<PAGE>
FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1994
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: 0-12046
MICROPOLIS CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-3093858
- - ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21211 Nordhoff Street, Chatsworth, California 91311
- - ------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (818) 709-3300
--------------------------
Not Applicable
- - ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether 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 twelve 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as ofthe latest practicable date.
November 4, 1994: 15,187,040 shares of Common Stock, $1.00 Par Value
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MICROPOLIS CORPORATION
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page Number
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at 2
September 30, 1994 and December 31, 1993
Condensed Consolidated Statements of 3
Operations for the Three Months and Nine
Months Ended September 30, 1994 and
September 24, 1993
Condensed Consolidated Statements of Cash 4
Flows for the Nine Months Ended September 30,
1994 and September 24, 1993
Notes to Condensed Consolidated Financial 5
Statements
Item 2 Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 9
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- - ------
Current assets:
Cash and equivalents and $ 66,570 $ 86,782
short-term investments
Accounts receivable, net 53,741 48,231
Inventories 50,789 59,677
Other current assets 5,459 4,389
-------- --------
Total current assets 176,559 199,079
Property, plant and equipment, at cost,
less accumulated depreciation
and amortization 44,651 48,480
Other assets 1,613 2,870
-------- --------
$222,823 $250,429
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable $ 43,532 $ 36,959
Other accrued liabilities 17,427 17,697
-------- --------
Total current liabilities 60,959 54,656
6% Convertible Subordinated Debentures 75,000 75,000
Deferred income taxes 2,417 2,417
Shareholders' equity:
Preferred stock, $1.00 par value,
2,000,000 shares authorized,
none issued - -
Common stock, $1.00 par value,
50,000,000 shares authorized;
15,181,060 shares issued
and outstanding (14,888,125
in 1993) 15,181 14,888
Additional paid-in capital 108,591 107,292
Accumulated deficit (39,325) (3,824)
-------- --------
Total shareholders' equity 84,447 118,356
-------- --------
$222,823 $250,429
======== ========
</TABLE>
See accompanying notes
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<PAGE>
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 24, September 30, September 24,
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 79,285 $ 90,478 $238,704 $292,555
Cost of sales 67,839 76,561 207,717 239,831
-------- -------- -------- --------
Gross profit 11,446 13,917 30,987 52,724
-------- -------- -------- --------
Operating expenses:
Research and development 11,202 9,631 32,080 26,053
Selling, general and administrative 10,487 10,798 32,162 32,306
Restructuring charge - 5,496 - 5,496
-------- -------- -------- --------
Total operating expenses 21,689 25,925 64,242 63,855
-------- -------- -------- --------
Loss from operations (10,243) (12,008) (33,255) (11,131)
Interest expense (1,260) (1,278) (3,799) (3,834)
Interest income 555 667 1,553 1,818
Other expense - (260) - (830)
-------- -------- -------- --------
Loss before income taxes (10,948) (12,879) (35,501) (13,977)
Provision (credit) for income taxes - 19 - (19)
-------- -------- -------- --------
Net loss $(10,948) $(12,898) $(35,501) $(13,958)
======== ======== ======== ========
Loss per share $(.72) $(.87) $(2.36) $(.94)
======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding 15,180 14,815 15,013 14,815
======== ======== ======== ========
</TABLE>
See accompanying notes.
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MICROPOLIS CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 24,
1994 1993
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(35,501) $(13,958)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,229 20,152
(Gain) loss on disposal of equipment (19) 11
Increase (decrease) from changes in:
Accounts receivable (5,510) (84)
Inventories 8,888 1,363
Other current assets (1,070) (968)
Other assets 1,203 6
Accounts payable and other
accrued liabilities 6,534 12,494
-------- --------
Net cash provided by (used in) operating activities (7,246) 19,016
Cash flows from investing activities:
Proceeds from sale of equipment 109 184
Additions to property, plant and equipment (14,436) (18,421)
Net change in short-term investments (1,853) 4,026
-------- --------
Net cash used in investing activities (16,180) (14,211)
Cash flows from financing activities:
Payment on capital lease obligation (231) (401)
Proceeds from sale of common stock, net 1,592 1,606
-------- --------
Net cash provided by financing activities 1,361 1,205
Net increase (decrease) in cash and equivalents (22,065) 6,010
Cash and equivalents at beginning of period 49,100 47,394
-------- --------
Cash and equivalents at end of period 27,035 53,404
Short-term investments 39,535 35,483
-------- --------
Total cash, cash equivalents, and short-term
investments $ 66,570 $ 88,887
======== ========
Supplemental cash flow information:
Interest payments $ 4,871 $ 4,907
Tax payments 3,187 324
</TABLE>
See accompanying notes.
