<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
___ Securities Exchange Act of 1934
For the quarterly period ended December 31, 1995 or
Transition Report Pursuant to Section 13 or 15(d) of the
___ Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 1-6435
____________________________
BBN Corporation
_________________________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-2164398
__________________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 CambridgePark Drive, Cambridge, Massachusetts 02140
______________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 873-2000
________________
______________________________________________________________
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of a
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of common stock, $1.00 par value, outstanding as of
January 31, 1996: 17,798,375
Exhibit index appears on page 18
Page 1 of 20 pages
<PAGE>
BBN CORPORATION
INDEX
Page No.
__________
Part I. Financial Information
Consolidated Statements of Operations -
Three Months Ended December 31, 1995 and 1994 3
Consolidated Statements of Operations -
Six Months Ended December 31, 1995 and 1994 4
Consolidated Balance Sheets -
as of December 31, 1995 and June 30, 1995 5
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
<PAGE>
PART I. FINANCIAL INFORMATION
BBN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Dollars in thousands, except per-share data
Three Months Ended
---------------------------
December 31 December 31
1995 1994
----------- -----------
Revenue:
Services $ 56,512 $ 41,016
Products 6,688 10,156
----------- -----------
63,200 51,172
----------- -----------
Costs and expenses:
Cost of services 40,489 27,439
Cost of products 2,451 4,391
Research and development expenses 5,423 6,331
Selling, general and administrative expenses 24,630 18,118
----------- -----------
72,993 56,279
----------- -----------
Loss from operations (9,793) (5,107)
Interest income 1,106 593
Interest expense (1,125) (1,094)
Minority interests (15) 445
Other income (expense), net 55 3,538
----------- -----------
Loss before income taxes (9,772) (1,625)
Provision (benefit) for income taxes (1,882) 300
----------- -----------
Net loss $ (7,890) $ (1,925)
=========== ===========
Net loss per share $ (.45) $ (.11)
=========== ===========
Shares used in per-share calculations 17,694,000 16,819,000
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Dollars in thousands, except per-share data
Six Months Ended
---------------------------
December 31 December 31
1995 1994
----------- -----------
Revenue:
Services $ 108,172 $ 85,392
Products 16,154 17,523
----------- -----------
124,326 102,915
----------- -----------
Costs and expenses:
Cost of services 77,829 56,002
Cost of products 5,731 6,990
Research and development expenses 11,083 12,219
Selling, general and administrative expenses 50,551 34,303
----------- -----------
145,194 109,514
----------- -----------
Loss from operations (20,868) (6,599)
Interest income 2,691 1,210
Interest expense (2,259) (2,220)
Minority interests (84) 741
Other income (expense), net 47 3,535
----------- -----------
Loss before income taxes (20,473) (3,333)
Provision (benefit) for income taxes (3,932) 400
----------- -----------
Net loss $ (16,541) $ (3,733)
=========== ===========
Net loss per share $ (.94) $ (.22)
=========== ===========
Shares used in per-share calculations 17,606,000 16,717,000
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
CONSOLIDATED BALANCE SHEETS
Dollars in thousands December 31 June 30
1995 1995
----------- -----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents (includes $ 40,887 $ 110,792
restricted cash of $8,505 at December 31,
1995 and $12,134 at June 30, 1995)
Short-term investments 47,281
Accounts receivable, net 56,500 53,933
Other current assets 10,135 3,606
----------- -----------
Total current assets 154,803 168,331
Property, plant and equipment, net 34,843 30,075
Goodwill, net 16,992 17,927
Other assets 2,842 3,133
----------- -----------
Total assets $ 209,480 $ 219,466
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,459 $ 11,596
Accrued compensation and retirement plan 6,902 6,319
Accrued restructuring charges 8,466 9,216
Other accrued costs 16,810 15,888
Deferred revenue 19,140 16,914
----------- -----------
Total current liabilities 62,777 59,933
6% convertible subordinated debentures
due 2012 73,484 73,510
Commitments and contingencies
Minority interests 1,356 3,471
Redeemable convertible preferred stock
of subsidiary 8,000
Shareholders' equity:
Common stock, $1 par value, authorized:
100,000,000 shares; issued: 22,301,777
shares at December 31, 1995 and
