in-process technology charge. The charge
of $26.4 million associated with ASIC technologies purchased from ADI, as first
reported, was based upon assumptions and appraisal methodologies the SEC has
since announced it does not consider appropriate.
As a result of computing the acquired in-process technology using the SEC
preferred methodology, the Company decided to revise the amount originally
allocated to acquired in-process technology. The Company has revised its results
of operations for fiscal 1999 in this Report on Form 10-Q/A for the first
quarter of fiscal 1999 and its Reports on Form 10-Q/A for the second and third
quarters of fiscal 1999.
The Company and its advisors believe that the restated acquired in-process
technology charge relating to ASIC technologies purchased from ADI of $6.1
million is valued consistently with the SEC staff's current views regarding
valuation methodologies. There can be no assurances, however, that the SEC staff
will not take issue with any assumptions used in the Company's valuation model
and require the Company to further revise the amount allocated to acquired
in-process technology.
Restructuring and Other Charges. In the first quarter of fiscal 1999, the
Company incurred $8.8 million in restructuring charges and $21.5 million in
acquisition related charges.
In the first quarter of fiscal 1999, in connection with management's plan
to reduce costs and improve operating efficiencies, the Company recorded a
restructuring charge of $8.8 million. The restructuring charges are comprised
primarily of severance and benefits related to the involuntary termination of
approximately 550
15
<PAGE> 16
employees, of which approximately 36% were based in the United States and the
remainder were based in Singapore.
The following table sets forth an analysis of the components of the
restructuring charges recorded in the first quarter of fiscal 1999 (in
thousands):
<TABLE>
<CAPTION>
SEVERANCE
AND ASSET OTHER
RESTRUCTURING CHARGES BENEFITS WRITE-OFFS CHARGES TOTAL
- --------------------- --------- ---------- ------- ------
<S> <C> <C> <C> <C>
Severance and benefits....................... $6,800 $ -- $ -- $6,800
Property and equipment write-offs............ -- 950 -- 950
Other charges................................ -- -- 1,050 1,050
------ ---- ------ ------
TOTAL JUNE 30, 1998.......................... $6,800 $950 $1,050 $8,800
====== ==== ====== ======
</TABLE>
The following table sets forth the Company's restructuring reserves as of
June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
SEVERANCE
AND ASSET OTHER
RESTRUCTURING RESERVES BENEFITS WRITE-OFFS CHARGES TOTAL
- ---------------------- --------- ---------- ------- ------
<S> <C> <C> <C> <C>
Restructuring charges........................ $6,800 $950 $1,050 $8,800
Cash paid.................................... (3,244) -- -- (3,244)
Non-cash charges............................. (296) (950) -- (1,246)
------ ---- ------ ------
BALANCE AT JUNE 30, 1998..................... $3,260 $ -- $1,050 $4,310
====== ==== ====== ======
</TABLE>
In February 1998, the Company entered into an agreement to purchase all of
the outstanding stock of Symbios, Inc., a wholly-owned subsidiary of Hyundai
Electronics America ("HEA"). In June 1998, the Company and HEA mutually agreed
to terminate the agreement. The Company paid a $7.0 million termination fee and
approximately $6.7 million in nonconsummation fees to HEA. Additionally, the
Company incurred approximately $7.8 million in other acquisition related
charges, including legal, consulting and other costs. The $21.5 million in fees
associated with this terminated acquisition were expensed in the first quarter
of fiscal 1999.
Interest and Income Taxes. Interest income, net of interest expense,
increased to $6.1 million for the first quarter of fiscal 1999 compared to $3.9
million in the first quarter of fiscal 1998. The increase is primarily due to
higher average cash and marketable securities balances held in contemplation of
the proposed acquisition of Symbios, Inc.
The Company recorded an income tax benefit of $3.9 million representing
6.2% of income before benefit for income taxes for the first quarter of fiscal
1999 compared with a $19.9 million provision representing 25.0% of income before
provision for income taxes for the corresponding period in fiscal 1998.
