<PAGE> 1
UNITED STATES
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 December 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 0-20095
STAC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12636 High Bluff Drive, San Diego, California 92130-2093
(Address of principal executive office, including zip code)
(619) 794-4300
(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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of December 31, 1997.
Common Stock, no par value 26,218,747 shares
1
<PAGE> 2
STAC, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of December 31, 1997 and
September 30, 1997 3
Condensed Consolidated Statements of
Operations for the three months
ended December 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash
Flows for the three months ended
December 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE> 3
STAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,276 $ 19,089
Marketable securities 20,703 33,040
Accounts receivable 4,082 4,568
Inventories 1,199 590
Deferred income taxes 1,662 1,542
Other current assets 856 685
-------- --------
Total current assets 58,778 59,514
Property and equipment, net 4,874 5,288
Deferred income taxes 6,344 6,461
Other assets 766 661
-------- --------
$ 70,762 $ 71,924
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,131 $ 1,751
Income taxes payable 2,008 1,402
Accrued expenses and other
current liabilities 4,300 4,254
-------- --------
Total current liabilities 9,439 7,407
Other liabilities 235 237
-------- --------
9,674 7,644
-------- --------
Minority interest 329 157
Stockholders' equity
Common stock 74,801 74,350
Treasury stock, at cost (26,934) (21,351)
Cumulative translation adjustment (18) (106)
Retained earnings 12,910 11,230
-------- --------
Total stockholders' equity 60,759 64,123
-------- --------
$ 70,762 $ 71,924
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
STAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Revenues $13,970 $10,896
Cost of revenues 2,349 1,053
------- -------
Gross margin 11,621 9,843
------- -------
Operating expenses:
Research and development 3,192 2,333
Sales and marketing 3,562 3,576
General and administrative 1,931 1,197
Restructuring 350 --
------- -------
Total operating expenses 9,035 7,106
------- -------
Operating income 2,586 2,737
Interest income 713 601
------- -------
Income before income taxes and minority interest 3,299 3,338
Minority interest in income of consolidated subsidiary 45 --
Provision for income taxes 1,574 1,134
------- -------
Net income $ 1,680 $ 2,204
======= =======
Net income per common share, basic $ 0.06 $ 0.07
======= =======
Net income per common share, diluted $ 0.06 $ 0.07
======= =======
Weighted average common shares
outstanding, basic 26,829 30,729
======= =======
Weighted average common shares
outstanding, diluted 27,751 31,184
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
STAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,680 $ 2,204
Adjustments required to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 644 583
Deferred stock compensation -- 22
Loss on disposal of fixed assets 380 --
Provision for deferred income taxes (3) 346
Minority interest in income of consolidated subsidiary 45 --
Changes in assets and liabilities, net of business combinations:
Accounts receivable 486 (474)
Inventories (609) 339
Other current assets (171) (373)
Other assets (155) 43
Accounts payable 1,380 (44)
Income taxes payable 606 292
Accrued expenses and other current liabilities 46 45
-------- --------
Net cash provided by operating activities 4,329 2,983
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (20,219) (9,321)
Sales of marketable securities 32,556 1,500
Acquisitions of treasury stock (5,583) --
Purchases of property and equipment (560) (703)
-------- --------
Net cash provided/(used) by investing activities 6,194 (8,524)
-------- --------
Cash flows from financing activities:
Issuance of common stock 479 10
Tax benefit from exercise of stock options 97 28
-------- --------
Net cash provided by financing activities 576 38
-------- --------
Effect of exchange rates on cash 88 80
-------- --------
Net increase/(decrease) in cash 11,187 (5,423)
Cash and cash equivalents at beginning of period 19,089 35,942
-------- --------
Cash and cash equivalents at end of period $ 30,276 $ 30,519
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
STAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The accompanying condensed consolidated unaudited financial statements of Stac,
Inc. ("Stac" or the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in the Company's annual report
for the year ended September 30, 1997. In the opinion of management the
accompanying condensed consolidated unaudited financial statements contain all
adjustments, consisting of only normal recurring items, necessary for a fair
presentation of the Company's financial position as of December 31, 1997 and its
results of operations for the three month periods ended December 31, 1997 and
1996, respectively. These condensed consolidated unaudited financial statements
are not necessarily indicative of the results to be expected for the entire
year.