22,050,887 shares at June 30, 1995 22,302 22,051
Additional paid-in capital 61,271 62,664
Foreign currency translation adjustment 300 1,307
Retained earnings 12,177 28,717
----------- -----------
96,050 114,739
Less shares in treasury, at cost: 4,527,464 shares
at December 31, 1995 and June 30, 1995 32,187 32,187
----------- -----------
Total shareholders' equity 63,863 82,552
----------- -----------
Total liabilities and shareholders' equity $ 209,480 $ 219,466
=========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Dollars in thousands
Six Months Ended
---------------------------
December 31 December 31
1995 1994
----------- -----------
Cash flows from operating activities:
Net loss $ (16,541) $ (3,733)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 6,030 4,733
Amortization of goodwill and capitalized
software 1,173 374
Contract adjustments (3,546)
Change in assets and liabilities:
Accounts receivable (2,567) (298)
Other assets (2,017) (2,347)
Accounts payable and other liabilities 1,348 1,355
Accrued restructuring charges (750) (2,033)
Deferred revenue 2,225 1,971
Income taxes, net (4,329) 197
Other (160) (801)
----------- -----------
Total adjustments 953 (395)
----------- -----------
Net cash used by operating activities (15,588) (4,128)
Cash used by investing activities:
Additions to property, plant and equipment (11,211) (6,112)
Purchases of short-term investments (74,466)
Redemptions of short-term investments 27,185
Payments to minority owner (2,199)
Acquisition of BARRNET (2,000)
----------- -----------
Cash used by investing activities (60,691) (8,112)
----------- -----------
Cash provided (used) by financing activities:
Issuance of subsidiary preferred stock 8,000
Employee stock purchase and option plans (1,626) 1,697
----------- -----------
Net cash provided by financing activities 6,374 1,697
----------- -----------
Net decrease in cash and cash equivalents (69,905) (10,543)
Cash and cash equivalents-beginning of period 110,792 67,115
----------- -----------
Cash and cash equivalents-end of period $ 40,887 $ 56,572
=========== ===========
Supplemental cash flow information:
Interest paid $ 2,205 $ 2,205
=========== ===========
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The financial information included herein, with the exception of the
consolidated balance sheet at June 30, 1995, has not been audited. However, in
the opinion of management, all material adjustments necessary for a fair
presentation of the results for these periods, have been reflected and consist
only of normal recurring accruals and a $1,700,000 charge to operations
recorded in the first quarter of FY1996, which is more fully described in
Footnote C. The results for these periods are not necessarily indicative of
the results for the full fiscal year. Certain amounts reported for the prior
periods presented have been reclassified to be consistent with the current
year's presentation.
The accompanying financial information should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
annual report on Form 10-K filed with the Securities Exchange Commission for
the year ended June 30, 1995.
B. Segment Information
The following is a summary of business segment information for the three and
six months ended December 31, 1995 and 1994, respectively. All data is shown
net of intersegment transactions.
Three Months Ended Six Months Ended
December 31 December 31
--------------------- ---------------------
Dollars in thousands 1995 1994 1995 1994
--------- --------- --------- ---------
Revenue:
Internetworking $ 32,428 $ 22,831 $ 60,221 $ 46,612
Data analysis software 8,592 8,330 19,537 16,377
Collaborative systems and
acoustic technologies 22,180 20,011 44,568 39,926
--------- --------- --------- ---------
$ 63,200 $ 51,172 $ 124,326 $ 102,915
========= ========= ========= =========
Income (loss) from operations:
Internetworking $ (4,805) $ (2,527) $(10,588) $ (3,367)
Data analysis software (2,943) (1,962) (7,903) (2,278)
Collaborative systems and
acoustic technologies (1,335) 178 (1,423) 459
Unallocated corporate
expenses (710) (796) (954) (1,413)
--------- --------- --------- ---------
$ (9,793) $ (5,107) $(20,868) $ (6,599)
========= ========= ========= =========
Internetworking segment results for the three and six months ended December
31, 1994 included revenue of approximately $4,300,000 and $8,400,000,
respectively, and an operating loss of approximately $2,200,000 and
$3,700,000, respectively, at LightStream Corporation. LightStream
Corporation, an 80%-owned subsidiary of the Company, sold substantially all of
its assets to Cisco Systems, Inc. on January 11, 1995.
