SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 29, 1996
Commission file no. 1-7713
AMDAHL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1728548
(State of incorporation) (I.R.S. Employer
Identification No.)
1250 East Arques Avenue
Sunnyvale, California 94088-3470
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (408) 746-6000
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
Number of shares of common stock, $.05 par value, outstanding at
May 3, 1996: 120,442,859.
PART I. FINANCIAL INFORMATION
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited consolidated financial statements
reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present
fairly the financial position as of the dates and results of
operations for the periods indicated.
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 the Securities and Exchange Commission rules and
regulations. Amdahl Corporation (the Company) believes the
information included in the following report on Form 10-Q, when
read in conjunction with the financial statements and related
notes included in the Company's 1995 Annual Report to
Stockholders, not to be misleading.
Certain of the statements contained in this report on Form 10-Q
are forward looking and involve a number of risks and
uncertainties which are described in the section of this report
titled Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Company's 1995 Annual
Report to Stockholders and in other documents filed from time to
time with the U.S. Securities and Exchange Commission, including
without limitation, the report on Form 10-K for the year ended
December 29, 1995.
The results of operations for the three months ended March 29,
1996, are not necessarily indicative of results for the entire
year ending December 27, 1996.
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 29, 1996 AND DECEMBER 29, 1995
----------------------------------------
(Dollars in thousands)
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 172,518 $ 192,980
Short-term investments 390,279 444,006
Receivables, net of allowances 274,693 319,777
Inventories -
Purchased materials 28,865 18,879
Systems in process 127,964 168,322
Finished goods 113,851 87,612
Prepaid expenses and deferred tax benefit 84,150 69,115
--------- ---------
Total current assets 1,192,320 1,300,691
--------- ---------
Long-term receivables and other assets 30,142 28,083
--------- ---------
Property and equipment, at cost:
Leased systems 53,942 37,937
System spares 366,935 379,797
Production and data processing equipment 337,550 327,051
Office furniture, equipment, and improvements 158,034 173,691
Land and buildings 111,235 111,715
--------- ---------
1,027,696 1,030,191
Less - Accumulated depreciation and amortization (746,811) (757,523)
--------- ---------
Property and equipment, net 280,885 272,668
--------- ---------
Excess of cost over net assets acquired, net of amortization 105,669 106,756
--------- ---------
$ 1,609,016 $ 1,708,198
============ ===========
Liabilities and stockholders' equity
Current liabilities:
Notes payable and short-term debt $ 22,275 $ 22,026
Short-term debt - stockholder (Fujitsu Limited) 80,000 -
Accounts payable 99,656 111,871
Accounts payable - stockholder (Fujitsu Limited) 24,646 29,152
Accrued liabilities 398,685 431,600
---------- --------
Total current liabilities 625,262 594,649
---------- --------
Long-term debt - stockholder (Fujitsu Limited) - 80,000
---------- --------
Long-term liabilities 41,903 51,152
---------- --------
Deferred income taxes 49,726 48,573
---------- --------
Stockholders' equity:
Common stock, $.05 par value -
Authorized - 200,000,000 shares
Outstanding - 119,818,000 shares in 1996
and 119,259,000 shares in 1995 5,991 5,963
Additional paid-in capital 544,291 542,269
Retained earnings 332,472 370,995
Cumulative translation adjustments 9,238 10,932
Unrealized holding gains on securities 133 3,665
---------- --------
Total stockholders' equity 892,125 933,824
---------- --------
$ 1,609,016 $ 1,708,198
=========== ===========
See accompanying notes.
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per common share amounts)
FOR THE THREE MONTHS ENDED
MARCH 29, 1996 MARCH 31, 1995
-------------- ---------------
REVENUES
Equipment sales $ 94,464 $ 216,775
Service, software and other 222,564 154,751
---------- ---------
317,028 371,526
---------- ---------
COST OF REVENUES
Equipment sales 85,584 144,963
Service, software and other 158,862 81,248
---------- ---------
244,446 226,211
---------- ---------
Gross margin 72,582 145,315
---------- ---------
OPERATING EXPENSES
Engineering and development 30,563 42,920
Marketing, general and administrative 96,353 84,525
---------- ---------
126,916 127,445
---------- ---------
Income (loss) from operations (54,334) 17,870
---------- ---------
INTEREST
Income 8,396 11,298
Expense (2,216) (2,774)
---------- ---------
6,180 8,524
---------- ---------
Income (loss) before provision for
(benefit from) income taxes (48,154) 26,394
PROVISION FOR (BENEFIT FROM) INCOME TAXES (9,631) 5,800
---------- ---------
NET INCOME (LOSS) $ (38,523) $ 20,594
================ ===============
PER COMMON SHARE AMOUNTS:
Net income (loss) $ (.32) $ .17
================ ===============
Average outstanding shares 119,566 119,660
================ ===============
See accompanying notes.
