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 September 30, 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 October 31,
1997 was 7,872,639.
<PAGE>
RADISYS CORPORATION
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet - September 30, 1997
and December 31, 1996 3
Consolidated Statement of Operations - Three months
ended September 30, 1997 and 1996, and nine months
ended September 30, 1997 and 1996. 4
Consolidated Statement of Changes In Shareholders'
Equity - December 31, 1994 through September 30, 1997 5
Consolidated Statement of Cash Flows - Nine months
ended September 30, 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 1. Legal Proceedings 12
Item 6. Exhibits 12
Signatures 13
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Balance Sheet
(in thousands, except share amounts)
ASSETS
September 30, December 31,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 23,417 $ 24,626
Accounts receivable 26,077 20,265
Other receivables 774 3,396
Inventories 20,768 17,834
Other current assets 1,612 742
Deferred income taxes 1,424 1,794
------------- -------------
Total current assets 74,072 68,657
Equipment, net of accumulated depreciation of
$7,276 and $5,208 12,571 11,171
Other Assets 4,786 425
------------- -------------
$ 91,429 $ 80,253
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 11,583 $ 11,461
Income taxes payable 3,006 2,996
Accrued wages and bonuses 2,386 2,230
Accrued warranty costs 458 1,227
Accrued sales discounts 743 1,360
Other accrued liabilities 1,174 2,139
Note payable 1,200
Current portion of capital lease obligation 214 214
------------- -------------
Total current liabilities 19,564 22,827
------------- -------------
Obligations under capital lease 462 648
------------- -------------
Total liabilities 20,026 23,475
------------- -------------
Commitments and contingent liabilities
Shareholders' equity
Common stock, 50,000,000 shares
authorized, 7,784,907 and 7,388,410 shares
issued and outstanding 49,414 45,061
Warrants 1,200
Cumulative translation adjustment (4) (329)
Retained earnings 21,993 10,846
------------- -------------
Total shareholders' equity 71,403 56,778
------------- -------------
$ 91,429 $ 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 Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 31,594 $ 22,459 $ 89,220 $ 53,558
Cost of sales 18,875 12,006 52,935 31,372
------------ ------------ ------------ ------------
Gross profit 12,719 10,453 36,285 22,186
Research and development 2,953 2,030 8,502 5,666
Selling, general and administrative 3,812 3,513 11,407 8,180
------------ ------------ ------------ ------------
Income from operations 5,954 4,910 16,376 8,340
Interest income (expense), net 238 288 772 812
------------ ------------ ------------ ------------
Income before income tax provision 6,192 5,198 17,148 9,152
Income tax provision 2,167 1,819 6,001 3,228
------------ ------------ ------------ ------------
Net income $ 4,025 $ 3,379 $ 11,147 $ 5,924
============ ============ ============ ============
Net income per share $ 0.49 $ 0.43 $ 1.37 $ 0.83
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 8,297 7,819 8,148 7,175
============ ============ ============ ============
See accompanying notes to consolidated financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Statement of Changes in Shareholders' Equity
(in thousands, except share amounts)
Preferred stock
--------------------------------------------------------------
Series A Series B Series C Common stock
----------------- ------------------ ------------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount Warrants
-------- ------ --------- ------ --------- ------- --------- ------- --------
<S> <C> <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 1,200
Net income for the period
-------- ------ --------- ------ --------- ------- --------- ------- --------
Balances, December 31, 1996 7,388,410 45,061 1,200
Exercise of warrants 166,667 1,200 (1,200)
Exercise of common stock options 146,330 744
Translation adjustment
Stock issued for acquisition 83,500 2,409
Net income for the period
-------- ------ --------- ------ --------- ------- --------- ------- --------
Balances, September 30, 1997 $ $ $ 7,784,907 $49,414 0
======== ====== ========= ====== ========= ======= ========= ======= ========
See accompanying notes to consolidated financial statements
</TABLE>
5A
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Statement of Changes in Shareholders' Equity
(in thousands, except share amounts)
Page 2 of 2
Cumulative Retained
translation (deficit)
adjustment earnings Total
---------- -------- ------
<S> <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
Net income for the period 9,546 9,546
---------- -------- ------
Balances, December 31, 1996 (329) 10,846 56,778
Exercise of warrants
Exercise of common stock options 744
Translation adjustment 325 325
Stock issued for acquisition 2,409
