________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 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 NO. 0-13941
AST RESEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3525565
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16215 ALTON PARKWAY
IRVINE, CALIFORNIA 92718
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 727-4141
_________________
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 _
There were 32,366,900 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on October 28, 1994.
________________________________________________________________________________
________________________________________________________________________________
AST RESEARCH, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
at October 1, 1994 (Unaudited)
and July 2, 1994 3
Consolidated Statements of Operations
(Unaudited) for the three months ended
October 1, 1994 and October 2, 1993 4
Consolidated Statements of Cash Flows
(Unaudited) for the three months ended
October 1, 1994 and October 2, 1993 5-6
Notes to Consolidated Financial
Statements (Unaudited) 7-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 18
</TABLE>
AST RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
October 1, July 2,
1994 1994
(In thousands, except share amounts) (Unaudited)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 100,724 $ 153,118
Accounts receivable, net of allowance for
doubtful accounts of $17,303 at
October 1, 1994 and $17,564 at July 2, 1994 322,512 326,057
Inventories 340,762 333,729
Deferred income taxes 43,799 43,266
Other current assets 27,133 9,797
- - ----------------------------------------------------------------------------------------------------------
Total current assets 834,930 865,967
Property and equipment 162,763 159,530
Accumulated depreciation and amortization (58,599) (56,089)
- - ----------------------------------------------------------------------------------------------------------
Net property and equipment 104,164 103,441
Goodwill, net of accumulated amortization
of $6,107 at October 1, 1994 and $4,387
at July 2, 1994 60,192 61,912
Other assets 9,447 6,992
- - ----------------------------------------------------------------------------------------------------------
$ 1,008,733 $ 1,038,312
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 50,000 $ 50,000
Accounts payable 227,513 209,579
Accrued salaries, wages and employee benefits 21,290 21,465
Other accrued liabilities 117,225 112,096
Income taxes payable 25,743 37,955
Current portion of long-term debt 398 398
- - ----------------------------------------------------------------------------------------------------------
Total current liabilities 442,169 431,493
Long-term debt 215,319 215,294
Deferred income taxes and other non-current liabilities 6,832 7,571
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.01; 70,000,000 shares
authorized, 32,365,900 shares issued and
outstanding at October 1, 1994 and 32,333,750
shares at July 2, 1994 324 323
Additional capital 141,770 141,424
Retained earnings 202,319 242,207
- - ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 344,413 383,954
- - ----------------------------------------------------------------------------------------------------------
$ 1,008,733 $ 1,038,312
==========================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Three Months Ended
---------------------------
October 1, October 2,
(In thousands, except per share amounts) 1994 1993
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 495,446 $ 514,409
Cost of sales 458,147 428,509
- - -----------------------------------------------------------------------------------------------------------
Gross profit 37,299 85,900
Selling and marketing expenses 51,865 42,071
General and administrative expenses 22,277 17,590
Engineering and development expenses 9,902 10,244
- - -----------------------------------------------------------------------------------------------------------
Total operating expenses 84,044 69,905
- - -----------------------------------------------------------------------------------------------------------
Operating income (loss) (46,745) 15,995
Interest income 484 254
Interest expense (3,289) (1,605)
Other expense, net (310) (2,171)
- - -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (49,860) 12,473
Provision (benefit) for income taxes (9,972) 4,241
- - -----------------------------------------------------------------------------------------------------------
Net income (loss) $ (39,888) $ 8,232
===========================================================================================================
Net income (loss) per share $ (1.23) $ .26
===========================================================================================================
Weighted average common and common
equivalent shares outstanding 32,346 32,002
===========================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Three Months Ended
---------------------------------
October 1, October 2,
(In thousands) 1994 1993
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 500,376 $ 440,562
Cash paid to suppliers and employees (534,009) (499,647)
Interest received 431 211
Interest paid (4,240) (743)
Income tax refunds received 117 548
Income taxes paid (3,314) (41)
Other cash paid (1,819) (3,343)
- - -------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (42,458) (62,453)
Cash flows from investing activities:
Payment related to Tandy/GRiD acquisition -- (15,000)
Purchases of capital equipment (8,598) (2,836)
Proceeds from disposition of capital equipment 1,504 210
Purchases of other assets (1,218) (90)
- - ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,312) (17,716)
Cash flows from financing activities:
Short-term borrowings, net -- 23,000
Repayment of long-term debt (32) (91)
Proceeds from issuance of common stock 347 155
- - ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 315 23,064
Effect of exchange rate changes on cash and cash equivalents (1,939) (2,189)
- - ------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (52,394) (59,294)
Cash and cash equivalents at beginning of period 153,118 121,600
- - ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 100,724 $ 62,306
============================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES:
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Three Months Ended
--------------------------------
October 1, October 2,
(In thousands) 1994 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (39,888) $ 8,232
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 6,844 5,363
Provision (benefit) for deferred income taxes (865) 52
Gain on sale of capital equipment (218) --
Change in operating assets and liabilities, net
of effects of acquisition:
Accounts receivable 7,009 (65,222)
Inventories (7,033) (48,655)
Other current assets (16,897) (1,238)
Accounts payable and accrued expenses 20,858 80,704
Income taxes payable (12,212) 1,522
Other current liabilities 1,298 (44,322)
Exchange loss (gain) (1,354) 1,111
- - -------------------------------------------------------------------------------------------------------------
Net cash used in operating activities $ (42,458) $ (62,453)
=============================================================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased certain assets relating to Tandy/GRiD
France's personal computer operations effective September 1, 1993.
In conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired -- $ 8,457
Note payable -- (6,720)
- - -------------------------------------------------------------------------------------------------------------
Liabilities assumed -- $ 1,737
=============================================================================================================
Tax benefit of employee stock options -- $ 1,279
=============================================================================================================
</TABLE>
See accompanying notes.
