Page 1 of 22 Pages
Exhibit Index is on Page 21
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934]
For the transition period from ____________ to ______________
Commission file number 0-19674
SyQuest Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-2793941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47071 Bayside Parkway, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
(510) 226-4000
(Registrant's telephone number, including area code)
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by checkmark 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 reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by nonaffiliates of
the registrant, based upon the closing price of Common Stock on November 30,
1995 as reported by Nasdaq, was approximately $124,565,364. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's Common Stock on
November 30, 1995 was 11,324,124.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1996 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference in Part III
of this Annual Report on Form 10-K.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the years ended September 30, 1995, 1994, and 1993
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors....................... 2
Consolidated Balance Sheets -- September 30, 1995 and 1994.............. 3
Consolidated Statements of Operations -- Years Ended September 30,
1995, 1994, and 1993................................................ 4
Consolidated Statements of Stockholders' Equity -- Years Ended
September 30, 1995, 1994, and 1993.................................. 5
Consolidated Statements of Cash Flows -- Years Ended September 30,
1995, 1994, and 1993................................................ 6
Notes to Consolidated Financial Statements.............................. 7
-1-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SyQuest Technology, Inc.
We have audited the accompanying consolidated balance sheets of SyQuest
Technology, Inc. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated October 26, 1995
(except for Note 4, as to which the date is December 27, 1995) the Company, as
discussed in Note 12, has experienced a reduction in revenues and increased
costs that adversely affect the Company's current results of operations and
liquidity. Note 12 describes management's plans to address these issues.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SyQuest Technology, Inc. and subsidiaries at September 30, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 of Notes to Consolidated Financial Statements,
in 1994 the Company changed its method of accounting for income taxes.
Ernst & Young LLP
San Jose, California
October 26, 1995,
except for Note 4
as to which the date is December 27, 1995 and
Note 12, as to which the date is June 26, 1996
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<PAGE>
<TABLE>
SYQUEST TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30,
1995 1994
----------- -----------
(In Thousands, Except Share Data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,248 $ 45,982
Short-term investments 400 1,715
Accounts receivable 55,653 46,719
Inventories 34,213 12,148
Prepaid expenses and deposits 2,066 1,707
Deferred income taxes 13,254 6,537
------- -------
Total current assets 134,834 114,808
Property, equipment and leasehold improvements:
Equipment 47,291 38,120
Furniture and fixtures 2,667 2,347
Property and leasehold improvements 7,832 6,529
--------- ---------
57,790 46,996
Accumulated depreciation and amortization 31,070 24,634
--------- ---------
26,720 22,362
Other assets 3,130 2,331
--------- ---------
Total assets $164,684 $139,501
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,213 $ 26,052
Accrued compensation and benefits 5,206 3,529
Provision for losses on purchase commitments 10,510 --
Accrued expenses and other liabilities 15,210 9,755
Income taxes payable 355 2,820
--------- ---------
Total current liabilities 72,494 42,156
Deferred rent 276 264
Deferred income taxes 8,726 6,236
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares -- 4,000,000
No shares issued and outstanding -- --
Common stock, $.001 par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 11,323,974 in 1995 and
10,824,593 in 1994 13 12
Additional paid-in capital 79,489 74,161
Treasury common stock at cost -- 1,225,000 shares in 1995 and
1,125,000 shares in 1994 (12,855) (11,655)
Retained earnings 16,541 28,327
--------- ---------
Total stockholders' equity 83,188 90,845
--------- ---------
Total liabilities and stockholders' equity $ 164,684 $ 139,501
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
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<PAGE>
<TABLE>
SYQUEST TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1995 1994 1993
------------ ------------ ------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Net revenues $ 299,544 $221,001 $206,362
Cost of revenues 237,987 160,342 131,081
Provision for losses on purchase commitments 10,510 -- --
--------- ---------- ----------
Gross profit 51,047 60,659 75,281
Operating expenses:
Selling, general, and administrative (includes provision for
losses on accounts receivable of $2,008 in 1995, $3,151 in
1994, and $1,725 in 1993) 43,796 37,229 37,253
Research and development 23,892 17,967 19,069
--------- ---------- ----------
