<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 SEPTEMBER 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from to .
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Commission file number 0-13381
MYLEX CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2291597
- ------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.
incorporation or organization)
34551 Ardenwood Blvd., Fremont, California 94555
- ------------------------------------------- ---------
(Address of principal executive offices) ZIP Code
Registrant's telephone number (including area code): (510) 796-6100
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 shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 16,867,035 shares
----------------------------- ------------------
Class Outstanding at September 30,1995
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MYLEX CORPORATION
BALANCE SHEET
(IN $000'S)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPT 30 DEC 31
ASSETS 1995 1994
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<S> <C> <C>
CURRENT ASSETS:
CASH AND EQUIVALENTS $32,647 $3,866
ACCOUNT RECEIVABLE 18,705 11,321
ALLOWANCE FOR DOUBTFUL ACCOUNTS (510) (532)
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ACCOUNTS RECEIVABLE, NET 18,195 10,789
INVENTORIES 19,142 10,237
PREPAID EXPENSES & OTHER CURRENT ASSETS 1,697 775
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TOTAL CURRENT ASSETS $71,681 $25,667
PROPERTY AND EQUIPMENT, NET 1,635 1,579
OTHER ASSETS 112 112
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TOTAL ASSETS $73,428 $27,358
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--------- ---------
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $8,009 $3,187
ACCRUED LIABILITIES 4,856 3,151
LINE OF CREDIT PAYABLE TO BANK 0 2,350
CURRENT PORTION OF LONG-TERM
CAPITAL LEASE OBLIGATIONS 326 417
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TOTAL CURRENT LIABILITIES $13,191 $9,105
LONG-TERM CAPITAL LEASE OBLIGATIONS 269 493
STOCKHOLDERS' EQUITY
COMMON STOCK 169 146
ADDITIONAL PAID-IN CAPITAL 47,746 13,526
RETAINED EARNINGS (DEFICIT) 12,053 4,088
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TOTAL STOCKHOLDERS' EQUITY $59,968 $17,760
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $73,428 $27,358
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
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MYLEX CORPORATION
STATEMENTS OF OPERATIONS, THREE MONTHS ENDED
UNAUDITED
(IN $000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPT 30 SEP 30
1995 1994
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<S> <C> <C>
NET SALES $28,176 $16,119
COST OF SALES 17,631 10,378
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GROSS PROFIT 10,545 5,741
OPERATING EXPENSES:
SELLING AND MARKETING 1,295 946
RESEARCH AND DEVELOPMENT 1,189 814
GENERAL AND ADMINISTRATION 2,654 1,014
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TOTAL OPERATING EXPENSES $5,138 $2,774
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OPERATING PROFIT 5,407 2,967
INTEREST INCOME 26 11
INTEREST EXPENSE (72) (110)
OTHER EXPENSE (36) (20)
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INCOME BEFORE TAXES $5,325 $2,848
INCOME TAX EXPENSE (BENEFIT) 2,117 712
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NET INCOME $3,208 $2,136
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EARNINGS PER COMMON SHARE:
PRIMARY $0.20 $0.14
FULLY DILUTED $0.20 $0.14
AVERAGE COMMON SHARE OUTSTANDING:
PRIMARY 16,220,400 14,819,800
FULLY DILUTED 16,267,000 15,718,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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MYLEX CORPORATION
STATEMENTS OF OPERATIONS, NINE MONTHS ENDED
UNAUDITED
(IN $000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPT 30 SEP 30
1995 1994
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<S> <C> <C>
NET SALES $67,392 $43,894
COST OF SALES 42,168 29,161
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GROSS PROFIT 25,224 14,733
OPERATING EXPENSES:
SELLING AND MARKETING 3,877 2,564
RESEARCH AND DEVELOPMENT 3,267 2,379
GENERAL AND ADMINISTRATION 5,237 3,190
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TOTAL OPERATING EXPENSES $12,381 $8,133
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OPERATING PROFIT 12,843 6,600
INTEREST INCOME 45 48
INTEREST EXPENSE (156) (375)
OTHER EXPENSE (88) (62)