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
C. Operating Charge
During the three months ended September 30, 1995, the Company recorded a
charge of $1,700,000 at its wholly owned subsidiary BBN Domain Corporation
which is focusing its business on networked process optimization solutions for
pharmaceutical and manufacturing companies. The charge is associated with
severance and related costs and is included primarily in selling, general and
administrative expense. These costs were substantially paid during the three
months ended December 31, 1995.
D. Paid-in Capital
As provided by the Company's 1986 Stock Incentive Plan, during the six months
ended December 31, 1995 the retiring chairman of the board and certain other
executive officers of the Company transferred shares of the Company's common
stock to the Company in payment of applicable withholding taxes in connection
with the exercise of non-qualified stock options. The effect of these
transactions was to reduce paid-in capital by approximately $3,436,000.
E. Commitments and Contingencies
The Company, like other companies doing business with the U.S. government, is
subject to routine audit, and in certain circumstances to inquiry, review, or
investigation, by U.S. government agencies, of its compliance with government
procurement policies and practices. Based upon government procurement
regulations, under certain circumstances a contractor violating or not
complying with procurement regulations can be subject to legal or
administrative proceedings, including fines and penalties, as well as be
suspended or debarred from contracting with the government. The Company's
policy has been and continues to be to conduct its activities in compliance
with all applicable rules and regulations.
The books and records of the Company are subject to audit by the Defense
Contract Audit Agency ("DCAA"); such audits can result in adjustments to
contract billings. Final contract billing rates have been established for
years through fiscal year 1991, except for the Company's former BBN
Communications activities for which final contract billing rates have been
established only through fiscal year 1984. BBN expects that any adjustments
which may be made as a result of audits of fiscal years 1985 through 1995 will
not have a material adverse effect on the Company's results of operations.
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 were made by
the government agencies and the Company was informed in August 1995 that the
investigation had been concluded. The audit of the Company's former BBN
Communications activities by the DCAA for fiscal years 1985 through 1993,
which was delayed as a result of the investigation, is currently in process.
U. S. government revenue for the Company's former BBN Communications
activities, during the nine-year period under audit, represented
approximately 40% of the Company's total U.S. government revenue.
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
E. Commitments and Contingencies (continued)
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
results of these other legal proceedings and claims will not have a material
effect on the Company's consolidated financial position and results of
operations.
F. Subsequent Event
On January 23, 1996 the Company announced plans to combine its internetworking
operations including the merger of its 95%-owned subsidiary BBN Planet
Corporation ("BBN Planet") and its wholly owned subsidiary BBN HARK Systems
Corporation ("BBN HARK") into BBN Corporation. BBN Domain remains a wholly
owned subsidiary of the Company. The Company is presently in discussion with
the minority common shareholders of BBN Planet and BBN Planet's preferred
shareholder, AT&T Venture Company, L.P., to convert their respective common
and preferred stock investments in BBN Planet into common stock of BBN
Corporation. The conversion is not expected to result in a charge to
operations.
In connection with the reorganization, employee stock options previously
granted to BBN Planet and BBN HARK employees will be exchanged for options of
BBN Corporation. It is expected that the exchange will result in the issuance
of approximately 225,000 BBN options which will vest principally over a
twelve-month period. The exchange of the BBN Planet options is expected to
result in the issuance of approximately 219,000 BBN options at a price below
market value at the time of issuance and will result in a charge to operations
of approximately $2,500,000 which will be charged to expense over the vesting
period.
The Company expects to record additional costs in its third quarter of FY1996
to recognize the impact of implementing its plan. The aggregate amount of
such costs is not yet determinable.
G. Recent Pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company's FY1997 financial
statements. SFAS No. 123 allows companies to either account for stock-based
compensation under the new provisions of SFAS No. 123 or under the provisions
of APB 25, but requires pro forma disclosure in the footnotes to the financial
statements as if the measurement provisions of SFAS No. 123 had been adopted.
The Company expects to continue accounting for its stock-based compensation in
accordance with the provisions of APB 25. As such, the adoption of SFAS No.
123 will not impact the Company's financial position or the results of
operations.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
- --------------------------
This Report includes certain forward-looking statements about the
Company's revenue growth, including from its Internet-related activities,
expected expenses and operating losses, and possible capital needs. Any such
statements are subject to risks that could cause the actual results or needs
to vary materially. These risks are discussed in the appropriate sections of
this Report and in the Company's Report on Form 10-K for its fiscal year
ended June 30, 1995 filed with the Securities and Exchange Commission.
