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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 APRIL 1, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13(D) OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______.
COMMISSION FILE NUMBER: 0-18690
RADIUS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 68-0101300
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
215 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(408) 541-6100
(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 REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES __X__ NO _____
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON MAY 10,
1995 WAS 14,276,056.
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This report consists of __ sequentially numbered pages. The exhibit index on
this report is located on sequentially numbered page __.
RADIUS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets at April 1,
1995 and September 30, 1994 3
Consolidated Statements of Operations for
the Three and Six Months Ended April 1, 1995
and 1994 4
Consolidated Statements of Cash Flows for the
Six Months Ended April 1, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
-2-
PART 1. FINANCIAL INFORMATION
RADIUS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
APRIL 1, SEPTEMBER 30,
1995 1994 (1)
----------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 4,373 $ 15,997
Accounts receivable, net 88,545 62,145
Inventories 31,281 21,069
Prepaid expenses and other current assets 4,330 1,473
Income tax receivable 1,254 9,083
Deferred income taxes 8,400 8,400
-------- --------
Total current assets 138,183 118,167
Property and equipment, net 8,527 7,728
Deposits and other assets 1,117 964
-------- --------
$147,827 $126,859
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,777 $ 39,255
Accrued payroll and related expenses 3,325 4,024
Accrued warranty costs 2,383 2,255
Other accrued liabilities 10,174 6,650
Accrued income taxes 1,082 1,237
Accrued restructuring costs 3,493 15,148
Short-term borrowings 18,483 18,095
Obligation under capital leases -
current portion 1,468 1,647
-------- --------
Total current liabilities 107,185 88,311
Obligations under capital leases -
noncurrent portion 2,140 2,857
Commitments and contingencies
Shareholders' equity:
Common stock 88,463 87,017
Common stock to be issued 12,022 -
Accumulated deficit (61,996) (51,251)
Accumulated translation adjustment 13 (75)
-------- --------
Total shareholders' equity 38,502 35,691
-------- --------
$147,827 $126,859
-------- --------
-------- --------
<FN>
(1) The balance sheet at September 30, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
-3
RADIUS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 1, APRIL 1,
------------------ ------------------
1995 1994 1995 1994
------ ------ -------- -------
Net sales $84,447 $83,180 $163,682 $171,193
Cost of sales 62,913 57,279 119,671 130,336
------ ------ -------- -------
Gross profit 21,534 25,901 44,011 40,857
------ ------ -------- -------
Operating expenses:
Research and development 4,672 6,445 8,790 15,093
Selling, general and administrative 14,401 19,003 30,283 40,408
------ ------ -------- -------
Total operating expenses 19,073 25,448 39,073 55,501
------ ------ -------- -------
Income (loss) from operations 2,461 453 4,938 (14,644)
Interest expense, net (2,154) (121) (3,074) (280)
Settlement of litigation - - (12,422) -
------ ------ -------- -------
Income (loss) before income taxes 307 332 (10,558) (14,924)
Provision (benefit) for income taxes 31 688 187 (5,389)
------ ------ -------- -------
Net income (loss) $ 276 $ (356) $(10,745) $(9,535)
------ ------ -------- -------
------ ------ -------- -------
Income (loss) per share:
Net income (loss) per share $ 0.02 $(0.03) $ (0.76) $ (0.71)
------ ------ -------- -------
------ ------ -------- -------
Common and common equivalent shares used
in computing net income (loss) per share 15,429 13,496 14,183 13,433
------ ------ -------- -------
------ ------ -------- -------
See accompanying notes.
