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FORM 10-K
COMMISSION FILE NO. 1-6435
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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BOLT BERANEK AND NEWMAN INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2164398
(Sate of Incorporation) (IRS Employer Identification Number)
150 CAMBRIDGEPARK DRIVE, CAMBRIDGE, MASSACHUSETTS 02140
(Address of principal executive offices) (Zip Code)
(617) 873-2000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $1.00 par value New York Stock Exchange
6% Convertible Subordinated Debentures New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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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 such filing
requirements for the past 90 days. YES /X/ NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Market value at 9/13/94 of Common Stock held by other than directors and
executive officers of registrant: $285,863,769
Indicate the number of shares outstanding of each of the registrant's classes of
common stock.
Common Stock, $1.00 par value, outstanding 9/13/94: 16,768,449 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended June 30,
1994 are incorporated by reference into Items 1, 5, 6, 7, 8, and 14.
Portions of the definitive Proxy Statement dated September 28, 1994 are
incorporated by reference into Items 10, 11, and 12.
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ITEM 1. BUSINESS.
GENERAL
Bolt Beranek and Newman Inc. ("BBN" or the "Company", each of which terms
includes, unless the context indicates otherwise, BBN and its consolidated
subsidiaries) was incorporated as a Massachusetts corporation in 1953 as the
successor to a partnership formed in 1948.
For fiscal 1994, the Company has revised the business segments in which it
reports financial information, and as a result has restated the financial
information for fiscal years 1993 and 1992 to reflect this change. The Company
now reports financial information in three business segments: Internetworking,
Data Analysis Software, and Collaborative Systems and Acoustic Technologies. The
Internetworking business segment includes that part of the activities of the
Company's BBN Systems and Technologies Division relating to network services and
defense communications and network systems (including the Company's X.25 network
systems and T/10(TM) Integrated Access Device (IAD) activities), and the
activities of the Company's LightStream Corporation and BBN Internet Services
Corporation subsidiaries. The Data Analysis Software business segment includes
the activities of the Company's BBN Software Products Corporation subsidiary.
The Collaborative Systems and Acoustic Technologies business segment includes
that part of the activities of the Company's BBN Systems and Technologies
Division relating to distributed computing, speech processing, education
technology, and sensor systems, and the activities of the Company's BBN HARK
Systems Corporation subsidiary.
The Company's overall strategy is to capitalize upon its technical
expertise and problem solving experience in the internetworking, data analysis,
and collaborative and acoustic systems areas. This strategy is being implemented
through five distinct and complementary business units, including one operating
division and four operating subsidiaries (three of which are early stage
companies), as described below:
- BBN Systems and Technologies, an operating division of the Company,
provides a range of advanced systems and technologies to government and
commercial organizations, and performs virtually all of the Company's
government contract activities. Its results are reported in part in the
Internetworking business segment (including the Company's network
services and defense communications and network systems activities), and
in part in the Collaborative Systems and Acoustic Technologies business
segment. (See "Network Services and Defense Communications", "Network
Systems", "Collaborative Systems", and "Acoustic Technologies" below.)
- BBN Software Products Corporation, a wholly-owned subsidiary of the
Company, develops and markets data analysis and visualization software
products, and its results are included in the Data Analysis Software
segment. (See "BBN Software Products Corporation" below.)
- LightStream Corporation, an 80%-owned subsidiary of the Company, was
organized in October 1993 to develop and market ATM products (continuing
the Company's prior development activities and investment in ATM
technology), and its results are included in the Internetworking segment.
(See "LightStream Corporation" below.)
- BBN Internet Services Corporation, a 98%-owned subsidiary of the Company,
was established in August 1994 (continuing and expanding the Company's
NEARNET[SM] business activities which resided in the BBN Systems and
Technologies Division during fiscal 1994) to provide Internet services on
a worldwide basis, and its results are included in the Internetworking
segment. (See "BBN Internet Services Corporation" below.)
- BBN HARK Systems Corporation, a wholly-owned subsidiary of the Company,
was established in July 1994 (continuing certain of the Company's prior
development activities in speech recognition which resided in the BBN
Systems and Technologies Division during fiscal 1994) to develop and
market commercial large vocabulary speech recognition software products,
and its results are included in the Collaborative Systems and Acoustic
Technologies business segment. (See "BBN HARK Systems Corporation"
below.)
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A significant portion of the Company's revenue continues to be derived from
its business with the U.S. government and its agencies, particularly the
Department of Defense. The Company's business with the Department of Defense has
been adversely affected by reduced defense spending. The Company expects overall
defense budgets to continue to decline over the next several years, and
anticipates attendant increased competition within the consolidating defense
industry. These factors have reduced the Company's U.S. government revenue and
operating margins in recent fiscal years, and this trend is expected to continue
at least through fiscal 1995, particularly in the defense communications systems
and acoustic and sensor systems areas. (See "United States Government Contracts"
below.)
The Company conducts its commercial businesses in environments
characterized by intense competition, shortened product life cycles, and rapid
technological change, which require significant research and development
expenditures to develop new products which address emerging market requirements
and to improve its existing products. The Company's traditional commercial
businesses, consisting principally of X.25 network systems and RS/Series(TM)
data analysis and visualization software products, continue to experience
substantially lower revenue. In recent years, the Company has been investing
heavily in the development of new products, primarily the LightStream(TM) ATM
switch and the T/10 IAD in the networking area and BBN/Cornerstone(TM) data
analysis software. To date, revenue from the Company's new commercial products
has not been significant.
During the three most recent fiscal years, the Company's operating results
have been adversely affected by a high level of investment in new product
development without corresponding new product revenue, declines in the Company's
defense communications business, and lower demand for the Company's X.25 network
systems and data analysis software products. In addition, the Company's
simulation systems business, which generated approximately $25,300,000 in
revenue in fiscal 1993, was sold in April 1993. (See "Simulation Systems"
below).
The Company's objective is to achieve revenue growth in fiscal 1995, and a
return to profitability during the second half of fiscal 1995. However, this
outlook is strongly dependent upon achieving a significant increase in new
product and services revenue. There can be no assurance that such an increase
will be realized. The outlook could also be affected by further expenditures on
commercial business opportunities available to the Company. The Company's
anticipated revenue growth is dependent upon the Company's ability to continue
to recruit entrepreneurial marketing and sales leadership, develop a support
infrastructure, and establish productive customer relationships, particularly in
the commercial marketplace. The implementation of the Company's overall business
strategy will require significant investment in sales and marketing.
The Company's business segments (as restated) represented approximately the
following percentages of BBN's total revenue in fiscal 1994, 1993, and 1992:
YEAR ENDED JUNE 30,
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PERCENTAGE OF TOTAL BBN REVENUE 1994 1993 1992
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Internetworking....................................................... 39 % 39 % 43 %
Data Analysis Software................................................ 18 % 16 % 17 %
Collaborative Systems and Acoustic Technologies....................... 43 % 45 % 40 %
---- ---- ----
100 % 100 % 100 %
The Company's contracts and subcontracts involving the U.S. government and
its agencies represented approximately 67%, 62%, and 62% of BBN's total revenue
in fiscal 1994, 1993, and 1992, respectively.
INTERNETWORKING
NETWORK SERVICES AND DEFENSE COMMUNICATIONS
Overview.
BBN designs, develops, markets, and operates wide area communications
network systems, and offers and performs contract research, development, and
consulting services, for government organizations, in the fields of advanced
networking, tactical networks, and network security. (For information on the
Company's
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commercial networking activities, see generally the discussions under "Network
Systems", "LightStream Corporation", and "BBN Internet Services Corporation"
below.)
Since 1969, BBN has provided network services and defense communications to
the Department of Defense. Since 1983, BBN has been providing hardware and
professional services for the Defense Data Network (DDN), a common-user data
network serving the Department of Defense. In fiscal 1991, the Defense
Information Systems Agency (DISA) awarded BBN a one-year contract in support of
the DDN, with up to four one-year optional extensions. The Company is currently
performing under the third option year of the DDN contract, valued at
approximately $20 million, which will continue the Company's existing activities
through October 1994. The Company has been notified that DISA has elected to
exercise its option for the final one-year extension of the DDN contract, which
will continue these activities through October 1995. The value of this extension
award is approximately $15 million. There can be no assurance that this activity
will continue beyond October 1995.
BBN provides a range of other network services, systems, and products, for
end use by U.S. government and allied government agencies, under various
contracts. BBN provides research, development, hardware, software, and
professional services for a wide area network supporting distributed simulation
and training, warfighting simulation, and command and control functionality. BBN
also supplies a customized version of its T/20V(TM) Videoconferencing Internet
Router, supporting integrated video, voice, and data requirements. BBN has
provided tactical communications network systems to the U.S. Army in connection
with the Mobile Subscriber Equipment ("MSE") program, under a subcontract with
GTE Government Systems. This latter subcontract was substantially completed
during fiscal 1993. BBN also supplies cryptographic systems and products for
sophisticated network security applications, including a Message Security
Protocol (MSP) testbed system for the U.S. Department of Defense providing
secure messaging capability.
Marketing.
The primary market for BBN's network services and defense communications is
the U.S. Department of Defense. The Company also markets and sells network
services to other U.S. government agencies and to allied armed services. The
general decline in the U.S. Department of Defense budget, coupled with increased
competition, are factors that may affect BBN's future success in this
marketplace. (See "United States Government Contracts" below.)
The Company is also pursuing opportunities for its network services in the
commercial marketplace. (See also "Network Systems", "LightStream Corporation",
and "BBN Internet Services Corporation" below.)
Competition.
Competition in the field of network services and defense communications is
intense. The market for developing and operating wide area networks for
government agencies is dominated by large companies with substantially greater
financial and marketing resources than BBN. The U.S. government is also seeking
to reduce its reliance on private contractors for the operation of its existing
networks, and the Company expects that this trend will result in a continuing
decline in revenue relating to the operation of government networks.
The Company believes that the primary factors of competition are the
technical expertise and experience of the supplier, and price. Government
contracts may be awarded either through a sole-source or competitive
procurement, although competitive procurements are increasingly more typical.
NETWORK SYSTEMS
Overview.
BBN's X.25 network systems and products, based on packet-switching
technology, support a range of communications traffic, including X.25,
IBM Systems Network Architecture (SNA), and frame relay protocols. The
Company's X.25 network systems and products include switching equipment,
access devices, and network management systems. BBN also supplies a range
of X.25 network services: it evaluates communications requirements, designs
the network, integrates the overall network system, and provides on-
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site technical assistance and custom engineering services. BBN generally
provides continuing maintenance for the networks it installs, and also offers
network operations services.