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 1, 1994
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the
Company without audit (except for the balance sheet information as of July 2,
1994) in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The accompanying consolidated financial statements do not include certain
footnotes and financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's 1994 Annual Report on
Form 10-K. The results of operations for the three-month period ended October
1, 1994 are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended July 2, 1994.
Income Taxes
The Company provides for income taxes in interim periods based on the
estimated effective income tax rate for the complete fiscal year. For the
three-month period ended October 1, 1994, the estimated tax benefit rate is
less than the U.S. statutory rate primarily due to estimates of the proportion
of the Company's fiscal 1995 consolidated income/loss which will be realized in
lower rate foreign tax jurisdictions, as well as the Company's inability to
benefit all of its deferred tax assets. Differences between the estimated
effective tax rate and the Company's actual effective tax rate could result
from changes in the Company's ability to recognize its deferred tax assets
and from changes in the mix of income/loss in the various tax jurisdictions
and are recognized when known.
The provision (benefit) for income taxes is computed on the pretax income
(loss) of the consolidated entities located within each taxing country based on
the current tax law. Deferred taxes result from the future tax consequences
associated with temporary differences between the amount of assets and
liabilities recorded for tax and financial accounting purposes. A valuation
allowance for deferred tax assets is recorded to the extent the Company cannot
determine, in accordance with the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes", that the ultimate
realization of net deferred tax assets against income is more likely than not.
Acquisitions and Restructuring
In the fourth quarter of fiscal 1993, the Company acquired certain assets and
assumed certain liabilities relating to Tandy Corporation's ("Tandy") personal
computer manufacturing operations and the GRiD North American and European sales
divisions. On September 1, 1993, the Company also purchased certain assets and
assumed certain liabilities of Tandy/GRiD France. The total purchase price
(including Tandy/GRiD France) was $111.7 million and included a cash payment of
$15 million and a three-year promissory note in the principal amount of $96.7
million. Restructuring charges of $125 million were recorded in the fourth
quarter of fiscal 1993 in connection with the Company's acquisition of Tandy's
personal computer manufacturing and engineering operations and GRiD's North
American and European sales and marketing operations.
During fiscal 1994, the Company completed most of its previously identified
restructuring activities and incurred asset write-downs of $50 million and cash
expenditures of $47 million related directly to its fiscal 1994 restructuring
activities. A $12.5 million credit was recognized in the fourth quarter of
fiscal 1994 after concluding that most of its restructuring activities had been
completed or were adequately provided for within the remaining restructuring
accrual. At July 2, 1994, $15.2 million remained on the Company's consolidated
balance sheet. At October 1, 1994, the Company continues to hold approximately
$15 million in accrued restructuring
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 1, 1994
provisions for the final restructuring activities, which the Company expects to
be completed by the end of the third quarter of fiscal 1995. The Company
expects these costs to represent a combination of future cash expenditures and
asset write-downs necessary to further combine and restructure existing
worldwide manufacturing and distribution capacity. On October 14, 1994, the
Company announced its plans to consolidate its worldwide mobile computing
manufacturing in Taiwan and the concurrent closure of its Fountain Valley,
California manufacturing facility February 1, 1995. The costs for the Fountain
Valley closure are included in the remaining restructuring accrual at October 1,
1994.
The Company believes that its restructuring activities were necessary in order
to redeploy and reorganize its worldwide operations after the June 1993
acquisition of Tandy's personal computer operations. No assurances can be given
that these restructuring actions will be successful or that similar actions will
not be required in the future.
Contingencies
In June 1989, Texas Instruments Inc. ("TI") advised the Company that it
believed certain AST computer products infringe certain TI patents. On January
4, 1994, the Company initiated litigation (the "California action") in the U.S.
District Court for the Central District of California against TI alleging
certain violations of licensing agreements, federal antitrust laws and the
California Unfair Practices Act. In addition, the Company alleged that TI is
infringing an AST patent and that certain TI patents are invalid or
inapplicable. TI has alleged in the California action that the Company is
infringing patents owned by TI. On August 26, 1994, TI filed a lawsuit in the
U.S. District Court for the Eastern District of Texas against the Company
alleging infringement of patents in addition to those asserted by TI in the
California action. These litigations with TI are proceeding. Management does
not believe that the outcome of these matters will have a material adverse
impact on the Company's consolidated financial position or results of
operations.
On March 3 and March 14, 1994, complaints were filed by two shareholders
against the Company and certain of its officers and directors requesting
certification of a class action, asserting claims under state and federal
securities laws based on allegations that the Company made inadequate and false
disclosures and seeking unspecified compensatory damages and related fees and
costs. The complaints were filed in the United States District Court for the
Central District of California. On May 9, 1994, the Court consolidated the two
cases under the case name In re AST Securities Litigation. On September 12,
1994, a complaint was filed by a shareholder against the Company and certain of
its officers and directors requesting certification of a class action, asserting
claims under state and federal securities laws based on allegations that the
Company made inadequate and false disclosures and seeking unspecified
compensatory damages and related fees and costs. The September 12 complaint was
filed in the United States District Court for the Central District of California
under the case name Steven A. Kornfeld v. James L. Forquer, et al. On
October 6, 1994, a complaint was filed by a shareholder in the United States
District Court for the Central District of California with the title Lisa
Brenner v. Bruce Edwards, et al. The October 6th complaint names the Company
and certain of its officers and directors as defendants, asserts claims under
the state and federal securities laws based on allegations that the Company made
inadequate and false disclosures, and seeks unspecified compensatory damages and
related fees and costs. The March 3rd, March 14th, September 12th and
October 6th complaints are being treated as related cases by the court.
Management has reviewed the allegations and the complaints and believes such
allegations are without merit. Management intends to vigorously defend these
litigations. Management does not believe that the outcome of these matters will
have a material adverse impact on the Company's consolidated financial position
or results of operations.