-4-
RADIUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands, unaudited)
SIX MONTHS ENDED
APRIL 1,
-------------------
1995 1994
-------- -------
Cash flows from operating activities:
Net income (loss) $(10,745) $(9,535)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 2,184 1,911
Elimination of SuperMac loss for three months - 9,914
Common stock to be issued 12,022 -
(Increase) decrease in assets:
Accounts receivable (26,312) (14,658)
Inventories (10,212) 1,619
Prepaid expenses and other current assets (2,857) (716)
Income tax receivable 7,829 9,551
Deferred income taxes - 1,012
Increase (decrease) in liabilities:
Accounts payable 27,522 4,928
Accrued payroll and related expenses (699) (731)
Accrued warranty costs 128 (1,622)
Other accrued liabilities 3,524 1,667
Accrued restructuring costs (11,655) (5,798)
Accrued income taxes (155) (348)
-------- -------
Net cash (used in) operating activities (21,448) (2,806)
Cash flows from investing activities:
Capital expenditures (2,983) (1,962)
Deposits and other assets (153) (352)
Proceeds from sale or maturity of short-term investments - 9,902
Purchase of short-term investments - (2,002)
-------- -------
Net cash provided by (used in) investing activities (3,136) 5,586
Cash flows from financing activities:
Principal payments of short-term borrowings, net 388 135
Principal payments of long-term debt and capital leases (896) (314)
Issuance of common stock 1,446 1,993
-------- -------
Net cash provided by (used in) financing activities 12,960 1,814
-------- -------
Net increase (decrease) in cash and cash equivalents (11,624) 4,594
Cash and cash equivalents, beginning of period 15,997 24,013
-------- -------
Cash and cash equivalents, end of period $ 4,373 $28,607
-------- -------
-------- -------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $ 1,082 $ 358
-------- -------
-------- -------
Income taxes paid $ - $ 6
-------- -------
-------- -------
See accompanying notes.
-5-
RADIUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Radius Inc. ("Radius" or the
"Company")) as of April 1, 1995 and for the three and six months ended April
1, 1995 and 1994 are unaudited. In the opinion of management, the
consolidated financial statements reflect all adjustments necessary for a fair
presentation of the financial position and results of operations for the
interim periods presented. These consolidated financial statements should be
read in conjunction with the Consolidated Financial Statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1994.
Radius and SuperMac Technology, Inc. ("SuperMac") merged into the combined
company ( the "Company") effective August 31, 1994 (the "Merger"), which was
accounted for as a pooling of interests. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to
adjust SuperMac's fiscal year end to that of Radius. Such periods include
Radius' results of operations and balance sheet data on a September 30 fiscal
year basis and SuperMac's on a December 31 calendar year basis. The Company's
fiscal year ends on the Saturday closest to September 30, which includes 52
weeks in fiscal 1995. The Company's 1994 fiscal year ended on the Sunday
closest to September 30, which included 52 weeks in fiscal 1994.
During the first quarter of fiscal 1995, the Company changed its fiscal year
end from the Sunday closest to September 30 to the Friday closest to September
30. During the second quarter of fiscal 1995, the Company changed its fiscal
year end to the Saturday closest to September 30 for operational efficiency
purposes. This change will be effective for all periods in fiscal year 1995.
NOTE 2. INVENTORIES
Inventories, stated at the lower of cost or market, consist of (in thousands):
APRIL 1, SEPTEMBER 30,
1995 1994
----------- -------------
(unaudited)
Raw materials $ 423 $ 4,515
Work in process 5,084 6,852
Finished goods 25,774 9,702
------- -------
$31,281 $21,069
------- -------
------- -------
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Company settled two securities class action lawsuits during the second
quarter of fiscal 1995. The settlements are subject to final approval by the
federal court in San Jose, California which is scheduled to occur in June
1995. The financial statements for the first quarter of fiscal 1995 include a
charge to other income of $12.4 million, reflecting settlement costs not
covered by insurance as well as related legal fees, resulting in a reduction
in net income from $1.4 million to a net loss of $11.0 million or $0.78 per
share for the quarter.
The first lawsuit was filed in September 1992 against Radius and certain of
its officers and directors relating to events occurring between January 1992
and early September 1992. The settlement provides for a cash payment of $3.7
million from the Company's insurance carrier and the issuance of 128,695
shares of the Company's Common stock valued as of the settlement date at $1.8
million, for a total of $5.5 million.
The second lawsuit was filed in July 1994 against SuperMac and certain of its
officers and directors relating to events occurring between September 1992 and
February 1994. Under the settlement, Radius has paid $250,000 in cash and
will issue between 707,609 and 807,609 shares of the Company's Common stock
depending on the value of stock when it is distributed to shareholders. The
aggregate value of the settlement as of the settlement date was $10.4 million.
-6-
The settlements will result in dilution to existing shareholders of the
Company ranging from 5.9% to 6.6% depending on the number of shares of Radius
stock issued. The Company had 14,556,000 common and common shares equivalent
outstanding as of April 1, 1995.
