<PAGE>
FORM 10-Q
---------
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 March 31, 1995
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________
to ______________
Commission File Number: 0-12046
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 of the latest practicable date.
May 5, 1995: 15,541,879 shares of Common Stock, $1.00 Par Value
----------------------------------------------------------------
<PAGE>
MICROPOLIS CORPORATION
----------------------
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
March 31, 1995 and December 30, 1994
Condensed Consolidated Statements of 3
Operations for the Three Months ended
March 31, 1995 and April 1, 1994
Condensed Consolidated Statements of 4
Cash Flows for the Three Months Ended
March 31, 1995 and April 1, 1994
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
</TABLE>
-1-
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 30,
1995 1994
--------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
- ------
Current assets:
Cash, cash equivalents and
short-term investments $ 47,296 $ 63,216
Accounts receivable, net 27,284 61,724
Inventories 65,485 56,746
Other current assets 4,124 6,405
-------- --------
Total current assets 144,189 188,091
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 44,986 44,252
Other assets 1,879 1,572
-------- --------
$191,054 $233,915
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 35,582 $ 46,388
Other accrued liabilities 21,538 20,681
-------- --------
Total current liabilities 57,120 67,069
Term Loan Facility 2,269 -
6% Convertible Subordinated Debentures 75,000 75,000
Deferred income taxes 1,720 2,216
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; 15,327,830 shares issued
and outstanding (15,266,440 in 1994) 15,328 15,266
Additional paid-in capital 109,203 108,863
Accumulated deficit (69,586) (34,499)
-------- --------
Total shareholders' equity 54,945 89,630
-------- --------
$191,054 $233,915
======== ========
</TABLE>
See accompanying notes.
-2-
<PAGE>
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 31, April 1,
1995 1994
--------- --------
(Unaudited)
<S> <C> <C>
Net sales $ 40,899 $83,658
Cost of sales 49,768 71,362
-------- -------
Gross profit (loss) (8,869) 12,296
-------- -------
Operating expenses:
Research and development 13,427 10,301
Selling, general and administrative 13,171 10,984
-------- -------
Total operating expenses 26,598 21,285
-------- -------
Loss from operations (35,467) (8,989)
Interest income 547 512
Interest expense (1,333) (1,283)
-------- -------
Loss before income taxes (36,253) (9,760)
Income tax benefit 1,166 -
-------- -------
Net loss $(35,087) $(9,760)
======== =======
Loss per share $ (2.29) $ ( .65)
======== =======
Weighted average common and common
equivalent shares outstanding 15,311 14,910
======== =======
</TABLE>
See accompanying notes.
-3-
<PAGE>
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 31, April 1,
1995 1994
--------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(35,087) $ (9,760)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,393 5,697
(Gain) loss on disposal of fixed assets (12) 50
Deferred income taxes (496) -
Increase (decrease) from changes in:
Accounts receivable 34,440 540
Inventories (8,739) 15,095
Other current assets 2,281 1,160
Other assets (325) 227
Accounts payable and other
accrued liabilities (9,948) (13,282)
--------- ---------
Net cash used in operating activities (12,493) (273)
Cash flows from investing activities:
Net change in short-term investments 14,159 (11,221)
Proceeds from sale of equipment 35 -
Additions to property, plant and equipment (6,132) (4,544)
--------- ---------
Net cash provided by (used in) investing activities 8,062 (15,765)
Cash flows from financing activities:
Payment on capital lease obligation - (139)
Increase in Term Loan Facility 2,269 -
Proceeds from sale of common stock, net 401 220
--------- ---------
Net cash provided by financing activities 2,670 81
Net decrease in cash and equivalents (1,761) (15,957)
Cash and equivalents at beginning of period 37,720 49,100
--------- ---------
Cash and equivalents at end of period 35,959 33,143
Short-term investments 11,337 48,903
--------- ---------
Total cash, cash equivalents and short-term investments $ 47,296 $ 82,046
========= =========
Supplemental cash flow information
Interest payments $ 2,439 $ 2,390
Tax payments (recoveries) $ (963) $ 36
</TABLE>
See accompanying notes.