NOTE 2. Net Income Per Share:
The Company has adopted Statement of Financial Accounting Standard (FAS) No.
128, "Earnings Per Share." Basic EPS is calculated by dividing the income
available to common shareholders by the weighted average number of common shares
outstanding for the period, without consideration for common stock equivalents.
Diluted EPS is computed by dividing the income available to common shareholders
by the weighted average number of common shares outstanding for the period in
addition to the weighted average of common stock equivalents outstanding for the
period. Net income remains the same for the calculations of basic EPS and
diluted EPS. The denominator for the diluted EPS calculation differs from that
of basic EPS by the number of common stock equivalents outstanding for each
period. The Company has restated EPS for prior periods concurrent with the
adoption of FAS 128.
NOTE 3. Inventories (in thousands; December 31, 1997 unaudited):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------ ----
<S> <C> <C>
Raw materials $ 157 $140
Finished goods 1,042 450
------ ----
$1,199 $590
====== ====
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risk and
uncertainties. Stac, Inc.'s ("Stac" or "the Company") future
6
<PAGE> 7
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include but are not limited to,
fluctuations in the Company's operating results, continued new product
introductions by the Company, market acceptance of the Company's new product
introductions, new product introductions by competitors, OEM and distributor
inventory levels and customer demand for the products incorporating Hi/fn
semiconductors, customer concentration, technological changes in the personal
computer and communications industries, uncertainties regarding intellectual
property rights and the other factors referred to herein (including, but not
limited to, the factors discussed below under "Revenues," "Quarterly Trends,
Channel Inventories, New Product Introductions," "Seasonality," "Operating
Systems," "Competition and Risks Associated with New Product Introductions" and
"Stock Price Volatility") and in the Company's Form 10-K.
Stac designs, develops, markets and supports high-performance,
easy-to-deploy, distributed business systems recovery software solutions for
enterprise customers which implement the Company's lossless data compression
technologies. In addition, through its majority owned OEM networking products
subsidiary Hi/fn, Inc. ("Hi/fn"), the Company designs, develops and markets
semiconductor and software solutions to improve the efficiency, security and
manageability of networks and to enhance the storage capacity of
high-capacity/high-speed storage devices. Stac also supports a remote access
software suite, which is managed as a mature business unit. The Company focuses
its development and marketing resources on the business segments it believes
have the highest growth potential and continually evaluates its strategic
objectives with respect to its businesses. Stac's products are sold through a
variety of domestic and international channels.
Stac's storage systems recovery software business is comprised of
Replica, a high-performance, easy-to-deploy, distributed business systems
recovery software product, which enables fast PC server replication and disaster
recovery. Replica for NetWare was introduced in February 1996 and Replica for NT
was made available in April 1997. In February 1998 Stac announced Replica
Sequoia technology, enterprise-wide network data protection for
centrally-managed, Windows-based desktop PCs and notebooks. Replica Seqoia is
currently deployed in large enterprise beta sites in the United States and
Europe. The Company expects the final product to be available on a limited basis
during the second calendar quarter of 1998 and to be generally available during
the September 1998 quarter. The Company intends to continue to focus on the
development of relationships with key system integration partners and is
investing significant amounts of its product development, marketing and sales
resources in Replica and extensions to Replica.
The Company also develops and markets remote communications software
which is comprised of ReachOut Remote Control software ("ReachOut"), a remote
access software suite which allows users to access a remote PC using another PC
through the Internet, or over ISDN lines, modems or networks. ReachOut works
with Microsoft Corporation's Windows NT, Windows 95, Windows 3.x and DOS
operating systems. In January 1998 Stac announced its Enterprise version of
ReachOut, an enhanced 32-bit device-independent architecture targeted for
helpdesk professionals and network administrators who support a large number of
users.
