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 March 31, 1997 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: 0-26844
RADISYS CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0945232
(State or other jurisdiction (I.R.S. Employer
of organization or incorporation) Identification Number)
5445 NE Dawson Creek Drive
Hillsboro, OR 97124
(Address of principal executive offices, including zip code)
(503) 615-1100
(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
----- -----
Number of shares of common stock outstanding as of May 5, 1997
was 7,727,347.
<PAGE>
RADISYS CORPORATION
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet - March 31, 1997 and
December 31, 1996 3
Consolidated Statement of Operations - Three months
ended March 31, 1997 and 1996. 4
Consolidated Statement of Changes In Shareholders'
Equity - December 31, 1994 through March 31, 1997 5
Consolidated Statement of Cash Flows - Three months
ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Changes in securities 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Balance Sheet
(in thousands, except share amounts)
ASSETS
March 31, December 31,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 23,144 $ 24,626
Accounts receivable 24,091 20,265
Other receivables 2,214 3,396
Inventories 20,008 17,834
Other current assets 512 742
Deferred income taxes 2,079 1,794
------------- -------------
Total current assets 72,048 68,657
Equipment, net of accumulated depreciation of
$5,858 and $5,208 12,156 11,171
Other Assets 4,182 425
------------- -------------
$ 88,386 $ 80,253
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 12,638 $ 11,461
Income taxes payable 4,328 2,996
Accrued wages and bonuses 1,747 2,230
Accrued warranty costs 1,196 1,227
Accrued sales discounts 1,635 1,360
Other accrued liabilities 2,124 2,139
Current portion of note payable 900 1,200
Current portion of capital lease obligation 214 214
------------- -------------
Total current liabilities 24,782 22,827
------------- -------------
Obligations under capital lease 587 648
------------- -------------
Total liabilities 25,369 23,475
------------- -------------
Commitments and contingent liabilities
Shareholders' equity
Common stock, 15,000,000 shares
authorized, 7,560,377 and 7,388,410 shares
issued and outstanding 48,132 45,061
Warrants 1,200 1,200
Cumulative translation adjustment (583) (329)
Retained earnings 14,268 10,846
------------- -------------
Total shareholders' equity 63,017 56,778
------------- -------------
$ 88,386 $ 80,253
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31, March 31,
1997 1996
----------------- ---------------
<S> <C> <C>
Revenues $ 27,830 $ 11,065
Cost of sales 16,185 7,398
----------------- ---------------
Gross Profit 11,645 3,667
Research and development 2,807 1,130
Selling, general and administrative 3,838 1,903
----------------- ---------------
Income from operations 5,000 634
Interest income, net 264 253
----------------- ---------------
Income before income tax provision 5,264 887
Income tax provision 1,842 337
----------------- ---------------
Net income $ 3,422 $ 550
================= ===============
Net income per share $ 0.43 $ 0.09
================= ===============
Weighted average number of common and
common equivalent shares outstanding 7,899 6,162
================= ===============
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Statement of Changes in Shareholders' Equity
(in thousands, except per share amounts)
(Page 1 of 2)
Preferred Stock
------------------------------------------------------------
Series A Series B Series C Common Stock
------------------ ------------------- ------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- ---------- ------- ---------- ------- ---------- -------
<C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 355,556 1,500 1,820,988 4,917 2,159,504 2,973 1,482,200 475
Exercise of common stock options 58,524 106
Issuance of common stock 2,175,000 23,656
Conversion of preferred stock (355,556) (1,500) (1,820,988) (4,917) (2,159,504) (2,973) 2,298,985 9,390
Translation adjustment
Net income for the year
-------- -------- ---------- ------- ---------- ------- ---------- -------
Balances, December 31, 1995 6,014,709 33,627
Exercise of common stock options 73,701 365
Tax effect of options exercised 569
Translation adjustment
Stock issued for acquisition 1,300,000 10,500
Warrants issued for acquisition
Net income for the period
-------- -------- ---------- ------- ---------- ------- ---------- -------
Balances, December 31, 1996 7,388,410 45,061
Exercise of common stock options 88,467 662
Translation adjustment
Stock issued for acquisition 83,500 2,409
Net income for the period
-------- -------- ---------- ------- ---------- ------- ---------- -------
Balances, March 31, 1997 $ $ $ 7,560,377 $48,132
======== ======== ========== ======= ========== ======= ========== =======
See accompanying notes to consolidated financial statements.
