FILED BY DIGI INTERNATIONAL INC.
PURSUANT TO RULE 425 UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND DEEMED FILED PURSUANT TO RULE 14A-12 OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SUBJECT COMPANY: NETSILICON, INC.
COMMISSION FILE NO.: 0-26761
DIGI REPORTS FISCAL 2001 FINANCIAL RESULTS; REVENUE FROM PRODUCTS ADDRESSING
GROWTH MARKETS INCREASES 27.6% IN FISCAL 2001
FISCAL 2001 & 2002 ACQUISITIONS SIGNIFICANTLY ENHANCE CONNECTWARE POSITIONING
MINNEAPOLIS, NOVEMBER 6, 2001 - Digi International(R) Inc. (Nasdaq: DGII)
announced today that fiscal 2001 products addressing growth markets, which
consists of Terminal Servers, USB and Device Server products, excluding the
impact of SAB 101, increased 27.6% to $33.3 million and increased as a percent
of total revenue from 20% in fiscal 2000 to 27% in fiscal 2001. Fiscal 2001
products addressing mature markets, which consists of Asynchronous, Synchronous,
RAS & MiLAN products, excluding the impact of the adoption of SAB 101, was $90.8
million and decreased as a percent of total revenue from 80% in fiscal 2000 to
73% in fiscal 2001. Revenue for the fourth quarter ended September 30, 2001, was
$26.4 million, excluding the impact of the adoption of SAB 101, and was
comprised of $8.4 million in revenue from products addressing growth markets and
$18.0 million in revenue from products addressing mature markets. Revenue from
products addressing growth markets, excluding the impact of the adoption of SAB
101, increased to 32% of total revenue in the fiscal fourth quarter from 26.6%
of total revenue in the fiscal third quarter.
"I am very proud of our employees and our numerous accomplishments in fiscal
2001," Digi's Chairman, President and CEO, Joe Dunsmore, stated. "Our focus on
Connectware and on products addressing growth markets is showing strong
results."
DIGI REPORTS FISCAL 2001 FOURTH QUARTER RESULTS - PAGE 2
In fiscal 2001, Digi aggressively drove a repositioning of its product
lines into growth markets. In October 2000, Digi gained USB connectivity
expertise with the acquisition of Inside Out Networks. In January 2001, Digi
launched the "Connectware" category of wired and wireless, hardware and software
connectivity solutions to drive instant recognition of Digi and our family of
connectivity products. In February 2001, Digi enhanced its first-to-market
strategy with the creation of DigiLabs. In June 2001, Digi positioned its
products to go head-to-head with its major competitors through the acquisition
of Decision Europe and its family of single port device servers. Following the
acquisition of Decision Europe, Digi introduced the Digi One(TM) family of
single-port device servers, to capitalize on trends in the industrial automation
and embedded systems markets. In the second quarter of fiscal 2002, Digi expects
to further enhance its Connectware positioning into growth markets with the
proposed acquisition of NetSilicon, a leading provider of embedded Ethernet
microprocessing solutions for intelligent networked devices.
Digi's fiscal 2001 revenue, including the impact of adoption of Staff Accounting
Bulletin No. 101 ("SAB 101"), was $130.4 million, compared to revenue of $132.5
million in fiscal 2000. Excluding the impact of the adoption of SAB 101, fiscal
2001 revenue was $124.1 million, compared to $132.5 million in fiscal 2000.
Revenue for the fourth quarter ended September 30, 2001 was $32.3 million,
including the impact of the adoption of SAB 101, and $26.4 million excluding the
impact of adoption of SAB 101, compared to revenue of $34.2 million in the
fourth quarter of fiscal 2000.
Net income for the fourth quarter ended September 30, 2001, excluding the impact
of the adoption of SAB 101, and excluding restructuring and net impairment
charges, the net digital RAS asset write down, and amortization of intangible
assets acquired in business combinations net of the related deferred tax
benefits, totaled $0.1 million, or $0.01 per diluted share, versus $2.4 million,
or $0.16 per diluted share, during the fourth quarter of fiscal 2000. The
Company's reported net loss, including the impact of adoption of SAB 101, was
$2.1 million, or $0.13 per diluted share, in the fourth quarter of fiscal 2001,
compared to a net loss of $7.1 million, or $0.47 per diluted share, in the
fourth quarter of fiscal 2000. Excluding the impact of adoption of SAB 101, the
reported net loss for the fourth quarter of fiscal 2001 was $0.25 per diluted
share.
