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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission file number 0-26844
RADISYS CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-0945232
(State or other jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification Number)
5445 N.E. Dawson Creek Drive
Hillsboro, OR 97124
(Address of principal executive offices,
including zip code)
(503) 615-1100
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 the filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. |_|
Aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 22, 2001: $285,777,400. For purposes of the calculation
executive officers, directors and holders of 10% or more of the outstanding
Common Stock are considered affiliates.
Number of shares of Common Stock outstanding as of March 22, 2001: 17,162,880
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K into which Incorporated
- ------------------------------------ -----------------------------------------
Proxy Statement for 2001 Annual Part III
Meeting of Shareholders
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RADISYS CORPORATION
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business ............................................... 2
Item 2 Properties ............................................. 12
Item 3 Legal Proceedings ...................................... 12
Item 4 Submission of Matters to a Vote of Security Holders .... 12
Item 4(a) Executive Officers of the Registrant .................... 12
Part II
Item 5 Market for the Registrant's Common Equity
and Related Shareholder Matters ........................ 14
Item 6 Selected Financial Data ................................ 15
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 15
Item 8 Financial Statements and Supplementary Data ............ 20
Item 9 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure ................. 38
Part III
Item 10 Directors and Executive Officers of the Registrant ..... 38
Item 11 Executive Compensation ................................. 38
Item 12 Security Ownership of Certain Beneficial Owners
and Management ......................................... 38
Item 13 Certain Relationships and Related Transactions ......... 38
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K .................................... 38
Signatures ................................................................. 42
1
PART I
ITEM 1. Business
RadiSys Corporation is the leading independent provider of building blocks
enabling next-generation Internet and Communications systems. The Company's
building blocks are design-intensive and require substantial engineering
knowledge and a comprehensive understanding of the end product into which the
building blocks are incorporated. All references to "we," "us," "our,"
"RadiSys," or "the Company" in this Annual Report on Form 10-K mean RadiSys
Corporation.
RadiSys primarily sells building blocks to original equipment
manufacturers, or OEMs. The Company's customers include many leading OEMs, such
as AG Communication Systems, Agilent Technologies, Alcatel, Applied Materials,
Inc., Avaya, Inc., Cisco Systems, Inc., Comverse Network Systems, LTD., Fuji
Machine Manufacturing Company, Ltd., International Business Machines
Corporation, Lucent Technologies, Inc., Nokia Corporation, Nortel Networks
Limited, and Philips Medical Systems N.E.D. B.V. RadiSys' customers use the
Company's building blocks in a broad range of applications such as:
Communications Equipment Applications Equipment
------------------------ ----------------------
o Switch (circuit, packet, optical, cellular) o Electronics assembly
equipment
o Gateways (media, trunking, access, signaling) o Test and measurement
equipment
o Wireless base station controller o Medical equipment
o Softswitch o Ticket terminal
o Servers (home location, register, SCP)
o Voice mail platforms
o PBX
o Voice recorder
In recent years, faster time-to-market requirements, the increasing
complexity of electronic systems and components and a growing trend to
rationalize internal manufacturing resources have led to significant growth in
the outsourcing of design and manufacture of components, electronics subsystems
and complete systems by OEMs. RadiSys has responded to this opportunity by
offering a broad set of building blocks. RadiSys believes these building blocks
allow the Company to meet the diverse needs of its customers and enable the
Company to achieve a faster time-to-market. The Company's building blocks
incorporate hardware and software and range in terms of the level of integration
from custom-designed chips to single-board computers to subsystems to complete
systems. RadiSys' building blocks support both peripheral component
interconnect, or PCI, and CompactPCI, the two dominant bus architectures of
systems within the communications and the Company's other target markets. The
Company has four categories of building blocks that are required to build
complete systems in each of the target markets.
o Central Processing Unit. Central processing units, or CPUs, provide
the primary logic processing and system control functions in a
system. RadiSys has significant expertise in developing CPU building
blocks based on Intel architectures, including the Celeron, Pentium,
Pentium II, Pentium III, and StrongArm processors, which run
industry standard operating systems and applications. Embedded CPUs
have been the Company's heritage since incorporation in 1987.
o Digital Signal Processing. Digital signal processing, or DSP,
converts analog signals, like voice, video, music and graphics, to
and from digital signals. Utilizing the high performance DSP
architecture from Texas Instruments, RadiSys provides comprehensive
voice processing solutions that include PCI and CompactPCI hardware
modules, Telephony, Fax and Voice Coder algorithms along with other
higher layer software frameworks and Application Platform Interfaces
(APIs). Such solutions are intended to accelerate customer product
development for Voice over IP, Softswitch and Media processing
applications.
o Network Interface Modules. Network interface modules enable the
exchange of information across long distances using various voice
and data communications technologies. For example, the Company's
network interface building blocks enable OEMs to build SS7
infrastructure products for
2
the Advanced Intelligent Networks (AIN). These solutions enable
customers to build their next generation systems with much higher
density and reduce their floor space significantly. In addition,
RadiSys has utilized Intel's Network Processor, IXP 1200, to build
the industry's first CompactPCI solutions to cater to the packet
processing needs of OEM customers' next generation equipment. Packet
processing needs may originate from both Voice-over-Packet and
Security/Firewalls applications.
o Platforms. RadiSys can design, configure, manufacture, package and
test a wide range of components, single-board computers, subsystems
and complete systems to provide products that meet the requirements
of the Company's OEM customers.
The Company believes an increasing portion of building blocks is and will
continue to be based on Intel processor architecture. RadiSys has approximately
268 engineers and technicians with extensive expertise in Intel architecture,
and the Company is one of only ten applied computer platform providers for Intel
Corporation. RadiSys works closely with Intel's Network Communications Group to
develop and market chip-level, board-level, subsystem-level and system-level
products for the embedded computer market to facilitate the implementation of
Intel architecture and Internet eXchange Architecture designs into a broadening
array of new OEM products.
RadiSys Strategy
The Company intends to capitalize on its position as the leading provider
of building blocks enabling next-generation Internet and communications systems.
The key elements of the Company's strategy are as follows:
Leverage the Company's broad set of layered, building blocks to become a
complete system provider to a larger number of OEMs. RadiSys intends to actively
market its current portfolio of building blocks to existing and new customers.
The Company also intends to expand its capabilities within each of the four key
categories of building blocks by continually adding new building blocks and by
addressing new applications as they emerge. The Company plans to expand its
product portfolio through either internal development or strategic acquisitions.
The goal is to become a complete system provider to the Company's customers. As
OEMs increasingly seek to reduce their number of suppliers, RadiSys believes
that this strategy will strengthen its position as a preferred supplier and
increase revenue opportunities with each customer.
Capitalize on Intel architecture expertise to expand market share. The
Company believes that an increasing portion of building blocks will be based on
the Intel X86 and Internet eXchange Architectures. Radisys intends to capitalize
on its Intel architecture expertise and the Company's close working relationship
with Intel to continue to design and manufacture innovative Intel-based building
blocks. The Company is working together with Intel's Network Communications
Group to develop and market chip-level, board-level, subsystem-level and
system-level products for the communications market to facilitate the
implementation of Intel architecture and Internet eXchange Architecture designs
into a broadening array of new OEM products.
Expand and leverage the Company's "virtual division" presence. RadiSys
strives to use its broad product offerings and substantial design expertise to
become a seamless, or "virtual" division of its OEM customers. The Company
believes close customer relationships often lead to additional design wins. A
design win is defined as a project estimated to produce revenue in excess of
$500,000 a year when in production. For example, in 2000, 46 out of 76 new
design wins reported were with existing customers. In the initial phases of a
relationship, the Company establishes close communication links with its
customers to enable development personnel and RadiSys engineering personnel to
interact on a real-time basis. The Company's comprehensive understanding of
embedded computer technology and applications assists the customer in resolving
its overall product design issues while regular customer feedback enables
RadiSys to increase and continually refresh its understanding of customers'
specific design requirements. By working closely with its customers during the
design process, RadiSys is able to deliver "perfect fit" custom integrated
solutions that meet its customers' performance, cost, functionality and
time-to-market needs, and gain valuable insight into their requirements for next
generation products.
3
Products
RadiSys designs and manufactures a broad array of building blocks based on
Intel architecture that range from standard to custom products. The Company's
primary focus is on the sale of custom, or "perfect fit" products that are
designed to address the specific requirements of the Company's OEM customers.
RadiSys offers perfect fit and standard solutions at incremental levels of
integration:
o Chip-level: products used as components for higher levels of
integration and for direct sale to customers who build their own
board-level solutions;
o Board-level: products integrated within subsystems or complete
systems;
o Subsystem-level: application-specific embedded subsystems designed
for integration into complete systems by the OEM; and
o Complete system-level: customer-ready systems designed to function
without additional OEM integration.
Perfect Fit Solutions. RadiSys' perfect fit solutions range from
modifications of standard products to newly developed custom solutions. The
Company draws on its extensive experience and large design library to create
products with varying degrees of customization. The development of custom
solutions requires close and frequent communication with its customers during
the design process and a comprehensive understanding of technology in order to
assist the customer in meeting its product design requirements. RadiSys believes
the ability to use ready-made building blocks to design and manufacture custom
solutions will lead to greater demand for perfect fit solutions, as the
Company's customers require a faster time-to-market for their products.
Standard Products. RadiSys provides a highly differentiated set of
standard products. The Company can deliver Intel CPU platforms, system
platforms, network interface modules, and digital signal processing (DSP)
technologies on two key architectures, PCI and CompactPCI.
Customers
RadiSys has a broad customer base of leading OEMs. The Company's six
largest customers, which accounted for approximately 41% of revenues in 2000,
are listed below in alphabetical order together with a representative example of
the type of application into which the customers incorporate RadiSys' products.
Customer Application
------------- ---------------
Avaya ................................. PBX
Comverse .............................. Voice messaging system
IBM ................................... Server interface
Lucent ................................ Intelligent servers
Nokia ................................. Base station controller
Nortel ................................ Base station controller/PBX
Manufacturing
RadiSys manufactures the majority of the board-level through system-level
products the Company sells. RadiSys builds products in highly automated ISO9001
certified manufacturing plants in Hillsboro, Oregon and Houston, Texas. These
plants use surface-mount technology, or SMT, and provide board assembly,
mechanical assembly and system assembly and testing capability.
The Hillsboro, Oregon plant has four automated lines for SMT board
assembly. The Houston, Texas plant focuses on systems integration activities.
The Company estimates that, as now configured, the plants have sufficient
capacity on multiple-shift operation to handle planned demand through 2001. Each
line is modular and thus readily expandable by adding additional inline
equipment. The Company plans to transfer products between the two facilities in
2001 to optimize build and configuration capability across its products. RadiSys
also has relationships with outside subcontractors to provide additional
production capacity.
4
Because the products into which building blocks are integrated typically
have long life cycles, dynamic stress testing of products must be particularly
exact to ensure the reliability of these products. RadiSys believes testing
processes represent a significant competitive advantage in this area. The
Company uses a variety of commercial and proprietary test processes, including
highly accelerated life testing, highly accelerated stress screening and
bed-of-nails, and use in-circuit and functional test equipment. The highly
accelerated stress screening process detects early lifetime failures by
subjecting products to a series of cycles of rapid temperature change and random
mechanical vibration while the products are running a self-test program and are
being monitored. The Company has equipment to perform temperature, humidity and
vibration analysis of products.
RadiSys relies on contract manufacturers for bare printed-circuit board
fabrication, machine-inserted through-hole circuit boards, semiconductor
components, mechanical assemblies and semiconductor foundry services. Although
many of the raw materials and much of the equipment used in the manufacturing
operation are available from a number of alternative sources, some of these
materials and some equipment are obtained from a single supplier or a limited
number of suppliers.
The Company is dependent on third parties for a continuing supply of the
components used in the manufacture of its products. For example, the Company is
dependent solely on Intel for the supply of microprocessors and other
components, and the Company depends on Epson Electronic America, Lucent
Technologies, Inc., Maxim Integrated Products, Inc., Texas Instruments, Inc.,
and Toshiba America Inc. as the sole source suppliers for other components.
Alternative sources of supply for some of these components would be difficult to
locate.
Sales and Marketing
The Company views the design process as an opportunity to build long-term
OEM customer relationships. RadiSys typically experiences long life cycles for
products designed for its OEM customers. A typical sales team consists of an
account manager along with supporting engineering personnel interacting with the
OEM customer's technical staff to solve specific requirements of application;
form, fit and function; environment and mechanics. The value proposition to the
customer is a faster time-to-market.
RadiSys markets its products primarily in North America, Western Europe,
Israel and Japan. In 2000 the top 6 customers accounted for approximately 41% of
2000 sales, and only Nortel accounted for greater than 10% of total revenue (at
10.7% of total revenue). In North America, products are sold principally through
a direct sales force. The Company has U.S. sales offices in Oregon, Texas,
California, Florida, and Massachusetts. The direct sales force is supported by
approximately 65 factory-based application engineers, product marketing
personnel and sales support personnel. In addition, management plays a key role
in marketing and selling efforts.
RadiSys primarily sells directly to its customers and through distributors
internationally. The Company has regional sales offices in The Netherlands,
United Kingdom, Germany, Israel, France and Japan. In 2000, 1999, and 1998
international sales represented approximately 43%, 37%, and 29%, respectively,
of revenues. Most of the international sales are denominated in U.S. dollars.
Research, Development and Engineering
RadiSys believes the Company's research, development and engineering
expertise represents an important competitive advantage. The Company's research,
development and engineering staff consisted of 268 engineers and technicians at
December 31, 2000.
