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 March 31, 1994 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
April 30, 1994: 16,372,695
Exhibit index appears on page 15
Page 1 of 44 pages
BOLT BERANEK AND NEWMAN INC.
INDEX
Page No.
________
Part I. Financial Information
Consolidated Statements of Operations -
Three Months Ended March 31, 1994 and 1993 ......3
Consolidated Statements of Operations -
Nine Months Ended March 31, 1994 and 1993 .......4
Consolidated Balance Sheets -
as of March 31, 1994 and June 30, 1993 ..........5
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1994 and 1993 .......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
______________________________
March 31 March 31
1994 1993
____________ ____________
Revenue:
Services $ 40,847 $ 42,234
Products 7,678 12,579
____________ ____________
48,525 54,813
____________ ____________
Costs and expenses:
Cost of services 29,860 29,145
Cost of products 3,031 7,080
Research and development expenses 5,787 8,697
Selling, general and administrative expenses 12,203 15,595
____________ ___________
50,881 60,517
____________ ____________
Loss from operations (2,356) (5,704)
Interest income 494 326
Interest expense (1,142) (1,109)
Minority interest 743
Other income (expense), net 2 (153)
____________ ____________
Net loss $ (2,259) $ (6,640)
============ ============
Net loss per share $ (.14) $ (.42)
============ ============
Shares used in per-share calculations 16,295,000 15,754,000
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
Nine Months Ended
______________________________
March 31 March 31
1994 1993
____________ _____________
Revenue:
Services $ 124,090 $ 131,034
Products 22,772 48,051
____________ ____________
146,862 179,085
____________ ____________
Costs and expenses:
Cost of services 89,177 89,296
Cost of products 9,518 23,112
Research and development expenses 16,709 26,238
Selling, general and administrative expenses 37,866 49,186
Restructuring charge 20,470
____________ ____________
153,270 208,302
____________ ____________
Loss from operations (6,408) (29,217)
Interest income 1,718 1,047
Interest expense (3,478) (3,390)
Minority interest 1,328
Other income, net 968 (87)
____________ ____________
Net loss $ (5,872) $ (31,647)
============ ============
Net loss per share $ (.36) $ (2.02)
============ ============
Shares used in per-share calculations 16,116,000 15,687,000
The accompanying notes are an integral
part of the consolidated financial statements
BOLT BERANEK AND NEWMAN INC.
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
March 31 June 30
1994 1993
___________ ___________
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and temporary investments $ 63,710 $ 56,835
Accounts receivable, net 49,118 49,676
Inventories, net 1,168 1,830
Other current assets 3,410 6,742
___________ ___________
Total current assets 117,406 115,083
Property, plant and equipment, net 19,741 20,861
Other assets 3,278 4,701
___________ ___________
$ 140,425 $ 140,645
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,070 $ 2,891
Accrued compensation and retirement plan 4,575 3,600
Accrued restructuring charges 14,024 18,343
Other accrued costs 23,302 20,921
Deferred revenue 11,268 11,338
___________ ___________
Total current liabilities 56,239 57,093
6% convertible subordinated debentures due 2012 73,510 73,510
Commitments and contingencies
Minority interest 2,918
Shareholders' equity:
Common stock, $1 par value, authorized:
100,000,000 shares; issued: 21,133,011 shares at
March 31, 1994 and 20,710,223 shares at
June 30, 1993 21,133 20,710
Additional paid-in capital 55,044 52,093
Foreign currency translation adjustment (135) (206)
Accumulated deficit (34,175) (28,303)
___________ ___________
41,867 44,294
Less shares in treasury, at cost: 4,797,734 shares
at March 31, 1994 and 4,817,936 shares at
June 30, 1993 34,109 34,252
___________ ___________
Total shareholders' equity 7,758 10,042
___________ ___________
$ 140,425 $ 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
Nine Months Ended
_________________________
March 31 March 31
1994 1993
___________ ___________
Cash flows from operating activities:
Net loss $ (5,872) $ (31,647)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 6,659 9,088
Amortization of purchased and capitalized software 1,120 1,064
Restructuring charge 20,470
Change in assets and liabilities:
Accounts receivable 558 10,715
Inventories 662 (78)
Other assets 3,635 (31)
Accounts payable and other liabilities 3,581 2,448
Accrued restructuring charges (4,319) (4,650)
Deferred revenue (70) 373
Other (2,010) 613
___________ __________
Total adjustments 9,816 40,012
___________ ___________
Net cash provided by operating activities 3,944 8,365
Cash used by investing activities:
Additions to property, plant and equipment (4,479) (6,022)
Cash flows from financing activities:
Proceeds from sale of LightStream stock 5,000
Proceeds from employee stock purchase and option plans 2,197 648
(Purchase)/sale of treasury shares 213 (723)
Dividends paid (473)
___________ ___________
Net cash provided (used) by financing activities 7,410 (548)
___________ ___________
Net increase in cash and temporary investments 6,875 1,795
