SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 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: 0-26844
RADISYS CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0945232
(State or other jurisdiction (I.R.S. Employer
of organization or incorporation) Identification Number)
5445 NE Dawson Creek Drive
Hillsboro, OR 97124
(Address of principal executive offices, including zip code)
(503) 615-1100
(Registrant's telephone number, including area code)
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 report), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding
as of November 8, 1996: 7,379,667
RADISYS CORPORATION
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet - September 30, 1996 and 3
December 31, 1995
Consolidated Statement of Operations - Three months ended 4
September 30, 1996 and 1995, and nine months ended
September 30, 1996 and 1995
Consolidated Statement of Changes In Shareholders' 5
Equity - December 31, 1993 through September 30, 1996
Consolidated Statement of Cash Flows - Nine months ended 6
September 30, 1996 and 1995
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
RadiSys Corporation
Consolidated Balance Sheet
(in thousands, except share amounts)
ASSETS
Sept 30, December 31,
1996 1995
----------- -------------
(unaudited)
Current assets
Cash and cash equivalents $ 26,388 $ 10,236
Short term investments 0 10,922
Accounts receivable 15,044 6,869
Other receivables 4,915 139
Inventories 12,089 6,380
Other current assets 627 374
Deferred income taxes 824 297
----------- -------------
Total current assets 59,887 35,217
Equipment, net of accumulated depreciation of
$5,171 and $3,832 9,250 3,179
Other Assets 598 716
----------- -------------
$ 69,735 $ 39,112
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,368 $ 1,790
Income taxes payable 2,917 147
Accrued wages and bonuses 1,597 783
Accrued warranty costs 1,129 334
Accrued sales discounts 1,850
Other accrued liabilities 1,910 141
Current portion of note payable 600
Current portion of capital lease obligation 214 214
----------- ------------
Total current liabilities 15,585 3,409
----------- ------------
Obligations under capital lease 735 884
Note Payable 600
----------- ------------
Total long-term liabilities 1,335 884
----------- ------------
Total liabilities 16,920 4,293
----------- ------------
Commitments and contingent liabilities
Shareholders' equity
Common stock, 15,000,000 shares
authorized, 7,373,502 and 6,014,709 shares
issued and outstanding 44,400 33,627
Warrants 1,200
Cumulative translation adjustment (9) (108)
Retained earnings 7,224 1,300
----------- -------------
Total shareholders' equity 52,815 34,819
----------- -------------
$ 69,735 $ 39,112
=========== =============
3
Consolidated Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
------------ ---------- ------------ -----------
Revenues $ 22,459 $ 9,540 $ 53,558 $ 24,382
Cost of sales 12,006 6,271 31,372 15,807
------------ ---------- ------------ -----------
Gross Profit 10,453 3,269 22,186 8,575
Research and development 2,030 867 5,666 2,405
Selling, general and administrative 3,513 1,714 8,180 4,903
------------ ---------- ------------ -----------
Income from operations 4,910 688 8,340 1,267
Interest income, net 288 (30) 812 (2)
------------ ---------- ------------ -----------
Income before income tax provision 5,198 658 9,152 1,265
Income tax provision 1,819 197 3,228 379
------------ ---------- ------------ -----------
Net income $ 3,379 $ 461 $ 5,924 $ 886
============ ========== ============ ===========
Net income per share $ 0 $ 0 $ 1 $ 0
============ ========== ============ ===========
Weighted average number of common and
common equivalent shares outstanding 7,819 4,012 7,175 3,944
============ ========== ============ ===========
4
RadiSys Corporation
Consolidated Statement of Changes in Shareholders' Equity
(in thousands, except share amounts)
(nine months ended September 30, 1996 is unaudited)
Page 1 of 2
Preferred stock
-----------------------------------------------------------
Series A Series B Series C Common stock
----------------- ------------------- ------------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount Warrants
-------- ------- ---------- ------- ---------- ------- ---------- ------- --------
Balances, December 31, 1993 355,556 1,500 1,820,988 4,917 2,159,504 2,973 1,372,752 322
Collection of note receivable
Exercise of common stock options 111,328 156
Issuance of common stock for cash 3,030 10
Repurchase of common stock (4,910) (13)
Net income for the year
-------- ------- ---------- ------- ---------- ------- ---------- ------- --------
Balances, December 31, 1994 355,556 1,500 1,820,988 4,917 2,159,504 2,973 1,482,200 475
Exercise of common stock options 58,524 106
Issuance of common stock 2,175,000 23,656
Conversion of preferred stock (355,556) (1,500) (1,820,988) (4,917) (2,159,504) (2,973) 2,298,985 9,390
Translation adjustment
Net income for the year
-------- ------- ---------- ------- ---------- ------- ---------- ------- --------
Balances, December 31, 1995 6,014,709 33,627
Exercise of common stock options 58,793 273
Translation adjustment
Stock issued for acquisition 1,300,000 10,500
Warrants issued for acquisition 1,200
Net income for the period
-------- ------- ---------- ------- ---------- ------- ---------- ------- --------
Balances, September 30, 1996 - $ - - $ - - $ - 7,373,502 $44,400 $ 1,200