The Internal Revenue Service ("IRS") is currently examining the Company's
1989, 1990 and 1991 federal income tax returns. In addition, the IRS has
completed its examination of the Company's 1987 and 1988 federal income tax
returns and has proposed adjustments to the Company's federal tax liabilities
for such years of approximately $8.3 million, excluding interest. The majority
of such proposed adjustments relate to the
AST RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 1, 1994
allocation of income between the Company and its foreign subsidiaries.
Management believes that the Company's position has substantial merit and
intends to vigorously contest these proposed adjustments. Management further
believes that any liability that may result upon the final resolution of the
proposed adjustments or the current examinations will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
The Company has been named as a defendant or co-defendant, frequently with
other personal computer manufacturers, including IBM, AT&T, Unisys, Digital
Equipment Corporation, NEC, Olivetti, NCR, Panasonic, and Matsushita, in
thirteen similar lawsuits each of which alleges as a factual basis the
occurrence of carpal tunnel syndrome or repetitive stress injuries. Such claims
are being alleged with increasing frequency regarding the use of various
computer products. The claims total approximately $15 million in compensatory
damages, $130 million in punitive damages, and additional unspecified amounts.
The Company has denied or is in the process of denying the claims and intends to
vigorously defend the suits. The suits naming the Company are just a few of the
many lawsuits of this type which have been filed, often naming IBM and other
major computer companies. The Company is unable at this time to predict the
ultimate outcome of these suits. Ultimate resolution of the litigation against
the Company may depend on progress in resolving this type of litigation overall.
The Company believes that the claims in the suits filed against it will not have
a material impact on the Company's consolidated financial position or results of
operations. The Company has maintained various liability insurance policies
during the period covering the claims filed above. While such policies may
limit coverage under certain circumstances, the Company believes that it is
adequately insured against potential losses that may result from these claims.
Should the Company not be successful in defending against such lawsuits or not
be able to claim compensation under its liability insurance policies, the
Company's profitability and financial condition may be adversely affected.
The Company is also subject to other legal proceedings and claims which also
arise in the normal course of business. While the outcome of these proceedings
and claims cannot be predicted with certainty, management does not believe the
outcome of any of these matters will have a material adverse effect on the
Company's consolidated financial position or results of operations.
Per Share Information
Primary earnings (loss) per common share have been computed based upon the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares result from the assumed exercise of outstanding stock
options that have a dilutive effect when applying the treasury stock method.
Fully diluted earnings (loss) per share were antidilutive or not materially
different from primary earnings (loss) per share.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
October 1, July 2,
(In thousands) 1994 1994
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Purchased parts $ 114,563 $ 99,959
Work in process 39,521 53,765
Finished goods 186,678 180,005
- - -----------------------------------------------------------------------------------------------------------
$ 340,762 $ 333,729
===========================================================================================================
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 1, 1994
RESULTS OF OPERATIONS
The following table shows the results of operations for the periods indicated
as a percentage of net sales.
<TABLE>
<CAPTION>
Percentage of Net Sales
Three Months Ended
----------------------------
October 1, October 2,
1994 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 92.5 83.3
- - ------------------------------------------------------------------------------------------------------------
Gross profit 7.5 16.7
- - ------------------------------------------------------------------------------------------------------------
Selling and marketing expenses 10.5 8.2
General and administrative expenses 4.5 3.4
Engineering and development expenses 2.0 2.0
- - ------------------------------------------------------------------------------------------------------------
Operating income (loss) (9.5) 3.1
Other expense, net (0.6) (0.7)
- - ------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (10.1) 2.4
Provision (benefit) for income taxes (2.0) 0.8
- - ------------------------------------------------------------------------------------------------------------
Net income (loss) (8.1%) 1.6%
============================================================================================================
</TABLE>
Sales
Net sales for the three-month period ended October 1, 1994 decreased 4% to
$495.4 million from $514.4 million in the three-month period ended October 2,
1993. This decline in revenues was primarily due to lower desktop systems sales
partially offset by increased shipments of the Company's notebook system
products. Unanticipated product development and production delays contributed
to lower desktop systems sales. Also contributing to lower revenues were
pricing and promotional activities undertaken by the Company prompted by
continued industrywide competitive pricing pressures. Going forward, the Company
anticipates additional pricing actions as it attempts to maintain its
competitive price and performance product mix; however, there can be no
assurance that further pricing actions will be effective in stimulating sales
growth. The Company shipped 309,000 computer systems in the first three months
of fiscal 1995, a decrease of 7% from the 332,000 units shipped in the same
prior year period.
Revenues from desktop system products decreased 7% to $304.2 million for the
three-month period ended October 1, 1994 from $327.9 million in the comparable
prior year period. Increased sales of the Advantage! (R) 486DX and SX, the
BravoTM 486DX and PentiumTM desktops were offset by declines in revenues from
the PremmiaTM 486DX and Tandy (R) desktop systems sales. Included within
total desktop revenues were sales of the Company's 80386 systems which
declined to $2.6 million in the three-month period ended October 1, 1994,
compared to $25.0 million in the first three months of fiscal 1994.
The Company's notebook computer product revenues rose 15% to $120.7 million in
the three-month period ended October 1, 1994 from $104.9 million in the
comparable prior year period. This increase reflects a 19% increase in unit
shipments to 63,000 for the three-month period ended October 1, 1994 from 53,000
in the same prior year period. Notebook systems sales growth occurred in all
key notebook product line offerings including Bravo, Advantage! and the
AscentiaTM notebook computer lines.
North American revenues (including Canada) decreased by 9% to $324.5 million
during the first three months of fiscal 1995 over the comparable prior year
period. Sales to the national distributor channel rose substantially,
increasing 87% over the same prior year quarter and accounted for 16% of total
North American revenues versus 8% in the comparable fiscal 1994 period. Sales
to the independent reseller/dealer channel for the three-month period ended
October 1, 1994 rose 2% over the same prior year period and accounted for 49% of
total North American revenues. Revenue from the consumer retail channel
decreased 26% over the comparable prior year quarter primarily due to lower
Tandy branded systems sales. The Company currently anticipates that its second
quarter consumer retail channel sales, while up from those recorded in the first
quarter, will be below the level recorded in the second quarter of fiscal 1994.