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INCOME BEFORE TAXES $12,644 $6,211
INCOME TAX EXPENSE (BENEFIT) 4,678 1,553
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NET INCOME $7,966 $4,658
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--------- --------
EARNINGS PER COMMON SHARE:
PRIMARY $0.50 $0.33
FULLY DILUTED $0.50 $0.31
AVERAGE COMMON SHARE OUTSTANDING:
PRIMARY 15,807,900 14,204,600
FULLY DILUTED 16,052,600 15,351,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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MYLEX CORPORATION
STATEMENT OF CASH FLOWS, NINE MONTHS ENDED
UNAUDITED
(IN $000'S)
<TABLE>
<CAPTION>
SEP 30 SEP 30
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $7,966 $4,658
TAX BENEFIT RELATED TO DISQUALIFYING
DISPOSITION OF STOCK OPTIONS 588 807
DEPRECIATION AND AMORTIZATION 769 870
INTEREST EXPENSE ON CONVERTIBLE DEBENTURES
CONVERTED TO COMMON STOCK -- 28
CHANGES IN OPERATING ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE, NET (7,407) (6,054)
INVENTORIES (8,905) (5,824)
PREPAID EXPENSES AND
OTHER CURRENT ASSETS (921) (266)
ACCOUNTS PAYABLE 4,822 3,098
ACCRUED LIABILITIES 1,705 2,451
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NET CASH USED BY OPERATING ACTIVITIES (1,383) (232)
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (825) (647)
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NET CASH USED BY INVESTING ACTIVITIES (825) (647)
CASH FLOWS FROM FINACING ACTIVITIES:
(REPAYMENTS) AGAINST LINE OF CREDIT (2,350) (900)
REPAYMENT OF CAPITAL LEASE OBLIGATIONS (315) (285)
REPAYMENT OF NOTE RECEIVABLE FROM SHAREHOLDER -- 194
PROCEEDS FROM SECONDARY PUBLIC OFFERING 32,759 --
EXERCISE OF STOCK OPTIONS 895 455
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 30,989 (536)
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NET INCREASE (DECREASE) IN CASH 28,781 (1,415)
CASH AND CASH EQUIVALENTS: AT BEGINNING OF PERIOD $3,866 $3,253
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CASH AND CASH EQUIVALENTS: AT END OF PERIOD $32,647 $1,838
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NONCASH FINANCING AND INVESTING ACTIVITIES:
CONVERSION OF SUBORDINATED DEBENTURES $ - $454
CASH PAID DURING THE PERIOD:
CASH PAID FOR INTEREST $155 $196
CASH PAID FOR INCOME TAXES $4,648 $151
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
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MYLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of the Company, the accompanying financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to fairly present the Company's financial position and its results
of operations and cash flows as of the dates and for the periods indicated.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These condensed financial
statements should be read in conjunction with the financial statements
contained within the Company's Form 10-K for the year ended December 31,
1994. The results of operations for the three months and the nine months
ended September 30, 1995, are not necessarily indicative of the operating
results for the full year.
PER SHARE DATA
Primary earnings per share is based on the weighted average common and,
when dilutive, common equivalent shares outstanding each period. Common
equivalent shares consist of dilutive shares issuable upon the exercise of
stock options and warrants. In determining fully diluted earnings per share,
convertible subordinated debentures are considered converted upon issuance
and the related interest expense, net of taxes, is added back to net income.
NOTE B. INVENTORIES (IN $000'S)
<TABLE>
<CAPTION>
Sep. 30, Dec. 31,
1995 1994
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<S> <C> <C>
Raw materials 12,071 6,924
Work-in-process 5,208 2,263
Finished goods 1,863 1,050
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Total Inventories 19,142 10,237
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-------- -------
</TABLE>
6
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NOTE C. ACCOUNTS RECEIVABLE
Northgate Computer Systems, Inc. ("Northgate") declared bankruptcy in the
fourth quarter of 1994. The Company has to date, received net proceeds of
$113,167 through the liquidation of Northgate's inventory and continues its
efforts, as an unsecured creditor through the Northgate creditor committee, to
collect on the outstanding accounts receivable due from Northgate.