======== ======= ========== ======= ========== ======= ========== ======= ========
5
RadiSys Corporation
Consolidated Statement of Changes in Shareholders' Equity
(in thousands, except share amounts)
(nine months ended September 30, 1996 is unaudited)
Page 2 of 2
Cumulative Retained
Notes translation (deficit)
Receivable adjustment earnings Total
---------- ---------- -------- --------
Balances, December 31, 1993 (5) (1,581) 8,126
Collection of note receivable 5 5
Exercise of common stock options 156
Issuance of common stock for cash 10
Repurchase of common stock (13)
Net income for the year 1,365 1,365
---------- ---------- -------- --------
Balances, December 31, 1994 (216) 9,649
Exercise of common stock options 106
Issuance of common stock 23,656
Conversion of preferred stock
Translation adjustment (108) (108)
Net income for the year 1,516 1,516
---------- ---------- -------- --------
Balances, December 31, 1995 (108) 1,300 34,819
Exercise of common stock options 273
Translation adjustment 99 99
Stock issued for acquisition 10,500
Warrants issued for acquisition 1,200
Net income for the period 5,924 5,924
---------- ---------- -------- --------
Balances, September 30, 1996 - $ (9) $ 7,224 $ 52,815
========== ========== ======== ========
5A
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30, September 30,
1996 1995
---------- --------
Cash flows from operating activities:
Net Income $ 5,924 $ 886
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization 1,339 728
Deferred income taxes (527) (37)
Net changes in current assets and current liabilities:
(Increase) in accounts receivable (8,175) (3,040)
Decrease in other receivables 24
(Increase) in inventories (112) (3,361)
(Increase) in other current assets (28) (41)
Increase in accounts payable 3,578 2,250
Increase (decrease) in income tax payable 2,770 (146)
Increase (decrease) in accrued wages and bonuses 814 (37)
Increase in accrued warranty costs 795 68
Increase in other accrued liabilities 3,618 127
---------- --------
Net cash provided by (used for) operating activities 10,020 (2,603)
---------- --------
Cash flows from investing activities:
Decrease in short term investments 10,922
Capital expenditures (5,132) (2,551)
Capitalized software production costs and decrease in other assets 118 (404)
---------- --------
Net cash provided by (used for) investing activities 5,908 (2,955)
---------- --------
Cash flows from financing activities:
Cash proceeds from issuance of common stock, net 274 88
Proceeds from capital lease 1,156
Payments on capital lease obligation (149)
Increase in bank line of credit 1,700
---------- --------
Net cash provided by (used for) financing activities 125 2,944
---------- --------
Effect of exchange rate changes on cash 99 (68)
---------- --------
Net increase (decrease) in cash and cash equivalents 16,152 (2,682)
Cash and cash equivalents, beginning of period 10,236 2,965
---------- --------
Cash and cash equivalents, end of period $ 26,388 $ 283
========== ========
6
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
(unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited and
have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission and in the
opinion of management include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of
results for the interim periods. Certain information and footnote
disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31,
1995. The results of operations for interim periods are not
necessarily indicative of the results for the entire year.
Net income per share is based on the weighted average number of shares
of common stock and common stock equivalents (stock options and
warrants) outstanding during the periods, computed using the treasury
stock method for stock options and warrants.
2. ACCOUNTS RECEIVABLE
Trade accounts receivable are net of an allowance for doubtful
accounts of $699 and $233 at September 30, 1996 and December 31, 1995,
respectively. The Company's customers are concentrated in the
technology industry.
3. INVENTORIES
Inventories consist of the following:
Sept 30, Dec 31,
1996 1995
------------ ------------
Raw Materials $ 6,714 $ 3,835
Work in Process 2,897 270
Finished Goods 2,478 2,275
------------ ------------
$ 12,089 $ 6,380
============ ============
7
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Sept 30, Dec 31,
1996 1995
------------ ------------
Land $ 1,190 $ 33
Manufacturing Equipment 4,851 3,654
Office Equipment 7,129 3,040
Leasehold Improvements 1,251 284
------------ ------------
14,421 7,011
Less: Accum. Depr. 5,171 3,832
------------ ------------
$ 9,250 $ 3,179
============ ============
5. MULTIBUS ACQUISITION
On April 29, 1996, the Company purchased substantially all of the
assets of Intel Corporation ("Intel") that were dedicated to the
design, manufacture and sale of all standard and custom Multibus I and
Multibus II products ("Multibus") (collectively the "Acquisition"). In
addition, pursuant to the terms of the Acquisition, Intel licensed
certain Intel software to the Company. The purchase price consisted of
1,300,000 shares of the Company's common stock ("Common Stock") and
warrants to purchase an additional 300,000 shares of Common Stock
exercisable within 24 months at prices per share ranging from $13.50
to $15.00, plus an aggregate of $1.2 million in cash to be paid in
1997.