Most of the Company's research, development and engineering efforts are
focused on projects with its OEM customers resulting in the development of
custom board-level and system-level products. For these projects, the
engineering staff works closely with the customer and the customer pays the
Company non-recurring engineering fees as certain milestones are attained. From
time to time, the engineering staff also engages in joint research and
development of other products with some of the Company's customers and other
parties. RadiSys' research and development staffs are located in Hillsboro,
Oregon; Houston, Texas; Boca Raton, Florida; Newton, Massachusetts; and
Birmingham, United Kingdom.
5
In the initial phases of the relationship, considerable attention is given
to the establishment of communications links, such as electronic mail, with
RadiSys' customers to enable the customer's development personnel and their
engineering personnel to interact on a real-time or rapid response basis. The
Company believes close and frequent communication during the design process
allows the Company to operate as a "virtual division" within the customer's
internal organization. RadiSys' in-depth understanding of building blocks
assists the customer in resolving its overall product design issues while
regular customer feedback enables RadiSys to increase and continually refresh
its understanding of the customer's specific design requirements.
RadiSys typically retains the rights to any technology developed as a part of
the design process. In some cases, the Company agrees to share technology
rights, including manufacturing rights, with the customer, but generally retains
nonexclusive rights to use this shared technology.
The addressable market is subject to rapid technological development,
product innovation and competitive pressures. Consequently, the Company has
invested and will continue to invest resources in the research and development
of
o technology building blocks such as embedded modules, platforms,
chips and low-level firmware,
o application-specific embedded computers for specific customers, and
o design processes and tools.
In 2000, 1999, and 1998 the Company invested $37.3 million, $30.5 million,
and $22.2 million, respectively, in research and development.
Competition
The market for building blocks is intensely competitive, highly fragmented
and rapidly changing. The Company expects competition to persist and intensify,
which could result in price reductions, reduced gross margins and loss of market
share for the Company's products.
RadiSys competes with a number of companies providing building blocks,
including AudioCodes Ltd., Brooktrout, Inc., Motorola, Inc., Natural
Microsystems Corporation, and Performance Technologies, Inc. The competitors
vary in size and in the scope and breadth of the products they offer. In
addition, because many of the Company's OEM customers have historically designed
and manufactured or contracted for the manufacture of systems in-house and
therefore view their building block requirements from a make-versus-buy
perspective, the Company often competes against the OEM customers' in-house
capabilities. RadiSys also competes with off-the-shelf product manufacturers and
electronics contract manufacturers such as Solectron Corporation. Finally, the
Company competes against embedded computer systems that rely on architectures
other than Intel architecture, including the PowerPC architecture manufactured
by IBM and Motorola.
Backlog
As of December 31, 2000, the Company's backlog was approximately $60.1
million, as compared to $59.7 million as of December 31, 1999. The Company
includes in its backlog all purchase orders scheduled for delivery within twelve
months.
Intellectual Property
Twenty U.S. patents have been issued to the Company. The Company has
pending one additional U.S. patent application and one foreign application
covering technology incorporated into its products; however, the Company relies
principally on trade secrets for protection of its intellectual property. The
Company believes, however, that its financial performance will depend much more
on the pace of its product development and its relationships with its customers
than upon such protection. The Company has from time to time been made aware of
others in the industry who assert exclusive rights to certain technologies,
usually in the form of an offer to license certain rights for a fee or
royalties. The Company's policy is to evaluate such claims on a case-by-case
basis. The Company may seek to enter into licensing agreements with companies
having or asserting rights to technologies if the Company concludes that such
licensing arrangements are necessary or desirable.
6
Employees
As of December 31, 2000, the Company had 1,153 employees, of which 966
were regular employees and 187 were agency temporary employees or contractors.
The Company is not subject to any collective bargaining agreement, has never
been subject to a work stoppage, and believes that its relations with employees
are good.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the sections entitled
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and statements the Company's management may make from
time to time, contain forward-looking statements. All statements, other than
statements of historical fact, that relate to future events or to the Company's
future performance are forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the Company's or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements. These risks and other factors include, among other
things, dependence on the relationship with Intel Corporation and its products;
lower than expected or delayed sales by the Company's customers; lower than
expected or delayed or cancelled design wins with key OEMs; deliveries of
products containing errors, defects or bugs; dependence on a limited number of
suppliers or, in some cases, one supplier for components and equipment used to
manufacture products; competition in the building block markets for internet and
communications, electronics assembly and medical equipment, which may lead to
lower than expected sales prices for the Company's products or reduced sales
volume; availability of qualified personnel; business conditions in the general
economy and in the markets the Company serves, particularly the communications
markets; difficulty or inability to meet the Company's obligations to repay
indebtedness; and those listed under the section entitled "Risk Factors" in this
Annual Report on Form 10-K and subsequently filed reports. In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential," "continue," "our future success depends," "seek to
continue," "its intent," "intends," or the negative of these terms or other
comparable terminology. In particular, these statements include, among other
things, statements relating to our business strategy, including our acquisition
strategy; the development of our products; our ability to identify new products
and services; our ability to achieve market acceptance of our products; and our
projected financial performance, including revenues, earnings, gross margins,
capital expenditures and liquidity.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider the
risks outlined above and those listed under the section entitled "Risk Factors"
in this Annual Report on Form 10-K and subsequently filed reports. These risk
factors may cause our actual results to differ materially from any
forward-looking statement.
The Company does not guarantee future results, levels of activity,
performance or achievements and does not assume responsibility for the accuracy
and completeness of these statements. The Company is under no duty to update any
of the forward-looking statements.
RISK FACTORS
Our period-to-period revenue and operating results fluctuate significantly,
which may result in volatility in the price of our common stock.
Our period-to-period revenue and operating results have varied in the past
and we expect they will continue to vary in the future, and any such
fluctuations may cause our stock price to fluctuate. Accordingly, you should not
rely on the results of any past quarterly or annual periods as an indication of
our future performance. In future periods, our operating results may be below
the expectations of public market analysts and investors, which could cause the
price of our common stock to decline, perhaps significantly.
A number of factors may contribute to fluctuations in revenues and
operating results. We may have difficulty predicting the volume and timing of
orders for products, and delays in closing orders can cause our operating
results to fall substantially short of anticipated levels for any period. Delays
by our OEM customers
7
in producing products that incorporate our products also could cause our
operating results to fall short of anticipated levels. Other factors that may
particularly contribute to fluctuations in our revenue and operating results
include:
o success in achieving design wins in which our products are designed
into those of our customers,
o the market acceptance of the OEM products that incorporate the
Company's products,
o the rate of adoption of new products,
o competition from new technologies and other companies, and
o the variability of the life cycles of the our customers' products.
Because of our dependence on our relationship with Intel and its products, any
disruption of our relationship with Intel, or any downturn in Intel's business,
could have an adverse impact on business.
Our success is significantly dependent on Intel's continued commitment to
the embedded computer market. Most of our products are based on Intel's
architecture. Intel's decision to de-emphasize or withdraw support of the
embedded computer segment of the computer market would have a materially adverse
effect on our business, financial condition and results of operations.
In addition, we have designed and manufactured embedded computer solutions
for Intel, received research and development funding from Intel for the
development of various embedded computer systems, engaged in joint planning and
marketing programs with Intel and relied in part on Intel's distributors to
market our products. Any adverse development in our relationships with Intel
could have a materially adverse effect on our business, financial condition and
results of operations.
Finally, our reliance on Intel's architecture renders us vulnerable to changes
in microprocessor technology. For example, if the architectures used in the
microprocessors of Intel's competitors, such as Advanced Micro Devices and
Motorola, Inc., become standard in the embedded computer industry, demand for
our embedded computer solutions may decline. Any failure on our part to use the
most current technology in our products could have a materially adverse effect
on our business, results of operations and financial condition.
We depend on the communications market and any inability to sell our products to
this market could have a substantially negative impact on our revenues.
We derive a substantial portion of our product revenues from sales of
products for communications applications. The communications market is
characterized by intense competition and rapid technological change. In
addition, although the communications market has grown rapidly in the last few
years, this market may not continue to grow or a significant slowdown in this
market may occur.
Products for communications applications are often based on industry
standards, which are continually evolving. Our future success will depend, in
part, upon our ability to successfully develop and introduce new products based
on emerging industry standards. Our failure to conform to these standards could
render our existing products unmarketable or obsolete. If the communications
market develops new standards, we may be unable to successfully design and
manufacture new products that address the needs of our customers or achieve
substantial market acceptance.
If we do not achieve design wins with key OEMs, we may be unable to secure
future design wins from, and therefore make sales of our products to, these
customers in the future.
Once an OEM has designed building blocks into its products, the OEM may be
reluctant to change its solution source due to the significant costs associated
with qualifying a new supplier. Accordingly, the failure to achieve design wins
with key OEMs who have chosen a competitor's solution could create barriers to
future sales opportunities with such OEMs and could limit our growth.
8
If leading OEMs do not incorporate our building blocks in successful products,
sales of our products will decline significantly.
We rely on OEMs, such as Nokia and Nortel, to include our building blocks
in their products. We further rely on the OEM's products to be successful. If
these products are not successful, we will not sell our building blocks in large
quantities to these OEMs. Accordingly, we must correctly anticipate the price,
performance and functionality requirements of the OEMs. We also must
successfully develop products that meet these requirements and make these
products available on a timely basis and in sufficient quantities. Moreover, if
there is consolidation in any of our target markets, especially communications,
or if a small number of OEMs otherwise dominate any of these markets, then our
success will depend on the our ability to establish and maintain relationships
with these market leaders. If we do not anticipate trends in any of our markets
or fail to meet the requirements of OEMs, or if we do not successfully establish
and maintain relationships with leading OEMs, then our business, financial
condition and results of operations could be seriously harmed.
If we deliver products with defects, our credibility could be harmed, and market
acceptance and sales of our products could decrease.
Our products are complex and have contained errors, defects and bugs when
introduced. If we deliver products with errors, defects or bugs, our credibility
and the market acceptance and sales of our products could be harmed. Further, if
our products contain errors, defects and bugs, then we may be required to expend
significant capital and resources to alleviate such problems. Defects could also
lead to product liability as a result of product liability lawsuits against us
or against our customers. We have agreed to indemnify our customers in some
circumstances against liability from defects in its products. Product liability
litigation arising from errors, defects or problems, even if it resulted in an
outcome favorable to us, would be time consuming and costly to defend. Existing
or future laws or unfavorable judicial decisions could negate any limitation of
liability provisions that are included in our license agreements. A successful
product liability claim could seriously harm our business, financial condition
and results of operations.
We maintain insurance coverage for product liability claims. Although we
believe this coverage is adequate, we do not assure you that coverage under
insurance policies will be adequate to cover product liability claims against
us. In addition, product liability insurance could become more expensive and
difficult to maintain and may not be available in the future on commercially
reasonable terms or at all. The amount and scope of any insurance coverage may
be inadequate if a product liability claim is successfully asserted us.
Because we depend on a few suppliers or, in some cases, one supplier for some of
the components we use in the manufacture of our products, a loss of that
supplier or a shortage of any of those components could have a materially
adverse effect on our business.
We depend on third parties for a continuous supply of the components the
Company uses in the manufacture of our products as described above in Item 1 of
this Annual Report on Form 10-K under the heading "Manufacturing," some of these
components are obtained from a single supplier, or a limited number of
suppliers. We would encounter difficulty in locating alternative sources of
supply for some of these components. Moreover, suppliers may discontinue or
upgrade products, some of which are incorporated into our products. Any
limitation, discontinuance or upgrade could require us to redesign a product to
incorporate newer or alternative technology. If we were to change any of our
sole or limited source vendors, we would be required to requalify each new
vendor. Requalification could prevent or delay product shipments that could
negatively affect our results of operations. We have no long-term contracts with
any suppliers of components. The electronics industry has experienced product
shortages, some of which have been both prolonged and severe. Because of
capacity constraints in the electronic component industry, we have at times
experienced supply shortages of its components. These shortages have adversely
affected component prices and have resulted in the delay of shipments of
products incorporating these components. Failure to obtain adequate supplies of
components or increases in the cost of components could have a materially
adverse effect on our business, financial condition and results of operations.
9
Acquisitions may be costly and difficult to integrate, divert management
resources or dilute shareholder value.
We have considered and completed strategic acquisitions in the past, and
in the future we may acquire or make investments in complementary companies,
products or technologies. We may not be able to integrate any acquired
companies, products or technologies successfully. In connection with any
acquisitions or investments we could:
o issue stock that would dilute our existing shareholders' percentage
ownership,
o incur debt and assume liabilities, and
o incur amortization expenses related to goodwill and other intangible
assets or incur large and immediate write-offs.
Our recent acquisitions and future potential acquisitions also may pose
additional risks to our operations, including:
o problems combining the purchased operations, technologies or
products,
o unanticipated costs,
o diversion of management's attention from our core business,
o adverse effects on business relationships with our suppliers and
customers and those of the acquired company,
o entering markets in which we have no, or limited, prior experience,
and
o potential loss of key employees, particularly those of the acquired
organization.
Failure to successfully integrate any future acquisition may harm our
business.
Competition in the market for building blocks is intense, and could reduce our
sales and prevent us from maintaining profitability.
The market for building blocks is intensely competitive, highly fragmented
and rapidly changing. We expect competition to persist and intensify, which
competition could result in price reductions, reduced gross margins and loss of
market share for our products.
As described in Item 1 of this Annual Report on Form 10-K under the
heading "Competition," we compete with a number of companies providing building
blocks. Some of our competitors and potential competitors have a number of
significant advantages over us, including:
o a longer operating history,
o more extensive name recognition and marketing power,
o preferred vendor status with our existing and potential customers,
and
o significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
In addition, existing or potential competitors may establish cooperative
relationships with each other or with third parties, or adopt aggressive pricing
policies to gain market share.
