SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 3, 1999 or
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
Commission file number: 0-15627
SEQUENT COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0826369
(State or other jurisdiction (I.R.S. Employer
of organization or incorporation) Identification Number)
15450 S.W. Koll Parkway
Beaverton, Oregon 97006-6063
(Address of principal executive offices, including zip code)
(503) 626-5700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
42,214,367 common shares were issued and outstanding as of August 6, 1999.
SEQUENT COMPUTER SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - July 3, 1999 and
January 2, 1999 3
Consolidated Statements of Operations - Three months
and six months ended July 3, 1999 and July 4, 1998 4
Consolidated Statements of Shareholders' Equity -
January 2, 1999 through July 3, 1999 5
Consolidated Statements of Cash Flows - Six months ended
July 3, 1999 and July 4, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to quantitative and qualitative
disclosures about market risk is included under "Derivative
and Other Financial Instruments" under "Management's
Discussion and Analysis of Financial Conditions and
Results of Operations."
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
July 3, 1999 January 2, 1999
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 109,073 $ 192,876
Restricted deposits 14,728 28,280
Receivables, net 190,922 221,611
Inventories 108,262 86,333
Prepaid royalties and other 30,248 23,282
Total current assets 453,233 552,382
Property and equipment, net 130,445 133,831
Capitalized software costs, net 75,195 72,469
Other assets, net 48,851 37,433
Total assets $ 707,724 $ 796,115
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 15,018 $ 29,908
Accounts payable and other 97,433 124,099
Accrued payroll 12,747 19,070
Unearned revenue 46,149 47,446
Income taxes payable 5,799 4,865
Current obligations under capital leases 4,335 2,320
Total current liabilities 181,481 227,708
Other accrued expenses 6,121 8,073
Long-term obligations under capital leases 6,531 7,480
Total liabilities 194,133 243,261
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized, 42,098 and 43,471 shares
outstanding 421 435
Paid-in capital 491,922 511,169
Retained earnings 31,575 46,883
Accumulated other comprehensive income:
Foreign currency translation adjustment (10,327) (5,633)
Total shareholders' equity 513,591 552,854
Total liabilities and shareholders'
equity $ 707,724 $ 796,115
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, 1999 July 4, 1998 July 3, 1999 July 4, 1998
<S> <C> <C> <C> <C>
Revenue:
Product $ 73,643 $ 120,301 $ 194,171 $ 238,746
Service 69,874 65,376 143,325 129,999
Total revenue 143,517 185,677 337,496 368,745
Costs and expenses:
Cost of products sold 51,294 82,541 128,478 145,447
Cost of service revenue 49,501 48,159 102,987 95,495
Research and development 18,032 19,692 35,966 36,756
Selling, general and administrative 50,881 58,237 97,194 107,857
Restructuring charges (credits) (635) 62,898 (1,633) 62,898
Total costs and expenses 169,073 271,527 362,992 448,453
Operating loss (25,556) (85,850) (25,496) (79,708)
Interest, net 881 1,261 2,337 1,882
Other, net (1,260) (493) (1,180) (1,427)
Loss before benefit from
income taxes (25,935) (85,082) (24,339) (79,253)
Benefit from income taxes 9,407 26,330 9,031 24,523
Net loss $ (16,528) $ (58,752) $ (15,308) $ (54,730)
Net loss per share - basic $ (0.39) $ (1.34) $ (0.36) $ (1.26)
Net loss per share - diluted $ (0.39) $ (1.34) $ (0.36) $ (1.26)
Shares used in the calculation of
net loss per share - basic 42,019 43,729 42,872 43,457
Shares used in the calculation of
net loss per share - diluted 42,019 43,729 42,872 43,457
</TABLE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Foreign
Currency Total
Common Stock Paid-in Retained translation comprehensive
Shares Amount capital Earnings adjustment Total income
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1999 43,471 $ 435 $511,169 $46,883 $ (5,633) $552,854 $
Common shares issued 677 7 4,362 - - 4,369
Common shares repurchased (2,055) (21) (21,117) - - (21,138)
Tax benefit of option exercises - - 153 - - 153
Net income - - - 1,220 - 1,220 1,220
Foreign currency translation adjustment - - - - (3,883) (3,883) (3,883)
Balance, April 3, 1999 (unaudited) 42,093 $ 421 $494,567 $48,103 $ (9,516) $533,575 $ (2,663)
Common shares issued 802 8 6,486 - - 6,494
Common shares repurchased (797) (8) (9,315) - - (9,323)
Tax benefit of option exercises - - 184 - - 184
Net loss - - - (16,528) - (16,528) (16,528)
Foreign currency translation adjustment - - - - (811) (811) (811)
Balance, July 3, 1999 (unaudited) 42,098 $ 421 $491,922 $31,575 $(10,327) $513,591 $(20,002)
</TABLE>
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
July 3, 1999 July 4, 1998
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (15,308) $ (54,730)
Reconciliation of net loss to net cash and
cash equivalents provided by operating activities -
Depreciation and amortization 45,979 44,325
Restructuring charges (credits) not affecting cash (307) 60,259
Deferred income taxes (12,736) (22,670)
Changes in assets and liabilities -
Receivables, net 30,689 88,954
Inventories (21,929) 3,739
Prepaid royalties and other (6,749) (14,421)
Accounts payable and other (24,947) 30,208
Accrued payroll (6,328) (10,566)
Unearned revenue (1,297) (684)
Income taxes payable 934 800
Other, net (2,619) (17,840)
Net cash provided (used) by operating activities (14,618) 46,958
Cash flow from investing activities:
Restricted deposits 13,552 28,507
Purchases of property and equipment, net (26,013) (24,610)
Capitalized software costs (21,070) (20,217)
Net cash used for investing activities (33,531) (16,320)
Cash flow from financing activities:
Notes payable, net (14,890) (28,854)
Proceeds (payments) under capital lease obligations 1,065 (1,125)
Stock issuance proceeds, net 11,200 15,311
Stock repurchases (30,461) (4,945)
Net cash used by financing activities (33,086) (19,613)
Effect of exchange rate changes on cash (2,568) 951
Net increase (decrease) in cash and cash equivalents (83,803) 11,976
Cash and cash equivalents at beginning of period 192,876 133,299
Cash and cash equivalents at end of period $ 109,073 $ 145,275
</TABLE>
See notes to consolidated financial statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 3, 1999
Basis of Presentation
The accompanying consolidated financial statements are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in the opinion of management include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 2, 1999.