Total operating expenses 67,688 55,196 56,322
--------- ---------- ----------
Income (loss) from operations (16,641) 5,463 18,959
Interest income 1,134 1,193 1,041
--------- ---------- ----------
Income (loss) before income taxes and cumulative effect of
accounting change (15,507) 6,656 20,000
Provision (benefit) for income taxes (3,721) 1,597 4,788
--------- ---------- ----------
Income (loss) before cumulative effect of accounting change (11,786) 5,059 15,212
Cumulative effect of change in method of accounting for income
taxes -- 346 --
--------- ---------- ----------
Net income (loss) $(11,786) $ 5,405 $ 15,212
========= ========== ==========
Income (loss) per share:
Primary:
Income(loss) before cumulative effect of accounting
change $ (1.07) $ .43 $ 1.23
Cumulative effect of accounting change -- .03 --
--------- ---------- ----------
Net income (loss) $ (1.07) $ .46 $ 1.23
========= ========== ==========
Common and common equivalent shares used in computing per share
amounts 11,063 11,647 12,340
========= ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
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<PAGE>
<TABLE>
SYQUEST TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Additional Treasury
------------ Paid-In Common Retained
Shares Amount Capital Stock Earnings Total
---------- --------- -------------- --------- --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1992 11,432 $ 11 $ 69,179 $ -- $ 7,710 $ 76,900
Stock options exercised 295 1 1,006 -- -- 1,007
Shares issued under the Employee Stock
Purchase Plan 56 -- 841 -- -- 841
Purchase of treasury stock at cost (500) -- -- (5,611) (5,611)
Income tax benefit from stock options
exercised -- -- 878 -- -- 878
Stock option compensation -- -- 317 -- -- 317
Net income -- -- -- -- 15,212 15,212
-------- -------- -------- -------- -------- --------
Balance at September 30, 1993 11,283 12 72,221 (5,611) 22,922 89,544
Stock options exercised 88 -- 497 -- -- 497
Shares issued under the Employee Stock
Purchase Plan 79 -- 736 -- -- 736
Purchase of treasury stock at cost (625) -- -- (6,044) -- (6,044)
Income tax benefit from stock options
exercised -- -- 642 -- -- 642
Stock option compensation -- -- 65 -- -- 65
Net income -- -- -- -- 5,405 5,405
-------- -------- -------- -------- -------- --------
Balance at September 30, 1994 10,825 12 74,161 (11,655) 28,327 90,845
Stock options exercised 502 1 2,932 -- -- 2,933
Shares issued under the Employee Stock
Purchase Plan 97 -- 1,061 -- -- 1,061
Purchase of treasury stock at cost (100) -- -- (1,200) -- (1,200)
Income tax benefit from stock options
exercised -- -- 1,321 -- -- 1,321
Stock option compensation -- -- 14 -- -- 14
Net income (loss) -- -- -- -- (11,786) (11,786)
-------- -------- -------- -------- -------- --------
Balance at September 30, 1995 11,324 $ 13 $ 79,489 $(12,855) $ 16,541 $ 83,188
======== ======== ======== ======== ======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
-5-
<PAGE>
<TABLE>
SYQUEST TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1995 1994 1993
---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(11,786) $ 5,405 $ 15,212
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,052 7,129 6,597
Deferred income taxes (4,227) (1,675) 2,543
Provision for losses on accounts receivable 2,008 3,151 1,725
Stock option compensation 14 65 317
Deferred rent 12 34 8
Loss on disposal of equipment and leasehold
improvements 99 63 13
Changes in operating assets and liabilities:
Accounts receivable (10,942) (17,720) (13,169)
Inventories (22,065) (1,487) (674)
Prepaid expenses and deposits (359) (991) 221
Accounts payable 15,161 11,036 (2,325)
Accrued compensation and benefits 1,677 (437) (344)
Provision for losses on purchase commitments 10,510 -- --
Accrued expenses and other liabilities 5,455 2,058 2,092
Income taxes payable (1,144) 3,462 2,444
-------- -------- --------
Net cash provided by (used in) operating activities (7,535) 10,093 14,660
INVESTING ACTIVITIES
Purchase of property, equipment and leasehold
improvements (12,509) (7,743) (7,292)
Purchase of short-term investments (3,178) (7,603) (2,770)
Proceeds from sale of short-term investments 4,493 5,895 3,271
Investment in Silmag (2,100) -- --
Other 1,301 44 (2,014)
-------- -------- --------
Net cash used in investing activities (11,993) (9,407) (8,805)
FINANCING ACTIVITIES
Purchase of treasury stock (1,200) (6,044) (5,611)
Proceeds from sale of common stock and
exercise of stock options 3,994 1,233 1,848
-------- -------- --------
Net cash provided by (used in) financing activities 2,794 (4,811) (3,763)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (16,734) (4,125) 2,092
Cash and cash equivalents at beginning of year 45,982 50,107 48,015
-------- -------- --------
Cash and cash equivalents at end of year $ 29,248 $ 45,982 $ 50,107
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
-6-
<PAGE>
SYQUEST TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of SyQuest
Technology, Inc. (the "Company" or "SyQuest") and its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
The Company considers investments with an original maturity of more than three
months but less than twelve months to be short-term investments. Short-term
investments consist primarily of certificates of deposit, bankers acceptances,
commercial paper, and U.S. Government agency debt securities.