Revenue from the original equipment manufacturers ("OEM") channel significantly
declined during the first quarter of fiscal 1995 due to the completion of two
large OEM contracts in the fourth quarter of fiscal 1994. The Company expects
revenues from the OEM channel to represent a smaller portion of its revenue base
in fiscal year 1995 compared to fiscal year 1994 as the Company emphasizes its
focus on AST (R) brand products. The consumer retail channel and the OEM channel
accounted for 33% and 2%, respectively, of total North American revenues during
the three-month period ended October 1, 1994.
First quarter fiscal 1995 international revenues rose 7% to $170.9 million
from $159.3 million in the comparable prior year period and accounted for 34% of
total fiscal 1995 revenues. The European region provided 63% of total
international revenues for the period ended October 1, 1994, a 25% increase over
the same period last year. Increased demand for the Company's Bravo 486-based
desktop systems and the Bravo and Ascentia notebook systems contributed to the
European revenue growth. In addition, the Company established a centralized
European manufacturing, distribution and service operation in Limerick, Ireland
which began limited desktop production during fiscal year 1994. The Company
expects the Ireland facilities to be fully operational by the end of the second
quarter of fiscal 1995.
Pacific Rim revenues totaled $47.6 million in the three-month period ended
October 1, 1994, down 23% from the prior year total of $61.6 million. The
decline in the fiscal 1995 growth rate was attributable to significantly
increased competition within the People's Republic of China ("PRC") and to lower
sales to one of the Company's major customers in the first quarter of fiscal
1995 compared to the same period last year. The Company anticipates that these
competitive pressures will continue, which may adversely impact the Company's
net sales and profitability. Revenues from the Company's Australian subsidiary
increased 99% in the first quarter of fiscal 1995 over the same prior year
period.
A significant portion of the Company's Pacific Rim revenues are derived from
sales to the Hong Kong government and to Hong Kong based dealers who ultimately
market the Company's products within the PRC. Although the PRC has historically
provided the Company with significant revenues and profitability, future sales
of the Company's products into the PRC are highly dependent upon continuing
favorable trade relations between the United States and the PRC and the general
economic and political stability of the region. Economic factors such as
competitive pricing, short-term fluctuations in foreign currency exchange rates
and changes in the PRC tax structure could have a corresponding impact on future
sales and operating results.
In the Company's Rest of World region, revenues increased 35% to $15.1 million
in the three-month period ended October 1, 1994 compared to the same prior year
period. This increase is primarily due to a 47% growth rate in the Company's
Middle East operations.
Gross Profit
Gross profit margins decreased to 7.5% in the three-month period ended October
1, 1994 from 16.7% in the three-month period ended October 2, 1993. This
decline in margins was a result of unanticipated product development and
production delays, certain component constraints, as well as continued intense
industrywide competitive pressures which required pricing reductions at a rate
faster than the Company was able to reduce costs. The Company believes that the
industry will continue to be characterized by rapid introduction of new
products, rapid technological advances and product obsolescence. If the
Company's products become technically obsolete, the Company's net sales and
profitability may be adversely affected. Lower gross margins could also result
in decreased liquidity and adversely affect the Company's financial position.
The personal computer industry continues to experience significant pricing
pressures and the Company believes that industry consolidation and restructuring
will continue to result in an aggressive pricing environment and continued
pressure on the Company's gross profit margins during fiscal 1995. During the
first quarter of fiscal 1995, the Company and the majority of its competitors
continued to introduce new, lower-priced, higher performance personal computers
resulting in continued pricing pressures on both new and older technology
products. There can be no assurance that future pricing actions by the Company
and its competitors will not adversely impact the Company's gross margins or
profitability.
The results of the Company's international operations are subject to currency
fluctuations. As the value of the U.S. dollar weakens relative to other
currencies, revenues from sales in those currencies convert to more U.S.
dollars. This effect on revenue has a corresponding impact on gross profit, as
the Company's production costs are incurred primarily in U.S. dollars. When
comparing the three-month period ended October 1, 1994 to the three-month period
ended October 2, 1993, the U.S. dollar declined against nearly all European
currencies. This year-to-year currency fluctuation resulted in an approximate
one percentage point gross margin increase in fiscal year-to-date 1995 results
compared to the comparable prior year period.
Operating Expenses
Total operating expenses increased 20.2% to $84.0 million for the three-month
period ended October 1, 1994 from $69.9 million for the three-month period ended
October 2, 1993. As a percentage of sales, operating expenses increased to
17.0% from 13.6% in the comparable prior year period. The increase in operating
expenses in the aggregate and as a percentage of sales was primarily due to
continued worldwide expansion in anticipation of higher than realized sales.
Selling and marketing expenses increased 23.3% to $51.9 million for the three
months ended October 1, 1994 from $42.1 million in the prior year period.
Selling and marketing expenses increased due to higher payroll and related costs
consistent with increases in worldwide sales and marketing staff. Enhanced
product marketing and dealer promotional activities resulted in higher expenses
for cooperative advertising, other promotions and sales literature related to
new product introductions. Additionally, the Company's continued focus on
increasing brand name awareness led to an increase in media advertising
expenses. As a percentage of sales, selling and marketing expenses increased to
10.5% for the period ended October 1, 1994 from 8.2% in the prior year period.
General and administrative expenses increased by 26.6% to $22.3 million for
the three-month period ended October 1, 1994 from $17.6 million in the same
fiscal 1994 period. Worldwide expansion, including operations in Ireland and
China, resulted in increased payroll and administrative costs. The Company also
incurred higher legal fees due to increased litigation activity and additional
patent/trademark expenses resulting from an expanded patent/trademark portfolio
acquired from Tandy. Depreciation and amortization expense rose due to increased
goodwill amortization resulting from the fiscal 1994 fourth quarter final
purchase price allocation of Tandy Corporation's personal computer manufacturing
operations. As a percentage of sales, general and administrative expenses
increased to 4.5% from 3.4% in the comparable prior year period.
