SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
___X__ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1993 or
______ 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 1-6435
____________________________
Bolt Beranek and Newman Inc.
__________________________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-2164398
____________________________________ _________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 CambridgePark Drive, Cambridge, Massachusetts 02140
__________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 873-2000
____________________
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Company (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
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
______ ______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of common stock, $1.00 par value, outstanding as of
January 31, 1993: 16,319,027
Exhibit index appears on page 15
Page 1 of 23 pages
BOLT BERANEK AND NEWMAN INC.
INDEX
Page No.
________
Part I. Financial Information
Consolidated Statements of Operations -
Three Months Ended December 31, 1993 and 1992 ...3
Consolidated Statements of Operations -
Six Months Ended December 31, 1993 and 1992 .....4
Consolidated Balance Sheets -
as of December 31, 1993 and June 30, 1993 .......5
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1993 and 1992 .....6
Notes to Consolidated Financial Statements ..........7
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............9
Part II.Other Information
Item 6. Exhibits and Reports on Form 8-K ..........14
Signatures .........................................14
PART. I FINANCIAL INFORMATION
BOLT BERANEK AND NEWMAN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Dollars in thousands, except per-share data
Three Months Ended
___________________________
December 31 December 31
1993 1992
____________ ____________
Revenue:
Services $ 40,448 $ 42,031
Products 7,959 17,722
____________ ____________
48,407 59,753
____________ ____________
Costs and expenses:
Cost of services 28,660 29,196
Cost of products 3,297 8,174
Research and development expenses 5,690 8,965
Selling, general and administrative expenses 13,288 17,290
Restructuring charge 20,470
____________ ____________
50,935 84,095
____________ ____________
Loss from operations (2,528) (24,342)
Interest income 535 337
Interest expense (1,135) (1,129)
Minority interest 585
Other income (expense), net 877 (1)
____________ ____________
Net loss $ (1,666) $ (25,135)
============ ============
Net loss per share $ (.10) $ (1.61)
============ ============
Shares used in per-share calculations 16,079,000 15,599,000
The accompanying notes are an integral
part of the consolidated financial statements
BOLT BERANEK AND NEWMAN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Dollars in thousands, except per-share data
Six Months Ended
___________________________
December 31 December 31
1993 1992
____________ ____________
Revenue:
Services $ 83,243 $ 88,800
Products 15,094 35,472
____________ ____________
98,337 124,272
____________ ____________
Costs and expenses:
Cost of services 59,317 60,151
Cost of products 6,487 16,032
Research and development expenses 10,922 17,541
Selling, general and administrative expenses 25,663 33,591
Restructuring charge 20,470
____________ ____________
102,389 147,785
____________ ____________
Loss from operations (4,052) (23,513)
Interest income 1,224 721
Interest expense (2,336) (2,281)
Minority interest 585
Other income, net 966 66
____________ ____________
Net loss $ (3,613) $ (25,007)
============ ============
Net loss per share $ (.23) $ (1.60)
============ ============
Shares used in per-share calculations 16,029,000 15,654,000
The accompanying notes are an integral
part of the consolidated financial statements
BOLT BERANEK AND NEWMAN INC.