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
FOR THE THREE MONTHS ENDED
MARCH 29, 1996 MARCH 31, 1995
-------------- --------------
Cash and cash equivalents at beginning of period $192,980 $358,006
---------- ----------
Cash flows from operating activities:
Net income (loss) (38,523) 20,594
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 25,948 34,788
Deferred income tax provision 1,153 692
Gain on dispositions of assets (432) (1,318)
Changes in assets and liabilities:
Decrease in receivables 44,191 57,040
(Increase) decrease in inventories (3,108) 723
(Increase) decrease in prepaid expenses and
deferred tax benefit (15,155) 5,702
(Increase) decrease in long-term receivables
and other assets (3,301) 1,441
Decrease in accounts payable (16,460) (7,824)
Decrease in accrued liabilities (31,652) (63,438)
Decrease in long-term liabilities (2,396) (2,746)
---------- ---------
Net cash provided by (used for) operating activities (39,735) 45,654
---------- ---------
Cash flows from investing activities:
Purchases of available-for-sale short-term investments (84,623) (70,242)
Purchases of held-to-maturity short-term investments - (156,892)
Proceeds from sales and maturities of
available-for-sale short-term investments 134,270 -
Proceeds from maturities of held-to-maturity
short-term investments - 151,864
Capital expenditures:
Leased systems (12,644) (5,128)
System spares (3,384) (5,776)
Other property and equipment (12,131) (13,204)
Proceeds from property and equipment sales 1,359 6,176
---------- ---------
Net cash provided by (used for) investing activities 22,847 (93,202)
---------- ---------
Cash flows from financing activities:
Increase (decrease) in notes payable and short-term debt (3,986) 1,403
Repayments of long-term borrowings (746) -
Sale of common stock and exercise of options 2,050 8,872
---------- ---------
Net cash provided by (used for) financing activities (2,682) 10,275
---------- ---------
Effect of exchange rate changes on cash (892) 3,069
---------- ---------
Net decrease in cash and cash equivalents (20,462) (34,204)
---------- ---------
Cash and cash equivalents at end of period $172,518 $323,802
========== =========
See accompanying notes.
AMDAHL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying interim financial statements and related notes
should be read in conjunction with the financial statements and
related notes included in the Company's 1995 Annual Report to
Stockholders.
RELATIONSHIP WITH FUJITSU LIMITED
During the first quarter of 1996 the Company recognized equipment
sales to Fujitsu Limited (Fujitsu) under distributorship and
other arrangements which contributed $7,486,000 and $964,000 to
equipment sales and gross margin, respectively, compared to
$19,966,000 and $7,743,000 in the first quarter of 1995.
In the second quarter of 1995 the Company entered into a contract
manufacturing agreement with HaL Computer Systems, Inc. (HaL), a
wholly-owned subsidiary of Fujitsu, whereby Amdahl agreed to
manufacture high end open system workstations for HaL. The
Company also performs circuit board assembly for Ross Technology,
Inc., a majority-owned subsidiary of Fujitsu. These arrangements
contributed $4,427,000 and a negative $1,536,000 to equipment
sales and gross margin, respectively, in the first quarter of
1996.
Fujitsu reimburses Amdahl for certain specific engineering
development activities performed by Amdahl from time to time
related to products which are being jointly developed by Amdahl
and Fujitsu. In connection with these development efforts,
Amdahl recorded $6,200,000 as an offset to engineering and
development expenses in the first quarter of 1996.
Amounts due from Fujitsu and their subsidiaries included in
receivables were $50,236,000 and $35,795,000 as of March 29, 1996
and December 29, 1995, respectively.
