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 September 27, 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 November
4, 1996: 121,330,655.
1
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. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED.
The results of operations for the nine months ended September 27, 1996, are not
necessarily indicative of results for the entire year ending December 27, 1996.
2
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, 1996 and DECEMBER 29, 1995
(Dollars in thousands)
1996 1995
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 167,962 $ 192,980
Restricted cash 56,770 -
Short-term investments 224,190 444,006
Receivables, net of allowances 408,060 319,777
Inventories -
Purchased materials 20,255 18,879
Systems in process 38,422 168,322
Finished goods 49,534 87,612
Prepaid expenses and deferred tax benefit 85,648 69,115
----------- -----------
Total current assets 1,050,841 1,300,691
----------- -----------
Long-term receivables and other assets 33,178 28,083
----------- -----------
Property and equipment, at cost:
Leased systems 44,344 37,937
System spares 363,532 379,797
Production and data processing equipment 325,256 327,051
Office furniture, equipment, and improvements 142,133 173,691
Land and buildings 89,939 111,715
----------- -----------
965,204 1,030,191
Less - Accumulated depreciation and amortization (715,453) (757,523)
----------- -----------
Property and equipment, net 249,751 272,668
----------- -----------
Excess of cost over net assets acquired, net of amortization 198,520 106,756
----------- -----------
$ 1,532,290 $ 1,708,198
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Notes payable and short-term debt $ 27,506 $ 22,026
Short-term debt - stockholder (Fujitsu Limited) 80,000 -
Accounts payable 135,450 111,871
Accounts payable - stockholder (Fujitsu Limited) 27,361 29,152
Accrued liabilities 512,904 431,600
----------- -----------
Total current liabilities 783,221 594,649
----------- -----------
Long-term debt - stockholder (Fujitsu Limited) - 80,000
----------- -----------
Long-term liabilities 42,314 51,152
----------- -----------
Deferred income taxes 60,065 48,573
----------- -----------
Stockholders' equity:
Common stock, $.05 par value -
Authorized - 200,000,000 shares
Outstanding - 120,995,000 shares in 1996
and 119,259,000 shares in 1995 6,050 5,963
Additional paid-in capital 551,230 542,269
Retained earnings 78,203 370,995
Cumulative translation adjustments 9,058 10,932
Unrealized holding gains on securities 2,149 3,665
----------- -----------
Total stockholders' equity 646,690 933,824
----------- -----------
$ 1,532,290 $ 1,708,198
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per common share amounts)
FOR THE THREE MONTHS ENDED
SEPT 27, 1996 SEPT 29, 1995
--------------- ---------------
REVENUES
Equipment sales $ 147,936 $ 191,848
Service, software and other 291,883 158,168
------------- -------------
439,819 350,016
------------- -------------
COST OF REVENUES
Equipment sales 99,321 113,292
Service, software and other 217,049 94,255
------------- -------------
316,370 207,547
------------- -------------
Gross margin 123,449 142,469
------------- -------------
OPERATING EXPENSES
Engineering and development 29,091 35,756
Marketing, general and administrative 102,401 91,432
------------- -------------
131,492 127,188
------------- -------------
Income (loss) from operations (8,043) 15,281
------------- -------------
INTEREST
Income 6,655 13,010
Expense (2,813) (2,584)
------------- -------------
3,842 10,426
------------- -------------
Income (loss) before provision for
income taxes (4,201) 25,707
PROVISION FOR INCOME TAXES 632 5,650
------------- -------------
NET INCOME (LOSS) $ (4,833) $ 20,057
============= =============
PER COMMON SHARE AMOUNTS:
Net income (loss) $ (.04) $ .17
============= =============
Average outstanding shares 120,881 120,603
============= =============
The accompanying notes are an integral part of these financial statements.