Effective October 1, 1994, the Company adopted Statements of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). In accordance with the Statement, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect as of October 1, 1994 of the adoption of SFAS
115 did not have a material effect on the Company's financial condition or
results of operations.
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are stated at fair value with
unrealized gains and losses included in shareholders' equity. The amortized cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income.
Realized gains and losses are included in other income (expense). The cost of
securities is based on the specific identification method.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated on the basis of cost. Equipment
is depreciated over the estimated useful lives (three to five years) of the
assets using the straight-line method. Leasehold improvements are amortized by
the straight-line method over the shorter of the life of the related asset or
the term of the lease.
-7-
<PAGE>
In 1995, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets. SFAS 121 is effective for fiscal years
beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have
a material impact on the Company's financial position or results of operations.
FOREIGN CURRENCY TRANSLATION AND FOREIGN CURRENCY TRANSACTIONS
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Subsidiary financial statements are remeasured into U.S. dollars for
consolidation. Foreign currency transaction gains of $468,000, $337,000, and
$319,000 are included in income for 1995, 1994, and 1993, respectively.
REVENUE RECOGNITION
Revenue from sales of products is recognized upon shipment to customers.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109) effective October 1, 1993. Under SFAS
109, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured by applying enacted tax rates and laws to taxable years in which such
differences are expected to reverse. In prior years, income tax expense was
determined using Accounting Principles Board Opinion No. 11 (APB 11). Under APB
11, deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and were
measured at the tax rate in effect in the year the difference originated.
The effect of adopting SFAS 109 was to increase 1994 net income and income per
share by $346,000 and $.03, respectively.
WARRANTY
The Company generally warrants its products for one to five years. A provision
for estimated future warranty costs is recorded at the time of shipment.
INCOME (LOSS) PER SHARE
Income per share for the years ended September 30, 1994 and 1993 is based on the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options (using the treasury stock method).
Loss per share for the year ended September 30, 1995 is based on the weighted
average number of shares of common stock outstanding.
DERIVATIVE FINANCIAL INSTRUMENTS
During fiscal 1995, the Company adopted Statement of Financial Accounting
Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" (FAS 119).
-8-
<PAGE>
The Company may enter into forward foreign currency forward exchange contracts
to manage exposure related to certain foreign currency commitments and certain
foreign currency denominated balance sheet positions. The Company does not enter
into derivative financial instruments for trading purposes. At September 30,
1995, the Company had forward exchange contracts totaling $12,300,000 for the
purchase of Singapore dollars, $2,313,000 of forward contracts for the purchase
of Malaysian Ringgits and $830,000 of forward contracts for the purchase of
Japanese Yen. All forward contracts entered into by the Company have maturities
of 60 days or less.
While the contract or notional amounts of the Company's forward exchange
contracts provide one measure of the volume of these transactions, they do not
represent the amount of the Company's exposure to credit risk. The amounts
potentially subject to credit risk (arising from the possible inability of
counterparties to meet the terms of their contracts) are generally limited to
the amounts, if any, by which the counterparties obligations exceed the
obligations of the Company. The Company controls credit risk through credit
approvals, limits and monitoring procedures. Credit rating criteria for
off-balance sheet transactions are similar to those for investments.