</TABLE>
5a
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Statement of Changes in Shareholders' Equity
(in thousands, except per share amounts)
(Page 2 of 2)
Cumulative Retained
Translation (deficit)
Warrants Adjustment Earnings Total
-------- ---------- -------- --------
<C> <C> <C> <C>
Balances, December 31, 1994 (216) 9,649
Exercise of common stock options 106
Issuance of common stock 23,656
Conversion of preferred stock
Translation adjustment (108) (108)
Net income for the year 1,516 1,516
-------- ---------- -------- --------
Balances, December 31, 1995 (108) 1,300 34,819
Exercise of common stock options 365
Tax effect of options exercised 569
Translation adjustment (221) (221)
Stock issued for acquisition 10,500
Warrants issued for acquisition 1,200 1,200
Net income for the period 9,546 9,546
-------- ---------- -------- --------
Balances, December 31, 1996 1,200 (329) 10,846 56,778
Exercise of common stock options 662
Translation adjustment (254) (254)
Stock issued for acquisition 2,409
Net income for the period 3,422 3,422
-------- ---------- -------- --------
Balances, March 31, 1997 1,200 $ (583) $ 14,268 $ 63,017
======== ========== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
5b
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31, March 31,
1997 1996
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,422 $ 550
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,078 330
Deferred income taxes (285)
Net changes in current assets and current liabilities:
(Increase) in accounts receivable (3,286) (267)
Decrease in other receivables 1,182
(Increase) decrease in inventories (1,560) 927
(Increase) decrease in other current assets 238 (320)
Increase in accounts payable 1,065 16
Increase in income tax payable 1,332 152
Decrease in accrued wages and bonuses (577) (101)
Increase (decrease) in accrued warranty costs (42) 55
Increase in accrued sales discounts 275
Increase (decrease) in other accrued liabilities (351) 125
------------- --------------
Net cash provided by operating activities 2,491 1,467
------------- --------------
Cash flows from investing activities:
Decrease in short term investments 9,922
Business acquisitions (1,060)
Capital expenditures (1,821) (1,472)
Capitalized software production costs and other assets 193 (70)
------------- --------------
Net cash provided by (used for) investing activities (2,688) 8,380
------------- --------------
Cash flows from financing activities:
Cash proceeds from issuance of common stock, net 662 6
Payment on notes payable (1,632)
Payments on capital lease obligation (61) (58)
------------- --------------
Net cash (used for) financing activities (1,031) (52)
------------- --------------
Effect of exchange rate changes on cash (254) 18
------------- --------------
Net (increase) decrease in cash and cash equivalents (1,482) 9,813
Cash and cash equivalents, beginning of period 24,626 10,236
------------- --------------
Cash and cash equivalents, end of period $ 23,144 $ 20,049
============= ==============
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
(unaudited)
1. 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 the fair statement of results for the interim periods. Certain
information and footnote disclosure 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 year ended
December 31, 1996. The results of operations for interim periods are not
necessarily indicative of the results for the entire year.
Net income per share is based on the weighted average number of shares of
common stock and common stock equivalents (stock options and warrants)
outstanding during the periods, computed using the treasury stock method
for stock options and warrants.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share". In accordance with this pronouncement, the
Company will adopt the new standard for periods ending after December 15,
1997. Management does not expect the adoption of this pronouncement to have
a significant effect on reported earnings per share information.
