SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File Number 0-18753
- ------------------------------
ADVANCED LOGIC RESEARCH, INC.
A Delaware Corporation Employer ID No. 33-0084573
9401 Jeronimo Road
Irvine, California 92718
(714) 581-6770
__________________________
Indicate by check mark whether the Registrant (l) 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 11,979,466 shares of the Registrant's Common Stock, par value
$.01 per share, outstanding on April 30, 1996.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
(unaudited)
March 31, September 30,
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $44,790 $46,580
Trade accounts receivable, less allowance for doubtful accounts
of $2,098 and $1,999 at March 31, 1996 and
September 30, 1995, respectively 31,493 26,524
Inventories 27,946 27,088
Prepaid expenses and other assets 1,427 1,692
Deferred income taxes 2,484 1,858
Total current assets 108,140 103,742
Equipment, furniture and fixtures, net 2,820 2,764
Other assets 475 714
$111,435 $107,220
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $9,128 $11,607
Accrued expenses 11,974 10,528
Payable to affiliates 215 330
Income taxes 1,187 1,506
Total current liabilities 22,504 23,971
Stockholders' equity:
Preferred stock, $.01 par value; 2,500,000
shares authorized; none issued
Common stock, $.01 par value; 25,000,000 shares
authorized; 11,949,966 and 11,668,871 issued and outstanding
at March 31, 1996 and September 30, 1995,
respectively 119 117
Additional paid-in capital 56,164 54,675
Retained earnings 31,177 26,803
Adjustments for foreign currency translation 1,471 1,654
Total stockholders' equity 88,931 83,249
$111,435 $107,220
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $55,047 $47,359 $112,186 $93,077
Cost of sales 43,489 38,930 88,707 76,595
Gross profit 11,558 8,429 23,479 16,482
Operating expenses:
Selling, general and
administrative 6,228 5,174 12,940 10,492
Engineering, research and
development 1,373 1,128 2,643 2,244
Royalty expense, net 1,902 1,354 3,331 2,664
Total operating expenses 9,503 7,656 18,914 15,400
Operating income 2,055 773 4,565 1,082
Interest income 652 641 1,302 1,198
Interest expense (22) (3) (35) (3)
Income before taxes 2,685 1,411 5,832 2,277
Provision for income taxes 671 353 1,458 570
Net income $2,014 $1,058 $4,374 $1,707
Net income per common and common
equivalent share $0.17 $0.09 $0.36 $0.15
Common and common equivalent shares
used in per share calculation 12,107 11,609 12,066 11,580
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED LOGIC RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<CAPTION>
Six Months Ended
March 31,
1996 1995
<S>
Cash flows from operating activities: <C> <C>
Net income $4,374 $1,707
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 744 953
Loss on disposal of equipment 108 4
Provision for losses on accounts receivables 111 158
Deferred income tax benefit (626) (202)
Change in assets and liabilities:
Trade accounts receivable (5,172) 727
Inventories (951) (3,050)
Prepaid expenses and other assets 483 3,273
Accounts payable (2,488) 4,849
Accrued expenses 1,435 183
Payable to affiliates (115) (1,649)
Income taxes (319) 1,463
Net cash (used in) provided by
operating activities (2,416) 8,416
Cash flows from investing activities -
Purchase of equipment, furniture and fixtures (908) (747)
Cash flows from financing activities -
Issuance of stock under stock option plan 1,491 7
Effect of foreign exchange rate change on cash 43 301
Net (decrease) increase in cash and
cash equivalents (1,790) 7,977
Cash and cash equivalents at beginning of period 46,580 40,836
Cash and cash equivalents at end of period $44,790 $48,813
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 36 $1
Income taxes $1,887 ($2,900)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Advanced Logic Research, Inc.
Notes to Unaudited Consolidated Financial Statements
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Advanced Logic Research, Inc., (the "Company") pursuant to
Securities and Exchange Commission regulations. In the opinion of management,
the unaudited financial statements include all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation.
The results of operations for the interim period are not necessarily
indicative of results to be expected for the full year.
These consolidated financial statements should be read in conjunction with the
financial statements included in the Company's 1995 Form 10-K as filed with
the Securities and Exchange Commission on December 27, 1995.
Net Income Per Share Information
Net income per share is computed using the weighted average number of common
shares and dilutive common stock options outstanding, at the average market
price for the period, which are considered common stock equivalents. Fully
diluted income per share amounts are not presented because they approximate
primary net income per share.
