-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KDMyxsgAdmYl2AGS2ULyjhYyyCOp2Vhk4LDt15+Q0XKBPJb30HthtVcaDFDc9Q5B lieo7784oe4pWYF12DgxVQ== 0000914190-99-000185.txt : 19990505 0000914190-99-000185.hdr.sgml : 19990505 ACCESSION NUMBER: 0000914190-99-000185 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPRICO INC CENTRAL INDEX KEY: 0000720145 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 411749708 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11336 FILM NUMBER: 99609673 BUSINESS ADDRESS: STREET 1: 2800 CAMPUS DRIVE CITY: PLYMOUTH STATE: MN ZIP: 55441 BUSINESS PHONE: 6125514000 MAIL ADDRESS: STREET 1: 2800 CAMPUS DRIVE CITY: PLYMOUTH STATE: MN ZIP: 55441 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------------- FORM 10-Q [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 1999 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-11336 CIPRICO INC. (Exact name of Registrant as specified in its charter) DELAWARE 41-1749708 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2800 Campus Drive Plymouth, Minnesota 55441 (Address of principal executive offices) Registrant's telephone number, including area code: (612) 551-4000 Indicate by checkmark 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, $.01 par value, as of April 29, 1999 was 4,927,961 shares. 1 CIPRICO INC. AND SUBSIDIARIES FORM 10-Q INDEX Page PART I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets at March 31, 1999 and September 30, 1998 3 Condensed Consolidated Statements of Earnings for Three and Six Months Ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows for Six Months Ended March 31, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 11 PART II Other Information Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 EXHIBIT INDEX 14 2
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) March 31, September 30, 1999 1998 --------- ------------- ASSETS Current assets: Cash and cash equivalents $ 9,760 $ 9,030 Marketable securities 17,449 18,945 Accounts receivable, less allowance 5,983 5,667 Inventories 3,913 3,755 Deferred income taxes 738 738 Other current assets 402 1,586 ---------- ---------- Total current assets 38,245 39,721 Property and equipment, net 4,315 4,511 Marketable securities 8,012 5,016 Other assets 209 225 ---------- ---------- Total assets $ 50,781 $ 49,473 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,017 $ 2,438 Accrued expenses 1,221 908 Deferred revenue 675 818 ---------- ---------- Total current liabilities 4,913 4,164 Shareholders' equity: Capital stock 49 49 Additional paid-in capital 35,751 35,983 Retained earnings 10,157 9,353 Deferred compensation from restricted stock (89) (76) ---------- ---------- Total shareholders' equity 45,868 45,309 ---------- ---------- Total liabilities and shareholders' equity $ 50,781 $ 49,473 ========== ========== See accompanying notes to condensed consolidated financial statements.
3 CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands except Three Months Ended Six Months Ended per share amounts) March 31, March 31, --------- --------- 1999 1998 1999 1998 -------- --------- --------- --------- NET SALES $ 8,615 $ 10,564 $ 16,389 $ 17,824 Cost of sales 4,185 5,318 8,051 9,002 -------- --------- -------- -------- GROSS PROFIT 4,430 5,246 8,338 8,822 OPERATING EXPENSES: Research and development expense 1,061 1,029 2,201 1,908 Sales and marketing expenses 2,234 2,172 4,316 3,960 General and administrative expenses 767 849 1,443 1,480 -------- --------- -------- -------- Total operating expenses 4,062 4,050 7,960 7,348 -------- --------- -------- -------- INCOME FROM OPERATIONS 368 1,196 378 1,474 Other income, primarily interest 421 493 844 1,010 -------- --------- -------- -------- INCOME BEFORE INCOME TAXES 789 1,689 1,222 2,484 Income tax expense 267 574 418 844 -------- --------- -------- -------- NET INCOME $ 522 $ 1,115 $ 804 $ 1,640 ======== ========= ======== ======== NET INCOME PER SHARE - BASIC $ .11 $ .22 $ .16 $ .32 ======== ========= ======== ======== NET INCOME PER SHARE - DILUTED $ .10 $ .21 $ .16 $ .31 ======== ========= ======== ======== Shares used to calculate net earnings per share: Basic 4,897 5,061 4,898 5,099 Diluted 5,003 5,283 4,999 5,333 See accompanying notes to condensed consolidated financial statements.
