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 September 27, 1996 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 October 23, 1996
was 55,248,436.
This document consists of 18 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
Certain Factors Bearing on Future Results 12-15
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Month Six Month
Period Ended Period Ended
------------ ------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
(in thousands, except per share data) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
Net revenues $215,043 $149,110 $417,057 $287,135
Cost of revenues 92,550 62,659 178,596 119,325
- ------------------------------------------------------------------------------------------------------------
Gross profit 122,493 86,451 238,461 167,810
- ------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 30,633 18,940 58,480 37,167
Sales and marketing 24,889 18,773 48,603 35,850
General and administrative 11,047 7,593 21,257 14,735
Write-off of acquired in-process technology
and other 42,405 40,554 68,905 40,554
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 108,974 85,860 197,245 128,306
- ------------------------------------------------------------------------------------------------------------
Income from operations 13,519 591 41,216 39,504
Interest income, net of interest expense 2,266 2,659 4,933 5,297
- ------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 15,785 3,250 46,149 44,801
Provision for income taxes 14,548 2,693 26,998 13,081
- ------------------------------------------------------------------------------------------------------------
Net income $ 1,237 $ 557 $ 19,151 $ 31,720
============================================================================================================
Net income per share $ .02 $ .01 $ .34 $ .59
============================================================================================================
Weighted average common and common
equivalent shares outstanding 56,820 54,461 56,254 54,201
============================================================================================================
See accompanying notes.
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ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 27, March 31,
(in thousands) 1996 1996*
- -----------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 52,817 $ 91,211
Marketable securities 158,014 204,283
Accounts receivable, net 123,813 89,487
Inventories 65,432 55,028
Prepaid expenses and other 29,633 25,271
- -----------------------------------------------------------------------------------
Total current assets 429,709 465,280
- -----------------------------------------------------------------------------------
Property and equipment, net 128,308 92,778
- -----------------------------------------------------------------------------------
Other assets 101,564 88,428
- -----------------------------------------------------------------------------------
$659,581 $646,486
===================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,400 $ 3,400
Note payable -- 46,200
Accounts payable 29,736 23,974
Accrued liabilities 63,833 56,717
- -----------------------------------------------------------------------------------
Total current liabilities 96,969 130,291
- -----------------------------------------------------------------------------------
Long-term debt, net of current portion 2,550 4,250
- -----------------------------------------------------------------------------------
Shareholders' equity:
Common stock 211,981 182,932
Retained earnings 348,081 329,013
- -----------------------------------------------------------------------------------
Total shareholders' equity 560,062 511,945
- -----------------------------------------------------------------------------------
$659,581 $646,486
===================================================================================
See accompanying notes.
* Amounts are derived from the March 31, 1996 audited financial statements.
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ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six-Month Period Ended
----------------------
September 27, September 29,
(in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,151 $ 31,720
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of acquired in-process technology, net of taxes 65,434 32,631
Depreciation and amortization 12,492 8,135
Changes in assets and liabilities:
Accounts receivable (31,930) (24,128)
Inventories (311) (2,120)
Prepaid expenses (2,524) 1,006
Other assets (490) (271)
Accounts payable 3,308 (5,496)
Accrued liabilities 6,303 19,099
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 71,433 60,576
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certain net assets of Western Digital's Connectivity
Solutions Group, Corel, Inc. and Data Kinesis, Inc. (75,365) (24,489)
Purchase of property and equipment (43,445) (11,500)
Sales of (investment in) marketable securities, net 46,269 (38,729)
- ----------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (72,541) (74,718)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term note (46,200) --
Proceeds from issuance of common stock 10,614 7,891
Repurchase of common stock -- (7,765)
Principal payments on long-term debt (1,700) (1,700)
- ----------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (37,286) (1,574)
- ----------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (38,394) (15,716)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 91,211 66,835
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,817 $ 51,119
====================================================================================================
See accompanying notes.
