<PAGE> 1
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 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-27016
ROSS TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-2507960
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5316 Highway 290 West, Suite 500
Austin, Texas 78735-8930
(512) 436-2000
(Address and Telephone Number of Principal Executive Offices)
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.
[X] Yes [ ] No
Number of shares outstanding of each of the issuer's classes of common stock, as
of February 12, 1997: Common Stock, $.001 par value, 23,503,185 shares.
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ROSS TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED DECEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Title Page ............................................................... 1
Index .................................................................... 2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 30,
1996 and April 1, 1996 .................................. 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended December 30, 1996 and
January 1, 1996 ......................................... 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended December 30, 1996 and January 1, 1996 . 5
Notes to Condensed Consolidated Financial Statements .... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings .......................................17
ITEM 2. Changes in Securities ...................................17
ITEM 3. Defaults Upon Senior Securities ........................17
ITEM 4. Submission of Matters to a Vote of Security-Holders .....17
ITEM 5. Other Information .......................................17
ITEM 6. Exhibits and Reports on Form 8-K ........................18
SIGNATURES ..............................................................19
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
December 30, April 1,
1996 1996
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 157 $ 17,941
Trade accounts receivable, net allowance
of $7,097 and $2,057, respectively 19,234 16,207
Receivable from Fujitsu....................... 4,027 6,780
Other receivables............................. 5,078 200
Inventory..................................... 18,353 32,321
Deferred tax asset............................ 7,044 -
Prepaid expenses and other assets............. 4,141 2,506
-------- --------
Total current assets.................. 58,034 75,955
Property and equipment, net..................... 15,935 16,119
Deferred tax asset.............................. 11,970 2,182
Intangible assets............................... 2,826 3,637
-------- --------
$ 88,765 $ 97,893
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable......................... $20,527 $ 9,587
Accrued liabilities............................ 2,392 3,103
Payable to Fujitsu............................. 5,259 18,929
Notes payable.................................. 31,772 -
-------- --------
Total current liabilities.............. 59,950 31,619
Stockholders' equity:
Common stock .................................. 24 23
Additional paid-in capital..................... 82,493 82,358
Accumulated deficit............................ (52,451) (14,856)
-------- --------
30,066 67,525
Less: treasury stock (1,251) (1,251)
-------- ---------
Total stockholders' equity............. 28,815 66,274
-------- --------
$ 88,765 $ 97,893
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three
Three Months Months Nine Months Nine Months
Ended Ended Ended Ended
December 30, January 1, December 30, January 1,
1996 1996 1996 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................................. 19,440 $ 25,546 71,549 $ 71,054
Cost of sales .......................................... 52,175 13,482 83,001 38,028
-------- -------- -------- --------
Gross profit (loss) .................................. (32,735) 12,064 (11,452) 33,026
-------- -------- -------- --------
Operating expenses:
Research and development ............................. 6,938 3,999 20,427 11,277
Selling, general and administrative .................. 12,040 2,429 23,014 6,796
Amortization of goodwill ............................. 272 298 816 894
-------- -------- -------- --------
Total operating expenses ......................... 19,250 6,726 44,257 18,967
-------- -------- -------- --------
Income (loss) from operations .................... (51,985) 5,338 (55,709) 14,059
Interest expense, net .................................. (622) (300) (515) (1,530)
-------- -------- -------- --------
Income (loss) before income taxes ................ (52,607) 5,038 (56,224) 12,529
Income tax expense (benefit) ........................... (17,364) 104 (18,630) 275
-------- -------- -------- --------
Net income (loss) ................................ (35,243) $ 4,934 (37,594) $ 12,254
======== ======== ======== ========
Net income (loss) ...................................... $(35,243) $ 4,934 $(37,594) $ 12,254
-------- -------- -------- --------
Dividends related to preferred shares .................. -- (832) -- (832)
Net income (loss) applicable to
common shareholders .............................. $(35,243) $ 4,102 $(37,594) $ 11,422
======== ======== ======== ========
Net income (loss) per share ............................ $ (1.50) $ 0.19 $ (1.61) $ 0.58
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding .................... 23,459 21,785 23,373 19,849
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 30, JANUARY 1,
1996 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $(37,594) $ 12,254
Adjustments to reconcile net income (loss) to
cash used in operating activities:
Depreciation and amortization .................... 4,652 3,196
Change in assets and liabilities:
Trade accounts receivable ...................... (3,027) (7,900)
Receivable from Fujitsu ........................ 2,753 (2,403)
Inventory ...................................... 13,968 (8,644)
Prepaid expenses and other current assets ...... (6,513) (3,501)
Deferred tax asset ............................. (16,832) --
Trade accounts payable ......................... 10,940 805
Payable to Fujitsu ............................. (13,670) 2,633
Accrued liabilities ............................ (711) 136
-------- --------
Net cash used in operating activities .......... (46,034) (3,424)
-------- --------
Cash flows from investing activities:
Capital expenditures ............................... (3,658) (3,888)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of employee stock options ... 136 131
Payments on obligations under capital leases ....... -- (145)
Payments on notes payable .......................... (632) (844)
Proceeds from issuance of common stock ............. -- 64,563
Payment of preferred stock dividend ................ -- (832)
Proceeds from borrowings on notes payable .......... 32,404 --
-------- --------
Net cash provided by financing activities ...... 31,908 62,873
-------- --------
Net increase (decrease) in cash and cash
equivalents .................................. (17,784) 55,561
--------
Cash and cash equivalents at beginning of period ..... 17,941 1,936
-------- --------
Cash and cash equivalents at end of period ........... 157 57,497
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ROSS TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) FINANCIAL STATEMENT PRESENTATION
The financial statements of ROSS Technology, Inc. and subsidiary (the
"Company") included herein have been prepared without audit pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC") and,
in the opinion of management, reflect all adjustments necessary, such
adjustments being of a normal recurring nature, to present fairly the financial
condition and the results of operations for such interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, management
believes that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the audited financial statements and notes thereto for the
fiscal year ended April 1, 1996 included in the Company's filing with the SEC on
Form 10-K on July 1, 1996. The results for interim periods are not necessarily
indicative of the results for the respective fiscal years.
