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 March 31, 1998 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 April 30, 1998 was
7,879,075.
RADISYS CORPORATION
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet - March 31, 1998 and
December 31, 1997 3
Consolidated Statement of Operations - Three months
ended March 31, 1998 and 1997. 4
Consolidated Statement of Changes In Shareholders'
Equity - December 31, 1995 through March 31, 1998 5
Consolidated Statement of Cash Flows - Three months
ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
RadiSys Corporation
Consolidated Balance Sheet
(in thousands, except share amounts)
ASSETS
March 31, December 31,
1998 1997
----------- -----------
(unaudited)
Current assets
Cash and cash equivalents $ 21,196 $ 23,993
Accounts receivable 31,202 27,983
Other receivables 741 503
Inventories 20,935 22,830
Other current assets 1,616 1,910
Deferred income taxes 793 251
----------- -----------
Total current assets 76,483 77,470
Equipment, net of accumulated depreciation of
$8,881 and $8,265 13,206 12,174
Other assets 5,730 5,299
----------- -----------
Total assets $ 95,419 $ 94,943
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,163 $ 10,840
Income taxes payable 3,700 1,558
Accrued wages and bonuses 1,441 2,893
Accrued sales discounts 985 1,211
Deferred revenue 1,181 1,234
Other accrued liabilities 885 712
Current portion of capital lease obligation 266 214
----------- -----------
Total current liabilities 15,621 18,662
----------- -----------
Obligations under capital lease 302 399
----------- -----------
Total liabilities 15,923 19,061
----------- -----------
Commitments and contingent liabilities
Shareholders' equity
Common stock, 50,000,000 shares
authorized, 7,872,550 and 7,803,595
shares issued and outstanding 51,886 50,788
Cumulative translation adjustment (1,786) (1,177)
Retained earnings 29,396 26,271
----------- -----------
Total shareholders' equity 79,496 75,882
----------- -----------
Total liabilities and shareholders' equity $ 95,419 $ 94,943
=========== ===========
See accompanying notes to consolidated financial statements.
3
RadiSys Corporation
Consolidated Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31, March 31,
1998 1997
------------- -------------
Revenues $ 33,663 $ 27,830
Cost of sales 21,544 16,185
------------- -------------
Gross Profit 12,119 11,645
Research and development 3,536 2,807
Selling, general and administrative 4,102 3,838
------------- -------------
Income from operations 4,481 5,000
Interest income, net 326 264
------------- -------------
Income before income tax provision 4,807 5,264
Income tax provision 1,682 1,842
------------- -------------
Net income $ 3,125 $ 3,422
============= =============
Net income per share (basic) $ 0.40 $ 0.46
============= =============
Net income per share (diluted) $ 0.39 $ 0.43
============= =============
See accompanying notes to consolidated financial statements.
4
RadiSys Corporation
Consolidated Statement of Changes in Shareholders' Equity
(in thousands, except share amounts)
Common stock Cumulative
----------------------- translation Retained
Shares Amount Warrants adjustment earnings Total
----------- ---------- ----------- ----------- ---------- ---------
Balances, December 31, 1995 6,014,709 $ 33,627 $ $ (108) $ 1,300 $ 34,819
Shares issued pursuant to
benefit plans 73,701 365 365
Tax effect of options exercised 569 569
Translation adjustment (221) (221)
Stock issued for acquisition 1,300,000 10,500 10,500
Warrants issued for acquisition 1,200 1,200
Net income for the year 9,546 9,546
----------- ---------- ----------- ----------- ---------- ---------
Balances, December 31, 1996 7,388,410 45,061 1,200 (329) 10,846 56,778
Exercise of warrants 166,667 1,200 (1,200)
Shares issued pursuant to
benefit plans 165,018 1,605 1,605
Tax effect of options exercised 513 513
Translation adjustment (848) (848)
Stock issued for acquisition 83,500 2,409 2,409
Net income for the year 15,425 15,425
----------- ---------- ----------- ----------- ---------- ---------
Balances, December 31, 1997 7,803,595 50,788 - (1,177) 26,271 75,882
Shares issued pursuant to
benefit plans 68,955 1,098 1,098
Translation adjustment (609) (609)
Net income for the period 3,125 3,125
----------- ---------- ----------- ----------- ---------- ---------
Balances, March 31, 1998 (unaudited) 7,872,550 $ 51,886 $ - $ (1,786) $ 29,396 $ 79,496
=========== ========== =========== =========== ========== =========
See accompanying notes to consolidated financial statements.