NOTE D. CONTINGENCIES
On October 23, 1995 the Company entered into an agreement to settle all
disputes, that were scheduled to be arbitrated in November, 1995 between the
Company and America Megatrends Inc. ("AMI"). The disputes between the
companies revolved around 1987 licensing and distribution agreements concerning
386 mother board technology that no longer are being utilized by the Company.
The disputes were settled for an amount that approximates what the Company
reserved for this dispute as of September 30, 1995, and as a result, the
settlement will not have a material adverse effect on the Company's results of
operations in the fourth quarter of 1995.
The former Chief Executive Officer of the Company, Dr. M. A. Chowdry,
filed a complaint against the Company and its outside directors on October
13, 1994, claiming breach of an employment agreement, seeking over $6 million
in damages (which would vary based on the price of the Company's Common
Stock) and unspecified punitive damages. Dr. Chowdry voluntarily filed an
amendment to his complaint on February 23, 1995. On March 17, 1995 the
Company and the individual defendants filed a response (demurrer) to the
amended complaint. The court granted the demurrer on June 26, 1995. On July
10, 1995, Dr. Chowdry filed a second amended complaint. The Company filed a
demurrer to the second amended complaint on August 18, 1995, but the court has
not yet ruled on this demurrer. The Company believes it has meritorious
defenses and will vigorously defend this lawsuit.
NOTE E. SECONDARY OFFERING
The Company completed a secondary public offering of 2,000,000 shares of
its common stock during the third quarter of 1995. The transaction closed on
September 26, 1995, and resulted in net proceeds to the Company of $32.8
million. The underwriters had 30 days from the closing date to exercise an
over-allotment option for an additional 300,000 shares. The over-allotment
option was not exercised and expired on October 26, 1995.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION
Mylex Corporation (the "Company") was incorporated under the laws of
the State of Florida in May 1983. In September 1987, the Company moved its
headquarters and manufacturing facility from Florida to Fremont, California.
In May 1991, the Company again moved to a larger facility in Fremont,
California.
Mylex Corporation is a technology-based company engaged in the design,
development, production and marketing of high performance disk array
controllers, network interface cards, personal computer system boards and
SCSI host adaptors, as well as supporting proprietary software and firmware.
The products currently being produced by the Company provide enhanced
performance for a wide range of personal computers, workstations and servers.
All of the Company's products are sold in the high-technology electronic
products segment. The Company's customers are original equipment
manufacturers (OEMs), system integrators, value-added resellers (VARs), and
computer distributors and dealers.
As of October 31, 1995, the Company had approximately 156 employees.
The employees are not represented at the Company by any labor union nor
employed by the Company under any collective bargaining agreement.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1995 the Company financed its operations
primarily from its cash balances as of December 31, 1994, cash flow from
operations and cash generated from the exercise of stock options by the
Company's employees. The Company completed a secondary offering of 2 million
shares of its common stock and received $32.8 million in net proceeds on
September 26, 1995.
As of September 30, 1995, the Company's working capital had increased
to $58.5 million from $16.6 million at December 31, 1994. This increase in
working capital was due primarily to the $32.8 million in net proceeds from
the issuance of stock pursuant to the secondary offering and $7.4 million
growth in accounts receivable, an $8.9 million rise in inventories and a $2.4
million decrease in borrowing against the line of credit. This was offset by
an increase in accounts payable of $4.8 million and an increase in accrued
liabilities of $1.7 million for a net increase in working capital of $41.9
million. Accounts receivable increased over the year end 1994 balance due to
a high percentage of the quarter's sales occurring in September and to overall
higher sales volumes. Additionally, inventory growth was due, in part, to
increase stocking levels to support new products and to meet the shorter lead
time expectations in the Company's alternate channel sales.
8
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Cash balances are $32.6 million at end of September, 1995 up from $3.9
million at December 31, 1994. This increase was due primarily to the
infusion of $32.8 million from the issuance of 2 million additional shares of
common stock in a secondary public offering at the end of September. At the
same time, $2.4 million in borrowings against the line of credit at year end,
1994 were paid off. These changes resulted in a increase of $28.8 million to
the cash balances.