4
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per common share amounts)
FOR THE NINE MONTHS ENDED
SEPT 27, 1996 SEPT 29, 1995
--------------- ---------------
REVENUES
Equipment sales $ 348,795 $ 624,468
Service, software and other 790,906 475,740
------------- -------------
1,139,701 1,100,208
------------- -------------
COST OF REVENUES
Equipment sales 437,255 396,764
Service, software and other 583,309 267,389
------------- -------------
1,020,564 664,153
------------- -------------
Gross margin 119,137 436,055
------------- -------------
OPERATING EXPENSES
Engineering and development 91,852 114,403
Marketing, general and administrative 302,375 266,073
Purchased in-process engineering and development 20,700 -
------------- -------------
414,927 380,476
------------- -------------
Income (loss) from operations (295,790) 55,579
------------- -------------
INTEREST
Income 22,554 38,048
Expense (7,555) (7,884)
------------- -------------
14,999 30,164
------------- -------------
Income (Loss) before provision for
income taxes (280,791) 85,743
PROVISION FOR INCOME TAXES 12,001 18,850
------------- -------------
NET INCOME (LOSS) $ (292,792) $ 66,893
============= =============
PER COMMON SHARE AMOUNTS:
Net income (loss) $ (2.44) $ .56
============= =============
Average outstanding shares 120,223 120,267
============= =============
The accompanying notes are an integral part of these financial statements.
5
AMDAHL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
FOR THE NINE MONTHS ENDED
SEPTEMBER 27, OCTOBER 1,
1996 1995
------------ -------------
Cash and cash equivalents at beginning of period $192,980 $358,006
------------ -------------
Cash flows from operating activities:
Net income (loss) (292,792) 66,893
Adjustments to reconcile net income (loss)
to net cash:
provided by (used for) operating activities:
Depreciation and amortization 78,230 88,191
Write-off of purchased in-process engineering & development 20,700 -
Write-down of processor inventories and lease systems
to market 130,000 -
Deferred income tax provision 11,491 6,551
Gain on dispositions of assets (59) (330)
Changes in assets and liabilities net of effects from
purchase of Trecom:
(Increase) decrease in receivables (50,760) 61,001
(Increase) decrease in inventories 49,984 (17,265)
Increase in prepaid expenses and
deferred tax benefit (10,347) (13,035)
(Increase) decrease in long-term receivables
and other assets (4,095) 6,242
Increase (decrease) in accounts payable 19,265 (22,755)
Increase (decrease) in accrued liabilities 10,794 (96,142)
Decrease in long-term liabilities (2,588) (3,689)
------------ -------------
Net cash provided by (used for) operating activities (40,177) 75,662
------------ -------------
Cash flows from investing activities:
Purchases of available-for-sale short-term investments (109,743) (292,223)
Purchases of held-to-maturity short-term investments - (277,065)
Proceeds from sales and maturities of
available-for-sale short-term investments 266,066 15,482
Proceeds from maturities of held-to-maturity
short-term investments - 329,437
Payment for purchase of Trecom, net of cash acquired
and acquisition price payable (68,204) -
Capital expenditures:
Leased systems (34,016) (11,668)
System spares (11,260) (12,787)
Other property and equipment (35,913) (50,830)
Proceeds from property and equipment sales 14,848 44,154
------------ -------------
Net cash provided by (used for) investing activities 21,778 (255,500)
------------ -------------
Cash flows from financing activities:
Increase (decrease) in notes payable and short-term debt (13,878) 11,642
Repayments of long-term borrowings (143) -
Sale of common stock and exercise of options 9,048 19,793
------------ -------------
Net cash provided by (used for) financing activities (4,973) 31,435
------------ -------------
Effect of exchange rate changes on cash (1,646) 3,148
------------ -------------
Net decrease in cash and cash equivalents (25,018) (145,255)
------------ -------------
Cash and cash equivalents at end of period $167,962 $212,751
============ =============
The accompanying notes are an integral part of these financial statements.
6
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 third quarter of 1996 the Company recognized equipment sales to
Fujitsu Limited (Fujitsu) under distributorship and other arrangements which
contributed $6,235,000 and $3,022,000 to equipment sales and gross margin,
respectively, compared to $14,023,000 and $8,425,000 in the third quarter of
1995 ($15,551,000 and $4,320,000 for the first nine months of 1996 and
$35,144,000 and $16,650,000 for the first nine months of 1995).
In 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 open system workstations for HaL. The Company also
performs circuit board assembly for Ross Technology, Inc., a majority-owned
subsidiary of Fujitsu. Both of these agreements were near completion and
contributed no revenue and a negative $102,000 to equipment sales and gross
margin, respectively, in the third quarter of 1996 compared to $868,000 and a
negative $84,000 to equipment sales and gross margin in the third quarter of
1995 ($5,630,000 and a negative $2,211,000 for the first nine months of 1996 and
$5,190,000 and $1,692,000 in the first nine months of 1995).