DIGI REPORTS FISCAL 2001 FOURTH QUARTER RESULTS - PAGE 3
Gross margin, for the fourth quarter ended September 30, 2001, including the
impact of adoption of SAB 101, and excluding a one-time charge of $3.0 million
related to the write down of inventories and other assets pertaining to the
digital RAS product line, was 49.3%, compared to 52.7% during the fourth quarter
of fiscal 2000. Gross margin, for the fourth quarter ended September 30, 2001,
excluding the impact of adoption of SAB 101 and a one-time charge of $3.0
million related to the write down of inventory and other assets pertaining to
the digital RAS product line, was 49.3%. This 3.4% decrease in gross margin,
excluding the impact of adoption of SAB 101 and the RAS inventories write down,
resulted primarily from lower sales volumes in the fourth quarter of fiscal
2001.
Operating expenses, including the impact of adoption of SAB 101, but excluding
amortization, restructuring, and asset impairment charges, were $14.5 million,
or 45.0% of sales, for the fourth quarter of fiscal 2001, compared to $14.7
million, or 48.7% of sales, in the third quarter of fiscal 2001, and $16.2
million, or 47.3% of sales, in the comparable quarter a year ago. Operating
expenses for the fourth quarter of fiscal 2001, excluding the impact of SAB 101
and excluding amortization and restructuring charges, were $14.3 million, or
54.1% of sales. The Company continues to employ an ongoing expense control
strategy to improve expense to revenue ratios.
During the quarter ended September 30, 2001, book value per share decreased
$0.27 from the prior quarter to $7.39, net cash per share increased $0.36 from
the prior quarter to $3.67, and tangible book value per share decreased $0.21
from the prior quarter to $5.98. Days sales outstanding (DSOs) decreased to 57
days for the quarter ended September 30, 2001, from 60 days in the quarter ended
June 30, 2001. The Company's cash and marketable securities increased primarily
due to a strong focus on receivables collections efforts in the fourth quarter
of fiscal 2001.
SAB 101 summarizes certain of the SEC's views regarding revenue recognition. The
Company adopted the provisions of SAB 101 during the fourth quarter of fiscal
2001. The implementation guidelines of SAB 101 require that the accounting
effects of adoption of SAB 101 must be reflected retroactively to October 1,
2000, the first day of fiscal 2001. The primary effect of SAB 101 was a deferral
DIGI REPORTS FISCAL 2001 FOURTH QUARTER RESULTS - PAGE 4
of certain fiscal 2000 revenues and related expenses into fiscal 2001, and
deferral of certain fiscal 2001 revenue and related expenses within the
respective quarters of fiscal 2001. The initial effect of these deferrals was a
one-time charge of $1.9 million for the cumulative effect of this accounting
change effective October 1, 2000. The effect of this change on the full fiscal
year 2001 results was a net increase in revenues of $6.3 million.
REVENUE AND EARNINGS GUIDANCE:
"Given current conditions in the economy and our industry, future visibility is
particularly uncertain," Dunsmore stated. "Longer term we expect the addition of
NetSilicon will significantly accelerate the rate of revenue growth from
products addressing growth markets and drive Digi to $200 million in revenue by
the end of fiscal 2004 while shifting our revenue mix from 75% from products
addressing mature markets to 75% from products addressing growth markets."
Before giving effect to the proposed acquisition of NetSilicon, Digi expects
first fiscal quarter revenue from products addressing growth markets to total
$8.0 million, revenue from products addressing mature markets, excluding MiLAN,
to total $11.0 million, and MiLAN revenue to total $5.0 million, and expects
fiscal 2002 revenue from products addressing growth markets to total $41.0
million, revenue from products addressing mature markets, excluding MiLAN, to
total $37.5 million, and MiLAN revenue to total $27.0 million.