Net accounts receivable increased to $18.2 million at September 30,
1995, compared to $10.8 million at December 31, 1994, an increase of $7.4
million or 69%. This increase was attributable to a large percentage of
the quarter's sales occurring in September and to overall higher sales
volumes. The Company expects to collect amounts due related to these
receivables during the fourth quarter.
Accounts payable increased to $8.0 million at September 30, 1995,
compared to $3.2 million at December 31, 1994, an increase of $4.8 million or
150%. This increase was due to the high levels of purchases required to
support the third quarters sales volume which was up 151% over fourth quarter
of 1994.
Effective May 15, 1995, the Company renegotiated its revolving line of
credit with Imperial Bank (the "Bank"). The line of credit expires May 15,
1996, and bears an interest rate at the Bank's prime rate. Borrowing are
subject to an overall limit of $8 million. Under the agreement, the Company
must maintain average profitability of $500,000 after tax over each
successive two quarter period, must meet a working capital financial ratio
and must have no borrowings under the line during any consecutive 30-day
period. To date the company is in compliance with it requirements.
The Company presently expects to finance near-term and long-term
operations and capital requirements through cash provided by existing cash
balances, cash flow from operations, and borrowings under the revolving bank
line of credit. However, there can be no assurance that the Company will not
require additional outside financing to meet its long term cash needs, or, if
required, that such financing will be available on terms favorable to the
Company.
RESULTS OF OPERATIONS
SALES AND GROSS PROFITS. The Company's net sales for the three months
ended September 30, 1995, totaled $28.2 million, compared to $16.1 million
for the corresponding period of fiscal year 1994, an increase of
approximately 75%. For the nine months ended September 30, 1995, net sales
increased 54% to $67.4 million compared to $43.9 million during the
corresponding period of 1994. Sales in the third quarter and first nine
months of
9
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1995, as compared to the same period of 1994, increased primarily due to a
112% and 81% increase, respectively, in shipments of the Company's disk array
board controller products, which more than offset the decline in sales of the
Company's system boards and other peripheral products during the second
quarter of 1995. The third quarter and the year to date 1995 sales reflect a
high concentration of the Company's disk array controllers. The third
quarter's mix is of a comparable composition to the second quarter's sales
mix and when compared to the same period in 1994, reflects a shift in
product mix of 79% to 96% for the Company's disk array controller products.
Sales of the Company's system board products in the third quarter of 1995 were
3% of total sales. This compares with sales of $2.6 million or 18% of total
sales in the third quarter of 1994. Sales have not been significantly impacted
by inflation over the last three fiscal years.
Gross profit for the three months ended September 30, 1995, was $10.5
million or 37% of net sales, compared to $5.7 million or 36% of net sales for
the same period in 1994. Gross profit for the nine months ended September
30, 1995, was $25.2 million or 37% of net sales, compared to $14.7 million or
34% of net sales for the nine months ended September 30, 1994. The increase
in gross margins was attributable to increased sales of the Company's higher
margin disk array controller products during the three and nine month periods
ended September 30, 1995, which more than offset the declining margins of the
Company's system boards. The Company expects price competition for its
system board products to continue and expects to encounter price competition
for its disk array controller products which will create pressure on the
Company's gross margin. However, although no assurances can be given that its
efforts will be successful, the Company is taking steps to introduce feature
and performance improved disk array products and to further reduce production
and material costs in its effort to offer competitive prices for its products
without significantly affecting its gross margin.
Maintenance of current gross margins or improvement of future gross
margins are dependent upon continued manufacturing cost reductions and the
successful development and market acceptance of the Company's future disk
array controller products. There can be no assurance that the Company will
be able to develop and introduce such products in a timely manner or that
such products will gain or sustain market acceptance. The Company
anticipates increased competition in the market for its disk array products
during the balance of 1995 and thereafter. The impact of such competition on
the Company's sales and gross profits is uncertain. The Company anticipates
that additional competition could result in a decline in the selling prices
for these products that would impact both gross margins and operating
results.
10
<PAGE>
The Company's largest customer during the third quarter of 1995
was IBM, which accounted for $10.6 million or 37% of the Company's sales
during that period. The Company's second and third largest customers during
the three months ending September 30, 1995 were Hewlett Packard (HP) and
Digital Equipment Corporation (DEC). Sales to HP were $4.3 million or 15% of
the total sales and sales to DEC were $3.8 million or 14% of the total sales.