Engineering and development costs declined by 3.3% to $9.9 million for the
three-month period ended October 1, 1994 from $10.2 million in the comparable
prior fiscal period. Lower payroll and related costs were partially offset by
increased engineering material expenses and other professional fees relating to
new product development activities. Products introduced in the first quarter of
fiscal 1995 included the Advantage! Adventure 4000, the Bravo MS and Premmia MX
desktops, the ManhattanTM V and P series of Pentium-based servers and the
Ascentia 800N value notebook. As a percentage of sales, engineering and
development expenses were constant at 2.0%.
Other Income and Expense
For the three-month period ended October 1, 1994, the Company had net interest
expense of $2.8 million compared to $1.4 million in the corresponding fiscal
1994 period. Interest expense increased as a result of the additional interest
expense related to the note payable to Tandy, the debt associated with the
Company's December 1993 issuance of Liquid Yield Option Notes and increased
utilization of the Company's bank credit facilities.
In the first three months of fiscal 1995, the Company recognized net other
expenses of $.3 million compared to $2.2 million for the same fiscal 1994
period. These amounts relate primarily to foreign currency transaction and
remeasurement gains and losses and the costs associated with the Company's
foreign currency hedging activities. The Company adheres to a hedging strategy
which is designed to minimize the effect of remeasuring local currency balance
sheets of its foreign subsidiaries on the Company's consolidated financial
position and results of operations.
Provision (Benefit) for Income Taxes
The Company recorded an effective tax benefit of 20% for the quarter ended
October 1, 1994. This compares to an effective income tax provision of 34% for
the same prior year period. The decrease in the fiscal 1995 effective tax rate
is attributable to changes in the proportion of income earned or losses
sustained within various taxing jurisdictions and the tax rates in the location
in which those earnings or losses were generated, as well as the Company's
inability to benefit certain deferred tax assets. The realization of deferred
tax assets is in large part dependent on future earnings, the timing and amount
of which may be impacted by a number of factors, including those discussed below
under "Additional Factors That May Affect Future Results." To the extent the
Company does not ultimately realize future taxable income or cannot reasonably
expect future taxable income, the Company's effective tax rate may be negatively
impacted.
LIQUIDITY AND CAPITAL RESOURCES
Working capital of $392.8 million at October 1, 1994 included cash and cash
equivalents of $100.7 million compared to working capital of $434.5 million and
cash and cash equivalents of $153.1 million at July 2, 1994. The Company had
short-term borrowings of $50.0 million at both October 1, 1994 and July 2, 1994.
During the first three months of fiscal 1995, the Company used $42.5 million of
cash principally to fund its operating loss for the quarter.
Net cash used in investing activities decreased during fiscal 1995 compared
with fiscal 1994, primarily due to a one-time cash payment of $15 million
related to the Tandy/GRiD acquisition recorded during the first quarter of
fiscal 1994, partially offset by an increase in capital expenditures in fiscal
1995. Capital expenditures totaled $8.6 million in the first three months of
fiscal 1995 and consisted primarily of additions to plant and engineering
equipment.
The Company intends to fund its fiscal 1995 cash requirements through a
combination of cash on hand, cash provided by operations, available borrowings
under its committed revolving credit facilities and uncommitted money market
lines, and possible future public or private debt and/or equity offerings. At
October 1, 1994, the Company had available a $300 million unsecured committed
revolving credit facility with a final maturity date of September 30, 1996.
This revolving credit agreement allows the Company to borrow, subject to certain
leverage and total debt restrictions, at rates based upon the bank's reference
rate, or a spread of .625% over the LIBOR rate, .75% over the domestic
certificate of deposit rate, or at a rate bid by a bank, as selected by the
Company. At October 1, 1994, there was $45 million outstanding as drawings
under this credit facility and $67.7 million outstanding in the form of a letter
of credit issued to Tandy Corporation in support of the acquisition note
payable. The Company also had $5 million outstanding under an uncommitted money
market line of credit. The Company expects that it will continue to incur
short-term borrowings in order to finance working capital and capital
expenditure requirements. The Company also has various additional letter of
credit facilities available for use by the Company and its subsidiaries. The
Company's ability to fund its activities from operations is directly
dependent upon its rate of growth, ability to effectively manage its
inventory, the terms under which it extends credit to its customers and its
ability to collect under such terms, the manner in which it finances any
capital expansion, and the Company's ability to access external sources of
financing.
On September 28, 1994, the Company obtained a waiver to its $300 million
unsecured revolving credit facility from the banks participating in the credit
facility. This agreement waived certain financial covenants for the last day of
the fiscal quarter ending October 1, 1994 and a potential event of default under
the credit agreement for the period of October 1, 1994 through December 30,
1994. While the Company has not been in default and is currently not in default
on its $300 million revolving credit agreement, the Company will likely be in
default at December 31, 1994, under the existing terms of the credit agreement
due to its net loss for the fiscal quarter ended October 1, 1994. Accordingly,
the Company must either obtain an additional waiver agreement or amend the terms
of the credit agreement to prevent an event of default from occurring at
December 31, 1994. The Company is currently in negotiations with the bank
participants in the revolving credit agreement and currently has no reason to
believe that it will not be able to either renegotiate the terms of the credit
agreement or obtain a waiver to cure or avoid any potential defaults under the
existing terms of the credit agreement due to the Company's recent financial
performance. However, no assurance can be given that such an amendment or
waiver will be obtained.
