-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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 JULY 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 AUGUST 14,
1995 WAS 17,034,381.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
RADIUS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at July 1, 1995 and September 30, 1994 3
Consolidated Statements of Operations for the Three and Nine Months Ended
July 1, 1995 and 1994 4
Consolidated Statements of Cash Flows for the Nine Months Ended
July 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 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
-2-
PART 1. FINANCIAL INFORMATION
RADIUS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
-------
JULY 1, SEPTEMBER 30,
1995 1994 (1)
-------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 16,268 $ 15,997
Accounts receivable, net 80,634 62,145
Inventories 38,361 21,069
Prepaid expenses and other current assets 928 1,473
Income tax receivable 693 9,083
Deferred income taxes 8,400 8,400
-------- --------
Total current assets 145,284 118,167
Property and equipment, net 7,588 7,728
Goodwill 3,134 442
Deposits and other assets 1,755 522
-------- --------
$157,761 $126,859
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 56,319 $ 39,255
Accrued payroll and related expenses 3,727 4,024
Accrued warranty costs 2,878 2,255
Other accrued liabilities 6,958 6,650
Accrued income taxes 1,312 1,237
Accrued restructuring costs 1,671 15,148
Short-term borrowings 21,509 18,095
Obligation under capital leases - current portion 1,452 1,647
-------- --------
Total current liabilities 95,826 88,311
Obligations under capital leases - noncurrent portion 1,751 2,857
Commitments and contingencies
Shareholders' equity:
Common stock 113,217 87,017
Common stock to be issued 12,022 --
Accumulated deficit (65,108) (51,251)
Accumulated translation adjustment 53 (75)
-------- --------
Total shareholders' equity 60,184 35,691
-------- --------
$157,761 $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 NINE MONTHS ENDED
JULY 1, JULY 1,
------------------ -------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Net sales $ 87,325 $ 86,673 $ 251,007 $ 257,866
Cost of sales 65,211 59,931 184,882 190,267
--------- --------- --------- ---------
Gross profit 22,114 26,742 66,125 67,599
--------- --------- --------- ---------
Operating expenses:
Research and development 4,990 5,645 13,780 20,738
Selling, general and administrative 18,442 19,232 48,725 59,640
--------- --------- --------- ---------
Total operating expenses 23,432 24,877 62,505 80,378
--------- --------- --------- ---------
Income (loss) from operations (1,318) 1,865 3,620 (12,779)
Interest expense, net (1,531) (223) (4,605) (503)
Settlement of litigation -- -- (12,422) --
--------- --------- --------- ---------
Income (loss) before income taxes (2,849) 1,642 (13,407) (13,282)
Provision (benefit) for income taxes 263 580 450 (4,809)
--------- --------- --------- ---------
Net income (loss) $ (3,112) $ 1,062 $ (13,857) $ (8,473)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per share:
Net income (loss) per share $ (0.21) $ 0.08 $ (0.96) $ (0.63)
--------- --------- --------- ---------
--------- --------- --------- ---------
Common and common equivalent shares used 14,791 14,041 14,386 13,522
--------- --------- --------- ---------
in computing net income (loss) per share --------- --------- --------- ---------
See accompanying notes.
-4-
RADIUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands, unaudited)
NINE MONTHS ENDED
JULY 1,
--------------------------
1995 1994
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (13,857) $ (8,473)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 2,988 4,480
Elimination of SuperMac loss for three months - 9,914
Common stock to be issued 12,022 -
(Increase) decrease in assets:
Accounts receivable (18,361) (24,357)
Inventories (17,292) 2,379
Prepaid expenses and other current assets 545 (2,261)
Income tax receivable 8,390 8,551
Deferred income taxes -- 2,332
Increase (decrease) in liabilities:
Accounts payable 17,064 249
Accrued payroll and related expenses (297) (624)
Accrued warranty costs 623 (1,906)
Other accrued liabilities 308 (867)
Accrued income taxes 75 (497)
Accrued restructuring costs (13,477) (7,266)
---------- ----------
Net cash (used in) operating activities (21,269) (18,346)
Cash flows from investing activities:
Capital expenditures (2,848) (3,937)
Goodwill (2,692) (685)
Deposits and other assets (1,233) (442)
Purchase of short-term investments -- 14,267
---------- ----------
Net cash provided by (used in) investing activities (6,773) 9,203
Cash flows from financing activities:
Principal payments of short-term borrowings, net 3,414 293
Principal payments of long-term debt and capital leases (1,301) (733)
Issuance of common stock 26,200 2,778
---------- ----------
Net cash provided by (used in) financing activities 28,313 2,338
---------- ----------
Net increase (decrease) in cash and cash equivalents 271 (6,805)
Cash and cash equivalents, beginning of period 15,997 24,013
---------- ----------
Cash and cash equivalents, end of period $ 16,268 $ 17,208
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $ 2,009 $ 544
---------- ----------
---------- ----------
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 July 1, 1995 and for the three and nine months ended July 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):
JULY 1, SEPTEMBER 30,
1995 1994
----------- -------------
(unaudited)
Raw materials $ 1,218 $ 4,515
Work in process 13,673 6,852
Finished goods 23,470 9,702
-------- --------
$ 38,361 $ 21,069
-------- --------
-------- --------
NOTE 3. CHANGES IN SHAREHOLDERS' EQUITY
In June 1995, the Company sold approximately 2,500,000 shares of its Common
Stock in a series of private placements to a small number of investors
unaffiliated with the Company. Proceeds from the offering, net of commission
and other related expenses were $21.5 million. The net proceeds are being used
for working capital.