The Company's fiscal year is based on a 52-53 week year ending the Saturday
closest to December 31. The accompanying consolidated financial statements
include the accounts of Sequent Computer Systems, Inc. and its wholly owned
subsidiaries (the Company or Sequent). All significant intercompany accounts
and transactions have been eliminated. The results for interim periods are
not necessarily indicative of the results for the entire year.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Significant estimates and
judgments made by management of the Company include matters such as
collectibility of accounts receivable, realizability of inventory and
recoverability of capitalized software, prepaid royalties and deferred tax
assets.
Reclassifications
Reclassifications have been made to amounts in certain prior years. These
changes had no impact on previously reported results of operations.
Recently Issued Accounting Standards
In 1998, the FASB issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (FAS 133). This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The FASB has delayed the effective date to fiscal
years beginning after June 15, 2000 (January 1, 2001 for the Company). The
Company is currently assessing the impact that the adoption of FAS 133 will
have on its consolidated financial statements.
Accounts Receivable
At July 3, 1999, accounts receivable in the accompanying consolidated balance
sheet is net of $27 million received by the Company under its agreement to
sell its domestic and foreign accounts receivable.
Inventories
Inventories consist of the following:
(in thousands)
July 3, January 2,
1999 1999
Raw materials $ 13,585 $ 14,996
Work-in-progress 1,338 1,403
Finished goods 93,339 69,934
$ 108,262 $ 86,333
Property and Equipment
Property and equipment consist of the following:
(in thousands)
July 3, January 2,
1999 1999
Land $ 6,307 $ 6,307
Operational equipment 232,858 230,449
Furniture and office equipment 79,884 86,069
Leasehold improvements 30,689 27,498
349,738 350,323
Less accumulated depreciation (219,293) (216,492)
$ 130,445 $ 133,831
Research and Development
Amortization of capitalized software costs, generally based on a three-year
life, was $18.3 million and $15.5 million for the six month periods ended July
3, 1999 and July 4, 1998, respectively.
Notes Payable
The Company has an unsecured line of credit agreement with a group of banks
which provides short-term borrowings of up to $80 million. There was no
outstanding balance at either July 3, 1999 or January 2, 1999.
The Company has a short-term borrowing agreement with a foreign bank as a
hedge to cover certain foreign currency exposures. Borrowings under the
agreement are denominated in various foreign currencies with terms of fourteen
days to three months. Proceeds from the borrowings are converted into U.S.
dollars and placed in a term deposit account with the foreign bank. At July
3, 1999, maximum borrowings allowed under the agreement were approximately
$78.2 million. The maximum borrowing limit is denominated in specified
foreign currencies and fluctuates with the change in foreign exchange rates.
Amounts outstanding were $14.7 million and $28.3 million at July 3, 1999 and
January 2, 1999, respectively.
In addition to the above borrowing agreements, the Company has entered into
certain other miscellaneous borrowing arrangements with a foreign bank. At
July 3, 1999 and January 2, 1999, $0.3 million and $1.6 million were
outstanding, respectively.
Common Stock
During 1998, the Company announced a plan to repurchase up to 4,000,000 shares
of its outstanding common stock. On April 27, 1999, the Board of Directors of
the Company authorized the repurchase of up to 8,000,000 shares of its
outstanding common stock in addition to the 4,000,000 shares previously
authorized in 1998. As of July 3, 1999, the Company has repurchased 4,585,700
shares at an average price of $10.90 per share.
Segment Reporting
The Company has determined that its reportable segments are those that are
based on the Company's primary basis of organization and method of internal
reporting - (1) Product, (2) Customer Services (CS), (3) Professional Services
(PS) and (4) Research and Development (R&D).
The tables below present information about reported segments for the three
months ended July 3, 1999 and July 4, 1998, respectively, and include a
reconciliation of segment activity to consolidated net income before the
provision for income taxes.
