1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarterly period ended December 29, 1995 or
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the transition period from ______ to _______
Commission file number 0-15071
ADAPTEC, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2748530
(State of Incorporation) (I.R.S. Employer
Identification No.)
691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 945-8600
N/A
(Former name, former address and former fiscal year, if
changed since last report)
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
--- ---
The number of shares outstanding of common stock as of January 19, 1996
was 52,562,638.
This document consists of 15 pages, excluding exhibits, of which this is page 1.
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TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes To Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Results of Operations 9-10
Liquidity and Capital Resources 11-13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Month Nine Month
Period Ended Period Ended
------------ ------------
Dec. 29, Dec. 30, Dec. 29, Dec. 30,
(in thousands, except per share data) 1995 1994 1995 1994
-------- -------- -------- --------
Net revenues $176,187 $123,367 $463,322 $336,002
Cost of revenues 74,201 51,804 193,526 152,138
-------- -------- -------- --------
Gross profit 101,986 71,563 269,796 183,864
-------- -------- -------- --------
Operating expenses:
Research and development 23,321 14,835 60,488 43,181
Sales and marketing 22,350 15,805 58,200 43,387
General and administrative 9,241 6,024 23,976 17,161
Write-off of acquired in-process technology 11,759 -- 52,313 --
-------- -------- -------- --------
Total operating expenses 66,671 36,664 194,977 103,729
-------- -------- -------- --------
Income from operations 35,315 34,899 74,819 80,135
Interest income, net of interest expense 3,116 1,639 8,413 4,470
-------- -------- -------- --------
Income before provision for income taxes 38,431 36,538 83,232 84,605
Provision for income taxes 7,844 9,135 20,925 21,152
-------- -------- -------- --------
Net income $ 30,587 $ 27,403 $ 62,307 $ 63,453
======== ======== ======== ========
Net income per share $ .56 $ .52 $ 1.15 $ 1.19
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 54,792 52,958 54,397 53,364
======== ======== ======== ========
See accompanying notes.
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ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, March 31,
(in thousands) 1995* 1995*
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $100,827 $ 66,835
Marketable securities 192,557 179,911
Accounts receivable, net 84,796 56,495
Inventories 43,252 31,712
Prepaid expenses and other 21,170 15,519
-------- --------
Total current assets 442,602 350,472
-------- --------
Property and equipment, net 76,660 67,863
-------- --------
Other assets 87,351 17,373
-------- --------
$606,613 $435,708
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,400 $ 3,400
Note Payable 46,200 --
Accounts payable 24,958 22,008
Accrued liabilities 74,054 31,006
-------- --------
Total current liabilities 148,612 56,414
-------- --------
Long-term debt, net of current portion 5,100 7,650
-------- --------
Shareholders' equity:
Common stock 164,956 140,191
Retained earnings 287,945 231,453
-------- --------
Total shareholders' equity 452,901 371,644
-------- --------
$606,613 $435,708
======== ========
See accompanying notes.
* Amounts at December 29, 1995 are unaudited. Amounts at March 31, 1995 are
derived from audited annual financial statements.
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ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine-Month Period Ended
-------------------------------------
December 29, December 30,
(in thousands) 1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 62,307 $ 63,453
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of acquired in-process technology 52,313 --
Depreciation and amortization 12,591 9,671
Deferred taxes (12,627) --
Changes in assets and liabilities:
Accounts receivable (25,786) (1,072)
Inventories (8,740) 10,258
Prepaid expenses (4,872) 2,498
Other assets (17,255) (4,910)
Accounts payable 817 (7,482)
Accrued liabilities 39,306 16,429
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 98,054 88,845
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Trillium Research, Inc., Future Domain
Corporation and Power I/O, Inc., net of cash acquired (31,177) --
Purchase of property and equipment (19,407) (22,760)
Investment in marketable securities, net (12,646) (4,308)
--------- --------
NET CASH USED FOR INVESTING ACTIVITIES (63,230) (27,068)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 9,483 6,229
Repurchase of common stock (7,765) (36,548)
Principal payments on long-term debt (2,550) (2,550)
--------- --------
NET CASH USED FOR FINANCING ACTIVITIES (832) (32,869)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 33,992 28,908
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 66,835 35,387
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 100,827 $ 64,295
========= ========
See accompanying notes
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ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 29, 1995
(unaudited)
1. Basis of Presentation
In the opinion of management, the unaudited condensed consolidated
interim financial statements included herein have been prepared on the
same basis as the March 31, 1995 audited consolidated financial
statements and include all adjustments, consisting of only normal
recurring adjustments, necessary to fairly state the information set
forth herein. Certain prior year amounts have been reclassified to
conform to the current year presentation. The statements have been
prepared in accordance with the regulations of the Securities and
Exchange Commission, but omit certain information and footnote
disclosures necessary to present the statements in accordance with
generally accepted accounting principles. For further information,
refer to the consolidated financial statements and footnotes thereto
included in Adaptec's (the Company) Annual Report on Form 10-K for the
year ended March 31, 1995. The results of operations for the three- and
nine-month periods ended December 29, 1995 are not necessarily
indicative of the results to be expected for the entire year.
