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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 2000 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
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RADISYS CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-0945232
(State or other jurisdiction (I.R.S. Employer Identification Number)
of organization or incorporation)
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 May 10, 2000 was 16,864,767.
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RADISYS CORPORATION
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet--March 31, 2000 and December 31,
1999...................................................... 3
Consolidated Statement of Operations--Three months ended
March 31, 2000 and 1999................................... 4
Consolidated Statement of Changes In Shareholders' Equity--
December 31, 1999 through March 31, 2000.................. 5
Consolidated Statement of Cash Flows--Three months ended
March 31, 2000 and 1999................................... 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures.......................................................................... 17
2
RADISYS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
--------- -------------
ASSETS
Current assets
Cash and cash equivalents............................... $ 36,013 $ 15,708
Accounts receivable, net................................ 61,051 58,619
Inventories, net........................................ 42,024 41,374
Other current assets.................................... 4,204 1,747
Deferred income taxes................................... 3,814 4,723
-------- --------
Total current assets.................................. 147,106 122,171
Property and equipment, net............................. 20,949 21,211
Goodwill and intangible assets, net..................... 33,466 34,177
Other assets............................................ 12,772 10,004
-------- --------
Total assets.......................................... $214,293 $187,563
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................ $ 30,354 $ 19,878
Short term borrowings................................... 13,931 13,931
Income taxes payable.................................... 5,973 3,527
Accrued wages and bonuses............................... 6,254 6,706
Other accrued liabilities............................... 8,842 9,266
-------- --------
Total liabilities..................................... 65,354 53,308
-------- --------
Shareholders' equity
Common stock, 50,000 shares authorized, 16,853 and
16,489 shares issued and outstanding.................. 146,307 141,030
Accumulated other comprehensive income (loss):
Cumulative translation adjustment..................... (1,195) (1,546)
Unrealized gain (loss) on securities available for
sale................................................ 2,076 (349)
Accumulated earnings (deficit).......................... 1,751 (4,880)
-------- --------
Total shareholders' equity............................ 148,939 134,255
-------- --------
Total liabilities and shareholders' equity............ $214,293 $187,563
======== ========
The accompanying notes are an integral part of this statement.
3
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------------
MARCH 31, DECEMBER 31,
2000 1999
--------- -------------
(RESTATED)
Revenues.................................................... $81,293 $52,698
Cost of goods sold.......................................... 52,435 33,859
------- -------
Gross profit................................................ 28,858 18,839
Research and development.................................... 8,981 6,662
Selling, general and administrative......................... 9,542 8,505
Goodwill and intangibles amortization....................... 1,724 299
------- -------
Income from operations...................................... 8,611 3,373
Interest income (expense), net.............................. (56) 438
Other income................................................ 838 38
------- -------
Income before income tax provision.......................... 9,393 3,849
Income tax provision........................................ 2,762 932
------- -------
Net income.................................................. $ 6,631 $ 2,917
======= =======
Net income per share (basic)................................ $ 0.40 $ 0.18
======= =======
Net income per share (diluted).............................. $ 0.36 $ 0.18
======= =======
The accompanying notes are an integral part of this statement.
4
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
COMMON STOCK CUMULATIVE UNREALIZED ACCUMULATED TOTAL OTHER
------------------- TRANSLATION GAIN/(LOSS) EARNINGS COMPREHENSIVE
SHARES AMOUNT ADJUSTMENT ON SECURITIES (DEFICIT) TOTAL INCOME
-------- -------- ----------- ------------- ----------- -------- -------------
Balances, December 31,
1999...................... 16,489 $141,030 $ (1,546) $ (349) $ (4,880) $134,255
Shares issued pursuant to
benefit plans............. 364 5,277 5,277
Translation adjustment...... 351 351 $ 351
Unrealized gain on
securities................ 2,425 2,425 2,425
Net income for the period... 6,631 6,631 6,631
------ -------- -------- ------- -------- -------- ------
Balances, March 31, 2000.... 16,853 $146,307 $ (1,195) $ 2,076 $ 1,751 $148,939
====== ======== ======== ======= ======== ========
Total other comprehensive
income, three months ended
March 31, 2000............ $9,407
======
The accompanying notes are an integral part of this statement.