The Company
- -----------
As of December 31, 1995, the Company consisted of four operating units:
BBN Systems and Technologies Division, BBN Domain Corporation, BBN Planet
Corporation, and BBN HARK Systems Corporation. The BBN Systems and
Technologies Division includes internetworking services and products, and
collaborative systems and acoustic technologies for both the government and
commercial markets. BBN Domain Corporation ("BBN Domain"), a wholly owned
subsidiary of the Company, is focusing its business on data analysis and
process optimization software products for pharmaceutical and manufacturing
applications. BBN Planet Corporation ("BBN Planet"), currently a 95%-owned
subsidiary of the Company, provides managed Internet services to businesses
and other organizations. BBN HARK Systems Corporation ("BBN HARK"), a wholly
owned subsidiary of the Company, is an early stage company which develops and
markets commercial speech recognition software products.
During FY1995, LightStream Corporation ("LightStream"), a previously 80%-
owned subsidiary of the Company which made asynchronous transfer mode ("ATM")
network switches, sold substantially all of its assets to Cisco Systems, Inc.
On January 23, 1996 the Company announced plans to combine its
internetworking operations including the merger of its BBN Planet and BBN HARK
subsidiaries into BBN Corporation. The Company believes this strategy will
enable BBN to focus principally on a broad range of Internet capabilities and
to develop new Internet related offerings for businesses and other
organizations. To achieve this objective, the Company will combine its
Internet-related activities into two principal business units, BBN Planet and
BBN Systems and Technologies. The Company's reorganized BBN Planet business
unit will include the Company's Internet access network operations, the
America Online ("AOL") network management contract and related dial-up
capabilities, and will be responsible for BBN's Internet offerings to business
customers. The Company's reorganized BBN Systems and Technologies business
unit will focus on creating next-generation technology for advanced Internet
applications and will continue to provide networking solutions and contract
research and development principally for the federal government. The Company's
commercial speech recognition activities, currently undertaken by BBN HARK,
will be integrated into BBN Systems and Technologies. Time Warner Cable has
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
notified BBN HARK that it has decided to redirect its resources away from
voice recognition and toward the development of applications for its Full
Service Network interactive cable television service that are higher on
its customer priority list, and that will provide more immediate benefits to
its customers. As a result, BBN HARK has concluded its efforts to develop
systems design for integrating speech recognition into Time Warners's
Full Service Network. BBN Domain remains a wholly owned subsidiary of the
Company, focusing on process optimization and clinical trial software for
manufacturing and pharmaceutical customers.
The Company has begun the reorganization process and expects the new
organizational structure to be substantially implemented by March 31, 1996.
In connection with the Company's decision to reorganize its business units,
the Company expects to record a charge to operations in the third quarter
ending March 31, 1996. Additionally, the Company expects to exchange
subsidiary options for BBN options, certain of which will be granted at a
price below fair market value; the resulting charge to operations will be
accrued over the vesting period of the BBN options (see Note F to the
consolidated financial statements).
The following discussion of the results of operations for the three and
six month periods ended December 31, 1995 is based upon the organizational
structure in place during those periods and the comparable periods ended
December 31, 1994.
Approximately one-half of BBN'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 significant changes in defense spending. The
Company expects overall defense budgets to continue to decline over the next
several years, and anticipates continued 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; the
declining trend with respect to operating margins is expected to continue at
least through FY1996, particularly in the Company's defense communications and
acoustic activities.
For the past several years, BBN has provided network systems and services
to the U.S. Department of Defense, including the Defense Data Network ("DDN"),
a common-user data network servicing the Department of Defense. In FY1991,
the Defense Information Systems Agency awarded BBN a one-year contract in
support of the DDN, with up to four one-year optional extensions. The Company
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
has completed performing under the fourth option year of that DDN contract,
valued at approximately $15 million, for the contract year ended in October
1995. The Company is currently performing under a six-month extension of the
DDN contract, which will continue these activities through April 1996. The
value of this extension award is approximately $7.5 million. The Company does
not expect that this activity will continue beyond April 1996, although the
Company may compete for follow-on contracts for the DDN, at reduced funding
levels. Approximately $17.8 million and $20.5 million of revenue has been
recorded under the DDN contract in FY1995 and FY1994, respectively. Fiscal
year 1996 revenue is expected to approximate $12.7 million.