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 $6,100,000 as an offset to engineering and
development expenses in the third quarter of 1996 ($18,500,000 in the first nine
months of 1996). No such reimbursements occurred in 1995.
Amounts due from Fujitsu and their subsidiaries included in receivables were
$22,483,000 and $35,795,000 as of September 27, 1996 and December 29, 1995,
respectively.
At September 27, 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
$1,233,000 and $1,460,000 in the third quarters of 1996 and 1995, respectively
($4,155,000 and $4,459,000 in the first nine months of 1996 and 1995,
respectively), of which $917,000 and $958,000
7
was payable and included in accrued liabilities at September 27, 1996 and
December 29, 1995, respectively.
SUPPLEMENTARY CASH FLOW DISCLOSURE
Income taxes of $1,602,000 (net of taxes refunded of $16,951,000) were paid by
the Company in the first nine months of 1996, and income taxes of $26,158,000
were paid by the Company in the first nine months of 1995. Interest paid on all
borrowings was $7,648,000 and $7,866,000 for the first nine months of 1996 and
1995, respectively.
NONCASH INVESTING ACTIVITIES
Transfers of Amdahl-manufactured systems from net property, plant and equipment
to inventories were $10,798,000 in the first nine months of 1996 and $12,071,000
in the first nine months of 1995.
8
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
THIRD QUARTER AND FIRST NINE MONTHS OF 1996 COMPARED TO THIRD QUARTER AND FIRST
NINE MONTHS OF 1995:
Total revenues increased 26% to $439,819,000 in the third quarter of 1996 from
$350,016,000 in the third quarter of 1995 and increased $39,493,000 or 4% in the
first nine months of 1996 compared to the first nine months of 1995. Equipment
sales revenues decreased 23% in the third quarter of 1996 from the third quarter
of 1995 and decreased 44% in the first nine months of 1996 compared to the first
nine months of 1995. Equipment sales were 34% and 55% of total revenues in the
third quarters of 1996 and 1995, respectively. The third quarter 1996 equipment
sales included the first revenues from limited shipments of the Company's new
Millennium CMOS mainframe systems. Revenues from equipment sales of 5995M
mainframe systems decreased 53% in the third quarter of 1996 from the third
quarter of 1995 despite increased volume, due to significant declines in pricing
year-to-year caused by severe price competition in the marketplace and the
transition from older ECL mainframe technology to CMOS technology. Revenues from
storage product equipment sales increased 61% in the third quarter of 1996 when
compared to the same period of 1995 as the Company began volume shipments of a
new generation of storage products. Equipment sales of high performance servers
increased 37% in the third quarter of 1996 compared to the same quarter a year
ago.
Service, software and other revenues were 66% and 45% of total revenues in the
third quarters of 1996 and 1995, respectively. Service, software and other
revenues increased 85% in the third quarter of 1996 from the third quarter of
1995 and 66% in the first nine months of 1996 from the first nine months of
1995, primarily reflecting increased consulting services revenues from DMR Group
Inc. (DMR), acquired in the fourth quarter of 1995, and Trecom Business Systems,
Inc. (Trecom), acquired in the second quarter of 1996.
Total gross margin was 28% of revenues in the third quarter of 1996, compared to
41% in the third quarter of 1995 and 10% of revenues in the first nine months of
1996, compared to 40% in the first nine months of 1995. The gross margin
percentage on equipment sales decreased to 33% in the third quarter of 1996 from
41% in the third quarter of 1995 and decreased to a negative 25% for the first
nine months of 1996 from 36% for the first nine
9
months of 1995. The 1996 year-to-date total gross margin and gross margin from
equipment sales include a charge of $130 million taken in second quarter to
reduce end-of-life bipolar 5995M assets to market value. Without this charge,
the total gross margin and gross margin from equipment sales for the first nine
months of 1996 would have been 22% and 12%, respectively.