The Company's X.25 network systems business has experienced significantly
lower revenue for several years. Substantially all of the Company's X.25 network
systems revenue in fiscal 1994 was generated from sales into the Company's
existing customer base in connection with the expansion, maintenance, and
support of networks previously installed by BBN. The Company has discontinued
certain of its traditional X.25 products and has substantially reduced its
development and selling efforts related to this business.
The T/10 Integrated Access Device (IAD), which BBN has been developing for
several years, is designed to help customers consolidate traffic from their
traditional terminal-to-computer and computer-to-computer traffic with newer
desktop computing applications over a single enterprise network. In particular,
the T/10 IAD addresses the problem of communications across dispersed branch
offices. It operates simultaneously as an Internet Protocol (IP) router, X.25
packet switch, and async, bisync, and SNA packet assembler/disassembler (PAD).
Development delays and limited functionality have unfavorably affected the
Company's ability to generate sales of the T/10 IAD, and revenue to date from
the T/10 IAD has not been financially significant. During fiscal 1994, in order
to achieve development and marketing efficiencies, the T/10 IAD activities were
merged into the Company's BBN Systems and Technologies Division. Although
overall spending relating to the T/10 IAD business was reduced from prior year
levels, additional features have been added. Recently, the Company introduced a
version of the T/10 IAD, adding frame relay functionality.
Marketing.
The market for the Company's X.25 network systems and products is primarily
the Company's existing commercial customer base. Such customers typically
require ongoing maintenance, upgrade, operation, or expansion of a private X.25
network system previously installed by the Company. The Company is also
reviewing opportunities for international sales of X.25 network systems,
particularly into countries where the existing telecommunications infrastructure
is not capable of supporting advanced networking protocols. The Company markets
its X.25 network systems both directly and through third party resellers,
although the Company has substantially reduced its direct selling and marketing
capabilities for X.25 network systems in recent years.
The targeted market for the T/10 IAD is organizations with established
async, bisync, X.25, and SNA networks that are expanding to use local area
networks (LANs) and internetworking. In fiscal 1994, the Company entered into a
value-added reseller agreement with NEC under which NEC will sell the Company's
T/10 IAD in Japan under the NEC label. Recently, the Company hired a senior
sales executive to focus marketing efforts for the T/10 IAD on a few major
reseller opportunities similar to the agreement with NEC. Accordingly, the
future success of the T/10 IAD is dependent on these opportunities.
Competition.
The Company believes that the primary factors of competition for X.25
network systems are functionality, product performance, price, reliability, and
experience of the supplier. 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 (LANs), and
increased transmission circuit speed and improved circuit quality. These trends
have led to market requirements for networking technologies such as routers.
The T/10 IAD competes directly with IAD communications products offered by
other vendors, and indirectly with alternative product solutions such as routers
and other access devices. Other vendors currently dominate the marketplace for
access devices and routers, and generally have established reputations and
financial, marketing, and distribution resources greater than those of BBN. The
Company believes the primary factors of competition for the T/10 IAD are product
performance, price, functionality, reliability, and experience of the supplier.
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LIGHTSTREAM CORPORATION
Overview.
BBN designs, develops, markets, and supports networking products based on
asynchronous transfer mode (ATM) technology. The Company's ATM networking
products provide switching capability for both campus and wide area backbone
network requirements. The Company believes that ATM is a significant emerging
technology for networking in the 1990s. ATM switches enable communication line
capacity in highspeed fiber optic networks to be allocated efficiently both for
bursty data traffic, and for real-time continuous transmissions such as voice
and video.
The Company's ATM development activities are conducted by LightStream
Corporation, currently 80% owned by the Company, with a 20% minority interest
owned by UB Networks, Inc. (formerly Ungermann-Bass, Inc.), a wholly owned
subsidiary of Tandem Computers, Inc. In connection with the formation of
LightStream Corporation in October 1993, the Company and UB Networks, Inc.
combined certain technology, staff, and other resources, and contributed $15
million and $5 million in cash, respectively to the enterprise.
For several years, the Company has been investing heavily in the
development of an enterprise ATM switch. In October 1993, LightStream
Corporation released the LightStream[TM] 2010 ATM switch as its initial product
offering. Sales of the LightStream 2010 ATM switch were not financially
significant in fiscal 1994.
In September 1994, LightStream Corporation announced the general release of
the LightStream 2020 ATM switch, which is an enhanced version of the LightStream
2010 ATM switch. The LightStream 2020 ATM switch is an advanced,
second-generation ATM backbone switch designed for LAN/WAN internetworking in a
campus-or global enterprise-wide environment, and is designed for high
performance, mission-critical enterprise networks that carry data, voice, image,
and video communications. Based on a high-speed busless architecture, the
LightStream 2020 ATM switch supports the functions of both a wide area bandwidth
manager and a multiprotocol bridge/router, is modular and optionally
fault-tolerant, and offers congestion avoidance features. The LightStream 2020
ATM switch has a peak throughput of two gigabits per second, and supports both
high-speed (T3/E3 and SONET/SDH OC3c) and lower-speed (56Kbps to T1/E1)
connections. Network services supported in the LightStream 2020 ATM switch
include ATM user-network interface (UNI), trunking/node to network interfaces
(NNI), FDDI and Ethernet internetworking, frame relay access, frame forwarding
for X.25, HDLC, SNA/SDLC, and interswitch trunking. Existing LightStream 2010
ATM switches can be upgraded to LightStream 2020 ATM switch capabilities.
Marketing.
Private wide area and campus networks are undergoing a period of
significant transition. Bandwidth managers based on time division multiplexing
(TDM) are becoming obsolete. Such multiplexers cannot efficiently meet
requirements of bursty traffic from applications such as high-speed LAN
internetworking, and TDM cannot efficiently support emerging applications such
as multimedia and imaging. In addition, many networks are moving beyond T1/E1
speeds and are being constrained by the lack of scalability inherent in most TDM
bandwidth managers. The Company believes that the LightStream 2020 ATM switch,
with ATM technology at its core, overcomes these limitations.
The LightStream 2020 ATM switch is designed to respond to important market
needs, including meeting the communications requirements of the next generation
of user applications running on high-performance personal computers and
workstations; achieving the economies of scale associated with the transmission
of voice, data, and video over a single communications network; supporting
existing network equipment and circuits; providing efficient use of expensive
circuits; and providing scalability to support rapidly growing networks.
The market for ATM communications switches currently consists of three
market segments, comprised of the carrier central office ATM switch segment, the
ATM enterprise switch segment, and the LAN workstation ATM switch segment. The
market for ATM communications products is expected to grow substantially over
the next several years. The growth of the ATM enterprise switch market segment,
which is
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the market segment addressed by the LightStream 2020 ATM switch, may depend upon
the growth of the other two market segments, and may develop at a different rate
than those market segments.
Potential customers for the LightStream 2020 ATM switch include large
commercial organizations, with substantial existing networks, for whom
enterprise-wide communications are of strategic importance; information service
providers; and government organizations.
The Company expects to market and sell its LightStream 2020 ATM switch and
other future ATM products through a combination of direct and indirect
distribution channels, both in the United States and internationally. Currently,
the Company has only modest direct sales capabilities in this business area, but
intends to expand these capabilities during fiscal 1995. The Company anticipates
that, in addition to utilizing a direct sales force, it will continue to
establish strategic alliances and partnerships in key market segments with
market leaders throughout the world. These arrangements are intended to augment
LightStream Corporation's technical strength and small direct sales force with
established distribution channels of other companies. Such arrangements could
include Original Equipment Manufacturer (OEM) distribution agreements,
technology licenses, and joint development arrangements. LightStream Corporation
has entered into a value-added reseller agreement with NEC under which NEC will
sell LightStream Corporation's ATM switches in Japan under the NEC label. In
August 1994, LightStream Corporation and Tellabs Operations, Inc. agreed to
jointly develop and distribute ATM switching systems for information service
providers. In addition, LightStream Corporation has signed non-exclusive OEM
distribution agreements with UB Networks, Inc. and the Company's BBN Systems and
Technologies Division.
Competition.
The emerging market for ATM products is very competitive, particularly from
communications companies with marketing, distribution, and resources
significantly greater than those available to LightStream Corporation. The ATM
enterprise switch market segment is characterized by long sales cycles.
Accordingly, the success of LightStream Corporation's products, including the
LightStream 2020 ATM switch, will depend upon the timely development of the ATM
market, and in particular the ATM enterprise switch market segment, the
technological superiority of LightStream Corporation's products, their cost
competitiveness, and the development of strategic alliances and distribution
channels. In the event these conditions are not achieved on a timely basis, the
Company's financial results will be adversely impacted.
The Company believes that the primary factors of competition for its ATM
products are the technological superiority of the product architecture
(including traffic management, congestion avoidance, and network management
functionalities), product performance, price, reliability (including fault
tolerance, mean time to repair, and automatic rerouting), and experience of the
supplier.
BBN INTERNET SERVICES CORPORATION
Overview.
The Company markets and sells services which provide companies and other
organizations with access to and assistance in using the Internet. The Internet,
which is a complex web of interconnected networks generally available to the
public, enables users to exchange electronic mail and access remote computing
resources and information on a global basis. The Company's Internet service
offerings currently include around-the-clock network operations, comprehensive
problem tracking and resolution, network security, electronic publishing,
training, on-site field support, and configuration management. The Company
intends to develop and offer additional value-added services to its Internet
customers.
BBN currently offers its Internet services through two operating units of
its subsidiary BBN Internet Services Corporation: NEARNET and BARRNET[SM]. BBN
acquired ownership of NEARNET in July 1993 and BARRNET in August 1994.
The Company believes it is currently a leading provider of Internet
connectivity services to organizational users in New England and in the San
Francisco Bay Area. The market for Internet services is rapidly expanding, and
there are considerable uncertainties as to how the market will develop. BBN may
accelerate its
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plans to invest in expanding its Internet services activities, including
additional acquisitions and increased spending. Such accelerated investment
could adversely affect the Company's financial results for fiscal 1995.
Marketing.
The primary market for BBN's Internet services are companies, educational
institutions, and other organizations that desire Internet connectivity and
value added services, and which are likely to generate high volume traffic. The
Company currently has a limited sales force, but intends to expand its marketing
and selling capabilities. At the present time, the Company does not directly
market Internet services to individual users.