NOTE 4. INCOME TAXES
For the three and six month periods ended April 1, 1995 and 1994, the
provision (benefit) for income taxes has been computed by applying the
estimated annual effective tax rate to income (loss) before income taxes and
charge for litigation settlement.
NOTE 5. CHANGE IN METHOD OF ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES
Effective October 1, 1994, the Company adopted FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Statement
115 addresses accounting and reporting for investments in marketable equity
securities and in debt securities. Currently the Company does not have any
investments that fall under Statement 115. Retroactive restatement is not
permitted with Statement 115.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report
on Form 10-K for the year ended September 30, 1994.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operational
data as a percentage of net sales (may not add due to rounding).
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 1, APRIL 1,
1995 1994 1995 1994
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.5 68.9 73.1 76.1
----- ----- ----- -----
Gross profit 25.5 31.1 26.9 23.9
----- ----- ----- -----
Operating expenses:
Research and development 5.5 7.7 5.4 8.8
Selling, general and administrative 17.1 22.8 18.5 23.6
----- ----- ----- -----
Total operating expenses 22.6 30.6 23.9 32.4
----- ----- ----- -----
Income (loss) from operations 2.9 0.5 3.0 (8.6)
Interest expense, net (2.6) (0.1) (1.9) (0.2)
Settlement of litigation - - (7.6) -
----- ----- ----- -----
Income (loss) before income taxes 0.4 0.4 (6.5) (8.7)
Provision (benefit) for income taxes - 0.8 0.1 (3.1)
----- ----- ----- -----
Net income (loss) 0.3% (0.4)% (6.6)% (5.6)%
----- ----- ----- -----
----- ----- ----- -----
-7-
NET SALES
The Company's net sales increased 1.5% to $84.4 million in the second quarter
of fiscal 1995 from $83.2 million for the same quarter in fiscal 1994. This
increase was primarily due to revenue growth in the Company's digital video
product line as a result of volume shipments of Radius Telecast. In addition,
sales of the Company's raster imaging processor (RIP) technology significantly
improved and large color display revenues also increased. Although the on-
board capability of the Power Macintosh has led to reduced overall demand for
graphics cards compared to the prior year quarter, revenues from the newly
introduced Thunder IV line of graphic accelerator cards exceeded the
Company's expectations.
During the quarter, revenues were adversely affected by substantially higher
than normal product returns resulting primarily from the consolidation of the
Radius and SuperMac product lines. While the Company believes that returns
due to product consolidation will decline in the third fiscal quarter, there
can be no assurance that there will not be additional returns that would have
a material adverse impact on results of operations.
Net sales for the first half of fiscal 1995 decreased 4.4% to $163.7 million
from $171.2 million in the same period in fiscal 1994. This decrease was
primarily due to discontinuation of duplicative products and other factors
relating to the integration of SuperMac and Radius following the Merger.
One customer accounted for 19.7% and 15.1% of the Company's net sales for the
three and six months ended April 1, 1995, respectively. For the corresponding
periods of fiscal 1994, one customer accounted for 13.6% and 14.7% of the
Company's net sales.
The Company's second quarter export sales increased to 36.5% of net sales from
32.6% of net sales in the same quarter of fiscal 1994 as a result of improved
sales in the Asia Pacific region. Export sales were 31.6% of net sales for
the six month period in fiscal 1995 which was relatively unchanged from the
same period in the prior year.
GROSS PROFIT
The Company's gross profit margin was 25.5% and 26.9% for the three and six
month periods ending April 1, 1995, as compared with 31.1% and 23.9% for the
corresponding periods in fiscal 1994. The gross margin for the first six
months of fiscal 1994 excluding restructuring charges was 31.7%. Excluding
the restructuring charges, the decline in gross margin for the three and six
month periods was primarily due to lower sales of higher margin graphics
accelerator cards, costs incurred to process higher than expected product
returns resulting from the consolidation of the Radius and SuperMac product
lines, the sale of end of life products, and increased pricing pressures.