In connection with the Tandy acquisition, the Company issued a $96.7 million
promissory note to Tandy Corporation which is due on July 11, 1996. Interest
due the first year was paid on July 11, 1994 at an initial rate of 3.75% per
annum. The interest rate has been adjusted to 4.94% per annum, effective July
11, 1994 and will be adjusted once more on July 11, 1995 to the lower of either
5% or the "lowest three month rate" within the meaning of Section 1274(d)(2) of
the Internal Revenue Code of 1986 as of July 11, 1995. There are no sinking
fund requirements. The note also requires the Company to maintain a standby
letter of credit payable to Tandy in the amount of 70% of the face value of the
note or $67.7 million. Upon maturity of the note, up to 50% of the initial
principal amount of the promissory note may be converted, at the option of the
Company, into common stock of the Company based upon its then fair market value,
as defined in the promissory note.
On December 14, 1993, the Company issued $315 million par value of Liquid
Yield Option Notes ("LYONs") due December 14, 2013. The LYONs are zero coupon
convertible subordinated notes which were sold at a significant discount from
par value with a yield to maturity of 5.25% and a total value at maturity of
$315 million. There are no periodic payments of interest on the LYONs. Each
$1,000 principal amount at maturity of LYONs is convertible into 12.993 shares
of the Company's common stock at any time. Upon conversion of a LYON, the
Company may elect to deliver shares of common stock at the conversion rate or
cash equal to the market value of the shares of common stock into which the
LYONs are convertible. Total proceeds received from the sale of the LYONs were
approximately $111.7 million, which have been utilized for working capital,
including the financing of expected increases in accounts receivable and
inventories, repayment of bank borrowings under the Company's revolving credit
facilities, new product development, and other general corporate purposes. The
holder of a LYON may require the Company to purchase its LYONs on December 14,
1998, December 14, 2003 and December 14, 2008 (the "Purchase Dates"), and such
payments may reduce the liquidity of the Company. However, the Company may,
subject to certain exceptions, elect to pay the purchase price on any of the
three Purchase Dates in cash or shares of common stock or any combination
thereof. The Company has made no decision as to whether it will meet future
purchase obligations in cash, common stock, or any combination thereof. Such
decision will be based on market conditions at the time a decision is required,
as well as management's view of the liquidity of the Company at such time. The
total accreted value of the LYONs at October 1, 1994 is $114,666,300.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Future operating results may be impacted by a number of factors, including
worldwide economic and political conditions, industry specific factors, the
availability and cost of components, the Company's ability to timely develop and
produce commercially viable products, the Company's ability to manage expense
levels in response to more competitive gross profit margins, the continued
financial strength of the Company's dealers and distributors, the Company's
ability to accurately anticipate customer demand, and the Company's ability to
successfully complete the integration of the acquired Tandy/GRiD operations into
the Company's business model.
The Company's future success is highly dependent upon its ability to continue
to timely produce and market products that incorporate new technology, are
priced competitively and achieve significant market acceptance. There can be no
assurance that the Company's products will continue to be commercially
successful or technically advanced due to the rapid improvements in computer
technology and resulting product obsolescence. There is also no assurance that
the Company will be able to deliver commercial quantities of new products in a
timely manner, or that such products will receive favorable market acceptance.
The Company regularly introduces new products designed to replace existing
products. While the Company closely monitors new product introductions and
product obsolescence, there can be no assurance that such transitions will occur
without adversely affecting the Company's net sales and profitability. In
addition, if the Company is unable to accurately anticipate the customer demand
shift from 486-based systems to systems utilizing Pentium processors, the
product life cycles of the Company's 486-based systems could be shortened which
may require additional inventory valuation reserves and could have a material
adverse effect on the Company's net sales and profitability.
Increases in demand for personal computers have created industrywide
shortages, which at times have resulted in premium prices being paid for key
components, such as Dynamic Random Access Memories and high quality liquid
crystal display screens. These shortages have occasionally resulted in the
Company's inability to procure these components in sufficient quantities to meet
demand for its products. In addition, a number of the Company's products
include certain components, such as active-matrix displays, CD-ROMs, application
specific integrated circuits, and microprocessors, that are currently purchased
from single sources due to availability, price, quality or other considerations.
The Company purchases components pursuant to purchase orders placed in the
ordinary course of business and has no guaranteed supply arrangements with
single source suppliers. While the Company is working with its suppliers to
minimize component part shortages, there can be no assurance that future
disruptions in delivery of components will not occur. Should delays or
shortages occur or component costs significantly increase, the Company's net
sales and profitability could be adversely affected.
The Company participates in a highly volatile industry that is characterized
by dynamic customer demand patterns, rapid introduction of new products, rapid
technological advances, and industrywide competition resulting in an extremely
competitive pricing environment with downward pressure on gross margins. The
Company anticipates that the personal computer industry will continue to
experience intense price competition and dramatic price reductions during fiscal
1995. There can be no assurance that future pricing actions by the Company and
its competitors will not adversely impact the Company's net sales and
profitability.
Consistent with industry practice, the Company provides certain of its larger
distributors, consumer retailers and dealers with stock balancing and price
protection rights that permit these distributors, retailers and dealers to
return slow-moving products to the Company for credit or to receive price
adjustments if the Company lowers the price of selected products within certain
time periods. There can be no assurance that the Company will not experience
rates of return or price protection adjustments that could have a material
adverse impact on the Company's net sales and profitability in the future.
The Company believes that, with the acquisition of additional manufacturing
facilities from Tandy Corporation and the acquisition of manufacturing
facilities both in the PRC and Ireland, production capacity should be sufficient
to support anticipated increases in unit volumes. The Company also expects that
gross inventory levels will increase to support higher production volumes.
However, if the Company is unable to obtain certain key components, or to
effectively forecast customer demand or manage its inventory, these higher
inventory levels may result in increased obsolescence and adversely impact the
Company's gross margins and results of operations. Additionally, if the Company
is unable to bring its new Texas and Ireland manufacturing operations into full
production, this could also adversely impact the Company's net sales, gross
profit and profitability.
The Company's overall operating income varies within each geographic region.
