ROSS TECHNOLOGY REPORTS FINANCIAL RESULTS FOR 1998 FIRST FISCAL
QUARTER
AUSTIN, Texas, August 5, 1997 - ROSS Technology, Inc. (Nasdaq: RTEC)
today announced results for the 1998 first fiscal quarter, ended June
30, 1997.
For the first quarter of fiscal 1998, the Company reported a net loss
of $5.2 million, or $0.22 per share, on revenue of $11.8 million.
This compares to net income of $4.0 million, or $0.17 per share, on
revenue of $30.9 million for the 1997 first fiscal quarter, the most
recent profitable quarter of Company operations. Revenue for the 1998
first fiscal quarter was $11.8 million, compared to $11.6 million for
the fourth quarter of fiscal year 1997. The financial statements for
the first quarter of fiscal 1998 do not reflect any new write-offs.
"The management team at ROSS Technology is implementing a turn-around
plan for the Company," said Jack W. Simpson, Sr., president and chief
executive officer of ROSS Technology. "We are encouraged to see
movement in the right direction, with significant improvement in
reducing our losses from operations. This is reflected in the first
quarter results, which show the Company's lowest operating expenses
and operating loss in four quarters, at $5.1 million and $4.5 million,
respectively, primarily as a result of receiving the first payment
from Fujitsu on our "Viper" 64-bit development project, but also from
progress in controlling costs. Significantly, even without the
Fujitsu payment, our operating expenses and operating loss would still
be the lowest in four quarters. The gross margin remains
unacceptable, but is improved from the third and fourth quarters of
fiscal 1997, " he said.
"The short-term turnaround for ROSS is a matter of paying attention
to `the basics,'" Simpson continued. "We have competitive technology
and well-defined product offerings, and must address the issues of
increasing our sales, decreasing `non-central costs', and getting
significant cost reductions in manufacturing operations to improve
gross margins. It will take some time to see the combined effects of
these initiatives."
"While addressing these issues," Simpson said, "we are taking steps
to ensure that our efforts in next-generation, 64-bit high performance
microprocessor development are successful. We are adding significant
staff in both engineering and sales, and a few people in marketing.
We are very focused on critical marketing
issues, such as finding those market segments with the most
opportunity, developing targeted marketing programs, ensuring pricing
is correct and increasing the size of our sales channels. Beyond
that, we will continue to review all parts of the Company for expense
management, product cost reductions and revenue growth
opportunities."
"We believe there are significant opportunities for
ROSS Technology in providing high-performance processor upgrades, in
OEM design wins for our 32-bit and 64-bit processors, and in
providing small-footprint components and systems in many industry
segments -- beyond the established markets for workstations and
servers. Exploring these product offerings and implementing the
marketing and sales strategies is a process that we expect will take
much of this fiscal year," Simpson said.
Further discussion of liquidity and important additional information
concerning the Company's financial condition and results of operations
for the quarter ended June 30, 1997 are contained in its Quarterly
Report on Form 10-Q, which will be filed on or about August 8, 1997,
with the Securities and Exchange Commission. The text of the Form
10-Q will be available on the World Wide Web at sec.gov or
in hard copy by request to the Company's Investor Relations office.
Safe Harbor Statement under Private Securities Litigation Reform Act
of 1995:
To the extent that this release contains forward-looking statements
with respect to the financial condition, results of operations and
business of the Company, such statements are subject to certain risks
and uncertainties that could cause actual results to differ
materially and adversely from those set forth in the forward-looking
statements, including without limitation, the availability of
financial resources adequate to the Company's short-, medium- and
long-term needs, the Company's dependence on the timely development,
pre-production qualification, manufacture, introduction and customer
acceptance of new higher-speed, higher-margin products, the ability
of the Company to successfully implement its strategy of expanding
into the system products business, the various effects on revenue,
margins, inventories and operating expenses of repositioning the
Company's product lines and overall business, the effects of building
and maintaining product inventories in the Company's hands and in its
distribution channels, product return and credit risks with
distributors, resellers and customers, the Company's dependence on
distributors and resellers for certain product sales to end-users,
the impact on revenue, margins and inventories of rapidly changing
technology, competition, downward pricing pressures and allocations
of product among different distribution channels, the effects of
routine price degradation over time in each of the Company's product
lines, varying customer demand for the Company's products, supply and
manufacturing constraints and costs, the Company's dependence on
outside suppliers for wafer fabrication and raw materials, components
and certain manufacturing services, changes in plans, programs or
expenses for research, development, sales or marketing, the Company's
ability to build and maintain adequate staff infrastructures in the
areas of microprocessor design, product engineering and development,
sales and marketing, finance, accounting, and administration,
supplier disputes, customer warranty claims, general economic
conditions, and the other risks and uncertainties described from time
to time in the Company's public announcements and Securities and
Exchange Commission filings, including without limitation the Form
S-1 and Final Prospectus filed in November 1995 and the Company's
Current, Quarterly and Annual Reports on Forms 8-K, 10-Q and 10-K,
respectively. The Company cautions that the foregoing list of
important factors is not exclusive. The Company does not undertake
to update any written or oral forward-looking statement that may be
made from time to time by or on behalf of the Company.