The Company currently offers Internet services on a regional level, but
expects to take steps to expand its Internet service offerings to provide
national and international connectivity and value added services. These steps
include developing national and international sales, marketing, field service,
and training capabilities. The Company's ability to expand rapidly in the
Internet services field could be affected by its ability to attract and retain
experienced executive management and operating personnel.
Competition.
The Internet services business is highly competitive, and there are no
substantial barriers to entry. Currently, the leading providers of Internet
services include large communications companies, as well as a number of smaller
companies including regional suppliers of Internet services. In addition, a
number of large organizations, including large communications carriers, have
announced plans to offer Internet services. Many of these companies possess
resources significantly greater than the Company, and there can be no assurance
of the Company's success in this highly competitive market.
The Company believes that the primary factors of competition for the
provision of Internet services to organizations will be geographic coverage,
quality of services, variety of value-added services, reliability, experience of
the supplier, and price. BBN's success in this market will depend heavily upon
the Company's ability to provide high quality Internet connectivity and
value-added Internet services. Other factors that will affect the Company's
success in this market include the Company's ability to attract additional
experienced marketing, sales, and management talent, and the timely
establishment of worldwide support, training, and field service capabilities.
MANUFACTURING, FIELD SERVICE, AND CUSTOMER SUPPORT
The Company has outsourced most of its manufacturing capabilities for its
internetworking products. As a result, the Company has significantly downsized
its in-house manufacturing capabilities, and is now substantially reliant upon
the manufacturing capabilities of its outsourcing partners for products. The
Company continues to manufacture some X.25 communications equipment at its
facilities in Cambridge, Massachusetts, although such manufacturing operations
are not presently significant.
The Company does not currently maintain a qualified second manufacturing
source for the LightStream 2020 ATM switch, the T/10 IAD, and certain X.25
network products. In certain cases, the Company currently maintains only one
qualified source of supply for certain components of such products.
Field service, consisting of on-site hardware and software maintenance for
BBN's products, is provided both directly by BBN and through third party
maintenance organizations. The Company maintains dedicated field service
personnel at sites in the United States and in a limited number of foreign
countries, serving the field service requirements of its U.S. government
customers.
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DATA ANALYSIS SOFTWARE
BBN SOFTWARE PRODUCTS CORPORATION
Overview.
Through its wholly-owned subsidiary, BBN Software Products Corporation, the
Company develops, markets, and supports data analysis computer software
products, which are designed primarily for manufacturing, engineering, and
health industry applications. These software products provide integrated data
analysis, visualization, and decision support to help companies create and
produce higher quality products. BBN's data analysis software products operate
on computers from a variety of manufacturers, including Digital Equipment
Corporation (DEC), Sun Microsystems, Hewlett-Packard, and IBM.
BBN offers a range of software products for data analysis and
visualization, including RS/Series, BBN/Cornerstone, BBN/Clintrial[TM], and
BBN/ClinTRACE[TM] computer software. These software products are described more
fully below:
- RS/Series. The RS/Series of data analysis and visualization software
includes RS/1[R], RS/Explore[R], RS/Discover[R], RS/QCA II[TM], and
RS/Decision[TM] software. RS/1 software, which was first released in
1980, is a fully integrated data analysis system used by technical
professionals in a wide variety of disciplines and activities.
RS/Explore, RS/Discover, RS/QCA II, and RS/Decision software are sold as
product options to RS/1 software. Collectively, the RS/Series software is
used for technical data analysis and visualization, statistical process
control, and design of experiments.
- BBN/Cornerstone. BBN/Cornerstone software, introduced by the Company in
fiscal 1993, is the first of a new series of data analysis and
visualization 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 in the second half of fiscal 1995 will operate on personal
computers.
- BBN/Clintrial and BBN/ClinTRACE. BBN develops, markets, and supports
health industry applications software used in the pharmaceutical,
biotechnology, and medical products industries. These health industry
applications software products currently include BBN/Clintrial (also
known as Clintrial[TM] software) (designed to support data management of
clinical trials) and BBN/ClinTRACE software (designed to unify a
company's adverse events processing).
The Company's data analysis software products business has been affected by
the growth of distributed processing and the associated use of personal
computers, workstations, and other desktop computers. Many of the Company's data
analysis software products, primarily the RS/Series software, currently operate
on minicomputer systems. As demand for minicomputer-based software declines, the
Company is experiencing substantially lower RS/Series software revenue and
downward pressure on prices. Sales of BBN/Cornerstone software, which was
introduced in response to the trend toward desktop computing, have not been
financially significant to date.
The Company has recently begun to more tightly integrate BBN/Cornerstone
software with its RS/Series of products. The Company anticipates that future
releases of RS/Series and BBN/Cornerstone products will provide additional
capabilities and flexibility in client/server computing environments.
BBN offers maintenance and training to its software customers. Maintenance
services consist principally of system updates, new releases, and telephone
hotline support. Training is offered both in product use and in the statistical
methods embodied in the data analysis software products.
Marketing.
The market for BBN's data analysis software products includes primarily
scientists and engineers working in the research, development, manufacturing,
and quality departments of major corporations in the health, semiconductor,
electronics, petrochemical, food and packaged goods, automotive, and aerospace
industries.
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This market is characterized by a need to acquire, analyze, visualize, graph,
and report scientific, engineering, and manufacturing data.
BBN markets its data analysis software products to end-user organizations
worldwide. Selling and marketing is done principally through a direct sales
force at offices in the United States, Western Europe, Japan, and Australia. The
Company is increasing its direct telesales activities, particularly for
BBN/Cornerstone software. The Company also has cooperative marketing agreements
with DEC, Sun, Hewlett-Packard, and other companies, as well as distribution and
value-added reseller agreements with Andersen Consulting and other systems
suppliers and resellers. The Company is continuing to seek additional
distribution channels for its software products, particularly its
BBN/Cornerstone software.
Sales of BBN/Cornerstone software have not been financially significant to
date. The Company believes that its ability to increase sales of BBN/Cornerstone
software will depend, in part, upon the timely integration of BBN/Cornerstone
and the RS/Series software into a client/server environment, and the development
and release of versions of BBN/Cornerstone software that permit operation on
platforms, including personal computers, which are not currently supported by
the product.
Competition.
The Company's data analysis software competes with other software packages
that address the data analysis and visualization needs of technical
professionals engaged in manufacturing, research and development, engineering,
pharmaceutical, and scientific activities. BBN believes that competition in the
applications software market is primarily based upon the quality, features,
price, ease-of-use, and support offered by a particular product. In addition to
providing the sophisticated statistical functionality required to analyze and
visualize complex technical data, the Company believes that its products provide
the market with a higher level of functional integration than is generally
available from most competitors. However, there are significant portions of the
overall market which are addressed by competitors, and which do not need the
level of functional integration which is embedded within the Company's
applications software products.
The Company's principal competition in this market is from software
packages offered by independent software vendors and, to a lesser degree, by
spreadsheet vendors whose products are widely used in business and technical
environments for data organization, simple statistics, and graphics. Many of
these packages are currently operable on workstations and personal computers.
Several of these packages are marketed by organizations with established
reputations and with financial and marketing resources greater than those of
BBN.
COLLABORATIVE SYSTEMS AND ACOUSTIC TECHNOLOGIES
COLLABORATIVE SYSTEMS
Overview.
BBN designs, develops, and markets collaborative systems, primarily in the
fields of distributed computing, speech processing, and education technology. In
each of these fields, BBN offers customized solutions to complex problems,
ranging from assisting organizations establish collaborative distributed
computing capabilities to developing a design for a new generation of American
schools.
In the field of distributed computing, the Company offers research,
development, and consulting services, primarily to government customers, to
develop and implement advanced systems in the area of human-computer
applications, integrating advanced computing, expert systems, and artificial
intelligence capabilities. The Company has designed and built intelligent
systems for a number of government customers, including the U.S. Army
(mission-critical intelligent system for logistics planning) and the U.S.
Internal Revenue Service (automated intelligent issues system for review of tax
returns).
In the field of speech processing, the Company offers research,
development, and consulting services, primarily to government customers,
relating to speech recognition, natural language processing, and spoken
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language systems. (The Company's commercial speech recognition activity is
carried on primarily through BBN HARK Systems Corporation. (See "BBN HARK
Systems Corporation" below.))
In the field of education technology, BBN offers a variety of research,
development, and consulting services, primarily to government organizations such
as the National Institutes of Health (NIH), the National Science Foundation
(NSF), and to public and private educational institutions. Under contract to the
New American Schools Development Corporation (NASDC), the Company has developed
and is assisting in the implementation of the "Cooperative Networked Educational
Community for Tomorrow" (Co-NECT[TM]) School Design program. The Co-NECT School
Design program provides an innovative approach to primary and secondary
education, utilizing computer and networked communications technology as part of
a project-based curriculum.
Marketing.
Large government and commercial organizations face increasingly complex
challenges, including around-the-clock operations, globally dispersed
operations, and rapid response requirements. Effective computer-based solutions
to these challenges require transition from centralized, isolated computing
focused on managing information to connected, collaborative computing focused on
using information (including real time data capture), communications across
heterogeneous platforms and networks, and rapid analysis and reporting. The
systems and products provided by the Company to address these challenges are
called "collaborative systems."
BBN markets collaborative systems and related services and products
principally to U.S. government agencies. Substantially all of BBN's
collaborative systems contracts are won on the basis of the technical merits of
BBN's proposals and BBN's professional reputation. BBN's reputation is enhanced
through the visibility of its employees in professional pursuits and,
accordingly, BBN encourages participation by its employees in various
professional associations and sponsors the presentation and publication of
technical papers by employees at professional meetings and in technical
journals.
The Company's strategy in the field of collaborative systems is to provide
customers with solutions to their global collaboration challenges by utilizing a
range of the Company's technical capabilities and problem-solving experience in
the area of networks and distributed applications. The Company is also seeking
opportunities in the commercial marketplace to utilize these capabilities.
Competition.
The primary factors of competition for collaborative systems are superior
technical expertise and price. BBN believes that its ability to maintain its
competitive position depends upon its ability to attract and retain talented
employees and to maintain a competitive cost structure.