-4-
<PAGE>
MICROPOLIS CORPORATION
----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 1995
--------------
(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 March 31, 1995, and the consolidated results of operations and
cash flows for the three-month periods ended March 31, 1995 and April 1, 1994.
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 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 30, 1994 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:
<TABLE>
<CAPTION>
March 31, December 30,
1995 1994
--------- ------------
<S> <C> <C>
Raw materials and purchased parts $21,014 $ 18,634
Work in process 27,452 20,771
Finished goods 17,019 17,341
------- --------
$65,485 $ 56,746
======= ========
</TABLE>
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.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Three Months Ended March 31, 1995 Compared to Three Months Ended April 1, 1994
- ------------------------------------------------------------------------------
Net sales decreased 51.1% to $40.9 million in the first quarter of 1995 as
compared to $83.7 million in the first quarter of 1994. OEM revenues declined
by 37% in the 1995 quarter as compared to the 1994 quarter and sales made by the
Storage Systems Division decreased by approximately 62%. During the first
quarter of 1995 the Company experienced sharply lower orders in the distribution
channel than anticipated for its 4 gigabyte (GB) 3 1/2-inch and 9 GB 5 1/4-inch
drives. In addition, a component problem, and other technical issues,
effectively shut down production of the Company's 2 GB 3 1/2-inch drive for most
of the quarter. The Company has evaluated the technical and component issues
relating to the 2 GB 3 1/2-inch drive, has validated the technical solutions and
has resumed production. Backlog as of March 31, 1995 was $32.6 million as
compared to $25.3 million at April 1, 1994. The increase in backlog is the
result of demand for the Company's 2 GB 3 1/2-inch drives, which were out of
production for most of the first quarter, and increasing demand for the
Company's 9 GB 5 1/4-inch drives in the OEM channel.
Cost of sales as a percent of sales increased to 121.7% in the first
quarter of 1995 from 85.3% in the first quarter of 1994 resulting in a negative
gross margin of 21.7% as compared to positive gross margin of 14.7% in the first
quarter of 1994. The Company's negative gross margin in the first quarter of
1995 was attributable to price erosion in the 3 1/2-inch and 5 1/4-inch
products, operating inefficiencies due to low volume production of the 2 GB
drives, and a $6.3 million provision for materials which were to have been used
in production of the 2 GB drives.
Research and development expenses increased to 32.8% of sales in the first
quarter of 1995 as compared to 12.3% in the first quarter of 1994. The
percentage increase is the result of lower sales and an increase in expense of
$3.1 million. The increase in expense was a result of costs associated with
Tulip Memory Systems and research and development on the Company's high capacity
3 1/2-inch and 5 1/4-inch drives and subsystem products.
Selling, general and administrative expenses were 32.2% of sales in the
first quarter of 1995 as compared to 13.1% in the first quarter of 1994. The
percentage increase is the result of lower sales and an increase in expense of
$2.2 million. The increase in spending was the result of increased expenditures
for advertising and sales promotion activities for new products, a work force
reduction in the U.S. and Europe completed in March 1995, and the retention of
outside assistance to help the Company in formulating and implementing its
recovery plan.
Interest expense was $1.3 million in the first quarter of 1995 (3.3% of
sales) which is comparable to the same period a year ago. Interest income was
$547,000 as compared to $512,000 in the first quarter of 1994, as a result of
higher interest rates, offset by lower cash equivalents and short-term
investment balances.
-6-
<PAGE>
As a result of the above, loss before income taxes was $36.3 million in
1995 as compared to $9.8 million in 1994. The Company enjoyed an income tax
benefit of $1.2 million in the first quarter of 1995, representing a refund of
certain foreign income taxes paid in a prior year. 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 effect on net
income and earnings per share of the income tax exemption in Singapore as
compared to income taxes at the maximum statutory rates was approximately ($1.5
million) and ($0.10) and $1.0 million and $.07 for the first quarters of 1995
and 1994, respectively. Net loss for 1995 was $35.1 million compared to $9.8
million in 1994.