The Acquisition was accounted for using the purchase method. The
results of operations for Multibus have been included in the financial
statements since the date of acquisition. The aggregate purchase price
of $13.2 million (including direct costs of acquisition) was allocated
to purchased inventory, equipment and in-process research and
development. The non cash portions have been excluded from the
accompanying Consolidated Statement of Cash Flows.
Included within other receivables is approximately $4.1 million
related to inventory to be delivered by Intel to the Company by March
1997.
The following unaudited pro forma information represents the results
of operations of the Company as if the Acquisition had occurred as of
the beginning of the respective nine month periods, after giving
effect to assumed increases in operating, research and development,
and general and administrative costs to operate the business,
depreciation of acquired fixed assets, expensing acquired in process
research and development, and adjustments to reflect the estimated
impact on tax expense of the Acquisition. The unaudited pro forma
financial statements are not necessarily indicative of what actual
results would have been had the Multibus acquisition
8
occurred at the beginning of the respective periods. The unaudited pro
forma information should be read in conjunction with the Current
Report of the Company on Form 8-K dated May 3, 1996 and the Current
Report of the Company on Form 8-K/A dated July 1, 1996.
For the nine months ended
----------------------------
Sept 30, Sept 30,
(Unaudited) 1996 1995
------------ ------------
Revenues $ 73,902 $ 86,358
------------ ------------
Net Income $ 7,594 $ 4,664
------------ ------------
Earnings per share $ 0.92 $ 0.84
------------ ------------
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $22.5 million for the three months ended September
30, 1996 compared to $9.5 million for the three months ended September
30, 1995, and $53.6 million for the nine months ended September 30,
1996 compared to $24.4 million for the nine months ended September 30,
1995. Net income was $3.4 million for the three months ended September
30, 1996 compared to $0.5 million for the three months ended September
30, 1995, and $5.9 million for the nine months ended September 30,
1996 compared to $0.9 million for the nine months ended September 30,
1995.
From time to time the Company may issue forward looking statements
that involve a number of risks and uncertainties. The following are
among the factors that could cause actual results to differ materially
from the forward looking statements: business conditions and growth in
the electronics industry and general economies, both domestic and
international; uncertainty of market development; dependence on a
limited number of OEM customers; dependence on limited or sole source
suppliers; dependence on the relationship with Intel Corporation
("Intel"); dependence on Intel's support of the embedded computer
market; lower than expected customer orders; competitive factors,
including increased competition, new product offerings by competitors
and price pressures; the availability of parts and components at
reasonable prices; changes in product mix; dependence on proprietary
technology; technological difficulties and resource constraints
encountered in developing new products; and product shipment
interruptions due to manufacturing difficulties. The forward looking
statements contained in this document regarding industry trends,
product development and introductions, and liquidity and future
business activities should be considered in light of these factors.
On April 29, 1996, the Company purchased substantially all of the
assets of Intel Corporation ("Intel") that were dedicated to the
design, manufacture and sale of all standard and custom Multibus I and
Multibus II products ("Multibus") (collectively the "Acquisition"). In
addition, pursuant to the terms of the Acquisition, Intel licensed
certain Intel software to the Company. The Acquisition was accounted
for using the purchase method. The results of operations for Multibus
have been included in the financial statements since the date of
acquisition.
REVENUES
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, % Sept 30, Sept 30, % Sept 30,
1996 Change 1995 1996 Change 1995
------- ------ ------- ------- ------ -------
Revenues $22,459 135 $ 9,540 $53,558 120 $24,382
The increases in revenues for the three and nine months ended
September 30, 1996 compared to the three and nine months ended
September 30, 1995, respectively, resulted primarily from the
acquisition of Multibus from Intel on April 29, 1996 and from volume
increases in OEM sales. Additionally, included within revenues for the
three and nine months ended September 30, 1996 is $0.7 million and
$1.4 million of royalty payments, respectively, from Intel in
connection with
10
backlog retained by Intel in connection with the Acquisition. At the
end of the third quarter RadiSys was unable to ship approximately $2
million of product due to component delays.