EMPLOYEE STOCK PLANS
The Company accounts for its stock option plans and the Employee Stock
Purchase Plan in accordance with provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting For Stock Issued to Employees." In 1995,
the Financial Accounting Standards Board released the Statement of Financial
Accounting Standard No. 123 (SFAS 123), Accounting for Stock Based
Compensation." SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
2. BUSINESS SEGMENT AND CONCENTRATION OF CREDIT RISK
The Company operates in one business segment, the development, production and
marketing of removable cartridge Winchester disk drives and associated
cartridges. The Company has manufacturing facilities in Singapore and Penang,
Malaysia, which produce the majority of the Company's drives and cartridges. The
Company sells primarily to aftermarket original equipment manufacturers and
distributors in the personal computer market. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
One customer accounted for more than 10% of revenues in 1995 and no customers
accounted for 10% or more of revenues in 1994, or 1993.
Export sales by domestic operations accounted for approximately 1%, 3%, and 5%
of net revenues in 1995, 1994, and 1993, respectively, and are made primarily to
Europe & Far East customers.
-9-
<PAGE>
<TABLE>
The following tables summarize the Company's operations in different geographic
areas:
<CAPTION>
ADJUSTMENTS
NORTH AND
AMERICA FAR EAST ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated customers $ 186,276 $ 113,268 $ -- $ 299,544
Transfers between geographic locations 8,590 256,106 (264,696) --
-------------------------------------------------------------
Total net revenues $ 194,866 $ 369,374 $ (264,696) $ 299,544
=============================================================
Income (Loss) from operations (20,505) $ 5,618 $ (1,754) $ (16,641)
Other income 742 392 -- 1,134
-------------------------------------------------------------
Income (Loss) before income taxes $ (19,763) $ 6,010 $ (1,754) $ (15,507)
=============================================================
Identifiable assets 97,008 $ 73,483 $ (5,807) $ 164,684
=============================================================
1994
Sales to unaffiliated customers $ 144,123 $ 76,878 $ -- $ 221,001
Transfers between geographic locations 31,142 166,037 (197,179) --
--------------------------------------------------------------
Total net revenues $ 175,265 $ 242,915 $ (197,179) $ 221,001
==============================================================
Income from operations $ 1,130 $ 4,395 $ (62) $ 5,463
Other income 760 433 -- 1,193
--------------------------------------------------------------
Income before income taxes and
cumulative effect of accounting change $ 1,890 $ 4,828 $ (62) $ 6,656
==============================================================
Identifiable assets $ 106,411 $ 37,228 $ (4,138) $ 139,501
==============================================================
1993
Sales to unaffiliated customers $ 145,648 $ 60,714 $ -- $ 206,362
Transfers between geographic locations $ 34,722 149,380 (184,102) --
--------------------------------------------------------------
Total net revenues $ 180,370 $ 210,094 $ (184,102) $ 206,362
==============================================================
Income from operations $ 2,415 $ 15,332 $ 1,212 $ 18,959
Other income 596 445 -- 1,041
--------------------------------------------------------------
Income before income taxes $ 3,011 $ 15,777 $ 1,212 $ 20,000
==============================================================
Identifiable assets 85,926 $ 38,654 $ (4,077) $ 120,503
==============================================================
</TABLE>
Sales and transfers between geographic areas generally provide a profit after
coverage of all manufacturing costs. Far East sales include all shipments from
the Company's Far East operations to unaffiliated customers irrespective of the
ultimate destination. Income from operations is total net revenues less
operating expenses.
The identifiable assets by geographic area are those assets used in the
Company's operations in each area.
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<PAGE>
3. SUPPLEMENTARY BALANCE SHEET INFORMATION
September 30,
1995 1994
------- -------
Accounts receivable:
Accounts receivable $58,488 $50,293
Less allowance for doubtful accounts (2,835) (3,574)
------- -------
$55,653 $46,719
======= =======
Inventories:
Raw materials $22,258 $ 5,266
Work-in-process 8,564 3,362
Finished goods 3,391 3,520
------- -------
$34,213 $12,148
======= =======
Accrued expenses and other liabilities:
Accrued warranty $5,676 $ 3,533
Co-op advertising/Market development funds 5,314 3,002
Other 4,220 3,220
------- -------
$15,210 $ 9,755
======= =======
4. LINE OF CREDIT
The Company has a line of credit agreement (the "Agreement") with a bank,
expiring in February 1997. Borrowings under the Agreement bear interest at the
bank's prime rate plus 3/4 percent (9-1/2% at September 30, 1995). The Agreement
also provides for the issuance of letters of credit not to exceed $2,000,000 in
the aggregate. The total of borrowings and letters of credit are limited to the
lesser of $10,000,000 or 75 percent of the eligible accounts receivable and are
collateralized by all assets of the Company. The Agreement requires the Company
to meet financial covenants and places limitations on additional borrowings and
payment of dividends. At September 30, 1995, the Company was in default on the
financial covenant requirements for profitability, quick asset ratio and
tangible net worth. Subsequent to September 30, 1995 the covenant violations
were waived by the bank and the line of credit Agreement was amended on December
27, 1995 to bring the Company into compliance with the terms and conditions of
the amended Agreement. There were no borrowings outstanding under the Agreement
at September 30, 1995 and $9,859,000 was available for borrowing at September
30, 1995.