Selected Financial Information
(complex charts--see hard copy or Web site for data)
Comments on selected financial information
Net Sales.
Net sales in the three-month period ended June 30, 1997
(the "first quarter") of the fiscal year ending March 30, 1998
("fiscal 1998") decreased 62% to $11.8 million from $30.9 million in
the corresponding period of the fiscal year ended March 31, 1997
("fiscal 1997"). This was due primarily to a significant decline in
sales to the Company's primary OEM microprocessor chip customers,
reflecting movement by those customers to competitors' 64-bit
products as compared to the Company's 32-bit products. Upgrade and
systems sales also declined in the first quarter of fiscal 1998 as
compared to the first quarter of fiscal 1997. Upgrade sales during
the first quarter of fiscal 1997 were affected positively by the
introduction of the Company's 150 MHz upgrade product.
Gross Profit.
Gross profit as a percentage of net sales for the quarter ended June
30, 1997, decreased to 5.4% as compared with 47.0% of net sales for
the comparable period in fiscal 1997. This decrease is primarily
attributable to the Company's relatively high cost of production,
which in turn is primarily attributable to overhead distributed over
fewer units in the first quarter of fiscal 1998 compared to the
similar period in fiscal 1997, and the usual erosion in price of the
Company's products over their life cycles. In addition, gross profit
was adversely affected by the Company's lack of new, higher-margin
microprocessor and upgrade subsystem module products.
Research and Development Expense.
Research and development ("R&D") expenses were
13.1% of net sales for the quarter ended June 30, 1997, compared with
14.2% of net sales for the comparable period in fiscal 1997.
Absolute R&D expenses decreased $2.9 million in the quarter ended
June 30, 1997, from the comparable period in the prior fiscal year.
This decrease was primarily attributable to reimbursement by Fujitsu
Ltd. (Fujitsu) of $4.5 million in expenses relating to the
development of the Company's 64-bit "Viper" project pursuant to a
Development Agreement between Fujitsu and the Company. This decrease
was partially offset by increases due to the addition of new
personnel and related overhead and outside contractor expenses in the
areas of new product design and new product development related to
the Company's "Colorado 4" and "Colorado 5" hyperSPARCTM and
next-generation "Viper" microprocessor designs.
Selling, General and Administrative Expense.
Selling, general and administrative ("SG&A") expenses were 30.5% of net sales
for the
quarter ended June 30, 1997, compared with 11.3% of net sales for the
comparable period in fiscal 1997. Absolute SG&A expenses increased
$.1 million in the quarter ended June 30, 1997, from the comparable
period in the prior year. The increase in SG&A expense is primarily
attributable to an increase in sales expenses as the Company has
added sales-related personnel and overhead, and by compensation
expenses related to the engagement of the Company's newly-hired
President and Chief Executive Officer, partially offset by a decrease
in marketing and advertising-related expenses.
Net Interest Expense.
The Company had net interest expense of $.7 million for the quarter
ended June 30, 1997, versus interest income of $.1 million in the
quarter ended July 1, 1996, reflecting the costs of the Company's $50
million credit facility with The Dai-Ichi Kangyo Bank, Limited
("DKB"). Income Tax Expense. The Company has established a 100%
reserve against its deferred income tax asset and will not record
income tax expense or benefit until such time as the Company achieves
profitability.
Future Operating Results.
The Company's financial
condition deteriorated significantly during fiscal 1997, and at the
end of the first quarter of fiscal 1998, the Company was continuing
to experience significant losses from operations. Subsequent to the
end of fiscal 1997, the Company made significant changes to the
senior management team to assess the Company's business and to
implement changes necessary to restore the Company to a sound
financial condition. The Company depends solely upon its parent,
Fujitsu Limited, for additions to capital necessary to continue its
operations. While Fujitsu has stated that, "In accordance with our
plan for ROSS Technology, we (Fujitsu) are ready to provide the
necessary funding through debt guarantees or other types of financing
for ROSS Technology not to incur cash flow shortages through April 1,
1998", there can be no assurances that the Company will not in the
future require financing in addition to that committed by Fujitsu.
