<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 April 1, 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
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(Exact name of Registrant as specified in its charter)
Delaware 95-3093858
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21211 Nordhoff Street, Chatsworth, California 91311
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (818) 709-3300
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Not Applicable
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
May 6, 1994: 15,155,200 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 1. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at 2
April 1, 1994 and December 31, 1993
Condensed Consolidated Statements of 3
Operations for the Three Months ended
April 1, 1994 and March 26, 1993
Condensed Consolidated Statements of 4
Cash Flows for the Three Months Ended
April 1, 1994 and March 26, 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. Exhibit and Reports on Form 8-K 8
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-1-
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PART I - FINANCIAL INFORMATION
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MICROPOLIS CORPORATION
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 1, December 31,
1994 1993
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(Unaudited)
<S> <C> <C>
ASSETS
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Current assets:
Cash, cash equivalents and
short-term investments $ 82,046 $ 86,782
Accounts receivable, net 47,691 48,231
Inventories 44,582 59,677
Other current assets 3,229 4,389
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Total current assets 177,548 199,079
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 47,295 48,480
Other assets 2,625 2,870
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$227,468 $250,429
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 24,190 $ 36,959
Other accrued liabilities 17,045 17,697
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Total current liabilities 41,235 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; 14,941,195 shares issued
and outstanding (14,888,125 in 1993) 14,941 14,888
Additional paid-in capital 107,459 107,292
Retained deficit (13,584) (3,824)
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Total shareholders' equity 108,816 118,356
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$227,468 $250,429
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</TABLE>
See accompanying notes -2-
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MICROPOLIS CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
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April 1, March 26,
1994 1993
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(Unaudited)
<S> <C> <C>
Net sales $83,658 $94,558
Cost of sales 71,362 73,592
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Gross profit 12,296 20,966
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Operating expenses:
Research and development 10,301 7,953
Selling, general and administrative 10,984 10,814
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Total operating expenses 21,285 18,767
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Income (loss) from operations (8,989) 2,199
Interest income 512 553
Interest expense (1,283) (1,281)
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Income (loss) before income taxes (9,760) 1,471
Provision for income taxes - 14
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Net income (loss) $(9,760) $ 1,457
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Earnings (loss) per share $(.65) $.10
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Weighted average common and common
equivalent shares outstanding 14,910 14,789
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</TABLE>
See accompanying notes. -3-
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MICROPOLIS CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
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April 1, March 26,
1994 1993
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(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,760) $ 1,457
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 5,697 5,965
Loss on disposal of fixed assets 50 26
Increase (decrease) from changes in:
Accounts receivable 540 (5,613)
Inventories 15,095 5,644
Other current assets 1,160 113
Accounts payable and other
accrued liabilities (13,282) 1,707
Other assets 227 (93)
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Net cash provided by (used in) operating activities (273) 9,206
Cash flows from investing activities:
Additions to property, plant and equipment (4,544) (5,494)
Net change in short-term investments (11,221) 19,748
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Net cash provided by (used in) investing activities (15,765) 14,254
Cash flows from financing activities:
Proceeds from sale of common stock, net 220 763
Payment on capital lease obligation (139) (133)
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Net cash provided by financing activities 81 630
Net increase (decrease) in cash and equivalents (15,957) 24,090
Cash and equivalents at beginning of period 49,100 47,394
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Cash and equivalents at end of period 33,143 71,484
Short-term investments 48,903 19,760
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Total cash, cash equivalents and short-term investments $ 82,046 $91,244
======== =======
Supplemental cash flow information
Interest payments $ 2,390 $ 2,386
Tax payments $ 36 $ 444
</TABLE>
See accompanying notes. -4-
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MICROPOLIS CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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APRIL 1, 1994
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(Unaudited)
NOTE 1. General
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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 April 1, 1994, and the consolidated results of operations and
cash flows for the three-month periods ended April 1, 1994 and March 26, 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. Certain reclassifications have been made to prior
year's consolidated financial statements to conform to the 1994 presentation.
Interim results are not necessarily 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
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Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market:
<TABLE>
<CAPTION>
April 1, December 31,
1994 1993
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<S> <C> <C>
Raw materials and purchased parts $16,563 $ 18,776
Work in process 10,898 22,245
Finished goods 17,121 18,656
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$44,582 $ 59,677
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</TABLE>
NOTE 3. Per Share Information
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Earnings (loss) per share is computed by dividing net income (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.
-5-
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
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Three Months Ended April 1, 1994 Compared to Three Months Ended March 26, 1993
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Net sales decreased 11.5% to $83.7 million in 1994 as compared to $94.6
million in 1993. The decrease in revenues was primarily attributable to a
decrease in shipments of 5 1/4-inch drives with capacities of 1.6 gigabytes (GB)
and below, offset in part by an increase in shipments of the Company's 3 1/2-
inch drives. In addition, significant price erosion experienced by the Company
for all of its drives during 1993 continued into the first quarter of 1994. OEM
revenues declined by 53% in 1994 as compared to 1993 while sales made by Storage
Systems Division increased by approximately 32%. 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. Backlog as of
April 1, 1994 was $25.3 million as compared to $57.3 million at March 26, 1993.
The decline in backlog is attributable to 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 85.3% in 1994 from 77.8%
in 1993 resulting in a gross margin of 14.7% as compared to 22.2% in 1993. The
decrease in margin was the result of a larger mix of lower margin 3 1/2-inch
drives versus higher margin 5 1/4-inch drives. In addition, the Company's
margins were negatively impacted by $1.0 million of expenses (approximately 1%
of sales) associated with repairs of earthquake damage.