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<PAGE>
MICROPOLIS CORPORATION
----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 30, 1994
------------------
(Unaudited)
NOTE 1. General
- - -----------------
The accompanying condensed consolidated financial statements have not
been audited by independent auditors but, in the opinion of the Company, such
unaudited statements include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the consolidated financial
position as of September 30, 1994 and the consolidated results of operations for
the three- and nine-month periods ended September 30, 1994 and September 24,
1993 and cash flows for the nine-month periods ended September 30, 1994 and
September 24, 1993. 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 rules and
regulations of the Securities and Exchange Commission. Nevertheless, the
Company believes that the disclosures in these financial statements are adequate
to make the information presented not misleading. Interim results are not
indicative of the results for the full fiscal year.
These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 filed with the Securities and Exchange Commission.
NOTE 2. Inventories
- - --------------------
Inventories are stated at the lower of standard cost, which
approximates first-in, first-out, or market:
September 30, December 25,
1994 1993
------------- ------------
Raw materials and purchased parts $21,237 $18,776
Work in process 17,312 22,245
Finished goods 12,240 18,656
------- -------
$50,789 $59,677
======= =======
NOTE 3. Per Share Information
- - ------------------------------
Loss per share is computed by dividing net loss by the weighted
average number of shares of common stock and applicable common stock equivalents
outstanding during the period. Primary and fully diluted earnings per share are
the same.
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MICROPOLIS CORPORATION
----------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- - ---------------------
Three Months Ended September 30, 1994 Compared to Three Months Ended September
- - ------------------------------------------------------------------------------
24, 1993
- - --------
Net sales decreased 12% to $79.3 million in 1994 as compared to $90.5
million in 1993. The decrease in revenues was primarily attributable to a
decrease in shipments of 5 1/4-inch drives with capacities of 2.4 gigabytes
(GB) and below, offset in part by an increase in shipments of the Company's 3
1/2-inch drives. OEM revenues declined by 61% in 1994 as compared to 1993 while
sales made by the Storage Systems Division increased by 21%. The decline in OEM
sales is principally due to the continued decrease in shipments of the Company's
5 1/4-inch drives. The increase in the Storage Systems Division sales was
attributable to high capacity 3 1/2-inch drives and storage subsystems products.
Backlog as of September 30, 1994 was $58.2 million as compared to $43.2 million
at September 24, 1993. The increase in backlog is attributable to the new high
capacity drives and subsystems, offset by a decline in orders for the older 5
1/4-inch drives with rotational speeds of 3600 rpm.
Cost of sales as a percent of sales increased to 85.6% in 1994 from
84.6% in 1993 resulting in a gross margin of 14.4% as compared to 15.4% in 1993.
The decrease in margin was the result of higher sales of lower margin 3 1/2-inch
drives versus high margin 5 1/4-inch drives and significant price erosion in the
3 1/2-inch products. This was partially offset by initial shipments of the
Company's new high capacity drives, combined with an increased level of
shipments of subsystem products.
Research and development expenses increased to 14.1% of sales in 1994
as compared to 10.6% in 1993. The percentage increase is the result of lower
sales and an increase in spending of $1.6 million. The increase in spending was
a result of research and development on the Company's high capacity 3 1/2-inch
drives, greater than 3.6 GB 5 1/4-inch drives, subsystem products and research
and development on disk substrates.
Selling, general and administrative expenses were 13.2% of sales in
1994 as compared to 11.9% in 1993. The percentage increase is primarily the
result of lower sales.