5
RadiSys Corporation
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31, March 31,
1998 1997
------------- -------------
Cash flows from operating activities:
Net Income $ 3,125 $ 3,422
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 1,152 1,078
Deferred income taxes (542) (285)
Net changes in current assets and current liabilities:
Increase in accounts receivable (3,219) (3,286)
(Increase) decrease in other receivables (238) 1,182
(Increase) decrease in inventories 1,895 (1,560)
Decrease in other current assets 294 238
Increase (decrease) in accounts payable (3,677) 1,065
Increase in income taxes payable 2,142 1,332
Decrease in accrued wages and bonuses (1,452) (577)
Increase (decrease) in accrued sales discounts (226) 275
Decrease in deferred revenue (53) (148)
Increase (decrease) in other accrued liabilities 173 (245)
------------- -------------
Net cash provided by (used for) operating activities (626) 2,491
------------- -------------
Cash flows from investing activities:
Business acquisitions - (1,060)
Capital expenditures (1,910) (1,821)
Capitalized software production costs and other assets (705) 193
------------- -------------
Net cash used for investing activities (2,615) (2,688)
------------- -------------
Cash flows from financing activities:
Issuance of common stock, net 1,098 662
Payments on notes payable - (1,632)
Payments on capital lease obligation (45) (61)
------------- -------------
Net cash provided by (used for) financing activities 1,053 (1,031)
------------- -------------
Effect of exchange rate changes on cash (609) (254)
------------- -------------
Net decrease in cash and cash equivalents (2,797) (1,482)
Cash and cash equivalents, beginning of period 23,993 24,626
------------- -------------
Cash and cash equivalents, end of period $ 21,196 $ 23,144
============= =============
See accompanying notes to consolidated financial statements.
6
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(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, 1997. The results of operations for interim periods are not
necessarily indicative of the results for the entire year.
Reclassifications have been made to amounts in prior years to conform to
current year presentation. These changes had no impact on previously
reported results of operations.
2. Accounts Receivable
Trade accounts receivable are net of an allowance for doubtful accounts of
$672 and $663 at March 31, 1998 and December 31, 1997, respectively. The
Company's customers are concentrated in the technology industry. Revenue
from one customer was approximately $8.0 million during the first quarter
of 1998.
3. Inventories
Inventories consist of the following:
Mar 31, Dec 31,
1998 1997
------------ ------------
Raw Materials $ 11,636 $ 15,388
Work in Process 3,276 1,844
Finished Goods 6,023 5,598
------------ ------------
$ 20,935 $ 22,830
============ ============
7
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands)
(unaudited)
4. Property and Equipment
Property and equipment consists of the following:
Mar 31, Dec 31,
1998 1997
------------ ------------
Land $ 1,391 $ 1,387
Manufacturing Equipment 10,604 9,996
Office Equipment 7,724 7,255
Leasehold Improvements 2,368 1,801
------------ ------------
22,087 20,439
Less: Accum. Depr. 8,881 8,265
------------ ------------
$ 13,206 $ 12,174
============ ============
5. Earnings Per Share
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.
Weighted average shares consist of the following:
For the period ended
Mar 31, Mar 31,
1998 1997
------------ ------------
Weighted Average Shares (basic) 7,838 7,470
Effect of Dilutive Stock Options 218 429
------------ ------------
Weighted Average Shares (diluted) 8,056 7,899
============ ============
6. Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income." The Company has adopted the
standard as of January 1, 1998. Total comprehensive income consists of the
following:
For the period ended
Mar 31, Mar 31,
1998 1997
------------ ------------
Net Income $ 3,125 $ 3,422
Translation Adjustment (609) (254)
------------ ------------
Total Comprehensive Income $ 2,516 $ 3,168
============ ============
Translation adjustment represents the Company's only Other Comprehensive
Income item. Translation adjustment comprises unrealized gains/losses in
accordance with SFAS No. 52, "Foreign Currency Translation". The Company
has no intention of liquidating the assets of the foreign subsidiaries in
the foreseeable future.