Hi/fn is focused on improving the efficiency, security and manageability
of networks by providing solutions in software and silicon to packet processing
bottlenecks. Hi/fn implements lossless data compression in software libraries
and semiconductors, which are marketed and sold to manufacturers of routers,
firewalls, remote access servers, ISDN connectivity products, storage systems
and printers. Currently, the majority of Hi/fn's sales are to the contract
suppliers of DLT tape storage products for Quantum Corporation. Hi/fn has also
implemented data encryption standards in software and semiconductors for use
with data compression to provide high-performance, efficient and secure data
transmission capabilities for its customers' products. Hi/fn's products are sold
worldwide to OEMs both directly and through manufacturers' representatives.
Hi/fn has licensed its data compression software to companies such as
Microsoft Corporation, Cisco Systems, Inc., Netscape Communications Corporation,
Ascend Communications, Inc., 3Com Corporation and Bay Networks, Inc., all of
which play significant roles in the development and marketing of Internet and
virtual private network products. Virtual private networks enable businesses to
reduce their data communications costs by using the public networks, such as the
Internet, as an alternative to
7
<PAGE> 8
private leased data communication links. In addition, Hi/fn, Digital Equipment
Corporation and Cisco Systems, Inc. have co-authored a proposal to the Internet
Engineering Task Force (the "IETF") for the implementation of lossless data
compression in the IP Security ("IPSec") protocol. The IPSec is intended for
implementation in a wide variety of networking equipment and will facilitate the
deployment of virtual private networks. However, there can be no assurance that
these proposals will ultimately be adopted by the IETF, or that alternatives
using other data compression technology will not be proposed and adopted.
Stac has received royalties from Microsoft Corporation and IBM
Corporation for licenses of its data compression technology since fiscal 1994.
The Company expects to receive $1.1 million in the March 1998 quarter, after
which the license agreements will be fully paid-up. On an after tax basis, the
license fees from Microsoft and IBM have contributed approximately $2.4 million
per quarter to net income.
The following discussion should be read in conjunction with the
consolidated financial statements included elsewhere within this quarterly
report. Fluctuations in annual and quarterly results may occur as a result of
factors affecting demand for the Company's products such as the timing of the
Company's and competitors' new product introductions and upgrades and other
factors described herein. Due to such fluctuations, historical results and
percentage relationships are not necessarily indicative of the operating results
for any future period.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations and
the percentage relationship of certain items to revenues during the periods
shown:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Revenues 100% 100%
Cost of revenues 17 10
--- ---
Gross margin 83 90
--- ---
Research and development 23 21
Sales and marketing 25 33
General and administrative 14 11
Restructuring 3 --
--- ---
Total operating expenses 65 65
--- ---
Operating income 18 25
Interest income 5 6
--- ---
Income before income taxes 23 31
Provision for income taxes 11 11
--- ---
Net income 12% 20%
=== ===
</TABLE>
8
<PAGE> 9
Revenues. Revenues increased 28% to $14.0 million for the quarter ended
December 31, 1997 from $10.9 million in the quarter ended December 31, 1996. The
increase in revenue is due to higher revenues in the Hi/fn semiconductor
business, partially offset by lower software revenues.
Software sales, which are comprised of domestic and international sales
and licenses through distributors, retailers, solution providers, OEMs and
direct channels, accounted for $3.7 million, or 26% of revenues for the quarter
ended December 31, 1997 compared to $4.8 million, or 44% of revenues in the
quarter ended December 31, 1996. The decrease in revenues for the quarter ended
December 31, 1997 over the same period in fiscal 1996 is due primarily to
declines in ReachOut revenues, and, to a lesser extent, to the September 1997
discontinuance of the Company's Stacker disk compression software. ReachOut has
reached a mature phase of the product life cycle and significant growth in sales
of ReachOut are not anticipated.