Cash and temporary investments-beginning of period 56,835 45,769
___________ ___________
Cash and temporary investments-end of period $ 63,710 $ 47,564
=========== ===========
Supplemental cash flow information:
Interest paid $ 2,225 $ 2,239
=========== ===========
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. Organizational Structure
The company is comprised of the Systems and Technologies Division,
LightStream Corporation and Software Products Corporation. The Systems
and Technologies Division is responsible for virtually all government
contracts as well as the company's network systems and defense
communications systems businesses and, effective April 1, 1994, the T/10
Integrated Access Device activities. LightStream Corporation is
responsible for the development, marketing and sale of the LightStream
2010TM Asynchronous Transfer Mode ("ATM") switch. Software Products
Corporation develops, markets and supports data analysis computer
software products designed primarily for manufacturing, research and
development, engineering, clinical research, and scientific
applications.
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.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
- - -------
The company reported a loss of $2.3 million, or $.14 per share, on revenue
of $48.5 million for the third quarter ended March 31, 1994. These results
compare to a loss of $6.6 million, or $.42 per share, on revenue of $54.8
million for the same period a year ago. Results for the prior year's
quarter included revenue of approximately $6.7 million from the company's
former Advanced Simulation business unit which was sold in April 1993. The
decrease in revenue for the third quarter of FY1994 compared to the prior
year's third quarter also reflects a decline in the company's defense
communications systems business. For the three months ended March 31, 1994
the company reported an operating loss of $2.4 million compared to an
operating loss of $5.7 million for the comparable period a year ago.
For the nine months ended March 31, 1994, the company reported a loss of
$5.9 million, or $.36 per share, on revenue of $146.9 million compared to a
loss of $31.6 million, or $2.02 per share, on revenue of $179.1 million for
the same period a year ago. Results for the prior year included a
restructuring charge $20.5 million, or $1.31 per share, and revenue of
approximately $24.5 million from the company's former Advanced Simulation
business unit. For the nine months ended March 31, 1994 the company
reported an operating loss of $6.4 million compared to an operating loss of
$8.7 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 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 expenditures on the LightStreamTM 2010 Asynchronous Transfer
Mode ("ATM") switch and other new product activities. The company
continues to invest in new product development efforts, recognizing that
such investments are likely to result in operating losses for the next few
quarters.
Revenue
- - -------
Revenue for the three and nine months ended March 31, 1994 decreased $6.3
million and $32.2 million, respectively, from the prior year periods
primarily reflecting the sale of the Advanced Simulation business unit in
April 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 in 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 approximately $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 October 1994. For the nine months ended March 31, 1994 and 1993,
approximately $15 million and $20 million of revenue, respectively, has
been recorded under this contract.
The company conducts its commercial businesses in an environment
characterized by rapid technological change, which requires continued
research and development expenditures to develop new products to address
emerging market requirements, and to improve its existing products. 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 declining
demand for these mature products. The company is currently offering three
new products: the LightStream 2010 ATM switch, the T/10TM Integrated Access
Device and BBN/CornerstoneTM data analysis software.
The company's LightStream Corporation subsidiary has been developing an
enterprise backbone ATM switch, LightStream 2010, to provide switching
capability for campus and wide area backbone network requirements.
LightStream Corporation is investing heavily in the continuing development
of this product. The market for ATM products is expected to be very
competitive, and LightStream Corporation anticipates facing competition in
the market from established communications companies with marketing,
distribution and financial resources more extensive than those available to
LightStream Corporation. There have been a number of announcements by
other companies, including major communications companies, of planned
introductions of new ATM products. However, LightStream Corporation
believes it is among the first to market with an ATM switch addressing
private wide area network requirements. In October 1993, LightStream
Corporation announced general release of the LightStream 2010 switch. ATM
is an emerging technology market characterized by a long sales cycle. The
LightStream ATM switch is in the early phase of its product life.
