Securities and Exchange Commission
Washington, D.C. 20549
=====================================================================
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 3, 1994
Commission File
Number 0-12064
=====================================================================
STRATUS COMPUTER, INC.
(Exact name of registrant as specified in its Charter)
Massachusetts No. 04-2697554
(State of Incorporation) (I.R.S. Employer Identification No.)
55 Fairbanks Boulevard, Marlborough, Massachusetts 01752
(Address of principal executive office) (Zip)
(508) 460-2000
(Telephone number, including area code)
=====================================================================
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 of1934 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____.
Number of Common Shares outstanding at the latest practicable date,
May 5, 1994: 24,172,820.
=====================================================================
STRATUS COMPUTER, INC.
INDEX TO 10-Q
Part I Financial information
Consolidated statements of income -
three months ended April 3, 1994
and April 4, 1993
Consolidated balance sheets -
April 3, 1994 and January 2, 1994
Consolidated statements of cash flows -
three months ended April 3, 1994
and April 4, 1993
Notes to consolidated financial statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II Other information
Legal Proceedings
Exhibits and reports on Form 8-K
Signatures
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
STRATUS COMPUTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Quarter Ended
---------------------
April 3, April 4,
1994 1993
-------- --------
Revenues:
Product sales $98,521 $87,469
Service 36,886 27,179
------- ------
Total revenues 135,407 114,648
Costs and expenses:
Product cost of sales 44,040 34,980
Service expense 19,561 14,871
Research and development expense 20,756 19,537
Selling, general and administrative
expenses 38,239 35,309
------ ------
Total costs and expenses 122,596 104,697
------- -------
Operating income 12,811 9,951
Other income 1,250 1,214
------ ------
Income before provision for income
taxes 14,061 11,165
Provision for income taxes 2,672 2,345
------ ------
Net income $11,389 $8,820
====== ======
Net income per common share $.46 $.37
======= ======
Weighted average number of shares of
common stock and common stock
equivalents outstanding 24,527 23,584
====== ======
See accompanying notes.
STRATUS COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
April 3, January 2,
ASSETS 1994 1994
- - ----------------- ------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $210,388 $191,005
Accounts receivable, net 131,226 151,105
Inventories:
Finished products 19,434 16,854
Work-in-process 4,631 10,899
Parts and assemblies 16,171 12,153
------- --------
40,236 39,906
Other current assets 27,426 26,105
------- -------
Total current assets 409,276 408,121
Property, plant and equipment,
at cost 264,271 246,293
Less: accumulated depreciation 158,970 143,610
------ -------
Net property, plant
and equipment 105,301 102,683
Other assets, net 49,027 47,727
-------- -------
Total assets $563,604 $558,531
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $15,704 $16,346
Accrued expenses 37,028 38,190
Income taxes payable 25,921 30,103
Short-term borrowings
and obligations 5,295 4,372
Deferred revenue 19,865 19,817
-------- --------
Total current liabilities 103,813 108,828
Long-term obligations 7,872 10,879
Deferred gain on sale-leaseback
of land/building 2,723 2,864
Stockholders' equity:
Common stock, $.01 par value,
150,000,000 shares authorized,
24,143,490 and 24,047,391 shares
issued and outstanding,
respectively 241 240
Junior common stock, $.01 par value
500,000 shares authorized - -
Additional paid-in capital 169,669 168,095
Retained earnings 280,973 269,584
Cumulative translation adjustment -1,687 -1,959
------- --------
Total stockholders' equity 449,196 435,960
------ -------
Total liabilities and
stockholders'equity $563,604 $558,531
======== ========
See accompanying notes.