As a result of increased competition, we could encounter significant
pricing pressures. These pricing pressures could result in significantly lower
average selling prices for our products. We may not be able to offset the
effects of any price reductions with an increase in the number of our customers,
cost reductions or otherwise. In addition, many of the industries we serve, such
as the communications industry, are encountering consolidation, or are likely to
encounter consolidation in the near future, which could result in increased
price and other competition.
10
Our international operations expose us to additional political, economic and
regulatory risks not faced by businesses that operate only in the United States.
We conduct international operations in Europe and Asia. Our international
operations are subject to risks similar to those affecting our U.S. operations,
as well as a number of other risks, including:
o longer accounts receivable collection cycles,
o expenses associated with localizing products for foreign markets,
o difficulties in managing operations across disparate geographic
areas,
o difficulties in hiring qualified local personnel,
o foreign currency exchange rate fluctuations,
o difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems, and
o unexpected changes in regulatory requirements that impose multiple
conflicting tax laws and regulations.
In addition, various jurisdictions outside the United States have laws
limiting the right and ability of non-United States subsidiaries and affiliates
to pay dividends and remit earnings to affiliated companies unless specified
conditions exist. Our ability to expand the sale of our products internationally
is also limited by the necessity of obtaining regulatory approval in new
countries.
We sell products to customers in transactions denominated primarily in
U.S. dollars. Some portion of our international sales, however, are denominated
in currencies other than U.S. dollars, and thus we are exposed to risks
associated with exchange rate fluctuations. An increase in the value of the U.S.
dollar relative to foreign currencies could adversely affect our results.
New technologies could render our products obsolete.
The market for building blocks is characterized by rapid technological
change, evolving industry standards, changes in consumer demands and frequent
new product introductions. If we are unable to adapt to our rapidly changing
market on a cost-effective and timely basis, our business, financial condition
and results of operations will be materially and adversely affected. Advances in
embedded computer technology could lead to new competitive technologies and
products that have better performance or lower prices than our products, and
could render our products obsolete and unmarketable.
If we are unable to protect our intellectual property, we may lose a valuable
competitive advantage or be forced to incur costly litigation to protect our
rights.
Our future success and ability to compete depends in part upon our
proprietary technology, but our protective measures may prove inadequate to
protect our proprietary rights. We rely principally on trade secrets for
protection of our intellectual property. We also rely on a combination of
copyright, trademark and trade secret laws and contractual provisions to
establish and protect our proprietary rights. Despite our efforts to protect our
intellectual property, a third party could copy or otherwise obtain our
proprietary information without authorization, or could develop technology
competitive to ours. Our competitors may independently develop similar
technology, duplicate our products or design around our intellectual property
rights. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States. We
expect that the use of our products will become more difficult to monitor if we
increase its international presence. We may have to litigate to enforce our
intellectual property rights, to protect our trade secrets or know-how or to
determine their scope, validity or enforceability. Enforcing or defending our
intellectual property rights is expensive, could cause the diversion of our
resources and may not prove successful. If we are unable to protect our
intellectual property, we may lose a valuable competitive advantage.
11
If we become subject to intellectual property infringement claims, these claims
could be costly and time consuming to defend, divert management attention or
cause product delays.
Any intellectual property infringement claims against us, with or without merit,
could be costly and time consuming to defend, divert our management's attention
or cause product delays. We expect that building block manufacturers will be
increasingly subject to infringement claims as the number of products and
competitors in our industry grows and the functionality of products overlaps. In
addition, from time to time we have received correspondence claiming that some
of our products may be infringing one or more patents. None of these allegations
has resulted in litigation. We believe we have credible arguments that these
patents are either invalid, not infringed or would not be enforced by a court.
If, however, our products were found to infringe a third party's proprietary
rights, we could be required to enter into royalty or licensing agreements to be
able to sell our products and be subject to claims for damages. Royalty and
licensing agreements, if required, may not be available on terms acceptable to
us or at all. We cannot assure you that any of the foregoing actions, if
successful, would not have a materially adverse effect on our financial
condition and results of operation.
ITEM 2. Properties
In the U.S., the Company leases the following facilities (all numbers
approximate): 138,000 square feet of office and manufacturing space in three
buildings in Hillsboro, Oregon; 19,000 square feet of office space in Beaverton,
Oregon; 13,000 square feet of office space in Newton, Massachusetts; 144,000
square feet of office and manufacturing space in Houston, Texas; 24,000 square
feet of office space in Delray Beach, Florida, and 36,000 square feet of office
space in Boca Raton, Florida. The Company owns two parcels of land adjacent to
its Hillsboro facility, which are being held for future expansion. The Company
owns one 23,000 square foot building located on its main campus in Hillsboro,
Oregon. The Company also leases eight small offices in the U.S. located in
Dallas, Texas; Newark, San Diego, and La Mesa, California; Raleigh and
Charlotte, North Carolina; Cheshire, Connecticut; and Alpharetta, Georgia.
Internationally, the Company leases office space in the following cities:
Almere, The Netherlands; Birmingham and Swindon, United Kingdom; Cedex and
Versailles, France; Neu-isenburg, Stemwede and Munich, Germany; Rehovot, Israel;
and Tokyo, Japan. Total lease costs of all these facilities are approximately
$4.4 million per year, plus certain building operating expenses.
ITEM 3. Legal Proceedings
The Company has no material litigation currently pending.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 4(a). Executive Officers of the Registrant
As of March 22, 2001, the names, ages and positions held by the executive
officers of the Company were as follows:
Name Age Position with the Company
-------- ----- -----------------------------------
Dr. Glenford J. Myers 54 Chairman of the Board,
President and Chief Executive Officer
Stuart F. Cohen 41 Vice President of Worldwide Sales and
Marketing
Ronald A. Dilbeck 47 Chief Operating Officer
Arif Kareem 47 Sr. Vice President and General Manager,
Telecommunications Division
Stephen F. Loughlin 50 Vice President of Finance and Administration
and Chief Financial Officer
Annette M. Mulee 47 Vice President, General Counsel and Secretary
12
Dr. Glenford J. Myers founded the Company in March 1987 and has served as
the Company's Chairman of the Board, President and Chief Executive Officer since
that time. From 1981 to 1987, he held various management positions with Intel
Corporation in microprocessor development. From 1968 to 1981, Dr. Myers held
various engineering and management positions with IBM. Dr. Myers holds a Ph.D.
from the Polytechnic Institute of New York, an M.S. from Syracuse University and
a B.S.E.E. from Clarkson College. He is the author of eight books on computer
architecture, software design, and software testing.
Stuart F. Cohen joined the Company in January 1999 as Vice President of
Marketing and was appointed the Vice President of Worldwide Sales and Marketing
in April 2000. From 1997 to 1998, Mr. Cohen was Vice President, Worldwide
Marketing for InFocus Systems, a company that develops and manufactures
data/video projectors. From 1981 to 1997, Mr. Cohen held various sales and
marketing management positions for IBM, the most recent being Director of
Worldwide Marketing, Networking Division. Mr. Cohen holds a B.S. in Business
Administration from Arizona State University.
Ronald A. Dilbeck joined the Company in May 1996 as Vice President and
General Manager, Automation and Control Division and was appointed to the
position of Chief Operating Officer of the Company in October 2000. From 1994 to
1996, Mr. Dilbeck was President and Chief Executive Officer of nCUBE, Inc, a
company that builds interactive multimedia servers. From 1983 to 1994, he held
various engineering management positions with Sequent Computer Systems, a
manufacturer and provider of information technology solutions, the most recent
being Director of Integration Services. Mr. Dilbeck holds an M.S.E.E. from
Washington State University and a B.S.E.E. and a B.S. in Mathematics from Oregon
State University.
Arif Kareem joined the Company in July 1997 as Vice President, Telecom
Business Unit, and was appointed Vice President and General Manager,
Telecommunications Division in October 1997 and Senior Vice President in
October, 2000. From 1980 to 1997 Mr. Kareem held various engineering and
marketing management roles at Tektronix, Inc. before serving as General Manager
of Tektronix's Telecom Product Line, and subsequently General Manager of the
Communications Test Business Unit. His most recent role at Tektronix was as
Director of Strategic Marketing for the Measurement Division. Mr. Kareem holds a
B.S.E.E. and an M.S.E.E. from Lehigh University, and an M.B.A. from the
University of Oregon.
Stephen F. Loughlin joined the Company in April 1999 as Vice President of
Finance and Administration and Chief Financial Officer. He spent the previous
nine years at Sequent Computer Systems, a manufacturer and provider of
information technology solutions, as Vice President and Controller. Prior to
that, he was with Wang Laboratories, Inc. as Director of Finance for
logistics/manufacturing and system manufacturing/distribution. Mr. Loughlin
earned a B.S. in accounting from Boston College.
Annette M. Mulee joined the Company in November 2000 as Vice President,
General Counsel and Secretary. Prior to joining RadiSys, Ms. Mulee was a partner
at the Portland-based law firm of Stoel Rives LLP. During her 16-year career at
Stoel Rives, she specialized in mergers and acquisitions, technology protection
and licensing, venture financing and general corporate work for the firm's high
technology clients. She holds a JD from Northwestern School of Law at Lewis and
Clark College, an MBA from Columbia University Graduate School of Business and a
BA in economics from Cornell University.
13
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The Company's Common Stock has been traded on the Nasdaq National Market
since the Company's initial public offering in 1995 under the symbol "RSYS." The
following table sets forth, for the periods indicated, the highest and lowest
closing sale prices for the Common Stock, as reported by the Nasdaq National
Market. The table gives effect to a three-for-two split of the shares of common
stock of the Company effective November 29, 1999 to shareholders of record at
the close of business on November 8, 1999.
High Low
------ ------
2000
First Quarter ............................. $63.38 $37.88
Second Quarter ............................ $60.06 $29.50
Third Quarter ............................. $64.06 $46.50
Fourth Quarter ............................ $48.50 $20.69
1999
First Quarter ............................. $20.71 $14.89
Second Quarter ............................ $25.92 $13.92
Third Quarter ............................. $30.67 $24.42
Fourth Quarter ............................ $54.13 $26.00
On March 22, 2001, the last reported sale price of the Common Stock on the
Nasdaq National Market was $17.06.
The Company has never paid any cash dividends on its Common Stock and does
not expect to declare cash dividends on the Common Stock in the foreseeable
future. The Company's current policy is to retain all of its earnings to finance
future growth.
As of March 22, 2001, there were approximately 479 holders of record of
the Company's Common Stock. The Company believes that the number of beneficial
owners is substantially greater than the number of record holders because a
large portion of the Company's outstanding Common Stock is held of record in
broker "street names" for the benefit of individual investors.
14
ITEM 6. Selected Financial Data
(In thousands, except per share data)
Year Ended December 31,
------------------------------------------------------
2000 1999 1998 1997 1996
----------- -------- --------- -------- ---------
Consolidated Statement
of Operations Data:
Revenues ....................... $340,676 $251,090 $186,548 $191,814 $ 161,431
Gross profit ................... 116,897 92,297 62,684 70,549 58,105
Income from operations ......... 34,005 16,604 8,569 21,165 6,399
Net income (loss) .............. 32,646 18,997 7,818 14,272 (141)
Net income (loss) per share
(diluted)* .................. 1.80 1.11 0.48 0.88 (0.01)
Weighted average shares
outstanding (diluted)* ...... 18,161 17,110 16,129 16,212 15,712
Consolidated Balance Sheet Data:
Working capital ................ $205,357 $ 68,863 $ 83,083 $ 78,744 $ 69,524
Total assets ................... 334,003 187,563 131,727 130,200 116,677
Long term obligations, excluding
current portion ............. 97,191 -- 88 399 648
Total shareholders' equity ..... 179,331 134,255 106,827 99,422 84,060
- -----------------
Note: The selected financial data as of and for each of the three years in the
period ended December 31, 1998 has been restated to reflect the merger
with Texas Micro, which was accounted for as a pooling of interests.
* Reflects the three-for-two stock split on November 29, 1999.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(in thousands)
OVERVIEW
Total revenue was $340.7 million for 2000 compared to $251.1 million for
1999. Net income was $32.6 million for 2000, compared to $19.0 million for 1999.
During 1999, the Company merged with one company (Texas Micro in August
1999) and acquired assets in two other transactions. The Company purchased
certain assets of International Business Machines Corporation (IBM) dedicated to
the design, manufacture and sale of IBM's ARTIC communications coprocessor
adapter hardware and software for wide area network and other telephony
applications (ARTIC) in March 1999. The Company also purchased certain assets of
IBM's Open Computing Platform (OCP) operation in December 1999. OCP develops and
sells integrated computer-based solutions based on Intel architecture, primarily
to OEMs of telecommunications equipment. These transactions were completed in
order to expand the expertise the Company believes it needs to compete
effectively in the communications market. These acquisitions have resulted in
increased sales volume as well as increased operating and manufacturing capacity
through both internal and external sources. Additionally, the merger with Texas
Micro has resulted in certain operating efficiencies. Therefore, total operating
expenses have increased in dollar volume but efficiencies combined with
increased sales volume have resulted in a decrease of operating expenses as a
percentage of revenue for the year ended December 31, 2000 and the latter part
of 1999. The Company expects to continue to acquire companies and technologies
that are complementary to the Company's business and product offerings.
15
Results of Operations
The following table sets forth certain operating data as a percentage of
revenues for the years ended December 31, 2000, 1999 and 1998.
