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
SEPTEMBER 30, 1995 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: 0-13994
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Computer Network Technology Corporation
---------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Minnesota 41-1356476
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
605 North Highway 169, Suite 800, Minneapolis, Minnesota 55441
- -------------------------------------------------------- --------
(Address of principal executive offices) (ZipCode)
Telephone Number: (612) 797-6000
----------------------------------------------------
(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) has been subject to the filing
requirements for at least the past 90 days. Yes [X] No ______
As of November 6, 1995, the registrant had 22,903,317 shares of $.01 par value
common stock issued and outstanding.
COMPUTER NETWORK TECHNOLOGY CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1995 and
December 31, 1994........................................ 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 1995 and 1994............ 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 and 1994................. 5
Notes to Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of
Results of Operations.................................... 8
Financial Condition...................................... 14
PART II. OTHER INFORMATION........................................ 15
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES......................................................... 18
2
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 December 31
1995 1994
-------------- -------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 13,315,206 $ 15,855,905
Marketable securities 15,995,914 2,486,234
Receivables, net 16,976,931 23,451,598
Inventories 12,158,429 8,060,363
Deferred tax asset 2,120,000 2,120,000
Other current assets 897,660 1,088,164
-------------- -------------
Total current assets 61,464,140 53,062,264
-------------- -------------
Property and equipment, net 8,127,257 9,285,714
Field support spares, net 4,595,465 5,473,078
Purchased technology, net 3,907,153 4,215,391
Goodwill, net 747,704 780,479
Other assets 147,625 331,848
-------------- -------------
$ 78,989,344 $ 73,148,774
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,927,508 $ 2,163,054
Accrued liabilities 4,112,170 5,125,365
Deferred revenue 10,177,007 7,463,821
Income taxes payable - 2,663,096
Current installments of obligations
under capital leases 127,722 259,540
-------------- -------------
Total current liabilities 17,344,407 17,674,876
-------------- -------------
Obligations under capital leases, less
current installments 73,076 163,028
Deferred tax liability 1,332,000 1,332,000
-------------- -------------
Total liabilities 18,749,483 19,169,904
-------------- -------------
Shareholders' equity:
Common stock, $.01 par value;
authorized 30,000,000 shares, issued
and outstanding 22,901,817 at
September 30, 1995 and 22,360,122
at December 31, 1994 229,018 223,601
Additional paid-in capital 57,214,736 55,801,073
Retained earnings (deficit) 2,991,640 (1,656,636)
Cumulative translation adjustment (195,533) (389,168)
-------------- -------------
Total shareholders' equity 60,239,861 53,978,870
-------------- -------------
$ 78,989,344 $ 73,148,774
============== =============
See accompanying notes to financial statements
3
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
REVENUE:
Product sales $11,902,319 $19,911,132 $43,874,616 $46,986,656
Service fees 4,685,104 3,921,661 13,219,581 10,498,017
----------- ----------- ----------- -----------
Total revenue 16,587,423 23,832,793 57,094,197 57,484,673
----------- ----------- ----------- -----------
COST OF REVENUE:
Cost of product sales 3,768,113 9,141,684 12,757,454 18,193,537
Cost of service fees 3,779,230 3,418,175 10,651,481 9,582,664
----------- ----------- ----------- -----------
Total cost of revenue 7,547,343 12,559,859 23,408,935 27,776,201
----------- ----------- ----------- -----------
GROSS PROFIT 9,040,080 11,272,934 33,685,262 29,708,472
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing 5,013,898 5,799,089 15,236,360 15,424,496
Engineering and development 2,574,606 3,182,160 8,148,344 8,683,000
General and administrative 1,207,493 1,438,594 4,133,808 3,566,779
Purchased in-process research
and development - - - 9,302,212
----------- ----------- ----------- -----------
Total operating expenses 8,795,997 10,419,843 27,518,512 36,976,487
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 244,083 853,091 6,166,750 (7,268,015)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 420,441 111,978 1,199,706 425,120
Interest expense (5,848) (30,410) (49,074) (108,152)
Other, net 94,323 235,363 227,894 697,657
----------- ----------- ----------- -----------
Other income 508,916 316,931 1,378,526 1,014,625
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 752,999 1,170,022 7,545,276 (6,253,390)