Three months ended July 3, 1999:
<TABLE>
<CAPTION>
Professional Customer Research &
Product Service Service Development Consolidated
<S> <C> <C> <C> <C> <C>
Revenue $ 73,643 $ 24,269 $ 45,605 $ 143,517
Cost of products sold 51,294 51,294
Cost of service revenue 22,006 27,495 49,501
Gross margin 22,349 2,263 18,110 42,722
R&D expenses 18,032 18,032
Selling, general & administrative 50,881
Restructuring credits (635)
Operating income (25,556)
Interest, net 881
Other income, net (1,260)
Loss before benefit from
income taxes $ (25,935)
</TABLE>
Six months ended July 3, 1999:
<TABLE>
<CAPTION>
Professional Customer Research &
Product Service Service Development Consolidated
<S> <C> <C> <C> <C> <C>
Revenue $ 194,171 $ 50,690 $ 92,635 $ 337,496
Cost of products sold 128,478 128,478
Cost of service revenue 46,787 56,200 102,987
Gross margin 65,693 3,903 36,435 106,031
R&D expenses 35,966 35,966
Selling, general & administrative 97,194
Restructuring credits (1,633)
Operating income (25,496)
Interest, net 2,337
Other income, net (1,180)
Loss before benefit from
income taxes $ (24,339)
</TABLE>
Three months ended July 4, 1998:
<TABLE>
<CAPTION>
Professional Customer Research &
Product Service Service Development Consolidated
<S> <C> <C> <C> <C> <C>
Revenue $ 120,301 $ 42,853 $ 22,523 $ 185,677
Cost of products sold 82,541 82,541
Cost of service revenue 21,796 26,363 48,159
Gross margin 37,760 21,057 (3,840) 54,977
R&D expenses 19,692 19,692
Selling, general & administrative 58,237
Restructuring charges 62,898
Operating income (85,850)
Interest, net 1,261
Other expense, net (493)
Loss before benefit from
income taxes $ (85,082)
</TABLE>
Six months ended July 4, 1998:
<TABLE>
<CAPTION>
Professional Customer Research &
Product Service Service Development Consolidated
<S> <C> <C> <C> <C> <C>
Revenue $ 238,746 $ 44,522 $ 85,477 $ 368,745
Cost of products sold 145,447 145,447
Cost of service revenue 43,063 52,432 95,495
Gross margin 93,299 1,459 33,045 127,803
R&D expenses 36,756 36,756
Selling, general & administrative 107,857
Restructuring credits 62,898
Operating income (79,708)
Interest, net 1,882
Other income, net (1,427)
Loss before benefit from
income taxes $ (79,253)
</TABLE>
Information concerning principal geographic areas is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, 1999 July 4, 1998 July 3, 1999 July 4, 1998
<S> <C> <C> <C> <C>
Revenue from external customers:
United States $ 64,963 $ 100,363 $ 166,598 $ 183,060
United Kingdom 51,891 63,783 107,114 134,781
Other foreign 23,159 22,422 53,998 41,056
Export 3,504 (891) 9,786 9,848
Total $ 143,517 $ 185,677 $ 337,496 $ 368,745
July 3, 1999 July 4, 1998
Identifiable assets:
United States $ 554,009 $ 594,715
United Kingdom 92,118 123,346
Other foreign 61,597 78,054
Total $ 707,724 $ 796,115
Revenues are attributed to geographic areas based on the location of the
identifiable assets producing the revenues. Foreign revenue is that which is
produced by identifiable assets located in foreign countries while export
revenue is that which is generated by identifiable assets located in the
United States. Intercompany sales between geographic areas, primarily from
the United States to Europe, were $54.4 million and $80.7 million for the six
months ended July 3, 1999 and July 4, 1998, respectively.
Restructuring Charges
During 1998, the Company recorded restructuring charges net of estimate
revisions totaling $61.4 million in connection with management's decision to
accelerate changes in its business model to leverage the strength of its
technology roadmap and market position. In addition, a change in the
restructuring estimate resulted in a $1.0 million credit in the first quarter
of 1999 and a $0.6 million credit in the second quarter of 1999. Please refer
to the discussion of restructuring costs and current period adjustments
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Income Taxes
The Company's general practice is to reinvest the earnings of its foreign
subsidiaries' operations, unless it would be advantageous to the Company to
repatriate the foreign subsidiaries' retained earnings. The effective tax
rate differs from the statutory tax rate principally due to the benefit from
the research tax credit and the Company's Foreign Sales Corporation.
Earnings Per Share
(in thousands, except per share amounts)
</TABLE>
<TABLE>
<CAPTION>
Loss Shares Per-Share
(Numerator) (Denominator) Amount
Three Months Ended Three Months Ended Three Months Ended
July 3, July 4, July 3, July 4, July 3, July 4,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Loss to common shareholders $(16,528) $(58,752) 42,019 43,729 $(0.39) $(1.34)
Diluted EPS
Loss to common shareholders $(16,528) $(58,752) 42,019 43,729 $(0.39) $(1.34)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended Six Months Ended
July 3, July 4, July 3, July 4, July 3, July 4,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Loss to common shareholders $(15,308) $(54,730) 42,872 43,457 $(0.36) $(1.26)
Diluted EPS
Loss to common shareholders $(15,308) $(54,730) 42,872 43,457 $(0.36) $(1.26)
</TABLE>
Diluted EPS is equal to Basic EPS due to the net losses recorded for the
current and comparative periods.
Significant Customers
The core business operations of the Company include the design, manufacture
and marketing of high-performance computer systems and operating environment
software. Project-oriented offerings include consulting and professional
services to help customers solve complex information technology problems. The
Company had no single customer that represented greater than 10% of total
revenue in either of the six month periods ended July 3, 1999 and July 4,
1998, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported total revenue and a net loss of $143.5 million and
$(16.5) million, respectively, in the second quarter of 1999 as compared to
$185.7 million and $(58.8) million, respectively, for the same period in 1998.
Results for the six month periods ended July 3, 1999 and July 4, 1998 were
revenues of $337.5 million and a net loss of $(15.3) million and revenues of
$368.7 million and a net loss of $(54.7) million, respectively. International
revenue was 54.7% of the Company's total revenue in the second quarter of 1999,
up from 45.9% in the same period in 1998.
The reported loss in the second quarter of 1999 is primarily due to a 39%
reduction in product revenues from the same period in 1998. This reduction in
product revenues is primarily attributable to the negative impact of the
Company's pending merger with International Business Machines (IBM). Although
the reported loss in the second quarter of 1999 was significantly lower than
the same period in 1998, the 1998 loss resulted primarily from the $62.9
million restructuring charge taken in the second quarter.