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ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 27, 1996
(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, 1996 audited consolidated financial
statements and include all adjustments, consisting of only normal
recurring adjustments, necessary to fairly state the information set
forth herein. 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, 1996. The results of
operations for the three and six month periods ended September 27, 1996
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):
Six-Month Period Ended
----------------------
September 27, September 29,
1996 1995
---- ----
Interest $ 408 421
Income taxes $33,496 $14,327
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):
September 27, March 31,
1996 1996
---- ----
Raw materials $16,958 $23,415
Work in process 21,608 12,865
Finished goods 26,866 18,748
------- -------
$65,432 $55,028
======= =======
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4. Net Income Per Share
Net income per share for the three and six month periods ended
September 27, 1996 and September 29, 1995, is computed under the
treasury stock method using the weighted average number of common and
common equivalent shares from dilutive stock options outstanding during
the respective periods.
5. Acquisitions
On April 9, 1996, the Company acquired certain assets and the ongoing
business of Western Digital's Connectivity Solutions Group (CSG) for
$33 million cash. CSG supplies silicon solutions to meet the demands of
the multi-gigabyte SCSI disk drive market. On June 28, 1996, the
Company acquired certain technologies from Corel, Inc. for $12 million
cash. Included in these technologies was Corel's CD creator product for
the CD-recordable software market. Additionally, on September 16, 1996,
the Company acquired Data Kinesis, Inc. (DKI) for $32 million and $15
million in cash and stock, respectively. DKI develops software for
improving system performance in file management and RAID applications.
The Company accounted for these acquisitions using the purchase method
of accounting, and excluding the $67 million write-off of purchased
in-process technology from these companies, the aggregate impact on the
Company's results of operations from the acquisition date was not
material.
The allocation of the Company's aggregate purchase price to the
tangible and identifiable intangible assets acquired was based on
preliminary independent appraisals and is summarized as follows (in
thousands):
Tangible assets $10,135
In-process technology 67,200
Goodwill 14,370
-------
Assets acquired $91,705
=======
The tangible assets acquired were primarily comprised of inventory and
fixed assets. Acquired in-process technology was written off in the
periods in which the acquisitions were completed, and the goodwill is
being amortized over respective benefit periods ranging from three to
five years.
On August 12, 1996, the Company completed its acquisition of Cogent
Data Technologies, Inc. (Cogent). Cogent provides high-performance Fast
Ethernet products for the networking market. The Company acquired all
of the outstanding capital stock of Cogent in exchange for 1.3 million
shares of its common stock. Additionally, the Company incurred $1.7
million in professional fees related to this acquisition which have
been included in "write-off of acquired in-process technology and
other." The Company has recorded this acquisition using the pooling
method of accounting. Cogent's historical operations have not been
material to the Company's consolidated financial statements and,
therefore, have not been reflected in the Company's consolidated
financial results prior to the acquisition. Beginning at the date of
acquisition, the book value of the acquired assets and assumed
liabilities as well as the results of Cogent's operations, all of which
are not material to the Company have been combined with those of the
Company.
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6. Income Taxes
The Company recorded a tax provision of $14.5 million (92% of income
before income taxes) for the three month period ended September 27,
1996. The higher effective tax rate for the three and six month periods
ended September 27, 1996 primarily resulted from the write-off of
in-process technology for which the Company will receive no tax
benefit. Excluding the effect of the write-off of in-process
technology, the Company's effective tax rate was 25% for both the three
and six month periods ended September 27, 1996. The difference between
the Company's effective tax rate and the federal statutory rate is
primarily due to income earned in Singapore where the Company is
subject to a significantly lower effective tax rate.
7. Subsequent Events
Subsequent to September 27, 1996, the Board of Director's approved a
two-for-one split of the Company's common stock for shareholders of
record as of November 1, 1996. The stock split will increase common
stock outstanding from approximately 55 million to approximately 110
million. The effect of the stock split is not reflected in the
Company's condensed consolidated statements of operations.
