-----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, VovnoDzOUKCXdfYNm19aA6vnFMMBQErgIhww4VyaqbKbsRQEYyeANy1FNV9VNlAD wpUE8lIAjQQkRs83Q5kvvQ== 0000914190-99-000270.txt : 19990805 0000914190-99-000270.hdr.sgml : 19990805 ACCESSION NUMBER: 0000914190-99-000270 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990804 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: 99677395 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 June 30, 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 July 23, 1999 was 4,938,406 shares. 1 CIPRICO INC. AND SUBSIDIARIES FORM 10-Q INDEX Page PART I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets at June 30, 1999 and September 30, 1998 3 Condensed Consolidated Statements of Earnings for Three and Nine Months Ended June 30, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows for Nine Months Ended June 30, 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) June 30, September 30, 1999 1998 -------- ------------- ASSETS Current assets: Cash and cash equivalents $ 3,382 $ 9,030 Marketable securities 23,373 18,945 Accounts receivable, less allowance 5,916 5,667 Inventories 4,347 3,755 Deferred income taxes 738 738 Other current assets 494 1,586 ---------- ---------- Total current assets 38,250 39,721 Property and equipment, net 3,968 4,511 Marketable securities 9,008 5,016 Other assets 202 225 ---------- ---------- Total assets $ 51,428 $ 49,473 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,574 $ 2,438 Accrued expenses 1,778 908 Deferred revenue 805 818 ---------- ---------- Total current liabilities 5,157 4,164 Shareholders' equity: Capital stock 49 49 Additional paid-in capital 35,518 35,983 Retained earnings 10,821 9,353 Deferred compensation from restricted stock (117) (76) ---------- ---------- Total shareholders' equity 46,271 45,309 ---------- ---------- Total liabilities and shareholders' equity $ 51,428 $ 49,473 ========== ==========
See accompanying notes to condensed consolidated financial statements. 3 CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except Three Months Ended Nine Months Ended per share amounts) June 30, June 30, -------- -------- 1999 1998 1999 1998 --------- --------- --------- --------- NET SALES $ 9,108 $ 4,895 $ 25,497 $ 22,719 Cost of sales 4,455 2,480 12,506 11,482 ----------- ---------- ---------- ---------- GROSS PROFIT 4,653 2,415 12,991 11,237 OPERATING EXPENSES: Research and development expense 942 1,205 3,143 3,113 Sales and marketing expenses 2,401 2,198 6,717 6,158 General and administrative expenses 765 715 2,208 2,195 ----------- ---------- ---------- ---------- Total operating expenses 4,108 4,118 12,068 11,466 ----------- ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS 545 (1,703) 923 (229) Other income, primarily interest 458 513 1,302 1,523 ----------- ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 1,003 (1,190) 2,225 1,294 Income tax expense 339 (405) 757 439 ----------- ----------- ---------- ---------- NET INCOME (LOSS) $ 664 $ (785) $ 1,468 $ 855 =========== =========== ========== ========== NET EARNINGS (LOSS) PER SHARE - BASIC $ .14 $ (.16) $ .30 $ .17 =========== =========== ========== ========== NET EARNINGS (LOSS) PER SHARE - DILUTED $ .13 $ (.16) $ .29 $ .16 =========== =========== ========== ========== Shares used to calculate net earnings per share: Basic 4,918 4,901 4,905 5,058 Diluted 5,002 4,901 5,000 5,276
See accompanying notes to condensed consolidated financial statements. 