Research and development expenses increased to 12.3% of sales in 1994 as
compared to 8.4% in 1993. The percentage increase is the result of lower sales
and an increase in spending of $2.3 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 new disk substrates performed at Tulip Memory System.
Selling, general and administrative expenses were 13.1% of sales in 1994 as
compared to 11.4% in 1993. The percentage increase is primarily the result of
lower sales.
Interest expense was $1.3 million in 1994 (1.5% of sales) which is
comparable to the same period a year ago. Interest income was $512,000 as
compared to $553,000 in 1993 as a result of lower interest rates.
As a result of the above, loss before income taxes was $9.8 million in 1994
as compared to income of $1.5 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 1999. 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 $1.0 million and $.07 and $2.4 million and $.16 for the first
quarter of 1994 and 1993, respectively. The expiration of the tax holiday in
Thailand is not expected to have a material effect on the results of operations
in 1994. Net loss for 1994 was $9.8 million compared to net income of $1.5
million in 1993.
In addition to the Company's core high-capacity drive business, the
Company expects to continue to invest in engineering and sales and marketing for
several new value-added subsystem products which have not yet generated revenue.
In the near-term, however, the Company's core drive business is operating in
very competitive market segments. The Company expects that this, together with
the current level of operating expenses which are required to develop and
support the new drive and subsystem products, will result in continued losses in
the second and third quarters.
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Liquidity and Capital Resources
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Cash, cash equivalents and short-term investments decreased to $82.0
million as of April 1, 1994 from $86.8 million as of December 31, 1993. Net
cash used in operations of $273,000 includes a reduction in inventories of $15.1
million due principally to decreased work in process inventory levels and
improved management of raw material and work in process inventories. Accounts
payable and other accrued liabilities decreased by $13.3 million from the
fourth quarter of 1993 due to decreased inventory receipts.
The Company's capital expenditures in the first quarter of 1994 were $4.5
million as compared to $5.5 million in 1992. Capital expenditures related
primarily to equipment and tooling to support the 3 l/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 are
secured by substantially all of the Company's assets. The amount available
under the facility as of April 1, 1994 was $16 million (of which $3 million is
reserved for an outstanding standby letter of credit).
The Company believes that cash on hand, internally generated funds and the
available 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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PART II - OTHER INFORMATION
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MICROPOLIS CORPORATION
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Item 6. Exhibits and Reports on Form 8-K
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a) Exhibits
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10.43* Severance Agreement between Micropolis Corporation and
Joel Appelbaum
b) Reports on Form 8-K
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No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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*Management contract or commpensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-Q Report pursuant to Item 6(a).
-8-
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SIGNATURES
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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 May 13, 1994.
MICROPOLIS CORPORATION
By s/Stuart P. Mabon
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Stuart P. Mabon
Chairman of the Board, President
and Chief Executive Officer
By s/Dale J. Bartos
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Dale J. Bartos
Senior Vice President - Finance
and Chief Financial Officer
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[LETTERHEAD OF MICROPOLIS]
EXHIBIT 10.43
February 15, 1994
Mr. Joel Appelbaum
21315 Lumbertown Lane
Saratoga, California 95070
Dear Joel:
I am pleased to confirm our offer of employment to you for the position of
Executive Vice President and General Manager, SSD Division. This position
reports directly to me. The terms of the offer are as follows:
- - Starting salary will be $3,847.00, payable weekly.
- - You will be eligible for a salary review in January, 1995.
- - You will be eligible to participate in the 1994 Key Person Bonus Plan. Bonus
payments will be based upon your success in meeting objectives that you and
I have established. The nominal bonus for 1994 will be $100,000.
- - You will be granted a stock option of 60,000 shares of Micropolis
Corporation common stock, subject to approval by the Micropolis Board of
Directors. The terms and vesting schedule are described in your Incentive
Stock Option Agreement.
- - For tax purposes, the company will "gross up" the non-deductible relocation
expenses incurred in connection with your relocation to Southern California.
- - You will receive a car allowance of $450.00 per month, net of income taxes.
Pre-tax value of such allowance is about $780.00 per month.
Relocation benefits are specified in the attached enclosure.
Our benefit package is a comprehensive package which includes medical and dental
coverage, long term disability, life insurance and educational assistance. These
coverages are effective the day you begin work. You will be eligible to
participate in our Employee Stock Purchase Program and in the Micropolis
Employee Savings and Retirement Plan (401[k]) after completing six months of
service prior to the standard enrollment dates.
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Page 2
Mr. Joel Appelbaum
February 15, 1994
The Company retains the right to terminate the employment relationship at any
time and for any reason, with or without notice. Solely for the purpose of this
letter, cause for termination is defined as misconduct or willful failure to
perform duties.
During your first twelve months of employment with Micropolis, should your
employment be terminated for any reason other than cause or resignation, you
will receive a lump sum payment equal to twelve months base salary. If the
Company terminates you without cause after twelve months employment, you will
receive a lump sum payment equal to six months base salary. All applicable
federal, state and social security taxes will be deducted from any lump sum
payment.
We all look forward to your joining Micropolis and know that the relationship
will be mutually rewarding.
Sincerely,
/s/ STUART P. MABON
Stuart P. Mabon
President and Chief Executive Officer
I understand and accept the terms of this offer
/s/ JOEL APPELBAUM 2-28-94
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Joel Appelbaum Date
SPM:nmt
Enclosure:Relocation Program
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