BBN faces competition from a large number of organizations, many of which
have substantially greater financial resources and larger technical staffs than
BBN. These competing organizations include corporations and nonprofit
organizations (including non-profit federal contract research centers) that may
derive a substantial portion of their revenue from research and development
contracts with the U.S. government and its agencies. In addition, some
government agencies have internal research departments that may perform some of
the services offered by BBN, although the Company's services generally
supplement the capabilities and talents available within such agencies. As a
result of increased competition, the Company has reduced prices for its
collaborative systems and services, which has had an adverse impact on profit
margins. Information as to the Company's U.S. government contract activities may
be found in the section captioned "United States Government Contracts" below.
BBN HARK SYSTEMS CORPORATION
Overview.
In July 1994, the Company established a subsidiary, BBN HARK Systems
Corporation, to focus on the Company's efforts to expand its commercial speech
recognition software activities. Through BBN HARK
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Systems Corporation, the Company develops, markets, and supports the HARK[TM]
Recognizer, a high performance, real-time, large vocabulary, speaker
independent, continuous speech recognition software product. The HARK Recognizer
is a software-only system that operates on a number of standard workstations and
personal computers equipped with a standard audio interface, without additional
specialized digital signal processing hardware. The HARK Recognizer currently
operates primarily on audio-equipped UNIX-based computer workstations offered by
vendors such as Sun Microsystems, Hewlett-Packard, Silicon Graphics, DEC, and
IBM, and on audio-equipped Intel 486-based personal computers.
Marketing.
The Company believes that computer speech recognition is an emerging
market, and the Company intends to increase its marketing and sales investment
in this area. The market currently targeted by the Company for the HARK
Recognizer includes systems integrators and computer and telephony equipment
manufacturers desiring to add cost-effective large vocabulary speech recognition
capabilities to their proprietary products and systems. The Company believes
that the market for computers with large vocabulary speech recognition
capabilities will include companies in the telephone, travel, transportation,
financial services, and health care industries.
The HARK Recognizer, which is currently available in an English-language
version, is currently marketed primarily to commercial organizations in the
United States.
The Company's success in this marketplace will depend heavily upon the
development of a market for large vocabulary speech recognition capabilities,
and upon the ability of the Company to attract additional experienced executive,
sales, and marketing talent for BBN HARK Systems Corporation, to sustain
technological superiority, ease-of-use, and cost-competitiveness for the HARK
Recognizer, and to establish distribution (including strategic alliances) on a
timely basis.
Competition.
The primary factors of competition for commercial speech recognition
products are the availability of appropriate end-use applications, technological
capabilities of the product (including speed, reliability, accuracy, features,
programmability, and ease-of-use), price, technical and support system
engineering services, and experience and reputation of the supplier.
The Company competes against other providers of commercial speech
recognition products and systems in the telephony and desktop markets. Many of
these companies have established reputations and financial, marketing, and
distribution resources substantially greater than that of BBN, and there can be
no assurance of success in this highly competitive market.
ACOUSTIC TECHNOLOGIES
Overview.
BBN designs, develops, and markets underwater acoustic sonar and prototype
sensor systems, both fixed and mobile. BBN combines experience in acoustics,
signal analysis, and information processing, to develop major sensor systems,
from initial concept through full-scale engineering development and deployment.
BBN also offers services in the fields of sonar, submarine, surface ship,
and ocean environmental acoustics; signal and information processing; shock and
vibration analysis; marine systems; fluid mechanics; and materials engineering.
The Company also designs, develops, builds, and markets active noise and
vibration control products and systems.
In connection with its sensor systems activities, BBN is currently teamed
with Loral Federal Systems to perform engineering and development services in
connection with the U.S. Navy's Fixed Distributed System Shore Signal and
Information Processing Segment (FDS SSIPS) program. BBN's role is to define the
overall operational concept for FDS SSIPS, and to provide software development
and operational training. FDS SSIPS is a component of the U.S. Navy's Integrated
Underwater Surveillance System. The scale of the FDS SSIPS program has been
reduced since its inception, and there exists some uncertainty over the U.S.
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government's long-term level of funding for the project. However, the Company
presently believes that it will continue to be involved in the FDS SSIPS program
for several more years. (See "United States Government Contracts" below.)
Marketing.
The primary customers for BBN's acoustic technologies consist of the U.S.
Navy, the U.S. Advanced Research Projects Agency (ARPA), anti-submarine warfare
(ASW) prime contractors, and the National Aeronautics and Space Agency (NASA).
BBN markets its acoustic technologies capabilities to customers both directly
and through teaming arrangements with large defense contractors. Periodically,
government agencies issue requests for proposals or broad-area announcements
seeking suppliers with specific technology skills and BBN often can respond to
these requests. Alternatively, the Company may propose systems-related work to
government agencies. The Company also may be invited to bid, or may seek to team
with one or more companies bidding, on a larger procurement of which a system or
subsystem within BBN's field of expertise is one component.
The market for acoustic technologies with defense applications (and for
sensor systems in particular) has changed dramatically in recent years. The end
of the Cold War has led to the cancellation or reduction in scope of a number of
large sensor systems procurements. In addition, the Department of Defense is
placing increased emphasis on research, development, training, and evaluation,
often stopping short of full-scale production of a system until necessary. BBN
believes its ability to sustain revenue in this business area will depend on
continued program funding for underwater sensor systems by the U.S. government.
The Company also markets certain of its acoustic technologies capabilities
to commercial customers, primarily in the area of active noise and vibration
control. The market for active noise and vibration control systems and products
includes manufacturers in the automotive, aerospace, industrial equipment, and
consumer products industries. This market is characterized by a need to control
noise and vibrations produced by systems such as automobiles, airplanes,
manufacturing equipment, and air conditioners. Revenue from such commercial
customers to date has not been significant.
Competition.
The primary factors of competition for acoustic technologies are superior
technical expertise, experience of the supplier, and price.
Competition in the field of acoustic technologies with defense applications
(and for sensor systems in particular) is dominated by large defense contractors
with substantially greater financial and marketing resources than BBN. In major
programs, where BBN's technical expertise supports the allocation to BBN of a
portion of the work, BBN typically teams with a large defense contractor. In
teaming arrangements where BBN acts in a subcontractor capacity, BBN relies
heavily on the effectiveness of its prime contractor to win a given award. In
defense-related areas, the Company anticipates that competition will continue to
be intense. (See also "United States Government Contracts" below.)
SIMULATION SYSTEMS
Until April 1993, BBN designed, marketed, built, and supported distributed
simulation systems, combining computer image generators with networking
capabilities, primarily for tactical team training. BBN's customers included the
U.S. Army (through the SIMNET program) and the German Army (through the AGPT
program under a subcontract with Wegmann & Co. GmbH). In April 1993, in view of
ongoing capital requirements and an uncertain sales outlook, the Company sold
the fixed assets, inventory, and technology of its simulation systems business,
and transferred more than one hundred employees of that business, to a
subsidiary of Loral Corporation. The results of the Company's former simulation
systems business is included in the Collaborative Systems and Acoustic
Technologies business segment.
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PRODUCT DEVELOPMENT
The Company's commercial businesses are characterized by rapid
technological change, which requires continued research and development
expenditures by the Company to improve its existing products, and to develop new
hardware and software products to address emerging market requirements. The
Company has incurred substantial internally funded research and development
costs, including $22,451,000, $34,048,000, and $33,732,000 in fiscal 1994, 1993,
and 1992, respectively.
The majority of the Company's internally funded research and development
spending is currently directed principally toward the LightStream ATM products,
the T/10 IAD, and BBN/Cornerstone software. (See also "LightStream Corporation",
"Network Systems", and "BBN Software Products Corporation" above.) The Company's
continued significant investment in research and development is dependent upon
the timely market acceptance of its new products.
Additional information as to the research and development activities of the
Company may be found on pages 24 through 26 and page 35 of the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1994, and such
information is incorporated herein by reference.
UNITED STATES GOVERNMENT CONTRACTS
During fiscal 1994, 1993, and 1992, 67%, 62%, and 62%, respectively, of
BBN's total revenue was derived from contracts and subcontracts involving the
U.S. government and its agencies. In fiscal 1994, approximately $108,000,000
were sales pursuant to contracts funded through the Department of Defense. Of
these sales, contracts sponsored by three agencies of the Department of Defense
(under several programs in each case) contributed approximately $42,100,000,
$23,200,000, and $20,500,000, respectively.
The U.S. government accounted for approximately the following percentages
of revenue in each of the Company's business segments (as restated) in fiscal
1994, 1993, and 1992:
YEAR ENDED JUNE 30,
----------------------
PERCENTAGE OF U.S. GOVERNMENT REVENUE 1994 1993 1992
- - ---------------------------------------------------------------------- ---- ---- ----
Internetworking....................................................... 64% 72% 72%
Data Analysis Software................................................ 4% 4% 4%
Collaborative Systems and Acoustic Technologies....................... 96% 74% 76%
The decreased percentage of U.S. Government revenue in the Internetworking
business segment for fiscal 1994 reflects decreased network services and defense
communications revenue due to the substantial completion of the Company's MSE
program under subcontract with GTE Government Systems, and lower revenue in
connection with the Company's DDN contract. The increased percentage of U.S.
Government revenue in the Collaborative Systems and Acoustic Technologies
business segment for fiscal 1994 reflects the sale of the Company's simulation
systems business. (See "Network Services and Defense Communications" and
"Simulation Systems" above.)
All of the Company's contracts and subcontracts involving the U.S.
government are subject to termination at the convenience of the government.
Should a contract be so terminated by the government, BBN would be reimbursed
for its allowable costs to the date of termination and would be paid a
proportionate amount of the stipulated profit attributable to the work actually
performed.
The U.S. government contracts for its procurement needs either through
formal advertising procedures or by negotiation. The government is authorized to
forego formal advertising under various circumstances, including the procurement
of experimental, developmental, or research services. Negotiated procurements
may or may not involve the solicitation of competitive proposals. If competitive
proposals are involved, the government selects the proposal most advantageous
to the government and normally conducts negotiations with the selected offeror.
Certain negotiated procurements are accomplished without a competitive
solicitation, such as when supplies or services can be obtained from only
one person or firm ("sole source") or when there is otherwise no substantial
question as to choice of source. In most noncompetitive procurements, after the
offeror submits a proposal, the government then negotiates the price and other
terms in accordance with
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guidance received from technical personnel of the procuring agency and the
profit or fee guidelines set forth in the applicable regulations. Certain of the
Company's contracts with the government involve negotiated procurement
procedures accomplished without competitive solicitation; however, most of the
Company's government contracts are subject to competitive bidding procedures,
and the government has adopted certain policy initiatives generally placing more
emphasis on competitive procurement.