The Company anticipates continued price reductions and margin pressure within
its industry. The Company is responding to these trends by focusing on higher
margin products, taking further steps to reduce product costs and controlling
expenses. There can be no assurance that the Company's gross margins will
remain at current levels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to $4.7 million or 5.5% of net
sales in the second quarter of fiscal 1995 from $6.4 million or 7.7% of net
sales in the same quarter of fiscal 1994. Research and development expenses
decreased from $15.1 million or 8.8% of net sales for the first six months of
fiscal 1994 to $8.8 million or 5.4% of net sales for the corresponding period
in fiscal 1995. The decrease in research and development expenses from year
to year was primarily due to the reduction of expenses as a result of the
Company's restructuring associated with the Merger. The merger-related
restructuring has primarily resulted in reduced costs related to headcount,
depreciation, and facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $14.4 million or
17.1% of net sales in the second quarter of fiscal 1995 from $19.0 million or
22.8% of net sales in the same quarter of fiscal 1994. Selling, general and
administrative expenses decreased from $40.4 million or 23.6% of net sales for
the first six months of fiscal 1994 to $30.3 million or 18.5% of net sales for
the corresponding period in fiscal 1995.
Selling, general and administrative expenses declined primarily due to the
reduction of expenses as a result of the Company's restructuring associated
with the Merger. The merger-related restructuring has primarily resulted in
reduced
-8-
costs related to headcount, depreciation, and facilities. In addition,
expenses in the second quarter of fiscal 1995 included a reduction of
approximately $2.1 million of merger-related restructuring reserves to reflect
current requirements.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1993 and 1994, three restructuring and other charges were
recorded. Radius recorded a $15.5 million restructuring charge during the
third quarter of fiscal 1993 in connection with the implementation of a new
business model. SuperMac recorded a $16.6 million restructuring charge during
December 1993 in connection with a program to realign its inventory and
facility and personnel resources. Subsequently, the two companies merged and
incurred a restructuring charge of $43.4 million, which was recorded in
September 1994. This Merger was initiated to provide substantial savings in
operating costs for the combined company, resulting from the reduction in the
number of employees, elimination of duplicative facilities and the
consolidation of the marketing, research and development, operations and
administration for the two companies. A discussion of each of these events
follows.
RADIUS FISCAL 1993 RESTRUCTURING AND OTHER CHARGES
In June 1993, Radius announced a restructuring program designed to reduce
costs and improve operating efficiencies. The program included, among other
things, the write-down of inventory following Radius' decision to phase out
its older generation of products, lease termination expenses, capital
equipment write-offs, severance payments and costs associated with the
discontinuation of Radius' minicomputer-class server product. The
restructuring program costs of $15.5 million resulted in an after-tax charge
of approximately $9.5 million during the third quarter of fiscal 1993. The
charges (in thousands) are included in: cost of sales ($10,993); research and
development ($411); and selling, general and administrative expenses ($4,096).
The elements of the total charge as of April 1, 1995 were as follows (in
thousands):
Representing
-----------------------------
Cash Outlays
----------------
Asset
Provision Write-Downs Completed Future
Inventory $ 8,319 $ 8,319 $ - $ -
Manufacturing reorganization 3,109 989 2,120 -
Domestic facilities closure 1,994 1,505 489 -
Germany office closure 860 - 860 -
Consulting related to product discontinuation
and company reorganization 500 - 500 -
Discontinuation of development projects 411 411 - -
Executive reorganization 307 - 307 -
------- ------- ------ ---
Total charges $15,500 $11,224 $4,276 $ -
The Company completed this restructuring event by the end of calendar 1994.
There were no material changes in the restructuring plan or in the
estimates of the restructuring costs from the recognition of the charge in
June 1993 with to the completion of the restructuring program in December
1994. The Company believes the program generally fulfilled the Company's
expectations and that the program was successful. Cash expenditures of
$4.3 million were made between June 1993 and December 1994, to complete
this restructuring event.