4 CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) Nine Months Ended June 30, -------- 1999 1998 ---------- ---------- Cash flows from operating activities: Net income $ 1,468 $ 855 Depreciation and amortization 1,949 1,391 Changes in operating assets and liabilities 1,313 1,451 ---------- --------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 4,730 3,697 ---------- --------- Cash flows from investing activities: Equipment purchases (1,403) (1,327) Purchases of marketable securities (47,473) (37,384) Proceeds from sale or maturity of marketable securities 39,053 38,844 ---------- --------- NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES (9,823) 133 ---------- --------- Cash flows from financing activities: Repurchase of common stock (1,041) (3,985) Proceeds from issuance of common stock 486 468 ---------- --------- NET CASH FLOWS USED IN FINANCING ACTIVITIES (555) (3,517) ---------- --------- Net increase (decrease) in cash and cash equivalents (5,648) 313 Cash and cash equivalents at beginning of period 9,030 4,512 ---------- --------- Cash and cash equivalents at end of period 3,382 4,825 Marketable securities, current 23,373 23,327 Marketable securities, long-term 9,008 7,503 ---------- --------- Total cash and marketable securities $ 35,763 $ 35,655 ========== =========
See accompanying notes to condensed consolidated financial statements. 5 CIPRICO INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 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 June 30, 1999 and the results of operations and cash flows for the three-month and nine-month periods ended June 30, 1999 and 1998. The results of operations for the nine months ended June 30, 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 June 30, 1999 and September 30, 1998, amortized cost approximates fair value of held-to-maturity investments which consist of the following: (In thousands) June 30, September 30, 1999 1998 ------- ------------ Current marketable securities: Commercial Paper $ 14,870 $ 8,945 U.S. Government Agencies 8,503 10,000 ---------- ---------- 23,373 18,945 Non-current marketable securities: U.S. Government Agencies 9,008 5,016 ---------- ---------- $ 32,381 $ 23,961 ========== ========== NOTE C - SHAREHOLDERS' EQUITY During 1998, the Company initiated a stock buyback program of up to $6.0 million. As of June 30, 1999, 492,900 shares of common stock have been repurchased for $5,291,882. 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 6 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 share equivalents relating to stock options, when dilutive. For the three months ended June 30, 1999, 84,291 shares of common stock equivalents were included in the computation of diluted net earnings per share. Options to purchase 592,452 and 482,200 shares of common stock with a weighted average exercise price of $13.32 and $14.33 were outstanding at June 30, 1999 and 1998, but were excluded from the computation of common share equivalents for the three-month period because they were antidilutive. For the nine months ended June 30, 1999, 95,045 shares of common stock equivalents were included in the computation of diluted net earnings per share. Options to purchase 696,952 and 456,600 shares of common stock with a weighted average exercise price of $12.56 and $14.42 were outstanding at June 30, 1999 and 1998, but were excluded from the computation of common share equivalents for the nine-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 nine months ended June 30, 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 $ 19,162 $ 17,825 Europe 3,483 1,788 Japan 1,605 1,723 Other foreign 1,247 1,383 -------- -------- $ 25,497 $ 22,719 ======== ======== Sales to one customer accounted for 31% and 38% of total sales for the nine months ended June 30, 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 statements; 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, 2000. 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 Nine Months Ended June 30, 1999 Compared to Three and Nine Months Ended June 30, 1998 Net sales for the three-month period ended June 30, 1999 increased 86% to $9.1 million compared to $4.9 million for the same period last year. For the nine-month period ended June 30, 1999, net sales increased 12% to $25.5 million compared to $22.7 million for the same prior year period. The increase is primarily attributable to growth in the Geospatial Imaging and Entertainment markets, offset by decreases in capital expenditures in the Geosciences market. Sales in the Company's key markets for the nine-month period ending June 30, 1999 are shown in the chart below (in millions).