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $33.7 million for the three months ended March 31, 1998
compared to $27.8 million for the three months ended March 31, 1997. Net
income was $3.1 million for the three months ended March 31, 1998 compared
to $3.4 million for the three months ended March 31, 1997.
Information contained in this Quarterly Report on Form 10-Q and statements
that may be made in the future by the Company's management regarding future
industry trends, the Company's expected revenues and anticipated gross
margins, the Company's future development and introduction of products, and
the Company's future liquidity, development, and business activities
constitute 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, including conditions precipitated by the
Asian economies; 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 or variations in customer order patterns due to changes in
demand for customers' products and customer and channel inventory levels;
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 MD&A regarding industry trends, product development and
introductions, and liquidity and future business activities should be
considered in light of these factors.
REVENUES
Three Months Ended
-----------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1998 Change 1997
-------- ---------- --------
Revenues $ 33,663 21% $ 27,830
The increase in revenues for the three months ended March 31, 1998 compared
to the three months ended March 31, 1997 resulted primarily from design
wins ramping into production and volume increases in OEM sales. Revenues
decreased from $36.2 million for the three months ended December 31, 1997
due to traditional first quarter seasonality and order push-outs and
reductions from several customers in the semiconductor equipment and other
electronics assembly equipment industries because of current worldwide
weaknesses in these markets.
9
COST OF GOODS SOLD
Three Months Ended
-----------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1998 Change 1997
-------- ---------- --------
Cost of Goods Sold $ 21,544 33% $ 16,185
As a Percentage of Revenues 64% 58%
As a percentage of revenues total cost of goods sold increased for the
three months ended March 31, 1998 compared to the three months ended March
31, 1997 primarily as a result of the product mix consisting of a larger
portion of lower margin product relative to higher margin product shipped
during the first quarter of 1998 compared to the first quarter of 1997.
RESEARCH AND DEVELOPMENT
Three Months Ended
-----------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1998 Change 1997
-------- ---------- --------
Research and Development $ 3,536 26% $ 2,807
As a Percentage of Revenues 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.
The increase in research and development as a percentage of revenues is
primarily the result of lower revenue levels in the first quarter of 1998
compared to the fourth quarter of 1997 and increased design activity.
SELLING, GENERAL AND ADMINISTRATIVE
Three Months Ended
-----------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1998 Change 1997
-------- ---------- --------
Selling, General & Admin. $ 4,102 7% $ 3,838
As a Percentage of Revenues 12% 14%
Selling, general and administrative expenses have increased in dollar
amount in the three months ended March 31, 1998 compared to the three
months ended March 31, 1997, primarily as a result of increased personnel,
facilities and travel costs to support higher levels of sales. The
decreases as a percentage of revenues were primarily the result of
operating efficiencies achieved by spreading fixed costs over a larger
revenue base.
10
INTEREST INCOME, NET AND INCOME TAX PROVISION
Three Months Ended
-----------------------------------------
(in thousands, except percentage amounts)
March 31, Percentage March 31,
1998 Change 1997
-------- ---------- --------
Interest Income, net $ 326 23% $ 264
Income Tax Provision $ 1,682 (9%) $ 1,842
Interest income, net includes interest income, interest expense, bank
charges and foreign currency transaction gains or losses.
The decrease in the income tax provision is solely attributable to
decreased net income before taxes in 1998 as the Company's effective tax
rate remained at approximately 35%.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had $21.2 million in cash and cash
equivalents, which represents the Company's principal source of liquidity,
and working capital of approximately $60.9 million. The Company maintains a
$10.0 million line of credit with a bank which expires October 1998. The
Company has not drawn any funds under this line of credit. Net cash used
for operating activities for the three months ended March 31, 1998 was $626
as compared with net cash provided by operating activities of $2.5 million
for the three months ended March 31, 1997 primarily as a result of normal
fluctuations in current assets and current liabilities.
Capital expenditures were $1.9 million in the three months ended March 31,
1998 and $1.8 million for the three months ended March 31, 1997. Capital
expenditures for the three months ended March 31, 1998 were primarily for
the purchase of leasehold improvements and office furniture related to the
Company's corporate headquarters and manufacturing equipment.
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.
11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
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: May 6, 1998 Brian V. Turner
Vice President of Finance and
Administration and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
27 Financial Data Schedule