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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 26, 2003 |
|
or |
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
|
Commission file number 1-7534
STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 84-0593263 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
| One StorageTek Drive, Louisville, Colorado | 80028-4309 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code 303-673-5151
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No
Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
ý Yes o No
The registrant had 110,625,078 shares
of common stock outstanding as of November 3, 2003.
| PAGE | |||||
|---|---|---|---|---|---|
| PART I - FINANCIAL INFORMATION | |||||
Item 1 - Financial Statements |
|||||
Consolidated Balance Sheets |
3 | ||||
Consolidated Statements of Operations |
4 | ||||
Consolidated Statements of Cash Flows |
5 | ||||
Consolidated Statements of Comprehensive Income |
6 | ||||
Notes to Consolidated Financial Statements |
7 | ||||
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||||
Item 3 - Quantitative and Qualitative Disclosures about Market Risk |
24 | ||||
Item 4 - Controls and Procedures |
24 | ||||
PART II - OTHER INFORMATION |
|||||
Item 1 - Legal Proceedings |
25 | ||||
Item 6 - Exhibits and Reports on Form 8-K |
25 | ||||
Signatures |
30 | ||||
2
| 09/26/03 |
12/27/02 |
|||||||
|---|---|---|---|---|---|---|---|---|
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 888,204 | $ | 657,599 | ||||
| Short-term investments | 9,950 | -- | ||||||
| Accounts receivable | 474,175 | 566,863 | ||||||
| Inventories | 115,258 | 133,275 | ||||||
| Deferred income tax assets | 116,217 | 99,246 | ||||||
| Other current assets | 3,572 | 7,256 | ||||||
| Total current assets | 1,607,376 | 1,464,239 | ||||||
| Long-term investments | 29,873 | -- | ||||||
| Property, plant, and equipment | 214,165 | 240,021 | ||||||
| Spare parts for maintenance | 45,437 | 39,346 | ||||||
| Deferred income tax assets | 103,060 | 114,002 | ||||||
| Other assets | 118,460 | 118,532 | ||||||
| Total assets | $ | 2,118,371 | $ | 1,976,140 | ||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 1,015 | $ | 773 | ||||
| Accounts payable | 111,556 | 135,348 | ||||||
| Accrued liabilities | 429,125 | 421,511 | ||||||
| Income taxes payable | 229,703 | 215,240 | ||||||
| Other current liabilities | 51,725 | 35,144 | ||||||
| Total current liabilities | 823,124 | 808,016 | ||||||
| Long-term debt | 10,576 | 10,361 | ||||||
| Total liabilities | 833,700 | 818,377 | ||||||
| Commitments and Contingencies (Note 5) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $0.10 par value, 300,000,000 shares authorized; 110,387,783 shares issued at September 26, 2003, and 106,849,329 shares issued at December 27, 2002 |
11,039 | 10,685 | ||||||
| Capital in excess of par value | 975,275 | 908,100 | ||||||
| Retained earnings | 337,727 | 260,160 | ||||||
| Accumulated other comprehensive loss | (19,020 | ) | (9,584 | ) | ||||
| Treasury stock, 268,238 shares at September 26, 2003, and 238,276 shares at December 27, 2002, at cost | (5,142 | ) | (4,444 | ) | ||||
| Unearned compensation | (15,208 | ) | (7,154 | ) | ||||
| Total stockholders’ equity | 1,284,671 | 1,157,763 | ||||||
| Total liabilities and stockholders’ equity | $ | 2,118,371 | $ | 1,976,140 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
| Quarter Ended |
Nine Months Ended |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 09/26/03 |
09/27/02 |
09/26/03 |
09/27/02 |
|||||||||||
| Revenue: | ||||||||||||||
| Storage products | $ | 312,435 | $ | 307,335 | $ | 906,844 | $ | 889,379 | ||||||
| Storage services | 207,825 | 194,370 | 620,634 | 560,167 | ||||||||||
| Total revenue | 520,260 | 501,705 | 1,527,478 | 1,449,546 | ||||||||||
| Cost of revenue: | ||||||||||||||
| Storage products | 164,285 | 166,719 | 486,774 | 497,027 | ||||||||||
| Storage services | 118,907 | 106,801 | 353,211 | 311,096 | ||||||||||
| Total cost of revenue | 283,192 | 273,520 | 839,985 | 808,123 | ||||||||||
| Gross profit | 237,068 | 228,185 | 687,493 | 641,423 | ||||||||||
Research and product development costs | 49,803 | 53,354 | 150,786 | 162,385 | ||||||||||
| Selling, general, and administrative expense | 145,028 | 141,958 | 432,051 | 412,952 | ||||||||||
| Operating profit | 42,237 | 32,873 | 104,656 | 66,086 | ||||||||||
| Interest income | 2,556 | 2,837 | 7,564 | 7,439 | ||||||||||