The restructuring charge of $5.5 million in 1993 relates to separation
costs recognized in connection with the Company's reduction of 205 professional
and administrative personnel, or about 14% of such workforce, a reduction of
manufacturing employees and the write-down of certain assets which were no
longer in use due to changes in the Company's near term production requirements
and new product specifications.
Interest expense was $1.3 million in 1994 (1.6% of sales) which is
comparable to the same period a year ago. Interest income was $555,000 as
compared to $667,000 in 1993 as a result of lower cash balances.
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<PAGE>
As a result of the above, loss before income taxes was $10.9 million
in 1994 as compared to $12.9 million in 1993. The Company's income tax
provision benefits from the tax holiday afforded the Company's Singapore
operation, which will remain in effect through August 2004. The tax holiday
afforded the Company's Thailand operation expired December 1993. The effect on
net income and earnings per share of the income tax exemptions in Singapore and
Thailand as compared to income taxes at the maximum statutory rates were
approximately $654,000 and $.04 and $1.1 million and $.07 for the third quarter
of 1994 and 1993, respectively. The expiration of the tax holiday in Thailand
has not had a material effect on the results of operations in 1994. Net loss
for 1994 was $10.9 million compared to $12.9 million in 1993.
Progress on the new product introductions continued during the third
quarter of 1994, with transfer of production of two new disk drive platforms to
Singapore. Initial shipments of the Company's 9.1 GB 5 1/4-inch and 4.3 GB 3
1/2-inch drives began in September. In addition, the Company's Storage Systems
Division announced and began initial shipments of its new open architecture
hardware Raidion. The Company's Video Systems Division (VSD) also began volume
production and shipments of a new video server, the AV Server 100 Series, now in
use at a number of hotels in the United States. The Company expects revenues to
increase in the fourth quarter of 1994; however, overall revenues and operating
results remain strongly dependent upon the continued progress on new product
ramps.
Nine Months Ended September 30, 1994 Compared to Nine Months Ended September
- - ----------------------------------------------------------------------------
24,1993
- - -- ----
Net sales decreased 18.4% to $238.7 million in 1994 as compared to
$292.6 million in 1993. The decrease in revenues was primarily attributable to
a decrease in shipments of 5 1/4-inch drives with capacities of 2.4 GB and
below, offset in part by an increase in shipments of the Company's 3 1/2-inch
drives. OEM revenues declined by 61% in 1994 as compared to 1993 while sales
made by Storage Systems Division increased by approximately 26%. The decline in
OEM sales is principally due to the continued decrease in shipments of the
Company's 5 1/4-inch drives. The increase in Storage Systems Division sales was
attributable to high capacity 3 1/2-inch drives and storage subsystems products.
Overall bookings for the first nine months of 1994 decreased by 9% from those in
1993 principally due to a decline in orders for the older 5 1/4-inch drives with
rotational speeds of 3600 rpm, offset by an increase in orders for the new high
capacity drives and subsystems.
Cost of sales as a percent of sales increased to 87% in 1994 from 82%
in 1993 resulting in a gross margin of 13% as compared to 18% in 1993. The
decrease in margin was the result of higher sales of lower margin 3 1/2-inch
drives versus high margin 5 1/4-inch drives.
Research and development expenses increased to 13.4% of sales in 1994
as compared to 8.9% in 1993. The percentage increase is the result of lower
sales and an increase in spending of $6 million. The increase in spending was a
result of research and development on the Company's high capacity 3 1/2-inch
drives, greater than 3.6 GB 5 1/4-inch drives, subsystem products and research
and development of new disk substrates performed at Tulip Memory Systems.
Selling, general and administrative expenses were 13.5% of sales in
1994 as compared to 11.0% in 1993. The percentage increase is primarily the
result of lower sales.
The restructuring charge of $5.5 million in 1993 relates to separation
costs recognized in connection with the Company's reduction of 205 professional
and administrative personnel, or about 14% of such workforce, a reduction of
manufacturing employees and the write-down of certain assets which were no
longer in use due to changes in the Company's near-term production requirements
and new product specifications.
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<PAGE>
Interest expense was $3.8 million in 1994 (1.6% of sales) which is
comparable to the same period a year ago. Interest income was $1.6 million as
compared to $1.8 million in 1993 as a result of lower cash balances.