PROVISION FOR INCOME TAXES 286,000 465,000 2,897,000 1,260,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 466,999 $ 705,022 $ 4,648,276 $(7,513,390)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ .02 $ .03 $ .20 $ (.34)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 23,802,266 23,008,805 23,624,149 21,861,863
=========== ============ =========== ===========
See accompanying notes to financial statements
4
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30
------------------------------
1995 1994
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ 4,648,276 $ (7,513,390)
Depreciation and amortization 5,876,889 4,965,024
Purchase of in-process research and development - 9,302,212
Increase in deferred taxes - (55,000)
CHANGES IN OPERATING ASSETS AND LIABILITIES NET OF
THE EFFECT OF ACQUIRED COMPANIES:
Receivables 6,474,667 (5,612,454)
Inventories (4,098,066) (187,629)
Other current assets 190,505 686,330
Accounts payable 764,454 (1,125,383)
Accrued expenses (3,676,291) (1,181,934)
Deferred revenue 2,713,186 3,038,271
------------ ------------
Cash provided by operating activities 12,893,620 2,316,047
------------ ------------
INVESTING ACTIVITIES:
Additions to property and equipment (2,167,804) (3,874,611)
Additions to field support spares (1,131,755) (3,305,405)
Purchase of marketable securities (13,509,680) (2,009,134)
Purchase of Brixton, net of cash acquired - (5,455,671)
Other (82,244) (125,216)
------------ ------------
Cash used for investing activities (16,891,483) (14,770,037)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,419,080 973,220
Repayments of obligations under capital leases (221,770) (845,086)
------------ ------------
Cash provided by financing activities 1,197,310 128,134
------------ ------------
Effects of exchange rate changes 259,854 115,468
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,540,699) (12,210,388)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD 15,855,905 24,452,737
------------ ------------
CASH AND CASH EQUIVALENTS -- END OF PERIOD $ 13,315,206 $ 12,242,349
============ ============
See accompanying notes to financial statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements, which are unaudited except
for the balance sheet as of December 31, 1994, have been prepared in accordance
with instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. These consolidated financial statements should be read in
conjunction with the financial statements and accompanying notes included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
(2) INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out method) or
market, consist of:
SEPTEMBER 30 December 31
1995 1994
------------ -----------
Components and subassemblies $ 5,467,393 $3,712,084
Work in process 2,372,957 106,634
Finished goods 4,318,079 4,241,645
----------- ----------
$12,158,429 $8,060,363
=========== ==========
(3) ACQUISITION
On March 10, 1994, the Company acquired all of the outstanding common and
preferred stock of Brixton Systems, Inc. (Brixton), in exchange for 986,094
unregistered shares of its common stock valued at $6.5 million, $5.5 million in
cash, assumption of $1.6 million in liabilities and the conversion of existing
Brixton employee stock options into CNT stock options valued at approximately
$2.0 million. The transaction has been accounted for as a purchase, and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair market values on the date of acquisition. In addition, a
portion of the purchase price paid to acquire Brixton has been allocated to
research and development activities that were in process at the time of the
acquisition and had not yet reached technological feasibility. The amount
allocated to in-process research and development, $9,302,212, was immediately
charged to expense upon the completion of the acquisition. The company's
consolidated financial statements include the results of Brixton's operations
since March 10, 1994.
6
(4) COMMON STOCK EQUIVALENTS
For the three and nine months ended September 30, 1995, and the three months
ended September 30, 1994, net income per common and common equivalent share was
determined by dividing net income by the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares, primarily resulting from dilutive stock options and warrants, were
converted using the treasury stock method. For the nine months ended September
30, 1994, net loss per common share was computed using the weighted average
number of common shares outstanding. Stock options and warrants were not
converted to common equivalent shares due to their antidilutive nature.
7
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following table
sets forth certain information derived from the Consolidated Statements of
Operations of the Company. (All amounts are expressed as a percentage of total
revenue except gross profit which is expressed as a percent of the related
revenue.)