| Interest expense | (486 | ) | (540 | ) | (1,353 | ) | (1,568 | ) | ||||||
| Income before income taxes | 44,307 | 35,170 | 110,867 | 71,957 | ||||||||||
| Provision for income taxes | (13,300 | ) | (11,300 | ) | (33,300 | ) | (23,000 | ) | ||||||
| Net income | $ | 31,007 | $ | 23,870 | $ | 77,567 | $ | 48,957 | ||||||
| EARNINGS PER COMMON SHARE | ||||||||||||||
| Basic earnings per common share | $ | 0.29 | $ | 0.23 | $ | 0.72 | $ | 0.47 | ||||||
| Weighted-average shares | 108,612 | 105,268 | 107,652 | 104,903 | ||||||||||
| Diluted earnings per common share | $ | 0.28 | $ | 0.22 | $ | 0.70 | $ | 0.46 | ||||||
| Weighted-average and dilutive potential shares | 111,502 | 107,121 | 110,273 | 107,360 | ||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
| Nine Months Ended |
||||||||
|---|---|---|---|---|---|---|---|---|
| 09/26/03 |
09/27/02 |
|||||||
| OPERATING ACTIVITIES | ||||||||
| Cash received from customers | $ | 1,649,037 | $ | 1,465,480 | ||||
| Cash paid to suppliers and employees | (1,395,623 | ) | (1,202,442 | ) | ||||
| Interest received | 7,123 | 7,078 | ||||||
| Interest paid | (960 | ) | (1,288 | ) | ||||
| Income tax paid | (9,461 | ) | (11,229 | ) | ||||
| Net cash provided by operating activities | 250,116 | 257,599 | ||||||
| INVESTING ACTIVITIES | ||||||||
| Purchases of investments | (39,703 | ) | -- | |||||
| Purchases of property, plant, and equipment | (31,844 | ) | (83,003 | ) | ||||
| Proceeds from sale of property, plant, and equipment | 3,746 | 354 | ||||||
| Other assets | 1,045 | (14,321 | ) | |||||
| Net cash used in investing activities | (66,756 | ) | (96,970 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Repayments of credit facilities, net | -- | (73,401 | ) | |||||
| Proceeds from employee stock plans | 45,549 | 14,280 | ||||||
| Proceeds from other debt | 676 | 1,166 | ||||||
| Repayments of other debt | (1,382 | ) | (1,868 | ) | ||||
| Net cash provided by (used in) financing activities | 44,843 | (59,823 | ) | |||||
| Effect of exchange rate changes on cash | 2,402 | (4,066 | ) | |||||
| Increase in cash and cash equivalents | 230,605 | 96,740 | ||||||
| Cash and cash equivalents - beginning of the period | 657,599 | 453,217 | ||||||
| Cash and cash equivalents - end of the period | $ | 888,204 | $ | 549,957 | ||||
| RECONCILIATION OF NET INCOME TO NET CASH | ||||||||
| PROVIDED BY OPERATING ACTIVITIES | ||||||||
| Net income | $ | 77,567 | $ | 48,957 | ||||
| Depreciation and amortization expense | 64,760 | 70,501 | ||||||
| Inventory writedowns | 18,565 | 28,996 | ||||||
| Translation (gain) loss | 21,990 | (461 | ) | |||||
| Other non-cash adjustments to income | (20,307 | ) | 17,433 | |||||
| Decrease in accounts receivable | 121,559 | 15,934 | ||||||
| Decrease in other current assets | 7,758 | 531 | ||||||
| (Increase) decrease in inventories | (3,087 | ) | 42,695 | |||||
| Increase in spare parts | (13,214 | ) | (17,724 | ) | ||||
| (Increase) decrease in deferred income tax assets | (4,907 | ) | 993 | |||||
| Increase (decrease) in accounts payable | (26,246 | ) | 26,934 | |||||
| Increase (decrease) in accrued liabilities | (9,494 | ) | 8,938 | |||||
| Increase (decrease) in other current liabilities | (4,198 | ) | 3,694 | |||||
| Increase in income taxes payable | 19,370 | 10,178 | ||||||
| Net cash provided by operating activities | $ | 250,116 | $ | 257,599 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
| Quarter Ended |
Nine Months Ended |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 09/26/03 |
09/27/02 |
09/26/03 |
09/27/02 |
|||||||||||
| Net income | $ | 31,007 | $ | 23,870 | $ | 77,567 | $ | 48,957 | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||
| Unrealized gains (losses) on marketable securities: | ||||||||||||||
| Holding gains (losses), net of tax (benefit) expense of $(171), $0, $394, and $0 |
(456 | ) | -- | 861 | -- | |||||||||
| Reclassification adjustment for net gains included in net income, net of tax expense of $165, $0, $699, and $0 | (386 | ) | -- | (1,631 | ) | -- | ||||||||
| Foreign currency hedging contracts: | ||||||||||||||
| Net gains (losses) on foreign currency cash flow hedges, net of tax (benefit) expense of $(7,719), $322, $(16,381), and $(11,431) | (12,279 | ) | 516 | (26,174 | ) | (18,338 | ) | |||||||
| Reclassification adjustment for net losses included | ||||||||||||||
| in net income, net of tax benefit of $6,580, | ||||||||||||||