As a result of the above, loss before income taxes was $35.5 million
in 1994 as compared to $14 million in 1993. The Company's income tax provision
benefits from the tax holiday afforded the Company's Singapore operation, which
will remain in effect through August 2004. The tax holiday afforded the
Company's Thailand operation expired December 1993. The effect on net income
and earnings per share of the income tax exemptions in Singapore and Thailand as
compared to income taxes at the maximum statutory rates were approximately $1.6
million and $.11 and $4.8 million and $.33 for the first nine months of 1994 and
1993, respectively. The expiration of the tax holiday in Thailand has not had a
material effect on the results of operations in 1994. Net loss for 1994 was
$35.5 million compared to $14 million in 1993.
Liquidity and Capital Resources
- - -------------------------------
Cash, cash equivalents and short-term investments decreased to $66.6
million as of September 30, 1994 from $86.8 million as of December 31, 1993.
Net cash used in operations of $7.2 million is primarily the result of operating
losses, offset partially by a reduction in inventories of $8.9 million which is
due principally to decreased work in process and finished goods inventory
levels. Accounts payable and other accrued liabilities increased by $6.5
million from the fourth quarter of 1993 due to increased inventory receipts
partially offset by an income tax payment made during the second quarter of
1994. The income tax payment was made as a result of an examination by the
Internal Revenue Service for tax years 1986 through 1990. The payment of
approximately $3 million had no impact on current operations.
The Company's capital expenditures in the first three quarters of 1994 were
$14.4 million as compared to $18.4 million in 1993. Capital expenditures
related primarily to equipment and tooling to support the 3 1/2-inch form
factor. The Company currently anticipates that its 1994 capital spending will
be slightly lower than 1993 and will be principally for equipment and tooling
required for the Company's new products.
The Company has a $33 million credit facility. The availability under the
facility is a function of the level of eligible receivables and borrowings which
are secured by substantially all of the Company's assets. The amount available
under the facility as of September 30, 1994 was $20 million (of which $3 million
is reserved for an outstanding standby letter of credit).
On November 7, 1994, the Company announced that it has entered into
agreements to construct a 302,000 usable square foot facility in Singapore for a
cost of SGD $41 million. Development plans call for completion in June 1996, at
which time the Company's operations in Singapore will move from their current
leased facilities to the new factory. A commitment for financing the factory
has been obtained. Groundbreaking will take place on December 15, 1994.
The Company believes that cash on hand, internally generated funds and the
credit facility will provide sufficient capital resources to finance operations,
fund planned capital expenditures and pay interest on outstanding debt for the
next twelve months.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit 27 Article 5 FDS for 3rd Quarter 10-Q
b) Reports on Form 8-K
-------------------
No report on Form 8-K has been filed during the quarter for which this
report is filed.
-9-
<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, on November 11, 1994.
MICROPOLIS CORPORATION
By /s/ Stuart P. Mabon
----------------------
Stuart P. Mabon
Chairman of the Board, President
and Chief Executive Officer
By /s/ Dale J. Bartos
---------------------
Dale J. Bartos
Senior Vice President - Finance and
Chief Financial Officer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF MICROPOLIS
CORPORATION AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1994 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 66,570
<SECURITIES> 0
<RECEIVABLES> 56,399
<ALLOWANCES> 2,658
<INVENTORY> 50,789
<CURRENT-ASSETS> 176,559
<PP&E> 109,875
<DEPRECIATION> 65,224
<TOTAL-ASSETS> 222,823
<CURRENT-LIABILITIES> 60,959
<BONDS> 75,000
<COMMON> 15,181
0
0
<OTHER-SE> 69,266
<TOTAL-LIABILITY-AND-EQUITY> 222,823
<SALES> 238,704
<TOTAL-REVENUES> 238,704
<CGS> 207,717
<TOTAL-COSTS> 207,717
<OTHER-EXPENSES> 64,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,799
<INCOME-PRETAX> (35,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,501)
<EPS-PRIMARY> (2.36)
<EPS-DILUTED> (2.36)
</TABLE>