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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 operations as a percentage of net revenues:
Three Month Six Month
Period Ended Period Ended
------------ ------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
---- ---- ---- ----
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 43.0 42.0 42.8 41.6
----- ----- ----- -----
Gross profit 57.0 58.0 57.2 58.4
----- ----- ----- -----
Operating expenses:
Research and development 14.3 12.7 14.0 12.9
Sales and marketing 11.6 12.6 11.7 12.5
General and administrative 5.1 5.1 5.1 5.1
Write-off of acquired in-process technology
and other 19.7 27.2 16.5 14.1
----- ----- ----- -----
50.7 57.6 47.3 44.6
----- ----- ----- -----
Income from operations 6.3 0.4 9.9 13.8
Interest income, net 1.0 1.8 1.2 1.8
----- ----- ----- -----
Income before provision for
income taxes 7.3 2.2 11.1 15.6
Provision for income taxes 6.7 1.8 6.5 4.6
----- ----- ----- -----
Net income 0.6% 0.4% 4.6% 11.0%
===== ===== ===== =====
Net Revenues
Net revenues increased 44% to $215 million in the second quarter of fiscal 1997
and 45% to $417 million in the first half of fiscal 1997, from $149 million and
$287 million in the corresponding periods of fiscal 1996. This growth was
primarily attributable to increased shipments of the Company's host adapters and
proprietary integrated circuits (ICs) for mass storage devices compared to the
same periods a year ago. This increase in shipments was due to the continued
growth in the markets for high-performance microcomputers and servers for
networking applications, continued demand for SCSI in the client/server
environment and an increase in the use of diverse peripherals in microcomputer
systems compared to the same periods a year ago.
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Gross Margin
Gross margins for the second quarter and the first half of fiscal 1997 were 57%
compared to 58% for the three months ended September 29, 1995 and first half of
fiscal 1996. The slight decrease in percentage was primarily due to the mix of
products shipped, which included a greater percentage of mass storage ICs and
Fast Ethernet products from the Cogent acquisition. During the quarter, the
Company continued to focus on reducing its component costs as well as
implementing design efficiencies. The Company's ability to maintain current
gross margins can be significantly affected by the mix of products shipped.
Additionally margins can be affected by competitive price pressures, the
timeliness of volume shipments of new products and the Company's ability to
achieve manufacturing cost reductions.
Operating Expenses
Research and development expenses as a percentage of net revenues were 14%
during the second quarter and first half of fiscal 1997 compared to 13% in the
corresponding periods of fiscal 1996. Actual spending for research and
development increased from the corresponding periods of fiscal 1996 by 62% to
$31 million in the second quarter and 57% to $58 million in the first half of
fiscal 1997. This increased spending was a result of the Company's continued
development of serial architectures such as Fibre Channel and 1394, networking
products, as well as its ongoing commitment to enhancing its core SCSI business.
Sales and marketing expenses remained relatively consistent as a percentage of
revenues in both the second quarter and first half of fiscal 1997 compared to
fiscal 1996. Actual sales and marketing expenses increased from the
corresponding periods of fiscal 1996 by 33% to $25 million in the second quarter
and 36% to $49 million in the first half of fiscal 1997. The increase in actual
spending was primarily a result of advertising and promotional programs aimed at
introducing new technologies and generating demand for the Company's products
and increased staffing levels to support the continued growth of the Company.
General and administrative expenses as a percentage of net revenues remained
consistent at 5% in the second quarter and first half of fiscal 1997 from the
comparable fiscal 1996 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, decreased 15% to $2.3 million in the
second quarter and 7% to $4.9 million in the first half of fiscal 1997 compared
with the respective periods in fiscal 1996. This was due to lower cash, cash
equivalents, and marketable securities balances in the current year primarily as
a result of the Company's various strategic acquisitions.
As discussed under Note 6 of the Notes to Condensed Consolidated Financial
Statements in this report, the Company recorded a tax provision of $14.5 million
(92% of income before income taxes) for the three month period ended September
27, 1996. The higher effective tax rate for the three and six month periods
ended September 27, 1996 primarily resulted from the write-off of in-process
technology for which the Company will receive no tax benefit. Excluding the
effect of the write-off of in-process technology, the Company's effective tax
rate was 25% for both the three and six month periods ended September 27, 1996.
The difference between the Company's effective tax rate and the federal
statutory rate is primarily due to income earned in Singapore where the Company
is subject to a significantly lower effective tax rate.
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Liquidity and Capital Resources
Operating Activities
Net cash generated by operations for the first half of fiscal 1997 was $71
million compared with $61 million for the first half of fiscal 1996. During the
first half of fiscal 1997, the majority of funds generated from operations
resulted from $19 million of net income adjusted by non-cash items including a
non-recurring write-off of acquired in-process technology of $67 million, and
depreciation and amortization of $12 million. Additionally contributing to
favorable operating cash flows was an increase in accrued liabilities and
accounts payable totaling $10 million mainly resulting from increased operations
and staffing. Primarily offsetting these items was an increase in accounts
receivable of $32 million resulting from the timing and increases of shipments
during the quarter.