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 and services to address emerging market
requirements and to improve existing products and services. In recent years,
the Company's traditional commercial businesses have been experiencing
substantially lower revenue. The Company has discontinued sales of most of
its traditional X.25 systems and products, and has substantially eliminated
its development effort, and significantly reduced its selling efforts related
to this business. In recent periods, the Company has invested heavily in
development of new products, including the LightStream ATM switch which was
sold to Cisco Systems, Inc. in January 1995, Cornerstone data analysis and
visualization software, the T/10 Integrated Access Device ("IAD") for computer
networks, and the BBN HARK speech recognition software. The Company's T/10
IAD activities are now being primarily focused on a limited number of reseller
and strategic licensing opportunities and the future success of the T/10 IAD
is highly dependent on these opportunities. The Company has substantially
reduced spending relating to the T/10 IAD from prior period levels.
During FY1995 and the first two quarters of FY1996, the Company has also
made significant investments in Internet services. In support of its Internet
business strategy, the Company may make acquisitions or enter into strategic
alliances. In June 1995, BBN, BBN Planet, and AT&T Corp. ("AT&T") entered
into an agreement under which BBN Planet is to be the exclusive provider for a
period of up to three years of dedicated Internet access and managed network
security services to AT&T for resale to business customers in the United
States of AT&T's Business Communications Services division. In addition to
certain other termination provisions, AT&T may cancel the agreement in the
event either BBN or BBN Planet merges with, or becomes controlled by, another
telecommunications carrier or an on-line service provider and has the right to
terminate the exclusivity obligation and to withhold other financial benefits
in certain other situations. In July 1995, AT&T Venture Company, L.P., a
venture partnership with AT&T as the sole limited partner, invested $8.0
million in BBN Planet (see Note F to the consolidated financial statements).
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The market for Internet services is rapidly expanding, and there are
considerable uncertainties as to how the market will develop. The market is
highly competitive, in general there are no substantial barriers to entry, and
the Company expects that competition with its Internet activities will
intensify in the future. The Company expects that all of the major on-line
services and telecommunications companies will compete fully in the Internet
services market, and that new competitors, including large computer hardware,
software, media, and other technology and telecommunications companies will
enter the Internet services market, resulting in even greater competition for
the Company's services and significant pricing pressure, which may impact
operating results.
The Company expects continued revenue growth from its Internet-related
activities for the remainder of FY1996. An increasing percentage of the
Company's revenue is derived from Internet-related services, and the Company
believes that the success of its Internet services efforts will depend upon a
number of factors, including the development and expansion of the market for
Internet access services and products and the networks which comprise the
Internet; the Company's ability to continue and expand its current
relationships with AT&T and AOL; the timely establishment of additional
strategic relationships for providing the Company's Internet-related services;
the capacity, reliability, cost and security of the Company's network
infrastructure; its ability on a timely basis to develop and provide new or
enhanced Internet-related offerings for businesses and organizations, at
competitive prices, that meet changing customer requirements; its ability to
attract and retain additional highly qualified management, technical,
marketing, and sales personnel; and its ability to manage its growth. In
addition, the Company may need to raise additional capital in order to finance
its Internet-related capital requirements. There can be no assurance that the
Company will be able to raise such capital on favorable terms or at all.
The Company's traditional data analysis software products, including
mini-computer based versions of the Company's RS/Series software, have been
affected over the last several years by a number of market changes, and the
Company has experienced substantially lower RS/Series software revenue and
downward pressure on prices. In response, the Company has developed desktop
versions of certain RS/Series software products, and in FY1993 the Company
introduced Cornerstone software, a desktop-based data analysis and
visualization software tool. Sales of Cornerstone software to date have been
substantially below expectations. Based upon the rights to a technology
acquired from IBM during FY1995, BBN Domain is developing software designed
for manufacturing process optimization. The Company has refocused its
traditional software activities on networked process optimization and now
targets customers principally in the pharmaceutical and manufacturing
industries. In connection with this effort, BBN Domain recorded a charge to
operations in the quarter ended September 30, 1995 of $1.7 million (see Note
C to the consolidated financial statements).
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company believes that BBN Domain's performance will depend primarily
on the timely development and market acceptance of its pharmaceutical industry
software products and its new manufacturing process optimization methodology,
along with continued acceptance of its data analysis software products.