Historically, the Company's Americas and Pacific Rim regions have made the
primary contributions to the Company's profitability. Therefore, should the
Company experience significant revenue and/or profitability declines in either
region, this could significantly impact the Company's overall net sales and
profitability.
The Company's international operations are affected by foreign currency
fluctuations. The financial statements of the Company's foreign subsidiaries
are remeasured into the United States dollar functional currency for
consolidated reporting purposes. Gains and losses resulting from this
remeasurement process are recognized currently in the consolidated results of
operations. The Company attempts to minimize the impact of these remeasurement
gains and losses by adhering to a hedging strategy utilizing forward exchange
contracts and, to a lesser extent, foreign currency borrowings. The Company's
exposure to currency fluctuations will continue to increase as a result of the
expansion of its international operations. Significant fluctuations in currency
values could have an adverse effect on the Company's net sales, gross margins
and profitability.
The Company's international operations may also be affected by changes in
United States trade relationships, increased competition and the economic
stability of the locations in which sales occur. The Company operates in
foreign locations, such as the PRC, where future sales may be dependent upon
continuing favorable trade relations. Additionally, foreign locations such as
the PRC may experience changes in their general economic stability due to such
factors as increased inflation and political turmoil. Any significant change in
United States trade relations or the economic stability of foreign locations in
which the Company sells its products could have an adverse effect on the
Company's net sales and profitability.
The personal computer industry presents risks for claims of infringement of
patents, trademarks and copyrights. From time to time, the Company may be
notified that certain of its products may infringe upon the intellectual
property rights of others. The Company generally evaluates all such notices on
a case-by-case basis to determine whether licenses are necessary or desirable.
If such claims are made, there can be no assurance that licenses will be
available on commercially reasonable terms or that retroactive royalty payments
on sales of the Company's computers will not be required. In addition,
substantial costs may be incurred in disputing such claims. The Company
believes that the actions it takes to avoid or minimize the impact to the
Company of such claims are prudent; however, there can be no assurance that such
claims will not occur or, if successful, would not have a material adverse
effect on the Company's business operations and profitability.
The Company's ability to compete is highly dependent upon its financial
strength and its ability to adequately fund its operations. The Company's
sources of financing include cash on hand, cash provided from operations,
borrowings under its committed revolving credit facility and possible future
public or private debt and/or equity offerings. The Company's future success is
directly dependent upon its continued access to sources of financing. While the
Company closely monitors its financing requirements to ensure that it has
adequate financial resources available, there can be no assurance that financing
sources will continue to be available to the Company which, if unavailable,
could have a material adverse effect on the Company's business operations.
The Company's primary means of distribution remains third-party computer
resellers and consumer channels. While the Company continuously monitors and
manages the credit it extends to resellers to limit its credit risk, the
Company's business could be adversely affected in the event that the financial
condition of third-party computer resellers weakens. In the event of the
financial failure of a major reseller, the Company would experience disruptions
in its distribution as well as the loss of the unsecured portion of any
outstanding accounts receivable.
The Company's corporate headquarters facility, at which the majority of its
research and development activities are conducted, and certain manufacturing
operations are located near major earthquake faults which have experienced
earthquakes in the past. While the Company does carry insurance at levels
management believes is prudent, in the event of a major earthquake affecting one
or more of the Company's facilities, it is likely that insurance proceeds would
not cover all of the costs incurred and, therefore, the operations and operating
results of the Company could be adversely affected.
Because of these and other factors affecting the Company's operating results,
past financial performance should not be considered a reliable indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's participation
in the highly dynamic personal computer industry often results in significant
volatility in the Company's common stock price.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1989, Texas Instruments Inc. ("TI") advised the Company that it
believed certain AST computer products infringe certain TI patents. On January
4, 1994, the Company initiated litigation (the "California action") in the U.S.
District Court for the Central District of California against TI alleging
certain violations of licensing agreements, federal antitrust laws and the
California Unfair Practices Act. In addition, the Company alleged that TI is
infringing an AST patent and that certain TI patents are invalid or
inapplicable. TI has alleged in the California action that the Company is
infringing patents owned by TI. On August 26, 1994, TI filed a lawsuit in the
U.S. District Court for the Eastern District of Texas against the Company
alleging infringement of patents in addition to those asserted by TI in the
California action. These litigations with TI are proceeding. Management does
not believe that the outcome of these matters will have a material adverse
impact on the Company's consolidated financial position or results of
operations.
On March 3 and March 14, 1994, complaints were filed by two shareholders
against the Company and certain of its officers and directors requesting
certification of a class action, asserting claims under state and federal
securities laws based on allegations that the Company made inadequate and false
disclosures and seeking unspecified compensatory damages and related fees and
costs. The complaints were filed in the United States District Court for the
Central District of California. On May 9, 1994, the Court consolidated the two
cases under the case name In re AST Securities Litigation. On September 12,
1994, a complaint was filed by a shareholder against the Company and certain of
its officers and directors requesting certification of a class action, asserting
claims under state and federal securities laws based on allegations that the
Company made inadequate and false disclosures and seeking unspecified
compensatory damages and related fees and costs. The September 12 complaint was
filed in the United States District Court for the Central District of California
under the case name Steven A. Kornfeld v. James L. Forquer, et al. On
October 6, 1994, a complaint was filed by a shareholder in the United States
District Court for the Central District of California with the title Lisa
Brenner v. Bruce Edwards, et al. The October 6th complaint names the Company
and certain of its officers and directors as defendants, asserts claims under
the state and federal securities laws based on allegations that the Company made
inadequate and false disclosures, and seeks unspecified compensatory damages and
related fees and costs. The March 3rd, March 14th, September 12th and
October 6th complaints are being treated as related cases by the court.
Management has reviewed the allegations and the complaints and believes such
allegations are without merit. Management intends to vigorously defend these
litigations. Management does not believe that the outcome of these matters will
have a material adverse impact on the Company's consolidated financial position
or results of operations.