The majority of BBN's contracts with the U.S. government and its agencies
are priced on a cost-plus-fixed-fee basis, under which the government reimburses
the contractor for its allowable costs (within the contractual terms and
conditions) and pays the contractor a negotiated fee.
Many of the government programs in which the Company participates as a
contractor or subcontractor may extend for several years, but they are normally
funded on an annual basis. The Company's government contracts and subcontracts
are subject to reduction or modification in the event of changes in the
government's requirements or budgetary constraints. Government curtailment of
expenditures for systems or services of the type sold by the Company in the
internetworking or collaborative systems and acoustic technologies fields can
have an adverse impact on BBN's revenue and results from operations. The
Department of Defense intends to make increasing use of the commercial
off-the-shelf (COTS) policy in acquiring high technology systems for certain
non-combat related applications, and BBN's participation in such programs would
be dependent upon its ability to supply such COTS equipment on a cost-effective
basis.
The Company, like other companies doing business with the Department of
Defense, has been adversely affected by reduced defense spending and expects
this general decline and attendant increased competition within the defense
industry to continue over the next several years. Uncertainty continues to exist
on the size and scope of reductions in future defense budgets and their impact
on the Company's defense-related business. 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, and this trend
is expected to continue at least through fiscal 1995, particularly in the
defense communications systems and acoustic and sensor systems areas.
The Department of Defense's stated intention is to reduce its procurements
but to maintain a strong defense technology base and to fund research and
development in key areas of science and technology at near current levels. The
Company has strong capabilities in certain of these areas but anticipates that
competition in all defense-related areas will continue to be intense.
Accordingly, the Company expects significant competitive pressure to lower
prices, which may reduce profitability in this area of the Company's business.
In addition, the Company expects that the consolidation of large defense
contractors into a smaller number of very large, diverse organizations will
continue, and that this will place additional downward pressure on prices.
The books and records of the Company are subject to audit by the Defense
Contract Audit Agency; such audit can result in adjustments to contract
billings. Final contract billing rates have been established for years through
fiscal 1989, except for the Company's former BBN Communications activity, for
which final contract billing rates have been established through fiscal 1984.
BBN expects that any adjustments to billings which may be made as a result of
audits of fiscal years 1985 through 1994 will not have a material adverse effect
on the Company's results of operations.
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.
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BACKLOG
BBN's backlog of orders at June 30, 1994 and June 30, 1993 was
approximately $158,000,000 and $133,000,000, respectively. The increased backlog
at June 30, 1994 compared to June 30, 1993 reflects an increase in research and
development contracts with the U.S. government, principally the U.S. Navy, in
the Collaborative Systems and Acoustic Technologies business segment.
The backlog at June 30, 1994 includes approximately $62,000,000 of funded
U.S. government orders (expenditures appropriated by Congress), approximately
$67,000,000 of unfunded government orders, and approximately $29,000,000 of
commercial orders. The amounts include estimates relating to customer-
requirements contracts, and to long-term contracts of a cost-reimbursement
nature. Assuming no terminations, cancellations, or changes, and completion of
orders in the normal course, BBN estimates that approximately 60% of the June
30, 1994 backlog relates to work expected to be performed during fiscal 1995.
All of BBN's contracts and subcontracts involving the U.S. government are
subject to termination at the convenience of the government. Many of the
government programs in which the Company participates may extend for several
years, but they are normally funded only on an annual basis; the major portion
of the Company's other contracts cover a period of twelve months or less. (See
"United States Government Contracts" above.) A few significant contract orders,
primarily with the U.S. government, make up a substantial portion of the backlog
for the Company, and significant contract awards and extensions occur randomly
during the year. For these and other reasons, backlog data, and comparisons of
backlog as of different dates, may not be a reliable indicator of either future
sales or the ratio of future U.S. government sales to other sales.
Backlog is not a significant factor at BBN Software Products Corporation
(where the majority of products are shipped almost immediately after receipt of
an order), or at BBN Internet Services Corporation (which provides principally
services on a fee basis, terminable by the customer). Backlog is not currently a
significant factor at LightStream Corporation. BBN HARK Services Corporation
maintains a small backlog in connection with certain multi-year custom research
and development contracts, although currently such backlog is not material.
PATENTS AND PROPRIETARY RIGHTS
The Company utilizes appropriate patent, trademark, copyright, and other
proprietary rights procedures to protect its commercial products, and has
applied for a limited number of patents in connection with certain recent
development activities at the Company's BBN Systems and Technologies Division
(principally in the collaborative systems and acoustic technologies segment),
and at the Company's LightStream Corporation, BBN Software Products Corporation,
and BBN HARK Systems Corporation subsidiaries. The Company believes that there
has recently been a general increase in patent activity by others in each of the
commercial business segments in which it conducts its business, and in response
the Company has increased its patent activity. However, although BBN owns a
limited number of patents, none are of significant value to the Company's
current business.
The Company believes that certain of its competitors, many of whom have
significantly greater financial, technical, and legal resources than the
Company, are actively seeking patent protection in connection with their new
products and technologies. The Company believes that the award of patent rights
to a competitor could have an adverse material impact on the ability of BBN to
conduct its business activities in areas covered by any such patent award.
However, the Company is not currently aware of any patents or patent
applications that impact or are likely to impact materially the ability of BBN
to conduct its current business activities.
It may be possible for competitors to replicate aspects of BBN's products
even though BBN regards such aspects as proprietary. However, BBN currently
believes that, in general, due to the rapid pace of technological change in its
businesses, patent or other formal protection is less significant than the
knowledge and experience of BBN personnel and the ability of BBN to develop,
enhance, and market its products.
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Generally, patents on inventions developed by BBN under government contract
are owned by BBN, with the government retaining a royalty-free license to use
and to permit others to use such inventions for government purposes. Also, the
government has certain proprietary rights to technical data and software
programs resulting from the Company's services under government contracts and
the government may generally disclose such data and programs to third parties,
including competitors of the Company.
The Company believes that patent or proprietary rights protection are not
significant competitive factors in connection with its non-commercial contract
research and development activities, and that the success of the Company in
those activities depends primarily upon the technical expertise and creative
abilities of its employees.
EMPLOYEES
As of September 13, 1994, the Company employed approximately 1,700 persons,
a majority of whom are professional or technical persons having high levels of
education, training, and skill in the areas in which the Company operates. BBN's
domestic employees are not covered by any collective bargaining agreements, and
the Company believes its employee relations are excellent.
Recently, there have been a number of management changes at the Company. In
January 1994, George H. Conrades became president and chief executive officer of
the Company, succeeding Stephen R. Levy who remains as chairman of the board. In
January 1994, LightStream Corporation named Jonathan C. Crane its president and
chief executive officer. In June 1994, John T. Kish joined BBN Software Products
Corporation as its president and chief executive officer. In July 1994, Frank
Heart, president of the Company's BBN Systems and Technologies Division, retired
after 28 years with the Company. Searches are currently in process for a chief
executive of both the newly formed BBN HARK Systems Corporation and BBN Internet
Services Corporation. The Company is also actively recruiting for a number of
marketing and sales positions throughout the Company.
BBN, along with other high-technology companies, faces competition in
hiring and retaining skilled technical, professional, marketing, and sales
personnel. The Company believes that its future success depends in part upon its
ability to attract and retain such personnel.
EXPORT SALES
Export sales by the Company in fiscal 1994 were concentrated in the data
analysis software and network systems areas. Revenue in fiscal 1994, 1993, and
1992 included U.S. export sales of $27,300,000, $51,100,000, and $52,800,000,
respectively. These figures included U.S. export sales relating to the Company's
former simulation systems business of approximately $19,000,000 and $19,000,000
in fiscal 1993 and 1992, respectively. The Company experienced reduced U.S.
export sales in fiscal 1994 primarily as a result of the absence of revenue from
the Company's simulation systems business sold in fiscal 1993.
The Company's foreign operations, which are conducted in Western Europe,
Japan, and Australia, consist largely of sales and marketing activities for the
Company's commercial products. In the countries in which BBN focuses its export
sales activities, the Company knows of no unusual risks. Under certain
circumstances, however, the export of the Company's products and services
requires the express authorization of U.S. government agencies. Foreign sales of
the Company's applications software products, including its data analysis
software and HARK Recognizer software products, will be impacted by the
unavailability of foreign language versions.
INDUSTRY SEGMENTS
Financial information with respect to the Company's activities in its three
industry segments may be found in the section captioned "Segment Information"
appearing on page 38 of the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1994, and such information is incorporated herein by
reference.
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ITEM 2. PROPERTIES.
The Company's executive offices, its primary research, development, and
consulting facilities, and the majority of its computer, laboratory, and
manufacturing facilities are currently located in its Cambridge, Massachusetts
complex, which contains approximately 655,800 square feet of building space, of
which approximately 106,800 square feet is currently subleased. Approximately
122,700 square feet of the Cambridge, Massachusetts complex is owned by the
Company; the remaining space is leased by the Company, primarily under long-term
leases granting the Company the option to extend the lease. The Company also has
first refusal rights and/or options to purchase most of the leased space. In
addition, in Billerica, Massachusetts, the Company leases a building containing
approximately 153,700 square feet of space. The Company's lease for
approximately 100,600 square feet of unoccupied space in the Billerica facility
will expire in January 1995. LightStream Corporation will continue to occupy
most of the remaining space at the Billerica facility for its principal offices
and computer, laboratory, research, and development facilities. The aggregate
rental to be paid by the Company for all its leased Massachusetts facilities,
net of sublease income and including taxes and certain operating expenses, will
be approximately $10,000,000 in fiscal 1995.
The Company also leases, on a short-term basis, office space at 18 other
domestic locations containing an aggregate of approximately 130,000 square feet
of space, net of subleases. The aggregate rental to be paid by the Company for
such locations, net of sublease income and including taxes and certain operating
expenses, will be approximately $2,200,000 in fiscal 1995.
The Company also occupies office space in 7 foreign countries containing an
aggregate of approximately 41,700 square feet of space, net of subleases. The
aggregate rental to be paid by the Company for such office space, net of
sublease income and including taxes and certain operating expenses, will be
approximately $2,070,000 in fiscal 1995. The Company is seeking to sublease
excess space, resulting from downsizing and consolidation at its Heathrow
facility, in the United Kingdom.