5
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
2000 1999
---------- ----------
(RESTATED)
Cash flows from operating activities:
Net income................................................ $ 6,631 $ 2,917
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,339 2,024
Gain on sale of assets.................................. (856) --
Deferred income taxes................................... 1,090 (609)
Net changes in current assets and current liabilities:
Decrease (increase) in accounts receivable............ (2,432) (4,722)
Decrease (increase) in inventories.................... (650) 107
Decrease (increase) in other current assets........... (2,457) 97
Increase (decrease) in accounts payable............... 10,476 4,268
Increase (decrease) in income taxes payable........... 2,446 1,277
Increase (decrease) in accrued wages and bonuses...... (452) 289
Increase (decrease) in other accrued liabilities...... (377) (170)
------- -------
Net cash provided by operating activities............... 17,758 5,478
------- -------
Cash flows from investing activities:
Business acquisitions..................................... (962) (27,513)
Capital expenditures...................................... (1,597) (1,483)
Capitalized software production costs and other assets.... (825) (903)
Sale of assets............................................ 350 --
------- -------
Net cash used for investing activities.................. (3,034) (29,899)
------- -------
Cash flows from financing activities:
Issuance of common stock, net............................. 5,277 943
Payments on capital lease obligation...................... (47) (84)
------- -------
Net cash provided by financing activities............... 5,230 859
------- -------
Effect of exchange rate changes on cash..................... 351 (115)
------- -------
Net increase/(decrease) in cash and cash equivalents........ 20,305 (23,677)
Cash and cash equivalents, beginning of period.............. 15,708 43,792
------- -------
Cash and cash equivalents, end of period.................... $36,013 $20,115
======= =======
The accompanying notes are an integral part of this statement.
6
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
RadiSys Corporation (the Company) was incorporated in March 1987 under the
laws of the State of Oregon for the purpose of developing, producing and
marketing computer system (hardware and software) products for embedded computer
applications in manufacturing automation, medical, transportation,
telecommunications and test equipment marketplaces. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, which are located in Western Europe, Israel, and
Japan.
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, 1999. The results of operations for interim periods are
not necessarily indicative of the results for the entire year.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates and judgements made by management of the Company include matters such
as collectibility of accounts receivable, realizability of inventories and
recoverability of capitalized software and deferred tax assets.
NEW PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the impact of
SAB 101 has no material effect on the financial position or results of
operations of the Company.
RECLASSIFICATIONS
Reclassifications have been made to certain amounts in prior years. These
changes had no impact on previously reported results of operations or
shareholders' equity.
CASH FLOWS
Non cash investing and financing activities include an increase in the
market value of the General Automation stock, a net increase of $2.4 million to
both Other long term assets and Unrealized gain on securities available for
sale.
7
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, 2000
2. ACCOUNTS RECEIVABLE
Trade accounts receivable are net of an allowance for doubtful accounts of
$944 and $933 at March 31, 2000 and December 31, 1999, respectively. The
Company's customers are concentrated in the technology industry.
3. INVENTORIES
Inventories consist of the following:
MAR 31, DEC 31,
2000 1999
-------- --------
Raw materials............................................. $32,503 $30,986
Work in process........................................... 2,614 2,465
Finished goods............................................ 6,907 7,923
------- -------
$42,024 $41,374
======= =======
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
MAR 31, DEC 31,
2000 1999
-------- --------
Land...................................................... $ 1,391 $ 1,391
Manufacturing equipment................................... 18,297 17,950
Office equipment.......................................... 20,733 19,746
Leasehold improvements.................................... 4,855 4,835
------- -------
45,276 43,922
Less: accumulated depreciation............................ 24,327 22,711
------- -------
$20,949 $21,211
======= =======
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets decreased by $.7 million, net from
$34.2 million at December 31, 1999 to $33.5 million at March 31, 2000. Goodwill
and intangibles increased by $1.0 million resulting from increased purchase
price recorded for the OCP acquisition based upon a formula tied to certain OCP
revenues pursuant to the acquisition agreement. This increase was offset by
$1.7 million in amortization of goodwill and other intangible assets.