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company settled two securities class action lawsuits during the second
quarter of fiscal 1995. The settlements were approved by the federal court in
San Jose, California in June 1995. The financial statements for the first
quarter of fiscal 1995 included 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. Under the settlement, Radius' insurance carrier has paid
$3.7
-6-
million in cash and Radius will issue 128,695 shares of the Company's Common
Stock. The aggregate value of the settlement as of the settlement date was $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 4.6% to 5.2% depending on the number of shares of Radius stock
issued. The Company had 18,127,967 common and common equivalent shares
outstanding as of July 1, 1995.
NOTE 5. INCOME TAXES
For the three and nine month periods ended July 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 6. 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.
-7-
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 NINE MONTHS ENDED
JULY 1, JULY 1,
1995 1994 1995 1994
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.7 69.1 73.7 73.8
------ ------ ------ ------
Gross profit 25.3 30.9 26.3 26.2
------ ------ ------ ------
Operating expenses:
Research and development 5.7 6.5 5.5 8.0
Selling, general and administrative 21.1 22.2 19.4 23.1
------ ------ ------ ------
Total operating expenses 26.8 28.7 24.9 31.2
------ ------ ------ ------
Income (loss) from operations (1.5) 2.2 1.4 (5.0)
Interest expense, net (1.8) (0.3) (1.8) (0.2)
Settlement of litigation - - (4.9) -
------ ------ ------ ------
Income (loss) before income taxes (3.3) 1.9 (5.3) (5.2)
Provision (benefit) for income taxes 0.3 0.7 0.2 (1.9)
------ ------ ------ ------
Net income (loss) (3.6)% 1.2% (5.5)% (3.3)%
------ ------ ------ ------
------ ------ ------ ------
NET SALES
The Company's net sales increased 0.8% to $87.3 million in the third quarter of
fiscal 1995 from $86.7 million for the same quarter in fiscal 1994. Net sales
for the first nine months of fiscal 1995 decreased 2.7% to $247.3 million from
$253.6 million for the same period in fiscal 1994.
Net sales increased in the third quarter of fiscal 1995 compared to the prior
year's quarter primarily due to improved sales of digital video products and
raster imaging processors (RIPs) and to shipments of the Company's newly
introduced MacOS-based system products, although these gains were largely offset
by reduced sales of graphics cards and by price reductions. Net sales for the
quarter were lower than anticipated as a result of initial production delays and
component shortages relating to the Company's MacOS-based system products.
The decline in net sales during the nine month period resulted primarily from
reduced sales of graphics cards and from product returns and price reductions
relating to the consolidation of the Radius and SuperMac product lines following
the Merger.
While graphic card revenues declined in both the three and nine month periods,
graphics card revenue improved over the second quarter of fiscal 1995 due in
part to the introduction of a series of new cards for the Apple Power Macintosh
9500 and other Mac OS-based PCI bus computers. Sales for these products were
supported by strong channel sell through.
In the fourth quarter of fiscal 1995, the Company anticipates significantly
lower revenue from its digital video products primarily due to high sales
channel inventory levels of Radius Telecast, the Company's professional quality
high-end digital video product, resulting from the longer sale cycle, training
requirements, and technical issues associated with this new product. The
Company currently is implementing sales and marketing programs designed to
increase sales of Radius Telecast to end-users. The Company anticipates that
the decline in digital video product sales will be offset by improved
-8-
sales of MacOS-based system products, although there can be no assurance of such
improved sales as the Company is still in the early stages of implementing its
MacOS-based system business.
Ingram Micro, Inc. ("Ingram") accounted for 43.8% and 25.1% of the Company's
net sales for the three and nine month periods ended July 1, 1995, respectively.