REVENUE/NET INCOME
(dollars in millions)
Three Months Ended Six Months Ended
July 3, % July 4, July 3, % July 4,
1999 change 1998 1999 change 1998
Total Revenue $ 143.5 (23)% $ 185.7 $ 337.5 (8)% $ 368.7
Product $ 73.6 (39)% $ 120.3 $ 194.2 (19)% $ 238.7
Professional Service 24.3 8% 22.5 50.7 14% 44.5
Customer Service 45.6 6% 42.9 92.6 8% 85.5
US $ 65.0 (35)% $ 100.4 $ 166.6 (9)% $ 183.0
United Kingdom 51.9 (19)% 63.8 107.1 (21)% 134.8
International 26.6 24% 21.5 63.8 25% 50.9
Net Loss $ (16.5) 72% $ (58.8) $ (15.3) 72% $ (54.7)
PRODUCT
Product revenue for the second quarter of 1999 decreased 39% over the
same period in 1998. Product revenue was down 19% for the first six months
of 1999 compared to the same period in 1998. The significant decline in
product revenue in the second quarter and first six months of 1999 is
attributable to a variety of factors, the most significant being early
press reports of the Company's pending merger with IBM. The Company believes
uncertainty about the potential merger caused some customers to postpone
planned purchases. Additionally, sales to the Company's largest customer
declined by approximately $26 million in the second quarter of 1999 over the
same period in 1998.
SERVICE
Revenues from customer and professional service segments increased
approximately 6% and 8%, respectively, in the second quarter of 1999 over the
same period in 1998. Year to date increases as of the second quarter over the
prior year results were 8% and 14% for the same segments, respectively.
Customer service revenue increases were based upon a growing number of
installed systems under service contracts. These increases were restricted by
significantly lower product revenue volumes and related installation revenues
recorded by this business segment for the three and six month periods ended
July 3, 1999. In addition, the impact of extended warranties granted on
certain of the Company's product lines deferred revenue into future periods
covered by the warranty contracts.
Professional service revenue increases reflected growth in this business
segment across each of the Company's major geographic operations. These
increases were partially offset by a reduction in quarter over quarter revenues
from the Company's largest customer totaling $1.7 million.
The following table sets forth certain operating data as a percentage
of total revenue:
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
Revenue:
End-user products 51% 65% 58% 63%
OEM products - - - 2
Service 49 35 42 35
Total revenue 100 100 100 100
Cost of products and services 70 70 69 65
Gross margin 30 30 31 35
Operating expenses:
Research and development 13 11 11 10
Selling, general and administrative 35 31 29 29
Restructuring charges - 34 (1) 17
Rounding - - - 1
Total operating expenses 48 76 39 57
Operating loss (18) (46) (8) (22)
Interest and other, net - 1 1 -
Loss before benefit from income taxes (18) (45) (7) (22)
Benefit from income taxes 7 14 3 7
Net loss (11)% (31)% (4)% (15)%
GROSS MARGINS
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
Product 30% 31% 34% 39%
Service 29% 26% 28% 27%
Total 30% 30% 31% 35%
The factors influencing total gross margins in a given period include
product unit volumes (which affect economies of scale), product configuration
mix (including the amount of third party products), changes in component and
manufacturing costs, competitive impact on product pricing, cost containment
in service delivery activities and the mix between product and service
revenue.
Product gross margins rates decreased in the second quarter of 1999
compared to the same period in 1998. This decrease is primarily attributable
to a higher content of third party products sold (which yield lower gross
margins than Sequent products) in 1999 compared to 1998, ongoing competitive
pricing pressures, and lower product volumes. The magnitude of the decrease
in product gross margins was diminished by certain charges for inventory
obsolescence provisions taken during the second quarter of 1998, which did
not reoccur in 1999.
Service gross margin rates improved in the second quarter of 1999
compared to the same period in 1998. Both professional service and customer
service segments improved their respective gross margin rates by cost
containment initiatives that held spending to lower rates of increases than
the corresponding revenue increases.
RESEARCH AND DEVELOPMENT
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, % July 4, July 3, % July 4,
1999 change 1998 1999 change 1998
<S> <C> <C> <C> <C> <C> <C>
Research and development expense $ 18.0 (9)% $ 19.7 $ 36.0 (2)% $ 36.8
As a percentage of total revenue 13% 11% 11% 10%
Software costs capitalized $ 10.5 31% $ 8.0 $ 21.0 19% $ 17.7
</TABLE>
Research and development expense dollars decreased both in the second
quarter and the first half of 1999 in comparison with the same periods in
1998. Spending reductions resulted from cost efficiencies in total
engineering spending, reductions in certain engineering activities outside the
United States and certain other non-recurring charges taken in the second
quarter of 1998. Expense as a percentage of total revenue, however, increased
2% from 11% of total revenue in the second quarter of 1998 to 13% of total
revenue in the second quarter of 1999, solely due to the significant reduction
in total revenues between those two periods. The Company anticipates
increases in research and development expenditures in the second half of 1999
based upon product releases scheduled in the second half of the year as well
as major product initiatives based on 64-bit architecture on the product
roadmap for the year 2000.
SELLING, GENERAL AND ADMINISTRATIVE
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, % July 4, July 3, % July 4,
1999 change 1998 1999 change 1998
<S> <C> <C> <C> <C> <C> <C>
Selling, general and administrative $ 50.9 (13)% $ 58.2 $ 97.2 (10)% $ 107.9
As a percentage of total revenue 35% 31% 29% 29%
</TABLE>
Second quarter 1999 selling, general and administrative (SG&A) expenses
decreased $7.3 million over the same period in 1998 and $10.7 million over the
six month period ended July 3, 1999 compared to the same period in 1998.
Substantially all of the decreases are attributable to lower headcount,
particularly in field sales and support personnel, combined with lower
commission costs on significantly lower revenue volumes.
RESTRUCTURING CHARGES
During the second quarter of 1998, the Company recorded restructuring
charges totaling $62.9 million in connection with management's decision to
accelerate changes in its business model to leverage the strength of its
technology roadmap and market position. Subsequent changes in the
restructuring estimate during the first and second quarters of 1999 resulted
in credits of $1.0 million and $0.6 million, respectively. It is anticipated
that the restructuring actions taken in 1998 will yield operating cost
reductions of approximately $25 million during 1999.