Year Ended December 31,
---------------------------
2000 1999 1998
------ ------ ------
Revenues ......................................... 100.0% 100.0% 100.0%
Cost of sales .................................... 65.7 63.2 66.4
------ ------ ------
Gross margin ..................................... 34.3 36.8 33.6
Research and development ......................... 10.9 12.1 11.9
Selling, general and administrative .............. 11.5 14.7 16.9
Goodwill and intangibles amortization ............ 1.9 1.0 .2
Combination costs ................................ -- 2.4 --
------ ------ ------
Income from operations ........................... 10.0 6.6 4.6
Interest income, net ............................. .4 .5 1.0
Other income ..................................... -- .7 .3
------ ------ ------
Income before income tax provision ............... 10.4 7.8 5.9
Income tax provision ............................. 1.8 .3 1.7
------ ------ ------
Net income before extraordinary gain ............. 8.6 7.5 4.2
Extraordinary gain, net of tax ................... 1.0 -- --
------ ------ ------
Net income ....................................... 9.6% 7.5% 4.2%
====== ====== ======
Years Ended December 31, 2000, 1999, and 1998
Revenues. Revenues increased $89.6 million or 35.7% from $251.1 million
for 1999 to $340.7 million in 2000. The increase in revenues was primarily
attributable to continued growth within existing products and customers,
movement into higher growth markets, primarily communications, and the inclusion
of revenues for an entire year from the Company's acquisition of OCP in December
1999. Revenues steadily increased throughout the first three quarters of 2000,
but fell from $90.7 million in the third quarter to $82.5 million for the fourth
quarter. Despite the decrease from the prior quarter, fourth quarter revenue was
up from the fourth quarter of 1999 by $9.5 million, or 13.1%. The decline in the
fourth quarter revenue occurred when customers reduced their short-term
forecasts and postponed shipment of orders previously placed as a result of
widespread indecision over the short-term economic outlook. The Company expects
revenue in the first half of 2001 to decline from fourth quarter levels.
Revenues increased $64.5 million or 34.6% from $186.5 million in 1998 to
$251.1 million in 1999. The increase in revenues in 1999 was due to growth
within existing product lines and movement into higher growth markets. In
addition, the acquisition of ARTIC in March of 1999 resulted in increased
revenues and the merger with Texas Micro in August 1999 enhanced the Company's
ability to grow.
Gross Margin. Gross margin decreased to 34.3% of revenue for 2000 from
36.8% of revenue for 1999. The Company's general business intent is to price its
products for new design wins to achieve an average gross margin of approximately
32-35% because the Company believes this gross margin range represents the best
elasticity point to maximize design wins and long-term growth. The Company's
gross margins for the first, second, and third quarters of 2000 were 35.5%,
35.4%, and 34.6% of revenue, respectively. The gradual decline was a result of
product mix consisting of a larger portion of higher volume, lower margin
product relative to higher margin product shipped throughout the year as new
design wins ramped into production. However, the Company's gross margin fell to
31.7% for the quarter ended December 31, 2000. The fourth quarter 2000 margin
was impacted by the reduced utilization of manufacturing capacity associated
with the drop in revenue from $90.7 million in the third quarter to $82.5
million in the fourth quarter of 2000.
16
Gross margin increased to 36.8% of revenue in 1999 from 33.6% of revenue
in 1998 primarily as a result of product mix consisting of a larger portion of
higher margin product relative to lower margin product shipped, which includes
products added as a result of the ARTIC acquisition in March 1999. Additionally,
fixed manufacturing costs were lower relative to revenue levels during 1998.
The Company's gross margins are heavily influenced by its OEM relationships. The
Company establishes gross margin targets based on the nature of the sales it is
pursuing and the desire to establish new OEM relationships by pricing
aggressively to achieve key sales. However, many of the factors affecting gross
margins, such as variances in unit volumes and timing of orders and component
costs, are difficult or impossible to predict and can cause the Company to be
subject to unplanned margin variances. Gross margins on OEM sales are also
particularly sensitive to changes in customer mix because of margin variances
among individual products and the relative importance of growth or decline of a
single product or customer on overall operating results. To mitigate the effect
of short-term margin variances, the Company may employ "step pricing" techniques
in which unit prices decline over the life of the product to reflect anticipated
production efficiencies and/or component cost reductions, or various "cost
sharing" or "cost plus" pricing techniques that serve to reduce the margin risk
to the Company.
The Company expects to see continued decreases in gross margins throughout
the first half of 2001 as a result of reduced utilization of manufacturing
capacity.
Research and Development. Research and development expenses increased by
$6.8 million or 22.3% from $30.5 million in 1999 to $37.3 in 2000. The increase
of $6.8 million in 2000 was a result of continued investment in new design wins
and an increase of approximately 33 new employees devoted to research and
development during the first three quarters of 2000. Total dollars spent
remained relatively flat during the third and fourth quarters. Although overall
research and development expenses have increased from the prior year, they have
declined by 1.2% as a percentage of revenue compared to 1999 due to the
increased efficiencies as a result of the integration of Texas Micro as well as
the impact of greater annual revenue volume. In addition, the impact of the OCP
acquisition resulted in lower research and development costs as a percentage of
revenues because OCP's business model incorporated lower research and
development expenses as a percentage of revenues. The Company's long-term intent
is for research and development expenses to remain between 9-11% of revenue, but
the Company expects research and development as a percentage of revenue to be
higher during the first half of 2001 as revenue is expected to be lower than
2000.
Research and Development increased 37.3% to $30.5 million in 1999 from
$22.2 million in 1998, primarily as a result of increased investment in new
product development, costs of enhancements to existing products, and increases
in number of employees working in research and development, including additional
employees resulting from acquisitions.
Selling, General and Administrative. Selling, general and administrative
expenses, exclusive of goodwill and intangibles amortization, increased $2.3
million or 6.1% from $36.8 million in 1999 to $39.1 million for 2000. The dollar
increase of $2.3 million is due to the selling effort to maintain high design
win activity and increased headcount over the prior year as the Company built
infrastructure to support growth. Selling, general and administrative expenses
decreased as a percentage of revenue from 14.7% in 1999 to 11.5% in 2000 as a
result of increased operating efficiencies and revenue growth. The Company
experienced increased efficiencies as a result of cost control measures, the
integration of Texas Micro, as well as the impact of greater revenue volume. In
addition, the impact of the OCP acquisition resulted in lower selling, general
and administrative expenses because OCP's business model incorporated lower
selling, general and administrative expenses as a percentage of revenues. The
Company's long-term intent is for selling, general, and administrative expense,
excluding goodwill and intangibles amortization, to remain between 9-11% of
revenue, however, the Company expects selling, general and administrative
expenses as a percentage of revenue to be higher during the first half of 2001
given that the Company expects quarterly revenue levels to be lower in the first
half of 2001 compared to the fourth quarter of 2000.
Selling, general and administrative expenses, exclusive of goodwill
amortization, increased 16.7% from $31.5 million in 1998 to $36.8 million in
1999. Selling, general and administrative expenses decreased as a percentage of
revenue from 16.9% in 1998 to 14.7% in 1999. The dollar increase of $5.3 million
is due to the selling effort to maintain high design win activity. The 2.2%
decrease as a percentage of revenue is due to increased efficiencies in managing
expenses combined with higher revenue levels, compared to 1998.
17
Goodwill and Intangibles Amortization. Goodwill and intangibles
amortization increased by $4.1 million or 166.8% from $2.5 million in 1999 to
$6.6 million in 2000. The increase was associated with the acquisition of OCP in
late December of 1999, as amortization did not commence until January 2000.
Goodwill and intangibles amortization increased by $2.1 million in 1999
over 1998 primarily as a result of the ARTIC acquisition.
Combination Costs. Combination costs, which were recorded in the year
ended December 31, 1999, resulted from the Texas Micro merger on August 13,
1999. The Company recorded a charge to operating expenses of approximately $6.0
million for merger-related costs during the third quarter of 1999. There were no
combination costs recorded for the year ended December 31, 2000.
Interest Income, Net. Net interest income remained relatively consistent
between 2000 and 1999 at approximately $1.2 million each year. Interest expense
incurred from the convertible note issuance was offset by interest income earned
on a portion of the notes proceeds, invested in short-term investments.
Net interest income decreased 37.8% to $1.2 million in 1999 from $1.9
million in 1998. This was a result of decreased investments as cash was used to
fund the ARTIC acquisition during 1999.
Other Income. Other income decreased by $1.7 million from $1.9 million in
1999 to $.1 million in 2000. This was largely a result of the $766 write-down of
the Company's investment in GA eXpress stock (GA) in the fourth quarter of 2000
coupled with the fact that in 1999 the Company received final consideration owed
in connection with the 1996 sale of Texas Micro's Sequoia Enterprise Systems
business unit to GA, which resulted in a gain to the Company of $2.2 million.
Other income increased by $1.4 million from 1998 to 1999 due to recovery
of amounts previously owed from GA.
Income Tax Provision. The income tax provisions for 2000, 1999 and 1998
reflect effective income tax rates of 16.9%, 3.5% and 28.6%, respectively. The
increase in the effective rate for 2000 compared to 1999 is attributed to higher
net income, partially offset by tax benefits realized from research and
development tax credits and utilization of net operating loss carry-forwards
from the 1999 Texas Micro merger. The decrease in the effective tax rate for
1999 compared to 1998 is primarily attributable to net operating loss
carry-forwards recognized in 1999 as a result of certain changes in the federal
income tax laws that were effective on June 25, 1999.
Extraordinary Gain. During the fourth quarter the Company repurchased $20
million principal amount of the 5.5% long-term convertible subordinated notes
for $14.3 million in a negotiated transaction with a third party. The repurchase
of the notes resulted in an after-tax extraordinary gain of approximately $3.3
million.
Liquidity and Capital Resources
As of December 31, 2000, the Company had $124.1 million in cash and
equivalents, $9.8 million in short-term investments, and working capital of
$205.4 million. The significant increase in working capital from $68.9 million
as of December 31, 1999 to $205.4 million as of December 31, 2000 was
substantially due to the Company's net issuance of $100 million principal amount
of long-term convertible subordinated notes. In addition, during 2000 the
Company paid off its outstanding balance of $13.9 million under its line of
credit. Activities impacting cash and cash equivalents are as follows:
Year ended December 31,
-----------------------------
2000 1999 1998
------- ------- -------
Cash provided by operating activities .......... $ 44.6 $ 4.8 $ 20.8
Cash used for investing activities ............. (29.3) (52.0) (7.6)
Cash provided by (used for) financing activities 93.5 19.5 (0.5)
Effect of exhange rate changes on cash ......... (0.4) (0.4) 0.2
------- ------- -------
Net increase (decrease) ........................ $ 108.4 $ (28.1) $ 12.9
======= ======= =======
Net cash provided by operating activities was $44.6 million, $4.8 million,
and $20.8 million for 2000, 1999, and 1998, respectively. The increase in net
cash provided by operating activities in 2000 was largely
18
attributable to the increase in net income of $13.6 million, from $19.0 million
in 1999 to $32.6 million in 2000. In addition to the increase in net income,
increases in depreciation and amortization of $7.3 million from 1999 to 2000
also contributed to the increase in net cash provided by operating activities.
Net cash provided by operating activities in 1999 was negatively impacted by an
increase in accounts receivable of $25 million from 1998 to 1999.
Significant investing activities impacting cash for the year ended
December 31, 2000 included $14.1 million in capital expenditures, $3.8 million
in capitalized software additions, and $9.8 million in purchases of short-term
investments. Capital expenditures primarily consisted of purchases of building
and land adjacent to the Company's Hillsboro facility, SAP implementations and
network upgrades. Capital expenditures for 1999 and 1998 were $8.5 million and
$4.7 million, respectively. These capital expenditures were primarily for the
purchase of leasehold improvements, manufacturing equipment, plant
modernization, and the purchase and implementation of SAP applications.
The Company's financing activities for the year ended December 31, 2000
included $116.1 million in net proceeds from the original issuance of $120
million convertible subordinated notes, less the buyback of $20 million
principal amount of convertible subordinated notes for $14.6 million, including
$.3 million in accrued interest, and $14.1 million in proceeds from common stock
issuances in connection with exercise of options under the Stock Incentive Plan
and the purchase of shares under the Employee Stock Purchase Plan. These
activities were offset by the repayment of the line of credit of $13.9 million
and the repurchase of 297 shares of the Company's stock for $8.1 million.
The Company believes its existing cash and cash equivalents and cash from
operations will be sufficient to fund its operations for at least the next
twelve months. Because the Company's capital requirements cannot be predicted
with certainty, there is no assurance that the Company will not require
additional financing prior to the expiration of twelve months and that this
financing would be available.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates,
foreign currency exchange rates, and equity trading prices, which could impact
its results of operations and financial condition.
Interest Rate Risk. The Company invests its excess cash in debt
instruments of the U.S. Government and its agencies, and in high-quality
corporate issuers. The Company attempts to protect and preserve its invested
funds by limiting default, market and reinvestment risk. Investments in both
fixed rate and floating rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due to
the short duration of the Company's investment portfolio, an immediate 10%
change in interest rates would not have a material effect on the fair market
value of the portfolio. Therefore, the Company would not expect the operating
results or cash flows to be affected to any significant degree by the effect of
a sudden change in market interest rates on its securities portfolio.
Foreign Currency Risk. The Company pays the expenses of its international
operations in local currencies. The Company's international operations are
subject to risks typical of an international business, including, but not
limited to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign
exchange rate volatility. Accordingly, the Company's future results could be
materially adversely impacted by changes in these or other factors. The Company
is also exposed to foreign exchange rate fluctuations as they relate to revenues
and operating expenses as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. Because exchange rates vary,
these results, when translated, may vary from expectations and adversely impact
overall expected profitability. The Company implemented a hedging policy in the
fourth quarter of 2000 to mitigate exposures in all transactions and balances
that are not denominated in U.S. dollars. The impact of foreign exchange rate
fluctuations on the Company for the year ended December 31, 2000 was
approximately $500. The effect of foreign exchange rate fluctuations on the
Company's results of operations in 1999 was insignificant.