-9-
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection
with a program to adjust inventory levels, eliminate excess facilities,
terminate certain projects and contract arrangements and reduce the number of
employees. The charges (in thousands) are included in: cost of sales
($13,352); research and development ($2,000); and selling, general and
administrative expenses ($1,238). The elements of the total charge as of
April 1, 1995 were as follows (in thousands):
Representing
-----------------------------
Cash Outlays
-----------------
Asset
Provision Write-Downs Completed Future
Adjust inventory levels $10,577 $ 9,718 $ 859 $ -
Excess facilities 1,619 - 1,619 -
Terminate projects and arrangements 2,494 1,294 819 381
Employee severance 1,900 - 1,803 97
------- ------- ------ ----
Total charges $16,590 $11,012 $5,100 $478
There have been no material changes in the restructuring plan or in the
estimates of the restructuring costs. The Company has $619,000 remaining in
its restructuring reserve, the majority of the balance is expected to be
eliminated by the end of fiscal 1995. The Company expects that cash
expenditures that will be incurred to complete this restructuring event will
not have a material effect on the Company's liquidity. The consolidated
results for the Company in both the twelve months ended September 30, 1994 and
the fiscal period ended 1993 include SuperMac's $16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets,
elimination of duplicative facilities, property and equipment and other assets
and personnel severance costs as well as transaction fees and costs incidental
to the Merger. The charges (in thousands) are included in: net sales
($3,095); cost of sales ($25,270); research and development ($4,331); and
selling, general and administrative expenses ($10,710). The elements of the
total charge as of April 1, 1995 were as follows (in thousands):
Representing
------------------------------
Cash Outlays
-----------------
Asset
Provision Write-Downs Completed Future
Adjust inventory levels $22,296 $19,200 $ 2,791 $ 305
Excess facilities 2,790 400 2,006 384
Revision of the operations business model 9,061 7,078 1,119 864
Employee severance 6,311 - 6,064 247
Merger related costs 2,949 - 1,735 1,214
------- ------- ------- ------
Total charges $43,407 $26,678 $13,715 $3,014
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-
off of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarters and consolidation of sales offices.
The revision of the operations business model reflects the reorganization of
the combined Company's manufacturing operations to mirror Radius' previously
revised model implemented as part of the Radius 1993 restructuring. This
reorganization was designed to outsource a number of functions that previously
were performed internally, reduce product costs through increased efficiencies
and lower overhead, and focus the Company on a limited number of products.
Employee severance costs are related to employees who have been released due
to the revised business model, while related severance payments are expected
to be incurred throughout fiscal 1995. The provision for Merger related costs
is for the costs associated with the Merger transaction, such as legal,
investment banking and accounting fees. The Company has reduced its
restructuring reserves by $2.1 million to accurately reflect current
requirements. The Company expects to have substantially completed the
restructuring by September 1995. Anticipated results of the restructuring on
fiscal 1995 operations are estimated to include savings of $16.0 million from
reduced headcount, $1.5 million from reduced depreciation expense, and $0.2
million from reduced rent expense. There can be no
-10-
assurance that these estimated savings will be realized during fiscal 1995.
These estimated savings could be affected by future changes in these and other
areas.
The cash requirements with respect to the Merger related restructuring and
other charges are estimated to be approximately $16.7 million, of which $13.7
million had been spent as of April 1, 1995. The Company used a line of credit
to help fund these cash requirements, and as of April 1, 1995, the Company had
a cash position of $4.4 million. There can be no assurance that the Company
will not incur additional charges to reflect costs associated with the Merger.
LITIGATION SETTLEMENT
The Company settled two securities class action lawsuits during the second
quarter of fiscal 1995. The settlements are subject to final approval by the
federal court in San Jose, California which is scheduled to occur in June
1995. The financial statements for the first quarter of fiscal 1995 include a
charge to other income of $12.4 million, reflecting settlement costs not
covered by insurance as well as related legal fees, resulting in a reduction
in net income from $1.4 million to a net loss of $11.0 million or $0.78 per
share for the quarter.
The first lawsuit was filed in September 1992 against Radius and certain of
its officers and directors relating to events occurring between January 1992
and early September 1992. The settlement provides for a cash payment of $3.7
million from the Company's insurance carrier and the issuance of 128,695
shares of the Company's Common stock valued as of the settlement date at $1.8
million, for a total of $5.5 million.
The second lawsuit was filed in July 1994 against SuperMac and certain of its
officers and directors relating to events occurring between September 1992 and
February 1994. Under the settlement, Radius has paid $250,000 in cash and
will issue between 707,609 and 807,609 shares of the Company's Common stock
depending on the value of stock when it is distributed to shareholders. The
aggregate value of the settlement as of the settlement date was $10.4 million.