The Company intends to emphasize its upgrade business, in which the
Company's modules and motherboards are used to provide enhanced
performance for existing systems. In addition the Company will focus
on sales to OEM customers, which incorporate the Company's products
into their products. The Company intends to continue to explore the
systems business in selling workstation and server components,
together with SPARCplugTM systems which provide customers with a
unique small form-factor solution to their systems requirements.
Although the Company is taking specific actions to improve gross
profit margins, it is anticipated that gross profit will continue to
remain under pressure for the foreseeable future.
The Company experienced negative cash flows during the first quarter of fiscal
1998 and at the end of the quarter had negative working capital and
negative stockholders' equity. At present, the Company is dependent
on its parent company, Fujitsu, for its capital requirements. In
November 1996 the Company established a "New Credit Facility" with
DKB for a maximum principal amount of $25 million; in February 1997
such New Credit Facility was increased to a maximum of $50 million.
The New Credit Facility expires on March 31, 1998, and is guaranteed
by Fujitsu. At June 30, 1997, the amount outstanding under the New
Credit Facility was $50.0 million, pursuant to a promissory note due
December 31, 1997. On June 18, 1997, the Company received a
commitment from Fujitsu that, "In accordance with our plan for ROSS
Technology, we (Fujitsu) are ready to provide the necessary funding
through debt guarantees or other types of financing for ROSS
Technology not to incur cash flow shortages through April 1, 1998."
Accordingly, the Company believes that it will have adequate capital
for its business through April 1, 1998, and the Company is holding
discussions with Fujitsu regarding its capital requirements.
However, there can be no assurance that the Company will not
experience negative cash flow from operations and the Company may in
the future be required to seek additional external sources of
financing for its operating needs. There can be no assurance that
additional capital, including capital from bank borrowings, will be
available on terms favorable to the Company, if at all, or that Fujitsu would be willing
to provide additional loan guarantees, equity infusions or other
financial assistance to the Company in the future. To the extent that
additional capital is raised through the sale of additional equity or
convertible debt securities, the issuance of such securities would
likely result in substantial dilution to the Company's then existing
stockholders. In view of its position as the Company's controlling
stockholder, Fujitsu's concurrence is necessary for the issuance of
any additional debt or equity financing by the Company. The Company's
failure to obtain sufficient additional financing could make it
impossible for it to continue operations, force the Company to seek
protection under Federal bankruptcy law and/or affect the Company's
listing on the Nasdaq National Market.
The Company's principal source of liquidity as of June 30, 1997
consisted of $7.6 million of cash and cash equivalents. As of June
30, 1997, the Company had negative working capital of $39.6 million,
an accumulated deficit of $106.7 million, and stockholders' deficit
of $25.4 million.
During fiscal 1997 and during the first quarter of
fiscal 1998, the Company extended payment terms with many suppliers
in order to increase the availability of on-hand cash. As a result
the Company experienced difficulty in procuring inventory and
subcontract manufacturing services from some suppliers. At the
present time the Company is not in compliance with the agreed payment
terms with many of its suppliers and there can be no assurance that
such suppliers will continue to ship supplies to the Company if the
Company does not comply with such terms.
The Company has received notification from the Nasdaq Stock Market,
Inc. ("Nasdaq") that the Company does not comply with the net
tangible asset requirement for continued listing on the Nasdaq
National Market. Nasdaq has requested that the Company provide it
with plans for complying with the net tangible asset requirement ($4
million in the Company's case). In the event the Company cannot meet
the net tangible asset requirement or make alternative arrangements
satisfactory to Nasdaq, the Company's stock will likely be delisted
from the Nasdaq National Market. The Company is pursuing
alternatives to comply with the requirement; however, there can be no
assurance that it can achieve compliance or that the Company's common
stock will not be delisted from the Nasdaq National Market.
ROSS Overview
ROSS Technology, founded in 1988, is a majority-owned subsidiary of
Fujitsu Limited. A minority position in ROSS is held by Sun
Microsystems, Inc. As of June 30, 1997, the Company's outstanding
Common Stock was held 60 percent by Fujitsu, 5 percent by Sun, and 35
percent by employees and the public. The Company's objective is to
produce extremely high SPARC performance in a very compact space,
leading the industry in delivering the most SPARC computing power per
cubic inch. ROSS is one of the industry's most prominent suppliers
of SPARC microprocessors and SPARC system products to both the OEM
and end-user markets. |