Three months ended Nine months ended
September 30 September 30
------------------ -----------------
1995 1994 1995 1994
----- ----- ----- -----
REVENUE:
Product sales 71.8% 83.5% 76.8% 81.7%
Service fees 28.2 16.5 23.2 18.3
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
GROSS PROFIT:
Product sales 68.3 54.1 70.9 61.3
Service fees 19.3 12.8 19.4 8.7
----- ----- ----- -----
Total gross profit 54.5 47.3 59.0 51.7
----- ----- ----- -----
OPERATING EXPENSES:
Sales and marketing 30.2 24.3 26.7 26.8
Engineering and development 15.5 13.4 14.3 15.1
General and administrative 7.3 6.0 7.2 6.2
Purchased in-process research
and development -- -- -- 16.2
----- ----- ----- -----
Total operating expenses 53.0 43.7 48.2 64.3
----- ----- ----- -----
INCOME (LOSS) FROM OPERATIONS 1.5 3.6 10.8 (12.6)
Other income 3.0 1.3 2.4 1.7
----- ----- ----- -----
INCOME (LOSS) BEFORE
INCOME TAXES 4.5 4.9 13.2 (10.9)
Provision for income taxes 1.7 1.9 5.1 2.2
----- ----- ----- -----
NET INCOME (LOSS) 2.8% 3.0% 8.1% (13.1)%
===== ===== ===== =====
REVENUE
The Company's revenue primarily includes the sale and support of its Channelink
products for the channel networking market and the licensing, sale, and support
of its Brixton hardware and software products for the internetworking and IBM
connectivity data communications markets. The Company's consolidated financial
statements include the results of Brixton's operations since its acquisition on
March 10, 1994.
Revenue decreased 30% and 1% for the three and nine months ended September 30,
1995, respectively, when compared to the same periods of 1994. Revenue from the
Company's
8
Channelink product line totaled $14.1 million and $48.2 million for the three
and nine months ended September 30, 1995, respectively, decreases of 33% and 2%,
respectively, when compared to the same periods of 1994. Revenue from the
Company's Brixton product line totaled $2.0 million and $7.7 million for the
three and nine months ended September 30, 1995, respectively, increases of 8%
and 73%, respectively, when compared to revenue reported by Brixton on a pro
forma basis during the same periods of 1994. The Company's financial statements
for the nine months ended September 30, 1994 include $3.7 million of Brixton
revenue. The remaining $.7 million of revenue reported by Brixton on a pro forma
basis was recorded during the first quarter of 1994 prior to the Company's
acquisition of Brixton.
Revenue from product sales decreased 40% and 7% for the three and nine months
ended September 30, 1995, respectively, when compared to the same periods of
1994. The decrease in product sales is primarily attributable to decreases in
Channelink product sales of 45% and 11%, which were partially offset by
increases in Brixton product sales of 6% and 103% for the three and nine months
ended September 30, 1995, respectively. Brixton product sales increased 69% on
a pro forma basis for the nine months ended September 30, 1995. The decrease in
Channelink product sales primarily resulted from a decrease in direct sales to
end user customers in North America and in France and was partially offset by an
increase in sales to the Company's international distributors. The expected
reduction in revenue from the discontinued UltraNet product line also
contributed to the decrease in product sales for the three and nine months ended
September 30, 1995.
Revenue from service fees, which primarily reflects purchases of maintenance
service, increased 19% and 26% for the three and nine months ended September 30,
1995, respectively, when compared to the same periods in 1994. The increase
primarily reflects a 36% and 43% increase in Channelink service fees for the
three and nine months ended September 30, 1995, respectively, which were
partially offset by the expected decline in UltraNet service fees. The Company
will continue to experience a steady decline in service fees from the UltraNet
product line due to the nonrenewal of existing maintenance contracts. Service
fees from the Company's Brixton product line totaled $.2 million and $.6 million
for the three and nine months ended September 30, 1995, respectively. Service
revenue from the Brixton product line was approximately $.3 million for the nine
months ended September 30, 1994. For the remainder of 1995, the Company
believes service revenue for its Channelink and Brixton product lines will grow
at approximately the same rate as the installed base of these products.
The Company derived 33% and 30% of its revenue from international customers
during the three and nine months ended September 30, 1995, respectively, as
compared to 22% and 27%, respectively, for the same periods of 1994. The
percentage of revenue derived from international customers for any given period
is subject to fluctuation due to the variable timing of sizable orders from
customers and the variability of revenue in North America.