5. TREASURY STOCK
In February 1993, the Board of Directors authorized the Company to repurchase up
to one million shares of the Company's common stock. In April 1994, the Board of
Directors authorized the Company to repurchase up to an additional 500,000
shares of the Company's common stock. The Company acquired 100,000, 625,000 and
500,000 shares of its common stock for approximately $1,200,000, $6,000,000, and
$5,600,000 through open market transactions during fiscal 1995, 1994, and 1993,
respectively. The Company has acquired a total of 1,225,000 shares of its common
stock as of September 30, 1995. These shares are held as treasury stock at
September 30, 1995.
6. STOCK OPTION PLANS AND COMMON STOCK RESERVED
In 1991, the Company adopted the SyQuest Technology, Inc. 1991 Stock Option Plan
(the "Plan") covering 3,403,524 shares of common stock for issuance under the
Plan and assumed stock options
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<PAGE>
currently outstanding under predecessor stock option plans. The Plan provides
for the issuance of incentive stock options and non statutory stock options to
officers, employees of the Company and its subsidiaries (including directors who
are also employees), consultants, and independent contractors. Options granted
under the Plan are granted at fair value on the date of grant and become
exercisable within the times or upon the events determined by the Stock Option
Committee as set forth in the grant and expire within ten years from the date of
the grant. In 1995, the Company adopted an amendment to Plan to increase the
authorized number of shares for the Plan from 3,403,524 to 4,428,524.
In 1992, the Company adopted the 1992 Nonemployee Director Stock Option Plan
(the "Director Plan") and reserved 150,000 shares of common stock for issuance.
The Director Plan was amended in 1994 to increase the size of the annual option
grants. The Board of Directors administers the Director Plan. In 1995, the
Company adopted an amendment to the Director Plan to increase the authorized
number of shares for the plan from 150,000 to 250,000. Options are granted at
fair value on the grant date and options may only be granted to Directors who
are not employees of the Company or its subsidiaries (Outside Directors). All
option grants are automatic and nondiscretionary. After each annual meeting of
stockholders at which directors are elected, reelected, or continuing as
directors, each Outside Director shall be automatically granted an option or
options. These options are to purchase such number of shares of common stock as
necessary so that during each of the four immediately following twelve-month
periods of July 1 through June 30, such Outside Directors will have stock
options (including Company stock options granted under plans other than the
Director Plan) which become exercisable with respect to a minimum of 5,000
shares during each such period. Prior to 1994 the minimum was 2,500 shares
during each such period. As of September 30, 1995, options to purchase 95,000
shares of common stock were outstanding under this plan.
<TABLE>
The following table summarizes stock option activity under the Plan and the
Director Plan:
<CAPTION>
OPTION PRICE
------------------------------------------------------------
SHARES PER SHARE AGGREGATE
--------------- ---------------------------- ---------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Outstanding at October 1, 1992 2,039 $ .30 - $24.25 $14,173
Granted 591 $ 9.00 - $28.25 7,896
Exercised (295) $ .30 - $ 7.50 (1,007)
Canceled (336) $ 1.25 - $27.25 (3,629)
--------------- ----------- ---- --------- ---------------
Outstanding at September 30, 1993 1,999 $ .30 - $28.25 17,433
Granted 750 $ 9.00 - $11.63 7,189
Exercised (88) $ .30 - $18.00 (497)
Canceled (360) $ 1.25 - $28.25 (5,948)
--------------- ----------- ---- --------- ---------------
Outstanding at September 30, 1994 2,301 $ .30 - $27.25 18,177
Granted 833 $11.50 - $16.75 11,865
Exercised (502) $ .30 - $12.50 (2,933)
Canceled (431) $ 7.50 - $27.25 (6,176)
--------------- ----------- ---- --------- ---------------
Outstanding at September 30, 1995 2,201 $ .30 - $24.25 $20,933
=============== =========== ==== ========= ===============
</TABLE>
-12-
<PAGE>
At September 30, 1995, options to purchase 878,533 shares were exercisable, and
934,076 shares were available for grant.