Equity Price Risk. The Company is exposed to equity price risk due to
equity investments held by the Company. The Company typically does not attempt
to reduce or eliminate its market exposure on these securities. Neither a 10%
increase nor a 10% decrease in equity prices would have a material effect on the
19
Company's financial position, results of operations, or cash flow, as such
investments are recorded on the Company's books at less than $1 million.
2001 Restructuring
In January 2001, the Company announced its intent to consolidate all
surface-mount board production (SMT) at its Houston manufacturing plant into its
high-volume plant in Hillsboro, Oregon. This decision was made in order to
leverage cost efficiencies, as costs are considerably lower in the higher-volume
Oregon plant and is consistent with prior activities of transferring
low-complexity product manufacturing from Houston to Hillsboro locations
throughout 2000. System assembly will continue at the Houston location. This
consolidation will result in excess capacity in Houston consisting of
approximately sixty people along with some equipment and space. All affected
employees will receive severance packages at termination during March and April
2001. By completing the consolidation, the Company expects to reduce its overall
manufacturing costs. The Company will take a pretax charge in the first quarter,
which is currently estimated to be $1 million to $2 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Financial Data (unaudited)
(In thousands, except per share data)
Year Ended December 31, 2000 Year Ended December 31, 1999
--------------------------------------- -----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- --------- --------- --------- ---------
Revenues ...................... $81,293 $86,170 $90,719 $82,493 $52,698 $61,351 $ 64,096 $72,945
Gross profit .................. 28,858 30,535 31,381 26,123 18,839 22,911 23,372 27,175
Income (loss) from operations . 8,611 9,795 10,566 5,032 3,373 5,225 (144) 8,150
Net income before
extraordinary gain ......... 6,631 6,846 9,187 6,681 2,917 9,342 945 5,793
Net income .................... 6,631 6,846 9,187 9,982 2,917 9,342 945 5,793
Net income per share before
extraordinary gain (basic) . 0.40 0.40 0.54 0.39 0.18 0.58 0.06 0.35
Net income per share before
extraordinary gain (diluted) 0.36 0.38 0.50 0.38 0.18 0.55 0.06 0.32
Net income per share (basic)* . 0.40 0.40 0.54 0.58 0.18 0.58 0.06 0.35
Net income per share (diluted)* 0.36 0.38 0.50 0.56 0.18 0.55 0.06 0.32
- ----------------
Note: The selected financial data for the first and second quarters ended June
30, 1999 has been restated to reflect the merger with Texas Micro, which
was accounted for as a pooling of interests.
* Reflects the three-for-two stock split on November 29, 1999
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
RadiSys Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity, and
of cash flows present fairly, in all material respects, the financial position
of RadiSys Corporation and its subsidiaries at December 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
January 23, 2001
21
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Revenues ............................................... $340,676 $251,090 $186,548
Cost of sales .......................................... 223,779 158,793 123,864
-------- -------- --------
Gross profit ..................................... 116,897 92,297 62,684
Research and development ............................... 37,269 30,464 22,190
Selling, general and administrative .................... 39,059 36,798 31,526
Goodwill and intangibles amortization .................. 6,564 2,460 399
Combination costs ...................................... -- 5,971 --
-------- -------- --------
Income from operations ........................... 34,005 16,604 8,569
Interest income, net ................................... 1,179 1,200 1,930
Other income ........................................... 147 1,873 458
-------- -------- --------
Income before income tax provision ............... 35,331 19,677 10,957
Income tax provision ................................... 5,986 680 3,139
-------- -------- --------
Net income before extraordinary gain ............. 29,345 18,997 7,818
Extraordinary gain, net of tax ......................... 3,301 -- --
-------- -------- --------
Net income ....................................... $ 32,646 $ 18,997 $ 7,818
======== ======== ========
Net income per share before extraordinary gain (basic) . $ 1.73 $ 1.18 $ 0.49
======== ======== ========
Net income per share before extraordinary gain (diluted) $ 1.62 $ 1.11 $ 0.48
======== ======== ========
Net income per share (basic) ........................... $ 1.92 $ 1.18 $ 0.49
======== ======== ========
Net income per share (diluted) ......................... $ 1.80 $ 1.11 $ 0.48
======== ======== ========
The accompanying notes are an integral part of this statement.
22
RADISYS CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31,
----------------------
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 124,086 $ 15,708
Short term investments ............................... 9,799 --
Accounts receivable, net ............................. 68,241 58,619
Inventories, net ..................................... 53,247 41,374
Other current assets ................................. 2,783 1,747
Deferred income taxes ................................ 4,682 4,723
--------- ---------
Total current assets ........................... 262,838 122,171
Property and equipment, net ............................. 28,128 21,211
Goodwill and intangible assets, net ..................... 30,444 34,177
Other assets ............................................ 12,593 10,004
--------- ---------
Total assets ................................... $ 334,003 $ 187,563
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 32,602 $ 19,878
Short term borrowings ................................ -- 13,931
Accrued interest payable ............................. 2,185 --
Income taxes payable ................................. 5,642 3,527
Accrued wages and bonuses ............................ 7,876 6,706
Other accrued liabilities ............................ 9,176 9,266
--------- ---------
Total current liabilities ...................... 57,481 53,308
Convertible subordinated notes .......................... 97,191 --
--------- ---------
Total liabilities .............................. 154,672 53,308
--------- ---------
Commitments and contingencies (Notes 8 and 14):
Shareholders' equity:
Common stock, no par value, 100,000 shares authorized,
17,070 and 16,489 shares issued and outstanding ... 153,482 141,030
Accumulated earnings (deficit) ....................... 27,766 (4,880)
Accumulated other comprehensive loss:
Unrealized loss on securities available for sale .. -- (349)
Cumulative translation adjustment ................. (1,917) (1,546)
--------- ---------
Total shareholders' equity ..................... 179,331 134,255
--------- ---------
Total liabilities and shareholders' equity ..... $ 334,003 $ 187,563
========= =========
The accompanying notes are an integral part of this statement.
23
RADISYS
CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Cumulative Unrealized Accumulated Total
Common Stock translation gain (loss) earnings comprehensive
Shares Amount adjustment on securities (deficit) Total income
------- -------- ---------- ------------- -------- --------- -------------
Balances, December 31, 1997 ...... 15,808 $ 132,458 $(1,341) $ -- $(31,695) $ 99,422
Shares issued pursuant
to benefit plans ........... 264 2,210 -- -- -- 2,210
Shares repurchased ............ (233) (2,457) -- -- -- (2,457)
Tax effect of options exercised -- 157 -- -- -- 157
Translation adjustment ........ -- -- 245 -- -- 245 $ 245
Unrealized loss on securities . -- -- -- (568) (568) (568)
Net income for the year ....... -- -- -- -- 7,818 7,818 7,818
------- --------- ------- ----- -------- --------- -------
Balances, December 31, 1998 ...... 15,839 132,368 (1,096) (568) (23,877) 106,827
Comprehensive income, year
ended 1998 .............. $ 7,495
=======
Shares issued pursuant to
benefit plans .............. 651 5,911 -- -- -- 5,911
Shares repurchased ............ (1) (4) -- -- -- (4)
Tax effect of options exercised -- 2,755 -- -- -- 2,755
Translation adjustment ........ -- -- (450) -- -- (450) (450)
Unrealized gain on securities . -- -- -- 219 -- 219 219
Net income for the year ....... -- -- -- -- 18,997 18,997 18,997
------- --------- ------- ----- -------- --------- -------
Balances, December 31, 1999 ...... 16,489 141,030 (1,546) (349) (4,880) 134,255
Comprehensive income, year
ended 1999 .............. $18,766
=======
Shares issued pursuant to
benefit plans .............. 878 14,142 -- -- -- 14,142
Shares repurchased ............ (297) (8,145) -- -- -- (8,145)
Tax effect of options exercised -- 6,455 -- -- -- 6,455
Translation adjustment ........ -- -- (371) -- -- (371) (371)
Unrealized gain on securities . -- -- -- 349 -- 349 349
Net income for the year ....... -- -- -- -- 32,646 32,646 32,646
------- --------- ------- ----- -------- --------- -------
Balances, December 31, 2000 ...... 17,070 $ 153,482 $(1,917) $ -- $ 27,766 $ 179,331
======= ========= ======= ===== ======== =========
Comprehensive income, year
ended 2000 ............. $32,624
=======
The accompanying notes are an integral part of this statement.
24
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
-------------------------------------
2000 1999 1998
--------- -------- --------
Cash flows from operating activities:
Net income .............................................. $ 32,646 $ 18,997 $ 7,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 16,942 9,635 4,257
Deferred income taxes ................................ (1,726) (8,111) (441)
Non-cash interest expense ............................ 461 -- --
Gain on marketable equity securities ................. (856) (2,157) --
Recognized loss on write-down
of marketable equity securities ................... 766 -- --
Gain on settlement of notes receivable ............... (663) -- --
Extraordinary gain on debt repurchase, net of tax .... (3,301) -- --
Tax effect of options exercised ...................... 6,455 2,755 157
Net changes in current assets and current liabilities:
Decrease (increase) in accounts receivable ........ (9,622) (24,958) 6,721
Decrease (increase) in inventories ................ (11,873) (6,605) 6,063
Decrease (increase) in other current assets ....... (1,036) 508 1,830
Increase (decrease) in accounts payable ........... 12,724 7,325 (3,246)
Increase (decrease) in interest payable ........... 2,185 -- --
Increase (decrease) in income taxes payable ....... 338 2,475 (1,558)
Increase (decrease) in accrued wages and bonuses .. 1,170 2,434 (1,841)
Increase (decrease) in other accrued liabilities .. (17) 2,535 1,015
--------- -------- --------
Net cash provided by operating activities ............ 44,593 4,833 20,775
--------- -------- --------
Cash flows from investing activities:
Purchase of short-term investments ...................... (9,799) -- --
Business acquisitions ................................... (2,841) (41,609) --
Capital expenditures .................................... (14,101) (8,541) (4,696)
Capitalized software production costs and other assets .. (3,795) (3,363) (4,124)
Proceeds from sale of marketable equity securities ...... 1,210 -- --
Collection of amounts owed from divestiture ............. -- 1,500 1,240
--------- -------- --------
Net cash used for investing activities ............... (29,326) (52,013) (7,580)
--------- -------- --------
Cash flows from financing activities:
Issuance of convertible subordinated notes,
net of discount ...................................... 116,081 -- --
Repurchase of convertible subordinated notes ............ (14,592) -- --
Short term borrowings ................................... (13,931) 13,931 --
Issuance of common stock, net ........................... 5,997 5,907 (247)
Payments on capital lease obligation .................... (73) (292) (248)
--------- -------- --------
Net cash provided by (used for)
financing activities .............................. 93,482 19,546 (495)
--------- -------- --------
Effect of exchange rate changes on cash .................... (371) (450) 245
--------- -------- --------
Net increase (decrease)
in cash and cash equivalents ............................ 108,378 (28,084) 12,945
Cash and cash equivalents, beginning of year ............... 15,708 43,792 30,847
--------- -------- --------
Cash and cash equivalents, end of year ..................... $ 124,086 $ 15,708 $ 43,792
========= ======== ========
The accompanying notes are an integral part of this statement.
25
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Significant Accounting Policies
Basis of Presentation
RadiSys Corporation (the Company) was incorporated in March 1987 under the
laws of the State of Oregon for the purpose of developing, producing and
marketing computer system (hardware and software) products for embedded computer
applications in manufacturing automation, medical, transportation,
telecommunications and test equipment marketplaces. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. See Note 13 regarding the merger with Texas Micro
Inc., and the pooling of interests of the consolidated financial statements on a
retroactive basis.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates and judgements made by management of the Company include matters such
as collectibility of accounts receivable, realizability of inventories, amount
of product returns from customers and recoverability of capitalized software and
deferred tax assets.
Reclassifications
Reclassifications have been made to amounts in prior years to conform to
current year presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
Cash and Cash Equivalents and Short-term Investments
Cash and cash equivalents include short-term investments with original
maturities of less than three months. Short-term investments with maturities of
more than three months but less than a year are classified as Short-term
investments in the consolidated financial statements. Cash equivalents and
short-term investments consist of money market funds, corporate bonds, and
commercial paper. The Company classifies, at the date of acquisition, its
short-term investments into categories in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Short-term investments
classified as held-to-maturity are reported at fair market value with the
related realized gains and losses included in earnings computed using the
specific identification method. Short-term investments classified as
available-for-sale are reported at fair market value with the related unrealized
gains and losses included in shareholders' equity. Realized gains and losses,
declines in value of securities judged to be other than temporary, and interest
and dividends on all securities are included in other income and interest
income, net. The fair value of the Company's investments are based on quoted
market prices. At December 31, 2000, the Company had $9.8 million of short-term
investments classified as held-to-maturity and had no short-term investments
classified as available-for-sale. The Company had no short-term investments
outstanding at December 31, 1999.
Revenue Recognition
The Company generally recognizes revenue from product sales upon shipment
to customers provided that the Company has received an authorized purchase
order, the price is fixed, title has transferred, collection of resulting
receivable is probable, product returns are reasonably estimable, there are no
customer acceptance requirements, and there are no remaining significant
obligations. For sales through distributors, the Company estimates potential
returns based upon contractual limitations and historical return rates and
defers revenue recognition accordingly.
26
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
Accounts Receivable
Trade accounts receivable are net of an allowance for doubtful accounts of
$655 and $933 at December 31, 2000 and 1999, respectively. The Company's
customers are concentrated in the technology industry. Therefore, the Company's
operations and collection of its accounts receivable are directly associated
with the results of the technology industry.
Inventories
Inventories are stated at the lower of cost or market. The Company uses
the first-in, first-out (FIFO) method to determine cost. The Company
periodically evaluates its inventory in terms of obsolete or slow-moving items.