Market 1999 % of Total 1998 % of Total - ------ ---- ---------- ---- ---------- Geospatial Imaging (formerly Remote Sensing $10.4 40.8% $7.6 33.5% and Defense Imaging) Entertainment 10.4 40.8 6.3 27.7 Geosciences 1.2 4.7 6.2 27.3 Medical Imaging 1.7 6.7 1.5 6.7 Other 1.8 7.0 1.1 4.8 ---- ---- ---- ---- $25.5 100.0% $22.7 100.0% ===== ====== ===== ======
The Geospatial Imaging market continues to be strong, comprising 40% of the Company's revenue for the nine months ending June 30, 1999. Revenue in this market, however, is highly dependent on the timing of large orders. Revenues in the Entertainment market also comprised 40% of the Company's revenue for the nine months ending June 30, 1999 and came from broadcast opportunities as well as postproduction opportunities. In previous years, revenues in this market have come almost exclusively from postproduction applications. The Company anticipates continued growth in this market in fiscal 1999 as customers implement additional broadcast applications. As a result of depressed oil prices earlier in the year, capital spending was reduced in the Geosciences market; the Company has not seen an indication that spending in this market will recover significantly in the next quarter and believes its revenues in the Geosciences market will be lower than the previous year revenues. International sales represented 25% and 19% of total sales for the nine months ended June 30, 1999 and 1998. International sales have increased 29% over the same period last year, with most of the growth coming from Europe. Sales through Silicon Graphics Inc. (SGI) totaled $2.9 million or 31% for the three-month period ended June 30, 1999 compared to $2.3 million or 47% for the same prior year period. For the nine-month period ended June 30, 1999, sales through SGI totaled $7.9 million or 31% of total sales compared to $8.6 million or 38% for the same period last year. No other customer accounted for 10% or more of total sales for the nine-month period of either year. 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 $1.5 million for the nine months ended June 30, 1999. The scheduled release of the FibreSTORE RAID product is anticipated to occur in the first quarter of fiscal 2000 and should contribute to incremental revenues once released. Gross profit, as a percentage of net sales, for both the three-month and nine-month periods ended June 30, 1999 was 51% compared to 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 8 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 to be higher than prior year levels. Research and development expenses decreased $263,000, or 22%, for the current quarter as compared to the same quarter of last year and increased $30,000, or 1%, for the nine months ended June 30, 1999 as compared to the same period last fiscal year. The three month decrease results from decreased consulting costs, partially offset by increased compensation and prototype material costs. The nine month increase is primarily the result of increased prototype material costs compared to the same period of the prior year. 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 $203,000, or 9%, for the current quarter as compared to the same quarter of last year and $559,000, or 9%, for the nine months ended June 30, 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 but at a lesser rate for the balance of 1999. General and administrative expenses increased $50,000, or 7%, for the current quarter as compared to the same quarter of last year and $13,000, or 1%, for the nine months ended June 30, 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 $458,000 and $1,302,000 for the three-month and nine-month periods ended June 30, 1999 decreased 11% and 15% 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 June 30, 1999, the Company had cash, cash equivalents and marketable securities totaling $35.8 million compared to $33.0 million at the end of fiscal 1998. Cash flows from operating activities were $4.7 million for the nine months ended June 30, 1999 compared to $3.7 million for the same period last year. The Company made capital expenditures totaling $1.4 and $1.3 million during the nine months ended June 30, 1999 and 1998 respectively. The Company anticipates that capital expenditures for fiscal 1999 will approximate $2.5 million. During fiscal 1998, the Company initiated a stock buyback program of up to $6.0 million. During the nine months ended June 30, 1999, 133,500 shares of common stock were purchased for $1,041,000. The remaining authorization as of June 30, 1999 is for approximately $700,000. 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. 9 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 customers, vendors, service providers, utilities, governmental agencies and other entities with which the Company does business address the Year 2000 issue. 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. 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 June 30, 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: August 3, 1999 /s/ Robert H. Kill Robert H. Kill, President (Principal Executive Officer) Dated: August 3, 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 3RD QUARTER 10-Q
5 1,000 U.S. Dollars 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 1 3,382 32,381 6,643 418 4,347 38,250 11,380 7,412 51,428 5,157 0 0 0 35,567 10,704 51,428 25,497 25,497 12,506 24,574 0 278 14 2,225 757 1,468 0 0 0 1,468 .30 .29
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