(2) INVENTORIES
<TABLE>
<CAPTION>
December 30, April 1,
1996 1996
------- -------
<S> <C> <C>
Die bank $ 1,832 $ 6,757
Work-in-process 8,793 19,697
Finished goods 7,728 5,867
------- -------
$18,353 $32,321
======= =======
</TABLE>
The Company wrote down inventories by $37.0 million in the third
quarter of fiscal 1997. The writedown to net realizable value was necessitated
by significantly lower than expected demand for a number of the Company's
products, especially its lower speed microprocessor chips and associated
semiconductors and MBus modules. These writedowns have been included in cost of
sales in the statements of operations for the three months and nine months ended
December 30, 1996.
Die bank inventory, consisting of silicon wafers and cut and tested
die, is comparable to raw material inventory in other manufacturing industries.
Work-in-process inventory includes work in process as well as the Company's
inventories of multi-die packages (MDPs) and components and sub-systems to be
incorporated into module, board and system products. Finished goods inventory
includes finished module, board and system products as well as MDPs and ASICs
offered for sale to OEM customers.
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(3) NOTES PAYABLE
In September 1996, the Company established a credit facility (the
"Asset Facility") with The Chase Manhattan Bank ("Chase") and Texas Commerce
Bank National Association ("TCB"). This facility is a maximum $15 million
asset-based line of credit although, as noted below, in view of certain covenant
violations the Company has no current borrowing availability under the facility.
Subject to certain restrictions and its compliance with various loan covenants,
the Company is able to borrow up to 80% of its qualified accounts receivable at
the end of any given month. Qualified accounts receivable exclude receivables
from Fujitsu and certain other accounts receivable evaluated on the basis of
customer concentration and risk criteria. The interest rate is, at the Company's
option, either LIBOR or an alternate rate specified in the Credit Agreement,
payable monthly, and principal is payable in full in a lump sum on September 23,
1998. The line is secured by accounts receivable, inventory and all other
related tangible and intangible property. As of December 30, 1996, the Company's
outstanding unpaid principal balance under the Asset Facility was $6.8 million.
As a consequence of its recent operating losses and financial condition, the
Company is currently in violation of a number of loan covenants relating to the
Asset Facility. The Company is in ongoing discussions with Chase and TCB
regarding what actions they will take as a result of the covenant violations.
The banks may waive the violations, accelerate the indebtedness or take certain
other actions in order to protect their interests. To date the only action taken
by the banks has been to require the Company to gradually reduce the outstanding
balance of the Asset Facility, as accounts receivable are collected by the
Company, through a "lockbox" mechanism that was implemented in December 1996
pursuant to the terms of the Asset Facility. The outstanding unpaid principal
balance of the Asset Facility as of February 12, 1997 was $3.2 million.
In November 1996, the Company established a new credit facility (the
"DKB Facility") with The Dai-Ichi Kangyo Bank, Limited ("DKB"). The DKB Facility
is a maximum $25 million unsecured line of credit. The Company's majority
stockholder, Fujitsu Limited, has provided a guaranty to DKB with respect to the
DKB Facility. The interest rate payable on the DKB Facility is 5.84375%, and
principal and interest are payable in full in a lump sum on July 30, 1997. As of
both December 30, 1996 and February 12, 1997, the Company's outstanding unpaid
principal balance under the DKB Facility was $25 million, the maximum permitted
thereunder.
(4) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed using the weighted
average number of outstanding common stock and common stock equivalent shares,
when dilutive. Common equivalent shares include shares issuable pursuant to
outstanding options under the Company's stock option plan as determined by the
treasury stock method.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report contains forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, with respect to
the financial condition, results of operations and business of the Company. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially and adversely from those set forth in the
forward-looking statements, including without limitation the availability of
financial resources adequate to the Company's short-, medium- and long-term
needs, the Company's dependence on the timely development, pre-production
qualification, manufacture, introduction and customer acceptance of new higher
speed, higher-margin products, the ability of the Company to successfully
implement its strategy of diversifying into the system products business, the
various effects on revenue, margins, inventories and operating expenses of
repositioning in the Company's product lines and overall business, the effects
of building and maintaining product inventories in the Company's hands and in
its distribution channels, product return and credit risks with distributors,
resellers and other customers, the Company's dependence on distributors and
resellers for certain product sales to end-users, the impact on revenue, margins
and inventories of rapidly changing technology, competition, downward pricing
pressures and allocations of product among different distribution channels, the
effects of routine price degradation over time in each of the Company's product
lines, varying customer demand for the Company's products, supply and
manufacturing constraints and costs, the Company's dependence on outside
suppliers for wafer fabrication and raw materials, components and certain
manufacturing services, changes in plans, programs or expenses for research,
development, sales or marketing, the Company's ability to build and maintain
adequate staff infrastructures in the areas of microprocessor design, product
engineering and development, sales and marketing, finance, accounting and
administration, supplier disputes, customer warranty claims, general economic
conditions, and the other risks and uncertainties described from time to time in
the Company's public announcements and SEC filings, including without limitation
the Form S-1 and Final Prospectus filed in November 1995 and the Company's
Quarterly and Annual Reports on Forms 10-Q and 10-K, respectively. The Company
cautions that the foregoing list of important factors is not exclusive. The
Company does not undertake to update any
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written or oral forward-looking statement that may be made from time to time by
or on behalf of the Company.
