UNITED STATES
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 July 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-27218
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
(Exact name of registrant as specified in its charter)
England None
(Stated or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1800 West Loop South, 6th Floor
Houston, Texas
77027
(Address of principal executive offices)
(Zip Code)
(713) 625-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days.
Yes X No
___ ___
As of August 31, 1996, 25,538,720 Ordinary Shares of the Registrant's Common
Stock, 10 pence par value, were issued and outstanding.
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
FORM 10-Q
JULY 31, 1996
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Consolidated Balance Sheet as of July 31, 1996 and April 30, 1996 3
Consolidated Statement of Operations for the three months ended
July 31, 1996 and July 31, 1995 4
Consolidated Statement of Cash Flows for the three months ended
July 31, 1996 and July 31, 1995 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations 7
---------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
-----------------
Item 6. Exhibits and Reports on Form 8-K 10
--------------------------------
SIGNATURE 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
July 31, April 30,
1996 1996
-------- ---------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 11,386 $ 10,960
Trade accounts receivable 5,025 9,579
Other current assets 3,201 3,498
-------- --------
Total current assets 19,612 24,037
Furniture, fixture and equipment, net 2,902 2,982
Other assets 160 160
-------- --------
Total assets $ 22,674 $ 27,179
======== ========
Liabilities and shareholders' equity
------------------------------------
Current liabilities:
Current maturities of indebtedness $ 853 $ 1,003
Accounts payable 1,161 1,630
Deferred revenue 5,321 3,691
Accrued liabilities 4,425 5,344
Executive Stock Option Trust indebtedness 926 903
-------- --------
Total current liabilities 12,686 12,571
Indebtedness 519 524
Other liabilities 1,967 2,149
-------- --------
Total liabilities 15,172 15,244
-------- --------
Shareholders' equity:
Ordinary shares, 10 pence par value 4,255 4,253
Additional paid-in capital 20,282 20,323
Executive Stock Option Trust indebtedness (926) (903)
Cumulative translation adjustment 368 439
Accumulated deficit (16,477) (12,177)
------- -------
Total shareholders' equity 7,502 11,935
------- -------
Commitments and contingencies ------- -------
Total liabilities and shareholders' equity $ 22,674 $ 27,179
======== ========
The accompanying notes are an integral part of this statement.
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
Three months ended
July 31,
------------------
1996 1995
---- ----
Revenue:
Product licenses $ 2,004 $ 5,376
Services 3,250 4,400
-------- -------
Total revenue 5,254 9,776
-------- -------
Costs and expenses:
Cost of product licenses 58 242
Cost of services 1,616 1,669
-------- -------
Total cost of revenue 1,674 1,911
-------- -------
Gross margin 3,580 7,865
-------- -------
Sales and marketing 4,522 4,214
Research and development 2,143 1,902
General and administrative 1,308 1,231
-------- -------
Total operating expenses 7,973 7,347
-------- -------
Operating income (loss) (4,393) 518
Interest income 123 32
Interest expense (34) (18)
Other income (expense) 4
-------- -------
Income (loss) from continuing
operations before income taxes $ (4,300) 532
Income taxes (benefit) (73)
-------- -------
Net income (loss) $ (4,300) $ 459
======== =======
Income (loss) per Ordinary Share: $ ( 0.17) $ 0.02
======== =======
Income (loss) per ADS: (1) $ ( 0.34) $ 0.04
======== =======
Weighted average Ordinary and Ordinary Share
outstanding equivalents 25,535 23,004
======== =======
(1) Adjusted to reflect the ratio of one ADS to two Ordinary Shares.
The accompanying notes are an integral part of this statement.
-4-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three months ended
July 31,
------------------
1996 1995
---- ----
Cash flow from operating activities:-
Net income (loss) $ (4,300) $ 459
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 228 101
Changes in current assets and liabilities, net of
the effect of business disposal:
Trade accounts receivable 4,554 560
Other current assets 297 (509)
Accounts payable (469) (5)
Accrued restructuring (98) (996)
Accrued legal settlement (155) (1,073)
Other accrued liabilities (848) 3
Deferred revenue 1,630 (42)
Other noncurrent assets and liabilities, net (71) 1
-------- -------
Net cash provided (used) by operating activities 768 (1,501)
-------- -------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (148) (570)
-------- -------
Net cash used by investing activities (148) (570)
-------- -------
Cash flows from financing activities:
Borrowings on indebtedness 195
Repayments of indebtedness (155)
Issuance of Ordinary Shares, net (39) 69
-------- -------
Net cash provided (used) by financing activities (194) 264
-------- -------
Increase (decrease) in cash 426 (1,807)
Beginning cash and cash equivalents 10,960 5,026
-------- -------
Ending cash and cash equivalents $ 11,386 $ 3,219
======== =======
The accompanying notes are an integral part of this statement.