Cash Equivalents
Cash equivalents are highly liquid investments with an original maturity of
three months or less, consisting primarily of commercial paper, variable-rate
demand notes, short-term government obligations and other money market
instruments.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value) and consist of the following (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
March 31, September 30,
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Raw materials and component parts $ 9,233 $10,944
Work in process 3,761 3,647
Finished goods 14,952 12,497
-------- ----------
$ 27,946 $27,088
======= ======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Results of Operations:
The following table presents the results of operations for the Company for the
period indicated as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 79.0% 82.2% 79.1% 82.3%
Gross profit 21.0% 17.8% 20.9% 17.7%
Operating expenses:
Selling, general and
administrative 11.3% 10.9% 11.4% 11.2%
Engineering, research
and development 2.5% 2.4% 2.4% 2.4%
Royalty expense, net 3.5% 2.9% 3.0% 2.9%
Total operating
expenses 17.3% 16.2% 16.8% 16.5%
Operating income 3.7% 1.6% 4.1% 1.2%
Interest income, net 1.1% 1.3% 1.1% 1.2%
Income before taxes 4.8% 2.9% 5.2% 2.4%
Provision for income taxes 1.1% 0.7% 1.3% 0.6%
Net income 3.7% 2.2% 3.9% 1.8%
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net Sales
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 % Inc. 1996 1995 % Inc.
(In thousands)
Net sales by distribution channel
VARs and dealers $34,397 $30,656 12% $70,379 $62,686 12%
Direct 11,654 8,854 32% 22,332 15,551 44%
OEM 5,075 4,221 20% 10,731 7,946 35%
Distributors and other 3,921 3,628 8% 8,744 6,894 27%
Total 55,047 $47,359 16% $112,186 $93,077 21%
Net sales by geographic location
U.S. $33,880 $27,679 22% $69,177 $51,428 35%
International 21,167 19,680 8% 43,009 41,649 3%
Total $55,047 $47,359 16% $112,186 $93,077 21%
Net sales for the six months ended March 31, 1996 increased by 21% to $112.2
million from $93.1 million for the six months ended March 31, 1995. For this
period, sales to U.S. customers increased by 35% to $69.2 million while sales
to international customers increased by 3% to $43.0 million compared to the
first half of fiscal 1995.
The growth in sales to U.S. customers for the first six months of fiscal 1996
compared to the corresponding period of fiscal 1995 was led by a 44% and 42%
increase in sales made through the direct and U.S. value added resellers
("VARs") channels, respectively. Sales through the direct channel consists of
sales made directly to government, corporate customers and end-users. The
growth in this channel was principally driven by the addition of new
government and corporate accounts. The increase in sales to VARs and dealers
was generated through the addition of new VARs and dealers during this period
and the growth of existing customers. Also during this period sales to
distributors and other customers increased by 27% compared to the
corresponding prior year period principally due to increased sales to Tech
Data. Partially mitigating the growth in these sales channels was a 5%
decline in sales to U.S. OEM customers compared to the six months ended March
31, 1995.
During the first six months of fiscal 1996, the 3% growth in sales to
international customers compared to the corresponding period of fiscal 1995
was led by a 188% increase in sales to international OEM customers. The
growth in this channel was due to increased sales of the Company's server
products to Siemens Europe and the addition of Trigem, a large Korean company,
as an OEM customer in March 1996. Also contributing to the growth in sales to
international customers was a 14% increase in sales to Asia-Pacific region
customers through the Company's subsidiary in Singapore. Mitigating the
growth in OEM channel sales and sales to the Asia-Pacific region was a 16%
decline in sales to European customers through the Company's subsidiaries in
Germany and the United Kingdom and a 21% decrease in export sales to Canadian
and Latin American customers.
<PAGE>
For the first half of fiscal 1996, system unit sales increased by only 1% to
approximately 43,000 systems compared to the first half of fiscal 1995.
However, due to the Company's continued focus on servers and high-end desktop
systems and the demand for system configurations which include more memory,
larger disk drives and additional peripherals in general, the average system
selling price increased by 15% to $2,168 per system for the six months ended
March 31, 1996 from $1,892 per system for the six months ended March 31, 1995.