The information contained in this Quarterly Report is not a complete
description of the Company's business or the risks associated with an investment
in the Company. More complete discussions can be found in the Company's Annual
Report on Form 10-K for the fiscal year ended April 1, 1996 and in the Final
Prospectus, as supplemented by the information contained in the Quarterly
Reports on Form 10-Q for the fiscal quarters ended July 1, 1996 and September
30, 1996 and in this Quarterly Report.
RESULTS OF OPERATIONS
Net Sales. Net sales in the three-month period ended December 30, 1996
(the "third quarter") of the fiscal year ending March 31, 1997 ("fiscal 1997")
decreased 24% to $19.4 million from $25.5 million in the corresponding period of
the fiscal year ended April 1, 1996 ("fiscal 1996"). This was due primarily to a
51% decline in sales to the Company's primary OEM microprocessor chip customers,
reflecting delays in pre-production qualification and the lack of a major design
win for its leading edge "Colorado 4" hyperSPARC(TM) microprocessor products.
The decline in OEM sales was offset to a limited degree by the advent of sales
of the Company's recently-introduced system products. Upgrade subsystem module
sales increased 24% over the prior year period. Net sales for the quarter were
negatively impacted by intense industry competition, especially for upgrade
subsystem module products.
Net sales for the nine months ended December 30, 1996 of $71.5 million
were flat as compared with $71.1 million in the corresponding period of fiscal
1996. An 11% decline in sales to the Company's primary OEM microprocessor chip
customers, all of which was incurred in third quarter, was offset by sales of
the Company's recently-introduced system products. Upgrade subsystem module
sales decreased by 4% compared with the prior nine-month period.
In the second quarter of fiscal 1997 (the "second quarter"), the
Company shipped $8.9 million of consigned upgrade subsystem module and system
products inventory to its new distributor channel.
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<PAGE> 9
During the third quarter, the Company reduced its dependence on the distributor
channel in favor of telemarketing and direct sales of upgrade subsystem module
and system products. Accordingly, the Company took back from distributors
products representing a sales value of $3.4 million.
Gross Profit (Loss). Gross profit (loss) as a percentage of net sales
for the quarter and nine months ended December 30, 1996 decreased to (168)% and
(16)%, respectively, as compared with 47% and 46%, respectively, of net sales
for the comparable periods in fiscal 1996. This resulted primarily from a $37.0
million charge in the third quarter for the writedown of certain inventory
necessitated by significantly lower than expected demand for a number of the
Company's products, especially its lower speed microprocessor chips and
associated semiconductors and MBus modules. In addition, gross profit was
adversely affected by routine price degradation on older products, the Company's
lack of new, higher-margin microprocessor and upgrade subsystem module products,
and the mix of products sold.
Research and Development Expense. Research and development ("R&D")
expenses were 36% and 29%, respectively, of net sales for the quarter and nine
months ended December 30, 1996, compared with 16% of net sales for both of the
comparable periods in fiscal 1996. Absolute R&D expenses increased $2.9 million
in the quarter and $9.2 million in the nine months ended December 30, 1996 from
the comparable periods in the prior fiscal year. This increase was primarily
attributable to pre-production costs associated with qualifying the Company's
new "Colorado 4" 180 MHz and 200MHz hyperSPARC(TM) microprocessors, as well as
the costs associated with the introduction of the hyperSTATION(TM) and
SPARCplug(TM) system products. Additionally, R&D expenses increased as a result
of the addition of new personnel and related overhead and outside contractor
expenses in the areas of new product design and new product development related
to the Company's "Colorado 5" hyperSPARC and next generation "Viper"
microprocessor designs.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses were 62% and 32%, respectively, of net sales
for the quarter and nine months ended December 30, 1996, compared with 10% of
net sales for both of the comparable periods in fiscal 1996. Absolute SG&A
expenses increased $9.6 million in the quarter and $16.2 million in the nine
months ended December 30, 1996 from the comparable periods in the prior year.
The increase in SG&A expense is primarily attributable to a $5.8 million
writeoff of doubtful accounts in the third quarter and increases in the
allowance for doubtful accounts reserve of $2.4 million for the third quarter,
and $5.0 million for the nine months as compared with the prior year. The
writeoff was taken due to the continued deterioration in the ageing of the
receivable balances. The reserve was increased to recognize the ongoing
transition of the Company's customer base from a concentration of OEMs, which
have fairly predictable collections, to increased reliance on the less
predictable distributor, reseller and direct sales channels. In addition, in
comparison to the prior periods the Company expanded its sales and marketing
staff and increased advertising and promotional activity associated with the
introduction of the new hyperSTATION and SPARCplug product lines while
continuing advertising and promotional activity related to its microprocessor
chip business. The Company also experienced
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increased fees and expenses relating to its reporting obligations and other
responsibilities as a publicly-held company.
Interest Expense. The Company had interest expense of $.6 million for
the quarter and the nine months ended December 30, 1996, versus $.3 million in
the quarter and $1.5 million for the nine months ended January 1, 1996,
reflecting the costs of the Company's $35.5 million credit facility with
Dai-Ichi Kangyo Bank ("DKB") (liquidated in the fourth quarter of fiscal 1996)
and of a new asset-based credit facility with The Chase Manhattan Bank ("Chase")
and Texas Commerce Bank National Association ("TCB") (established in the second
quarter of fiscal 1997) and a new credit facility with DKB (established in the
third quarter of fiscal 1997). See "Liquidity and Capital Resources."