-5-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
JULY 31, 1996
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles of the United States
for interim financial reporting and in accordance with Form 10-Q and Rule 10.01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles of the United
States for complete financial statements. In the opinion of management, the
unaudited consolidated financial statements contained in this report reflect all
adjustments, consisting of only normal recurring adjustments considered
necessary for a fair presentation of the financial position and the results of
operations for the interim periods presented. Operating results for interim
periods are not necessarily indicative of results for the full year. These
unaudited consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the financial statements and the
notes thereto included in the Company's annual 10-K filed with the Securities
and Exchange Commission on July 29, 1996.
NOTE 2 - ACQUISITIONS:
In August 1995, the Company acquired Corporate Computing Inc. (CCI), in exchange
for 700,000 Ordinary Shares of the Company. The acquisition was accounted for
as a pooling of interests. CCI's operations have been included in the
consolidated financial statements for all periods presented.
NOTE 3 - SHAREHOLDERS' EQUITY:
In the period May 1, 1996 through July 31, 1996, options to purchase 33,000
Ordinary Shares at exercise prices of .6425 to .85 Pounds Sterling per share
were exercised. At July 31, 1996, there were options to purchase 2,872,950
Ordinary Shares, including 508,200 of options related to Ordinary Shares held by
the Executive Share Option Trust which are currently outstanding for earnings
per share calculation purposes.
NOTE 4 - EARNINGS PER SHARE AND COMMON EQUIVALENT SHARE:
Earnings per Ordinary Share and earnings per ADS are computed using the weighted
average number of Ordinary Shares and Ordinary Share equivalents outstanding
during the period. Ordinary Share equivalents, to the extent they would be
dilutive, include the number of shares issuable upon exercise of stock options,
less the number of shares that could have been repurchased with the exercise
proceeds using the treasury stock method.
NOTE 5 - SUBSEQUENT EVENTS:
On August 2, 1996, the Board of Directors approved a plan to restructure the
Company's operations. Under the approved plan, the Company expects to record a
restructuring charge of approximately $18 million in the three months ending
October 31, 1996. This charge is expected to be comprised primarily of lease
costs, severance costs and impairment of certain operating assets outside the
U.S.
-6-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
When used in this discussion, the words "believes", "anticipated", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. See Item 6 - Exhibit
99 "Important Factors Regarding Forward-Looking Statements" which is
incorporated herein by reference. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
OVERVIEW
On August 2, 1996, the Board of Directors approved a plan to restructure the
Company's operations and made changes to executive management. Under the
approved plan, the Company expects to record a restructuring charge of
approximately $18 million in the three months ending October 31, 1996, change
its distribution model outside the U.S. from a direct sales force to a network
of independent distributors and service providers, eliminate substantially all
of its cost base outside the U.S. and realign its resources and focus to match
the potential of its various products and markets. This plan will result in a
significant reduction in the Company's cost base and total revenue; however,
management believes it will allow the Company to capitalize on its strengths,
maximize shareholder value and return the Company to profitability over the
long-term. Management does not believe the U.S. sales model or personnel
require modification at this time. This one-time charge is expected to be
comprised primarily of lease costs, impairment of certain operating assets
outside the U. S. and severance costs.
The Company's restructuring plan is extensive and results in new and increased
responsibilities for management personnel. There will be significant challenges
on the Company's new management as they attempt to implement the restructuring
plan and develop personal knowledge of the Company, its products and markets.
To accommodate these changes, compete effectively and manage potential growth
and changes in the market place, management must continue to implement and
improve the speed and quality of its information decision and reporting systems,
procedures and controls and motivate its workforce. There can be no assurance
that the Company's personnel, procedures, systems, controls and plans will be
successful or adequate to handle the changes. Additionally, the Company faces
intense competition in hiring and retaining skilled management, technical,
marketing, and sales personnel. The loss of the services of one or more of the
Company's key employees could have a materially adverse effect on the Company's
business, operating results and financial condition. See Exhibit 99 for further
discussion of potential risk factors.
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1995
Total Revenue
Total revenue decreased 46% from $9.8 million in the three months ended July 31,
1995 to $5.3 million in the three months ended July 31, 1996. This decrease
was attributable to continued reductions in revenue from its model management
products, especially outside of the U.S., and the historical seasonal downturn
in the U.S. revenue in the first fiscal quarter.
Product Licenses. The Company's product license revenue is predominantly related
to its Systems Engineer and Process Engineer product lines. Product license
revenue decreased 63% from $5.4 million in the three months ended July 31, 1995
to $2 million in the three months ended July 31, 1996. This decline, which
reflected a reduction in the number of licenses sold, is due to a decline in the
sales of the model management product line and the historical seasonal downturn
in the U.S. revenue for the first quarter.
-7-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Services. The Company provides maintenance and implementation services to its
customers. Maintenance services include technical support and access to product
upgrades. Implementation services include product installation, training and
assisting customers with the effective deployment of LBMS products. Overall
services revenue decreased 26% from $4.4 million for the three months ended July
31, 1995 to $3.3 million for the three months ended July 31, 1996, reflecting a
decline in implementation services revenue. Maintenance and implementation
services revenue decreased 6% and 28%, respectively, for the three months ended
July 31, 1996 compared to the prior year period as a result of the decrease in
license revenue for the three months ended July 31, 1996.