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
December 31 June 30
1993 1993
___________ ___________
(Unaudited) (Audited)
ASSETS
- ------
Current assets:
Cash and temporary investments $ 64,300 $ 56,835
Accounts receivable, net 45,619 49,676
Inventories, net 1,244 1,830
Other current assets 5,324 6,742
___________ ___________
Total current assets 116,487 115,083
Property, plant and equipment, net 19,964 20,861
Other assets 3,674 4,701
___________ ___________
$140,125 $140,645
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 3,399 $ 2,891
Accrued compensation and retirement plan 3,548 3,600
Accrued restructuring charges 15,657 18,343
Other accrued costs 21,470 20,921
Deferred revenue 9,406 11,338
___________ ___________
Total current liabilities 53,480 57,093
6% convertible subordinate debentures
due 2012 73,510 73,510
Commitments and contingencies
Minority interest 3,660
Shareholders' equity:
Common stock, $1 par value, authorized:
100,000,000 shares; issued: 21,020,917
shares at December 31 1993 and 20,710,223
shares at June 30, 1993 21,021 20,710
Additional paid-in capital 54,634 52,093
Foreign currency translation adjustment (155) (206)
Accumulated deficit (31,916) (28,303)
___________ ___________
43,584 44,294
Less shares in treasury, at cost: 4,797,734
shares at December 31, 1993 and
4,817,936 shares at June 30, 1993 34,109 34,252
___________ ___________
Total shareholders' equity 9,475 10,042
___________ ___________
$140,125 $140,645
=========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
BOLT BERANEK AND NEWMAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in thousands
Six Months Ended
___________________________
December 31 December 31
1993 1992
____________ ____________
Cash flows from operating activities:
Net loss $ (3,613) $(25,007)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 4,435 6,216
Amortization of purchased and
capitalized software 704 711
Restructuring charge 20,470
Change in assets and liabilities:
Accounts receivable 4,057 7,836
Inventories 586 (382)
Other assets 1,741 596
Accounts payable and other liabilities 1,036 (1,646)
Accrued restructuring charges (2,686) (985)
Deferred revenue (1,932) (1,532)
Other (1,130) 940
____________ ____________
Total adjustments 6,811 32,224
____________ ____________
Net cash provided by operating activities 3,198 7,217
Cash used by investing activities:
Additions to property, plant and equipment (2,600) (3,999)
Cash flows from financing activities:
Reduction of equipment loan and capital leases (31) (554)
Proceeds from sale of LightStream stock 5,000
Proceeds from employee stock purchase and
option plans 1,685 633
Purchase/sale of treasury shares, net 213 (723)
Dividends paid (473)
____________ ____________
Net cash provided (used) by
financing activities 6,867 (1,117)
____________ ____________
Net increase in cash and temporary investments 7,465 2,101
Cash and temporary investments-beginning of period 56,835 45,769
____________ ____________
Cash and temporary investments-end of period $ 64,300 $ 47,870
============ ============
Supplemental cash flow information:
Interest paid $ 2,213 $ 2,233
============ ============
The accompanying notes are an integral
part of the consolidated financial statements.
BOLT BERANEK AND NEWMAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.Basis of Presentation
The financial information included herein, with the exception of the
consolidated balance sheet at June 30, 1993, has not been audited. However,
in the opinion of management, all material adjustments, consisting only of
normal recurring accruals (except for the $20,470,000 restructuring charge
recorded in the second quarter of FY1993) necessary for a fair presentation
of the results for these periods, have been reflected. The results for
these periods are not necessarily indicative of the results for the full
fiscal year. Certain amounts reported for the prior periods presented have
been reclassified to be consistent with the current year's presentation.
B.Commitments and Contingencies
The company, like other companies doing business with the U.S. government,
is subject to routine audit, and in certain circumstances to inquiry,
review, or investigation, by U.S. government agencies, of its compliance
with government procurement policies and practices. In April 1991, the
company was informed that it was the subject of an investigation by U.S.
government agencies of its compliance with certain government procurement
policies and practices. No allegations have been made by the government
agencies. Based upon government procurement regulations, under certain
circumstances a contractor violating or not complying with procurement
regulations can be subject to legal or administrative proceedings,
including fines and penalties, as well as be suspended or debarred from
contracting with the government. The company's policy has been and
continues to be to conduct its activities in compliance with all applicable
rules and regulations.
The company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
results of these other legal proceedings and claims will not have a
material effect on the company's consolidated financial position and
results of operations.
C.Reorganization
Effective July 1, 1993, the company reorganized certain of its divisional
business activities. The Communications Division, which previously focused
primarily on the government and commercial network systems business, now
concentrates its activities exclusively on the development, marketing and
sale of the T/10(TM) Integrated Access Device. The Communications Division
was responsible for the development, marketing and sale of the LightStream
2010 (TM) Asynchronous Transfer Mode ("ATM") switch prior to the formation of
LightStream Corporation in October 1993. The Systems and Technologies
Division assumed responsibility for all of the company's network systems
business, and now performs all defense communications systems work
(including virtually all government contracts) for the company.