The following table summarizes shares of common stock reserved for future
issuance by the Company under the Company's stock option and purchase plans as
of September 30, 1995:
1991 stock option plan 3,135,076
Director stock option plan 250,000
Employee stock purchase plan 267,017
---------
3,652,093
=========
7. EMPLOYEE STOCK PURCHASE PLAN
In 1992, the Company adopted the 1992 Employee Stock Purchase Plan (the
"Purchase Plan"), and 500,000 shares of common stock were reserved for issuance
under the Purchase Plan. The Purchase Plan is intended to qualify under Section
423 of the Internal Revenue Code of 1986, as amended.
The Purchase Plan is implemented by a single offering for each six-month period
commencing on approximately February 1 and August 1 of each year. The Purchase
Plan is administered by the Board of Directors or a committee appointed by the
Board of Directors. The Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed 15% of an
employee's compensation, at a price equal to 85% of the lower of the fair market
value of the common stock as of the first day or as of the last day of each
offering period. As of September 30, 1995, 232,983 shares of common stock had
been issued under the Purchase Plan.
8. BONUS, PROFIT SHARING AND 401(K) SAVINGS AND RETIREMENT PLANS
The Company has bonus and profit sharing plans that provide additional
compensation to substantially all employees. The profit sharing compensation is
determined on an annual basis based principally on a percentage of income after
taxes, before profit sharing, and the Company meeting certain objectives for the
year. Bonuses for officers and key management personnel are determined annually
at the discretion of the Board of Directors. Such determination considers the
extent to which individuals and the Company meet objectives for the year. The
Company did not record bonus and profit sharing expenses in 1995. The Company
recorded bonus and profit sharing expenses of $455,000 and $2,471,000 in 1994
and 1993, respectively.
The Company adopted a 401(k) Savings and Retirement Plan (the "Savings Plan") to
provide for voluntary salary deferral contributions on a pretax basis in
accordance with Section 401(k) of the Internal Revenue Code of 1986, as amended.
The Company has the option of matching a certain percent of each participant's
contribution to the Savings Plan. The Company's maximum contribution per
participant was limited to $1,000 in 1995, $500 in 1994 and $250 in 1993. The
Company made matching contributions of $242,000, $135,000, and $59,000 in 1995,
1994, and 1993, respectively.
-13-
<PAGE>
9. INCOME TAXES
<TABLE>
The income tax provisions for fiscal 1995, 1994 and 1993 consist of the
following:
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
1995 1994 1993
------------------------------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Federal:
Current $ (421) $1,455 $ 955
Deferred (2,578) 79 2,627
-------------------- ---------------- ---------------
(2,999) 1,534 3,582
State:
Current 181 324 1,277
Deferred (928) (279) (84)
-------------------- ---------------- ---------------
(747) 45 1,193
Foreign:
Current 25 18 13
-------------------- ---------------- ---------------
Provision (benefit) for income taxes $(3,721) $1,597 $4,788
==================== ================ ===============
</TABLE>
<TABLE>
Deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax basis of assets and liabilities and are measured
by applying enacted tax rates and laws to the taxable years in which such
differences are expected to reverse. The significant components of the Company's
deferred tax assets and liabilities were as follows:
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
---------------------- ---------------------
(In Thousands)
<S> <C> <C>
DEFERRED TAX ASSETS
Credit carryforwards $ 1,773 $ 1,497
Receivable reserves 879 1,207
Warranty reserves 1,152 811
Inventory valuation reserve 7,668 1,453
Accrued expenses 1,561 862
Other - net 949 1,007
---------------------- -------------------
Total Deferred Tax Assets 13,982 6,837
Valuation allowance (728) (300)
---------------------- -------------------
Net Deferred Tax Assets $13,254 $ 6,537
DEFERRED TAX LIABILITIES
Unremitted income of foreign subsidiaries (8,417) $(5,703)
Depreciation of plant and equipment (309) (533)
---------------------- -------------------
Total Deferred Tax Liabilities (8,726) (6,236)
---------------------- -------------------
Net Deferred Tax Assets $ 4,528 $ 301
====================== ===================
</TABLE>
The valuation allowance has been provided for deferred tax assets related to
foreign net operating loss carryforwards. The valuation allowance increased by
$300,000 in fiscal 1994 and by $428,000 in fiscal 1995.