Inventories are net of a reserve for obsolete and slow-moving items of $7,100
and $5,925 at December 31, 2000, and 1999, respectively.
The Company is dependent on third party contract manufacturers and some of
the key components in the Company's products come from single or limited sources
of supply.
Long-Lived Assets
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires the Company to review the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If this review indicates that the carrying
amounts of long-lived assets will not be recoverable, as determined based on the
estimated undiscounted cash flows of the Company over the remaining amortization
period, the carrying amounts of the long-lived assets are reduced by the
estimated shortfall of cash flows.
Intangible Assets
The Company reviews certain identifiable intangible assets for impairment
whenever events or changes in circumstances indicate that the total recorded
amount of an asset may not be recoverable. An impairment loss is recognized when
estimated discounted future cash flows expected to result from use of the asset
and its eventual disposition are less than its carrying amount.
Property and Equipment
Property and equipment is recorded at cost and depreciated on a
straight-line basis over estimated useful lives of three to five years. Ordinary
maintenance and repair expenditures are charged to expense when incurred.
Research and Development
Expenditures for research and development are expensed as incurred.
Computer Software Production Costs
Software production costs incurred subsequent to establishment of
technological feasibility, but before release to customers, are capitalized.
Upon general release of the product, cost capitalization is terminated and the
accumulated costs are amortized based on the greater of the proportion of
current revenues to total revenue estimates for the related product, or
straight-line amortization over the remaining estimated economic life of the
product not to exceed two years. Unamortized software production costs of $5,527
and $4,800 are included in Other assets at December 31, 2000 and 1999,
respectively. Amortization of software production costs in 2000, 1999 and 1998
aggregated $3,162, $2,193, and $1,020, respectively.
27
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
Income Taxes
The Company's general practice is to reinvest the earnings of its foreign
subsidiaries in those operations, unless it would be advantageous to the Company
to repatriate the foreign subsidiaries' retained earnings. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to "more likely than not" be realized in future tax returns. Tax law
and rate changes are reflected in income in the period such changes are enacted.
Fair Value of Financial Assets and Liabilities
The Company estimates the fair value of its monetary assets and
liabilities based upon comparative market values of instruments of a similar
nature and degree of risk. The Company estimates that the carrying amount of all
of its monetary assets and liabilities approximate fair value as of December 31,
2000 and 1999.
Comprehensive Income
Translation adjustment and unrealized gains and losses on securities
available for sale represent the Company's only Other Comprehensive Income
items. The Cumulative translation adjustment consists of unrealized gains/losses
in accordance with SFAS No. 52, "Foreign Currency Translation." The Company has
no intention of liquidating the assets of the foreign subsidiaries in the
foreseeable future.
Stock-Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and net earnings per common share as if the fair value
method had been applied in measuring compensation expense. Equity instruments
are not granted to non-employees.
Foreign Currency Translation
Assets and liabilities of international operations are translated into
U.S. dollars at current exchange rates. Income and expense accounts are
translated into U.S. dollars at the actual daily rates of exchange prevailing
during the period. Adjustments resulting from translating foreign functional
currency financial statements into U.S. dollars are recorded as a separate
component of shareholders' equity. Foreign currency transaction gains and losses
are included in Other income.
Cash Flows
The Company made cash payments for income taxes of $3,234, $3,196, and
$3,711 for the years ended December 31, 2000, 1999 and 1998, respectively.
Non-cash investing and financing activities include the effect of the
change in market value of the Company's available for sale investment in GA
eXpress (GA) common stock. The impact was an increase of $.3 million, net of
tax, to unrealized gain on securities available for sale and long-term assets
for the year ended December 31, 2000. During 1999 and 1998 the Company had an
increase of $.2 million, net of tax, and a decrease of $.5 million, net of tax,
to unrealized gain/loss on securities available for sale and long-term assets,
respectively. See additional discussion of GA stock activity at Other Assets
(Note 5).
New Pronouncements
In 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Management of the Company anticipates that, due to its limited use
of
28
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
derivative instruments, the adoption of FAS 133 will not have a significant
effect on the Company's results of operations or its financial position. FAS 137
delayed adoption of FAS 133 to fiscal years commencing after June 30, 2000.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. SAB 101, which became effective during
the fourth quarter of 2000, had no material effect on the financial position or
results of operations of the Company.
In April 2000, FASB Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation" -- an interpretation of APB Opinion
No. 25 -- was issued. FIN No. 44 clarifies the definition of employee for
purposes of applying APB No. 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. The adoption of FIN 44 did not have a material effect on the
Company's financial position or results of operations.
2. Inventories
December 31,
---------------------------
2000 1999
------- -------
Raw materials ................................ $44,572 $30,986
Work-in-progress ............................. 4,518 2,465
Finished goods ............................... 4,157 7,923
------- -------
$53,247 $41,374
======= =======
3. Property and Equipment
December 31,
---------------------------
2000 1999
------- -------
Land and building ............................ $ 3,919 $ 1,391
Manufacturing equipment ...................... 20,907 17,950
Office equipment and software ................ 25,170 19,746
Leasehold improvements ....................... 7,278 4,835
------- -------
57,274 43,922
Less: accumulated depreciation .............. 29,146 22,711
------- -------
$28,128 $21,211
======= =======
During the third quarter of 2000, the Company purchased a building
adjacent to its Hillsboro campus for a purchase price of $2,528. The acquisition
included land valued at $772. The Company intends to use the new building as an
additional manufacturing site in the near future. Currently, the building is
being used for additional office and training space.
4. Goodwill and Intangible Assets
Goodwill and intangible assets decreased by $3.7 million, net from $34.2
million at December 31, 1999 to $30.4 million at December 31, 2000. Goodwill and
intangibles increased by $2.8 million resulting from increased purchase price
recorded for the OCP acquisition based upon a formula tied to certain OCP
revenues
29
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
pursuant to the acquisition agreement. This increase was offset by amortization
for the twelve months ended December 31, 2000 of $6.6 million. Amortization
periods range from five to fifteen years.
5. Other Assets
Other assets include investments in marketable securities, deferred tax
assets, capitalized software, and unamortized debt issuance costs. During the
quarter ended September 30, 2000 the Company increased its investment in GA
common stock by 786 shares, or $663, resulting from a conversion of a $500 note
receivable and exercise of a warrant, per the terms of the original settlement
agreement with GA. Previously, the note receivable had been fully reserved on
the Company's books. During the fourth quarter, the Company wrote down its GA
stock investment to market value as of December 31, 2000, recognizing a loss of
$766. The Company owned 2.2 million shares of GA as of December 31, 2000.
During the year ended December 31, 2000 the Company recorded unamortized
debt issuance costs of $319 in connection with the net $100 million convertible
subordinated notes. These costs are being amortized over seven years.
6. Short Term Borrowings
In September 2000, the Company renewed its unsecured line of credit, with
a borrowing amount of $20 million and an interest rate based upon the lower of
the bank's prime rate or LIBOR plus 1.25 to 2.0%. During the quarter ended
September 30, 2000 the Company used cash from the proceeds of its convertible
subordinated notes (Note 7) to pay off the Company's existing line of credit of
$13.9 million. As of December 31, 2000, the Company had no outstanding balance
on the line of credit. As of December 31, 1999, $13.9 million was outstanding
under this arrangement.
7. Long Term Debt
During the quarter ended September 30, 2000, the Company received $116.1
million in net proceeds, after discount and net issuance costs, from a private
placement of $120 million aggregate principal amount of 5.5% convertible
subordinated notes due 2007. The notes are unsecured obligations, convertible
into Company Common Stock at a conversion price of $67.80 per share and are
subordinated to all present and future senior indebtedness of the Company.
Interest on the subordinated notes accrues at 5.5% per year and is payable
semi-annually on February 15 and August 15, beginning February 15, 2001.
In October 2000, the Company repurchased $20 million principal amount of
the 5.5% subordinated notes for $14.3 million in a negotiated transaction with a
third party. The repurchase of the notes resulted in an extraordinary gain of
approximately $3.3 million, net of tax of $1.8 million.
8. Commitments and Contingencies
Operating Leases
The Company leases most of its facilities and certain office equipment and
automobiles under non-cancelable operating leases which require minimum lease
payments as follows at December 31, 2000:
Year Ending
December 31, Operating Leases
------------ ---------------
2001 ......................... $ 4,810
2002 ......................... 4,356
2003 ......................... 4,038
2004 ......................... 4,019
2005 ......................... 3,237
Thereafter ................... 11,035
-------
$31,495
=======
30
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
Rent expense related to these operating leases aggregated $5,184, $4,545,
and $3,677 in 2000, 1999 and 1998, respectively.
9. Income Taxes
The provision for income taxes consists of the following:
Year Ended December 31,
------------------------------------
2000 1999 1998
------- ------- --------
Currently payable:
Federal ................................. $ 6,030 $ 6,460 $ 1,679
State ................................... 1,485 1,722 423
Foreign ................................. 197 609 596
------- ------- --------
7,712 8,791 2,698
------- ------- --------
Deferred:
Federal ................................. 892 (2,553) 386
State ................................... (156) (365) 55
Foreign ................................. (562) -- --
------- ------- --------
174 (2,918) 441
------- ------- --------
Decrease in valuation allowance ............ (1,900) (5,193) --
------- ------- --------
Total income tax provision .............. $ 5,986 $ 680 $ 3,139
======= ======= ========
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to pretax income as a result of
the following differences:
Year Ended December 31,
------------------------------------
2000 1999 1998
------- ------- --------
Statutory federal tax rate ................. 35.0% 35.0% 35.0%
Increase (decrease) in rates resulting from:
State taxes ............................. 3.3 4.0 4.0
Goodwill benefit from acquisitions ..... (0.8) (2.2) (5.1)
Deferred tax asset valuation allowance .. (18.5) (30.9) (6.0)
Other ................................... (2.1) (2.4) 0.7
------- ------- --------
Effective tax rate ......................... 16.9% 3.5% 28.6%
======= ======= ========
31
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
Deferred tax assets (liabilities) are comprised of the following
components:
December 31,
------------------------
2000 1999
-------- --------
Capitalized software ........................... $ (2,105) $ (1,664)
Capitalized SAP Costs .......................... (49) --
Depreciation ................................... (193) (711)
-------- --------
Gross deferred tax liability ................... (2,347) (2,375)
Deferred revenue ............................... 91 98
Accrued warranty ............................... 701 636
Inventory differences .......................... 2,988 3,208
Distributor price adjustments .................. -- 284
Merger costs ................................... -- 273
Allowance for doubtful accounts ................ 186 487
NOL and R&D tax credit carryforwards ........... 19,501 20,925
Investments in marketable equity securities .... 357 --
Patents ........................................ 489 --
Goodwill ....................................... 1,520 --
Other .......................................... 700 824
-------- --------
24,186 24,360
Less: valuation allowance ...................... (13,544) (15,444)
-------- --------
Net deferred tax asset ......................... $ 10,642 $ 8,916
======== ========
The Company's net deferred tax asset at December 31, 2000 of $10,642
includes $4,682 classified as current, with the remaining balance of $5,960
classified as non-current. The non-current portion is included in Other assets
on the Consolidated Balance Sheet and consists primarily of RadiSys CPD, Inc.
(formerly, Texas Micro) net operating loss carryforwards.
The Company accounted for certain changes in the federal income tax laws
that took effect on June 25, 1999. The tax law change made certain Texas Micro
net operating loss carryforwards available to offset RadiSys taxable income.
This portion of the pooling restatement increased net income of the Company by
$5.2 million for the year ended December 31, 1999.
At December 31, 2000, the Company had federal net operating loss
carryforwards of approximately $40,825, which begin to expire in 2001. Research
and development tax credit carryforwards of approximately $3,600 at December 31,
2000, are also available to reduce future income tax liabilities subject to
Section 383 limitations. Pursuant to Section 382 of the Internal Revenue Code, a
change in ownership occurred with the Texas Micro merger in 1999. As a result,
Texas Micro is subject to a $5,674 annual net operating loss utilization
limitation.
10. Shareholders' Equity
Stock Split
During the fourth quarter of 1999, the Company's Board of Directors
approved a three-for-two common stock split. Shareholders of record on November
8, 1999 (the record date) received three shares for every two shares held on
that date. The shares were distributed on November 29, 1999. All share amounts
in these consolidated financial statements and notes thereto for all periods
presented have been adjusted to reflect the three-for-two common stock split.
32
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
EPS Reconciliation
Year Ended December 31,
--------------------------------
2000 1999 1998
------ ------ ------
Weighted average shares (basic) ......... 16,974 16,158 15,854
Effect of dilutive stock options ........ 1,187 952 275
------ ------ ------
Weighted average shares (diluted) ....... 18,161 17,110 16,129
====== ====== ======
The computation of diluted EPS does not include the dilution impact of the
subordinated convertible notes as inclusion would be antidilutive.
Options to purchase 351, 269, and 1,247 shares of common stock were
outstanding in 2000, 1999, and 1998, respectively, but were excluded from the
computation of diluted EPS as the options' exercise price was greater than the
average market price of the Company's Common Stock.
Repurchased Shares
During the fourth quarter of 2000, the Company's Board of Directors
authorized the repurchase of up to 850 of its outstanding shares. As of December
31, 2000, the Company had repurchased 297 outstanding shares in the open market
or through privately negotiated transactions for $8,145.
Increase in Authorized Shares
As a result of the Annual Meeting of Shareholders in May 2000, the Company
amended its Second Restated Articles of Incorporation to increase the number of
authorized shares of common stock of the Company from 50,000 to 100,000.