Remaining cash outlays expected from the restructuring consist of $13.3
million for facilities and $0.2 million relating to employee termination and
related costs. Expenditures totaling $1.3 million for facilities were made
for the costs of excess space incurred during the second quarter of 1999.
The following table presents a summary of the activity in the
restructuring accrual during the second quarter of 1999 and the resulting net
balance sheet amounts as of July 3, 1999. The balance of accrued
restructuring costs of $13.5 million at July 3, 1999 is included in Accounts
Payable and Other in the accompanying balance sheet.
(dollars in millions)
First
Balance at Quarter Write-offs/ Balance at
January 2, 1999 Expenditures Adjustments April 3, 1999
Employee termination
and related $ 0.2 $ - $ - $ 0.2
Prepaid software licenses 0.3 - (0.3) -
Facilities 16.0 (1.3) (0.1) 14.6
$16.5 $(1.3) $(0.4) $14.8
Second
Balance at Quarter Write-offs/ Balance at
April 3, 1999 Expenditures Adjustments July 3, 1999
Employee termination
and related $ 0.2 $ - $ - $ 0.2
Prepaid software licenses - - - -
Facilities 14.6 (1.3) - 13.3
$14.8 (1.3) $ - $13.5
OPERATING LOSS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, % July 4, July 3, % July 4,
1999 change 1998 1999 change 1998
<S> <C> <C> <C> <C> <C> <C>
Operating loss before
restructuring $(26.2) 14% $(23.0) $(27.1) 61% $(16.8)
Restructuring charges (credits) (0.6) 62.9 (1.6) 62.9
Operating loss $(25.6) (70)% $(85.9) $(25.5) (68)% $(79.7)
</TABLE>
Operating losses for the second quarter of 1999 decreased 70% over the
same period in 1998. Losses for the first six months of 1999 decreased 68%
over the same period in 1998. These losses include restructuring charges
(credits) of $(0.6) million and $62.9 million for the quarters ended July 3,
1999 and July 4, 1998, and $(1.6) million and $62.9 million for the six months
ended July 3, 1999 and July 4, 1999, respectively. The quarter over quarter
operating loss before the impact of the restructuring charge increased 14%
from 1998 to 1999, primarily due to the decrease in product revenues.
INTEREST AND OTHER, NET
(dollars in millions)
Three Months Ended Six Months Ended
July 3, % July 4, July 3, % July 4,
1999 change 1998 1999 change 1998
Interest income $ 1.2 (54)% $ 2.6 $ 3.3 (27)% $ 4.5
Interest expense $(0.3) (77)% $(1.3) $(0.9) (67)% $(2.7)
Other expense, net $(1.3) 160% $(0.5) $(1.2) (14)% $(1.4)
Interest income is primarily generated from invested cash and cash
equivalents and restricted deposits held at foreign and domestic banks.
Interest expense includes costs related to foreign currency hedging loans,
interim short-term borrowings and capital lease obligations. The $1.4 million
decrease in interest income for the three months ended July 3, 1999 was the
result of a $38 million reduction in the average cash balance earning interest
in the United States as well as a $25 million reduction in the average hedge
deposit in Europe. The decrease in interest expense as of July 3, 1999 over
the same period in 1998 is attributed to the decrease in the use of the
Company's short-term borrowing agreement to manage foreign currency exposures.
Interest income decreased $1.2 million for the six months ended July
3, 1999 compared to the first six months ended July 4, 1999 due to a
reduction in average cash balances in the United States and Europe as well as
lower interest rates in the United States. The $1.8 million reduction in
interest expense over the same period was due to reduced usage of the
Company's short-term borrowing agreement in Europe and lower interest rates in
the United States.
Other net expense consists primarily of net realized and unrealized
foreign exchange gains and losses. The $0.8 million increase in other expense
in the second quarter of 1999 over the same period in 1998 is due primarily to
realized and unrealized foreign currency losses resulting from hedges of Asia
Pacific and French translation exposures and transaction hedges of the British
Pound and Korean Won.
For the six months ended July 3, 1999 other net expense decreased over
the prior year primarily due to a reduction in discount on the sale of
accounts receivable.
INCOME TAXES
The Company recorded a $9.4 million benefit for income taxes in the
second quarter of 1999 based on a net loss before tax of $25.9 million. The
difference between the statutory rate and the effective tax rate of 36.2% for
the second quarter of 1999 is principally due to the recording of a tax
benefit related to the net operating loss reported for the quarter at the
statutory federal and state tax rates less a valuation reserve for certain
credits and tax attributes which may expire before they can be realized.
The effective rate benefit of 36.2% for the second quarter of 1999
compares to an effective tax rate benefit of 31.0% for 1998. The change in
the tax rate benefit is due primarily to permanent tax benefits such as the
Foreign Sales Corporation and research and development credits which do not
fluctuate based on differences in pre-tax earnings (losses) year over year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $271.8 million at July 3, 1999 compared to $324.7
million at January 2, 1999. The Company's current ratio was 2.5:1 at July 3,
1999 and 2.4:1 at January 2, 1999.
Cash and cash equivalents decreased $83.8 million during the first six
months of 1999. The decrease resulted primarily from cash used in financing
activities, specifically, payments of $14.9 million for notes payable and
$30.5 million for stock repurchases, along with the impact of decreasing
revenue volume. Investments during the six months in property and equipment
and capitalized software approximated $26.0 million and $21.1 million,
respectively.
The Company has a $40 million receivable sales facility with a group of
banks. At July 3, 1999, accounts receivable in the accompanying consolidated
balance sheet is net of $27.0 million received by the Company under this
agreement to sell its domestic and foreign accounts receivable.
The Company maintains an $80 million revolving line of credit agreement.
The line is unsecured and extends through April 3, 2001. The line contains
certain financial covenants and prohibits the Company from paying dividends
without the lenders' consent. At July 3, 1999, there was no outstanding
balance under the line of credit.