IBM was the Company's largest customer for the nine months ended September
30, 1995, with sales of $22.7 million or 34% of net sales. DEC and HP were
the next two largest customers for the nine months in 1995. Their sales were
$9.8 million and $7.9 million respectively which equated to 15% and 12%
respectively of net sales. While there are OEM agreements in place that
define the terms of the sales and support services with some of the Company's
largest customers, these agreements do not include specific quantity
commitments. The Company sells products to its customers on a purchase order
basis. As a result, historical sales cannot be relied upon as an accurate
indicator of future sales.
The Company's backlog as of September 30, 1995 totaled $23.8 million.
This ending backlog represents a $16.4 million increase from the
corresponding period of 1994. The Company attributes the increase in the
backlog to the wide acceptance of its PCI bus based products. Due to
industry practice with respect to customer changes in delivery schedules and
cancellation of orders, the Company believes that backlog as of any
particular date may not be indicative of actual net revenues for any
succeeding period. Approximately 89% of all orders outstanding at September
30, 1995, which were not subsequently changed or canceled would have been
scheduled for delivery within the three months ended December 31, 1995.
As a result of the Company's release of new RAID (Redundant Array of
Independent Disk) products in the latter part of 1994 and the first quarter
of 1995, the Company's customer base was expanded as additional OEMs designed
these products into their servers and/or storage subsystems. The Company
believes its future profitability is dependent to a large extent upon the
continued market acceptance of its PCI and SCSI-to-SCSI disk array product
families as well as market acceptance of its feature and performance improved
disk array products. However, there can be no assurance that new products
will be successfully developed or, if developed, that such products or the
Company's current products will achieve and sustain market acceptance.
The Mylex disk array controller products are designed for integration
into the client server, networked PC, and scientific workstation
environments. Because of the Company's transition to primarily disk array
controller products, marketing these products entailed development of new
distribution channels and marketing methods. The Company continued to market
its disk array products to several OEM's during the nine months ending
September 30, 1995. Sales to major OEM's accounted for 78% of the Company's
total revenue for the first nine months of 1995. Additionally, the Company
was able to market these products
11
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to leading distributors, system integrators and value added resellers during
the period through its alternate channel sales division.
This course of seeking additional new markets is motivated by the
Company's commitment to technological innovation and by the Company's desire
to diversify its product line. The Company expects that sales of its newly
introduced PCI disk array controller products will generate a significant
portion of the Company's revenue during 1995 and 1996. The continued sales
growth in the PCI products for 1995 will more than offset the reduction in
the Company's sales of its EISA and microchannel based disk array controller
and system board products. However, a decrease in the sales of its PCI
products would have a material adverse effect on the Company's results
of operations.
The Company's ability to compete successfully in either the personal
computer market or the market for its more sophisticated products depends
upon its ability to develop products which obtain market acceptance, which
can be sold at competitive prices while maintaining adequate gross margin
levels and which are proven to be reliable. Although the Company believes
that certain of its products have competitive advantages, there can be no
assurance that the Company will be able to compete successfully in the future
or that other companies may not develop products with greater performance or
at more favorable prices and thus reduce the demand for the Company's
products.
The Company depends heavily on its suppliers to provide materials on
timely basis, at a reasonable price, and with suitable credit terms.
Although many of the components for the Company's products are available from
numerous sources at competitive prices, some of the most critically needed
components are sole-sourced. At the current time, the Company is managing
its inventories to plan for increased usage of DRAM and surface mount
capacitors while the world-wide demand for these components has increased
dramatically. DRAM simm modules are in heavy demand throughout the personal
computer industry and surface mount capacitor supplies are in high demand for
use in the manufacturing of cellular phones. The Company is attempting to
develop different design strategies to cope with these potential shortages
now and in the future. In the event that essential components, alternative
designs or additional manufacturing capacity cannot be obtained as required,
the Company could be unable to meet demand for its products, thus adversely
affecting results from operations. In addition, scarcity of such components
could result in cost increases, which could adversely affect the Company's
gross margins.