STRATUS COMPUTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
---------------------
April 3, April 4,
1994 1993
--------- ---------
Cash flows from operating activities:
Net income $11,389 $8,820
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 12,955 10,502
Add (deduct) changes in working
capital:
Decrease in accounts receivable 21,390 29,577
(Increase) decrease in inventory -62 1,321
Decrease in accounts payable and
accrued liabilities -4,226 -6,343
Decrease in income taxes payable -4,070 -505
Decrease in other working capital
items -918 -898
------- -------
Net cash provided by operating
activities 36,458 42,474
Cash flows from investing activities:
Acquisition of property, plant
and equipment -11,154 -10,096
Acquisition of other long-term
assets -5,299 -1,771
-------- ---------
Net cash used in investing
activities -16,453 -11,867
Cash flows from financing activities:
Net proceeds and benefits from
employee stock plans 1,575 2,364
Reduction of long-term debt and
capital lease obligations -2,639 -999
--------- --------
Net cash provided by (used in) financing
activities -1,064 1,365
Effect of exchange rate changes
on cash 442 105
--------- --------
Net increase in cash and cash
equivalents 19,383 32,077
Cash and cash equivalents at beginning
of year 191,005 134,962
--------- --------
Cash and cash equivalents at end of
period $210,388 $167,039
======== ========
See accompanying notes.
STRATUS COMPUTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3, 1994 and April 4, 1993
(Unaudited)
(In thousands)
1. The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned.
The information herein should be read in conjunction with the annual report
on Form 10-K for the year ended January 2, 1994. It is management's
opinion that the accompanying statements reflect all adjustments necessary
for a fair presentation of the results for this interim period and the
comparable periods presented. Certain amounts in the consolidated financial
statements for the prior years have been reclassified to conform to the
current year presentation. Such reclassifications had no effect on previously
reported results of operations.
2. Primary earnings per share is based on the weighted average number of
shares of common stock and common stock equivalents (stock options)
outstanding. Fully diluted earnings per share has not been separately
presented as the amount does not differ significantly from primary earnings
per share.
3. There were no non-cash investing and financing activities for the first
three months of 1994 or 1993. The Company made interest payments of $301
and $143 and tax payments of $7,532 and $3,827 in the first three months of
1994 and 1993, respectively.
STRATUS COMPUTER, INC.
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Revenues
Net revenues of $135,407 for the first quarter of 1994 increased 18%
over the corresponding period in 1993.
The Company's product revenue, exclusive of revenues generated by
the three software subsidiaries acquired during the fourth quarter of 1993,
increased 8% in 1994's first quarter compared to the same 1993 period. These
newly acquired software subsidiaries contributed $4,398, or five percentage
points, of additional product revenue growth.
The Company's direct product revenue increased 12% from the first
quarter of 1993, reflecting a variety of factors including 21% domestic growth
rate, led by sales in the telecommunications, financial services and
retail industries. Also, international direct product revenue increased 2%
over 1993's first quarter. Within Europe for the first quarter, revenue
increases in the United Kingdom, Italy and Sweden were offset by declines in
Spain and Germany. In the Asia/Pacific region for the first quarter, growth
in revenues in the Far East were offset by a decline in revenue in Australia.
Product revenue from indirect channels declined 6% in the 1994 first quarter
compared to the same 1993 period. Sales to Olivetti increased 155% in the
first quarter of 1994 compared to the same 1993 period, and were 4% of total
product revenue, while sales to IBM decreased 87% to 0.5% of total product
revenue. Product revenue to international distributors increased 1% from the
prior year's first quarter. Sales to NEC decreased by 13% for the first
quarter when compared to 1993, declining from 4% to 3% of total product
revenue.
Total service revenue increased 36% in the first quarter of 1994 over
the corresponding period in the previous year. This growth was due to the
increased service and education provided to the expanding customer base.
The three software subsidiaries acquired in the fourth quarter of 1993 were
responsible for $4,598, or 17 percentage points of the growth in total
service revenue.
Cost of Sales
The gross margin on product revenue of 55% for the first quarter
of 1994 declined five percentage points from the gross margin on product
revenue achieved in the corresponding 1993 period. This was due primarily to
higher discounting due to competitive pressures, as well as a higher proportion
of mid-range and low-end RISC-based systems shipped during the 1994 period
versus 1993.
The gross margin on service revenue was 47% for the first quarter
of 1994. This compares to the 45% service margin realized in the first
quarter of 1993. This increase in the service margin percentage was primarily
due to the service revenue growth, combined with well-managed expense growth in
the service organization.