The Company maintains a short-term borrowing agreement with a foreign
bank to cover foreign currency exposures. Maximum borrowings allowed under
the foreign bank agreement were $78.2 million, of which $14.7 million was
outstanding at July 3, 1999 (based on currency exchange rates on such date).
The Company also maintains a miscellaneous borrowing arrangement with a
foreign bank. At July 3, 1999 $0.3 million was outstanding under this
agreement.
Management expects that current funds from operations and the bank lines
of credit will provide adequate resources to meet the Company's anticipated
operational cash requirements for at least the next twelve months.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's software programs and microcircuitry that have date-sensitive
features may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 Issue affects the Company's internal
systems as well as any of the Company's products that include date-sensitive
software.
Sequent is executing a company-wide Year 2000 Readiness Program (Program)
for the Company's products, on-going operations (Operations), mission-critical
information systems (IS) and key suppliers (Suppliers). While the majority of
business critical century date change issues were identified and remediated
before the end of 1998, ongoing remediation, testing and contingency planning
is expected to continue throughout 1999. The Year 2000 Readiness Program is
organized into six major phases: 1) exposure inventory, 2) risk assessment, 3)
prioritization, 4) remediation (either by repair or replacement), 5)
contingency planning and 6) testing/verification. These stages have been
largely completed for the Company's standard products and are in progress for
ongoing operational issues as well as critical suppliers. The Program
organization consists of a Steering Committee made up of Company executives, a
Year 2000 taskforce representing each of the Company's major departments and a
Year 2000 Project Management Office. In addition, several Focus Teams have
been set up to deal with cross-functional issues related to customers,
partners, suppliers and major business process contingency plans. Operational
program work is being done by each of the Company's departments with oversight
by the Year 2000 Program Office. Operational program work includes the
Company's critical business computer applications, data and infrastructure.
Mission-critical third party service and equipment suppliers are being
contacted via written inquiry, as well as direct discussion, to understand and
mitigate potential risks.
The current status of the Company's Year 2000 Readiness Program is as
follows:
The Company's current line of hardware products, which are designed and
manufactured to the Company's specifications, are Year 2000 ready if utilized
with the appropriate version of the operating system software. The Company
cannot ensure that its software products do not contain undetected problems
associated with Year 2000 compliance. Such problems, should they occur, may
result in material adverse effects on future operating results. Within the
Company's Operations programs, remediation of internal tools, applications and
systems was completed as of the end of second quarter 1999. The Company's
Supplier readiness program is managed primarily through its Global Sourcing
and Procurement group. Of those suppliers identified as business critical, all
have informed the Company that they have remediation plans in place. The
majority have completed those plans. Supplier readiness will continue to be
assessed and remediated throughout the year as new suppliers are added. All
currently known business critical suppliers are expected to be ready before
the end of third quarter, 1999. Initial contingency planning is complete. On-
going plan testing will continue throughout the year and is expected to cause
updates and plan improvements.
The total cost of the Program is currently estimated to be approximately
$10 million and is being funded through operating cash flows. The Company is
expensing costs associated with identification and resulting changes to these
systems, but does not expect the amounts to have a material effect on its
financial position or results of operations. These costs are not incremental
as the Company's internal IS development resources were re-directed solely to
the Year 2000 remediation effort during 1998. In 1999, resources required for
the remediation effort have not materially affected new development projects
scheduled and budgeted. As of July l3, 1999, the total amount expended on the
Program was approximately $7 million, with the majority of the costs
representing hardware and labor expenditures.
The Company has classified potential worst case scenarios as either 1)
Year 2000 related failures in internal business critical information system
applications or 2) the development of service or product supply difficulties
by business critical suppliers. These circumstances are not considered
probable, but have been reviewed as part of the Company's due diligence
efforts. For Year 2000 type failures in internal applications (scenario 1),
business critical applications have been identified, assessed as to possible
business impact of their failure and are being repaired, upgraded or replaced
based on the severity of potential impact. For each of these applications, a
business continuity contingency plan is expected to be in place by the end of
the first half of 1999. For service and product supplier type failures
(scenario 2), an inventory has been completed and the business critical
suppliers have been identified. A variety of risk reduction strategies have
commenced, including but not limited to, developing possible alternative
suppliers, acquiring safety stock and establishing enhanced testing programs
and process audits. For identified business critical suppliers, contingency
plans are in place.
There is no assurance, however, that the systems or products of other
companies on which the Company's systems also rely will be converted timely or
that any such failure to convert by a vendor, customer or another company
would not have an adverse effect on the Company's systems or results of
operations.
EURO CONVERSION
The European Economic and Monetary Union (EMU) and a new currency, the
"Euro", went into effect in Europe on January 1, 1999. This is a significant
and critical element in the European Union's (EU) plan to blend the economies
of the EU's member states into one integrated market, with unrestricted and
unencumbered trade and commerce across borders. Eleven European countries
(the "participating countries") of the fifteen member EU countries will
initially participate (Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal and Spain). Other member states
(Denmark, Greece, the United Kingdom and Sweden) may join in the years to
come. The Euro will trade on currency exchanges and the legacy currencies
will remain legal tender for a transition period between January 1, 1999 and
January 1, 2002. During the transition period, public and private companies
may pay for goods and services using either the Euro or the participating
country's legacy currency.
The Company is currently determining the necessary modifications to its
internal systems to accommodate Euro-denominated transactions and is assessing
the business implications of the conversion to the Euro, including long-term
competitive implications and the effect of market risk with respect to
financial instruments. The Company does not believe the financial impact of
these matters, if any, will be material to its results of operations,
financial condition or cash flows. However, the Company will continue to
assess the impact of Euro conversion issues as the applicable accounting, tax,
legal and regulatory guidance evolves.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
Risk Management Strategy
In the normal course of business, Sequent enters into various financial
instruments, including derivative financial instruments, for purposes other
than trading. Derivative financial instruments are not entered into for
speculative purposes. These instruments primarily consist of accounts
receivable, short-term investments, short-term debt, forward exchange
contracts and option contracts which are used to reduce Sequent's exposure to
currency exchange rates. At inception, foreign exchange contracts are
designated as hedges of firmly committed or forecasted transactions. These
transactions are generally expected to be completed in less than one year.