4 CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) Six Months Ended March 31, --------- 1999 1998 ---------- ---------- Cash flows from operating activities: Net income $ 804 $ 1,640 Depreciation and amortization 1,297 891 Changes in operating assets and liabilities 1,506 924 ---------- --------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 3,607 3,455 ---------- --------- Cash flows from investing activities: Equipment purchases (1,104) (1,076) Purchases of marketable securities (27,670) (22,150) Proceeds from sale or maturity of marketable securities 26,170 27,625 ---------- --------- NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,604) 4,399 ---------- --------- Cash flows from financing activities: Repurchase of common stock (576) (3,018) Proceeds from issuance of common stock 303 269 ---------- --------- NET CASH FLOWS USED IN FINANCING ACTIVITIES (273) (2,749) ---------- --------- Net increase in cash and cash equivalents 730 5,105 Cash and cash equivalents at beginning of period 9,030 4,512 ---------- --------- Cash and cash equivalents at end of period 9,760 9,617 Marketable securities, current 17,449 19,315 Marketable securities, long-term 8,012 7,500 ---------- --------- Total cash and marketable securities $ 35,221 $ 36,432 ========== ========= See accompanying notes to condensed consolidated financial statements.
5 CIPRICO INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 (Unaudited) NOTE A - BASIS OF PRESENTATION The principal business activity of Ciprico Inc. and subsidiaries (the Company) is the design, manufacture, marketing and service of disk array solutions for use in high performance computer systems for the visual computing and digital media markets. The Company markets its products worldwide through a direct sales force and various distribution channels. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all necessary adjustments, consisting only of a recurring nature, and disclosures to present fairly the financial position as of March 31, 1999 and the results of operations and cash flows for the three-month and six-month periods ended March 31, 1999 and 1998. The results of operations for the six months ended March 31, 1999 are not necessarily indicative of the results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report to Shareholders for fiscal 1998. In preparation of the Company's consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management. NOTE B - MARKETABLE SECURITIES The Company has invested its excess cash in commercial paper and government agencies. These investments are classified as held-to-maturity given the Company's intent and ability to hold the securities to maturity and are carried at amortized cost. Investments that have maturities of less than one year have been classified as current marketable securities. At March 31, 1999 and September 30, 1998, amortized cost approximates fair value of held-to-maturity investments which consist of the following: (In thousands) March 31, September 30, 1999 1998 -------- ------------ Current marketable securities: Commercial Paper $ 8,947 $ 8,945 U.S. Government Agencies 8,502 10,000 ---------- ---------- 17,449 18,945 Non-current marketable securities: U.S. Government Agencies 8,012 5,016 ---------- ---------- $ 25,461 $ 23,961 ========= ========= NOTE C - SHAREHOLDERS' EQUITY During 1998, the Company initiated a stock buyback program of up to $6.0 million. As of March 31, 1999, 439,400 shares of common stock have been repurchased for $4,827,200. NOTE D - NET EARNINGS PER SHARE The Company's basic net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares. The Company's diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common 6 share equivalents relating to stock options, when dilutive. For the three months ended March 31, 1999 and 1998, 105,685 and 222,235 shares of common stock equivalents were included in the computation of diluted net earnings per share. Options to purchase 608,325 and 331,788 shares of common stock with a weighted average exercise price of $13.38 and $14.96 were outstanding at March 31, 1999 and 1998, but were excluded from the computation of common share equivalents for the three-month period because they were antidilutive. For the six months ended March 31, 1999 and 1998, 100,974 and 233,726 shares of common stock equivalents were included in the computation of diluted net earnings per share. Options to purchase 719,825 and 331,788 shares of common stock with a weighted average exercise price of $12.58 and $14.96 were outstanding at March 31, 1999 and 1998, but were excluded from the computation of common share equivalents for the six-month period because they were antidilutive. NOTE E - SEGMENT INFORMATION The Company operates in a single reportable segment. The following presents net sales for the six months ended March 31, 1999 and 1998 by geographic area. The Company has no material long-lived assets outside of the United States. (In thousands) 1999 1998 --------- --------- Geographic Area United States $ 11,950 $ 14,649 Europe 2,547 516 Japan 970 1,539 Other foreign 922 1,120 ---------- ---------- $ 16,389 $ 17,824 ========== ========== Sales to one customer accounted for 31% and 35% of total sales for the six months ended March 31, 1999 and 1998. NOTE F - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On October 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive income includes certain changes in equity that were excluded from net earnings. The adoption of this statement did not impact the Company's consolidated financial statement; historically there have been no differences between net earnings and comprehensive income. The Financial Accounting Standards Board has also issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is effective for fiscal years beginning after June 15, 1999. SFAS 133 requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. SFAS 133 also specifies new methods of accounting for derivatives used in risk management strategies (hedging activities), prescribes the items and transactions that may be hedged, and specifies detailed criteria required to qualify for hedge accounting. The adoption of this standard is not expected to have a material effect on the consolidated financial statements of the Company. 7 CIPRICO INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Three and Six Months Ended March 31, 1999 Compared to Three and Six Months Ended March 31, 1998 Net sales for the three-month period ended March 31, 1999 decreased 18% to $8.6 million compared to $10.6 million for the same period last year. For the six-month period ended March 31, 1999, net sales decreased 8% to $16.4 million compared to $17.8 million for the same prior year period. The decrease is primarily attributable to the impact of one unusually large order in the second quarter of fiscal 1998. Sales in the Company's key markets for the six-month period ending March 31, 1999 are shown in the chart below (in millions).