The Company reported a loss from operations of $9.8 million and $20.9
million for the three and six months ended December 31, 1995, respectively,
compared to a loss from operations of $5.1 million and $6.6 million for the
comparable periods a year ago. The operating losses reflect continued
investments in the Company's Internet services business, and includes year-to-
date operating losses at BBN Planet Corporation and BBN Domain of $13.6
million and $7.9 million, respectively. The loss at BBN Domain includes a
first quarter charge of $1.7 million associated with the refocusing of BBN
Domain's business.
The Company expects to incur significant operating losses for its fiscal
year ending June 30, 1996 as a result of its substantial investment and
operating losses in Internet-related activities and operating losses at BBN
Domain.
Revenue
- -------
Revenue for the three months ended December 31, 1995 increased $12.0
million to $63.2 million compared to $51.2 million for the comparable three
months ended December 31, 1994. Revenue in the prior year period included $4.3
million associated with LightStream Corporation, a previously 80%-owned
subsidiary which sold all of its assets to Cisco Systems, Inc. during the
third quarter of FY1995. Excluding LightStream Corporation, internetworking
segment revenue increased $13.9 million primarily reflecting increased
Internet services revenue of $12.2 million at BBN Planet Corporation and from
the AOL network management contract.
Revenue for the six months ended December 31, 1995 increased $21.4
million to $124.3 million compared to $102.9 million for the comparable six
months ended December 31, 1994. Revenue in the prior year period included
$8.4 million associated with LightStream Corporation. Excluding LightStream
Corporation, internetworking segment revenue increased $22.1 million
primarily reflecting increased Internet services revenue of $19.6 million at
BBN Planet Corporation and from the AOL network management contract. Revenue
from the Company's data analysis software and collaborative systems segments
also increased.
Cost of Sales
- -------------
Cost of services and products as a percentage of revenue for the three
and six months ended December 31, 1995 was 68% and 67%, respectively,
compared to 62% and 61%, respectively, for the comparable prior year periods.
The increase in the cost of sales percentages is principally related to lower
margins on increased internetworking services revenue with lower value-added
content.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Research and Development Expenses
- ---------------------------------
Research and development costs (exclusive of $1.9 million and $3.9
million, respectively, associated with LightStream in the three and six months
ended December 31, 1994) increased $1.0 million and $2.8 million,
respectively, during the three and six months ended December 31, 1995. The
increases were primarily in the data analysis software and internetworking
segments.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general, and administrative expenses for the three and six
months ended December 31, 1995 increased $6.5 million and $16.2 million,
respectively, from the comparable FY1995 periods. Excluding LightStream in
the FY1995 periods, the increases were $8.3 million and $20.1 million,
respectively, and primarily reflect BBN's continued investment in the sales
and marketing efforts of the Company's internetworking-related activities.
The increase also includes $1.4 million of the charge recorded in the six-
month period at BBN Domain to provide for employee related costs associated
with the decision to refocus its business (see Note C to the consolidated
financial statements). The Company anticipates continued growth from FY1995
levels primarily related to its commercial internetworking activities
throughout FY1996.
Interest
- --------
Interest income for the three and six months ended December 31, 1995
increased $0.5 million and $1.5 million, respectively, from the comparable
FY1995 periods. The increases are directly related to the higher level of
invested cash balances, resulting from the proceeds received during the third
quarter of FY1995 from the sale of LightStream.
Other Income
- ------------
In December 1994, the Company settled a claim with the U.S. government
for approximately $0.7 million. This settlement resulted in an approximately
$2.6 million reduction in liabilities and is included in other income for the
three and six months ended December 31, 1994.
Other income for the three and six months ended December 31, 1994 also
includes approximately $0.9 million resulting from lower than expected costs
associated with a previously divested contract.
Income Taxes
- ------------
The income tax benefits recorded in the three and six month periods ended
December 31, 1995 were approximately 19% and represent the effective rate at
which the Company can utilize its FY1996 operating loss, up to a specified
maximum, to recover taxes paid in the prior year. There was no tax benefit
associated with the loss in the six-month period of FY1995 since there was no
tax loss carryback available to the Company. The tax provision in the six-
month period of FY1995 related primarily to foreign income with no domestic
credit available.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1995, the Company had cash and cash equivalents and
short term investments amounting to $88.2 million, a decrease of $22.6 million
from June 30, 1995. The decrease includes $15.6 million used by operations,
$11.2 million used for capital expenditures, and $2.2 million of payments to
the minority shareholder in connection with the LightStream sale. These
decreases were partially offset by $8.0 million received from AT&T Venture
Company, L.P. as an investment in BBN Planet. (See Note F to the consolidated
financial statements). Changes in cash balances due to fluctuation in foreign
exchange rates were insignificant.