The forward contracts and options generally mature within twelve months. The
majority of Sequent's foreign exchange forward contracts are to exchange
Japanese Yen, Australian Dollars, New Zealand Dollars, Italian Lire and Czech
Krone. The option contracts are no-cost collars and exchange British Pounds
and Korean Won.
Exposure to credit risk is managed through credit approvals and
monitoring procedures, and management believes that the reserves for losses
are adequate.
The counterparties to these financial instruments are substantial and
creditworthy corporations, state agencies and multinational commercial banks.
In management's opinion the risk of counterparty nonperformance associated
with these instruments is not considered to be significant.
Interest Rate Risk
The Company routinely invests in short-term financial instruments within
the parameters of its investment policy with maturities of less than three
months. The instruments pay a fixed rate of return. These instruments are
subject to overall market interest rate sensitivity upon maturity.
As part of the Company's foreign currency hedging activities, the Company
maintains short-term loans with a multinational commercial bank. These loans
are for durations ranging from fifteen days to three months and carry a fixed
interest rate. Upon maturity, these instruments are subject to overall market
interest rate sensitivity.
The Company also maintains two long-term leases with variable interest
rates based on LIBOR (London Inter Bank Offer Rate). The table below
illustrates the effect on lease payments of a +/-10% change in the underlying
base rate:
1999 Forecast Rental Payments
Base Rate $1,092K
Base Rate plus 10% $1,201K
Base Rate less 10% $ 983K
Foreign Exchange Risk
The table below presents foreign exchange contracts, options and debt at
July 3, 1999, April 3, 1999 and January 2, 1999 (in thousands). The notional
amounts represent agreed upon amounts on which calculations of dollars to be
exchanged are based, and are an indication of the extent of Sequent's
involvement in such instruments. They do not represent amounts exchanged by
the parties and, therefore, are not a measure of the instruments.
(in thousands)
Contract Carrying Amount Fair Value
Amount Asset Liability Asset Liability
July 3, 1999
FX Forward Contracts $ 10,889 $ - $ - $10,889 $10,889
FX Options (net) 72,228 - - 1,105 544
Debt 14,726 - 14,726 - 14,726
April 3, 1999
FX Forward Contracts $ 8,975 $ - $ - $ 8,975 $ 8,975
FX Options (net) 97,570 - - 1,439 71
Debt 10,370 - 10,370 - 10,370
January 2, 1999
FX Forward Contracts $ 8,086 $ - $ - $ 8,086 $ 8,086
FX Options (net) 129,100 - - 135 123
Debt 28,244 - 28,244 - 28,244
Fair values of financial instruments represent estimates of possible
value that may not be realized in the future.
EUROPEAN SALES OPERATIONS
In January 1999, the Company signed a strategic partnership agreement
with Comparex, one of Europe's leading suppliers of complete solutions for IT
infrastructures. The partnership, which was effective March 1, 1999, allows
Comparex to take responsibility for Sequent's sales activities in Austria,
Belgium, Germany, the Netherlands, Portugal, Spain and Switzerland. The
Company's operations in the United Kingdom and France geographies, which
represent the majority of the Company's European business, were not included
in the partnership agreement. The majority of the Company's personnel in the
countries included under the agreement became employees of Comparex with the
exception of certain individuals retained to manage and support the
relationship with Comparex and to provide specialist skills and expertise.
The agreement provided for the sale of certain assets to Comparex at recorded
net book value. Total book value of the assets sold during the first quarter
of 1999 was approximately $7 million.
MERGER WITH INTERNATIONAL BUSINESS MACHINES CORPORATION
On July 12, 1999, the Company entered into an Agreement and Plan of
Merger with International Business Machines Corporation (IBM) that provides
for the merger of a wholly owned subsidiary of IBM into the Company, with the
Company surviving as a wholly owned subsidiary of IBM. There are a number of
conditions which must be satisfactorily completed prior to the closing of the
merger transaction which include obtaining the necessary regulatory and anti
trust, as well as shareholder, approvals. Commitments and contingencies
related to the pending merger with IBM could adversely affect the Company if
difficulties arise in completing the merger. Due to the level of uncertainty
surrounding the closure and/or timing of the merger transaction, the potential
impact to the Company's financial condition and results of operations
resulting from either the completion of the merger, or failure to complete the
merger timely, or at all, has not been included in the discussions and
analyses above.
FORWARD-LOOKING STATEMENTS
Information in this report that is not historical information, including
information regarding development and release of new products, anticipated
savings resulting from the restructure, expected levels of future revenues and
expenditures, year 2000 issues and commitments and contingencies from the
pending merger with IBM, constitutes forward-looking statements that involve
a number of risks and uncertainties. A number of factors could cause actual
results to differ materially from the forward-looking statements. New
product development may be delayed or unsuccessful due to technical
difficulties encountered, resource constraints and other reasons. Factors
that affect year 2000 issues are set forth above under the section titled
"Impact of the Year 2000 Issue." Commitments and contingencies related to the
pending merger with IBM could adversely affect the Company if difficulties
arise in completing the merger. Additional information regarding factors that
may affect the Company's future results is set forth at the end of Item 1 in
the Company's Annual Report on Form 10-K for the year ended January 2, 1999.