At March 29, 1996 and December 30, 1995, $80,000,000 was
outstanding under the loan agreement with Fujitsu. This amount
was reclassified from long-term debt to current debt in the first
quarter of 1996, as the amount outstanding is payable in January
1997. Interest expense associated with the loan was $1,558,000
and $1,418,000 in the first quarters of 1996 and 1995,
respectively, of which $915,000 and $958,000 was payable and
included in accrued liabilities at March 29, 1996 and December
29, 1995, respectively.
SUPPLEMENTARY CASH FLOW DISCLOSURE
Income taxes of $4,555,000 (net of taxes paid of $2,466,000) were
refunded to the Company in the first three months of 1996, and
income taxes of $12,488,000 were paid by the Company in the first
three months of 1995. Interest paid on all borrowings was
$2,231,000 and $2,311,000 for the first three months of 1996 and
1995, respectively.
Noncash Investing Activities
Transfers of Amdahl-manufactured systems from inventories to
property, plant and equipment were $6,942,000 in the first three
months of 1996. Transfers of Amdahl-manufactured systems from
net property, plant and equipment to inventories were $8,049,000
in the first three months of 1995.
SUBSEQUENT EVENT
On April 22, 1996 the Company acquired all of the outstanding
shares of TRECOM Business Systems, Inc., a provider of
information technology services, for approximately $131 million,
of which $66 million was paid in April 1996 and $65 million is
payable in the second quarter of 1997. In April 1996 the Company
also paid down $15 million of TRECOM's debt. The Company funded
the April 1996 payments and intends to fund the April 1997
payment with existing cash. The acquisition will be accounted
for in the second quarter of 1996 using the purchase method of
accounting.
AMDAHL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read
in conjunction with the Management's Discussion and Analysis
included in the Company's 1995 Annual Report to Stockholders.
Results of Operations
First quarter of 1996 compared to first quarter of 1995:
Total revenues decreased 15% to $317,028,000 in the first quarter
of 1996 from $371,526,000 in the first quarter of 1995, and
equipment sales revenues decreased 56% in the first quarter of
1996 from the first quarter of 1995. Equipment sales were 30%
and 58% of total revenues in the first quarters of 1996 and 1995,
respectively. Revenues from equipment sales of 5995M mainframe
systems decreased 67% in the first quarter of 1996 from the first
quarter of 1995 due to aggressive competitive pressures and as
customers added computing capacity through purchases of upgrades
rather than complete new systems, as the Company continued to
transition from older ECL mainframe technology to CMOS
technology. Revenues from storage product equipment sales
decreased 47% in the first quarter of 1996 when compared to the
same period of 1995 as a result of pricing and volume declines
associated with previously reported delays in the introduction of
new storage products, which will not be available in volume until
the second half of 1996.
Service, software and other revenues were 70% and 42% of total
revenues in the first quarters of 1996 and 1995, respectively.
Service, software and other revenues increased 44% in the first
quarter of 1996 from the first quarter of 1995, primarily
reflecting increased consulting services revenues from DMR Group
Inc. (DMR), acquired in the fourth quarter of 1995.
The impact on revenues from a weakened U.S. dollar was immaterial
in the first quarter of 1996.
The gross margin was 23% of revenues in the first quarter of
1996, compared to 39% in the first quarter of 1995. The gross
margin percentage on equipment sales decreased to 9% in the first
quarter of 1996 from 33% in the first quarter of 1995, reflecting
deterioration in mainframe and storage product pricing. The
gross margin percentage on service, software and other revenues
decreased to 29% in the first quarter of 1996 from 47% in the
first quarter of 1995 because consulting and professional
services contributed a greater proportion of revenues in the
first quarter of 1996, and these revenues generate lower gross
margins than the Company's traditional maintenance revenues.
First quarter 1996 engineering and development expenses decreased
$12 million or 29% when compared to the first quarter of 1995,
due in part to reimbursements received from Fujitsu (see the
Notes to the Consolidated Financial Statements) and due to the
increased reliance on Fujitsu for the development of the
Company's future mainframe and storage products. First quarter
1996 marketing, general and administrative expenses increased $12
million or 14% when compared to the first quarter of 1995, due to
increased marketing efforts and the additional expenses
associated with DMR.
In the first quarter of 1996 the Company adopted Statement of
Financial Accounting Standard No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. Adoption of the standard did not have a material
impact on the Company's financial position or results of
operations.