Net income for the period 11,147 11,147
---------- -------- ------
Balances, September 30, 1997 $ (4) $ 21,993 $71,403
========== ======== =======
See accompanying notes to consolidated financial statements
</TABLE>
5B
<PAGE>
<TABLE>
<CAPTION>
RadiSys Corporation
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 11,147 $ 5,924
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,590 1,339
Deferred income taxes 370 (527)
Net changes in current assets and current liabilities:
(Increase) decrease in accounts receivable (5,272) (8,175)
(Increase) decrease in other receivables 2,622 24
(Increase) decrease in inventories (2,320) (112)
(Increase) decrease in other current assets (1,070) (28)
Increase (decrease) in accounts payable 10 3,578
Increase (decrease) in income tax payable 10 2,770
Increase (decrease) in accrued wages and bonuses 62 814
Increase (decrease) in accrued warranty costs (780) 795
Increase (decrease) in accrued sales discounts (617)
Increase (decrease) in other accrued liabilities (1,301) 3,618
------------- -------------
Net cash provided by operating activities 5,451 10,020
------------- -------------
Cash flows from investing activities:
Decrease in short term investments 10,922
Business acquisitions (1,060)
Capital expenditures (3,502) (5,132)
Capitalized software production costs and other assets (449) 118
------------- -------------
Net cash provided by (used for) investing activities (5,011) 5,908
------------- -------------
Cash flows from financing activities:
Cash proceeds from issuance of common stock, net 744 274
Payment on notes payable (2,532)
Payments on capital lease obligation (186) (149)
------------- -------------
Net cash provided by (used for) financing activities (1,974) 125
------------- -------------
Effect of exchange rate changes on cash 325 99
------------- -------------
Net increase (decrease) in cash and cash equivalents (1,209) 16,152
Cash and cash equivalents, beginning of period 24,626 10,236
------------- -------------
Cash and cash equivalents, end of period $ 23,417 $ 26,388
============= =============
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.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement requires entities to
report changes in equity that result from transactions and economic events
other than those with shareholders. This statement is effective for fiscal
years beginning after December 15, 1997, at which time it will be adopted
by the Company. Management expects that the adoption of this pronouncement
will have no effect on reported earnings. The Company's comprehensive
income component will consist only of the SFAS 52 cumulative translation
adjustment, already included in the statement of shareholders' equity.
In June 1997, the Financial Accounting Standards Board issue SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related information". The
objective of the standard is to provide information abut the different
types of business activities in which an enterprise engages and the
different economic environments in which it operates. This pronouncement
will be adopted by the company for fiscal 1998, as required by the
statement. This statement will have no impact on reported earnings and
management expects that it will not have a significant impact on disclosure
requirements as the company operates in one segment.
2. Accounts Receivable
Trade accounts receivable are net of an allowance for doubtful accounts of
$674 and $706 at September 30, 1997 and December 31, 1996, respectively.
The Company's customers are concentrated in the technology industry.
7
<PAGE>
3. Inventories
Inventories consist of the following:
Sept 30, Dec 31,
1997 1996
------------ ------------
Raw Materials $ 13,297 $ 12,555
Work in Process 2,830 3,538
Finished Goods 4,641 1,741
------------ ------------
$ 20,768 $ 17,834
============ ============
4. Property and Equipment
Property and equipment consists of the following:
Sept 30, Dec 31,
1997 1996
------------ ------------
Land $ 2,065 $ 1,230
Manufacturing Equipment 9,466 8,472
Office Equipment 6,513 5,548
Leasehold Improvements 1,803 1,129
19,847 16,379
Less: Accum. Depr. 7,276 5,208
------------ ------------
$ 12,571 $ 11,171
============ ============
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $31.6 million for the three months ended September 30,
1997 compared to $22.5 million for the three months ended September 30,
1996, and $89.2 million for the nine months ended September 30, 1997
compared to $53.6 million for the nine months ended September 30, 1996. Net
income was $4.0 million for the three months ended September 30, 1997
compared to $3.4 million for the three months ended September 30, 1996, and
$11.1 million for the nine months ended September 30, 1997 compared to $5.9
million for the nine months ended September 30, 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 dates of the acquisition.