Revenue from the Company's UltraNet product line totaled $.4 million and $1.1
million for the three and nine months ended September 30, 1995, respectively,
decreases of $.5 million and $ 3.2 million, respectively, when compared to the
same periods of 1994. The reductions in the revenue from the UltraNet product
line were expected as the Company discontinued active marketing of the this
product line in 1994.
9
The Company expects to continue to see quarter to quarter fluctuations in
revenue. The timing of sizable orders, because of their relative impact on
total quarterly sales, may contribute to such fluctuations. The decrease in
revenue for the three and nine months ended September 30, 1995, as compared to
the same periods of 1994, can be primarily attributed to a reduction in orders
for traditional data center consolidation applications for the Company's
Channelink products. Orders for products and services totaled $17 million and
$15 million during the second and third quarters of 1995, respectively, which
translates into a combined book-to-bill ratio for these two quarters of .84, a
lower order rate when compared to recent periods. At the present time, it is
unclear whether the fourth quarter will be the highest revenue quarter in 1995.
During 1994 and first half of 1995, the Company attempted to use its existing
Channelink sales force to sell its Brixton products. This approach was not
effective and diverted sales time away from the Company's traditional Channelink
market. As a result, the Company has decided to hire additional sales and
marketing personnel to focus exclusively on market opportunities for Brixton
products. The Company intends to more than triple the number of Brixton sales
representatives, double the Brixton tele-sales staff, and hire additional pre-
sales and post-sales systems engineers dedicated to the Brixton product line.
In addition, the Company has hired staff to grow the sale of Brixton products
through alternate distribution channels.
The Company believes that the improved product function associated with the new
Brixton 3.0 products that were released in the second quarter of 1995, coupled
with the new employees to market and sell the Brixton products, should increase
Brixton revenues both during the fourth quarter of 1995 and in 1996. While the
Company has experienced a slow down in the growth rate of data center
consolidation applications for its Channelink products, it believes that growth
in new network-based storage applications should result in continuing demand for
the Channelink products. The Company believes that delays by IBM in the
introduction of its new remote disk and Magstar tape products have had a
negative impact on its Channelink product revenue in 1995. Both the Company and
IBM expect these products to be released in early 1996.
Results achieved by the Company through the remainder of 1995 and into 1996 may
be impacted by a number of factors, including market acceptance of the Brixton
products (including the Brixton integrated gateway, which was previously called
Convergence), the availability of new employees experienced in the Brixton
marketplace, growth and timing of new applications for the Company's Channelink
products, particularly in the area of network-based storage, changes in general
economic conditions, cost and availability of components, and fluctuations in
foreign exchange rates. In addition, the markets for the Company's products are
characterized by significant competition, and the Company's results may be
adversely affected by the actions of existing or future competitors, including
the development of new technologies, the introduction of new products, and the
reduction of prices by such competitors to gain or retain market share.
10
SPECIAL CHARGES
During the three months ended September 30, 1994, the Company recorded a charge
of approximately $500,000 related to a reduction in work force, which was
included in the consolidated statements of operations as follows: cost of
service fees - $81,000; sales and marketing - $196,000; engineering and
development - $190,000; general and administrative - $33,000.
Also during the three months ended September 30, 1994, the Company recorded a
charge of approximately $2.8 million for the write-down of excess inventory
associated with its UltraNet product line. The charge associated with this
write-down is recorded in the consolidated statements of operations under the
caption "cost of product sales".
GROSS PROFIT
The gross profit margins from product sales for the three and nine months ended
September 30, 1995 were 68% and 71%, respectively, as compared to 68% and 67%,
for the same periods of 1994, excluding the UltraNet inventory write-off. The
increase in gross margins from product sales for the nine months ended September
30, 1995 resulted from a larger percentage of total revenue coming from the sale
of higher margin Brixton software products and a larger percentage of Channelink
product sales consisting of more complex, higher margin systems.
The Company anticipates that product margins will continue to fluctuate from
quarter to quarter because of the variable nature of the product mix in any
particular quarter. However, the Company anticipates that it will continue to
experience relatively strong product margins during the remainder of 1995,
particularly if the Brixton products become a larger percentage of overall
revenue.