-14-
<PAGE>
The realization of approximately $3,000,000 of the Company's net deferred tax
assets, which relate primarily to temporary differences, is dependent on
generating sufficient taxable income during the periods in which the temporary
differences are expected to reverse. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized. The amount of the net deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the reversal period are reduced. Management intends to
evaluate the realizability of the net deferred tax asset each quarter to assess
the need for a valuation allowance.
<TABLE>
The reconciliation of income taxes provided at the federal statutory rate to the
income tax provision follows:
<CAPTION>
LIABILITY METHOD DEFERRED
------------------------------ METHOD
1995 1994 1993
------------------------------ --------------
(In Thousands)
<S> <C> <C> <C>
Income taxes (benefit) computed at the federal statutory rate $(5,272) $2,263 $6,795
State income taxes (benefit) net of federal income tax effect (511) 30 787
Foreign income taxes 25 18 13
Foreign loss for which no current tax benefit is recognizable 427 300 --
Taxes provided on earnings of foreign subsidiaries previously considered
to be permanently invested in non-U.S. operations 1,768 -- --
Benefit from net earnings of foreign subsidiaries considered to be
permanently invested in non-U.S. operations -- (652) (1,583)
Utilization of tax credits (566) (227) (1,000)
Other 408 (135) (224)
---------------- ------------- --------------
$(3,721) $1,597 $4,788
================ ============= ==============
</TABLE>
Income taxes paid (refunded) were $1,600,000, ($670,000), and ($40,000), in
fiscal 1995, 1994, and 1993, respectively.
The Company's manufacturing operation in Singapore operates under a tax holiday,
which originally expired in fiscal year 1994. The Company has now met all of the
conditions necessary to extend the tax holiday to the end of fiscal 1996. The
net impact of this tax holiday was to increase net income by approximately
$518,130 ($0.04 per share) in fiscal 1994, and approximately $1,254,764 ($0.10
per share) in fiscal 1993. The tax holiday had no impact on the net loss in
fiscal 1995.
The Company has approximately $ 2,141,000 in foreign net operating loss
carryforwards. These carryforwards will expire in fiscal 1999 and fiscal 2000.
10. COMMITMENTS, CONTINGENCY AND LITIGATION
The Company leases its United States facilities under noncancelable operating
lease agreements. These leases terminate during 1997, 1999 and 2000, include
five-year renewal options, and contain provisions for adjustments to lease
payments based on the fair market value of similar properties. The Company
leases its Singapore facilities under noncancelable lease agreements expiring in
1996 through 1998. The Company leases its facilities in Amsterdam, Netherlands
under a noncancelable lease agreement expiring in 2000.
-15-
<PAGE>
Total rent expense amounted to $3,250,000, $3,001,000, and $2,956,000 for 1995,
1994, and 1993, respectively.
Future minimum rental commitments under noncancelable operating leases are as
follows (in thousands):
1996 $2,820
1997 2,620
1998 2,037
1999 1,195
2000 250
------
Total minimum lease payments $8,922
======
A third party has notified the Company that it believes SyQuest infringes on six
U.S. patents. It is the Company's belief that the alleged infringement claims
are without merit or that the infringement claims relate to component parts
purchased from vendors. The Company also believes that in the event the third
party prevails on its claims, the Company will be indemnified by its vendor for
any liability arising from the alleged infringements and that this matter will
not have a material effect upon its financial condition or results of
operations.
The Company has filed suit against Nomai, S.A. (Nomai) and Maxell in France for
copyright and patent infringement and is seeking a temporary injunction to
prohibit the sale and distribution of Nomai's 200 megabyte cartridges.