2. Supplemental Disclosures of Cash Flows
Cash paid for interest and income taxes is as follows (in thousands):
Nine-Month Period Ended
------------------------------------
December 29, December 30,
1995 1994
------------ ------------
Interest $ 604 $ 877
Income taxes $ 14,751 $ 18,643
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory are as follows (in thousands):
December 29, March 31,
1995 1995
------------ ---------
Purchased parts and sub-assemblies $ 20,469 $ 12,230
Work in process 11,104 5,839
Finished goods 11,679 13,643
--------- ----------
$ 43,252 $ 31,712
========= ==========
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4. Net Income Per Share
Net income per share for the three- and nine-month periods ended
December 29, 1995 and December 30, 1994, is computed under the treasury
stock method using the weighted average common and common equivalent
shares from dilutive stock options outstanding during the respective
periods.
5. Acquisitions
On November 3, 1995, the Company acquired all of the outstanding
capital stock of Power I/O, Inc. (Power I/O) for $6.7 million in cash.
Power I/O, a developmental stage company, develops high-speed
input/output and networking technologies. The acquisition was recorded
using the purchase method of accounting and, accordingly, the results
of operations and cash flows of the acquisition have been included only
from the date of acquisition.
On July 5, 1995, the Company acquired all of the outstanding capital
stock of Trillium Research, Incorporated (Trillium), a Macintosh
developer of RAID software for $3 million in cash. The amount paid to
Trillium shareholders at the date of acquisition totaled $1.5 million
with the remaining amount being paid to the shareholders over a
two-year period ratably at six month intervals. On July 13, 1995, the
Company acquired all of the outstanding capital stock of Future Domain
Corporation (Future Domain) for $25 million in cash. Future Domain
designs, manufactures and markets desktop I/O products. The amount paid
to Future Domain shareholders totaled $23.8 million with the remaining
amount, exclusive of contingent and unknown liabilities which may have
existed at the date of acquisition, to be paid in July 1996. On August
23, 1995, the Company acquired all of the outstanding capital stock of
Incat Systems Software USA, Incorporated (Incat) for 385,078 shares of
the Company's common stock and for future financial consideration,
contingent upon certain performance criteria. Incat develops and
markets application and I/O software for recordable CD peripherals.