Gross Profit
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(In thousands)
Net sales $55,047 $47,359 $112,186 $93,077
Gross profit 11,558 8,429 23,479 16,482
Percentage of net sales 21.0% 17.8% 20.9% 17.7%
Gross profit margins for the six months ended March 31, 1996 improved to 20.9%
from 17.7% for the corresponding period in fiscal 1995. Contributing to the
improvement was the continuation of the Company's client/server and high-end
product strategy, lower vendor component costs and the continuing effects of
engineering design improvements implemented by the Company.
For the three months ended March 31, 1996, gross profit margins improved to
21.0% from 17.8% for the three months ended March 31, 1995 and the improvement
was attributable to the factors previously discussed.
Operating Expenses
Selling, General and Administrative.
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(In thousands)
Net sales $55,047 $47,359 $112,186 $93,077
Selling, general and
administrative expenses 6,228 5,174 12,940 10,492
Percentage of net sales 11.3% 10.9% 11.4% 11.2%
Selling, general and administrative expenses increased by 23% to $12.9 million
for the six months ended March 31, 1996 compared to $10.5 million for the
corresponding prior fiscal period. Expanded product advertising related to
new product introductions and specific channels of distribution, increased
dealer co-operative promotional activities and special product promotional
incentives principally accounted for the increase in expenses. Also
contributing to the increase were higher payroll and payroll-related costs
associated with the addition of sales personnel.
<PAGE>
For the three months ended March 31, 1996, selling, general and administrative
expenses increased by 20% compared to the corresponding prior fiscal period.
The growth was principally due to the factors previously discussed.
Engineering, Research and Development.
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(In thousands)
Net sales $55,047 $47,359 $112,186 $93,077
Engineering, research and
development expenses 1,373 1,128 2,643 2,244
Percentage of net sales 2.5% 2.4% 2.4% 2.4%
Engineering, research and development expenses increased by 18% to $2.6
million for the six months ended March 31, 1996 from $2.2 million for the
comparable prior fiscal period. Increases in payroll and payroll-related
costs associated with increased headcount and higher engineering material and
product certification expenses from ongoing product development principally
accounted for the increase. However, because of the 21% growth in revenue,
engineering and development costs as a percentage of sales remained unchanged
at 2.4% for the six months ended March 31, 1996 from the comparable prior year
period.
For the three months ended March 31, 1996, engineering, research and
development expenses increased by 22% to $1.4 million compared to the
comparable prior fiscal period. The growth was principally due to increases
in payroll, payroll-related costs and engineering material expenses
associated with increased headcount and ongoing product development.
Royalty Expense, Net
Net royalty expense for the three months ended March 31, 1996 increased to
3.5% of net sales, compared to 2.9% for the corresponding period of fiscal
1995. This increase was principally related to an increase in the royalty
rate to its maximum on the Company's products covered by the license agreement
with IBM.
For the six months ended March 31, 1996, net royalty expense increased to 3.0%
of net sales compared to 2.9% for the corresponding period of fiscal 1995.
Interest Income, Net
For the six months ended March 31, 1996, the Company had net interest income
of $1.3 million compared to $1.2 million in the corresponding fiscal 1995
period. An increase in the average cash and cash equivalent balance during
the first six months of fiscal 1996 compared to the first six months of fiscal
1995 was partially offset by lower rates of return on short-term investments
during the first half of fiscal 1996.
<PAGE>
Income Taxes
The Company's tax expense for the first half of fiscal 1996 was based on
estimated effective annual rates. The effective tax rate for the three and
six months ended March 31, 1996 was 25% which was unchanged from the tax rate
for the comparable prior year periods.
Liquidity and Capital Resources
March 31, 1996 Sept. 30, 1995
(In thousands)
Cash and cash equivalents $44,790 $46,580
Working capital 85,636 79,771
Current ratio 4.8 4.3
Debt --- ---
Stockholders' equity 88,931 83,249
The Company's cash and cash equivalents totalled $44.8 million at March 31,
1996 compared to $46.6 million at September 30, 1995. During the six months
ended March 31, 1996, operating activities used $2.4 million despite the
Company generating $4.4 million from net income. Increases in accounts
receivables and inventories used $5.2 million and $1.0 million, respectively
while a decrease in accounts payable used $2.5 million. The increase in
accounts receivable was related to sales during the quarter ended March 31,
1996 which were skewed towards the last month of the quarter. This shift was
principally due to customer order trends and product availability during the
quarter. Average sales days outstanding increased to 51 days at March 31,
1996 compared to 45 days at September 30, 1995. The decline in accounts
payable stemmed from the timing of inventory purchases during the quarter and
the Company's payment cycle. Also during the six month period ended March 31,
1996, $0.9 million was used to purchase property, plant and equipment.