The Company believes that its facilities and equipment are well maintained
and are in good operating condition.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to shareholders of the Company during the fourth
quarter of fiscal 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, the age of each, and the period
during which each has served in his current office are as follows:
CONTINUOUSLY
IN SUCH
NAME AGE OFFICE OFFICE SINCE
---- --- ------ ------------
George H. Conrades..................... 55 President and Chief Executive Officer 1994/1994
Stephen R. Levy........................ 54 Chairman of the Board of Directors 1983
W.B. Barker............................ 47 Senior Vice President 1983
Ralph A. Goldwasser.................... 47 Senior Vice President, 1991/1992/
Chief Financial Officer, and 1991
Treasurer
William S. Hurley...................... 50 Vice President and Controller 1992/1992
Jonathan C. Crane...................... 44 Vice President 1994
John T. Kish........................... 38 Vice President 1994
All of the executive officers except Messrs. Conrades, Hurley, Crane, and
Kish have been employed by the Company in their present or other capacities for
no less than the past five years.
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Mr. Conrades has been the President and Chief Executive Officer of the
Company since his appointment by the Board effective in January 1994. Prior to
that time, he had been employed for over 30 years at International Business
Machines Corporation. During his employment with IBM, Mr. Conrades held a number
of marketing-management and general-management positions, including most
recently senior vice president, corporate marketing and services and general
manager of IBM United States, with responsibility for all of that company's
customer-related operations in the United States, including hardware, software,
maintenance, and services, and for over 100,000 employees and approximately $27
billion in revenue. Mr. Conrades retired from IBM in March 1992, and since that
time and prior to his appointment as President of the Company, Mr. Conrades was
consulting in venture capital business and was on the board of directors of
several small technology ventures, including since 1993 the board of LightStream
Corporation, a subsidiary of the Company. Mr. Conrades is a director of
Westinghouse Electric Corporation.
Mr. Hurley joined BBN in March 1992 as Vice President and Controller of the
Company. Prior to joining BBN, Mr. Hurley had worked for approximately 19 years
at Wyman Gordon Co., a manufacturer of forgings, investment castings, and
advanced composite structures. At Wyman Gordon, Mr. Hurley served in various
management positions in the accounting and finance areas, including most
recently as Vice President and Controller from 1988 to 1992.
Mr. Crane was elected Vice President of the Company in June 1994, and has
served as President and Chief Executive Officer of LightStream Corporation, a
subsidiary of the Company, since February 1994. Prior to joining LightStream,
Mr. Crane had been employed for over eight years at MCI Telecommunications in a
number of sales and marketing-management and general-management positions,
including most recently as executive vice president of multinational accounts,
with responsibility for approximately 3,000 employees and $2.4 billion in
revenue. Mr. Crane served from 1983 to 1985 as a director of Sonecor Systems, a
division of SNET, from 1982 to 1983 as a director of national accounts at Rolm
Corporation, and from 1973 to 1975 and from 1979 to 1980 in a variety of sales
and marketing positions at AT&T Corporation.
Mr. Kish was elected Vice President of the Company in August 1994, and has
served as President and Chief Executive Officer of BBN Software Products
Corporation, a subsidiary of the Company, since June 1994. Prior to joining BBN
Software Products, Mr. Kish had been employed for approximately five years at
Oracle Corporation in a number of senior management positions, including vice
president, desktop division, and most recently as senior vice president,
business development. After leaving Oracle in 1993 and prior to joining BBN
Software Products, Mr. Kish provided management consulting and development
services for the telecommunications, entertainment, financial, and information
services industries.
Each of the chairman, president, and treasurer has been elected to hold
office until the first meeting of the directors following the next annual
meeting of shareholders and until his successor is chosen and qualified, and
each other executive officer has been elected to his described office to hold
office until the first meeting of the directors following the next annual
meeting of shareholders.
None of the directors or executive officers of the Company has any
relationship to any other director or executive officer of the Company or its
subsidiaries, by blood, marriage, or adoption, not more remote than first
cousin.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information in response to this item may be found under the caption
"Information for Shareholders" appearing on page 42; under the caption
"Quarterly Financial Data (Unaudited)" appearing on page 40; and under the
caption "Five-Year Financial Summary" appearing on page 21, each in the
Company's Annual Report to Shareholders for the fiscal year ended June 30, 1994,
and such information is incorporated herein by reference.
18
20
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this item may be found under the caption
"Five-Year Financial Summary" appearing on page 21 of the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1994, and such
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information in response to this item may be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages 22 through 26 of the Company's Annual Report to
Shareholders for the fiscal year ended June 30, 1994, and such information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this item may be found in the following sections
of the Company's Annual Report to Shareholders for the fiscal year ended June
30, 1994:
Consolidated Statements of Operations (Annual Report page 27)
Consolidated Balance Sheets (Annual Report page 28)
Consolidated Statements of Shareholders' Equity (Annual Report page 29)
Consolidated Statements of Cash Flows (Annual Report page 30)
Notes to Consolidated Financial Statements (Annual Report pages 31 through
38)
Report of Independent Accountants (Annual Report page 39)
Quarterly Financial Data (unaudited) (Annual Report page 40)
and such information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item may be found in the section entitled
"1. Election of Directors" on pages 2 through 5 of the Company's definitive
Proxy Statement dated September 28, 1994, and such information is incorporated
herein by reference.
Information in response to executive officers of the registrant appears in
Item 4A entitled "Executive Officers of the Registrant" on pages and of this
report, and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this item may be found in the section entitled
"1. Election of Directors" under the caption "Board of Directors and Committee
Organization" on pages 5 and 6; and in the sections entitled "Compensation and
Certain Other Transactions Involving Executive Officers", "Summary Compensation
Table", "Option Grants in Last Fiscal Year", and "Option Exercises in Fiscal
Year 1994 and Year-End Option Values", on pages 19 through 24, and in the
section entitled "Report of Compensation and Stock Option Committee on Annual
Executive Compensation" on pages 24 through 27, and in the section entitled
"Comparative Stock Performance" on page 28, each in the Company's definitive
Proxy Statement dated September 28, 1994, and such information is incorporated
herein by reference.
19
21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this item may be found in the section entitled
"1. Election of Directors" under the caption "Biographical Information" on pages
2 through 5; and in the section entitled "Principal Holders of Company Common
Stock" on pages 17 and 18, each in the Company's definitive Proxy Statement
dated September 28, 1994, and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this item may be found in the section entitled
"Compensation and Certain Other Transactions Involving Executive Officers --
Employment Agreements, Loans, and Separation Pay Arrangements" on pages 20 and
21, in the Company's definitive Proxy Statement dated September 28, 1994, and
such information is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of Financial Statements, Financial Statement Schedules, and
Exhibits.
1. FINANCIAL STATEMENTS
The following financial statements appearing in the Company's Annual Report
to Shareholders for the year ended June 30, 1994, are incorporated herein by
reference:
Consolidated Statements of Operations (Annual Report page 27)
Consolidated Balance Sheets (Annual Report page 28)
Consolidated Statements of Shareholders' Equity (Annual Report page 29)
Consolidated Statements of Cash Flows (Annual Report page 30)
Notes to Consolidated Financial Statements (Annual Report pages 31 through
38)
Report of Independent Accountants (Annual Report page 39)
2. FINANCIAL STATEMENT SCHEDULES
Schedules other than those listed below have been omitted because they are
inapplicable or are not required.
FORM 10-K
PAGE
-----------
I Marketable Securities -- Other Investments, June 30, 1994................
V Property, Plant and Equipment, Years Ended June 30, 1994, 1993, and
1992.....................................................................
VI Accumulated Depreciation and Amortization of Property, Plant and
Equipment, Years Ended June 30, 1994, 1993, and 1992.....................
VIII Valuation and Qualifying Accounts, Years Ended June 30, 1994, 1993, and
1992.....................................................................
X Supplementary Income Statement Information, Years Ended June 30, 1994,
1993, and 1992...........................................................
20
22
3. LIST OF EXHIBITS
3.1 Restated Articles of Organization of Registrant (filed with the
Securities and Exchange Commission as Exhibit 3.1 of Registrant's
Quarterly Report on Form 10-Q for the Quarter ended March 31, 1989, and
incorporated herein by reference).
3.2 By-laws of Registrant, as amended (filed with the Securities and
Exchange Commission as Exhibit 3.2 of Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1988, and incorporated
herein by reference).
4.1 Form of Indenture of Trust dated as of April 1, 1987 between the
Registrant and The First National Bank of Boston relating to the
Registrant's 6% Convertible Subordinated Debentures due 2012 (filed
with the Securities and Exchange Commission as Exhibit 4.1 of
Registration Statement No. 33-12975 on Form S-3, and incorporated
herein by reference).
4.2 Form of Right Certificate to purchase shares of Common Stock of the
Registrant (filed with the Securities and Exchange Commission as
Exhibit 2 of Registrant's Current Report on Form 8-K dated June 23,
1988, and incorporated herein by reference).
4.3 Common Stock Rights Agreement dated as of June 23, 1988 between the
Registrant and The First National Bank of Boston relating to the
Registrant's Common Stock Purchase Rights (filed with the Securities
and Exchange Commission as Exhibit 1 of Registrant's Current Report on
Form 8-K dated June 23, 1988, and incorporated herein by reference).
4.4 Registration Rights Agreement dated August 24, 1994 between the
Registrant and The Board of Trustees of the Leland Stanford Junior
University.
4.5 (Note: Registrant agrees to furnish to the Securities and Exchange
Commission upon request a copy of any other instrument with respect to
long-term debt of the Registrant and its subsidiaries. Such other
instruments are not filed herewith since no such instrument relates to
outstanding debt in an amount greater than 10% of the total assets of
the Registrant and its subsidiaries on a consolidated basis.)
10.1 Registrant's 1983 Stock Option Plan, as amended.
10.2 Registrant's 1986 Stock Incentive Plan, as amended to date (not
including proposed amendments submitted for approval by shareholders at
the Registrant's 1994 Annual Meeting).
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended.
10.4 LightStream Corporation 1993 Stock Option Plan (filed with the
Securities and Exchange Commission as Exhibit 10.14 of Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference).
10.5 LightStream Corporation 1994 Stock Option Plan (filed with the
Securities and Exchange Commission as Exhibit 10.15 of Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference).
21
23
10.6 BBN Software Products Corporation 1993 Stock Option Plan (filed with
the Securities and Exchange Commission as Exhibit 10.16 of Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference).