These acquisitions have been recorded using the purchase method of
accounting and, accordingly, the results of operations and cash flows
of such acquisitions have been included only from the date of
acquisition. Excluding the one-time write-off of in-process technology
of $52.3 million; the aggregate results of operations for the acquired
companies from the dates of the respective acquisitions through
December 29, 1995 were not material to the Company's results of
operations for the three- and nine-month periods ended December 29,
1995. Unaudited proforma revenues, net income and net income per share
including the acquired companies mentioned above, were not materially
different from the amounts reported in the accompanying condensed
consolidated statements of operations. The aggregate purchase price of
the acquisitions is shown below (in thousands):
Cash paid for Trillium $ 1,500
Cash paid for Future Domain 23,750
Fair market value of stock issued to Incat 17,232
Cash paid for Power I/O 6,696
Amounts payable to Trillium and Future
Domain shareholders 2,750
Other acquisition costs 941
---------
$ 52,869
=========
7
8
The allocation of the Company's aggregate purchase price to the
tangible and identifiable intangible assets acquired and liabilities
assumed is based on preliminary independent appraisals from information
currently available. The aggregate preliminary purchase price
allocation is summarized as follows (in thousands):
Tangible assets $ 8,108
In-process technology 52,313
Goodwill 8,200
---------
Assets acquired 68,621
---------
Accounts payable and accrued liabilities 3,125
Deferred tax liability 12,627
---------
Liabilities assumed 15,752
---------
Net assets acquired $ 52,869
=========
6. Income Taxes
The Company's effective tax rate for the three and nine month periods
ended December 29, 1995 differed from the federal statutory rate
primarily due to income earned in Singapore where the Company is
subject to significantly lower effective tax rates.
7. Commitments
On October 23, 1995, the Company signed an agreement with Taiwan
Semiconductor Manufacturing Co., Ltd. (TSMC) that ensures availability
of a portion of the Company's wafer capacity for both current and
future technologies. The agreement is an addition to an existing
deposit and supply agreement, and runs through 2001, providing the
Company with a guarantee of increased capacity for wafer fabrication in
return for advance payments. As of December 29, 1995, the Company has
provided TSMC a $20 million advance payment. In addition, the Company
has signed a $46 million promissory note payable to TSMC which becomes
due June 30, 1996. The majority of these amounts are included in other
long term assets. In return for advance payments, the Company will
receive a discount on wafer purchases that exceed certain prescribed
minimum quantities.
8. Subsequent Events
Effective January 10, 1996, the Company signed an agreement with AT&T
Corporation, acting through its Microelectronics business unit, that
will ensure the availability of a portion of the Company's wafer
capacity for both current and future technologies. The contract, which
runs through 2001, provides the Company with a guaranteed supply of
wafers at a specified level in return for a proposed investment in
fabrication equipment of up to $25 million for AT&T Microelectronics'
wafer fab.
On February 6, 1996, the Company signed a letter of intent to purchase
certain assets of Western Digital's Connectivity Solutions Group. The
agreement, when concluded will require the Company to make cash
payments of approximately $45 million.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the items in the condensed consolidated
statements of income as a percentage of net revenues:
Three Month Nine Month
Period Ended Period Ended
------------------------- -------------------------
Dec. 29, Dec. 30, Dec. 29, Dec. 30,
1995 1994 1995 1994
-------- -------- -------- --------
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 42.1 42.0 41.8 45.3
----- ----- ----- -----
Gross profit 57.9 58.0 58.2 54.7
----- ----- ----- -----
Operating expenses:
Research and development 13.2 12.0 13.1 12.9
Sales and marketing 12.7 12.8 12.6 12.9
General and administrative 5.3 4.9 5.1 5.1
Write-off of acquired in-process technology 6.7 -- 11.3 --
----- ----- ----- -----
37.9 29.7 42.1 30.9
----- ----- ----- -----
Income from operations 20.0 28.3 16.1 23.8
Interest income, net 1.8 1.3 1.9 1.4
----- ----- ----- -----
Income before provision for
income taxes 21.8 29.6 18.0 25.2
Provision for income taxes 4.4 7.4 4.6 6.3
----- ----- ----- -----
Net income 17.4% 22.2% 13.4% 18.9%
===== ===== ===== =====
Net Revenues
Net revenues increased 43% to $176 million in the third quarter of fiscal 1996
and 38% to $463 million in the first nine months of fiscal 1996, from $123
million and $336 million in the corresponding periods of fiscal 1995. The
Company experienced growth in each of its geographic markets worldwide. This
growth was primarily attributable to increased shipments of the Company's host
adapters compared to the same periods a year ago. This increase in shipments was
primarily due to the continued growth of the high-performance desktop
microcomputer market and servers for networking applications. Additionally
contributing to the increase in net revenues were increased shipments of the
Company's integrated circuits (ICs) for storage applications compared to the
corresponding periods of fiscal 1995.