In the third quarter of 1995 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, effective for the first
quarter of 1996. In complying with the standard, the Company has
elected to continue to account for its employee stock-based
compensation awards under Accounting Principles Bulletin No. 25,
Accounting for Stock Issued to Employees.
First quarter 1996 net interest income decreased $2,344,000 from
the first quarter of 1995 due primarily to lower cash levels
after the acquisition of DMR.
The effective income tax rate was 20% in the first quarter of
1996, compared to 22% in the first quarter of 1995. The rate was
lower than the statutory federal rate because the Company
continued to utilize deferred tax assets consisting primarily of
reserves.
Factors That May Affect Future Operating Results
The Company is phasing out the production of its current
generation of bipolar mainframes in anticipation of the
changeover to lower cost CMOS technology. The Company will be
closely monitoring both demand and pricing during the second
quarter of 1996 with the expectation that an adjustment to
inventory valuations may well be required.
The Company expects that revenues attributable to the maintenance
of its new hardware systems will be less than revenues that have
been historically realized from maintenance of its existing
generation of mainframes. The Company is unable to predict the
extent to which this would negatively affect future operating
results.
The Company anticipates that the write-off of in-process
engineering and development expenses associated with the
acquisition of TRECOM Business Systems, Inc. will result in a
significant charge to earnings in the second quarter of 1996 (see
the Notes to the Consolidated Financial Statements).
FINANCIAL CONDITION
MARCH 29, 1996 COMPARED TO DECEMBER 29, 1995
The Company's net cash position (cash and short-term investments
net of short-term and long-term debt, excluding capitalized lease
obligations) decreased by $68 million from December 29, 1995 to
March 29, 1996. Cash, cash equivalents and short-term
investments decreased $74 million, reflecting cash used for
operations. Receivables decreased $45 million, due to lower
revenues.
Net property and equipment increased $8 million due to increased
operating leases of 5995M systems.
Accrued liabilities decreased $33 million due to decreased
payroll-related accruals and accrued restructuring costs.
Charges against accrued restructuring costs resulted in a
decrease in the balance from $55 million at December 29, 1995 to
$46 million at March 29, 1996.
At March 29, 1996 and December 29, 1995, $80,000,000 was
outstanding under the loan agreement with Fujitsu. This amount
was reclassified from long-term debt to current debt in the first
quarter of 1996, as the amount outstanding is payable in January
1997.
LIQUIDITY
The nature of the computer industry, combined with the current
economic environment, make it very difficult for the Company to
predict future liquidity requirements with certainty. However,
the Company believes that existing cash and short-term
investments will be adequate to finance continuing operations,
investments in property and equipment, inventories and spare
parts, expenditures for the development of new products, and the
acquisition of Trecom (see the Notes to the Consolidated
Financial Statements) at least through 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Defaults upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
Item 5. Other information:
Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
3(a) Restated By-Laws.
10(a) Summary of Terms of Resignation
Agreement with Named Executive Officer
dated March 14, 1996.
10(b) Amdahl Corporation, 1996 Bonus Program
for Officers, Vice Presidents, Seniors
and Keys.
10(c) Amdahl Corporation Long-Term Executive
Incentive Performance Plan, as amended.
10(d) Amdahl Corporation Restricted Stock
Purchase Agreement with Named Executive
Officer
10(e) Amdahl Corporation Stock Option
Agreement with Named Executive Officer
27 Financial Data Schedule.
(b) Reports on Form 8-K:
Form 8-K filed March 22, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMDAHL CORPORATION
Date: May 10, 1996 By: /s/ John C. Lewis
------------ -----------------
John C. Lewis
Chairman of the Board,
President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 1996 By: /s/ Ernest B. Thompson
------------ ----------------------
Ernest B. Thompson
Vice President and Controller
(Principal Accounting Officer)
Exhibit Index
Item Description
----- -------------
3(a) Restated By-Laws.
10(a) Summary of Terms of Resignation Agreement with
Named Executive Officer dated March 14, 1996.
10(b) Amdahl Corporation, 1996 Bonus Program for
Officers, Vice Presidents, Seniors and Keys.
10(c) Amdahl Corporation Long-Term Executive Incentive
Performance Plan, as amended.
10(d) Amdahl Corporation Restricted Stock Purchase
Agreement with Named Executive Officer
10(e) Amdahl Corporation Stock Option Agreement with
Named Executive Officer
27 Financial Data Schedule.