BOLT BERANEK AND NEWMAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
D.Formation of LightStream Corporation
In October 1993, the company and Ungermann-Bass Inc. completed an agreement
to form LightStream Corporation, a new ATM networking company. Under the
terms of the agreement, the company and Ungermann-Bass have combined ATM-
related technology, staff and other resources to form LightStream
Corporation, which is initially 80% owned by the company and a 20% minority
interest owned by Ungermann-Bass. The company and Ungermann-Bass have
contributed $15,000,000 and $5,000,000 in cash, respectively, to fund the
enterprise. The company and Ungermann-Bass have signed non-exclusive OEM
agreements with LightStream Corporation under which they will distribute
the company's products.
E.Sale of Treasury Shares
In December 1993, the company's newly-named chief executive officer made an
investment of $212,500 in the company by purchasing from the company 20,202
restricted shares of the company's common stock at a 15% discount from the
closing market price on the date of the transaction. The restricted shares
were treasury shares and have not been registered under the Securities Act
of 1933 and may not be sold, assigned, pledged, or otherwise transferred
before the lesser of two years or the filing of an effective registration
statement under the Act.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
- -------
The company reported a loss of $1.7 million, or $.10 per share, on revenue of
$48.4 million for the second quarter ended December 31, 1993. These results
compare to a loss of $25.1 million, or $1.61 per share, on revenue of $59.8
million for the same period a year ago. Results for the prior year's quarter
included a restructuring charge of $20.5 million, or $1.31 per share, and
revenue of approximately $8.3 million from the company's former Advanced
Simulation business unit which was sold in April 1993. The decrease in
revenue for the second quarter of FY1994 compared to the prior year's second
quarter also reflects a decline in the company's defense communications
systems business. For the three months ended December 31, 1993 the
company reported an operating loss of $2.5 million compared to an operating
loss of $3.9 million (excluding the $20.5 million restructuring charge) for
the comparable period a year ago.
For the six months ended December 31, 1993, the company reported a loss of $3.6
million, or $.23 per share, on revenue of $98.3 million compared to a net
loss of $25.0 million, or $1.60 per share, on revenue of $124.3 million for
the same period a year ago. Results for the prior year included the $20.5
million restructuring charge and revenue of approximately $17.8 million from
the company's former Advanced Simulation business. For the six months ended
December 31, 1993 the company reported an operating loss of $4.1 million
compared to an operating loss of $3.0 million (excluding the $20.5 million
restructuring charge) for the comparable period a year ago.
The Systems and Technologies Division, which includes all of the company's
defense systems business, is operating profitably and is maintaining a steady
level of revenue. The company's traditional commercial business continues to
experience lower demand for its mature products. The company's results also
reflect significant expenditures on its LightStream(TM) 2010 Asynchronous
Transfer Mode ("ATM") switch and T/10(TM) Integrated Access Device
activities. Sales for the new products were not financially significant
during the quarter. The company expects that expenditures relating to these
communications products will continue to cause operating losses for the
company in the next few quarters.
In January 1994, George H. Conrades was named president and chief executive
officer,succeeding Stephen R. Levy who will remain chairman of the board.
Mr. Conrades was also named a director of the company.
Revenue
- -------
Revenue for the three and six months ended December 31, 1993 decreased $11.3
million and $25.9 million, respectively, from the prior year periods
primarily reflecting the sale of the Advanced Simulation business unit in
April of 1993 and reduced defense communications systems revenue.
The company, like other companies doing business with the Department of
Defense, has been adversely affected by reduced defense spending. Overall
defense budgets have been declining, and the company expects this general
decline and attendant increased competition within the defense industry to
continue over the next several years. Further, there is the possibility that
funding limitations could result in a reduction, delay, or cancellation of
existing or emerging programs. These factors have reduced the company's U.S.
government revenue and operating margins in recent fiscal years. Uncertainty
continues to exist on the size and scope of reductions future defense budgets
and the impact on the company's defense-related business.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The company anticipates lower revenue for FY1994 compared to FY1993 primarily
as a result of the sale of the Advanced Simulation business unit in FY1993 as
well as lower revenue from the company's defense communications systems
business, reflecting the completion of the Mobile Subscriber Equipment
program and a decline in the Defense Data Network ("DDN") program.