10.7 Incentive Plan for the Development of Technology for Registrant's
division, BBN Systems and Technologies (filed with the Securities and
Exchange Commission as Exhibit 10.9 of Registrant's Annual Report on
Form 10-K for the year ended June 30, 1985, and incorporated herein by
reference).
10.8 BBN Systems and Technologies Division Performance Cash Bonus Plan for
Fiscal Year 1994 (filed with the Securities and Exchange Commission as
Exhibit 10.13 of Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1993, and incorporated herein by reference).
10.9 BBN Software Products Division Performance Cash Bonus Plan for Fiscal
Year 1994 (filed with the Securities and Exchange Commission as Exhibit
10.14 of Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1993, and incorporated herein by reference).
10.10 BBN Corporate Services Division Performance Cash Bonus Plan for Fiscal
Year 1994 (filed with the Securities and Exchange Commission as Exhibit
10.15 of Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1993, and incorporated herein by reference).
10.11 Registrant's Incentive Compensation Plan for Corporate Officers for
Fiscal Year 1994 (filed with the Securities and Exchange Commission as
Exhibit 10.16 of Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1993, and incorporated herein by reference).
10.12 Incentive Compensation Plan for George H. Conrades (filed with the
Securities and Exchange Commission as Exhibit 10.13 of Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1993,
and incorporated herein by reference).
10.13 Registrant's amended Deferred Compensation Plan for Directors (filed
with the Securities and Exchange Commission as Exhibit 4 to
Registration Statement No. 33-52656 on Form S-8, and incorporated
herein by reference).
10.14 Registrant's Executive Protection Policy (Executive and Outside
Directorship Liability), Executive Protection Policy (Fiduciary
Liability), Directors and Officers Liability and Reimbursement Excess
Policy, Excess Directors and Officers Liability and Corporate
Indemnification Policy, and Excess Insurance Policy, each for the
policy period ending December 1, 1994.
10.15 Forms of Severance Agreement between Registrant and certain of its
executive officers (filed with the Securities and Exchange Commission
as Exhibit 10.17 of Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988, and incorporated herein by reference).
10.16 Registrant's Lease, Collateral Pledge Agreement, and Financing,
Construction, and Agency Agreement, with Fawcett Street Associates,
each dated January 20, 1981 (filed with the Securities and Exchange
Commission as Exhibit 20(a) of Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1980, and incorporated herein
by reference).
22
24
10.17 Registrant's Lease with Robert A. Jones and K. George Najarian dated as
of June 20, 1977 amending an Agreement dated October 18, 1973 and a
Letter Agreement dated July 8, 1975 (filed with the Securities and
Exchange Commission as Exhibit 1 of Registrant's Current Report on Form
8-K dated June 20, 1977, as Exhibit 1 of Registrant's Current Report on
Form 8-K for the month of March 1974, and Exhibit 1 of Registrant's
Current Report on Form 8-K for the month of July 1975, respectively,
and incorporated herein by reference).
10.18 Registrant's Lease with Technology Park VII Limited Partnership
(executed by The Gutierrez Company, General Partner) dated as of June
1, 1984 (filed with the Securities and Exchange Commission as Exhibit 1
of Registrant's Current Report on Form 8-K dated June 15, 1984, and
incorporated herein by reference), as amended May 1, 1986 and July 23,
1986 (exclusive of exhibits) (filed with the Securities and Exchange
Commission as Exhibit 10.15 of Registrant's Annual Report on Form 10-K
for the Fiscal Year ended June 30, 1986, and incorporated herein by
reference).
10.19 Registrant's Lease with CambridgePark Two Limited Partnership dated
June 30, 1987 (filed with the Securities and Exchange Commission as
Exhibit 1 of Registrant's Current Report on Form 8-K dated July 14,
1987, and incorporated herein by reference).
11.1 Exhibit showing calculations of net income (loss) per share.
13.1 Registrant's Annual Report to Shareholders for the fiscal year ended
June 30, 1994. With the exception of the information incorporated by
reference in Items 1, 5, 6, 7, 8, and 14 of this Form 10-K, the Annual
Report to Shareholders for the fiscal year ended June 30, 1994 is not
deemed filed as part of this report.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K for the quarter ended June 30, 1994 filed by the
Registrant were as follows:
None
23
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 26th day of
September, 1994.
BOLT BERANEK AND NEWMAN INC.
/S/ GEORGE H. CONRADES
By: .............................
GEORGE H. CONRADES
(PRESIDENT, CHIEF EXECUTIVE
OFFICER, AND DIRECTOR)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, each on the 26th day of September,
1994.
/S/ STEPHEN R. LEVY Chairman of the Board of Directors
...........................................
STEPHEN R. LEVY
/S/ GEORGE H. CONRADES President, Chief Executive Officer,
........................................... and Director (Principal Executive
GEORGE H. CONRADES Officer)
/S/ JOHN M. ALBERTINE Director
...........................................
JOHN M. ALBERTINE
Director
...........................................
LUCIE J. FJELDSTAD
/S/ GEORGE N. HATSOPOULOS Director
...........................................
GEORGE N. HATSOPOULOS
/S/ ANDREW L. NICHOLS Director
...........................................
ANDREW L. NICHOLS
/S/ ROGER D. WELLINGTON Director
...........................................
ROGER D. WELLINGTON
/S/ RALPH A. GOLDWASSER Senior Vice President, Chief
........................................... Financial Officer, and Treasurer
RALPH A. GOLDWASSER (Principal Financial Officer)
/S/ WILLIAM S. HURLEY Vice President and Controller
........................................... (Principal Accounting Officer)
WILLIAM S. HURLEY
24
26
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
Our report on the consolidated financial statements of Bolt Beranek and
Newman Inc. has been incorporated by reference in this Form 10-K from page 39 of
the 1994 Annual Report to Shareholders of Bolt Beranek and Newman Inc. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in Item 14(a)2 of this Form
10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 11, 1994
27
BOLT BERANEK AND NEWMAN INC.
SCHEDULE I
MARKETABLE SECURITIES-OTHER INVESTMENTS
June 30, 1994
(Dollars in thousands)
- - --------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - --------------------------------------------------------------------------------------------
Amount at Which
Number Market Value Each Issue
of Shares or of Each Issue Carried in the
Name of Issuer and Title Principal Cost of Each at Balance Balance
of Each Issue Amount Issue Sheet Date Sheet
- - --------------------------------------------------------------------------------------------
U.S. Government Securities $25,000 $25,000 $25,208(a) $25,208(a)
Money Market Funds:
U.S. Government Portfolio 11,840 11,840 11,840 11,840
Money Market Portfolio 23,552 23,552 23,552 23,552
------- ------- -------
35,392 35,392 35,392
------- ------- -------
Temporary Investments $60,392 $60,600 60,600
======= =======
Cash 6,515
-------
Cash and Temporary Investments $67,115
=======
<FN>
___________________
(a) Amounts represent cost plus accrued interest, which approximates market value.
28
BOLT BERANEK AND NEWMAN INC.
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
- - -----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - -----------------------------------------------------------------------------------------------------------------
Balance at Other Balance
Beginning Additions Retirements Changes at End
Classification of Year at Cost or Sales Add (Deduct) of Year
- - -----------------------------------------------------------------------------------------------------------------
Year ended June 30, 1994:
Land $ 3,983 $ $ $ $ 3,983
Buildings 2,051 104 1,947
Computer equipment and machinery 114,029 5,882 43,779 (b) 2,902 (c)(d) 79,034
Furniture and fixtures 10,335 48 5,246 47 (d) 5,184
Leasehold improvements 20,066 1,008 7,051 33 (d) 14,056
Construction in Progress 214 (214)(d)
-------- ------- ------- ------ --------
$150,678 $ 6,938 $56,180 $2,768 $104,204
======== ======= ======= ====== ========
Year ended June 30, 1993:
Land $ 3,983 $ $ $ $ 3,983
Buildings 2,051 2,051
Computer equipment and machinery 117,227 7,277 10,341 (a) (134)(d) 114,029
Furniture and fixtures 10,930 52 513 (134)(d) 10,335
Leasehold improvements 19,653 613 113 (87)(d) 20,066
Construction in Progress 730 (516)(d) 214
-------- ------- ------- ------ --------
$154,574 $ 7,942 $10,967 $ (871) $150,678
======== ======= ======= ====== ========
Year ended June 30, 1992:
Land $ 3,983 $ $ $ $ 3,983
Buildings 2,051 2,051
Computer equipment and machinery 110,895 9,818 3,768 282 (d) 117,227
Furniture and fixtures 10,882 208 301 141 (d) 10,930
Leasehold improvements 18,490 1,231 154 86 (d) 19,653
Construction in Progress 319 411 730
-------- -------- ------- ------ --------
$146,620 $ 11,668 $ 4,223 $ 509 $154,574
======== ======== ======= ====== ========
<FN>
_________________
(a) Includes assets of the company's former Advanced Simulation business sold to a subsidiary of Loral Corporation.
(b) In fiscal year 1994, the company eliminated from its accounts a significant portion of the cost and accumulated
depreciation of property, plant and equipment which was fully depreciated and no longer in use.
(c) Includes assets transferred to the company in connection with the transition of NEARnet to the company and assets
contributed by UB Networks, Inc. (formerly Ungermann-Bass, Inc.) in connection with the formation of LightStream
Corporation.
(d) Reclassification.
Depreciation methods and useful lives are described in "Summary of
Significant Accounting Policies" in "Notes to Consolidated Financial Statements"
appearing on page 31 of the company's 1994 Annual Report to Shareholders.
29
BOLT BERANEK AND NEWMAN INC.