Income Tax Expense and Deferred Tax Benefit. For the quarter and the
nine months ended December 30, 1996, the Company has recorded a deferred tax
benefit reflecting the impact of the operating losses incurred in the second and
third quarters of fiscal 1997. The Company has recorded deferred tax assets on
its balance sheet. See "Liquidity and Capital Resources."
During the quarter and the nine months ended January 1, 1996, the
Company utilized net operating loss carryforwards to reduce its federal income
tax liability. However, notwithstanding the existence of these carryforwards, in
the fourth quarter of fiscal 1995 the Company began accruing and paying certain
federal taxes as a result of the corporate alternative minimum tax.
Future Operating Results. As previously advised in its SEC filings, the
Company is currently involved in a significant effort to diversify its product
lines and sources of revenue. In fiscal 1996 and prior years, substantially all
of the Company's revenues were derived from sales of microprocessor chips,
associated semiconductors and MBus modules. In the second quarter of fiscal
1997, the Company shipped hyperSTATION motherboards and systems in volume,
which was the first time that the Company had engaged in commercial sales of
board and system products. The Company intends to aggressively pursue and expand
its board and systems businesses, which will focus on performance- and
value-enhanced products incorporating the SPARC-industry-standard V8
architecture. The Company also intends to continue its microprocessor chip and
MBus module businesses.
The Company believes that diversification of its product lines and
revenue sources will provide additional engines for future revenues and profits.
There can be no assurance, however, that this diversification effort will be
successful or profitable, and the Company's entry into this new business area
entails new product acceptance, inventory and accounts receivable collection
risks as well as longer payment terms. It also requires the development of new
distribution channels and new marketing strategies. The Company anticipates
that the gross profit margins of these new product lines will be lower than
those it has historically experienced in the OEM microprocessor chip and upgrade
subsystem module businesses. Also, for sales of certain products through
distributors, the Company is able to recognize revenue from such sales only
upon resale to end-users.
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As noted above, the Company has recently experienced lower than
expected demand for a number of its products, especially its lower speed
microprocessor chips and associated semiconductors and MBus modules, as well as
routine price degradation on older products. These trends are continuing in the
current (fourth fiscal) quarter and are expected to continue for the foreseeable
future.
During the third quarter, the Company made available in limited
quantities its "Colorado 4" 200 MHz 512 KB secondary cache hyperSPARC
microprocessor, and Fujitsu Limited, the Company's majority stockholder
("Fujitsu"), announced a new system incorporating it. The Company also announced
a new 180 MHz "Colorado 4" upgrade subsystem module product and its SPARCstation
5 Upgrade Kit, a motherboard upgrade for owners of SPARCstation 5 systems from
Sun Microsystems, Inc. ("Sun"). Fujitsu/ICL announced the availability of new
server products based upon the Company's 125 MHz and 142 MHz hyperSPARC
microprocessor modules. In January 1997 the Company announced a new 200 MHz
hyperSTATION system incorporating "Colorado 4". The Company expects to announce
additional new system products prior to the end of the fourth quarter.
In order to increase competitiveness and market share, in January 1997
the Company announced significant price reductions for its existing hyperSTATION
and SPARCplug systems and upgrade subsystem module products, reflecting a
thorough cost analysis and adjustments to the Company's pricing model to adopt
the lower margins of the computer systems industry.
Sales to Sun, historically the Company's largest OEM customer, have
varied substantially on a year-to-year and quarter-to-quarter basis over the
periods since fiscal 1991. As previously advised, the Company anticipates that
sales to Sun will continue to fluctuate significantly in the future and that
sales to Sun will be reduced in fiscal 1997, as compared with fiscal 1996. The
Company continues to pursue sales to Sun of its current and future
microprocessor products, but there can be no assurance that the Company will
achieve any future design wins with Sun.
During the recent past, the Company's revenues and gross profit margins
have been substantially impacted by the mix of OEM, system and upgrade subsystem
module customers, as well as by the mix of high-end and low-end products sold
and the availability of new, higher-priced and higher-margin microprocessor and
upgrade subsystem module products. In addition, because the Company is
continuing to incur substantial operating expenses for new product development
in anticipation of increasing sales levels and to remain competitive, the
Company's business and results of operations would be materially and adversely
affected if such sales levels were not achieved.
Although the Company is taking actions to improve operating margins,
it is anticipated that gross profit will continue to remain under pressure and
below prior years' levels for the foreseeable future due to a variety of
factors, including lower margins for system products, continued industry-wide
pricing pressures, increased competition, and compressed product life cycles.
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The Company expects that R&D expenses during the fourth quarter will be
essentially flat as compared with the third quarter. In future quarters,
provided sufficient cash is available, R&D expenses are expected to increase,
reflecting pre-production qualification of the "Colorado 5" hyperSPARC
microprocessor and new product design and development related to the "Viper"
generation of microprocessors that the Company expects to introduce in 1999. The
Company expects that the level of SG&A expenses will vary depending upon the
overall sales effort undertaken and the Company's distribution strategies.
Although R&D and SG&A expenses can be reduced over time if the Company's
revenues are less than anticipated, the Company considers that it is building an
infrastructure that is critical to the Company's future success and that
represents a long-term investment in the Company's future. Therefore, as in the
recent past, the Company may decide to undertake such expenses even if the
result would be an increase in such categories of expense as a percentage of net
sales in a given fiscal quarter or for a fiscal year as a whole.
The Company expects interest expenses to be substantially higher on a
quarterly basis during the balance of fiscal 1977 and fiscal 1998 than during
the third quarter as a result of the Company's increased borrowing requirements.