Amortization periods range from five to fifteen years.
6. 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.
8
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, 2000
6. EARNINGS PER SHARE (CONTINUED)
Weighted average shares consist of the following:
THREE MONTHS ENDED
---------------------
MAR 31, MAR 31,
2000 1999
--------- ---------
Weighted average shares (basic)........................... 16,670 15,903
Effect of dilutive stock options.......................... 1,534 677
------- -------
Weighted average shares (diluted)......................... 18,204 16,580
======= =======
7. SEGMENT INFORMATION
The Company is organized primarily on the basis of embedded single board
computers and other related support operations. Operations not included in
embedded single board computers are insignificant for presentation.
Information about the Company's geographic operations and sales is as
follows:
THREE MONTHS ENDED
-------------------
MAR 31, MAR 31,
2000 1999
REVENUE -------- --------
COUNTRY
United States............................................. $46,301 $37,144
Europe.................................................... 32,702 14,163
Asia Pacific--Japan....................................... 1,818 664
Other foreign............................................. 472 727
------- -------
$81,293 $52,698
======= =======
MAR 31, MAR 31,
2000 1999
LONG LIVED ASSETS -------- --------
COUNTRY
United States............................................. $20,154 $20,537
Europe.................................................... 721 591
Asia Pacific--Japan....................................... 74 83
------- -------
$20,949 $21,211
======= =======
One customer accounted for $11.7 million, or 14.4%, of total revenue for the
three months ended March 31, 2000. No other customers accounted for more than
10% of total revenue for the three month period ended March 31, 2000.
9
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, 2000
8. MERGER WITH TEXAS MICRO AND RELATED CHARGES
In connection with the merger of Texas Micro, Inc. on August 13, 1999, the
Company recorded a charge to operating expenses of approximately $6.0 million
for merger-related costs during 1999. Merger and related costs are comprised of
the following:
COMBINATION COSTS BALANCE
RECORDED YEAR ACCRUED AS OF
ENDED DEC 31, 1999 MAR 31, 2000
------------------- -------------
Professional & filing fees...................... $3,251 $ 91
Severance, retention, relocation & benefits
alignment..................................... 1,538 450
Contract termination costs...................... 799 140
Marketing, information systems conversion, and
other miscellaneous costs..................... 383 24
------ ----
Total........................................... $5,971 $705
====== ====
Accrued combination costs totaling $705 at March 31, 2000 are included in
Other accrued liabilities in the Consolidated Balance Sheet.
9. GAIN ON SALE OF ASSETS
During the first quarter of 2000 the Company sold a total of 367 shares of
General Automation common stock resulting in a recorded net gain of $856. This
gain is reflected in Other income in the Consolidated Statement of Operations.
10. ACQUISITIONS AND MERGERS
ARTIC BUSINESS UNIT ACQUISITION
On March 1, 1999, the Company purchased certain assets of International
Business Machines Corporation ("IBM") dedicated to the design, manufacture and
sale of IBM's ARTIC communications coprocessor adapter hardware and software for
wide area network and other telephony applications ("ARTIC"). The purchase price
aggregated $27.0 million in cash consideration. The acquisition of ARTIC was
accounted for using the purchase method. The results of operations for ARTIC
have been included in the financial statements since the date of acquisition.
The aggregate purchase price of $27.5 million included $.6 million of direct
costs of acquisition and was allocated to fixed assets ($.4 million),
inventories ($6.5 million), patents ($5.0 million) and the remainder to
goodwill.