In FY1991, the Defense Information Systems Agency awarded the company a
one-year contract in support of the DDN, with up to four one-year optional
extensions. In September 1993, the company completed the third year of the
contract which was valued at $25 million. In October 1993, the company was
awarded an extension covering the fourth year of the contract, valued at
approximately $20 million, which will continue the company's existing
activities through October 1994. While one option year remains under the
contract, there can be no assurance of an extension beyond 1994. For the
six months ended December 31, 1993 and 1992, approximately $10 million and
$14 million of revenue, respectively, has been recorded under this contract.
The company conducts its commercial businesses in an environment character-
ized by rapid technological change, which requires continued research and
development expenditures to improve its existing products and to develop new
products to address emerging market requirements. The company's traditional
commercial business, consisting principally of data analysis software
products operating on minicomputer platforms and of X.25 network systems,
continues to experience lower revenue reflecting lower demand for these
mature products. The company is currently offering three new products:
BBN/Cornerstone(TM) data analysis software, the LightStream 2010 ATM switch and
the T/10 Integrated Access Device.
The company is making a transition in its data analysis software products
business which is being affected by the growth of distributed processing and
the associated use of personal computers, workstations, and other desktop
computers. Most of the company's mature data analysis software products,
primarily the RS/Series(TM) software, operate on minicomputer systems. As
demand for minicomputer-based software declines, the company is experiencing
lower RS/Series software revenue and downward pressure on prices.
In response to the trend toward desktop computing, the company introduced its
BBN/Cornerstone software during the fourth quarter of FY1993. BBN/Cornerstone
software is the company's first of a new series of data analysis software
products specifically designed for use on desktop computers in a
client/server environment. The initial release of BBN/Cornerstone software
operates on Unix-based workstations, utilizing a number of established
graphical user interfaces. Planned subsequent releases will permit operation
on personal computers. Recently, the Software Products subsidiary announced
the general availability of the BBN/Cornerstone Extension Language, which
allows customers, value-added resellers, and systems integrators to customize
Cornerstone for their unique requirements. The company believes that
BBN/Cornerstone software addresses a desktop market different from the
company's RS/Series software products, and BBN/Cornerstone will require
distribution channels additional to those used for RS/Series products.
Moreover, the company plans to increase the BBN/Cornerstone marketing effort
and focus on application specific opportunities. Sales of BBN/Cornerstone
for the first half of FY1994 were not financially significant.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Several important trends have adversely affected the company's X.25 network
systems business, including the growth of desktop computing, the widespread
installation of local area networks and increased transmission circuit speed
and improved quality. These trends have led to market requirements for
networking technologies such as routers which have generally better price
performance than X.25 switches. The company's X.25 network systems business
has experienced significantly lower revenue in recent fiscal years, and in
FY1993, the company discontinued sales of certain X.25 products and
substantially reduced its selling effort related to its network systems
business.
The company has been developing an enterprise backbone ATM switch, LightStream
2010, to provide switching capability for campus and wide area backbone network
requirements. The company is investing heavily in the continuing development of
this product. The market for ATM products is expected to be very competitive,
and the company anticipates facing competition in the market from established
communications companies with marketing, distribution and financial resources
more extensive than those available to the company. There have been a number of
announcements by other vendors, including major communications companies, of
planned introductions of new ATM products. However, the company believes it
is among the first to market with an ATM switch addressing private wide area
network requirements. In October 1993, the company announced general release of
the LightStream 2010 switch. ATM is an emerging technology market
characterized by a long sales cycle. The LightStream ATM switch in the early
phase of its product life. Sales to date of the LightStream ATM switch
have not been financially significant. The company's sales activities to
date focused on shipments of evaluation units to early adopters of the ATM
technology. Effective February 15, 1994, LightStream Corporation, the company's
majority owned ATM networking subsidiary, named Jonathan Crane, formerly of
MCI Telecommunications, to be its new president and chief executive officer.
See also note D, "Formation of LightStream Corporation," to the consolidated
financial statements.