COST OF GOODS SOLD
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, % Sept 30, Sept 30, % Sept 30,
1996 Change 1995 1996 Change 1995
------- ------ ------- ------- ------ -------
Cost of Goods Sold $12,006 91 $ 6,271 $31,372 99 $15,807
As a % of total revenue 53% 66% 59% 65%
As a percentage of revenues total cost of goods sold decreased for the
three and nine months ended September 30, 1996 compared to the three
and nine months ended September 30, 1995, respectively, primarily as a
result of unshipped lower margin product, component pricing decreasing
faster than price changes to the Company's customers, the mix of
products sold through distributors versus direct sales, and product
mix consisting of a larger portion of higher margin product relative
to lower margin product shipped during the second quarter of 1996.
Cost of goods sold as a percentage of revenues is expected to return
to targeted levels in future periods, which are lower than those
achieved in second and third quarters of 1996.
Additionally, included within cost of goods sold for the nine months
ended September 30, 1996 is $1.3 million of inventory valuation
adjustments recorded in the second quarter that resulted from purchase
accounting in connection with the Multibus acquisition.
RESEARCH AND DEVELOPMENT
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
------- ------- ------- -------
Research and Development $ 2,030 $ 867 $ 5,666 $ 2,405
As a % of total revenue 9% 9% 11% 10%
The dollar increases in research and development expenses were
primarily the result of increased investment in new product
development and costs of enhancements to existing products. The
Company continues to invest in new design wins for OEM customers and
the dollar increases reflect steady increases in the number of
employees working in research and development.
Additionally, included within research and development for the nine
months ended September 30, 1996 is $225,000 recorded in the second
quarter to expense in-process research and development acquired in
connection with the Multibus acquisition.
11
SELLING, GENERAL AND ADMINISTRATIVE
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
------- ------- ------- -------
Selling, General & Admin. $ 3,513 $ 1,714 $ 8,180 $ 4,903
As a % of total revenue 16% 18% 15% 20%
Selling, general and administrative expenses have increased in dollar
amount in the three and nine months ended September 30, 1996 compared
to the three and nine months ended September 30, 1995, respectively,
primarily as a result of increased personnel, facilities and travel
cost to support higher levels of sales and to support the acquired
Multibus operations. The decreases as a percentage of revenues were
primarily the result of operating efficiencies achieved by spreading
fixed costs over a larger revenue base, offset partially by increases
in costs required to expand international operations.
INTEREST INCOME, NET AND INCOME TAX PROVISION
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
(in thousands except % amounts) (in thousands except % amounts)
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
------- ------- ------- -------
Interest Income, net $ 288 $ (30) $ 812 $ (2)
Income Tax Provision 1,819 197 3,228 379
Interest income, net includes interest income, interest expense, bank
charges and foreign currency transaction gains or losses. The
increases in interest income, net for the three and nine months ended
September 30, 1996 compared to the three and nine months ended
September 30, 1995, respectively, were primarily the result of cash
invested from the Company's initial public offering in October of
1995.
The income tax provision reflects effective income tax rates of 35
percent and 30 percent for 1996 and 1995, respectively. The increase
in the income tax provision is primarily attributable to the depletion
of tax credits in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had $26.4 million in cash and
short term investment grade securities, which represents the Company's
principal source of liquidity. The Company had working capital of
approximately $44.0 million. Commencing September 30, 1996, the
Company entered into a $10.0 million line of credit with a bank. The
Company has not drawn any funds under this line of credit. Net cash
provided by operating activities for the nine months ended September
30, 1996 was $10.0 million as compared with net cash used by
operations of $2.6 million for the nine months ended September 30,
1995.
12
Capital expenditures were $5.1 million in the nine months ended
September 30, 1996 and $2.6 million for the nine months ended
September 30, 1995. Capital expenditures for the nine months ended
September 30, 1996 were primarily for the purchase of two parcels of
land for future expansion and construction in progress for a new
headquarters and manufacturing facility which the Company occupied
beginning in October of 1996.
On April 29, 1996, the Company purchased substantially all of the
assets of Intel Corporation that are dedicated to the design,
manufacture and sale of all standard and custom Multibus I and
Multibus II products . In addition, pursuant to the terms of the
Acquisition, Intel licensed certain Intel software to the Company. The
purchase price consisted of 1,300,000 shares of the Company's Common
Stock and warrants to purchase an additional 300,000 shares of Common
Stock exercisable within 24 months at prices per share ranging from
$13.50 to $15.00, plus an aggregate of $1.2 million in cash to be paid
in 1997. The Company will fund the acquired operations from existing
cash and cash equivalents.
The Company believes that existing cash and cash equivalents and cash
from operations will be sufficient to fund its operations for at least
the next 12 months.
13
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Revolving line of credit
27 Financial Data Schedule
14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RADISYS CORPORATION
BRIAN V. TURNER
-----------------------------------
Date: November 11, 1996 Brian V. Turner
Vice President of Finance and
Administration and Chief Financial
Officer
(Principal Financial Officer)
15
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ----------- --------
10.1 Revolving line of credit
27 Financial Data Schedule