Excluding NetSilicon products, Digi's fiscal first quarter earnings per share
before amortization of intangibles and acquisition-related expenses is expected
to be in the range of $0.00 to $0.02, and in the range of a $0.06 loss to an
$0.08 loss on a reported basis. Excluding NetSilicon products, Digi's fiscal
2002 earnings per share before amortization of intangibles and
acquisition-related expenses is expected to be in the range of $0.22 to $0.31,
and in the range of a $0.07 loss to a $0.01 profit on a reported basis.
DIGI REPORTS FISCAL 2001 FOURTH QUARTER RESULTS - PAGE 5
DIGI INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Three months ended September 30 Twelve months ended September 30
--------------------------------- --------------------------------
2001 2000 2001 2000
------------ ------------- --------------- --------------
Net sales before impact of adoption of SAB 101 $ 26,432,032 $ 34,230,497 $124,067,936 $132,524,630
Impact of adoption of SAB 101 5,868,165 -- 6,336,809 --
------------ ------------- ------------- -------------
Net sales including impact of adoption of SAB 101 32,300,197 34,230,497 130,404,745 132,524,630
Cost of sales 19,376,836 16,200,707 66,192,549 62,871,689
------------ ------------- ------------- -------------
Gross margin 12,923,361 18,029,790 64,212,196 69,652,941
Operating expenses:
Sales and marketing 7,527,950 8,557,613 30,715,581 34,423,150
Research and development 4,119,018 4,513,212 18,334,929 20,174,918
General and administrative 4,336,127 4,434,408 16,252,453 19,357,867
Impairment loss -- 8,078,051 -- 26,146,300
Restructuring 1,351,188 1,531,992 1,121,121 1,381,642
------------ ------------- ------------- -------------
Total operating expenses 17,334,283 27,115,276 66,424,084 101,483,877
------------ ------------- ------------- -------------
Operating loss (4,410,922) (9,085,486) (2,211,888) (31,830,936)
Other income 328,002 756,711 2,396,256 10,667,816
------------ ------------- ------------- -------------
(Loss) income before income taxes and cumulative
effect of accounting change (4,082,920) (8,328,775) 184,368 (21,163,120)
Income tax (benefit) provision (2,025,182) (1,255,345) 65,819 (4,338,440)
------------ ------------- ------------- -------------
Net (loss) income before cumulative effect of
accounting change $ (2,057,738) $ (7,073,430) $ 118,549 $(16,824,680)
Cumulative effect of accounting change (net of
income tax provision of $1,055,928) -- -- (1,901,853)
------------ ------------- ------------- -------------
Net loss $ (2,057,738) $ (7,073,430) $ (1,783,304) $(16,824,680)
Net (loss) income per common share, basic:
Continuing operations $ (0.13) $ (0.47) $ (0.00) $ (1.12)
Cumulative effect of accounting change -- -- (0.12) --
------------ ------------- ------------- -------------
$ (0.13) $ (0.47) $ (0.12) $ (1.12)
============ ============= ============= =============
Net (loss) income per common share, assuming dilution:
Continuing operations $ (0.13) $ (0.47) $ (0.00) $ (1.12)
Cumulative effect of accounting change -- -- (0.12) --
------------ ------------- ------------- -------------
$ (0.13) $ (0.47) $ (0.12) $ (1.12)
============ ============= ============= =============
Weighted average common shares, basic 15,322,781 15,121,290 15,235,258 15,061,774
============ ============= ============= =============
Weighted average common shares, assuming dilution 15,322,781 15,121,290 15,287,935 15,061,774
============ ============= ============= =============
NET INCOME AND NET INCOME PER COMMON AND DILUTED
SHARE EXCLUDING (1) AMORTIZATION OF INTANGIBLE ASSETS,
NET OF TAXES, (2) RESTRUCTURING AND ASSET IMPAIRMENT
CHARGES, NET OF TAXES, (3) ASSET WRITEDOWN, NET OF
TAXES, (4) THE AETHERWORKS CORPORATION NOTE RECOVERY,
AND (5) NET EFFECT OF ADOPTION OF SAB 101 ON THE
FOURTH QUARTER OF FISCAL 2001
2001 2000 2001 2000
------------ ------------- ------------- ------------