For the corresponding periods of fiscal 1994, Ingram accounted for 11.0% and
12.0% of the Company's net sales. The increase in sales to Ingram reflects a
reduction in orders placed by many of the Company's other distributors and
resellers following the Company's announcement in June 1995 of a distribution
agreement that grants Ingram the exclusive right to distribute Radius branded
MacOS-based system products in the United States and Canada. The Company
believes that this exclusive distribution arrangement will facilitate effective
and focused marketing and distribution of its MacOS-based system products while
lowering the Company's sales, marketing and administrative costs. The extent to
which this exclusive distribution arrangement with Ingram will affect the size
of future orders from the Company's other distributors and resellers is
uncertain, but it is not expected to affect end-user sales.
The Company's third quarter export sales decreased to 32.9% of net sales from
37.1% of net sales in the same quarter of fiscal 1994. Export sales were 33.0%
of net sales for the nine month period of fiscal 1995 compared to 34.1% in the
same period in fiscal 1994.
GROSS PROFIT
The Company's gross profit margin was 25.3% and 26.3% for the three and nine
month periods ending July 1, 1995, as compared with 30.9% and 26.2% for the
corresponding periods in fiscal 1994. The gross margin for the first nine
months of fiscal 1994 excluding restructuring charges was 31.4%.
The decline in gross margin for the three month period was primarily due to
higher than expected freight and distribution costs and to an additional
inventory reserve provision due to increased obsolete and excess inventory.
Excluding the restructuring charges, the decline in gross margin for the nine
month period was primarily due to lower sales of higher margin graphics 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 expects its gross margins to decline in the fourth quarter of fiscal
1995 due to three factors: significantly reduced revenue from higher margin
digital-video products; the high costs of production for its initial MacOS-based
system products reflecting start-up costs and component supply constraints
coupled with pricing pressure on such products due to recent price reductions by
Apple; and recently reduced prices on the Company's line of graphic cards for
MacOS-based PCI bus computers in anticipation of increased competition.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased to $4.9 million or 5.7% of net sales
in the third quarter of fiscal 1995 from $5.6 million or 6.5% of net sales in
the same quarter of fiscal 1994. Research and development expenses decreased
from $20.7 million or 8.0% of net sales for the first nine months of fiscal 1994
to $13.8 million or 5.5% of net sales for the corresponding period in fiscal
1995.
The decrease in research and development expenses in the three and nine month
periods was primarily due to the reduction of expenses as a result of the
Company's restructuring associated with the Merger. The merger-related
restructuring resulted in reduced costs primarily related to headcount,
depreciation, and facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $18.4 million or 21.1%
of net sales in the third quarter of fiscal 1995 from $19.2 million or 22.2% of
net sales in the same quarter of fiscal 1994. Selling, general and
administrative expenses decreased from $59.6 million or 23.1% of net sales for
the first nine months of fiscal 1994 to $48.7 million or 19.4% of net sales for
the corresponding period in fiscal 1995.
The decrease in selling, general and administrative expenses in the three and
nine month periods was primarily due to the reduction of expenses as a result of
the Company's restructuring associated with the Merger. The merger-related
restructuring resulted in reduced costs primarily related to headcount,
depreciation, and facilities. The reduction in selling, general and
administrative expenses as a percentage of sales was lower in the third quarter
than in the first nine months of
-9-
fiscal 1995 because of the Company's continuing investment in the MacOS-based
systems business and by higher than anticipated sales and marketing expenses.
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 July 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 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.
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 July 1, 1995 were as follows
(in thousands):
-10-
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 1,036 164
Employee severance 1,900 - 1,803 97
--------- ------- ------- -----
Total charges $16,590 $11,012 $5,317 $ 261
There have been no material changes in the restructuring plan or in the
estimates of the restructuring costs. The Company has $392,000 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
July 1, 1995 were as follows (in thousands):
Representing
----------------------------------------------
Cash Outlays
------------------------
Asset
Provision Write-Downs Completed Future
Adjust inventory levels $22,296 $19,200 $ 3,011 $ 85
Excess facilities 2,790 400 2,144 246
Revision of the operations business model 9,061 7,078 1,270 713
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,915 34
------- ------- --------
Total charges $43,407 $26,678 $15,651 $1,078
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 out source 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 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 $15.7 million
had been spent as of July 1, 1995. The Company used a line of credit to help
fund these cash requirements, and as of July 1, 1995, the Company had a cash
position of $16.3 million. There can be no assurance that the Company will not
incur additional charges to reflect costs associated with the Merger.