The settlements will result in dilution to existing shareholders of the
Company ranging from 5.9% to 6.6% depending on the number of shares of Radius
stock issued. The Company had 14,556,221 weighted average common shares
outstanding as of April 1, 1995.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision of $31,000 for the second quarter of
fiscal 1995 as compared to a provision for taxes for the second quarter of
fiscal 1994 of $688,000. The lower effective tax rate in fiscal 1995 as
compared to fiscal 1994, is primarily the result of utilization of net
operating loss carryovers. The fiscal 1995 tax provision is primarily
comprised of foreign taxes.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduces the deferred tax asset to the amount realizable. Management
believes that as a result of the Merger and the related restructuring of the
Company's operations, it is more likely than not that the net deferred tax
assets will be realized in the ordinary course of operations based on
reversals of existing taxable temporary differences and income from operating
activities. However, there can be no assurance that future income will be
sufficient to realize this benefit. The Company will evaluate the
realizability of the deferred tax asset on a quarterly basis.
FINANCIAL CONDITION
The Company's cash and cash equivalents decreased approximately $11.6 million
in the first six months of fiscal 1995. The decrease in cash and cash
equivalents was primarily due to the increase in accounts receivable of $26.4
million, increase in inventory of $10.2 million, and cash outlays in
connection with merger-related restructuring and other charges accrued in the
fourth quarter of fiscal 1994. These cash requirements were partially offset
by an increase in accounts payable of $27.5 million and the receipt of $7.8
million from an income tax refund.
At April 1, 1995, the Company's principal sources of liquidity were
approximately $4.4 million of cash and cash equivalents. The Company has a
$30.0 million inventory and working capital financing agreement which was
fully utilized as of April 1, 1995. In addition, the Company has a $5.0
million line of credit which was partially utilized as of that date. The
Company was in compliance with all financial covenants in connection with its
lines of credit as of April 1,
-11-
1995. Additionally, the Company's Japanese subsidiary has a revolving line of
credit with a bank in Japan with $3.4 million being utilized as of April 1,
1995. Recently, the Company's relatively low cash resources have restricted
the Company's ability to purchase inventory which in turn has limited its
ability to manufacture and sell products thereby adversely affecting the
Company's results of operations. This adverse effect on results of operations
can be expected to continue until such time as the Company is able to generate
additional cash from the collection of receivables or other sources.
Additional funds will be needed to finance the Company's planned development
of MacOS compatibles and other products, and for other purposes. The Company
is exploring a number of financing alternatives. There can be no assurance
that additional financing will be available when needed or, if available, that
the terms of such financing will not adversely affect the Company's results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, the ability to manage and
direct the Company following the Merger, the cost and availability of
components, the Company's ability to control costs, the rate and mix of Apple
computers sold and general economic conditions. In addition, new products,
product enhancements, aggressive marketing and pricing practices, and numerous
other competitive factors could have an impact on the Company's operating
results.
The expectation is that the Merger will result in beneficial synergistic
effects for the combined company, in addition to a substantial savings in
operating costs. To date, the Company has substantially completed the
integration of the two companies' businesses on an operational basis. The
remaining restructuring related activities are to be completed by the end of
fiscal 1995. There can be no assurance that the steps for restructuring the
two companies' operations will reduce costs to the extent, or as quickly, as
planned or that they will not adversely affect continuing net sales and
results of operations. Product returns resulting from the consolidation of
product lines adversely affected the Company's results of operations for the
first six months of fiscal 1995 and could have an adverse effect on future
results of operations. Even if the effects of the Merger prove to be as
anticipated, there can be no assurance that future earnings will not be
adversely affected by any number of economic, market or other factors that are
not related to the Merger.
The Company's success is highly dependent on its ability to develop innovative
and cost-competitive new products and to bring them to market in a timely
manner. Should the Company fail to introduce new products on a timely basis,
the Company's operating results could be adversely affected.
The Company's primary means of distribution is through a limited number of
third-party distributors and resellers. As a result, the Company's business
and financial results are highly dependent on the amount of the Company's
product ordered by these distributors and resellers which in turn depends on
their overall financial condition as well as on their ability to resell such
products and maintain appropriate inventory levels. The Company's operating
results could be adversely affected if such distributors and resellers are not
successful in these or other areas.