Generally, the Company's effective tax rate has been 25%. The difference between
the Company's effective tax rate and the U.S. statutory rate is primarily due to
income earned in Singapore where the Company is subject to a significantly lower
effective tax rate. The effective tax rate used to calculate the income tax
benefit for the first quarter of fiscal 1999 is lower than 25% primarily as a
result of book write-offs of acquired in-process technology which are not
deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash generated from operating activities for the
first three months of fiscal 1999 totaled $28.1 million compared to $117.2
million in the corresponding period of fiscal 1998. The decrease is primarily
attributable to a net loss for the first three months of fiscal 1999 of $58.7
million. The net loss in fiscal 1999 reflects the impact of $75.7 million in
unusual charges including the write-off of acquired in-process technology, costs
related to the termination of the Symbios transaction and restructuring charges.
Investing Activities. During the first quarter of fiscal 1999, the Company
acquired ASIC technologies from ADI for $34.4 million in cash. Additionally, the
Company purchased all outstanding shares of Ridge not
16
<PAGE> 17
owned by it for 2.1 million shares of the Company's common stock valued at $21.2
million and assumed stock options valued at $13.1 million. Prior to the
acquisition, the Company owned a 19.9% interest in Ridge, with a carrying value
of $1.5 million. The $1.5 million carrying value is net of a $3.5 million
write-down of the investment balance taken in the third quarter of fiscal 1998
for an identified impairment. Additionally, the Company incurred approximately
$1.2 million in professional fees related to the acquisitions, which were
capitalized as part of the purchase price of the transactions. Total net assets
acquired in connection with these business combinations was $71.4 million.
Investments in property and equipment of $14.4 million during the first
three months of fiscal 1999 included various building and leasehold improvements
and investments in both test equipment and manufacturing equipment to support
future business requirements.
During the first three months of fiscal 1999, the Company had $191.9
million of cash inflow related to proceeds from sales and maturities of
marketable securities, net of reinvestments.
Financing Activities. During April 1997, the Company entered into an
agreement with TSMC whereby the Company will make advance payments totaling
$35.3 million to secure additional wafer capacity for future technology through
2001. The Company signed a $35.3 million promissory note for the advance
payments, which became due in two equal installments in January 1998 and June
1998. During the first three months of fiscal 1999, the Company and TSMC amended
the promissory note to extend, indefinitely, the second payment of $17.6
million.
During the first three months of fiscal 1999 and fiscal 1998, the Company
received proceeds from common stock issued under the employee stock option and
employee stock purchase plans totaling $5.4 million and $12.0 million,
respectively.
Lines of Credit. In May 1998, the Company assumed a $6.8 million unsecured
revolving line of credit in conjunction with the purchased of Ridge. As of June
30, 1998, $4.7 million was drawn against the line. The Company intends to pay
down and terminate the line of credit in the second quarter of fiscal 1999.
Additionally, in June 1998, the Company terminated its $17.0 million line of
credit.
Liquidity. At June 30, 1998, the Company's principal sources of liquidity
consisted of $681.5 million of cash, cash equivalents and marketable securities
and an unsecured $6.8 million revolving line of credit, of which $4.7 million
was outstanding at June 30, 1998. The Company believes existing working capital,
together with expected cash flows from operations and available sources of bank,
equity and equipment financing, will be sufficient to support its operations
through fiscal 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information". This statement establishes standards
for the way companies report information about operating segments in their
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
disclosures prescribed by SFAS 131 were adopted in the Company's fiscal 1999
Annual Report on Form 10-K.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires recognition of all derivatives as assets or liabilities and measurement
of those instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 2000. The Company will adopt this statement in the
first quarter of fiscal 2001 but does not expect the adoption of SFAS 133 to
have a material impact on the Company's financial position, results of
operations or cash flows.
17
<PAGE> 18
YEAR 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
During fiscal 1998, the Company completed implementation of Enterprise
Resource Planning ("ERP") software to replace the Company's core business
applications, which support sales and customer service, manufacturing,
distribution, and finance and accounting. The ERP software was selected not only
because it was Year 2000 Compliant, but more importantly, to add functionality
and efficiency to the business processes of the Company. The Company completed
Year 2000 testing of the ERP software and is satisfied that it will not present
any Year 2000 Compliance issues.
In the first half of fiscal 1998, the Company also began a project to
analyze and assess the remainder of its business not addressed by the ERP
software such as other computer and network hardware and software, production
process controllers and related manufacturing equipment. Internal and external
resources are being used to complete any required modification and tests for
Year 2000 Compliance. Furthermore, with the replacement or upgrade of its
internal use software, which is primarily commercial off-the-shelf software, and
non-compatible hardware, the Company believes that the Year 2000 Compliance
issue will not pose significant operational problems for the Company or its
customers.