Revenues from Hi/fn, which are comprised of sales and licenses of
semiconductors and software libraries derived from the Company's data
compression technology, were $6.3 million, or 45% of revenues for the quarter
ended December 31, 1997 compared to $2.1 million, or 19% of revenues in the
quarter ended December 31, 1996. The increase in Hi/fn's revenues in the
December 31, 1997 quarter, over those in the comparable quarter of the prior
fiscal year is due primarily to sales of the Company's data compression
coprocessors to suppliers of Quantum, an OEM producer of
high-speed/high-capacity tape storage devices. Additionally, revenues for the
December 1996 quarter were depressed due primarily to high levels of inventory
held by some OEM customers in that quarter, consistent with OEMs' practice of
building product in large lots in order to achieve manufacturing efficiencies.
The Company expects Hi/fn's revenues in the March 1998 quarter to be the same as
or slightly lower than those of the December 1997 quarter, due to the
fluctuating demand for Hi/fn products from Quantum's suppliers. See the
discussion of "Quarterly Trends, Channel Inventories, New Product Introductions"
below.
Royalties from licenses of Stac's data compression technology to
operating systems vendors were $4.0 million in each of the quarters ended
December 31, 1997 and 1996, or 29% and 37% of total revenues, respectively. The
Company will receive $1.1 million in the March 1998 quarter, after which the
licenses will be fully paid up and the license fees will end. On an after tax
basis, the license fees from Microsoft and IBM have been contributing
approximately $2.4 million per quarter to net income.
International sales, which are included in the above sales, are
comprised primarily of software products and were $1.3 million, or 9% of
revenues for the quarter ended December 31, 1997 compared to $1.4 million, or
13% of revenues in the quarter ended December 31, 1996. Stac markets and sells
to its European accounts from its office in the United Kingdom and markets and
sells to the other principal international markets through sales personnel in
its San Diego office and through relationships with distributors and resellers
abroad.
Cost of Revenues and Gross Margin. Cost of revenues consists primarily
of Hi/fn semiconductors which are manufactured to specification by third party
foundries for resale by Hi/fn, and the user manuals, packaging, media and
assembly associated with the Company's software products. Gross margins
decreased to 83% for the quarter ended December 31, 1997 from 90% in the quarter
ended December 31, 1996 primarily due to the higher proporation of semiconductor
sales which have a higher percentage cost of sales than software products and
licensing revenues.
Research and Development. The cost of product development consists
primarily of salaries, employee benefits, overhead, outside contractors and
non-recurring engineering fees. Such expenses were $3.2 million and $2.3 million
for the quarters ended December 31, 1997 and 1996, respectively. The increase in
product development costs for the quarter ended December 31, 1997 over the
comparable period of fiscal 1996 was due primarily to increased developmental
activity associated with the Replica product line, and increased developmental
activity for Hi/fn semiconductor products. The Company expects to continue to
invest in the development of products for which it believes there is a need in
the market. However, there can be no assurance that product development programs
invested in by the Company will be successful or that products resulting from
such programs will achieve market acceptance.
9
<PAGE> 10
Sales and Marketing Expense. Selling and marketing expenses consist
primarily of the salaries, commissions and benefits of sales, marketing and
customer support personnel, and consulting, advertising, promotion and overhead
expenses. Such expenses were $3.6 million for each of the quarters ended
December 31, 1997 and 1996, respectively. Consolidated sales and marketing
expenses are expected to remain the Company's most significant ongoing operating
expense.
General and Administrative. General and administrative expenses are
comprised primarily of salaries for administrative and corporate services
personnel, legal, and other professional fees. Such expenses were $1.9 million
and $1.2 million for the quarters ended December 31, 1997 and 1996,
respectively. The increase in the current period's general and administrative
expenses over expenses incurred in the comparable period of the prior fiscal
year is primarily due to the addition of management personnel during the 1997
fiscal year and to $425,000 of professional fees related to the anticipated
spin-off of the Company's Hi/fn subsidiary.