Stock Option Plan
During 1988 and 1995, the shareholders approved stock option plans. The
1988 plan expired in 1998 and no further shares authorized under the plan are
available for grant. In August 1999 the Company completed its merger with Texas
Micro and, as a result, options outstanding to existing employees under Texas
Micro's option plans were converted into options to purchase RadiSys shares, at
the effective merger conversion rate of approximately 4.96 shares of Texas Micro
common stock to one share of RadiSys common stock. First-time options granted to
new employees generally become exercisable one-third annually, with no options
exercisable in the first year following the grant date. Options granted to
existing employees generally have vesting periods between two and four years.
The difference between the fair market value of the Company's common stock and
the option exercise price at the date of grant, if material, is recorded as
compensation expense ratably over the vesting period of the related options.
Compensation expense related to the stock option plan for the years ended
December 31, 2000, 1999, and 1998 was insignificant. Options available for grant
totaled 1,663 shares as of December 31, 2000. The table below summarizes the
Company's stock option activity:
33
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
2000 1999 1998
------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------- ------------------ ----------------------
Beginning balance 2,815 $18.29 2,245 $12.68 1,760 $ 16.84
Granted ....... 1,177 43.03 1,450 23.01 1,721 15.25
Canceled ...... (404) 25.19 (366) 14.96 (1,111) 24.08
Exercised ..... (682) 14.67 (514) 9.44 (125) 5.28
---- ----- ---- ---- ---- ----
Ending balance .. 2,906 $28.25 2,815 $18.29 2,245 $ 12.68
===== ===== ======
The following table summarizes the information about stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------- -----------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
As of Contractual Exercise As of Exercise
Range of Exercise Prices 12/31/2000 Life Price 12/31/2000 Price
- ---------------------------------------------------------------------------------------------------------
$ 2.20-$17.67 ......... 591 4.28 $11.91 326 $11.55
$17.71-$23.46 ......... 647 4.44 $19.55 195 $20.35
$23.59-$29.81 ......... 663 4.10 $26.68 190 $25.99
$30.00-$42.00 ......... 607 5.50 $40.78 22 $33.62
$42.88-$62.25 ......... 398 5.69 $50.12 5 $45.15
----- ------ ------ --- ------
$ 2.20-$62.25 ......... 2,906 4.72 $28.25 738 $18.46
===== ===
Employee Stock Purchase Plan
In December 1995, the Company established an Employee Stock Purchase Plan
(ESPP). Under the plan, the Company is authorized to sell up to 1,250 shares of
common stock in a series of eighteen-month offerings. Substantially all
employees are eligible to receive rights under the plan. The purchase price is
the lesser of 85% of the fair market value of the common stock on date of grant
or on the purchase date. During 2000 and 1999, the Company issued 196 and 95
shares under the plan, respectively.
Statement of Financial Accounting Standards No. 123 (FAS 123)
The Company has elected to account for its stock-based compensation under
Accounting Principles Board Opinion No. 25; however, as required by FAS 123 the
Company has computed for pro forma disclosure purposes the value of options
granted during 2000, 1999, and 1998 using the Black-Scholes option pricing
model. The weighted average assumptions used for stock option grants for 2000,
1999 and 1998 were risk-free interest rates of 5.86%, 5.33%, and 5.11%,
respectively, expected dividend yields of 0%, expected lives of 4 years, and
expected volatility of 85%, 72%, and 65%, respectively. The weighted average
assumptions used for ESPP rights for 2000, 1999 and 1998 were risk-free interest
rates of 5.46%, 5.17% and 5.0%, respectively, expected dividend yields of 0%,
expected lives of 1.5 years, and expected volatility of 78%, 65% and 62%,
respectively. The weighted-average fair value of ESPP rights granted in 2000,
1999 and 1998 were $5,545, $2,060, and $1,377, respectively.
Options are assumed to be exercised upon vesting for purposes of this
valuation. Adjustments are made for options forfeited prior to vesting. For the
years ended December 31, 2000, 1999 and 1998, the total value of the options
granted was computed to be $32,863, $19,151 and $12,761, respectively, which
would be amortized on a straight-line basis over the vesting period of the
options.
34
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
If the Company had accounted for these plans in accordance with FAS 123,
the Company's net income and pro forma net income per share would have been
reported as follows:
Year Ended December 31, 2000 Year Ended December 31, 1999 Year Ended December 31, 1998
--------------------------- ---------------------------- ---------------------------
Earnings per Share Earnings per Share Earnings per Share
--------------------------- ---------------------------- ---------------------------
Net Income Basic Diluted Net Income Basic Diluted Net Income Basic Diluted
---------- ------ ------ ---------- ------ ------- ---------- ------ ------
As Reported $32,646 $1.92 $1.80 $18,997 $1.18 $1.11 $7,818 $.49 $.48
Pro Forma $18,862 $1.11 $1.04 $ 9,934 $ .61 $ .58 $2,886 $.18 $.18
The effects of applying FAS 123 for providing pro forma disclosure for
2000, 1999, and 1998 are not likely to be representative of the effects on
reported net income and earnings per share for future years since options vest
over several years and additional awards are made each year.
11. Segment Information
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
reporting by public business enterprises of information about operating
segments, products and services, geographic areas and major customers. The
method for determining what information to report is based on the way that
management organizes the segments within the Company for making operating
decisions and assessing financial performance.
The Company's chief operating decision maker is considered to be the
President and Chief Executive Officer (CEO). The Company's CEO evaluates both
consolidated and disaggregated financial information in deciding how to allocate
resources and assess performance. The CEO receives certain disaggregated
information for three operating divisions within the Company.
The Company has aggregated divisional results of operations into a single
reportable segment as allowed under SFAS 131 because divisional results of
operations reflect similar long-term economic characteristics, including average
gross margins. Additionally, the divisional operations are similar with respect
to the nature of products sold, types of customers, production processes
employed and distribution methods used. Accordingly, the Company describes its
reportable segment as designing and manufacturing embedded computing solutions.
All of the Company's revenues result from sales within this segment.
Information about the Company's geographic sales and long-lived asset
information by geographic area is as follows:
Revenues Long-lived Assets
------------------------------------------------ --------------------------
Year Ended December 31, December 31,
------------------------------------------------ --------------------------
Country 2000 1999 1998 2000 1999
- ------- -------- -------- -------- ------- -------
United States ...... $195,129 $158,091 $132,029 $26,929 $20,537
Europe ............. 125,213 87,264 48,703 1,138 591
Asia Pacific - Japan 14,488 3,696 3,281 61 83
Other foreign ...... 5,846 2,039 2,535 -- --
-------- -------- -------- ------- -------
Total .............. $340,676 $251,090 $186,548 $28,128 $21,211
======== ======== ======== ======= =======
One customer accounted for $36.5 million or 10.7% of the total revenue for
the year ended December 31, 2000. No single customer accounted for more than 10%
of sales in 1999 or 1998.
12. Gain on Sale of Assets
During the first quarter of 2000 the Company sold a total of 367 shares of
GA common stock resulting in a recorded net gain of $856. This gain is reflected
in Other income in the Consolidated Statement of Operations. There were no sales
of assets during the remainder of 2000.
35
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
On September 30, 1999, the Company received final consideration owed in
connection with the prior (1996) sale (by Texas Micro) of the Sequoia Enterprise
Systems business unit to GA. Final consideration consisted of $1.5 million cash,
$750 notes, and 1,133 shares of GA common stock. The receipt of this
consideration resulted in a gain of $2.2 million and is reflected in Other
income in the 1999 Consolidated Statement of Operations.
13. Acquisitions and Mergers
ARTIC Business Unit Acquisition
On March 1, 1999, the Company purchased certain assets of International
Business Machines Corporation (IBM) dedicated to the design, manufacture and
sale of IBM's ARTIC communications coprocessor adapter hardware and software for
wide area network and other telephony applications (ARTIC). The purchase price
aggregated $27.0 million in cash consideration. The acquisition of ARTIC was
accounted for using the purchase method. The results of operations for ARTIC
have been included in the financial statements since the date of acquisition.
The aggregate purchase price of $27.6 million included $.6 million of direct
costs of acquisition and was allocated to fixed assets ($.4 million),
inventories ($6.5 million), patents ($5.0 million) and the remainder to
goodwill.
OCP Business Unit Acquisition
On December 28, 1999, the Company purchased certain assets of IBM's Open
Computing Platform (OCP) operation. OCP develops and sells integrated
computer-based solutions based on Intel architecture, primarily to OEMs of
telecommunications equipment. The purchase price consisted of an aggregate of
$13.9 million in cash consideration. The acquisition of OCP was accounted for
using the purchase method. The results of operations of OCP have been included
in the financial statements since the date of acquisition. The aggregate
purchase price recorded as of December 31, 1999 of $14.1 million included $.1
million direct costs of acquisition and $.1 million of contingent consideration
and was allocated to fixed assets ($.2 million), inventories ($.9 million) and
the remainder to goodwill. Pursuant to the terms of the acquisition agreement
and based upon a formula tied to future OCP revenues, the Company recorded a
total of $2.8 million in additional purchase price during the year ended
December 31, 2000. The additional purchase price has been recorded as goodwill.
Associated with this agreement, an obligation to IBM of $2.7 million is included
in Other accrued liabilities at December 31, 2000. Additionally, the Company may
also be required to make additional future payments in March of 2002 and 2003.
The total consideration for the acquisition is limited to $30.0 million.
Unaudited Pro Forma Disclosures of Acquisitions
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions described above had occurred as
of the beginning of 1999, after giving effect to adjustments of amortization of
patents and goodwill, estimated reduction of interest income and the estimated
impact on the income tax provision. The unaudited pro forma information is not
necessarily indicative of what actual results would have been had the ARTIC and
OCP acquisitions occurred at the beginning of the respective periods.
1999 1998
-------- --------
(unaudited)
Revenues ......................... $309,143 $289,575
Net income ....................... $ 24,528 $ 17,759
Net income per share (basic) ..... $ 1.52 $ 1.12
Net income per share (diluted) ... $ 1.43 $ 1.10
36
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands)
Merger with Texas Micro and Related Charges
On August 13, 1999, the Company completed a merger with Texas Micro Inc.
("Texas Micro"), an embedded computer company headquartered in Houston, Texas.
As a result, the outstanding Texas Micro common stock was converted into
approximately 2.8 million shares of RadiSys common stock, based on an exchange
ratio of approximately 4.96 shares of Texas Micro common stock for each share of
RadiSys common stock. The merger was accounted for as a pooling of interests
under Accounting Principles Board Opinion No. 16, and accordingly, financial
statements presented for all periods have been restated to reflect combined
operations and financial position. All intercompany transactions have been
eliminated.
The following reconciles revenue and net income previously reported to the
restated information presented in the consolidated financial statements:
Six Months Year Ended
Ended December 31,
June 30, 1999 1998
------------- -----------
Revenue:
Previously reported ................. $ 70,395 $108,198
Texas Micro ......................... 43,654 78,350
-------- --------
Restated ......................... $114,049 $186,548
======== ========
Net income:
Previously reported ................. $ 4,448 $ 5,432
Texas Micro ......................... 7,811 2,386
-------- --------
Restated ......................... $ 12,259 $ 7,818
======== ========
In connection with the merger, the Company recorded a charge to operating
expenses of approximately $6.0 million for merger-related costs during the third
quarter of 1999. Merger and related costs are comprised of the following:
Combination Balance
Costs Recorded Accrued
Year Ended as of
December 31, 1999 December 31, 2000
---------------- ----------------
Professional & filing fees .............................. $3,251 $18
Severance, retention, relocation & benefits alignment ... 1,538 --
Contract termination costs .............................. 799 67
Marketing, information systems conversion, and
other miscellaneous costs ............................ 383 8
------ ---
Total ................................................... $5,971 $93
====== ===
Accrued combination costs totaling $93 at December 31, 2000 are included
in Other accrued liabilities in the Consolidated Balance Sheet.
14. Legal Proceedings
In the normal course of business the Company becomes involved in
litigation. The Company has no material litigation currently pending.
15. Subsequent Event
In January 2001, the Company announced its intent to consolidate all
surface-mount board production (SMT) into its high-volume plant in Hillsboro,
Oregon. This consolidation will result in excess capacity at the Houston
manufacturing facility consisting of approximately sixty people along with some
equipment and space. All impacted employees will receive severance packages at
termination during March and April 2001. By completing the consolidation, the
Company expects to reduce its overall manufacturing costs. The Company will take
a pretax charge in the first quarter, which is currently estimated to be $1
million to $2 million.
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING FINANCIAL
DISCLOSURE
Not applicable
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file its definitive proxy statement for the Annual
Meeting of Shareholders to be held on May 15, 2001, pursuant to Regulation 14A
of the Securities Exchange Act of 1934 (the "Proxy Statement"), not later than
120 days after the end of the fiscal year covered by this Report, and certain
information included in the Proxy Statement is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors of the Company is included under
"Election of Directors" in the Company's Proxy Statement and is incorporated
herein by reference. Information with respect to executive officers of the
Company is included under Item 4 (a) of Part I of this Report. Information with
respect to Section 16(a) of the Securities and Exchange Act is included under
"Section 16 (a) Beneficial Ownership Reporting Compliance" in the Company's
Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included under
"Director Compensation," "Executive Compensation," "Compensation Committee
Report on Executive Compensation," "Comparison of Cumulative Total Returns," and
"Employment Contracts and Severance Arrangements" in the Company's Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is included under "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to certain relationships and related
transactions is included under "Certain Relationships and Related Transactions"
in the Company's Proxy Statement and is incorporated by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Index to Financial Statements
Independent Accountants' Report ...................................... 21
Consolidated Statement of Operations for the years ended
December 31, 2000, 1999 and 1998 ................................. 22
Consolidated Balance Sheet at December 31, 2000 and 1999 ............. 23
Consolidated Statement of Changes in Shareholders'
Equity for the years ended December 31, 2000, 1999
and 1998 ......................................................... 24
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 ................................. 25
Notes to the Consolidated Financial Statements ....................... 26
Schedule of Valuation and Qualifying Acounts ......................... 43
38
(a)(2) Financial Statement Schedule
Page in Form 10-K
-----------------
Schedule II -- Valuation and Qualifying Accounts ...................... 43
Report of Independent Accountants on Financial Statement Schedule ..... 44
(a)(3) Exhibits
Exhibit
No. Description
------- ------------------------------------------------------------------
2.1 Asset Purchase Agreement between RadiSys Corporation and
International Business Machines Corporation, dated as of March 1,
1999. Incorporated by reference as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated March 1, 1999, SEC File No.
0-26844.