2. Accounts Receivable
Trade accounts receivable are net of an allowance for doubtful accounts of
$738 and $706 at March 31, 1997 and December 31, 1996, respectively. The
Company's customers are concentrated in the technology industry.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
Mar 31, Dec 31,
1997 1996
-------------- -------------
<S> <C> <C>
Raw Materials $ 13,112 $ 12,555
Work in Process 3,487 3,538
Finished Goods 3,409 1,741
-------------- -------------
$ 20,008 $ 17,834
============== =============
</TABLE>
7
<PAGE>
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Mar 31, Dec 31,
1997 1996
-------------- -------------
<S> <C> <C>
Land $ 2,062 $ 1,230
Manufacturing Equipment 8,640 8,472
Office Equipment 5,862 5,548
Leasehold Improvements 1,450 1,129
-------------- -------------
18,014 16,379
Less: Accum. Depr. 5,858 5,208
-------------- -------------
$ 12,156 $ 11,171
============== =============
</TABLE>
5. Acquisitions
On April 29, 1996, the Company purchased substantially all of the assets of
Intel Corporation ("Intel") that were dedicated to the design, manufacture
and sale of all standard and custom Multibus I and Multibus II products
("Multibus") (collectively the "Acquisition"). In addition, pursuant to the
terms of the Acquisition, Intel licensed certain Intel software to the
Company. The Acquisition was accounted for using the purchase method. The
purchase price consisted of 1,300,000 shares of the Company's common stock
("Common Stock") and warrants to purchase an additional 300,000 shares of
Common Stock exercisable within 24 months at prices per share ranging from
$13.50 to $15.00, plus an aggregate of $1.2 million in cash to be paid in
1997. On April 25, 1997, Intel exercised in full the warrants it received
pursuant to the Acquisition in a cashless exercise at an effective price of
$13.50 a share, which resulted in the issuance of 166,667 shares of the
Company's common stock to Intel and no cash proceeds to the Company.
Included within other receivables is approximately $1.8 million related to
inventory to be delivered by Intel to the Company in 1997.
On February 18, 1997, the Company purchased substantially all of the assets
of Sonitech International, Inc. The purchase price consisted of 83,500
shares of the Company's common stock and approximately $1 million in cash.
The non cash portions of the above transactions have been excluded from the
accompanying Consolidated Statement of Cash Flows.
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $27.8 million for the three months ended March 31, 1997
compared to $11.1 million for the three months ended March 31, 1996. Net
income was $3.4 million for the three months ended March 31, 1997 compared
to $0.5 million for the three months ended March 31, 1996.
Information contained in this Quarterly Report on Form 10-Q and statements
that may be made in the future by the Company's management regarding future
industry trends, the Company's future development and introduction of
products, and the Company's future liquidity, development, and business
activities constitute forward looking statements that involve a number of
risks and uncertainties. The following are among the factors that could
cause actual results to differ materially from the forward looking
statements: business conditions and growth in the electronics industry and
general economies, both domestic and international; uncertainty of market
development; dependence on a limited number of OEM customers; dependence on
limited or sole source suppliers; dependence on the relationship with Intel
Corporation ("Intel"); dependence on Intel's support of the embedded
computer market; lower than expected customer orders; competitive factors,
including increased competition, new product offerings by competitors and
price pressures; the availability of parts and components at reasonable
prices; changes in product mix; dependence on proprietary technology;
technological difficulties and resource constraints encountered in
developing new products; and product shipment interruptions due to
manufacturing difficulties.
On April 29, 1996, the Company purchased substantially all of the assets of
Intel Corporation ("Intel") that were dedicated to the design, manufacture
and sale of all standard and custom Multibus I and Multibus II products
("Multibus") (collectively the "Acquisition"). In addition, pursuant to the
terms of the Acquisition, Intel licensed certain Intel software to the
Company. On February 18, 1997, the Company purchased substantially all of
the assets of Sonitech International, Inc., a provider of digital signal
processing hardware and software solutions for embedded applications. Both
acquisitions were accounted for using the purchase method. The results of
operations for these acquisitions have been included in the financial
statements since the date of the acquisition.
9
<PAGE>
<TABLE>
<CAPTION>
REVENUES
Three Months Ended
------------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1997 Change 1996
-------- ------ --------
<S> <C> <C> <C>
Revenues $27,830 152 $11,065
</TABLE>
The increase in revenues for the three months ended March 31, 1997 compared
to the three months ended March 31, 1996 resulted primarily from the
acquisition of Multibus from Intel on April 29, 1996, design wins ramping
into production and volume increases in OEM sales.
<TABLE>
<CAPTION>
COST OF GOODS SOLD
Three Months Ended
------------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1997 Change 1996
-------- ------ --------
<S> <C> <C> <C>
Cost of Goods Sold $16,185 119 $7,398
As a Percentage of Revenues 58 67
</TABLE>
As a percentage of revenues total cost of goods sold decreased for the
three months ended March 31, 1997 compared to the three months ended March
31, 1996 primarily as a result of component pricing decreasing faster than
price changes to the Company's customers, the mix of products sold through
distributors versus direct sales, and product mix consisting of a larger
portion of higher margin product relative to lower margin product shipped
during the first quarter of 1997.