Net loss for the three months and twelve months ended
September 30 $ (2,057,738) $ (7,073,430) $ (1,783,304) $(16,824,680)
(1) Intangible asset amortization, net of taxes 1,098,622 1,031,985 4,135,439 5,784,200
(2) Restructuring and impairment losses, net of taxes 868,570 8,474,501 638,503 22,598,313
(3) Asset writedown, net of taxes 1,929,000 -- 1,929,000 --
(4) Aetherworks Corporation note recovery -- -- -- (8,000,000)
(5) Net effect of adoption of SAB 101 on the fourth
quarter of fiscal 2001 (1,742,233) -- 42,269 0
------------ ------------ ------------- ------------
Net income excluding (1) amortization of intangible
assets, net of taxes, (2) restructuring and impairment
losses, net of taxes, (3) asset writedown, net of taxes,
(4) the AetherWorks Corporation note recovery, and (5)
net effect of adoption of SAB 101 on the fourth quarter
of fiscal 2001 $ 96,221 $ 2,433,056 $ 4,961,907 $ 3,557,833
============ ============ ============= ===========
Net income per common share excluding (1) amortization
of intangible assets, net of taxes, (2) restructuring and
impairment losses, net of taxes, (3) asset writedown,
net of taxes, (4) the AetherWorks Corporation note
recovery, and (5) net effect of adoption of SAB 101 on
the fourth quarter of fiscal 2001 $ 0.01 $ 0.16 $ 0.33 $ 0.24
============ ============ ============= ===========
Net income per diluted share excluding (1) amortization
of intangible assets, net of taxes, (2) restructuring
and impairment losses, net of taxes (3) asset writedown,
net of taxes, (4) the AetherWorks Corporation note
recovery, and (5) net effect of adoption of SAB 101 on
the fourth quarter of fiscal 2001 $ 0.01 $ 0.16 $ 0.32 $ 0.23
============ ============ ============= =========
Weighted average common shares, basic 15,322,781 15,121,290 15,235,258 15,061,774
============ ============ ============= ==========
Weighted average common shares, assuming dilution 15,495,269 15,139,314 15,287,935 15,222,627
============ ============ ============= ==========
DIGI REPORTS FISCAL 2001 FOURTH QUARTER RESULTS - PAGE 6
DIGI INTERNATIONAL INC CONSOLIDATED BALANCE SHEET
September 30, 2001 September 30, 2000
------------------ ------------------
ASSETS
Current assets
Cash and marketable securities $ 56,152,200 $ 58,936,068
Accounts receivable, net 16,161,143 18,175,226
Inventories, net 16,791,851 19,700,010
Other 4,602,668 3,655,511
------------- -------------
Total current assets 93,707,862 100,466,815
Property, equipment and improvements, net 22,677,152 24,408,384
Intangible assets, net 21,538,390 16,397,744
Other 1,529,169 1,649,252
------------- -------------
Total assets $ 139,452,573 $ 142,922,195
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, current $ 938,400 $ 3,147,900
Current portion of long-term debt 211,056 330,305
Accounts payable and accrued expenses 15,583,102 17,371,399
Restructuring 1,369,117 1,531,992
------------- -------------
Total current liabilities 18,101,675 22,381,596
Long-term liabilities 8,433,481 7,081,396
------------- -------------
Total liabilities 26,535,156 29,462,992
Total stockholders' equity 112,917,417 113,459,203
------------- -------------
Total liabilities and stockholders' equity $ 139,452,573 $ 142,922,195
============= =============
DIGI REPORTS FISCAL 2001 FOURTH QUARTER RESULTS - PAGE 7
Digi invites all those interested in hearing management's discussion of the
quarter to attend our fiscal fourth quarter conference call either by phone or
on the Web. Participants can access the call directly at 4:00 p.m. Central Time
on Tuesday, November 6, 2001, by dialing 800-633-8406. A replay will be
available for one week following the call by dialing 800-633-8284 and entering
the code 19932694. Participants may also access a live web cast of the
conference call through the investor relations section of Digi's web site,
www.digi.com.