There can be no assurance that the Company will be able to maintain historical
gross profit margins on Brixton products, and actual gross profit margins on
product sales throughout the remainder of 1995 will depend on a number of
factors, including market acceptance of the Brixton product line, the mix of
products, the relative amount of products sold through indirect distribution
sources, and the level of continuing price competition.
Gross profit margins from service fees, for both the three and nine months ended
September 30, 1995 were 19%, as compared to 15% and 9%, respectively, during the
same periods of 1994, excluding special charges. The increase in gross margins
from service fees has primarily resulted from a steadily increasing base of
installed Channelink units covered by maintenance contracts, which provides
economies of scale.
The Company anticipates that it will make additional investments in its service
business, particularly to support the Brixton product line. As a result of
these additional investments, the Company anticipates that gross profit margins
from its service business will be somewhat lower throughout the remainder of
1995 and into 1996 when compared to gross profit margins for the first nine
months of 1995.
11
OPERATING EXPENSES
Sales and marketing expenses decreased 11% for the three months ended September
30, 1995 as compared to the same period of 1994, excluding special charges. This
decrease is primarily attributable to a reduction in commission expense due to
the lower level of product sales in the third quarter as compared to the same
period of 1994. In addition, based on the Company's performance through the
nine months ended September 30, 1995, it is anticipated that no annual success
sharing bonuses will be earned in 1995. Accordingly, previously accrued bonuses
totaling $107,000 were reversed during the three months ended September 30,
1995. Sales and marketing expenses for the nine months ended September 30, 1995
increased slightly when compared to the same period of 1994, excluding special
charges. The slight increase in sales and marketing expenses for the nine
months ended September 30, 1995 is primarily attributable to an increase in
employee recruitment and other costs associated with continued expansion of the
Company's sales organization, which were partially offset by lower commission
expense. The Company expects to expand its domestic and international sales and
marketing organizations throughout the remainder of 1995 and into early 1996,
with an emphasis on new employees to expand the Company's sales of its Brixton
products.
Engineering and development costs primarily consist of compensation and related
fringe benefits, depreciation, and consulting expenses related to new product
development, and enhancements to existing products. For the three and nine
months ended September 30, 1995, engineering and development expenses decreased
14% and 4%, respectively, as compared to the same periods of 1994, excluding
special charges. The decreases for the three and nine months ended September
30, 1995 can be attributed to lower compensation and equipment maintenance
costs, which were partially offset by higher depreciation and amortization
charges. In addition, previously accrued success sharing bonuses totaling
$144,000 were reversed during the three months ended September 30, 1995. For
the three and nine months ended September 30, 1995, engineering and development
expenses were 16% and 14% of revenue, respectively, as compared to 13% and 15%
of revenue, respectively, for the comparable periods of 1994. The increase in
engineering and development spending as a percentage of revenue for the three
months ended September 30, 1995 can be attributed to the lower level of revenue
recorded during the third quarter of 1995 as compared to the same period of
1994.
The Company anticipates spending approximately 14% of total revenue on
engineering and development in 1995, which includes investments in current and
future products. The Company believes a sustained high level of investment is
essential to continued customer satisfaction and future revenue.
For the three and nine months ended September 30, 1995, general and
administrative expenses decreased 14% and increased 17%, respectively, when
compared to the same periods of 1994, excluding special charges. The decrease
for the three months ended September 30, 1995, is primarily attributed to the
reversal of previously accrued annual success sharing bonuses and lower bad debt
and professional service expenses. The increase for the nine months ended
September 30, 1995 resulted from planned additions to the administrative staff,
which were partially offset by lower bad debt expense. General and
administrative expenses, excluding the special charges noted above, were 6% to
7% of total revenue during the three and nine
12
months ended September 30, 1995 and 1994. The Company anticipates general and
administrative expenses will remain in that same range during the balance of
1995.
The Company recorded a provision for income taxes at an effective rate of
approximately 38% for the three and nine months ended September 30, 1995.
During the nine months ended September 30, 1994, the Company recorded a $9.3
million charge for purchased in-process research and development. Excluding
this charge, the Company recorded a provision for income taxes at an effective
rate of approximately 40% for both the three and nine months ended September 30,
1994. The Company anticipates that its effective income tax rate for the
remainder of 1995 will be between 37% and 39%.