See "Liquidity and Capital Resources."
During the third quarter the Company implemented a 24% reduction in
employment, eliminating 91 full-time and temporary positions. Unless adequate
additional financing is obtained, the Company will consider further reductions.
See "Liquidity and Capital Resources." The Company has also lost a number of
engineers and other employees due to voluntary resignations.
The Company is currently trying to fill key management positions,
including a Chief Financial Officer and other key positions in sales, product
engineering, finance and accounting. Given the Company's recent performance and
financial condition, hiring qualified executives and professional staff is
difficult.
Although no decisions have been made, the Company anticipates that it
may need to implement additional incentive compensation programs in order to
attract and retain key employees and to motivate employees.
The Company has recently lost experienced sales and marketing staff and
has deferred hiring replacements pending the hiring of senior sales and
marketing personnel and the further development of a sales and marketing
strategy to complement its new strategic direction. The Company believes such
actions are required in order for it to achieve its revenue targets over the
next several quarters.
The loss of executives and other key employees has negatively affected
the overall quality and depth of the Company's staff infrastructure and its
management and accounting controls. The Company is seeking to remedy these
shortcomings as a priority matter through new hiring and the use of consultants
and outside contractors. However, the impaired infrastructure and controls may
have a material adverse effect on the Company's business, results of operations
and financial condition.
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<PAGE> 13
The Company's results of operations have in the past, and may in the
future, vary due to a number of factors, including market acceptance of new
products and enhanced versions of existing products of the Company, the
Company's success in entering new markets and lines of business, the various
effects on revenue, margins, inventories and operating expenses of transitions
in the Company's product lines and overall business, the effects on revenue and
inventories of rapid technological change, the varying levels and extent of
competition in the Company's chosen markets, the timing and extent of product
development costs, changes in the mix of products sold and in the mix of sales
by distribution channel, competitive pricing pressures, anticipated and
unanticipated decreases in unit average selling prices of the Company's
products, availability and cost of products (particularly silicon wafers) from
the Company's suppliers, fluctuations in manufacturing yields, the gain or loss
of significant customers, new product introductions by the Company's
competitors, the competitiveness of the SPARC architecture, and the timing of
significant orders, order cancellations or rescheduling, all as more fully
described in the Company's prior SEC filings. Any unfavorable change in the
foregoing or other factors could have a material adverse effect on the Company's
business, results of operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
As a result of its operating losses, investments in inventory and
accounts receivable collection problems, the Company requires an immediate
infusion of cash in order to meet its current obligations and continue
operations. The Company confronted a similar situation in the third quarter and
was able to address that situation through an additional credit facility
guaranteed by Fujitsu (see below). To meet the immediate need, the Company is
seeking an additional credit facility to be supported by an additional loan
guaranty from Fujitsu, which owns 60% of the Company's outstanding Common Stock.
The Company has requested an additional loan guaranty and understands that
Fujitsu will respond to this request by February 28, 1997. However, Fujitsu has
not yet acted upon the request, and there can be no assurance that Fujitsu will
act favorably. Fujitsu and the Company have entered into an agreement pursuant
to which the Company expects to receive a $3.5 million advance within the next
few days. See "Item 5, Other Information." Management is also pursuing various
other approaches to raise or offset the need for cash, including potential asset
dispositions and licenses, development programs with Fujitsu and other parties,
enhanced receivable collection programs and third party guarantees of Company
obligations. The Company believes that severe negative consequences will ensue
with its creditors if additional cash is not obtained in the very near future.
Moreover, the amount of any additional funds that may become available is
uncertain, and even if additional funds are forthcoming, the amount thereof may
be insufficient to meet the Company's immediate, medium- and long-term cash
needs. The Company's failure to obtain sufficient additional financing within
the requisite timeframe could make it impossible for the Company to continue
operations, force the Company to seek protection under federal bankruptcy
law and/or affect the Company's listing on the Nasdaq National Market.
The Company presently anticipates that it will need approximately $35
million of additional financing to meet its cash requirements during the next 12
months. Of that amount, approximately $26 million is needed within the next 30
days. These estimates, which are subject to change without notice, assume that
the Company is able to achieve its current revenue and expense targets for the
fourth quarter of fiscal 1997 and succeeding quarters, without material
variance, suffers no material accounts receivable collection problems, and is
able to extend the due date of its existing DKB credit facility (see below) to
March 1998 or later. There can be no assurance, however, that these
assumptions will prove correct or that changes in the Company's R&D plans or
other changes affecting the Company's operating expenses, capital expenditures,
products, lines of business, business strategy, supplier and customer credit
arrangements, level of product and manufacturing integration, facilities,
employment and other matters will not result in the expenditure of any available
resources before the end of such 12-month period.
-13-
<PAGE> 14
Thereafter, the Company may require additional equity and/or debt financing from
Fujitsu and/or third party sources. Moreover, the Company's cash requirements
may vary materially from those now planned because of changes in the Company's
business or capital expenditure plans, product plans or technology, acquisitions
or dispositions of businesses or assets, changes in the Company's level of
product and manufacturing integration, results of research and development,
relationships with suppliers and customers, pricing and demand for the Company's
products, changes in the focus and direction of the Company's research and
development programs, competitive and technological advances, the level of
working capital required to sustain planned growth, results of operations
(including the extent and duration of operating losses), facilities, employment
matters, and other factors. There can be no assurance that additional capital,
including capital from bank borrowings, will be available on terms favorable to
the Company, if at all, or that Fujitsu would be willing to provide additional
loan guarantees, equity infusions or other financial assistance to the Company
in the future. To the extent that additional capital is raised through the sale
of additional equity or convertible debt securities, the issuance of such
securities would likely result in substantial dilution to the Company's then
existing stockholders. In view of its position as the Company's controlling
stockholder, Fujitsu's concurrence is necessary to any additional debt or equity
financing by the Company.