Market 1999 % of Total 1998 % of Total - ------ ---- ---------- ---- ---------- Geospatial Imaging (formerly Remote Sensing $6.7 40.9% $6.5 36.5% and Defense Imaging) Entertainment 6.4 39.0 4.3 24.2 Geosciences .9 5.5 5.1 28.6 Medical Imaging 1.1 6.7 1.0 5.6 Other .3 7.9 .9 5.1 ----- ------ ----- ---- $16.4 100.0% $17.8 100.0% ===== ====== ===== ======
For the third consecutive quarter, the Geospatial Imaging market was the Company's largest market. Revenues in this market, however, are highly dependent on the timing of large orders. Revenues in the Entertainment market came from broadcast opportunities as well as postproduction opportunities. Historically, revenues in this market have come almost exclusively from postproduction applications. The Company anticipates continued growth in this market in fiscal 1999 as it proceeds to focus on broadcast applications. Revenues in the Geosciences market are being impacted by the decrease in oil prices, while the increase in other sales is primarily the result of an increase in emerging market sales. International sales represented 27% and 18% of total sales for the six months ended March 31, 1999 and 1998. International sales have increased 40% over the same period last year, with most of the growth coming from Europe. Sales through Silicon Graphics Inc. (SGI) totaled $2.6 million or 30% for the three-month period ended March 31, 1999 compared to $4.0 million or 38% for the same prior year period. For the six-month period ended March 31, 1999, sales through SGI totaled $5.1 million or 31% of total sales compared to $6.3 million or 35% for the same period last year. For the three-month and six-month periods ended March 31, 1999, no other customer accounted for 10% or more of total sales. The Company's revenue growth in fiscal 1999 is dependent on its ability to provide new products and expand the applications of its products into targeted market segments. Revenues from the FibreSTORE product released in December 1998 totaled approximately $850,000 for the six months ended March 31, 1999. Gross profit, as a percentage of net sales, for the three-month and six-month periods ended March 31, 1999 was 51% compared to 50% and 49% for the same periods last year. This increase in the margin percentage is the result of a strong sales mix of higher margin Fibre Channel products as well as reduced component costs. Gross profit margins are highly dependent on the Company's ability to transition to new generation disk drives and to manage the rapid decline in disk drive prices. The Company anticipates fiscal 1999 gross profit, as a percentage of net sales, to continue in the high forty percent range. Research and development expenses increased $32,000, or 3%, for the current quarter as compared to the same quarter of last year and $293,000, or 15%, for the six months ended March 31, 1999 as compared to the same period last fiscal year. The increase can primarily be attributed to outside (more) 8 professional services and prototype material costs. The Company expects that research and development expenses in fiscal 1999 will approximate the level of spending in fiscal 1998. Sales and marketing expenses increased $62,000, or 3%, for the current quarter as compared to the same quarter of last year and $356,000, or 9%, for the six months ended March 31, 1999 as compared to the same period last fiscal year. The increase can be attributed to costs associated with realigning the Company's marketing and promotion efforts along its vertical markets. The Company expects that sales and marketing expenses will continue to grow at a lesser rate in fiscal 1999 than the 23% rate of growth in fiscal 1998. General and administrative expenses decreased $82,000, or 10%, for the current quarter as compared to the same quarter of last year and $37,000, or 3%, for the six months ended March 31, 1999 as compared to the same period last fiscal year. The Company anticipates that general and administrative expenses in fiscal 1999 will approximate the level of spending in fiscal 1998. Other Income of $421,000 and $844,000 for the three-month and six-month periods ended March 31, 1999 decreased 15% and 16% compared to the same periods last year due to lower interest rates and interest income on lower average cash and investment balances. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, the Company had cash, cash equivalents and marketable securities totaling $35.2 million compared to $33.0 million at the end of fiscal 1998. Cash flows from operating activities were $3.6 million for the six months ended March 31, 1999 compared to $3.5 million for the same period last year. The Company made capital expenditures totaling $1.1 million during the six months ended March 31, 1999 and 1998. The Company anticipates that capital expenditures for fiscal 1999 will approximate $3 million. During fiscal 1998, the Company initiated a stock buyback program of up to $6.0 million. During the six months ended March 31, 1999, 80,000 shares of common stock were purchased for $576,000. The remaining authorization as of March 31, 1999 is for $1.2 million. Management believes that current cash balances and cash generated from operations will be adequate to fund requirements for working capital and capital expenditures, as well as any potential acquisition in fiscal 1999. IMPACT OF YEAR 2000 ISSUE The Company initiated a Year 2000 readiness program in June 1998. To date the Company has reviewed all currently manufactured Ciprico products and critical information systems. As a result of this process, the Company upgraded software and hardware to achieve Year 2000 readiness, and believes its products and information systems will continue to function through the transition to the new millenium. The Company has also sent questionnaires to critical suppliers to ensure their ability to provide uninterrupted service in the year 2000. If any problem(s) is/are revealed during the remainder of this process, it is the Company's objective to correct the situation or develop backup strategies by September 1999. The cost associated with the assessment and any modifications necessary is expected to be less than $200,000. Ultimately, the potential impact of the Year 2000 issue will depend not only on the actions taken by the Company, but also on the way in which the Year 2000 issue is addressed by customers, vendors, service providers, utilities, governmental agencies and other entities with which the Company does business. The Year 2000 efforts of third parties are not within the Company's control. Failure by these third parties, particularly those upon which the Company may be dependent, to respond to Year 2000 issues successfully could result in business disruption, operational problems, financial loss, legal liability and similar risks for the Company. At the present time, it is not possible to determine whether any such events are likely to occur, or to quantify any potential negative impact they may have on the Company's future results of operations and financial condition. 9 FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements imply continued financial improvement. Because of numerous risks and uncertainties in the Company's business activity, actual results could differ materially from those implied. Investors should consider: the impact on revenues and earnings of the timing of product enhancements and new product releases; market acceptance of new products; sales and distribution issues; competition; dependence on suppliers; dependence on the cost of disk drives; limited backlog; the historic and recurring pattern of a disproportionate percentage of total quarterly sales occurring in the last month and weeks of a quarter and the impact of Year 2000 issues internally and from third parties. For a more complete description, see "Forward-looking Information" under Item 1 of the Company's Form 10-K for the year ended September 30, 1998. 10 CIPRICO INC. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company invests its excess cash in commercial paper and highly rated U.S. government agencies. All investments are held-to-maturity. The market risk on such investments is minimal. Receivables from sales to foreign customers are denominated in U.S. Dollars. If the currencies of these countries were to fall significantly against the U.S. Dollar, there can be no assurance that such companies would be able to repay the receivables in full. Transactions at the Company's foreign subsidiaries, Ciprico International Limited and Ciprico Asia-Pacific Inc. are denoted in pound sterling and yen, respectively. The Company has historically had minimal exposure to changes in foreign currency exchange rates, and as such, has not used derivative financial instruments to manage foreign currency fluctuation risk. 11 CIPRICO INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 - Financial Data Schedule (filed in electronic format only) (b) No report on Form 8-K was filed during the quarter ended March 31, 1999. 12 CIPRICO INC. AND SUBSIDIARIES 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. CIPRICO INC. Dated: April 29, 1999 /s/ Robert H. Kill Robert H. Kill, President (Principal Executive Officer) Dated: April 29, 1999 /s/ Joan K. Berg Joan K. Berg, Vice President of Finance/Chief Financial Officer (Principal Financial and Accounting Officer) 13 CIPRICO INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule (filed in electronic format only) 14 EX-27 2 FDS FOR 2ND QTR 10-Q
5 1,000 U.S. Dollars 6-MOS SEP-30-1999 JAN-01-1999 MAR-31-1999 1 9,760 25,461 6,300 317 3,913 38,245 11,430 7,115 50,781 4,913 0 0 0 35,800 10,068 50,781 16,389 16,389 8,051 16,011 0 176 12 1,222 418 804 0 0 0 804 .16 .16
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