SALES AND MARKETING EXPENSES
Sales and marketing expenses for the three and nine months ended
September 30, 1995, totaled $1.3 million and $3.9 million, an increase of
$349 thousand and $1.3 million, respectively over the same periods in 1994.
Sales and marketing expenses represented 4.6% of net sales for the three
months and
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5.8% of net sales for the nine months ended September 30, 1995, compared to
5.9% and 5.8%, respectively, for the three and nine months ended September
30, 1994. Increases in sales and marketing expenditures resulted from
increased staffing levels and commission expenses, as
well as increased advertising, promotional and travel expenses. The Company
expects that sales and marketing expenses will increase during the balance of
1995 as its infrastructure is expanded to support growing market
opportunities through both domestic and international channels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three and nine months ended
September 30, 1995, totaled $1.2 million and $3.3 million or 4.2% and 4.8% of
net sales, respectively. Comparing research and development expenses to the
same periods for 1994, there was an increase of $375 thousand for the
third quarter and an increase of $887 thousand for the nine months ended
September 30, 1995. Research and development expenses increased during the
three and nine months ending September 30, 1995 due to increased staffing
expense resulting from higher salaries and increased staffing levels. The
Company expects to increase its investment in research and development
activities during the balance of 1995 in an effort to achieve market
acceptance of future products and to continue its strategy of maintaining
technology leadership in the RAID market.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three and nine months ended
September 30, 1995, totaled $2.7 million and $5.2 million, respectively.
These expenses are 9.4% and 7.8% of net sales for the three and nine months
ended September 30, 1995 as compared to 6.3% and 7.3% for the same periods
of 1994. General and administrative expenses increased during the quarter
and nine months due to legal expenses related to the AMI litigation (see Part
II, Item 1. Legal Proceedings). Additionally, higher compensation and benefit
expenses as a result of increased staffing levels and bonus expenses also
contributed to the increase in expenses. While the Company has settled the AMI
litigation, it still anticipates that general and administrative expenses could
vary as a percentage of net sales in future periods as expenses related to
other litigation matters may fluctuate.
INCOME TAXES
The Company's effective tax rate during the nine months ended September
30, 1995, was 37% as compared to 25% in the corresponding period of the prior
year. The 1995 tax rate reflects the reduction of available tax benefits.
13
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 23, 1995 the Company entered into an agreement to settle all
disputes, that were scheduled to be arbitrated in November, 1995 between the
Company and America Megatrends Inc. ("AMI"). The disputes between the
companies revolved around 1987 licensing and distribution agreements concerning
386 mother board technology that no longer are being utilized by the Company.
The disputes were settled for an amount that approximates what the Company
reserved for this dispute as of September 30, 1995, and as a result, the
settlement will not have a material adverse effect on the Company's results of
operations in the fourth quarter of 1995.
The former Chief Executive Officer of the Company, Dr. M. A. Chowdry,
filed a complaint against the Company and its outside directors on October
13, 1994, claiming breach of an employment agreement, seeking over $6 million
in damages (which would vary based on the price of the Company's Common
Stock) and unspecified punitive damages. Dr. Chowdry voluntarily filed an
amendment to his complaint on February 23, 1995. On March 17, 1995 the
Company and the individual defendants filed a response (demurrer) to the
amended complaint. The court granted the demurrer on June 26, 1995. On July
10, 1995, Dr. Chowdry filed a second amended complaint. The Company filed a
demurrer to the second amended complaint on August 18, 1995, but the court has
not yet ruled on this demurrer. The Company believes it has meritorious
defenses and will vigorously defend this lawsuit.
In addition to matters discussed herein, the Company is a party to
routine suits and claims arising in the ordinary course of its business which
the Company does not believe will have a material adverse effect on its
business or financial condition.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Fremont,
California, on the 14th day of November 1995.