The Company presently believes that its products are Year 2000 Compliant.
The majority of the Company's products are not date sensitive. However, for
those products that are date sensitive, the Company, as a standard part of its
product development cycle, has had procedures, tests, and methodologies that
have been in effect since fiscal 1997 to ensure each product's Year 2000
Compliance readiness.
In addition, the Company has defined its critical suppliers and
communicated with them to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's operations rely will be remediated in a timely manner, or that a
failure to become Year 2000 Compliant by another company, or a conversion that
is incompatible with the Company's systems, would not have a material adverse
effect on the Company.
Our costs to date related to the Year 2000 Compliance issue consist
primarily of reallocation of internal resources to evaluate and assess systems
and products as described above and to plan our testing and remediation efforts.
The total cost to the Company of Year 2000 Compliance activities has not been
and is not anticipated to be material to its financial position or results of
operations in any given year (less than $1.0 million). Such costs exclude costs
to implement the ERP system and the reallocation of internal resources, as these
costs are not considered incremental to the Company. These costs and the date on
which the Company plans to complete the Year 2000 Compliance remediation and
testing processes are based on management's best estimates, which were derived
utilizing various assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.
The Company has developed a contingency plan for some of its applications
and systems to address any of the consequences of internal or external failures
to be Year 2000 Compliant. It is also in the process of creating a contingency
plan for internal and external sources, including key suppliers, which it
expects to complete in the first half of fiscal 2000.
18
<PAGE> 19
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Report on Form 10Q/A may contain forward-looking statements regarding
future events or the future performance of the Company. Actual events or results
could, of course, differ materially. Various factors could adversely affect its
results of operations in the future including its dependence on the high-
performance computer, server and software markets, changes in the product mix,
competitive pricing pressures, changes in technological standards, dependence on
wafer suppliers and other subcontractors, changes in product costs, certain
risks associated with acquisitions of other companies or businesses that the
Company may make from time to time, issues related to distributors, dependence
on key personnel, risks associated with intellectual property or general
economic downturns. For a more complete discussion of these factors, please
refer to the Business section of the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1999, and the Company's other public filings it
makes from time to time.
19
<PAGE> 20
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1* Amendment No. 1 to Option Agreement III between Adaptec
Manufacturing (S) Pte., Ltd. And Taiwan Semiconductor
Manufacturing Co., Ltd.
27.1 Financial Data Schedule for the quarter ended June 30, 1998
</TABLE>
- ---------------
* Previously filed with the Company's Report on Form 10-Q for the quarter ended
June 30, 1998.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
20
<PAGE> 21
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.
<TABLE>
<S> <C>
ADAPTEC, INC.
By: /s/ ANDREW J. BROWN Date: July 9, 1999
- -----------------------------------------------
Andrew J. Brown
Vice President, Finance
Chief Financial Officer
(Principal Financial Officer)
By: /s/ KENNETH B. AROLA Date: July 9, 1999
- -----------------------------------------------
Kenneth B. Arola
Vice President
Controller
(Principal Accounting Officer)
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1* Amendment No. 1 to Option Agreement III between Adaptec
Manufacturing (S) Pte., Ltd. And Taiwan Semiconductor
Manufacturing Co., Ltd.
27.1 Financial Data Schedule for the quarter ended June 30, 1998
</TABLE>
- ---------------
* Previously filed with the Company's Report on Form 10-Q for the quarter ended
June 30, 1998.
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 403,187
<SECURITIES> 278,332
<RECEIVABLES> 120,834
<ALLOWANCES> 4,155
<INVENTORY> 57,148
<CURRENT-ASSETS> 937,170
<PP&E> 292,594
<DEPRECIATION> 91,648
<TOTAL-ASSETS> 1,253,823
<CURRENT-LIABILITIES> 120,159
<BONDS> 247,640
0
0
<COMMON> 116
<OTHER-SE> 885,908
<TOTAL-LIABILITY-AND-EQUITY> 1,253,823
<SALES> 180,630
<TOTAL-REVENUES> 180,630
<CGS> 79,738
<TOTAL-COSTS> 79,738
<OTHER-EXPENSES> 169,567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,067
<INCOME-PRETAX> (62,609)
<INCOME-TAX> (3,860)
<INCOME-CONTINUING> (58,749)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,749)
<EPS-BASIC> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