During the nine months ended December 30, 1996, the Company used $46
million of cash in operating activities versus $3.4 million for the
corresponding period of the prior fiscal year. The use of cash in the current
period is principally attributable to a $23.0 million net increase in inventory
over the nine-month period (before the $37.0 million inventory writedown).
Inventory growth was partially financed by an increase in trade accounts
payable. Additionally, accounts receivable generated by sales to the distributor
and reseller channel have had longer collection cycles and greater writeoffs
than the Company's traditional OEM accounts receivable, which effect also
increased the use of cash and the accounts receivable balance in the current
period.
In September 1996, the Company established a credit facility (the
"Asset Facility") with Chase and TCB. This facility is a maximum $15 million
asset-based line of credit although, as noted below, in view of certain covenant
violations the Company has no current borrowing availability under the facility.
Subject to certain restrictions and its compliance with various loan covenants,
the Company is able to borrow up to 80% of its qualified accounts receivable at
the end of any given month. Qualified accounts receivable exclude receivables
from Fujitsu and certain other accounts receivable evaluated on the basis of
customer concentration and risk criteria. The interest rate is, at the Company's
option, either LIBOR or an alternate rate specified in the Credit Agreement,
payable monthly, and principal is payable in full in a lump sum on September 23,
1998. The line is secured by accounts receivable, inventory and all other
related tangible and intangible property. As of December 30, 1996, the Company's
outstanding unpaid principal balance under the Asset Facility was $6.8 million.
As a
-14-
<PAGE> 15
consequence of its recent operating losses and financial condition, the Company
is currently in violation of a number of loan covenants relating to the Asset
Facility. The Company is in ongoing discussions with Chase and TCB regarding
what actions they will take as a result of the covenant violations. The banks
may waive the violations, accelerate the indebtedness or take certain other
actions in order to protect their interests. To date the only action taken by
the banks has been to require the Company to gradually reduce the outstanding
balance of the Asset Facility, as accounts receivable are collected by the
Company, through a daily collection "lockbox" mechanism that was implemented in
December 1996 pursuant to the terms of the Asset Facility. The outstanding
unpaid principal balance of the Asset Facility as of February 12, 1997 was $3.2
million. Since January 1, 1997 the Company has been paying interest on the Asset
Facility at the Past Due Rate as provided in the Credit Agreement dated
September 23, 1996.
In November 1996, the Company established a new credit facility (the
"DKB Facility") with DKB. The DKB Facility is a maximum $25 million unsecured
line of credit. Fujitsu has provided a guaranty to DKB with respect to the DKB
Facility. The interest rate payable on the DKB Facility is 5.84375%, and
principal and interest are payable in full in a lump sum on July 30, 1997. As of
both December 30, 1996 and February 12, 1997, the Company's outstanding unpaid
principal balance under the DKB Facility was $25 million, the maximum permitted
thereunder.
The Company's principal source of liquidity as of December 30, 1996
consisted of $157,000 of cash and cash equivalents. As of February 12, 1997, the
Company had cash and cash equivalents on hand of $1.6 million; however, that
amount was committed to various immediate payment obligations. The Company is
not currently able to borrow additional funds under the DKB Facility, and
Chase and TCB are not obligated to advance any further funds to the Company
under the Asset Facility.
The Company's non-Fujitsu trade accounts payable balance increased by
$10.9 million at December 30, 1996, as compared with the April 1, 1996 balance,
primarily as a result of raw material and component inventory purchases. This
balance includes certain raw materials and components purchased by the Company
on behalf of its sub-contract manufacturers; such items are reflected as "other
receivables" on the Company's balance sheet.
During the nine months ended December 30, 1996, the Company extended
payment terms with many suppliers in order to increase the availability of
on-hand cash. This is reflected in the non-Fujitsu trade accounts payable
balance as of that date. During the third quarter the Company experienced
difficulty in procuring inventory and sub-contract manufacturing services from
some suppliers as a result of the necessity to defer vendor payments for lack of
cash. This difficulty has continued in the fourth quarter, and the Company
anticipates that such difficulties will become more severe unless the Company's
cash shortage is alleviated through additional financing. At the present time,
the Company is not in compliance with the agreed payment terms with most of its
suppliers. Certain suppliers have threatened collection actions of various types
against the Company.
The Company's trade accounts payable to Fujitsu decreased by $13.7
million at December 30, 1996, as compared with the April 1, 1996 balance. The
Fujitsu trade
-15-
<PAGE> 16
accounts payable primarily represents purchases of silicon wafers by the Company
for use in the microprocessor chip manufacturing process.
The Company's payment terms with Fujitsu for purchases of silicon
wafers and multi-die packaging are longer than those generally available to the
Company from other suppliers. There can be no assurance that Fujitsu will
continue to extend favorable payment terms to the Company. Shorter payment terms
would increase the Company's cash requirements.