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
- - -------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - -------------------------------------------------------------------------------------------------------------
Additions Retirements,
Balance at Charged to Renewals Other Balance
Beginning Costs and and Changes at End
Classification of Year Expenses Replacements Add (Deduct) of Year
- - -------------------------------------------------------------------------------------------------------------
Year ended June 30, 1994:
Buildings $ 893 $ 45 $ 104 $ $ 834
Computer equipment and machinery 102,903 7,757 43,708 (b) 1,404 (c) 68,356
Furniture and fixtures 9,564 241 5,231 40 (e) 4,614
Leasehold improvements 16,457 1,093 6,826 18 (e) 10,742
-------- ------- ------- ------ --------
$129,817 $ 9,136 $55,869 $1,462 $ 84,546
======== ======= ======= ====== ========
Year ended June 30, 1993:
Buildings $ 848 $ 45 $ $ $ 893
Computer equipment and machinery 99,645 9,906 8,000 (a) (223)(e) 102,903
1,575 (d)
Furniture and fixtures 9,407 651 443 (51)(e) 9,564
Leasehold improvements 14,522 1,098 43 880 (d) 16,457
-------- ------- ------- ------ --------
$124,422 $11,700 $ 8,486 $2,181 $129,817
======== ======= ======= ====== ========
Year ended June 30, 1992:
Buildings $ 803 $ 45 $ $ $ 848
Computer equipment and machinery 90,625 11,683 2,810 147 (e) 99,645
Furniture and fixtures 8,694 958 228 (17)(e) 9,407
Leasehold improvements 12,844 1,763 85 14,522
-------- ------- ------- ------ --------
$112,966 $14,449 $ 3,123 $ 130 $124,422
======== ======= ======= ====== ========
<FN>
_______________
(a) Includes assets of the company's former Advanced Simulation business sold to a subsidiary of Loral Corporation.
(b) In fiscal year 1994, the company eliminated from its accounts a significant portion of the cost and accumulated
depreciation of property, plant and equipment which was fully depreciated and no longer in use.
(c) Includes assets transferred to the company in connection with the transition of NEARnet to the company and assets
contributed by UB Networks, Inc. (formerly Ungermann-Bass, Inc.) in connection with the formation of LightStream
Corporation.
(d) Represents reserve established as a part of restructuring charge.
(e) Reclassification.
Depreciation methods and useful lives are described in "Summary of Significant
Accounting Policies" in "Notes to Consolidated Financial Statements"
appearing on page 31 of the company's 1994 Annual Report to Shareholders.
30
BOLT BERANEK AND NEWMAN INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
- - --------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - --------------------------------------------------------------------------------------------------
Balance at Charged to Other Balance
Beginning Costs and Changes at End
Description of Year Expenses Add (Deduct) of Year(f)
- - --------------------------------------------------------------------------------------------------
Allowances for Accounts Receivable:
1994 $ 8,912 $ 405 $ (943)(a)(e) $ 8,374
1993 10,147 703 (1,938)(a) 8,912
1992 9,475 1,796 (1,124)(a) 10,147
Inventory Reserves:
1994 $ 2,795 $ $ 501 (e) $ 3,296
1993 3,108 2,993 (b) (c) (3,306)(d) 2,795
1992 6,939 83 (b) (3,914)(d) 3,108
<FN>
__________________
(a) Represents writeoffs and recoveries.
(b) Represents provisions to reflect current expectations of realizable value.
(c) Includes $700 reserve established as a part of restructuring charge.
(d) Represents writeoffs and disposals.
(e) Includes amounts transferred from allowances for accounts receivable to
inventory reserves.
(f) Represents amounts deducted in the consolidated balance sheets from the
accounts to which they apply.
31
BOLT BERANEK AND NEWMAN INC.
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended June 30, 1994, 1993 and 1992
(Dollars in thousands)
- - -----------------------------------------------------------------------------------
Column A Column B
- - -----------------------------------------------------------------------------------
Charged to Costs and Expenses
--------------------------------
Item 1994 1993 1992
- - -----------------------------------------------------------------------------------
1. Maintenance and repairs $4,916 $6,177 $7,271
2. Taxes, other than payroll and income taxes 2,574 2,724 2,792
32
LIST OF EXHIBITS PAGE
---------------- ----
3.1 Restated Articles of Organization of Registrant (filed with the Securities N/A
and Exchange Commission as Exhibit 3.1 of Registrant's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1989, and incorporated herein by
reference).
3.2 By-laws of Registrant, as amended (filed with the Securities and Exchange N/A
Commission as Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988, and incorporated herein by reference).
4.1 Form of Indenture of Trust dated as of April 1, 1987 between the Registrant N/A
and The First National Bank of Boston relating to the Registrant's 6%
Convertible Subordinated Debentures due 2012 (filed with the Securities and
Exchange Commission as Exhibit 4.1 of Registration Statement No. 33-12975 on
Form S-3, and incorporated herein by reference).
4.2 Form of Right Certificate to purchase shares of Common Stock of the N/A
Registrant (filed with the Securities and Exchange Commission as Exhibit 2 of
Registrant's Current Report on Form 8-K dated June 23, 1988, and incorporated
herein by reference).
4.3 Common Stock Rights Agreement dated as of June 23, 1988 between the N/A
Registrant and The First National Bank of Boston relating to the Registrant's
Common Stock Purchase Rights (filed with the Securities and Exchange
Commission as Exhibit 1 of Registrant's Current Report on Form 8-K dated June
23, 1988, and incorporated herein by reference).
4.4 Registration Rights Agreement dated August 24, 1994 between the Registrant
and The Board of Trustees of the Leland Stanford Junior University.
4.5 (Note: Registrant agrees to furnish to the Securities and Exchange Commission N/A
upon request a copy of any other instrument with respect to long-term debt of
the Registrant and its subsidiaries. Such other instruments are not filed
herewith since no such instrument relates to outstanding debt in an amount
greater than 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis.)
10.1 Registrant's 1983 Stock Option Plan, as amended.
10.2 Registrant's 1986 Stock Incentive Plan, as amended to date (not including
proposed amendments submitted for approval by shareholders at the
Registrant's 1994 Annual Meeting).
10.3 Registrant's 1983 Employee Stock Purchase Plan, as amended.
10.4 LightStream Corporation 1993 Stock Option Plan (filed with the Securities and N/A
Exchange Commission as Exhibit 10.14 of Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1994, and incorporated herein by
reference).
10.5 LightStream Corporation 1994 Stock Option Plan (filed with the Securities and N/A
Exchange Commission as Exhibit 10.15 of Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1994, and incorporated herein by
reference).
10.6 BBN Software Products Corporation 1993 Stock Option Plan (filed with the N/A
Securities and Exchange Commission as Exhibit 10.16 of Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1994, and incorporated
herein by reference).
10.7 Incentive Plan for the Development of Technology for Registrant's division, N/A
BBN Systems and Technologies (filed with the Securities and Exchange
Commission as Exhibit 10.9 of Registrant's Annual Report on Form 10-K for the
year ended June 30, 1985, and incorporated herein by reference).
10.8 BBN Systems and Technologies Division Performance Cash Bonus Plan for Fiscal N/A
Year 1994 (filed with the Securities and Exchange Commission as Exhibit 10.13
of Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1993, and incorporated herein by reference).
10.9 BBN Software Products Division Performance Cash Bonus Plan for Fiscal Year N/A
1994 (filed with the Securities and Exchange Commission as Exhibit 10.14 of
Registrant's Quarterly Report on Form 10-Q for the period ended September 30,
1993, and incorporated herein by reference).
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LIST OF EXHIBITS PAGE
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10.10 BBN Corporate Services Division Performance Cash Bonus Plan for Fiscal Year N/A
1994 (filed with the Securities and Exchange Commission as Exhibit 10.15 of
Registrant's Quarterly Report on Form 10-Q for the period ended September 30,
1993, and incorporated herein by reference).
10.11 Registrant's Incentive Compensation Plan for Corporate Officers for Fiscal N/A
Year 1994 (filed with the Securities and Exchange Commission as Exhibit 10.16
of Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1993, and incorporated herein by reference).
10.12 Incentive Compensation Plan for George H. Conrades (filed with the Securities N/A
and Exchange Commission as Exhibit 10.13 of Registrant's Quarterly Report on
Form 10-Q for the period ended December 31, 1993, and incorporated herein by
reference).
10.13 Registrant's amended Deferred Compensation Plan for Directors (filed with the N/A
Securities and Exchange Commission as Exhibit 4 to Registration Statement No.
33-52656 on Form S-8, and incorporated herein by reference).
10.14 Registrant's Executive Protection Policy (Executive and Outside Directorship
Liability), Executive Protection Policy (Fiduciary Liability), Directors and
Officers Liability and Reimbursement Excess Policy, Excess Directors and
Officers Liability and Corporate Indemnification Policy, and Excess Insurance
Policy, each for the policy period ending December 1, 1994.
10.15 Forms of Severance Agreement between Registrant and certain of its executive N/A
officers (filed with the Securities and Exchange Commission as Exhibit 10.17
of Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1988, and incorporated herein by reference).
10.16 Registrant's Lease, Collateral Pledge Agreement, and Financing, Construction, N/A
and Agency Agreement, with Fawcett Street Associates, each dated January 20,
1981 (filed with the Securities and Exchange Commission as Exhibit 20(a) of
Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31,
1980, and incorporated herein by reference).
10.17 Registrant's Lease with Robert A. Jones and K. George Najarian dated as of N/A
June 20, 1977 amending an Agreement dated October 18, 1973 and a Letter
Agreement dated July 8, 1975 (filed with the Securities and Exchange
Commission as Exhibit 1 of Registrant's Current Report on Form 8-K dated June
20, 1977, as Exhibit 1 of Registrant's Current Report on Form 8-K for the
month of March 1974, and Exhibit 1 of Registrant's Current Report on Form 8-K
for the month of July 1975, respectively, and incorporated herein by
reference).
10.18 Registrant's Lease with Technology Park VII Limited Partnership (executed by N/A
The Gutierrez Company, General Partner) dated as of June 1, 1984 (filed with
the Securities and Exchange Commission as Exhibit 1 of Registrant's Current
Report on Form 8-K dated June 15, 1984, and incorporated herein by
reference), as amended May 1, 1986 and July 23, 1986 (exclusive of exhibits)
(filed with the Securities and Exchange Commission as Exhibit 10.15 of
Registrant's Annual Report on Form 10-K for the Fiscal Year ended June 30,
1986, and incorporated herein by reference).
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10.19 Registrant's Lease with CambridgePark Two Limited Partnership dated June 30, N/A
1987 (filed with the Securities and Exchange Commission as Exhibit 1 of
Registrant's Current Report on Form 8-K dated July 14, 1987, and incorporated
herein by reference).
11.1 Exhibit showing calculations of net income (loss) per share.
13.1 Registrant's Annual Report to Shareholders for the fiscal year ended June 30,
1994. With the exception of the information incorporated by reference in
Items 1, 5, 6, 7, 8, and 14 of this Form 10-K, the Annual Report to
Shareholders for the fiscal year ended June 30, 1994 is not deemed filed as
part of this report.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand.
27.1 Financial Data Schedule.