Cost of Revenue
Cost of Product Licenses. Cost of product licenses consists of sublicense
fees, product media and duplication cost, manuals, packaging materials and
shipping expenses. Cost of product licenses was $0.2 million and $0.1 million
in the three months ended July 31, 1995 and 1996, respectively, resulting in a
gross margin of 95% and 97% for each respective period. The increase in margin
is the result of a change in the mix of products from products with license fees
payable to a third party licenser to products without such third party fees.
Cost of Services. Cost of services consists primarily of personnel costs for
implementation, training and customer support. Cost of services was $1.7 million
and $1.6 million in the three months ended July 31, 1995 and 1996, respectively,
resulting in a gross margin of 62% and 50% of the related service revenue in
each respective period. The reduction of the gross margin percentage
predominately reflects the reduction in service revenue described above while
personnel costs were stable.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and commissions of sales and marketing personnel, travel and promotional
expenses and related indirect costs. Sales and marketing expenses increased 7%
from $4.2 million, or 43% of total revenue, in the three months ended July 31,
1995 to $4.5 million, or 86% of total revenue, for the same period in 1996.
This increase of $0.3 million is due to the increase in the number of marketing
activities, including trade shows and promotional expenses. Sales and marketing
expenditures are incurred based upon expected revenues levels; consequently,
sales and marketing as a percentage of total revenue increased for the three
months ended July 31, 1996 as compared to the same period in the prior year due
to total revenues not meeting management's expectations.
Research and Development. Research and development expenses consist primarily
of cost of research and development personnel and related indirect costs.
Research and development expenses were $1.9 million, or 19% of total revenue,
for the three months ended July 31, 1995 compared to $2.1 million, or 41% of
total revenue for the same quarter in fiscal 1996. The increase in the
percentage of total revenue is a result of the decline in revenue as discussed
above.
General and Administrative. General and administrative expenses consist
primarily of salaries of financial, administrative and management personnel and
related indirect costs. General and administrative expenses increased 6% from
$1.2 million to $1.3 million for the three months ended July 31, 1996 compared
to the same period in the prior year. This increase is a result of the above
discussed decline in revenue.
Operating Income
As a result of the above discussed decline in revenue and a relatively fixed
cost base, the Company generated a loss from continuing operations of $4.4
million in the three months ended July 31, 1996 compared to income from
continuing operations of $518,000 for the comparable period in 1995.
-8-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income taxes
During the three month period ended July 31, 1996, the Company did not record a
tax benefit related to the Company's losses because such benefit can not be
recognized, under the liability method, until future taxable income is
reasonably assured.
Liquidity and Capital Resources
At July 31, 1996, the Company had cash and equivalents of $11.4 million and
working capital of $6.9 million. Additionally, the Company has revolving lines
of credit available approximating $2 million. At August 31, 1996, approximately
$700,000 is available to be drawn from on these credit facilities. The Company
generated $1.0 million in cash from operations for the three months ended July
31, 1996 before payments of $0.2 million related to the Company's previous
restructuring activities and legal settlement. The Company had capital
expenditures of $0.1 million for the three months ended July 31, 1996 compared
to $0.6 million for the same period in the prior year. The Company does not
currently have any significant capital commitments.
The implementation of the Company's restructuring plan will consume significant
amounts of cash over the remainder of the fiscal year. Management believes the
cash requirements related to the expected restructuring charge for the remainder
of the fiscal year could be as much as $7.5 million. These requirements are to
fund anticipated severance costs, lease costs and costs associated with the
elimination of the Company's cost base outside the U.S. Additionally, the
decline in revenue for the quarter ended July 31, 1996 will cause the Company to
use cash for operations during its second fiscal quarter until it can generate
increased revenue. While management believes sufficient cash reserves currently
exist to sustain the anticipated restructured operations for the remainder of
the fiscal year, there is no assurance that the Company will have adequate
liquidity and capital resources for the current fiscal year, that it will be
allowed to draw on its existing credit facilities or that it will be able to
find alternative credit facilities or capital resources with terms that
management believes are acceptable if so required to do so. See Exhibit 99 for
further discussions about potential risk factors.
-9-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings: - From time to time the Company has legal
or administrative proceedings which are generally incidental
to its normal business activities. While the outcome of any
such proceeding can not be accurately predicted, the Company
does not believe the ultimate resolution of any such existing
matters should have a material adverse effect on its financial
position or results of operations.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99 Important Factors Regarding Forward-Looking Statements.
(b) Reports on Form 8-K
Not Applicable.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 15, 1996 LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
By: /s/ Michael S. Bennett
-----------------------------------------------
Michael S. Bennett, Chief Executive Officer
By: /s/ Stephen E. Odom
-----------------------------------------------
Stephen E. Odom, Chief Financial Officer and
Senior Vice President - Finance and
Administration
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