Other Operating Expenses
Total operating expenses for the first quarter of 1994 increased 8% over
the corresponding 1993 period. As a percentage of net revenues, operating
expenses decreased by 4% in the first quarter of 1994 to 44% compared to
1993's first quarter.
Research and development expense in the first quarter of 1994 increased
$1,219, or 6%, from the first quarter of 1993. The total amount of the
increase was attributable to the three acquisitions made in the fourth
quarter of 1993. As a percentage of net revenues, R&D expense declined two
percentage points to 15% for the first quarter of 1994 compared to the same
1993 period due mainly to the Company's continued focus on strong cost
controls. Stratus has a commitment to provide both hardware and software
products to the critical online computing marketplace. Throughout 1994,
the Company will continue to develop the next generation of RISC machines.
In addition, the Company will continue the transition to open systems
technology by increasing the functionality of FTX, its UNIXrSystem V
Release 4 operating system, and integrating open architecture standards into
its hardware platforms.
For the first quarter of 1994, selling, general and administrative
expenses increased $2,930, or 8%, over the same 1993 period. The three
software subsidiaries contributed $3,871 to this increase in SG&A
expenses. This increase was mitigated by savings of $941 due to the
implementation of strong cost controls. Total SG&A expenses were 28% of
net revenues, down three percentage points, for the 1994 first quarter as
compared with the same 1993 period. The Company's strategy in 1994 is to
focus the sales organization on strategic markets within vertical
industries, as well as continue to improve selling efficiencies and focus
on strong cost management.
Other Income
Other income for the first quarter of 1994 increased slightly over
the same period in 1993. Interest income continued to increase in
connection with the Company's larger cash balance. Interest expense
increased in connection with the debt incurred for the acquisition of
Isis Distributed Systems, Inc. in the fourth quarter of 1993, and was
somewhat offset by the continued decline in capital lease activity.
The effective tax rate decreased to 19% in 1994's first quarter from
21% in 1993's first quarter due to increased U.S. tax credits and a more
favorable mix of foreign tax rates.
Liquidity and Capital Resources
At April 3, 1994, the Company had cash and cash equivalents of
$210,388 which reflects a $19,383 increase over the balance at the beginning
of the year. Profitable operations, improved collections on receivables and
capital generated through employee stock plans were the major factors in the
increased cash balance.
The Company has a Multicurrency Revolving Credit Agreement providing
up to $50 million of borrowings through March 1997. There have been no
borrowings against this Agreement, and the Company anticipates no borrowings
during the remainder of 1994.
At April 3, 1994, the Company had $9,194 in outstanding debt related
to the Isis acquisition and $304 in capital lease obligations.
Certain subsidiaries have entered into credit arrangements with local
banks, principally Overdraft Agreements, for the purpose of short-term
liquidity management. Borrowings under these Agreements were $1,447 at
April 3, 1994.
In the first quarter of 1994 the Company purchased its Ireland
manufacturing plant for $5,372.
The ratio of current assets to current liabilities for the Company
as of April 3, 1994 was 3.9 to 1. Based upon its current cash position, and
expected cash flow from operating activities supplemented by continued
stock issuance from the Employee Stock Purchase Plan and stock option plans,
management believes that the Company's capital resources are sufficient
to meet its financial requirements for the foreseeable future.
The Company plans to invest approximately $37 million in capital
improvements and $36 million in capitalized software in 1994.
UNIX is a registered trademark of UNIX System Laboratories, Inc.
Stratus is a registered trademark of Stratus Computer, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings, either outstanding or
pending, with respect to the Company.
Item 6. Exhibits and reports on Form 8-K
No reports on Form 8-K have been filed during the first quarter
ended April 3, 1994.
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 duly authorized.
STRATUS COMPUTER, INC.
(Registrant)
Date May 12, 1994 ROBERT E. DONAHUE
- - ----------------- -----------------
Robert E. Donahue
Vice President, Finance and
Chief Financial Officer
hereunto duly authorized