Investing Activities
During the first half of fiscal 1997, the Company paid a total of $75 million
for the acquisition of CSG, DKI, and certain technologies from Corel, Inc. The
Company also continued to invest in equipment for product development, IC
testing, board level production, and made various building and leasehold
improvements to its facilities. Additionally, in connection with an agreement
with Lucent Technologies to secure capacity for wafer fabrication, the Company
purchased $17 million of fabrication equipment which is consigned to Lucent's
fab in Madrid, Spain. The Company anticipates capital expenditures relating to
property and equipment of approximately $70 million for the remainder of fiscal
1997. The Company may also make investments for increased capacity for wafer
fabrication or acquisitions of complimentary businesses, products, or
technologies. During the first half of fiscal 1997, the Company also received
$46 million from sales of marketable securities for its acquisitions in the
current fiscal year. 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 its operations at
least through fiscal 1997.
Financing Activities
In connection with 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 Company paid a short-term
note of $46 million due to TSMC. In return for this advance payment, the Company
will receive guaranteed future wafer capacity and a discount on purchases that
exceed certain prescribed minimum quantities. Additionally, in connection with
this agreement, the Company will receive access to future process technology.
During the first half of fiscal 1997, the Company received proceeds from common
stock issued under the employee stock option and employee stock purchase plans
totaling $8 million and $3 million, respectively.
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Certain Factors Bearing on Future Results
The following risk factors should be considered by anyone contemplating an
investment in the Company's Common Stock. In addition, the Company and its
representatives may from time to time make forward-looking statements, and the
following are important factors that could cause actual results to differ
materially from those projected in any such forward-looking statements.
Dependence on the High-Performance Microcomputer Market. The Company's
board-based I/O solutions 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 demand for
systems which support networking applications, multitasking, CAD/CAM, desktop
publishing, multimedia, and video. Should the growth of demand for such systems
slow, the Company's revenues and operating results could be adversely affected
by a decline in demand for the Company's products and increased pricing
pressures from both competitors and customers.
Certain Risks Associated with Computer Peripherals Market. As a supplier of
controller circuits to manufacturers of computer peripherals such as disk
drives and other storage devices, a portion of the Company's business is
dependent on the overall market for computer peripherals. This market, which
itself is dependent on the market for personal computers, has historically been
characterized by periods of rapid growth followed by periods of oversupply and
contraction. As a result, suppliers to the computer peripherals industry from
time to time experience large and sudden fluctuations in demand for their
products as their customers adjust to changing conditions in their markets. If
these fluctuations are not accurately anticipated, such suppliers, including
the Company, could produce excessive or insufficient inventories of various
components which could materially and adversely affect the Company's business
and results of operations. The computer peripherals industry is also
characterized by intense price competition which in turn creates pricing
pressures on the suppliers to that industry. If the Company is unable to
correspondingly decrease its manufacturing or component costs, such pricing
pressures could have a material adverse effect on the Company's operating
results.
Future Operating Results Subject to Fluctuation. The Company's operating results
may fluctuate in the future as a result of a number of 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, cancellations or
postponements of orders, 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. The volume
and timing of orders received during a quarter are difficult to forecast. The
Company's customers from time to time encounter uncertain and changing demand
for their products. Customers generally order based on their forecasts. If
demand falls below such forecasts or if customers do not control inventories
effectively, they may cancel or reschedule shipments previously ordered from the
Company. Additionally, the Company has historically operated with a relatively
small backlog, especially relating to orders of its board-based I/O solutions.
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 increase operating expenditures and working capital balances as
it expands its operations. As a result of the difficulty of forecasting revenues
and the Company's planned growth in spending, operating expenses could be
disproportionately high for a given quarter, and the Company's operating results
for that quarter, and potentially future quarters, would be adversely affected.
Operating results in any particular quarter which do not meet the expectations
of securities analysts could cause volatility in the price of the Company's
Common Stock.
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Certain Issues Related to Distributors. The Company's distributors generally
offer a diverse array of products from several different manufacturers.