13
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the private and
public sales of equity securities, bank borrowings under lines of credit,
capital equipment leases, and cash generated from operations.
Cash, cash equivalents, and marketable securities at September 30, 1995 totaled
$29.3 million, an increase of $11.0 million during the first nine months of
1995. This net increase resulted from the cash provided by operations,
financing activities, and the effects of exchange rate changes, which aggregate
$14.4 million, partially offset by the cash used for investing in property and
equipment, field support spares and other assets of $3.4 million.
Expenditures for capital equipment and field support spares have been, and
likely will continue to be, a significant capital requirement. The Company
plans to continue to invest aggressively in productivity tools for its employees
and in its field support spares.
The Company believes that the current balances of cash, cash equivalents, and
marketable securities, when combined with anticipated cash flow from operations,
will be adequate to fund its operating plans and meet its currently anticipated
aggregate capital requirements, at least through 1996; however, if the Company
does not generate revenue as expected or incurs unanticipated expenses, or needs
additional investment funds to react to changes in the marketplace, it may need
additional capital earlier or in greater amounts than would otherwise be
required.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
14
PART II. OTHER INFORMATION
Item 1-5. None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are filed herewith.
Exhibit Description
------- -----------
2A. Agreement and Plan of Merger among Computer Network
Technology Corporation, BRX Corp., Brixton Systems, Inc.,
and certain Significant Shareholders of Brixton, dated
February 4, 1994. (Incorporated by reference to Exhibit 2 to
current report on Form 8-K dated February 22, 1994.)
4A. Restated Articles of Incorporation of the Company, as
amended. (Incorporated by reference to Exhibit 2 to current
report on Form 8-K dated June 22, 1992.)
4B. By-laws of the Company, as amended. (Incorporated by
reference to Exhibit 3B to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1991.)
10A. Master Lease Agreement by and between the Company and
Comdisco, Inc. dated September 7, 1990. (Incorporated by
reference to Exhibit 10B to Form S-2 Registration Statement
No. 33-41985.)
10B. Lease Agreement dated November 30, 1990 by and between TOLD
Development Company, a general partnership, and Computer
Network Technology Corporation. (Incorporated by reference
to Exhibit 10C to Form S-2 Registration Statement No.
33-41985.)
10C. Computer Network Technology Corporation 401(k) Salary
Savings Plan effective January 1, 1991. (Incorporated by
reference to Exhibit 10F to Form S-2 Registration Statement
No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics Ltd. and
Kanematsu USA Inc. dated October 22, 1990. (Incorporated by
reference to Exhibit 10G to Form S-2 Registration Statement
No. 33-41985.)
10E. Amended and Restated Incentive Stock Option Plan
(Incorporated by reference to Exhibit 10A to Form S-8
Registration Statement, Commission File No. 33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan. (Incorporated
by reference to Exhibit 10B to Form S-8 Registration
Statement No. 33-41986.)
15
Exhibit Description
------- -----------
10G. Certificate of Resolutions contained in Minutes of Annual
Meeting of Shareholders on May 30, 1990 increasing shares
reserved under ISOP from 500,000 to 1,000,000. (Incorporated
by reference to Exhibit 10C to Form S-8 Registration
Statement No. 33-41986.)
10H. Certificate of Resolutions contained in Minutes of Special
Meeting of the Board of Directors on April 25, 1991
increasing the number of shares reserved under the NSOP from
1,100,000 to 1,600,000. (Incorporated by reference to
Exhibit 10D to Form S-8 Registration Statement No.
33-41986.)
10I. Employment agreement by and between the Company and Eugene
D. Misukanis. (Incorporated by reference to Exhibit 10B of
Form S-2 Registration Statement No. 33-18501.)
10J. Employment Agreement by and between the Company and
C. McKenzie Lewis, III. (Incorporated by reference to
Exhibit 10M of Form S-2 Registration Statement No.
33-41985.)
10K. Employment Agreement by and between the Company and John R.
Brintnall. (Incorporated by reference to Exhibit 10O of Form
S-2 Registration Statement No. 33-41985.)
10L. Employment Agreement by and between the Company and Peter
Dixon. (Incorporated by reference to Exhibit 10P of Form S-2
Registration Statement No. 33-41985.)