The Company received a confidential inquiry letter dated October 19, 1994 from
the Securities and Exchange Commission ("SEC"). The letter asked for documents
and information relating to the restructuring charge taken by the Company as of
June 30, 1993 and subsequent reevaluations of assets acquired and liabilities
assumed as a result of the 1993 transaction with Tandy. The letter stated that
it should not be construed as an adverse reflection on any person, entity or
security, or as an indication by the SEC or its staff that any violation of law
has occurred. The Company is cooperating with the SEC in this informal inquiry.
The Company received an inquiry letter dated October 21, 1994 from the
National Association of Securities Dealers, Inc. ("NASD"). The letter asked for
documents and information relating to events surrounding the Company's
August 31, 1994 announcement that it anticipated lower first quarter
performance. The letter stated that the documents and information were for a
routine review of trading in the Company's stock surrounding the August 31, 1994
announcement. The Company is cooperating with the NASD in this inquiry.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
3.1.1 Certificate of Amendment of Certificate of
Incorporation of AST Research, Inc., a Delaware corporation,
filed November 3, 1994.
11. Computation of Net Income (Loss) Per Share.
(b) Reports on Form 8-K
On July 12, 1994, the Company filed a report on Form 8-K
reporting under Item 5 thereof regarding the appointment of James T.
Schraith as President and Chief Operating Officer and Bruce C. Edwards
as Executive Vice President, effective July 7, 1994, and the election of
both James T. Schraith and Bruce C. Edwards to the Board of Directors,
effective July 11, 1994.
</TABLE>
AST and Advantage! are registered trademarks of AST Research, Inc. Ascentia,
Bravo, Premmia and Manhattan are trademarks of AST Research, Inc. Pentium is a
trademark of Intel Corporation. Tandy is a registered trademark of Tandy
Corporation. All other product or service names mentioned herein may be
trademarks or registered trademarks of their respective owners.
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.
AST Research, Inc.
(Registrant)
Date: November 11, 1994 /s/ Bruce C. Edwards
Bruce C. Edwards
Executive Vice President
and Chief Financial Officer
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AST RESEARCH, INC.,
A DELAWARE CORPORATION
(Pursuant to Section 242 of the Delaware General Corporation Law)
AST RESEARCH, INC., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AST Research, Inc.,
resolutions were duly adopted setting forth proposed amendments of the Restated
Certificate of Incorporation of said corporation, declaring said amendments to
be advisable and directing that said amendments be submitted to the stockholders
of said corporation for consideration thereof. The resolutions setting forth
the proposed amendments are as follows:
RESOLVED, that the text of paragraph (a) of Article 4 of the
corporation's Certificate of Incorporation be amended to read as
follows:
"ARTICLE 4 - AUTHORIZED CAPITAL. (a) The total number of shares
of capital stock which the corporation has the authority to issue
is 201,000,000, consisting of 200,000,000 shares of Common Stock,
$0.01 par value per share (the "Common Stock"), and 1,000,000
shares of Preferred Stock, $0.01 par value per share (the
"Preferred Stock")."
RESOLVED, that the text of paragraph (a) of Article 5 of the
corporation's Certificate of Incorporation be amended to read as
follows:
"ARTICLE 5 - ELECTION OF DIRECTORS. (a) The Board of Directors
shall consist of not less than five nor more than nine members.
The exact number of authorized directors shall initially be seven
and, thereafter, shall be fixed from time to time, within the
foregoing limits, by resolution of the Board of Directors."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
meeting of the stockholders of said corporation was duly called and held, upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the provisions
of Section 242 of the Delaware General Corporation Law.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said corporation has caused this Certificate of Amendment to
be signed by James T. Schraith, its President, and attested by Dennis R. Leibel,
its Secretary, this 28th day of October, 1994.
BY: /s/ JAMES T. SCHRAITH
James T. Schraith
President
ATTEST: /s/ DENNIS R. LEIBEL
Dennis R. Leibel
Secretary
EXHIBIT 11
AST RESEARCH, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
October 1, October 2,
(In thousands, except per share amounts) 1994 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Primary earnings (loss) per share
Shares used in computing primary earnings per share:
Weighted average shares of common stock outstanding 32,346 31,590
Effect of stock options treated as common stock
equivalents under the treasury stock method - 412
---------- ---------
Weighted average common and common equivalent
shares outstanding 32,346 32,002
---------- ---------
Net income (loss) $ (39,888) $ 8,232
========== =========
Earnings (loss) per share - primary $ (1.23) $ .26
========== =========
Fully diluted earnings (loss) per share
Shares used in computing fully diluted earnings per share:
Weighted average shares of common stock outstanding 32,346 31,590
Effect of stock options treated as common stock
equivalents under the treasury stock method - 541
---------- ---------
Weighted average common and common equivalent
shares outstanding 32,346 32,131
---------- ---------
Net income (loss) $ (39,888) $ 8,232
========== =========
Earnings (loss) per share - fully diluted $ (1.23) $ .26
========== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying Consolidated Balance Sheets and Consolidated Statements of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-END> OCT-01-1994
<CASH> 100,724
<SECURITIES> 0
<RECEIVABLES> 339,815
<ALLOWANCES> 17,303
<INVENTORY> 340,762
<CURRENT-ASSETS> 834,930
<PP&E> 162,763
<DEPRECIATION> 58,599
<TOTAL-ASSETS> 1,008,733
<CURRENT-LIABILITIES> 442,169
<BONDS> 215,319
<COMMON> 324
0
0
<OTHER-SE> 344,089
<TOTAL-LIABILITY-AND-EQUITY> 1,008,733
<SALES> 495,446
<TOTAL-REVENUES> 495,446
<CGS> 458,147
<TOTAL-COSTS> 458,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,044
<INTEREST-EXPENSE> 3,289
<INCOME-PRETAX> (49,860)
<INCOME-TAX> (9,972)
<INCOME-CONTINUING> (39,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,888)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> (1.23)
</TABLE>