Accordingly, there is a risk that these distributors may give higher priority to
selling products from other suppliers, thus reducing their efforts to sell the
Company's products. A reduction in sales efforts by one or more of the Company's
current distributors or a termination of any distributor relationship with the
Company could have a materially adverse effect on its business and operating
results. The Company's distributors may on occasion build inventories in
anticipation of substantial growth in sales, and if such growth does not occur
as rapidly as anticipated, distributors may decrease the amount of product
ordered from the Company in subsequent quarters. Such a slowdown in orders could
reduce the Company's revenues in any given quarter and give rise to fluctuation
in the Company's operating results. In addition, while the Company believes that
its major distributors are currently adequately capitalized, no assurance can be
given that one or more of its distributors will not experience financial
difficulties. The failure of one or more of the Company's distributors to pay
for products ordered could have a materially adverse effect on the Company's
business or operating results.
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 capital and other commitments on
the part of the Company.
Dependence on Suppliers. The majority of the Company's ICs are manufactured by a
limited number of suppliers. The Company may from time to time experience
delays in obtaining wafers from its foundries. In addition, though the Company
has various supply agreements with its suppliers, a shortage of raw materials or
production capacity could lead any of the Company's wafer suppliers to allocate
available capacity to customers other than the Company, or to internal uses,
which could interrupt the Company's ability to meet its product delivery
obligations. Any inability or unwillingness of the Company's wafer suppliers to
provide adequate quantities of finished wafers to satisfy the Company's needs in
a timely manner would delay production and product shipments and could have a
materially adverse effect on the Company's business or operating results. Also,
if the Company's current independent wafer manufacturers were unable or
unwilling to manufacture the Company's products as required, it would have to
identify and qualify additional foundries. No assurance can be given that any
additional wafer foundries would become available or be able to satisfy the
Company's requirements on a timely basis or that qualification would be
successful. To secure an adequate supply of wafers, the Company has entered and
may continue to enter into various supply arrangements requiring advance
deposits to secure commitments from foundries for specified levels of
manufacturing capacity over extended periods. No assurance can be given as to
the effect of any such transaction on the Company's business, financial
condition, or operating results.
Additionally, the Company relies on subcontractors for the assembly and
packaging of a portion of its products. There can be no assurance that these
subcontractors will continue to be able and willing to meet the Company's
requirements for such components or services. Any significant disruption in
supplies from, or degradation in the quality of components or services supplied
by, these subcontractors could delay shipments and result in the loss of
customers or revenues or otherwise have a materially adverse effect on the
Company's business, financial condition, or results of operations.
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International Operations and Markets. The Company's manufacturing facility and
various subcontractors it utilizes from time to time are located primarily in
Asia. Additionally the Company has various sales offices and customers
throughout Europe, Japan, and other countries. The Company's international
operations and sales are subject to political and economic risks, including
political instability, currency controls, exchange rate fluctuations, and
changes in import/export regulations, tariffs and freight rates.
Key Personnel; Management of Growth and Acquisitions. The Company has in recent
periods experienced growth in its operations and the number of its employees.
Additionally during the past year, the Company completed several acquisitions
of other companies resulting in increased responsibilities for its management.
The success of the Company is dependent in large part on its ability to
effectively manage its operations, integrate acquisitions, and retain its key
employees.
Reliance on Industry Standards. The computer industry is characterized by
various standards and protocols that evolve with time. The Company's current
products are designed to conform to certain industry standards and protocols
such as SCSI, UltraSCSI, PCI, RAID, ATM and Fast Ethernet. If consumer
acceptance of these standards was to decline or if they were replaced with new
standards, and if the Company did not anticipate these changes and develop new
products, the Company's business and operating results could be materially
adversely affected.
Technological Change; 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. As new
technologies emerge, the Company could be adversely affected if it does not
effectively market competitive products. Also, the Company's revenues could be
adversely impacted if its customers shifted their demand to a significant extent
away from board-based I/O solutions to application-specific ICs.
Need for Interoperability. The Company's products must be designed to
interoperate effectively with a variety of hardware and software products
supplied by other manufacturers, including microprocessors, peripherals and
operating system software. The Company depends on significant cooperation with
these manufacturers in order to achieve its design objectives and produce
products that interoperate successfully. While the Company believes that it
generally has good relationships with leading system, peripheral and
microprocessor suppliers, there can be no assurance that such suppliers will
not from time to time make it more difficult for the Company to design its
products for successful interoperability or decide to compete with the Company.