Liquidity and Capital Resources
- -------------------------------
Cash, cash equivalents and short-term investments decreased to $47.3
million as of March 31, 1995 from $63.2 million as of December 30, 1994. Net
cash used in operations of $12.2 million is primarily due to the Company's net
loss of $35.1 million and increase in inventory of $8.7 million, offset by a
reduction in accounts receivable of $34.4 million, due principally to decreased
sales in the quarter. Accounts payable and other accrued liabilities decreased
by $9.9 million from the fourth quarter of 1994 due to decreased inventory
receipts.
The Company's capital expenditures in the first quarter of 1995 were $6.0
million as compared to $4.5 million in 1994. Capital expenditures related
primarily to the construction of a new manufacturing facility in Singapore to
replace the current leased facility and for equipment and tooling to support new
products. The new facility is expected to be completed in 1996. The Company
has obtained a term loan facility to fund the expenditures associated with the
construction of the building. The Company currently anticipates that its 1995
capital spending will be substantially higher than in 1994 and will be
principally for construction of the new manufacturing facility and for equipment
and tooling required for the Company's new products.
The Company has obtained a 2-year extension of its credit facility and has
reset the size of the facility to $25 million, down from $33 million. The
reduction in the size of the facility is not expected to have an impact on
actual availability under the line over the next twelve months. The
availability under the facility is a function of the level of eligible accounts
receivable. Borrowings are secured by substantially all of the Company's assets.
The amount available under the facility as of March 31, 1995 was $1.6 million
(all of which is reserved for an outstanding standby letter of credit). The
unusually low level of availability under the line is a function of the
significant decline in accounts receivable.
The Company anticipates a decrease in cash in the second quarter of 1995
principally as a result of continuing operating losses and a reduction in
accounts payable liability from reduced purchasing activity. While the Company
believes it has sufficient liquidity to meet its short term financial needs,
should second quarter revenues prove to be significantly lower than currently
anticipated, the Company may require additional financing. While the Company
currently believes such financing could be obtained from its present lenders or
other sources if needed, there can be no assurance as to the terms on which it
would be available, if at all.
-7-
<PAGE>
PART II - OTHER INFORMATION
----------------------------
MICROPOLIS CORPORATION
----------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit 27 Article 5 FDS for 1st Quarter 10-Q
b) Reports on Form 8-K
-------------------
A Report on Form 8-K was filed by the Company on January 24, 1995
and dated December 7, 1994 pursuant to Item 5 of Form 8-K ("Other
Events"). The report related to certain amendments to the Company's
By-Laws that were filed as an exhibit to such report.
-8-
<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 May 12, 1995.
MICROPOLIS CORPORATION
By /s/Stuart P. Mabon
--------------------------------
Stuart P. Mabon
Chairman of the Board, President
and Chief Executive Officer
By /s/Barbara V. Scherer
---------------------------------
Barbara V. Scherer
Vice President - Finance, Chief
Financial Officer and Treasurer
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> MAR-31-1995
<CASH> 47,296
<SECURITIES> 0
<RECEIVABLES> 30,997
<ALLOWANCES> 3,713
<INVENTORY> 65,485
<CURRENT-ASSETS> 144,189
<PP&E> 114,007
<DEPRECIATION> 69,021
<TOTAL-ASSETS> 191,054
<CURRENT-LIABILITIES> 57,120
<BONDS> 77,269
<COMMON> 15,328
0
0
<OTHER-SE> 39,617
<TOTAL-LIABILITY-AND-EQUITY> 191,054
<SALES> 40,899
<TOTAL-REVENUES> 40,899
<CGS> 49,768
<TOTAL-COSTS> 49,768
<OTHER-EXPENSES> 26,598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,333
<INCOME-PRETAX> (36,253)
<INCOME-TAX> (1,166)
<INCOME-CONTINUING> (35,087)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,087)
<EPS-PRIMARY> (2.29)
<EPS-DILUTED> (2.29)
</TABLE>