The Company's capital expenditures for the nine months ended December
30, 1996 decreased to $3.7 million from $3.9 million for the corresponding
period in fiscal 1996. The Company expects to incur additional capital
expenditures of approximately $3.6 million during the next 12 months,
principally for manufacturing test equipment, computer hardware and software,
and lab equipment, and to fund such expenditures from cash flow. If sufficient
cash flow is not available, planned capital expenditures may have to be deferred
or cancelled, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Because the Company must order raw materials, silicon wafers and
components and build finished goods inventory substantially in advance of
product shipments, there is continued risk that the Company will forecast
quantity and product mix incorrectly and, therefore, produce excess or
insufficient inventories. Because the markets for the Company's microprocessor,
module and system products are subject to rapid technological and price changes,
inventory may be subject to rapid obsolescence. The inventory risk is heightened
because the Company's customers usually place orders with short lead times. If
the Company forecasts incorrectly and produces insufficient inventory of
particular products, the Company may face order cancellations from or loss of
customers, who may seek to satisfy their needs from other suppliers. In general,
the Company's customers may change delivery schedules or cancel orders without
penalty. To the extent that the Company produces excess or insufficient
inventories of particular products, or inventory becomes obsolete, the Company's
results of operations and financial condition could be materially and adversely
affected.
At December 30, 1996, the Company had deferred tax assets, arising from
deductible temporary differences, net operating losses and general business
credits, of $19.0 million of the deferred tax assets is dependent on the
Company's ability to generate sufficient future taxable income in the 15 year
carryforward period. However, there can be no assurance that the Company will
meet its expectations of future taxable income. As a result, the amount of the
deferred tax assets considered realizable could be reduced in future periods if
expectations of future taxable income are reduced. Such an occurrence could have
a material adverse effect on the Company's results of operations and financial
condition. The Company will continue to evaluate the realizability of the
deferred tax assets quarterly by assessing the need for a valuation allowance.
-16-
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Rao Cherukuri et al. v. PeQuR Technology, Inc., et al., Civil No.
CV757267 (Santa Clara Superior Court). This action, previously reported, was
brought by three former employees of PeQuR Technology, Inc., a Texas corporation
that sold substantially all of its assets to ROSS Computer Corp., then a
wholly-owned subsidiary of the Company. The litigation is currently in the
discovery stage. The Company believes that the plaintiffs' claims against it are
without merit and intends to defend this case vigorously.
Based on the information presently known to management, the Company
does not believe that the ultimate resolution of the foregoing lawsuit will
have a material adverse effect upon the financial condition or results of
operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
On November 14, 1996 the Company announced that its Chief Financial
Officer, David A. Zeleniak, had notified the Company of his intent to resign
to pursue personal business interests. Mr. Zeleniak left the employ of the
Company on January 17, 1997. The Company is actively interviewing
candidates for the position of Chief Financial Officer.
On January 14, 1997 the Company's Vice President of Marketing,
Matthew R. Gutierrez, notified the Company of his intention to resign
effective as of a date to be determined.
On February 12, 1997 the Company and Fujitsu Limited entered into a
letter agreement pursuant to which the Company granted to Fujitsu an
exclusive right to negotiate terms for (a) development by the Company and
its wholly-owned subsidiary, Ross Semiconductors (Israel) Limited ("Ross
Israel"), of a microprocessor core, based upon the Colorado 4 hyperSPARC
architecture, for use as an embedded controller and (b) possible acquisition
by Fujitsu of all of the outstanding shares of Ross Israel (the "Shares").
The exclusive negotiation period with respect to microprocessor core
development commenced on February 12, 1997 and continues through March 31,
1997. During that period the Company is obligated to negotiate in good
faith the terms of a final agreement for microprocessor core development (a
"Final Agreement"). As consideration for the grant of exclusive negotiation
rights, Fujitsu agreed to pay to the Company, as soon as practicable, an
advance of $3.5 million. If a Final Agreement is executed by the parties on or
prior to March 31, 1997, the $3.5 million will be applied against the first
amounts payable by Fujitsu thereunder. If no Final Agreement is executed on or
prior to March 31, 1997, the Company is obligated to return the full $3.5
million to Fujitsu. The obligations of the Company under the letter
agreement are to be secured by a perfected security interest in the Shares.
The parties have various other rights and obligations under the letter
agreement.
-17-
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C> <C>
3.1 - Restated Certificate of Incorporation of Company*
3.2 - Restated Bylaws of Company**
4.1 - Specimen of Common Stock Certificate*
10.1 - Promissory Note between the Company and The Dai-Ichi
Kangyo Bank Limited, dated November 18, 1996.
10.2 - Letter of Guaranty between Fujitsu Limited and The
Dai-Ichi Kangyo Bank Limited, dated November 18, 1996.
10.29 - Shareholders Agreement among the Company, Roger D.
Ross, Fujitsu Limited and Sun Microsystems, Inc., dated
November 10, 1995.*
10.30 - Indemnity Agreement between the Company and Fujitsu
Limited.*
10.31 - Form of Indemnity Agreement between the Company and
certain Directors and Officers.+
27 - Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
- ----------
* Incorporated by reference to identically numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
January 1, 1996.
** Incorporated by reference to identically numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 1996.
+ Incorporated by reference to identically numbered exhibits to the
Company's Registration Statement on Form S-1 (Registration
No. 33-95878) effective as of November 6, 1995.
-18-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSS TECHNOLOGY, INC.,
a Delaware corporation
Date: February 13, 1997 /S/ ROGER D. ROSS
----------------------------------
ROGER D. ROSS
Chairman of the Board, President
and Chief Executive Officer
/S/ CARTER L. GODWIN
----------------------------------
CARTER L. GODWIN
Chief Accounting Officer and
Corporate Controller
/S/ JOE JONES
----------------------------------
JOE JONES
Vice President, Operations
-19-
<PAGE> 1
EXHIBIT 10.1
LNS ______________
$25,000,000.00, New York, New York, 11-18, 1996 after date for value received,
the undersigned promises to pay to the order of THE DAI-ICHI KANGYO BANK,
LIMITED, NEW YORK BRANCH, One World Trade Center, Suite 4911, New York, N.Y.
10048, Twenty-five Million and 00/100 Dollars, in current funds of the United
States of America, with interest from the date hereof at the rate of 5-84375.
percent per annum.