The Company's forward-looking statements apply only as of the date made. The
Company undertakes no obligation to publicly release the results of any
revisions to forward-looking statements which may be made to reflect events
or circumstances after the date made or to reflect the occurrence of
unanticipated events.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the meeting of the shareholders of the Company held on May 11, 1999,
the shareholders voted on and approved the following items:
<TABLE>
<CAPTION>
Affirmative Negative Votes Broker
Votes Cast Votes Cast Abstaining Non-Votes
<S> <C> <C> <C> <C>
An amendment to the Company's
Employee Stock Purchase Plan 26,328,904 1,909,368 247,262 9,862,318
An amendment to the Company's
Stock Option Plan 15,066,503 13,766,152 260,417 9,244,780
Election of Directors:
Karl C. Powell Jr. 36,950,433 1,397,419
Frank C. Gill 37,100,290 1,247,562
Larry R. Levitan 37,091,712 1,256,140
John McAdam 37,081,530 1,266,322
Michael S. Scott Morton 37,065,050 1,282,802
Martin A. Stein 37,088,490 1,259,362
Robert W. Wilmot 37,037,751 1,310,101
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Statement regarding computation of earnings per share
(b) Exhibit 27 - Financial Data Schedule
(c) The Company filed a report on Form 8-K, dated May 17, 1999, reporting
under Item 4 that it had engaged Deloitte & Touche LLP as its
independent accountants for its current fiscal year.
(d) The Company filed a report on Form 8-K, dated July 12, 1999, reporting
under Item 5 that it had entered into an Agreement and Plan of Merger
with International Business Machines Corporation (IBM) that provides for
the merger of a wholly owned subsidiary of IBM into the Company, with
the Company surviving as a wholly owned subsidiary of IBM.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEQUENT COMPUTER SYSTEMS, INC.
/S/ Robert S. Gregg
Robert S. Gregg
Sr. Vice President of Finance and Legal and
Chief Financial Officer
Date: August 12, 1999
Exhibit 11
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT SHOWING CALCULATION
OF THE BASIC AND DILUTED
EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Loss Shares Per-Share
(Numerator) (Denominator) Amount
Three Months Ended Three Months Ended Three Months Ended
July 3, July 4, July 3, July 4, July 3, July 4,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Loss to common shareholders $(16,528) $(58,752) 42,019 43,729 $(0.39) $(1.34)
Diluted EPS
Loss to common shareholders $(16,528) $(58,752) 42,019 43,729 $(0.39) $(1.34)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended Six Months Ended
July 3, July 4, July 3, July 4, July 3, July 4,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Loss to common shareholders $(15,308) $(54,730) 42,872 43,457 $(0.36) $(1.26)
Diluted EPS
Loss to common shareholders $(15,308) $(54,730) 42,872 43,457 $(0.36) $(1.26)
</TABLE>
Diluted EPS is equal to Basic EPS due to the net losses recorded for the
current and comparative periods.
Exhibit 27
SEQUENT COMPUTER SYSTEMS, INC.
FINANCIAL DATA SCHEDULE
JULY 3, 1999
Amount Item Number Item Description
109,073,000 5-02 (1) Cash and Cash Items
- 5-02 (2) Marketable Securities
194,793,000 5-02 (3)(a)(1) Notes and Accounts Receivable-Trade
3,871,000 5-02 (4) Allowances for Doubtful Accounts
108,262,000 5-02 (6) Inventory
453,234,000 5-02 (9) Total Current Assets
349,738,000 5-02 (13) Property, Plant and Equipment
219,293,000 5-02 (14) Accumulated Depreciation
707,724,000 5-02 (18) Total Assets
181,481,000 5-02 (21) Total Current Liabilities
- 5-02 (22) Bonds, Mortgages and Similar Debt
- 5-02 (28) Preferred Stock - Mandatory Redemption
- 5-02 (29) Preferred Stock - No Mandatory Redemption
421,000 5-02 (30) Common Stock
491,922,000 5-02 (31) Other Shareholders Equity
707,724,000 5-02 (32) Total Liabilities and Stockholders' Equity
73,643,000 5-03 (b)1(a) Net Sales of Tangible Products
143,517,000 5-03 (b)1 Total Revenue
51,294,000 5-03 (b)2(a) Cost of Tangible Goods Sold
100,795,000 5-03 (b)2 Total Costs and Expenses Applicable to
Sales and Revenues
68,913,000 5-03 (b)3 Other Costs and Expenses
- 5-03 (b)5 Provision for Doubtful Accounts and Notes
647,000 5-03 (b)8 Interest and Amortization of Debt Discount
(25,935,000) 5-03 (b)(10) Income Before Taxes and Other Items
(9,407,000) 5-03 (b)(11) Income Tax Expenses
(16,528,000) 5-03 (b)(14) Income/Loss Continuing Operations
- 5-03 (b)(15) Discontinued Operations
- 5-03 (b)(17) Extraordinary Items
- 5-03 (b)(18) Change in Accounting Principle
(16,528,000) 5-03 (b)(19) Net Income or Loss
(0.39) 5-03 (b)(20) Earnings Per Share - Basic
(0.39) 5-03 (b)(20) Earnings Per Share - Diluted
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JUL-03-1999
<CASH> 109,073,000
<SECURITIES> 0
<RECEIVABLES> 194,793,000
<ALLOWANCES> 3,871,000
<INVENTORY> 108,262,000
<CURRENT-ASSETS> 453,234,000
<PP&E> 349,738,000
<DEPRECIATION> 219,293,000
<TOTAL-ASSETS> 707,724,000
<CURRENT-LIABILITIES> 181,481,000
<BONDS> 0
0
0
<COMMON> 421,000
<OTHER-SE> 491,922,000
<TOTAL-LIABILITY-AND-EQUITY> 707,724,000
<SALES> 73,643,000
<TOTAL-REVENUES> 143,517,000
<CGS> 51,294,000
<TOTAL-COSTS> 100,795,000
<OTHER-EXPENSES> 68,913,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 647,000
<INCOME-PRETAX> (25,935,000)
<INCOME-TAX> (9,407,000)
<INCOME-CONTINUING> (16,528,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,528,000)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