9
10
Gross Margin
Gross margin for the third quarter and the first nine months of fiscal 1996 was
58% compared to 58% for the three months ended December 30, 1994 and 55% for the
first nine months of fiscal 1995. Gross margin for the nine-month period ended
December 29, 1995 was favorably affected by continued growth of host adapters in
the high-performance microcomputer markets, increases in manufacturing
efficiencies and component cost reductions.
Operating Expenses
Research and development expenses as a percentage of net revenues were 13%
during the third quarter and first nine months of fiscal 1996 compared to 12%
and 13% in the corresponding periods of fiscal 1995. Actual spending for
research and development increased from the corresponding periods of fiscal 1995
by 57% to $23 million in the third quarter and 40% to $60 million in the first
nine months of fiscal 1996. This increased spending was a result of the
Company's continued investment in its core SCSI business together with its
ongoing commitment to the development of new technologies. The Company
anticipates that research and development expenses will continue to increase in
absolute dollar amounts over the remainder of fiscal 1996 as a result of its
investment in current and various future technologies.
Sales and marketing expenses as a percentage of net revenues remained consistent
at 13% for both the third quarter and first nine months of each fiscal year.
Actual sales and marketing expenses increased from the corresponding periods of
fiscal 1995 by 41% to $22 million in the third quarter and 34% to $58 million in
the first nine months of fiscal 1996. This spending increase was mainly due to
increased staffing levels and increased advertising and promotional activities
aimed at driving increased demand for the Company's products. The Company
anticipates that sales and marketing expenses will increase in absolute dollar
amounts for the remainder of fiscal 1996 primarily due to advertising and
promotional programs aimed at introducing new technologies and generating demand
for the Company's products.
General and administrative expenses as a percentage of net revenues remained
consistent at 5% in the third quarter and first nine months of fiscal 1996 from
the comparable fiscal 1995 periods. Actual spending increased from a year ago
primarily due to costs associated with increased staffing levels to support the
Company's growth.
Interest and Income Taxes
Interest income, net of interest expense, increased 90% to $3.1 million in the
third quarter and 88% to $8.4 million in the first nine months of fiscal 1996
compared with the respective periods in fiscal 1995. This was primarily a result
of increased average interest bearing balances compared to the same periods a
year ago and continued principal paydowns on debt.
The Company's effective tax rate for the three and nine month periods ended
December 29, 1995 differed from the federal statutory rate primarily due to
income earned in Singapore where the Company is subject to significantly lower
effective tax rates.
Excluding the one-time write-off of in-process technology totaling $52 million,
the Company's results of operations for the three- and nine-month periods ended
December 29, 1995 were not materially affected by the acquisitions of Trillium,
Future Domain, Incat, and Power I/O. Management currently believes the Company's
results of operations for the remainder of the fiscal year will not be
materially affected by these companies acquired during the second and third
quarters of the current fiscal year.
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Liquidity and Capital Resources
Operating Activities
Net cash generated by operations for the first nine months of fiscal 1996 was
$98 million compared with $89 million for the first nine months of fiscal 1995.
During the first nine months of fiscal 1996, the majority of funds generated
from operations resulted from $62 million of net income adjusted by non-cash
items including a non-recurring write-off of acquired in-process technology (net
of deferred taxes) of $40 million, and depreciation and amortization of $13
million. Additionally contributing to favorable operating cash flows was an
increase in accrued liabilities totaling $39 million, resulting from increased
staffing, the timing of federal income tax payments, and increased operations.
Primarily offsetting these items was an increase in accounts receivable of $26
million primarily resulting from the increased shipments during the quarter, an
increase in inventories of $9 million to meet continued increasing shipments,
and increases in prepaid expenses and other assets totaling $22 million, mainly
as a result of recording a $20 million advance payment to TSMC to secure
additional future capacity for wafer fabrication.
During the corresponding period of fiscal 1995, the majority of funds generated
from operations resulted from $63 million of net income adjusted by non-cash
items including depreciation and amortization of $10 million. Also contributing
to positive cash flows was a decrease in inventories of $10 million and an
increase in accrued liabilities totaling $16 million. Offsetting this was an
increase in other assets of $5 million mainly resulting from a payment in
connection with the Company's supply agreement to support its silicon wafer
requirements and a decrease in accounts payable of $7 million primarily due to
the timing of vendor payments for inventories and capital equipment purchases.