MYLEX CORPORATION
By /s/ Colleen Gray
-------------------------
Colleen Gray
Vice President of Finance and
Chief Financial Officer
15
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INDEX TO EXHIBITS
Mylex Corporation
Quarterly Report on Form 10-Q
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- --------------
11.1 Statement re: Computation
of Per Share Earnings 17 - 19
16
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EXHIBIT 11.1
MYLEX CORPORATION
EARNINGS PER SHARE COMPUTATION
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The basis for computing net income per common share is described in Note A to
the financial statements, beginning on page 6 of the Company's Quarterly
Report on Form 10-Q for the three and nine months ended September 30, 1995.
The computation of primary and fully diluted earnings per share is as follows:
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE THREE MONTHS ENDED
SEP 30 SEP 30
1995 1994
----------- -----------
<S> <C> <C>
NET EARNINGS $3,208,000 $2,135,700
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 15,034,400 13,966,900
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 1,186,000 852,900
----------- -----------
NUMBER OF COMMON AND COMMON SHARE EQUIVALENTS
USED IN COMPUTATION 16,220,400 14,819,800
----------- -----------
PRIMARY EARNINGS PER SHARE $0.20 $0.14
----------- -----------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FULLY DILUTED EARNINGS PER SHARE THREE MONTHS ENDED
SEP 30 SEP 30
1995 1994
----------- -----------
<S> <C> <C>
NET EARNINGS $3,208,000 $2,135,700
INTEREST ON CONVERTED CONVERTIBLE
DEBENTURES (NET OF TAX) -- 45,000
----------- -----------
$3,208,000 $2,180,700
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 15,034,400 13,966,900
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 1,232,600 1,272,400
WEIGHTED AVERAGE SHARES ISSUABLE FROM
ASSUMED CONVERSON OF CONVERTIBLE
SUBORDINATED DEBENTURE SINCE ISSUANCE -- 478,700
----------- -----------
WEIGHTED AVERAGE COMMON AND DILUTIVE COMMON
SHARES OUTSTANDING 16,267,000 15,718,000
----------- -----------
FULLY DILUTED EARNINGS PER SHARE $0.20 $0.14
----------- -----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE NINE MONTHS ENDED
SEP 30 SEP 30
1995 1994
----------- ----------
<S> <C> <C>
NET EARNINGS $7,965,900 $4,658,000
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 14,820,000 13,488,700
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 986,900 715,900
----------- ----------
NUMBER OF COMMON AND COMMON SHARE EQUIVALENTS
USED IN COMPUTATION 15,806,900 14,204,600
----------- ----------
PRIMARY EARNINGS PER SHARE $0.50 $0.33
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED EARNINGS PER SHARE NINE MONTHS ENDED
SEP 30 SEP 30
1995 1994
----------- ----------
<S> <C> <C>
NET EARNINGS $7,965,900 $4,658,000
INTEREST ON CONVERTED CONVERTIBLE
DEBENTURES (NET OF TAX) -- 132,800
----------- ----------
$7,965,900 $4,790,800
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 14,820,000 13,488,700
NUMBER OF COMMON SHARE EQUIVALENTS RESULTING
FROM STOCK OPTIONS AND WARRANTS, COMPUTED
USING THE TREASURY STOCK METHOD 1,232,600 1,272,400
WEIGHTED AVERAGE SHARES ISSUABLE FROM
ASSUMED CONVERSION OF CONVERTIBLE
SUBORDINATED DEBENTURE SINCE ISSUANCE -- 590,200
----------- ----------
WEIGHTED AVERAGE COMMON AND DILUTIVE COMMON
SHARES OUTSTANDING 16,052,600 15,351,300
----------- ----------
FULLY DILUTED EARNINGS PER SHARE $0.50 $0.31
----------- ----------
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 32,647
<SECURITIES> 0
<RECEIVABLES> 18,705
<ALLOWANCES> (510)
<INVENTORY> 19,142
<CURRENT-ASSETS> 71,681
<PP&E> 4,493
<DEPRECIATION> (2,858)
<TOTAL-ASSETS> 73,428
<CURRENT-LIABILITIES> 13,192
<BONDS> 0
<COMMON> 169
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 73,428
<SALES> 28,176
<TOTAL-REVENUES> 29,680
<CGS> 17,631
<TOTAL-COSTS> 22,769
<OTHER-EXPENSES> 46
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 5,325
<INCOME-TAX> 2,117
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,208
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