Historically, substantially all of the Company's products have been designed
for and sold to users of Apple computers. As a result of the Company's
dependency on Apple computer products, the Company's operations and financial
results could be significantly affected should Apple lose market share or
otherwise experience slower sales. New products anticipated from and
introduced by Apple could cause customers to defer or alter buying decisions
due to uncertainty in the marketplace, as well as presenting direct
competition to the Company. For example, sales of the Company's products
could be adversely affected by the uncertainties associated with Apple's
revamping of its entire product line from using the NuBus structure to using a
structure based on the Peripheral Component Interconnect Local Bus standard.
The MacOS compatible systems business will entail significant new challenges
for the Company in designing, developing, manufacturing and distributing
products and there can be no assurance that the Company will be successful in
this new business. As noted above, the Company's entry into the MacOS
compatible systems business also will require substantial additional cash
resources. In addition, the Company's MacOS compatible business is dependent
upon Apple's continued support of and commitment to MacOS licensing.
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Due to the foregoing, the dynamic nature of the Company's industry and other
factors, the Company's future operating results and stock price may be subject
to significant volatility. In addition, any change in net sales or operating
results from levels expected by securities analysts, and the timing of the
announcement of such shortfalls, could have an immediate and significant
adverse effect on the trading price of the Company's common stock in any given
period.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Radius and certain of its officers and directors are defendants in a
securities class action litigation brought in September 1992 in the United
States District Court for the Northern District of California and seeking
unspecified damages, prejudgment and postjudgment interest, attorneys' fees,
expert witness fees and costs, and equitable relief. SuperMac, certain of its
officers and directors, several venture capital firms and several of the
underwriters of SuperMac's May 1992 initial public offering and its February
1993 secondary offering are defendants in a class action litigation brought in
the same court in July 1994 and seeking unspecified damages, prejudgment and
postjudgment interest, attorneys' fees, experts' fees and costs, and equitable
relief (including the imposition of a constructive trust on the proceeds of
defendants' trading activities). These litigations are described in greater
detail in Radius' Annual Report on Form 10-K for the fiscal year ended
September 30, 1994.
In April 1995, the parties in both litigations entered into settlement
agreements. The settlements are subject to final approval of the court. The
court has given preliminary approval of the settlements, and hearing on the
fairness of the settlements is scheduled in June 1995. Under the settlements
of the litigation brought in 1992 against Radius, the Company's insurance
carrier is required to pay $3.7 million in cash (this amount has been
deposited in escrow) and the Company is required to issue 128,695 share of its
Common Stock to a class action settlement fund. In the settlement of the
litigation brought in 1994 against SuperMac, the Company is required to pay
$250,000 in cash and to issue into a class action settlement fund at least
707,609 shares of its Common Stock. The number of shares to be issued by the
Company will increase by up to 100,000 if the price of the Common Stock is
below $12 per share during the 60-day period following the initial issuance of
shares. If the settlements are not approved by the court, the Company intends
to contest the litigations vigorously.
In January 1995, a patent infringement lawsuit was filed in the United States
District Court for the Northern District of California by the alleged holder
of a patent involving video pixel data transfer claiming that the Company
infringes the patent and seeking injunctive relief and damages in an
unspecified amount. The complaint does not specify which products of the
Company allegedly infringe the plaintiff's patent. The Company has filed an
answer denying all the material allegations of the complaint. The Company
believes it has meritorious defenses to the action and intends to defend it
vigorously.
ITEM 5. OTHER INFORMATION
David R. Brodwin resigned as Vice President, Product and Strategic Marketing
effective as of April 21, 1995.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See attached exhibit index.
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the three months ended April 1, 1995.
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.
Dated: May 10, 1995 RADIUS INC.
By: /s/ Charles W. Berger
----------------------------------------
Charles W. Berger
Chairman, President, Chief Executive Officer
By: /s/ Robert W. Saltmarsh
----------------------------------------
Robert W. Saltmarsh
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER TITLE NUMBERED PAGE
------- ----- -------------
10.08 A Credit Agreement by and among Radius Inc., the certain financial
institutions, and Silicon Valley Bank, dated March 20, 1995.
B Credit Agreement by and among Radius Inc., the certain financial institutions,
and International Business Machines Credit Corporation, dated
February 17, 1995.
11.01 Computation of per share earnings
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