OCP BUSINESS UNIT ACQUISITION
On December 28, 1999, the Company purchased certain assets of IBM's Open
Computing Platform (OCP) operation. OCP develops and sells integrated
computer-based solutions based on Intel architecture, primarily to OEM's of
telecommunications equipment. The purchase price consisted of an aggregate of
$13.9 million in cash consideration. The acquisition of OCP was accounted for
using the purchase method. The results of operations of OCP have been included
in the financial statements since the date of acquisition. The aggregate
purchase price recorded as of December 31, 1999 of $14.1 million included
$.1 million direct costs of acquisition and $.1 million of contingent
consideration and was allocated to fixed assets ($.2 million), inventories
($.9 million) and the remainder to goodwill.
10
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, 2000
10. ACQUISITIONS AND MERGERS (CONTINUED)
Pursuant to the terms of this agreement, the Company may be required to make
additional future payments in March of 2001, 2002, and 2003 based upon a formula
tied to future OCP revenues. Accordingly, during Q1 of 2000 the Company recorded
an additional $1 million in purchase price resulting from OCP revenues during
the quarter. The additional purchase price has been recorded as goodwill. The
total consideration for the acquisition is limited to $30.0 million.
UNAUDITED PRO FORMA DISCLOSURES OF ACQUISITIONS
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions described above had occurred as
of the beginning of 1999, after giving effect to adjustments of amortization of
patents and goodwill, estimated reduction of interest income and the estimated
impact on the income tax provision. The unaudited pro forma financial statements
are not necessarily indicative of what actual results would have been had the
ARTIC and OCP acquisitions occurred at the beginning of the respective period.
The unaudited pro forma information should be read in conjunction with the
Current Report of the Company on Form 8-K dated March 1, 1999 and December 28,
1999 for ARTIC and OCP, respectively, and the Current Reports of the Company on
Form 8-K/A filed April 22, 1999 and March 10, 2000, respectively.
THREE MONTHS ENDED
MAR 31, 1999
------------------
(UNAUDITED)
Revenues................................................... $75,407
Net income................................................. 6,229
Net income per share (basic)............................... .39
Net income per share (diluted)............................. .38
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands)
OVERVIEW
Total revenue was $81.3 million for the three months ended March 31, 2000
compared to $52.7 million for the three months ended March 31, 1999. Net income
was $6.6 million for the three months ended March 31, 2000 compared to
$2.9 million for the three months ended March 31, 1999.
During the past year, the Company has merged with one company (Texas Micro
in August 1999) and acquired assets in two other transactions (ARTIC in March
1999 and OCP in late December 1999) in order to expand the expertise the Company
believes it needs to compete effectively in the communications market. These
acquisitions have resulted in increased sales volume as well as increased
operating and manufacturing capacity. Additionally, the merger with Texas Micro
has resulted in certain operating efficiencies. Therefore, total operating
expenses have increased in dollar volume but efficiencies combined with
increased sales volume have resulted in a decrease of operating expenses as a
percentage of revenue. The Company expects to continue to acquire companies and
technologies that are complementary to the Company's business and product
offerings.
REVENUES
THREE MONTHS ENDED
----------------------------------------
MARCH 31, PERCENTAGE MARCH 31,
2000 CHANGE 1999
--------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
AMOUNTS)
Revenues.................................................... $81,293 54% $52,698
Revenues increased by $28.6 million or 54% for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999. The increase
in revenues is due to growth within existing product lines and movement into
higher growth markets, primarily telecommunications. In addition, revenue in the
three months ended March 31, 2000 includes revenues from the Company's 1999
acquisitions (ARTIC in March 1999 and OCP in late December 1999) for the entire
quarter. The Company's top five customers collectively represented approximately
36% of revenue for the three months ended March 31, 2000.
COST OF GOODS SOLD
THREE MONTHS ENDED
----------------------------------------
MARCH 31, PERCENTAGE MARCH 31,
2000 CHANGE 1999
--------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
AMOUNTS)
Cost of goods sold.......................................... $52,435 55% $33,859
As a percentage of revenues................................. 65% 64%
Cost of goods sold increased by $18.6 million or 55% for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999 primarily
as a result of increased revenues. The slight increase in cost of goods sold in
the three months ended March 31, 2000 as a percentage of revenues is due to the
impact of product mix.