Working capital, excluding cash and cash equivalents and short-term
investments, increased $6.3 million as a result of an increased level of
receivables and a $4.3 million tax refund due which is included in other
current assets.
The balance of accrued restructuring costs of $8.5 million relates to the
Company's FY1993 downsizing and represents excess facilities costs under long-
term leases in excess of sublease income. These costs are anticipated to be
liquidated in varying amounts through 2005. The Company has sublet or
assigned the majority of its excess facilities under agreements with terms
expiring between 1998 and 2005.
The Company's capital requirements which include the costs for building
its Internet network infrastructure, for further investments in working
capital, other capital equipment and selling and marketing infrastructure,
and for pursuing potential investments, acquisitions and other expansion
opportunities are expected to be significant. The Company believes that its
existing cash balances are adequate to meet its requirements through FY1996.
The Company may need to raise additional capital from equity and/or debt
sources in order to finance its anticipated growth and capital requirements
beyond FY1996. There can be no assurance that the Company will be able to
raise such capital on favorable terms or at all. Currently, the Company does
not have any bank lines of credit.
<PAGE>
PART II. OTHER INFORMATION
BBN CORPORATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 Computation of Net Loss Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BBN Corporation
By /s/ Paul F. Brauneis
_______________________________________
Paul F. Brauneis
Vice President and Corporate Controller
Date: February 14, 1996
<PAGE>
BBN CORPORATION
LIST OF EXHIBITS
11.1 Computation of Net Loss Per Share (page 19)
27.1 Financial Data Schedule (page 20)
<PAGE>
<PAGE>
BBN CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(000's except per-share data)
Three Months Ended
-------------------------------------------
December 31, 1995 December 31, 1994
-------------------- --------------------
Fully Fully
Primary Diluted Primary Diluted
--------- --------- --------- ---------
Weighted average
shares outstanding 17,694 17,694 16,819 16,819
Incremental shares from use
of treasury stock method
for stock options (a) (a) (a) (a)
--------- --------- --------- ---------
Shares used in per-share
calculations 17,694 17,694 16,819 16,819
========= ========= ========= =========
Net income (loss) $ (7,890) $ (7,890) $ (1,925) $ (1,925)
========= ========= ========= =========
Net income (loss) per share $ (.45) $ (.45) $ (.11) $ (.11)
========= ========= ========= =========
Six Months Ended
-------------------------------------------
December 31, 1995 December 31, 1994
-------------------- --------------------
Fully Fully
Primary Diluted Primary Diluted
--------- --------- --------- ---------
Weighted average
shares outstanding 17,606 17,606 16,717 16,717
Incremental shares from use
of treasury stock method
for stock options (a) (a) (a) (a)
--------- --------- --------- ---------
Shares used in per-share
calculations 17,606 17,606 16,717 16,717
========= ========= ========= =========
Net income (loss) $(16,541) $(16,541) $ (3,733) $ (3,733)
========= ========= ========= =========
Net income (loss) per share $ (.94) $ (.94) $ (.22) $ (.22)
========= ========= ========= =========
(a) Incremental shares were not used as their effect would be antidilutive.
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 40,887
<SECURITIES> 47,281
<RECEIVABLES> 56,500<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 154,803
<PP&E> 34,843<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 209,480
<CURRENT-LIABILITIES> 62,777
<BONDS> 73,484
0
8,000
<COMMON> 22,302
<OTHER-SE> 41,561
<TOTAL-LIABILITY-AND-EQUITY> 209,480
<SALES> 124,326
<TOTAL-REVENUES> 124,326
<CGS> 83,560
<TOTAL-COSTS> 83,560
<OTHER-EXPENSES> 61,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,259
<INCOME-PRETAX> (20,473)
<INCOME-TAX> (3,932)
<INCOME-CONTINUING> (16,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,541)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> 0
<FN>
<F1>The receivables amount is shown net of contract allowances and allowances
for doubtful accounts.
<F2>The PP&E amount is shown net of accumulated depreciation and amortization.
</FN>
<PAGE>
</TABLE>