<TABLE>
<CAPTION>
RESEARCH AND DEVELOPMENT
Three Months Ended
------------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1997 Change 1996
-------- ------ --------
<S> <C> <C> <C>
Research and Development $ 2,807 148 $ 1,130
As a Percentage of Revenues 10 10
</TABLE>
The dollar increases in research and development expenses were primarily
the result of increased investment in new product development and costs of
enhancements to existing products. The Company continues to invest in new
design wins for OEM customers and the dollar increases reflect steady
increases in the number of employees working in research and development.
10
<PAGE>
<TABLE>
<CAPTION>
SELLING, GENERAL AND ADMINISTRATIVE
Three Months Ended
------------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1997 Change 1996
-------- ------ --------
<S> <C> <C> <C>
Selling, General & Admin. $ 3,838 102 $ 1,903
As a Percentage of Revenues 14 17
</TABLE>
Selling, general and administrative expenses have increased in dollar
amount in the three months ended March 31, 1997 compared to the three
months ended March 31, 1996, primarily as a result of increased personnel,
facilities and travel costs to support higher levels of sales. The
decreases as a percentage of revenues were primarily the result of
operating efficiencies achieved by spreading fixed costs over a larger
revenue base.
<TABLE>
<CAPTION>
INTEREST INCOME, NET AND INCOME TAX PROVISION
Three Months Ended
------------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1997 Change 1996
-------- ------ --------
<S> <C> <C> <C>
Interest Income, net $ 264 4 $ 253
Income Tax Provision $ 1,842 447 $ 337
</TABLE>
Interest income, net includes interest income, interest expense, bank
charges and foreign currency transaction gains or losses.
The increase in the income tax provision is solely attributable to
increased net income before taxes in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $23.1 million in cash and cash
equivalents, which represents the Company's principal source of liquidity.
The Company had working capital of approximately $47.3 million. Effective
September 30, 1996, the Company entered into a $10.0 million line of credit
with a bank. The Company has not drawn any funds under this line of credit.
Net cash provided by operating activities for the three months ended March
31, 1997 was $2.5 million as compared with $1.5 million for the three
months ended March 31, 1996.
Capital expenditures were $1.8 million in the three months ended March 31,
1997 and $1.5 million for the three months ended March 31, 1996. Capital
expenditures for the three months ended March 31, 1997 were primarily for
the purchase of a parcel of land for future expansion and construction in
progress for a new engineering design center which the Company plans to
occupy in January 1998.
The Company believes that existing cash and cash equivalents and cash from
operations will be sufficient to fund its operations for at least the next
12 months.
11
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
(c) On February 18, 1997, the Company issued 83,500 shares of its common
stock to the three shareholders of Sonitech International, Inc.
("Sonitech"), as partial consideration for the Company's acquisition
of substantially all of the assets of Sonitech. This issuance of
shares was exempt from the registration requirements of the Securities
Act of 1933 pursuant to Section 4(2) thereof.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
12
<PAGE>
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.
RADISYS CORPORATION
BRIAN V. TURNER
------------------------------------------------
Date: May 5, 1997 Brian V. Turner
Vice President of Finance and Administration and
Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 23,144
<SECURITIES> 0
<RECEIVABLES> 24,091
<ALLOWANCES> 738
<INVENTORY> 20,008
<CURRENT-ASSETS> 72,048
<PP&E> 12,156
<DEPRECIATION> 5,858
<TOTAL-ASSETS> 88,386
<CURRENT-LIABILITIES> 24,782
<BONDS> 0
0
0
<COMMON> 48,132
<OTHER-SE> 14,885
<TOTAL-LIABILITY-AND-EQUITY> 88,386
<SALES> 27,830
<TOTAL-REVENUES> 27,830
<CGS> 16,185
<TOTAL-COSTS> 6,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264
<INCOME-PRETAX> 5,264
<INCOME-TAX> 1,842
<INCOME-CONTINUING> 3,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,422
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