Investing Activities
During the first nine months of fiscal 1996, the Company continued to invest in
equipment for product development, IC testing and board level production.
Additionally, the Company has invested in various leasehold and building
improvements to continually support increased operations. During the second
quarter, the Company added a sixth surface mount technology production line to
its manufacturing facility located in Singapore. Purchases of property and
equipment in the same period a year ago included $8 million relating to the
purchase of land and buildings to support additional staffing requirements.
In the first nine months of fiscal 1996, the Company also continued to invest
proceeds from operating activities in marketable securities consisting mainly of
various U.S. government and municipal securities. During the first nine months
of fiscal 1996, the Company used $31 million, net of cash acquired for the
acquisitions of Trillium, Future Domain, and Power I/O.
The Company anticipates capital expenditures relating to property and equipment
of approximately $5 million for the remainder of fiscal 1996. The funds for
these expenditures, the expenditures relating to the transactions disclosed in
Note 8 of the Notes to Condensed Consolidated Financial Statements, and for
capital expenditures in fiscal 1997 are expected to be generated from operations
as well as working capital on hand. The Company may also utilize these funds for
increased capacity for wafer fabrication, technology investments, or
acquisitions of complementary businesses, products or technologies. The Company
believes existing working capital, together with expected cash flows from
operations and available sources of bank, equity, debt and equipment financing,
will be sufficient to support the Company's operations at least through fiscal
1997.
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Financing Activities
During the first nine months of fiscal 1996 and 1995, the Company received
proceeds from common stock issued under employee stock option and employee stock
purchase plans totaling $9 million and $6 million, respectively. Repurchases of
common stock by the Company during the same periods totaled $8 million and $37
million, respectively.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), which
requires a change in the method used to account for certain long-lived and
identifiable intangible assets. SFAS 121 will be effective for the Company's
fiscal year beginning April 1, 1996. The Company does not believe that adoption
of the standard will have a material impact on its financial position or results
of operations.
Also in October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This standard will be effective for the Company beginning in
fiscal 1997 and requires measurement of awards made beginning in fiscal 1996. As
allowed by the new standard, the Company intends to account for stock-based
compensation under existing rules, and as a result, adoption of the new standard
will not impact reported earnings or earnings per share.
Certain Factors Bearing on Future Results
The statements in the third paragraph under the caption "Investing Activities"
are forward-looking statements. In addition, the Company may from time to time
make oral forward-looking statements. The following are important factors that
could cause actual results to differ materially from those projected in any such
forward-looking statements.
Reliance on the High-Performance Microcomputer Market. The Company's products
are used primarily in high performance computer systems designed to support I/O
intensive applications and operating systems. Historically, the Company's growth
has been supported by increasing consumer demand for systems which support
desktop publishing, multimedia, video, CAD/CAM, multitasking and networking
applications. Should the growth of demand for such systems slow, the Company's
revenues and income may be adversely affected by a decline in demand for the
Company's products and increased pricing pressures from both competitors and
customers.
Uncertainty of Timing and Amount of Capital Expenditures. Predicting the timing
and amount of capital expenditures is difficult for a number of reasons,
including (i) the fact that opportunities to acquire other businesses, products
and technologies of interest to the Company may arise on short notice and
require substantial amounts of capital and (ii) that in the increasingly
competitive market for wafer supplies, wafer manufacturers have been frequently
requiring substantial capital commitments by customers in order to obtain
guaranteed wafer capacity. Opportunities to obtain such capacity can arise on
relatively short notice and require significant commitments on the part of the
Company.
Dependence on Suppliers. The majority of the Company's integrated circuits are
manufactured by a limited number of semiconductor manufacturers. If one or more
of these manufacturers were to experience significant difficulty or disruptions
in the shipment of integrated circuits, delays in developing alternative sources
could adversely affect the Company's business. In addition, the Company's
subsystems and host adapter products make extensive use of standard logic,
memory and microprocessor circuits. An extended supply shortage or a major
increase in the market price of these components could have an adverse effect on
the Company's business.