LightStream Corporation's business plan includes establishing strategic
partnerships in key market segments. Such partnerships could include
Original Equipment Manufacturer distribution agreements, technology
licenses and joint development arrangements. In March, LightStream
Corporation announced its intent to form a world-wide alliance with Tellabs
Operations, Inc. to jointly develop and distribute ATM switching systems to
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
information service providers. Recently, LightStream Corporation also
reported a value-added reseller agreement with NEC Corporation under which
NEC will sell the LightStream product in Japan under the NEC label. During
the third quarter, LightStream Corporation received an order, valued at
approximately $.6 million, from Continental Cablevision's New England
Division for use in providing a wide range of services to residential and
business customers.
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.
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 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
sales of the T/10 in FY1994 have been disappointing. Effective April 1,
1994, the T/10 activities were merged into the Systems and Technologies
Division where the T/10 effort is being focused on high leverage reseller
opportunities and related development priorities. These changes will
reduce spending relating to the T/10 business. Recently the company
announced a three-year agreement with NEC that enables NEC to sell the T/10
in Japan under the NEC label.
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/SeriesTM 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.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
In response to the trend toward desktop computing, Software Products
Corporation introduced its BBN/Cornerstone software during the fourth
quarter of FY1993. BBN/Cornerstone software is the 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. 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. To
date, sales of BBN/Cornerstone have been disappointing and Software
Products Corporation is increasing its sales and marketing activities and
developing industry specific applications for BBN/Cornerstone. The company
is conducting a search for a new president of Software Products
Corporation.
Cost of Sales
- - -------------
Cost of services and products as a percentage of revenue for the three and
nine months ended March 31, 1994 was 68% and 67%, respectively, compared to
66% and 63%, respectively, for the corresponding prior year periods,
reflecting a lower proportion of products revenue primarily as a result of
the sale of the Advanced Simulation business unit. Competitive price
pressures in the company's defense-related businesses and higher costs
associated with fixed price government contracts also contributed to the
increase. Services revenue, which typically contributes lower margins than
products sales, represented 84% of total revenue for the three and nine
months ended March 31, 1994, compared to 77% and 73%, 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 nine
months ended March 31, 1994 were $5.8 million and $16.7 million,
respectively, compared to $8.7 million and $26.2 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 nine months
ended March 31, 1994 decreased $3.4 million and $11.3 million,
respectively, from the corresponding prior year periods, primarily as a
result of cost reduction actions taken in FY1993 and lower selling expenses
in FY1994 reflecting the sale of the Advanced Simulation business unit.
BOLT BERANEK AND NEWMAN INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest
- - --------
Interest income for the three months ended March 31, 1994 was comparable to
the prior year period. The increase of $.7 million for the nine-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 nine months ended March 31, 1994 includes
approximately $.9 million resulting from lower than expected costs
associated with a previously divested contract.
Liquidity and Capital Resources
- - -------------------------------
As of March 31, 1994, the company's cash and temporary investments, which
consisted primarily of money market funds and short term U.S. government
securities, were $63.7 million, an increase of $6.9 million from June 30,
1993. The increase is primarily attributable to lower working capital
requirements and the investment by Ungermann-Bass in LightStream
Corporation.
As a result of the FY1993 downsizing, the company has significant
unutilized space which it is in the process of subleasing. Substantially
all of this 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:
10.14 LightStream Corporation 1993 Stock Option Plan
10.15 LightStream Corporation 1994 Stock Option Plan
10.16 BBN Stoftware Products Corporation 1993 Stock Option
Plan
11.1 Computation of Net Loss Per Share
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
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: May 16, 1994
BOLT BERANEK AND NEWMAN INC.
LIST OF EXHIBITS
10.14 LightStream Corporation 1993 Stock Option Plan (page 16)
10.15 LightStream Corporation 1994 Stock Option Plan (page 25)
10.16 BBN Stoftware Products Corporation 1993 Stock
Option Plan (page 34)
11.1 Computation of Net Loss Per Share (page 44)