10M. Employment Agreement by and between the Company and Richard
Carlson. (Incorporated by reference to Exhibit 10S of Annual
Report on Form 10-K for the fiscal year ended December 31,
1991.)
10N. 1992 Employee Stock Purchase Plan (Incorporated by reference
to Exhibit 28 to Form S-8 Registration Statement No.
33-48954.)
10O. 1992 Stock Award Plan (Incorporated by reference to Exhibit
28 to Form S-8 Registration Statement No. 33-48944.)
10P. Sublease Agreement by and between ITT Consumer Financial
Corporation and Computer Network Technology Corporation
dated October 1, 1993. (Incorporated by reference to Exhibit
10X to Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
16
Exhibit Description
------- -----------
10Q. First Amendment to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network
Technology Corporation dated October 26, 1993. (Incorporated
by reference to Exhibit 10Y to Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10R. Employment Agreement by and between the Company and Julie C.
Quintal. (Incorporated by reference to Exhibit 10Z to Annual
Report on Form 10-K for the fiscal year ended December 31,
1993.)
10S. Minutes of Annual Meeting of Shareholders on May 27, 1993
increasing shares reserved under the 1992 Stock Award Plan
from 650,000 to 1,050,000 and increasing shares reserved
under the 1992 Employee Stock Purchase Plan from 150,000 to
300,000. (Incorporated by reference to Exhibit 10BB to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10T. Amendment No. 1 to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network
Technology Corporation dated February 9, 1994. (Incorporated
by reference to Exhibit 10CC to Form 10Q for the quarterly
period ended March 31, 1994.)
10U. March 10, 1994 Incentive Stock Option Agreements
(Incorporated by reference to Exhibit 28.2 to Form S-8
Registration Statement No. 33-83266.)
10V. March 10, 1994 Non-Qualified Stock Option Agreements
(Incorporated by reference to Exhibit 28.3 to Form S-8
Registration Statement No. 33-83266.)
10W. Amendment to 1992 Stock Award Plan increasing shares
reserved from 1,050,000 to 3,250,000 (Incorporated by
reference to Form S-8 Registration Statement No. 33-83262.)
10X. Amendment to Employee Stock Purchase Plan increasing shares
reserved from 300,000 to 400,000 (Incorporated by reference
to Form S-8 Registration Statement No. 33-83264.)
10Y. Employment Agreement by and between the Company and Frantz
Corneille. (Incorporated by reference to Exhibit 10II to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
10Z. Employment Agreement by and between the Company and
Richard Helgeson.
11. Statement Re: Computation of Net Income (Loss) per Common
and Common Equivalent Share.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officers.
COMPUTER NETWORK TECHNOLOGY CORPORATION
(Registrant)
Date: November 10, 1995 By: /s/ John R. Brintnall
----------------- -------------------------------------
John R. Brintnall
Vice President of Finance
(Principal financial and accounting
officer and duly authorized signatory
on behalf of the Registrant.)
18
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
2A. Agreement and Plan of Merger among Computer Network Technology
Corporation, BRX Corp., Brixton Systems, Inc., and certain
Significant Shareholders of Brixton, dated February 4, 1994.
(Incorporated by reference to Exhibit 2 to current report on
Form 8-K dated February 22, 1994.)
4A. Restated Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 2 to current report on Form
8-K dated June 22, 1992.)
4B. By-laws of the Company, as amended. (Incorporated by reference to
Exhibit 3B to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.)
10A. Master Lease Agreement by and between the Company and Comdisco,
Inc. dated September 7, 1990. (Incorporated by reference to
Exhibit 10B to Form S-2 Registration Statement No. 33-41985.)
10B. Lease Agreement dated November 30, 1990 by and between TOLD
Development Company, a general partnership, and Computer Network
Technology Corporation. (Incorporated by reference to Exhibit 10C
to Form S-2 Registration Statement No. 33-41985.)
10C. Computer Network Technology Corporation 401(k) Salary Savings
Plan effective January 1, 1991. (Incorporated by reference to
Exhibit 10F to Form S-2 Registration Statement No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics Ltd. and
Kanematsu USA Inc. dated October 22, 1990. (Incorporated by
reference to Exhibit 10G to Form S-2 Registration Statement No.