-11-
LITIGATION SETTLEMENT
The Company settled two securities class action lawsuits during the second
quarter of fiscal 1995 and the settlements were approved by the federal district
court in San Jose, California 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. Under the settlement, the Company's insurance carrier
paid $3.7 million in cash and the Company will issue 128,695 share of its Common
Stock to a class action settlement fund. The aggregate value of the settlement
as of the settlement date was $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, the Company paid $250,000 in cash and will
issue into a class action settlement fund 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. 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 4.6% to 5.2% depending on the number of shares of Radius stock
issued. The Company had 18,127,967 common and common equivalent shares
outstanding as of July 1, 1995.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision of $263,000 for the third quarter of fiscal
1995 as compared to a provision for taxes for the third quarter of fiscal 1994
of $580,000. 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 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 at July 1, 1995 was $16.3 million
compared to $16.0 million as of the end of the third quarter of fiscal 1994 and
$4.4 million at the end of the second fiscal quarter of fiscal 1995. The
increase in cash and cash equivalents reflects the closing of a private
placement during the quarter, the proceeds of which allowed the Company to build
inventory of MacOS-based systems components and reduce other vendor payables.
In the private placement, the Company sold 2,509,319 shares of its Common Stock
resulting in net proceeds of approximately $21.5 million.
At July 1, 1995, the Company's principal sources of liquidity included
approximately $16.3 million of cash and cash equivalents and $30.0 million in
inventory and working capital financing all of which was fully utilized under an
agreement with IBM Credit Corporation. In addition, the Company has a
$5.0 million line of credit with Silicon Valley Bank which was partially
utilized as of that date. As of July 1, 1995, the Company was not in
compliance with all financial covenants in connection with its agreement with
IBM Credit Corporation; however, the Company has since received a waiver of the
respective covenants. Additionally, the Company's Japanese subsidiary has a
revolving line of credit with a bank in Japan under which $3.6 million has been
utilized as of July 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 and has resulted in higher freight costs for
expedited
-12-
deliveries. The Company's low cash position is due in part to the Company's
investment in components for its MacOS-based systems and the Company is
currently in the process of transferring such component purchasing to its turn-
key manufacturer for these products. The adverse effect on the Company's
results of operations due to its low cash resources can be expected to continue
until such time as the Company is able to complete the transfer of component
purchasing for its MacOS-based systems to its turn-key manufacturer and return
to profitability, or generate additional cash from other sources.
Additional funds may be needed to finance the Company's development plans for
its MacOS compatibles and other products and for other purposes. 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 following:
The MacOS-based systems business has entailed, and will continue to 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. For example, the success of
the Company's MacOS-based systems business is subject to a number of factors
beyond the Company's control such as the cost and availability of components
(many of which are sole sourced), Apple's continued support of and commitment to
MacOS licensing, and pricing actions taken by Apple on its own computers. In
addition, as noted above, the Company's entry into the MacOS-based systems
business may require additional cash resources.
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. Moreover, 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
the NuBus to the PCI bus standard.
The Company's success is also 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 and all sales of Radius branded MacOS-
based systems products in the United Sates and Canada are made through Ingram.
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.
Other factors that could cost affect the Company's future operating results
include the Company's ability to control costs and various competitive factors
such as new product introductions, product enhancements, and aggressive
marketing and pricing practices.
Due to the foregoing, the dynamic nature of the Company's industry, general
economic conditions 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.
-13-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1992, Radius and certain of its officers and directors were named
as defendants in a securities class action litigation brought in the United
States District Court for the Northern District of California that sought
unspecified damages, prejudgment and postjudgment interest, attorneys' fees,
expert witness fees and costs, and equitable relief. In July 1994, 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 were named as defendants in a class action
litigation brought in the same court that sought 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 June 1995, the Court approved the settlement of both litigations and entered
a Final Judgment and Order of Dismissal. Under the settlement of the litigation
brought in 1992 against Radius, the Company's insurance carrier paid $3.7
million in cash and the Company will 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 paid $250,000 in cash and will issue into a
class action settlement fund 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.
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 patent; subsequent pleading indicates that the plaintiff contends that the
Company's VideoVision line of products infringe the patent. The Company has
filed an answer denying all the material allegations of the complaint and
believes it has meritorious defenses. The Company is entitled to a limited
indemnity to the action and intends to defend it vigorously in cooperation with
the indemnifying party(ies).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See attached exhibit index.
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed on June 28, 1995 in connection with the
announcement of the Company's sale of 2,509,319 shares of Common Stock.
-14-
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: August 14, 1995 RADIUS INC.
By: /s/
--------------------------------------
Charles W. Berger
Chairman, President, Chief Executive Officer
By: /s/
--------------------------------------
Robert W. Saltmarsh
Chief Financial Officer
-15-
EXHIBIT INDEX
Exhibit Sequentially
Number Title Numbered Page
------- ----- -------------
10.24 Distribution Agreement between Radius Inc. and
Ingram Micro, Inc. dated June 5, 1991 as amended
on April 1, 1992, May 31, 1995 and July 14, 1995.
(Confidential treatment has been requested with
respect to certain portions of this exhibit).
11.01 Computation of per share earnings
-16-