12
RESEARCH AND DEVELOPMENT
THREE MONTHS ENDED
----------------------------------
MARCH 31, PERCENTAGE MARCH 31,
2000 CHANGE 1999
--------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
AMOUNTS)
Research and development.................................... $8,981 35% $6,662
As a percentage of revenues................................. 11% 13%
Although overall research and development expenses have increased, they have
declined by almost 2% as a percentage of revenue for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999. This
percentage decline can be attributed to increased efficiencies as a result of
the integration of Texas Micro. In addition, the impact of the OCP acquisition
resulted in lower research and development costs as a percentage of revenues,
because OCP's business model incorporated lower R&D expenses as a percentage of
revenues.
SELLING, GENERAL AND ADMINISTRATIVE
THREE MONTHS ENDED
----------------------------------
MARCH 31, PERCENTAGE MARCH 31,
2000 CHANGE 1999
--------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
AMOUNTS)
Selling, general & administrative........................... $9,542 12% $8,505
As a percentage of revenues................................. 12% 16%
Selling, general and administrative (SG&A) expenses as a percentage of
revenues have declined by 4% for the three months ended March 31, 2000 compared
to the three months ended March 31, 1999. The decline is largely a result of the
integration of Texas Micro into the Company. For example, the Company
experienced significant savings by combining the sales organizations and
eliminating manufacturing representatives in the Texas Micro model. In addition,
the OCP acquisition resulted in lower SG&A expenses, as OCP's business model
incorporated lower SG&A expenses as a percentage of revenues.
GOODWILL AND INTANGIBLES AMORTIZATION
THREE MONTHS ENDED
----------------------------------
MARCH 31, PERCENTAGE MARCH 31,
2000 CHANGE 1999
--------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
AMOUNTS)
Goodwill and intangibles amortization....................... $1,724 477% $299
As a percentage of revenues................................. 2% 1%
Goodwill amortization expense increased by $1.4 million for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999. This is
a result of the ARTIC acquisition in March 1999 and the OCP acquisition in
December 1999. Amortization of these amounts commenced in the three months ended
March 31, 1999 and the three months ended March 31, 2000, respectively.
Amortization periods for goodwill and intangibles range from five to fifteen
years.
13
INTEREST INCOME, NET, OTHER INCOME, NET AND INCOME TAX PROVISION
THREE MONTHS ENDED
----------------------------------
MARCH 31, PERCENTAGE MARCH 31,
2000 CHANGE 1999
--------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
AMOUNTS)
Interest income, net........................................ $ (56) (113%) $438
Other income, net........................................... $ 838 2,105% $ 38
Income tax provision........................................ $2,762 196% $932
Interest income, net decreased $494 for the three months ended March 31,
2000 compared to the three months ended March 31, 1999. This decrease is
primarily due to the lower cash and cash equivalents levels resulting from the
funding of the ARTIC Business Unit acquisition on March 1, 1999 and increased
interest expense as a result of the $13.9 million line of credit outstanding
during the three months ended March 31, 2000 at an interest rate of 8.5%.
Other income, net increased by $800 for the three months ended March 31,
2000 compared to the three months ended March 31, 1999. This increase is
primarily due to the sale of 367 shares of General Automation common stock,
which resulted in a recorded gain of $856.
The increase in the income tax provision is attributable to increased net
income before taxes of $5.5 million for the three months ended March 31, 2000
compared to the three months ended March 31, 1999. The effective income tax rate
for Q1 2000 was 29.4% compared to 24.2% for the three months ended March 31,
1999. The 5.2% increase in the effective tax rate is primarily due to
limitations on the usage of the Texas Micro net operating loss for the three
months ended March 31, 2000 as result of the merger with Texas Micro on
August 13, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had $36.0 million in cash and cash
equivalents and working capital of approximately $81.8 million. The Company has
a $20.0 million line of credit with a bank which expires September, 2000. As of
March 31, 2000, $13.9 million was outstanding under this arrangement at an
interest rate of 8.5%. Amounts outstanding under the line of credit accrue
interest at an annual rate equal to the lower of the LIBOR plus 1.25% to 2.0% or
lender's prime rate (9% at March 31, 2000).