The gross margin on service, software and other revenues decreased to 26% in the
third quarter of 1996 from 40% in the third quarter of 1995 and decreased to 26%
in the first nine months of 1996 from 44% in the first nine months of 1995. The
primary cause of the decreases is that consulting and professional services
contributed a greater proportion of revenues during 1996, and these revenues
generate lower gross margins than the Company's traditional maintenance revenues
which predominated in 1995. In addition, the gross margin from the Company's
traditional maintenance business has been negatively effected by competitive
pricing pressures and a gradual erosion of the installed base of older
generations of mainframe systems.
Third quarter 1996 engineering and development expenses decreased $7 million or
19% when compared to the third 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. Third quarter 1996 marketing,
general and administrative expenses increased $11 million or 12% when compared
to the third quarter of 1995, due to increased marketing efforts directed
towards the Company's non-traditional product lines and the additional expenses
associated with DMR and Trecom.
Net interest income decreased $7 million in the third quarter of 1996 from the
third quarter of 1995 and decreased $15 million in the first nine months of 1996
from the first nine months of 1995 due primarily to lower cash levels after the
acquisition of DMR and Trecom.
10
The effective income tax rate was negative 15% in the third quarter of 1996,
compared to 22% in the third quarter of 1995. The third quarter 1996 tax
provision included a provision for taxes currently payable in state and foreign
jurisdictions. No tax benefit was recorded for the loss incurred in the current
period. For financial reporting purposes, the valuation allowance at September
27, 1996 reduced net deferred tax assets to an amount realizable based upon
taxes paid for prior years without relying on future income. The Company
anticipates that the provision for income taxes in the fourth quarter of 1996
will consist only of minimum state and foreign taxes.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
While the Company's new CMOS based Millennium mainframe will achieve general
availability during the fourth quarter of 1996, revenues and margins associated
with the sale of these new systems will be subject to a number of uncertainties
over the near term. Among them are the volume of units to be shipped as
production schedules are ramped up, the size and configuration of delivered
systems, and system pricing, as the Company expects sales of these systems to be
subject to the same competitive pressures which have affected previous
generations of the Company's mainframe computers. Moreover, in light of the
transition from older technology systems to the new CMOS based mainframes, the
Company expects traditional hardware maintenance revenues to decline from
historical levels.
The above uncertainties, as well as competitive conditions in the marketplace,
require the Company to continually review and consider adjustments to its cost
structures. At the present time the Company is unable to quantify the size of
any cost reduction activities it might undertake, their impact on future
operating results, and whether any such actions would require a material
one-time charge to earnings.
FINANCIAL CONDITION
SEPTEMBER 27, 1996 COMPARED TO DECEMBER 29, 1995
The Company's net cash position (cash, restricted cash and short-term
investments net of short-term and long-term debt, excluding capitalized lease
obligations) decreased by $189 million from December 29, 1995 to September 27,
1996. Cash, cash equivalents, restricted cash and short-term investments
decreased $188 million, reflecting cash used for operations and the acquisition
of Trecom. Receivables increased $88 million, largely due to the addition of
Trecom's receivables of $50 million.
Inventories decreased $167 million, reflecting shipments of end- of-life 5995M
systems and the $105 million write-down of 5995M inventories to market value in
the second quarter of 1996.
Property and equipment decreased $23 million due to the $25 million write-down
of 5995M leased systems in the second quarter of 1996.
The excess of cost over net assets acquired (goodwill), net of
11
amortization, increased $92 million due to the acquisition of
Trecom.
Accrued liabilities increased $81 million, primarily due to the present value of
the Trecom acquisition price payable, which was $63 million at September 27,
1996. Increases in other accruals were partially offset by charges against
accrued restructuring costs, which resulted in a decrease in the balance from
$55 million at December 29, 1995 to $19 million at September 27, 1996.
At September 27, 1996 and December 29, 1995, $80 million 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, repayment of outstanding debt and the
remaining liability for the acquisition of Trecom, at least through 1997.
12
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:
10 Termination agreement with named executive officer.
(b) Reports on Form 8-K:
Form 8-K/A filed July 3, 1996.
13
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: November 11, 1996 By: /s/ John C. Lewis
---------------------
John C. Lewis
Chairman of the Board,
President and
Chief Executive Officer
Date: November 11, 1996 By: /s/ Ernest B. Thompson
-------------------------
Ernest B. Thompson
Vice President and Controller
(Principal Accounting Officer)
14
Exhibit Index
Item Description
- ---- -----------
10 Termination Agreement with Named Executive Officer
27 Financial Data Schedule