The Company's primary credit facility continues to be a $15.0 million
revolving line with Heller Financial, Inc. which expires in August 1998. The
line is secured by the Company's assets and availability is subject to a
borrowing base requirement. The facility contains certain net worth,
profitability, financial ratio and other covenants with which the Company was
in compliance during the first six months of fiscal 1996. The Company has not
borrowed against this credit line. In addition, to meet short-term working
capital needs ALR International, the Company's subsidiary in Singapore, has an
uncommitted revolving credit line of approximately $4.4 million. At March 31,
1996, ALR International had no borrowings against this credit line.
The Company believes that its existing cash resources, combined with
anticipated cash flows from future operating activities, supplemented as
necessary with funds available under existing credit agreements, will provide
it with sufficient resources to meet present and reasonably foreseeable
working capital requirements and other cash needs.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on February 21, 1996 in
Newport Beach, California. All matters submitted to a vote of the Company's
stockholders were described in the Company's Proxy Statement dated January 12,
1996. Matters submitted to a vote of stockholders included:
(1) The election of the following five directors to hold office until the next
annual meeting or until their successors are elected and duly qualified.
Total Vote Each Total Vote Withheld Broker
Director From Each Director Non-Votes
Gene Lu 11,451,698 88,523 182,147
Philip A. Harding 11,449,046 91,175 182,147
Therese E. Myers 11,450,446 89,775 182,147
Kenneth W. Simonds 11,449,746 90,475 182,147
Chun Win Wong 11,451,596 88,625 182,147
(2) The approval of the proposal to amend the Company's Directors'
Nonqualified Stock Option Plan.
For 10,633,496
Against 832,600
Abstain 66,625
No Vote 7,500
Broker Non-Vote 182,147
(3) The approval of the appointment of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ended September 30, 1996.
For 11,484,733
Against 18,715
Abstain 36,773
No Vote 0
Broker Non-Vote 182,147
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement Regarding Computation of Per Share Earnings.
(b) Reports on Form 8-K: None
<PAGE>
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.
ADVANCED LOGIC RESEARCH, INC.
(Registrant)
Date: May 15, 1996 \s\ Gene Lu
-------------------------------------
Gene Lu
Chairman, President and Chief
Executive Officer
Date: May 15, 1996 \s\ Ron Sipkovich
-------------------------------------
Ronald J. Sipkovich
Vice President, Finance and
Administration, Chief Financial
Officer and Secretary
(principal financial officer)
<PAGE>
<TABLE>
Exhibit 11
Advanced Logic Research, Inc. and Subsidiaries
Statement Regarding Computation of Per Share Earnings
(Amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
<CAPTION>
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary earnings per share:-
Shares used in computing earnings per share:
Weighted average number of
shares outstanding 11,830 11,480 11,761 11,478
Incremental shares attributed
to outstanding options 277 129 305 102
12,107 11,609 12,066 11,580
Earnings:
Net income $2,014 $1,058 $4,374 $1,707
Earnings per common and
common equivalent share $0.17 $0.09 $0.36 $0.15
Earnings per share - assuming full dilution:-
Shares used in computing earnings per share:
Weighted average number of
shares outstanding 11,830 11,480 11,761 11,478
Incremental shares attributed to
outstanding options 280 129 308 127
12,110 11,609 12,069 11,605
Earnings:
Net income $2,014 $1,058 $4,374 $1,707
Earnings per common and
common equivalent share $0.17 $0.09 $0.36 $0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 6-MOS
<CASH> 44,790
<SECURITIES> 0
<RECEIVABLES> 33,591
<ALLOWANCES> 2,098
<INVENTORY> 27,946
<CURRENT-ASSETS> 108,140
<PP&E> 10,641
<DEPRECIATION> 7,821
<TOTAL-ASSETS> 111,435
<CURRENT-LIABILITIES> 22,504
<BONDS> 0
0
0
<COMMON> 119
<OTHER-SE> 88,812
<TOTAL-LIABILITY-AND-EQUITY> 111,435
<SALES> 112,186
<TOTAL-REVENUES> 112,186
<CGS> 88,707
<TOTAL-COSTS> 88,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 111
<INTEREST-EXPENSE> (1,267)
<INCOME-PRETAX> 5,832
<INCOME-TAX> 1,458
<INCOME-CONTINUING> 4,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,374
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