ABOUT DIGI INTERNATIONAL
Digi International (DGII), based in Minneapolis, is the leader in Connectware,
wired and wireless, hardware and software connectivity solutions that businesses
use to create, customize and control retail operations, industrial automation
and other applications. Connectware network-enables the essential devices that
build business. Digi markets its products through a global network of
distributors and resellers, systems integrators and original equipment
manufacturers (OEMs).
For more information, visit Digi's Web site at www.digi.com, or call
800-344-4273 (U.S.) or (952) 912-3444 (International). All brand names and
product names are trademarks or registered trademarks of their respective
companies.
Digi, Digi International and the Digi logo are trademarks or registered
trademarks of Digi International Inc. in the United States and other countries.
All other brand names and product names are trademarks or registered trademarks
of their respective companies.
This press release contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which generally can be identified by the use of forward-looking terminology such
as "anticipate," "believe," target," "estimate," "may," "will," "expect,"
"plan," "project," "should," or "continue" or the negative thereof or other
variations thereon or similar terminology. Such statements are based on
information available to management as of the time of such statements and relate
to, among other things, the anticipated benefits of the NetSilicon acquisition,
expectations of the business environment in which the Company operates,
projections of future performance, perceived opportunities in the market and
statements regarding the Company's mission and vision. Such statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, including the possibility that the NetSilicon acquisition will not
be consummated, risks related to the highly competitive market in which the
Company operates, rapid changes in technologies that may displace products sold
by the Company, declining prices of networking products, the Company's reliance
on distributors, delays in the Company's product development efforts,
uncertainty in consumer acceptance of the Company's products, and changes in the
Company's level of revenue or profitability. These and other risks,
uncertainties and assumptions identified from time to time in the Company's
filings with the Securities and Exchange Commission, including without
limitation, its annual reports on Form 10-K and its quarterly reports on Form
DIGI REPORTS FISCAL 2001 FOURTH QUARTER RESULTS - PAGE 8
10-Q, could cause the Company's future results to differ materially from those
expressed in any forward-looking statements made by or on behalf of the Company.
Many of such factors are beyond the Company's ability to control or predict.
These forward-looking statements speak only as of the date for which they are
made. The Company disclaims any intent or obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Additional information
Digi intends to file a registration statement on Form S-4 in connection with the
transaction, and Digi and NetSilicon intend to mail a joint proxy
statement/prospectus to their respective shareholders in connection with the
transaction. Investors and security-holders of Digi and NetSilicon are urged to
read the joint proxy statement/prospectus when it becomes available because it
will contain important information about the companies, the transaction, the
persons soliciting proxies relating to the transaction, their interests in the
transaction, and related matters. When available, investors and security-holders
may obtain a free copy of the joint proxy statement/prospectus at the SEC's web
site at www.sec.gov. A free copy of the joint proxy statement/prospectus may
also be obtained from either of the companies.
In addition to the registration statement and the joint proxy
statement/prospectus, each company files annual, quarterly, and special reports,
proxy and information statements, and other information with the SEC. Investors
may read and copy any of these reports, statements, and other information at the
SEC's public reference room located at 450 5th Street, N.W., Washington, D.C.,
20549, or any of the SEC's other public reference rooms located in New York and
Chicago. Investors should call the SEC at 1-800-SEC-0330 for further information
on these public reference rooms. These SEC filings are also available for free
at the SEC's web site at www.sec.gov. A free copy of these filings may also be
obtained from either company by request to one of the respected contacts noted
above.
Information concerning participants
Each of the companies and their respective executive officers and directors may
be deemed to be participants in the solicitation of proxies from their
respective shareholders in favor of the transaction. Information about the
directors and executive officers of Digi may be found in Digi's definitive proxy
statement for its 2001 annual meeting of shareholders and in Digi's annual
report on Form 10-K for the fiscal year ended September 30, 2000. Information
about the directors and executive officers of NetSilicon may be found in
NetSilicon's definitive proxy statement of its 2001 annual meeting of
shareholders. In addition, information regarding the interests of NetSilicon's
officers and directors in the transaction will be included in the joint proxy
statement/prospectus.
# # #
Contacts:
S. (Kris) Krishnan, Digi International Inc.
952-912-3125 or s_krishnan@digi.com
Don De Laria, Digi International Inc.
952-912-3126 or don_delaria@digi.com