Competition. As the Company has continued to broaden its bandwidth management
product offerings into the desktop, server and networking environments, it has
experienced competition from additional companies. The Company must continue to
respond to these current and new competitors, who may choose to increase their
presence in its markets. If the Company is unable to make timely introduction of
new leading-edge solutions or respond to competitive threats, its business and
operating results could be materially adversely affected.
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Intellectual Property. The Company has historically devoted significant
resources to research and development and believes that the intellectual
property derived from such research and development is a valuable asset that has
been and will continue to be important to the success of the Company's business.
Although the Company maintains an intellectual property protection program, no
assurance can be given that the steps taken by the Company will be adequate to
protect its proprietary rights. In addition, the laws of certain territories in
which the Company's products are or may be developed, manufactured, or sold,
including Asia and Europe, may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. The Company has from time to time discovered counterfeit copies of its
products being manufactured or sold by others. Although the Company maintains an
active program to detect and deter infringement of its intellectual property,
should counterfeit products become available in the market to any significant
degree it could adversely affect the business and operating results of the
Company.
Volatility of Stock Price. The stock market in general, and the market for
shares of technology companies in particular, have from time to time 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 4. Submissions of Matters to a Vote of Security Holders
The Company held its Annual Meeting of shareholders on August 22,
1996. Out of 53,368,673 shares of Common Stock entitled to vote at
such meeting, there were present in person or by proxy 47,694,331
shares. At the Annual meeting, the shareholders of the Company
approved the following matters:
(a) The election of John G. Adler, Laurence B. Boucher, Carl J.
Conti, John C. East, Robert J. Loarie, B. J. Moore, W.
Ferrell Sanders, F. Grant Saviers and Philip E. White as
directors of the Company for the ensuing year and until
their successors are elected. The vote for the nominated
directors was as follows:
John G. Adler, 47,592,699 votes cast for and 101,632 votes
withheld; Laurence B. Boucher, 47,589,516 votes cast for
and 104,815 votes withheld; Carl J. Conti, 47,549,365 votes
cast for and 144,966 votes withheld; John C. East,
47,549,697 votes cast for and 144,634 votes withheld;
Robert J. Loarie, 47,627,077 votes cast for and 67,254
votes withheld; B.J. Moore 47,627,049 votes cast for and
67,282 votes withheld; W. Ferrell Sanders 47,629,579 votes
cast for and 64,752 votes withheld; F. Grant Saviers,
47,590,496 votes cast for and 103,835 votes withheld,
Phillip E. White 47,625,456 votes cast for and 68,875 votes
withheld;
(b) An amendment to the Company's Amended and Restated Bylaws
to establish the range for the authorized number of
directors to be seven to twelve with the exact number to be
fixed by the Board. 46,296,449 votes were cast for
approval; 465,583 votes were cast against; 63,116 votes
abstained and 869,183 were broker non-votes;
(c) An amendment to the 1990 Director's Option Plan to (i)
increase the shares reserved for issuance thereunder by
400,000 to a total of 1,100,000 (ii) increase the term of
options granted thereunder from five to ten years, and
(iii) amend the vesting provisions of subsequent annual
option grants so that such grants will vest quarterly over
a one year period. 28,656,850 votes were cast for approval;
18,730,360 votes were cast against; 108,683 votes abstained
and 198,438 were broker non-votes;
(d) Ratification of the appointment of Price Waterhouse LLP as
the independent accountants of the Company for the fiscal
year ending March 31, 1997. 47,646,991 votes were cast for
approval; 24,890 votes were cast against and 22,450 votes
abstained.
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Item 6. Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Reorganization by and among
Adaptec, Inc., Cogent Data Technologies, Inc., CDT
Acquisition Corp., and Certain Shareholders of Cogent
Data Technologies, Inc. dated May 31, 1996.
2.2 Agreement and Plan of Reorganization by and among
Adaptec, Inc., Adaptec Acquisition Corporation, and
Data Kinesis, Inc. dated August 6, 1996.
27.1 Financial Data Schedule for the three months ended
September 27, 1996.
The agreements mentioned in 2.1 and 2.2 contain certain exhibits
which have been omitted. Such exhibits are described within the
agreements and can be furnished by the Company to the Commission
upon request.
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: November 5, 1996
/s/ ANDREW J. BROWN
----------------------------------------
Andrew J. Brown, Vice-President and
Corporate Controller
(Principal Accounting Officer)
Date: November 5, 1996
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