-16-
<PAGE>
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
(In thousands, except per share data)
DEC. 31, MARCH 31 JUNE 30 SEPT. 30
1994 1995 1995 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 65,892 $ 76,490 $ 68,787 $ 88,375
Gross profit (loss)(A) 15,927 21,460 18,427 (4,767)
Income (loss) from operations 2,165 4,539 1,988 (25,333)
Net income (loss) 1,923 3,686 1,711 (19,106)
Net income (loss) per share $ 0.16 $ 0.31 $ .15 $ (1.70)
DEC. 31, MARCH 31 JUNE 30 SEPT. 30
1993 1994 1994 1994
-------- -------- -------- --------
Net revenues $ 47,332 $ 46,344 $ 57,285 $ 70,040
Gross profit 15,724 12,237 15,290 17,408
Income (loss) before cumulative effect of accounting
change 2,436 (1,654) 1,682 2,595
Cumulative effect of accounting change 346 -- -- --
Net income (loss) 2,782 (1,654) 1,682 2,595
Income (loss) per share:
Income (loss) before cumulative effect of accounting
change $ 0.20 $ (0.15) $ 0.15 $ 0.23
Cumulative effect of accounting change 0.03 -- -- --
-------- -------- -------- --------
Net income (loss) per share $ 0.23 $ (0.15) $ 0.15 $ 0.23
<FN>
(A) During the fourth quarter of fiscal 1995, the Company wrote down
inventories by $2.0 million and provided a $10.5 million reserve
for non-cancelable open purchase commitments.
</FN>
</TABLE>
12. SUBSEQUENT EVENT
The Company has incurred losses in its most recent fiscal year ended September
30, 1995 and its fiscal quarters ended December 31, 1995 and March 31, 1996. The
Company announced in its Form 10-Q for the quarter ended March 31, 1996 that it
did not expect to be profitable for the quarter ended June 30, 1996.
The Company is presently in need of additional cash to meet its working capital
needs. On June 14, 1996, the Company closed the sale of 20,000 shares of its
Preferred Stock for $20 million in gross proceeds. The Company is currently in
discussion with a number of additional potential investors who have expressed an
interest in making an investment in the Company. The Company also is
-17-
<PAGE>
presently working with its suppliers to negotiate satisfactory repayment
arrangements but there can be no assurance that such negotiations will be
successful.
Although the Company expects the current sources of financing available to the
Company will be sufficient to fund the Company's operations through the end of
its fiscal year, the Company will require additional funds during its first
quarter in the next fiscal year or thereafter to finance its operations. The
precise amount and timing of the Company's funding needs cannot be determined at
this time, and will depend upon a number of factors, including the market demand
for the Company's products, the progress of the Company's product development
efforts, the availability of critical components, the Company's strategic
alliances for the manufacture of its products, and the Company's inventory
management. There can be no assurance that funds required by the Company in the
future will be available on terms satisfactory to the Company. The inability to
obtain needed funding on satisfactory terms would have a material adverse effect
on the Company's business and financial results.
-18-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements. The following Consolidated Financial
Statements of SyQuest Technology, Inc. and subsidiaries
are included in Item 8 of this Annual Report on Form 10-K/A:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets - September 30, 1995 and 1994
Consolidated Statements of Operations - Years Ended
September 30, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity -- Years
Ended September 30, 1995, 1994, and 1993
Consolidated Statements of Cash Flows -- Years Ended
September 30, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. The following consolidated
financial statement schedule of the Company and
subsidiaries are filed as part of this Report and should
be read in conjunction with the Consolidated Financial
Statements of SyQuest Technology, Inc. and subsidiaries.
Schedule for the Years Ended September 30, 1995, 1994 and
1993:
Schedule Page
----
II - Valuation and Qualifying Accounts 42
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.
(3) Exhibits Notes:
- ---------------- --------------------------------------------- --------
23.1 Consent of Independent Auditors
-19-
<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 Amendment to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto, duly authorized.
SYQUEST TECHNOLOGY, INC.
By: /S/ Edwin L. Harper
------------------------------
Edwin L. Harper
President and Chief Executive
Dated: June 28, 1996
-20-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Sequentially Numbered Page Number
- ----------- ---------------------------------
23.1 22
-21-
Exhibit 23.1
SYQUEST TECHNOLOGY, INC.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-46460, 33-48273, 33-99224, 33-99372) pertaining to the 1991
Stock Option Plan, the 1992 Non-Employee Director Stock Option Plan and the 1992
Employee Stock Purchase Plan of SyQuest Technology, Inc. of our report dated
October 26, 1995 (except note 4 as to which the date is December 27, 1995 and
Note 12, as to which the date is June 26, 1996) with respect to the consolidated
financial statements and schedule of SyQuest Technology, Inc. included in the
Annual Report (Form 10-KA) for the year ended September 30, 1995.
San Jose, California
June 26, 1996
-22-