REVENUES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, % Sept 30, Sept 30, % Sept 30,
1997 Change 1996 1997 Change 1996
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $31,594 41 $22,459 $89,220 67 $53,558
</TABLE>
The increases in revenues for the three months ended September 30, 1997
compared to the three months ended September 30, 1996 resulted primarily
from new design wins ramping into production and volume increases in OEM
sales. The increase in revenues for the nine months
9
<PAGE>
ended September 30, 1997 compared to the nine months ended September 30,
1996 resulted primarily from the inclusion of the Multibus acquisition for
all of 1997 compared with only five of the nine months of 1996, new design
wins ramping into production and volume increases in OEM sales.
COST OF GOODS SOLD
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, % Sept 30, Sept 30, % Sept 30,
1997 Change 1996 1997 Change 1996
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Cost of Goods Sold $18,875 57 $12,006 $52,935 69 $31,372
As a % of total revenue 60% 54% 59% 59%
</TABLE>
The increase in cost of goods sold as a percentage of revenues for the
three months ended September 30, 1997 compared to the three months ended
September 30, 1996 is primarily the result of nonrecurring royalty revenues
paid in the third quarter of 1996 by Intel to RadiSys for backlog retained
by Intel in connection with its sale of Multibus to RadiSys and lower
margin new design wins ramping into production. As a percentage of
revenues, total cost of goods sold remained stable for the nine months
ended September 30, 1997 compared to the nine months ended September 30,
1996 primarily as a result of component pricing and the mix of products
sold through distributors versus direct sales, offset by lower margin new
design wins ramping into production and product mix.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, Sept 30, Sept 30, Sept 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Research and Development $2,953 $2,030 $8,502 $5,666
As a % of total revenue 9% 9% 10% 11%
</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.
SELLING, GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, Sept 30, Sept 30, Sept 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Selling, General & Admin. $3,812 $3,513 $11,407 $8,180
As a % of total revenue 12% 16% 13% 15%
</TABLE>
10
<PAGE>
Selling, general and administrative expenses have increased in dollar
amount in the three and nine months ended September 30, 1997 compared to
the three and nine months ended September 30, 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 in these periods
compared to the same periods in 1996 were primarily the result of operating
efficiencies achieved by spreading fixed costs over a larger revenue base.
INTEREST INCOME, NET AND INCOME TAX PROVISION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, % Sept 30, Sept 30, % Sept 30,
1997 Change 1996 1997 Change 1996
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Interest Income, net $ 238 (17) $ 288 $ 772 (5) $ 812
Income Tax Provision 2,167 19 1,819 6,001 86 3,228
</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
At September 30, 1997, the Company had $23.4 million in cash and cash
equivalents, which represents the Company's principal source of liquidity.
At September 30, 1997, the Company had working capital of approximately
$54.5 million. Effective October, 1997, the Company renewed 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 nine
months ended September 30, 1997 was $5.5 million as compared with $10.0
million for the nine months ended September 30, 1996.
Capital expenditures were $3.5 million in the nine months ended September
30, 1997 and $5.1 million for the nine months ended September 30, 1996. The
decrease is primarily attributable to two parcels of land for future
expansion being purchased in the nine months ended September 30, 1996,
partially offset by capital expenditures for the nine months ended
September 30, 1997 composed of the purchase of an additional parcel of land
for future expansion, the relocation of the Company's Boston office into a
larger facility, and construction in progress for a new engineering design
center which the Company plans to occupy in January 1998. The Company
signed a long term lease on the new design center in the second quarter of
1997.
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 1. LEGAL PROCEEDINGS
In August 1997, the Company settled a lawsuit that had been filed in July
1996 by a former officer of the Company alleging wrongful termination.
(Taylor vs. RadiSys Corporation, et al., in the Circuit Court of the State
of Oregon in Washington County.) The settlement was not material to the
Company's financial position or results of operations.
Item 6. 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: November 12, 1997 Brian V. Turner
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
------- ---------------
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,417
<SECURITIES> 0
<RECEIVABLES> 26,077
<ALLOWANCES> 674
<INVENTORY> 20,768
<CURRENT-ASSETS> 74,072
<PP&E> 12,571
<DEPRECIATION> 7,276
<TOTAL-ASSETS> 91,429
<CURRENT-LIABILITIES> 19,564
<BONDS> 0
0
0
<COMMON> 49,414
<OTHER-SE> 21,989
<TOTAL-LIABILITY-AND-EQUITY> 91,429
<SALES> 89,220
<TOTAL-REVENUES> 89,220
<CGS> 52,935
<TOTAL-COSTS> 19,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 772
<INCOME-PRETAX> 17,148
<INCOME-TAX> 6,001
<INCOME-CONTINUING> 11,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,147
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