2.2 Agreement of Reorganization and Merger dated as of May 24, 1999,
between the Company, Texas Micro Inc. and Tabor Merger Corp.
Incorporated by reference to Appendix A to the Company's Joint Proxy
Statement/Prospectus dated July 7, 1999, which is part of the
Company's Registration Statement on Form S-4 (No. 333-82401).
2.3 Asset Purchase Agreement between the Company and International
Business Machines Corporation, dated as of December 17, 1999.
Incorporated by reference as Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 28, 1999, SEC File No. 0-26844.
3.1 Second Restated Articles of Incorporation and Amendments thereto.
Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-95892) (the
"Form S-1"), and by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2000, SEC File No. 0-26844.
3.2 Restated Bylaws. Incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Registration No.
333-38966).
4.1 See Article IV of Exhibit 3.1 and Article VI of Exhibit 3.2.
4.2 Resale Registration Rights Agreement dated August 9, 2000 among the
Company and SG Cowen Securities Corporation, Banc of America
Securities LLC, J.P. Morgan & Co. and First Security Van Kasper.
Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3 (No. 333-49092).
4.3 Indenture dated August 9, 2000 between the Company and U.S. Trust
Company, National Association. Incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-3 (No.
333-49092).
4.4 Form of Note. Incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-3 (No. 333-49092).
*10.1 1988 Stock Option Plan, as amended. Incorporated by reference to
Exhibit 10.1 to the Form S-1.
*10.2 1995 Stock Incentive Plan, as amended. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on From 10-Q for the
quarterly period ended June 30, 2000, SEC File No. 0-26844.
*10.3 1996 Employee Stock Purchase Plan, as amended. Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2000, SEC File No.
0-26844.
*10.4 Form of Incentive Stock Option Agreement. Incorporated by reference
to Exhibit 10.3 to the Form S-1.
*10.5 Form of Non-Statutory Stock Option Agreement. Incorporated by
reference to Exhibit 10.4 to the Form S-1.
39
Exhibit
No. Description
------- ------------------------------------------------------------------
*10.6 Executive Severance Agreement dated February 8, 2000 between the
Company and Glenford J. Myers. Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, SEC File No. 0-26844.
*10.7 Executive Change of Control Agreement dated December 27, 2000
between the Company and Ronald A. Dilbeck.
*10.8 Executive Change of Control Agreement dated December 27, 2000
between the Company and Stephen F. Loughlin.
*10.9 Executive Change of Control Agreement dated December 27, 2000
between the Company and Arif Kareem.
*10.10 Executive Change of Control Agreement dated December 27, 2000
between the Company and Stuart F. Cohen.
*10.11 Executive Change of Control Agreement dated December 27, 2000
between the Company and John Sonneborn.
*10.12 Executive Change of Control Agreement dated December 27, 2000
between the Company and Annette M. Mulee.
*10.13 Letter Agreement dated March 31, 1999 between the Company and
Stephen F. Loughlin.
*10.14 Form of Indemnity Agreement. Incorporated by reference to Exhibit
10.9 to the Form S-1.
10.15 Office Lease Agreement by and between Chevron U.S.A. Inc. and Texas
Micro Inc. dated December 11, 1992, as amended. Incorporated by
reference to Exhibit 10.31 to Sequoia Systems Inc.'s Annual Report
on Form 10-K for the year ended June 30, 1995, SEC File No.
0-18238.
10.16 Fourth amendment to lease by and between Chevron U.S.A. Inc. and
Texas Micro, Inc. dated July 31, 1995. Incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, SEC File No. 0-26844.
10.17 Fifth amendment to lease by and between Chevron U.S.A. Inc. and
Texas Micro, Inc. dated October 17, 1995. Incorporated by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, SEC File No. 0-26844.
10.18 Sixth amendment to the lease by and between Chevron U.S.A. Inc. and
Texas Micro Inc. dated April 28, 1997. Incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, SEC File No. 0-26844.
10.19 Seventh amendment to the lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated November 12, 1997. Incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999, SEC File No. 0-26844.
10.20 Eighth amendment to the lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated December 23, 1997. Incorporated by
reference to Exhibit 10.13 to Texas Micro Inc.'s Quarterly Report
on Form 10-Q for the quarterly period ended December 28, 1997, SEC
File No. 0-18238.
10.21 Ninth amendment to the lease by and between Chevron U.S.A. Inc. and
Texas Micro Inc. dated February 24, 1998. Incorporated by reference
to Exhibit 10.1 to Texas Micro Inc.'s Quarterly Report on Form 10-Q
for the quarterly period ended March 29, 1998, SEC File No.
01-18238.
10.22 Revolving line of credit agreement between the Company and U.S.
Bank National Association States National Bank of Oregon dated
September 30, 2000, related revolving promissory note dated
November 3, 2000 and related negative pledge agreement dated
November 3, 2000.
40
Exhibit
No. Description
------- -----------------------------------------------------------------
10.23 Dawson Creek II lease, dated March 21, 1997, incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997, SEC File No.
0-26844.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney.
- -----------------
* This Exhibit constitutes a management contract or compensatory plan or
arrangement
(b) Reports on Form 8-K
The Company filed a Form 8-K dated October 30, 2000 reporting item 5. The
Company filed a Form 8-K dated October 18, 2000 reporting Item 5 and including
unaudited pro forma consolidated condensed statement of operations data for the
year ended December 31, 1999.
(c) See (a)(3) above.
(d) See (a)(2) above.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 26, 2001 RADISYS CORPORATION
By: /s/ DR. GLENFORD J. MYERS
---------------------------
Dr. Glenford J. Myers
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 2001.
Signature Title
--------- -----
/s/ Dr. Glenford J. Myers Chairman of the Board,
- ---------------------------------------- President and
Dr. Glenford J. Myers Chief Executive Officer
(Principal Executive Officer)
/s/ Stephen F. Loughlin Vice President of Finance and
- ---------------------------------------- Administration and Chief Financial
Stephen F. Loughlin Officer (Principal Financial and
Accounting Officer)
Directors:
/s/ James F. Dalton * Director
- ---------------------------------------
James F. Dalton
/s/ Richard J. Faubert * Director
- ---------------------------------------
Richard J. Faubert
/s/ C. Scott Gibson * Director
- ---------------------------------------
C. Scott Gibson
/s/ Carl Neun * Director
- ---------------------------------------
Carl Neun
/s/ Jean-Claude Peterschmitt * Director
- ---------------------------------------
Jean-Claude Peterschmitt
/s/ Jean-Pierre D. Patkay * Director
- ---------------------------------------
Jean-Pierre D. Patkay
*By /s/ Dr. Glenford J. Myers
--------------------------------------------
Dr. Glenford J. Myers, as attorney-in-fact
42
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Deductions Period
----------- ----------- ---------- ----------
Allowance for doubtful accounts -- Year ended:
December 31, 2000 933 198 (476) 655
December 31, 1999 1,481 (167) (381) 933
December 31, 1998 1,485 310 (314) 1,481
Warranty reserve -- Year ended:
December 31, 2000 1,591 2,381 (2,220) 1,752
December 31, 1999 1,202 2,423 (2,034) 1,591
December 31, 1998 732 3,163 (2,693) 1,202
Obsolescence reserve -- Year ended:
December 31, 2000 5,925 4,112 (2,937) 7,100
December 31, 1999 4,759 5,563 (4,397) 5,925
December 31, 1998 3,583 4,121 (2,945) 4,759
Tax valuation allowance -- Year ended:
December 31, 2000 15,444 (1,900) -- 13,544
December 31, 1999 20,637 (5,193) -- 15,444
December 31, 1998 20,637 -- -- 20,637
43
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of
RadiSys Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 23, 2001 appearing in the 2000 Annual Report to Shareholders of
RadiSys Corporation and subsidiaries (which report and consolidated financial
statements are incorporated in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Portland, Oregon
January 23, 2001
44
EXHIBIT INDEX
Exhibit
No. Description
------- --------------------------------------------------------------------
2.1 Asset Purchase Agreement between RadiSys Corporation and
International Business Machines Corporation, dated as of March 1,
1999. Incorporated by reference as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated March 1, 1999, SEC File No.
0-26844.
2.2 Agreement of Reorganization and Merger dated as of May 24, 1999,
between the Company, Texas Micro Inc. and Tabor Merger Corp.
Incorporated by reference to Appendix A to the Company's Joint Proxy
Statement/Prospectus dated July 7, 1999, which is part of the
Company's Registration Statement on Form S-4 (No. 333-82401).
2.3 Asset Purchase Agreement between the Company and International
Business Machines Corporation, dated as of December 17, 1999.
Incorporated by reference as Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 28, 1999, SEC File No. 0-26844.
3.1 Second Restated Articles of Incorporation and Amendments thereto.
Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-95892) (the
"Form S-1"), and by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2000, SEC File No. 0-26844.
3.2 Restated Bylaws. Incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Registration No.
333-38966).
4.1 See Article IV of Exhibit 3.1 and Article VI of Exhibit 3.2.
4.2 Resale Registration Rights Agreement dated August 9, 2000 among the
Company and SG Cowen Securities Corporation, Banc of America
Securities LLC, J.P. Morgan & Co. and First Security Van Kasper.
Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3 (No. 333-49092).
4.3 Indenture dated August 9, 2000 between the Company and U.S. Trust
Company, National Association. Incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-3 (No.
333-49092).
4.4 Form of Note. Incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-3 (No. 333-49092).
*10.1 1988 Stock Option Plan, as amended. Incorporated by reference to
Exhibit 10.1 to the Form S-1.
*10.2 1995 Stock Incentive Plan, as amended. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on From 10-Q for the
quarterly period ended June 30, 2000, SEC File No. 0-26844.
*10.3 1996 Employee Stock Purchase Plan, as amended. Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2000, SEC
File No. 0-26844.
*10.4 Form of Incentive Stock Option Agreement. Incorporated by reference
to Exhibit 10.3 to the Form S-1.
*10.5 Form of Non-Statutory Stock Option Agreement. Incorporated by
reference to Exhibit 10.4 to the Form S-1.
*10.6 Executive Severance Agreement dated February 8, 2000 between the
Company and Glenford J. Myers. Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, SEC File No. 0-26844.
*10.7 Executive Change of Control Agreement dated December 27, 2000
between the Company and Ronald A. Dilbeck.
45
Exhibit
No. Description
------- -----------------------------------------------------------------
*10.8 Executive Change of Control Agreement dated December 27, 2000
between the Company and Stephan F. Loughlin.
*10.9 Executive Change of Control Agreement dated December 27, 2000
between the Company and Arif Kareem.
*10.10 Executive Change of Control Agreement dated December 27, 2000
between the Company and Stuart F. Cohen.
*10.11 Executive Change of Control Agreement dated December 27, 2000
between the Company and John Sonneborn.
*10.12 Executive Change of Control Agreement dated December 27, 2000
between the Company and Annette M. Mulee.
*10.13 Letter Agreement dated March 31, 1999 between the Company and
Stephan F. Loughlin.
*10.14 Form of Indemnity Agreement. Incorporated by reference to Exhibit
10.9 to the Form S-1.
10.15 Office Lease Agreement by and between Chevron U.S.A. Inc. and
Texas Micro Inc. dated December 11, 1992, as amended.
Incorporated by reference to Exhibit 10.31 to Sequoia Systems
Inc.'s Annual Report on Form 10-K for the year ended June 30,
1995, SEC File No. 0-18238.
10.16 Fourth amendment to lease by and between Chevron U.S.A. Inc. and
Texas Micro, Inc. dated July 31, 1995. Incorporated by reference
to Exhibit 10.9 to The Company's Annual Report on Form 10-K for
the year ended December 31, 1999, SEC File No. 0-26844.
10.17 Fifth amendment to lease by and between Chevron U.S.A. Inc. and
Texas Micro, Inc. dated October 17, 1995. Incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999, SEC File No. 0-26844.
10.18 Sixth amendment to the lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated April 28, 1997. Incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999, SEC File No. 0-26844.
10.19 Seventh amendment to the lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated November 12, 1997. Incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999, SEC File No. 0-26844.
10.20 Eighth amendment to the lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated December 23, 1997. Incorporated by
reference to Exhibit 10.13 to Texas Micro Inc.'s Quarterly Report
on Form 10-Q for the quarterly period ended December 28, 1997,
SEC File No. 0-18238.
10.21 Ninth amendment to the lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated February 24, 1998. Incorporated by
reference to Exhibit 10.1 to Texas Micro Inc.'s Quarterly Report
on Form 10-Q for the quarterly period ended March 29, 1998, SEC
File No. 01-18238.
10.22 Revolving line of credit agreement between the Company and U.S.
Bank National Association dated September 30, 2000, related
revolving promissory note dated November 3, 2000 and related
negative pledge agreement dated November 3, 2000.
10.23 Dawson Creek II lease, dated March 21, 1997, incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997, SEC File
No. 0-26844.
46
Exhibit
No. Description
------- -----------------------------------------------------------------
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney.
- ---------------
* This Exhibit constitutes a management contract or compensatory plan or
arrangement
47