33-41985.)
10E. Amended and Restated Incentive Stock Option Plan (Incorporated by
reference to Exhibit 10A to Form S-8 Registration Statement,
Commission File No. 33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10B to Form S-8 Registration Statement No.
33-41986.)
10G. Certificate of Resolutions contained in Minutes of Annual Meeting
of Shareholders on May 30, 1990 increasing shares reserved under
ISOP from 500,000 to 1,000,000. (Incorporated by reference to
Exhibit 10C to Form S-8 Registration Statement No. 33-41986.)
19
Exhibit Description Page
------- ----------- ----
10H. Certificate of Resolutions contained in Minutes of Special
Meeting of the Board of Directors on April 25, 1991 increasing
the number of shares reserved under the NSOP from 1,100,000 to
1,600,000. (Incorporated by reference to Exhibit 10D to Form S-8
Registration Statement No. 33-41986.)
10I. Employment agreement by and between the Company and Eugene D.
Misukanis. (Incorporated by reference to Exhibit 10B of Form S-
2 Registration Statement No. 33-18501.)
10J. Employment Agreement by and between the Company and C. McKenzie
Lewis, III. (Incorporated by reference to Exhibit 10M of Form
S-2 Registration Statement No. 33-41985.)
10K. Employment Agreement by and between the Company and John R.
Brintnall. (Incorporated by reference to Exhibit 10O Form S-2
Registration Statement No. 33-41985.)
10L. Employment Agreement by and between the Company and Peter Dixon.
(Incorporated by reference to Exhibit 10P of Form S-2
Registration Statement No. 33-41985.)
10M. Employment Agreement by and between the Company and Richard
Carlson. (Incorporated by reference to Exhibit 10S of Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.)
10N. 1992 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 28 to Form S-8 Registration Statement No. 33-48954.)
10O. 1992 Stock Award Plan (Incorporated by reference to Exhibit 28 to
Form S-8 Registration Statement No. 33-48944.)
10P. Sublease Agreement by and between ITT Consumer Financial
Corporation and Computer Network Technology Corporation dated
October 1, 1993. (Incorporated by reference to Exhibit 10X to
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)
10Q. First Amendment to Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology
Corporation dated October 26, 1993. (Incorporated by reference
to Exhibit 10Y to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.)
20
Exhibit Description Page
------- ----------- ----
10R. Employment Agreement by and between the Company and Julie C.
Quintal. (Incorporated by reference to Exhibit 10Z to Annual
Report on Form 10-K for the fiscal year ended December 31,
1993.)
10S. Minutes of Annual Meeting of Shareholders on May 27, 1993
increasing shares reserved under the 1992 Stock Award Plan from
650,000 to 1,050,000 and increasing shares reserved under the
1992 Employee Stock Purchase Plan from 150,000 to 300,000.
(Incorporated by reference to Exhibit 10BB to Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10T. Amendment No. 1 to Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology
Corporation dated February 9, 1994. (Incorporated by reference
to Exhibit 10CC to Form 10Q for the quarterly period ended March
31, 1994.)
10U. March 10, 1994 Incentive Stock Option Agreements (Incorporated
by reference to Exhibit 28.2 to Form S-8 Registration Statement
No. 33-83266.)
10V. March 10, 1994 Non-Qualified Stock Option Agreements
(Incorporated by reference to Exhibit 28.3 to Form S-8
Registration Statement No. 33-83266.)
10W. Amendment to 1992 Stock Award Plan increasing shares reserved
from 1,050,000 to 3,250,000 (Incorporated by reference to Form
S-8 Registration Statement No. 33-83262.)
10X. Amendment to Employee Stock Purchase Plan increasing shares
reserved from 300,000 to 400,000 (Incorporated by reference to
Form S-8 Registration Statement No. 33-83264.)
10Y. Employment Agreement by and between the Company and Frantz
Corneille. (Incorporated by reference to Exhibit 10II to Annual
Report on Form 10-K for the fiscal year ended December 31,
1994.)
10Z. Employment Agreement by and between the Company and
Richard Helgeson.................................Electronically Filed
11. Statement Re: Computation of Net Income (Loss) per Common and
Common Equivalent Share..........................Electronically Filed
27. Financial Data Schedule..........................Electronically Filed
21