Cash and cash equivalents increased by $20.3 million during Q1 2000, and
decreased by $23.7 in Q1 1999. Activities impacting cash and cash equivalents
are as follows:
THREE MONTHS
ENDED
-------------------
MAR 31, MAR 31,
2000 1999
-------- --------
Cash provided by operating activities....................... $17.8 $ 5.4
Cash used for investing activities.......................... (3.0) (29.9)
Cash provided by financing activities....................... 5.2 .9
Effect of exchange rate changes on cash..................... .3 (.1)
----- ------
Net increase (decrease)..................................... $20.3 ($23.7)
===== ======
In addition to net income of $6.6 million plus depreciation and amortization
of $4.3 million, significant changes in balance sheet accounts contributing to
the increase in cash from operations for Q1 of 2000 included an increase in
accounts payable of $10.5 million, partially offset by an increase in accounts
receivable of $2.4 million. Significant investing and financing activities
impacting cash included $2.4 million in capital expenditures and capital
software additions, and $5.3 million in common stock issuances. Capital
expenditures were primarily for the purchase of furniture and office equipment,
14
computer hardware, manufacturing and engineering equipment, and the
implementation of SAP financial applications. Capital expenditures for 2000 are
expected to range from $7.0 million to $9.0 million, resulting in part from the
Company's plan to continue increasing its manufacturing capacities and
investments in information systems.
In Q1 1999 investing activities primarily consisted of the ARTIC acquisition
of $27.5 million.
The Company believes its existing cash and cash equivalents and cash from
operations will be sufficient to fund its current operations for at least the
next 12 months. Because the Company's capital requirements cannot be predicted
with certainty, there is no assurance that the Company will not require
additional financing before the expiration of 12 months.
FORWARD-LOOKING STATEMENTS
Statements and information in this Quarterly Report on Form 10-Q and the
statements the Company's management may make, from time to time concerning the
Company's future liquidity, development, business activities, potential
acquisitions and capital expenditures 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:
- dependence on the relationship with Intel Corporation and its products;
- lower than expected sales in the communications market;
- lower than expected design wins with key OEMS;
- failure of leading OEMs to incorporate the Company's solutions in
successful products;
- deliveries of products containing errors, defects and bugs;
- dependence on a limited number of suppliers or, in some cases, one
supplier for components and equipment used to manufacture products;
- difficulties in integrating acquired businesses and assets, including
Texas Micro;
- competition in the embedded computer market, which may lead to pricing
pressures;
- political, economic and regulatory risks associated with international
operations;
- technological developments;
- the inability to protect the Company's intellectual property or
successfully to defend against infringement claims by others;
- availability of qualified personnel;
- business conditions in the general economy and in the markets the Company
serves; and
- technological difficulties and resource constraints encountered in
developing new products.
The forward-looking statements should be considered in light of these factors.
15
PART II
OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits
10.1 Executive Severance Agreement dated February 8, 2000
between the Company and Glenford J. Myers.
27 Financial Data Schedule
(b) Reports on Form 8-K On January 11, 2000, the Company filed a Form 8-K dated
December 28, 1999 reporting Item 2. On March 13, 2000,
the Company filed an amendment to such Form 8-K to
provide financial statements in connection with the
business acquired by the Company on December 28, 1999.
16
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.
Date: May 12, 2000 RADISYS CORPORATION
By:
-----------------------------------------
Stephen F. Loughlin
VICE PRESIDENT OF FINANCE AND
ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
(AUTHORIZED OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
10.1 Executive Severance Agreement dated February 8, 2000 between
the Company and Glenford J. Myers.
27 Financial Data Schedule
18