12
13
Fluctuation in Demand. The Company's customers encounter uncertain and changing
demand for their products. They typically order products from the Company based
on their forecasts. If demand falls below customers' forecasts, or if customers
do not control their inventories effectively, they may cancel or reschedule
shipments previously ordered from the Company. The Company has in the past
experienced, and may at any time and with minimal notice in the future
experience, cancellations and postponements of orders.
Management of Growth and Acquisitions. The Company recently has experienced
growth in the number of its employees and the scope of its operations and has
completed several acquisitions of other companies resulting in increased
responsibilities for its management. In order to manage potential future growth
and acquisitions, the Company will need to hire, train, motivate and manage a
growing number of employees. A failure to effectively manage growth or
acquisitions could materially adversely affect the Company's business and
operating results.
Reliance on Industry Standards. The Company's products are designed to comport
with certain industry standards such as SCSI, UltraSCSI, PCI and ATM. If
consumer acceptance of these standards was to decline or if new standards were
to emerge, the Company's business and operating results could be materially
adversely affected.
Technological Change; Competition; Dependence on New Products. The markets for
the Company's products are characterized by rapidly changing technology,
frequent new product introductions and declining average selling prices over
product life cycles. The Company's future success is highly dependent upon the
timely completion and introduction of new products at competitive
price/performance levels. In addition, the Company must respond to current
competitors, who may choose to increase their presence in the Company's markets,
and to new competitors, who may choose to enter those markets. If the Company is
unable to make timely introduction of new products or respond to competitive
threats, its business and operating results could be materially adversely
affected.
Future Operating Results Subject to Fluctuation. The Company's operating results
may fluctuate in the future as a result of a number of other factors, including
variations in the Company's sales channels or the mix of products it sells,
changes in pricing policies by the Company's suppliers, the timing of
acquisitions of other businesses, products and technologies and any associated
charges to earnings and the market acceptance of new and enhanced versions of
the Company's products. Further, the Company's expense levels are based in part
on expectations of future revenues, and the Company has been significantly
increasing and intends to continue to significantly increase operating
expenditures and inventory as it expands its operations. The rate of new orders
may vary significantly from month to month; consequently, if anticipated sales
and shipments in any quarter do not occur when expected, operating expenses and
inventory levels could be disproportionately high, and the Company's operating
results for that quarter, and potentially for future quarters, would be
adversely affected. Fluctuations in operating results may cause volatility in
the price of the Company's Common Stock.
Volatility of Stock Price. In recent months, the stock market in general, and
the market for share of technology companies in particular, have experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of the affected companies. In addition, factors such as
technological innovations or new product introductions by the Company, its
competitors or its customers may have a significant impact on the market price
of the Company's Common Stock. Furthermore, quarter- to- quarter fluctuations in
the Company's results of operations caused by changes in customer demand,
changes in the microcomputer and peripherals markets, or other factors, may have
a significant impact on the market price of the Company's Common Stock. These
conditions, as well as factors which generally affect the market for stocks of
high technology companies, could cause the price of the Company's stock to
fluctuate substantially over short periods.
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1* Option Agreement I Between Adaptec Manufacturing
(S)Pte. Ltd. and Taiwan Semiconductor Manufacturing
Co., Ltd. dated October 23, 1995
10.2* Option Agreement II Between Adaptec Manufacturing
(S)Pte. Ltd. and Taiwan Semiconductor Manufacturing
Co., Ltd. dated October 23, 1995
27 Financial Data Schedule
*The Company has requested confidential treatment for portions of
these agreements.
No Reports on Form 8-K were filed during the quarter.
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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.
ADAPTEC, INC.
-----------------------------------------
Registrant
\s\PAUL G. HANSEN
-----------------------------------------
Paul G. Hansen, Vice-President, Finance
and Chief Financial Officer
(Principal Financial Officer),
Assistant Secretary
Date: February 8, 1996
\s\ANDREW J. BROWN
-----------------------------------------
Andrew J. Brown, Corporate Controller
(Principal Accounting Officer)
Date: February 8, 1996
15