Restructuring. The restructuring charge of $0.4 million is primarily for
the costs of severance benefits and is part of a total restructuring charge of
$1,200,000, $850,000 of which was charged to operations in fiscal 1997.
Interest Income. Interest income was $0.7 million for the quarter ended
December 31, 1997 and $0.6 million for the quarter ended December 31, 1996. The
increase in interest income for the December 1997 quarter over the same quarter
of 1996 was due to the investment of available cash during the December 1997
quarter in taxable instruments which carry a higher pre-tax yield than the
Federal tax-exempt instruments invested in during previous periods. Higher
yields from taxable investments were offset in part by lower invested cash
balances during the December 1997 quarter, which reflect cash, net of cash
generated from operations, used for the Company's share repurchase programs
executed beginning in July 1997.
Income Taxes. The effective income tax rate for the quarters ended
December 31, 1997 and 1996 was 42% and 34%, respectively, before the charge in
the December 1997 quarter for the professional fees associated with the Hi/fn
spin-off, for which no tax benefit has recognized at this time. Contributing to
the higher effective tax rate for the December 1997 quarter was the Company's
investment of available cash during that quarter in taxable instruments as
discussed in "Interest Income" above. Differences in effective tax rates between
periods is therefore affected by the proportion of earnings from interest income
and income from foreign operations to total earnings, and the different
statutory tax rates associated with each of these elements.
Quarterly Trends, Channel Inventories, New Product Introductions. The
Company historically has experienced significant fluctuations in its revenues
and operating results, including net income, and anticipates that these
fluctuations will continue. The Company operates with relatively little backlog
of its software sales, and the majority of its software revenues each quarter
result from orders received in that quarter. Consequently, if near-term demand
for the Company's products weakens in a given quarter or if inventory of the
Company's products in the retail and distribution channels satisfies near-term
retail demand, the Company's operating results for that quarter could be
adversely affected. In addition, when the Company announces enhanced versions of
its software products, the announcement may have the effect of slowing sales of
the current version of the product as buyers delay their purchase. Quarterly
results have been or may in the future be influenced by the timing of
announcements or introductions of new products and product upgrades by the
Company or its competitors, distributor ordering patterns, product returns,
delays in product development and licensing of the Company's products. In
addition, new products typically have a lengthy evaluation period before any
purchase is made.
Hi/fn's customers order semiconductor products to meet production
schedules based on forecasts of demand for their products. Additionally, OEMs
contract with third party manufacturers to build their products in large lot
sizes to achieve manufacturing efficiencies. As a result of these practices, OEM
semiconductor and finished product inventories can vary significantly depending
on actual sales, the continuation of sales trends, and the timing of contractor
manufacturing cycles, with the result that demand for the Company's
semiconductor products may have cyclical increases and decreases.
10
<PAGE> 11
Seasonality. The software industry has experienced some seasonal
variations in demand, with sales activity declining somewhat in the summer
months. The Company believes that its software sales are subject to similar
seasonal variations which, when combined with the other factors described above,
may result in fluctuations in the Company's quarterly results. As a result,
historical quarter-to-quarter comparisons should not be relied upon as
indicative of future performance.
Operating Systems. Stac's ReachOut and Replica products currently
operate on a limited number of personal computer and network operating systems.
ReachOut supports Microsoft Windows NT, Windows 95, Windows 3.x and DOS and is
compatible with all 32-bit platforms. Replica supports Windows NT and Novell
NetWare servers. Replica customers may require support of the Unix operating
system, which the Company does not currently provide. In addition, future
versions of Microsoft's Windows operating systems may require significant
changes to the Company's products in order to maintain compatibility.