The company's near-term growth opportunities are strongly dependent upon the
success of the LightStream 2010 switch. The success of the LightStream 2010
switch will depend upon its technological superiority, its cost competitiveness,
the timely establishment of worldwide sales distribution, and the continued
availability of capital resources.
The company has also developed the T/10 Integrated Access Device, designed to
help customers consolidate traffic from their traditional terminal-to-computer
and computer-to-computer traffic with new desktop computing applications over a
single enterprise network. Development delays for the T/10 in FY1993
unfavorably affected the company's competitive position and its ability to
establish distribution channels. Sales of the T/10 have not been financially
significant to date in FY1994. The company's current plans are to focus the
T/10 effort commensurate with high leverage resale opportunities and related
development priorities. These changes will result in spending reductions
relating to the T/10 business. The future outlook for the T/10 depends upon
the success of the resale opportunities.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Cost of Sales
- -------------
Cost of services and products as a percentage of revenue for the three and six
months ended December 31, 1993 was 66% and 67%, respectively, compared to 63%
and 61%, respectively, for the corresponding prior year periods, reflecting a
lower proportion of product revenue primarily as a result of the sale of the
Advanced Simulation business unit. Competitive price pressures in the
company's defense-related businesses also contributed to the increase. Services
revenue, which typically contributes lower margins than products sales,
represented 84% and 85% of total revenue for the three and six months periods
ended December 31, 1993, respectively, compared to 70% and 71%, respectively,
for the corresponding prior year periods.
Research and Development Expenses
- ---------------------------------
The majority of the company's internally funded research and development
spending is currently directed toward communications networking technologies.
Research and development expenses for the three and six months ended
December 31, 1993 were $5.7 million and $10.9 million, respectively, compared to
$9.0 million and $17.5 million, respectively, for the comparable prior year
periods. The decrease is related to higher spending in FY1993 associated with
the Advanced Simulation business unit and the T/10 program. The company's
ability to continue its significant investment in research and development is
dependent upon the timely market acceptance of its new products.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the three and six months ended
December 31, 1993 decreased $4.0 million and $7.9 million, respectively, from
the corresponding prior year periods, primarily as a result of the FY1993 cost
reductions and higher selling expenses in FY1993 at the Advanced Simulation
business unit.
Interest
- --------
Interest income for the three and six months ended December 31, 1993 increased
$.2 million and $.5 million, respectively, from the comparable prior year
periods. The increase for the six-month period includes interest in connection
with a state tax refund.
Interest expense, primarily representing interest on the company's 6%
convertible subordinated debentures, was comparable for the periods presented.
Other Income
- ------------
Other income for the three and six months ended December 31, 1993 includes
approximately $.9 million resulting from lower than expected costs associated
with a previously divested contract.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1993, the company's cash and temporary investments, which
consisted primarily of money market funds and short term U.S. government
securities, were $64.3 million and increased $7.5 million from June 30, 1993.
The increase is primarily attributable to the investment by Ungermann-Bass in
LightStream Corporation and a reduction of accounts receivable.
As a result of the FY1993 downsizing, the company has significant unutilized
space which it is attempting to sublease. Substantially all of this unutilized
space is located in Massachusetts which continues to experience a difficult
commercial real estate market.
The company's ability to meet the continuing cash requirements of its investment
in new products is dependent on new product revenue and adequate margins.
PART II. OTHER INFORMATION
BOLT BERANEK AND NEWMAN INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.3 Registrant's 1983 Employee Stock Purchase Plan, as
amended
10.13 Incentive Compensation Plan for George H. Conrades
11.1 Computation of Net Loss Per Share
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1993.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOLT BERANEK AND NEWMAN INC.
By RALPH A. GOLDWASSER
________________________________________
Ralph A. Goldwasser
Senior Vice President and Chief Financial Officer
Date: February 14, 1994
BOLT BERANEK AND NEWMAN INC.
LIST OF EXHIBITS
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended
(page 16)
10.13 Incentive Compensation Plan for George H. Conrades (page 22)
11.1 Computation of Net Loss Per Share (page 23)