The makers, endorsers and guarantors of this note hereby waive
presentment for payment, demand, notice of non-payment and dishonor, protest,
and notice of protest; waive trial by jury in any action or proceeding arising
from, out of, under or by reason of this note, pursuant to any renewals,
extensions and partial payments of this item or the indebtedness for which it
_______ without notice to them and consent that no such renewals, extensions or
partial payments shall discharge any party hereto from liability herein in whole
or in part.
In the event of happening of any one or more of the following, to-wit:
(a) the non-payment of any of the Obligations; (b) the death, failure in
business, dissolution or termination of existence of the undersigned; (c) any
petition in bankruptcy, or under any Acts of Congress relating to the relief of
debtors, being commenced for the relief or readjustment of any indebtedness of
the undersigned or any endorser or guarantor of this note whether through
reorganization, composition, extension, or otherwise; (d) the making by the
undersigned or any underwriter or guarantor of this note of an assignment for
the benefit of creditors or the taking advantage by any of the same of any
insolvency law; (e) the appointment of a receiver of any property of the
undersigned or any endorser or guarantor of this note; (f) the attachment or
distraint of any funds or other property of the undersigned which may be in, or
come into, the possession of or control of the Bank, or of any third party
acting for the Bank, or of the same becoming subject at any time to any
mandatory order of court or other legal process; (g) any government authority or
any court at the insistence of any government authority shall take possession of
any substantial part of the property of the undersigned or shall assume control
over the affairs or operations of the undersigned or a receiver shall be
appointed or if a writ or order of attachment or garnishment or order of
execution shall be levied or made against any of the property or assets of the
undersigned or any endorser or guarantor of this note -- then, or at any time
after the happening of any such event, this note and/or any notice or other
Obligations which may be taken in renewal or extension of all or any part of the
indebtedness evidenced thereby, shall become due and payable at the option of
the holder, without demand or notice, and likewise upon the happening of any
such event or at any time thereafter, any or all of other Obligations then
existing shall, at the option of the Bank, become due and payable forthwith,
without demand upon or notice by the undersigned. If this note be not paid when
due and if it be placed with an attorney for collection, the makers, endorsers
and guarantors agrees to pay all costs of collection, including an attorney's
fee of 15% of the amount of this note, which is hereby agreed to be just and
reasonable and which shall be added to the amount due under this note and
recoverable with the amount due under this note. The undersigned further agrees
that this note shall be deemed to have been made under and shall be governed by
the laws of the State of New York in all respects, including matters of
construction, validity and performance, and that none of its terms or provisions
may be waived, altered, modified or amended, except if the Bank may consent
thereto in writing duly signed for and on its behalf. The undersigned, if more
than one, shall be jointly and severally liable hereunder.
PAYABLE AT Carter L. Godwin
---------------------------
Authorized Signature
No_________ Due on 7-30-97 ---------------------------
Individual as Maker
<PAGE> 1
EXHIBIT 10.2
FUJITSU LIMITED
The Dai-Ichi Kangyo Bank, Ltd.
New York Branch
One World Trade Center, Suite 4911
New York, New York 10045
November 18, 1996
Letter of Guaranty
Dear Sir,
In appreciation of your making loan of up to the amount of
US$25,000,000.00 (in words: U.S. Dollars twenty-five million only) to Ross
Technology, Inc. (hereinafter called the "Company"), having its principal office
in Austin, Texas and subsidiary of FUJITSU LIMITED, organized under the laws of
Japan and having its principal office at 6-1, Maruncuchi 1- chome, Chiyoda-Ku,
Tokyo 100, Japan, under a certain loan facility (hereinafter called the "Loan
Facility") between you and the Company, we hereby irrevocably guarantee the full
and principal payment by the Company of its indebtedness pursuant to the terms
of the Loan Facility, provided that in no event will our obligations and
liabilities hereunder exceed US$25,000,000.00.
The term "Indebtedness" as used in this Guaranty means all outstanding
obligations and liabilities of the Company arising out of or in connection with
the loans made under the Loan Facility, whether principal, interest or expenses,
to be paid by the Company pursuant to the terms of the Loan Facility.
If and to the extent the Company fails to make a full and punctual
payment pursuant to the terms of the Loan Facility, we will, within the
reasonable time of the receipt of your demand, pay you the Indebtedness subject
to the limitations set forth in the first sentence of this Guaranty.
We hereby waive notice of acceptance of the Guaranty, and any right to
require you to proceed against the Company.
This Company will be a continuing one and will terminate on March 31,
1998, but such termination will not release us from our obligations and
liabilities hereunder existing on and as of the date of such termination.
This Guaranty will be governed by and construed in accordance with the
law of Japan.
Yours sincerely,
[Signature in Japanese]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 30, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-30-1996
<CASH> 157
<SECURITIES> 0
<RECEIVABLES> 28,339
<ALLOWANCES> 7,097
<INVENTORY> 18,353
<CURRENT-ASSETS> 58,034
<PP&E> 27,381
<DEPRECIATION> 11,446
<TOTAL-ASSETS> 88,765
<CURRENT-LIABILITIES> 59,950
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 28,791
<TOTAL-LIABILITY-AND-EQUITY> 88,765
<SALES> 71,549
<TOTAL-REVENUES> 71,549
<CGS> 83,001
<TOTAL-COSTS> 83,001
<OTHER-EXPENSES> 44,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (56,224)
<INCOME-TAX> 18,630
<INCOME-CONTINUING> (37,594)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,594)
<EPS-PRIMARY> (1.61)
<EPS-DILUTED> (1.61)
</TABLE>