Competition and Risks Associated with New Product Introductions. The
market for the Company's products is intensely competitive. Increased
competition could result not only in a decline in sales volume, but also in
price reductions that could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's ReachOut product competes in the remote control software
market against more established products such as Symantec Corporation's
pcAnywhere and Traveling Software, Inc.'s Laplink. ReachOut also competes
against remote access products from companies such as Citrix, Inc. and Shiva
Corporation. Further, Microsoft could elect to incorporate remote control or
additional remote access capabilities into its operating systems which are
pre-installed on most personal computers. The Company believes that the growth
of the remote control market has decreased from prior years' growth rate and
will have a negative effect on the Company's ability to increase its remote
control revenues.
The Company began shipping Replica business systems recovery software
for Novell NetWare during the second quarter of fiscal 1996 and Replica for
Windows NT in April 1997. Replica competes with well-established back-up
products from Computer Associates, Inc., Seagate Software, Inc. (owned by
Seagate Technologies, Inc.), Legato Systems, Inc. and Veritas Software
Corporation, all of which have established channels of distribution and
installed customer bases. Resellers could choose not to sell Replica over
competitors' products with the result that significant sales of Replica could
fail to materialize, or products similar to Replica could be successfully
introduced to resellers by the Company's competitors. In addition, Microsoft's
current operating systems incorporate back-up functionality and future operating
systems are expected to include some disaster recovery functionality. Also,
Replica is being introduced into sophisticated server environments and, while
the Company has invested significant resources in testing Replica under a
variety of conditions, configurations and circumstances, there are likely to be
environments which have not been anticipated for which additional development of
Replica will be necessary.
The Company's license agreement with IBM Corporation grants IBM the
right to implement, but not sublicense, the Company's patented data compression
technology in IBM hardware and software products. Also, microprocessor and chip
set suppliers, customers and others could seek to expand their product offerings
by designing and selling products using competitive data compression, or could
rely on software implementations of data compression and/or data encryption, or
use other technologies, any of which could render obsolete or adversely affect
sales of Hi/fn's semiconductor and software products.
Stock Price Volatility. Due to the factors noted above, the Company's
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in earnings from levels
expected by securities analysts could have an immediate and significant adverse
effect on the trading price of the Company's common stock in any given period.
Shortfalls could be caused by shortfalls in revenues, timing of the receipt of
technology license fees and/or increased levels of expenditures. Additionally,
the Company participates in a highly dynamic industry, which often results in
significant volatility of the Company's stock price.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities decreased by $1.2 million
to $51.0 million at December 31, 1997 from that at September 30, 1997. The
decrease was primarily attributable to purchases of treasury stock, partially
offset by cash generated from operations. Working capital decreased by $2.8
million to $49.3 million at December 31, 1997 from that at September 30, 1997.
During the quarter ended December 31, 1997, the Company repurchased
$5,583,000 (943,000 shares) of its outstanding common stock, pursuant to a stock
repurchase program announced on October 27, 1997, which authorized the
repurchase of up to $10,000,000 of its common stock on the open market or in
privately negotiated transactions.
The Company believes that existing cash balances and funds provided by
operations will be sufficient to finance the working capital requirements of the
consolidated companies for the next twelve months.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
13
<PAGE> 14
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Stac, Inc.
---------------------------------------
/s/ John R. Witzel
Date: February 13, 1998 ---------------------------------------
John R. Witzel
Vice President of Finance and
---------------------------------------
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 30,276
<SECURITIES> 20,703
<RECEIVABLES> 4,531
<ALLOWANCES> 449
<INVENTORY> 1,199
<CURRENT-ASSETS> 58,778
<PP&E> 11,415
<DEPRECIATION> 6,541
<TOTAL-ASSETS> 70,762
<CURRENT-LIABILITIES> 9,439
<BONDS> 0
0
0
<COMMON> 74,801
<OTHER-SE> (14,042)
<TOTAL-LIABILITY-AND-EQUITY> 70,762
<SALES> 13,970
<TOTAL-REVENUES> 13,970
<CGS> 2,349
<TOTAL-COSTS> 2,349
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44
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<INCOME-PRETAX> 3,299
<INCOME-TAX> 1,574
<INCOME-CONTINUING> 1,680
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,680
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
