<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 March 31, 1996 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
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 April
30, 1996: 17,828,043
Exhibit index appears on page 20
Page 1 of 34 pages
<PAGE>
BBN CORPORATION
INDEX
Page No.
Part I. Financial Information
Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and 1995..............3
Consolidated Statements of Operations -
Nine Months Ended March 31, 1996 and 1995...............4
Consolidated Balance Sheets -
as of March 31, 1996 and June 30, 1995..................5
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1996 and 1995...............6
Notes to Consolidated Financial Statements.................7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................19
Signatures.................................................19
Note: Page references relate solely to this document in its
traditional filing format.
<PAGE>
PART I. FINANCIAL INFORMATION
BBN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Dollars in thousands, except per-share data
Three Months Ended
------------------------------
March 31 March 31
1996 1995
------------ ------------
Revenue:
Services $ 60,440 $ 42,954
Products 10,907 9,003
------------ ------------
71,347 51,957
------------ ------------
Costs and expenses:
Cost of services 46,349 30,799
Cost of products 3,903 2,353
Research and development expenses 6,447 6,613
Selling, general and administrative expenses 24,104 17,789
Goodwill write-off and other charges 20,718
------------ ------------
101,521 57,554
------------ ------------
Loss from operations (30,174) (5,597)
Interest income 1,186 1,724
Interest expense (1,077) (1,103)
Minority interests (24) (11,826)
Other income (expense), net (74) 105,096
------------ ------------
Income (loss) before income taxes (30,163) 88,294
Provision (benefit) for income taxes (1,022) 13,827
------------ ------------
Net income (loss) $ (29,141) $ 74,467
============ ============
Net income (loss) per share $ (1.64) $ 4.11
============ ============
Shares used in per-share calculations 17,802,000 18,118,000
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
Nine Months Ended
-----------------------------
March 31 March 31
1996 1995
------------ ------------
Revenue:
Services $ 168,635 $ 128,346
Products 27,038 26,526
------------ ------------
195,673 154,872
------------ ------------
Costs and expenses:
Cost of services 124,177 86,801
Cost of products 9,633 9,343
Research and development expenses 17,530 18,832
Selling, general and administrative expenses 74,656 52,092
Goodwill write-off and other charges 20,718
------------ ------------
246,714 167,068
------------ ------------
Loss from operations (51,041) (12,196)
Interest income 3,877 2,934
Interest expense (3,336) (3,323)
Minority interests (108) (11,085)
Other income (expense), net (28) 108,631
------------ ------------
Income (loss) before income taxes (50,636) 84,961
Provision (benefit) for income taxes (4,954) 14,227
------------ ------------
Net income (loss) $ (45,682) $ 70,734
============ ============
Net income (loss) per share $ (2.59) $ 3.96
============ ============
Shares used in per-share calculations 17,670,000 17,864,000
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31 June 30
1996 1995
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents (includes restricted
cash of $4,646 at March 31, 1996 and $12,134
at June 30, 1995) $ 36,021 $ 110,792
Short-term investments 36,442
Accounts receivable, net 67,309 53,933
Other current assets 11,183 3,606
------------ ------------
Total current assets 150,955 168,331
Property, plant and equipment, net 39,831 30,075
Goodwill, net 17,927
Other assets 2,634 3,133
------------ ------------
Total assets $ 193,420 $ 219,466
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,866 $ 11,596
Accrued compensation and retirement plan 7,265 6,319
Accrued restructuring charges 7,726 9,216
Other accrued costs 24,015 15,888
Deferred revenue 22,794 16,914
------------ ------------
Total current liabilities 74,666 59,933
6% convertible subordinated debentures due 2012 73,170 73,510
Commitments and contingencies
Minority interests 752 3,471
Subsidiary redeemable convertible preferred stock 8,000
Shareholders' equity:
Common stock, $1 par value, authorized:
100,000,000 shares; issued: 22,352,107 shares at
March 31, 1996 and 22,050,887 shares at
June 30, 1996 22,352 22,051
Additional paid-in capital 62,954 62,664
Foreign currency translation adjustment 678 1,307
Retained earnings (deficit) (16,965) 28,717
------------ ------------
69,019 114,739
Less shares in treasury, at cost: 4,527,464
shares at March 31, 1996 and June 30, 1995 32,187 32,187
------------ ------------
Total shareholders' equity 36,832 82,552
------------ ------------
Total liabilities and shareholders' equity $ 193,420 $ 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 Nine Months Ended
----------------------------
March 31 March 31
1996 1995
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (45,682) $ 70,734
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 9,569 6,919
Amortization of goodwill and
capitalized software 1,238 465
Contract adjustments (3,546)
Gain from LightStream sale (105,096)
Minority interest 108 11,085
Goodwill write-off and other charges 20,718
Change in assets and liabilities:
Accounts receivable (13,376) (6,163)
Other assets (1,972) (616)
Accounts payable and other liabilities 8,672 2,169
Restructuring expenditures (1,490) (2,968)
Deferred revenue 5,880 3,061
Income taxes payable (refundable) (5,300) 12,594
Other (1,270) 102
------------ ------------
Total adjustments 22,777 (81,994)
------------ ------------
Net cash used by operating activities (22,905) (11,260)
Cash flows from investing activities:
Proceeds from LightStream sale 98,200
Restricted cash (12,069)
Additions to property, plant and equipment (19,417) (11,313)
Purchases of short-term investments, net (36,442)
Payments to minority owner of LightStream (2,827)
Acquisition of SURAnet (12,960)
Acquisition of BARRNet (2,000)
Net cash provided (used) by ------------ ------------
investing activities (58,686) 59,858
------------ ------------
Cash flows from financing activities:
Issuance of subsidiary preferred stock 8,000
Employee option and stock purchase plans, net (1,180) 2,863
------------ ------------
Net cash provided by financing activities 6,820 2,863
------------ ------------
Net increase (decrease) in cash and cash equivalents (74,771) 51,461
Cash and cash equivalents - beginning of period 110,792 67,115
------------ ------------
Cash and cash equivalents - end of period $ 36,021 $ 118,576
============ ============
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, a $20,718,000
charge to operations recorded in the third quarter of FY1996 (which is
more fully described in Footnote C), and a $1,700,000 charge to operations
recorded in the first quarter of FY1996 (which is more fully described in
Footnote D). 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. Pending Reorganization
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 Corporation ("BBN Domain") remains a wholly owned subsidiary of
the Company. The Company is currently in discussions with the minority
shareholders of BBN Planet, including AT&T Venture Company, L.P., which
currently owns 1,000,000 shares of the Series A Convertible Preferred
Stock of BBN Planet, to determine the number of shares of the common stock
of the Company the Company would issue to such holders in exchange for
their shares of BBN Planet upon the combination of BBN Planet with the
Company.
In exchange for an agreement to cancel the outstanding options to
purchase shares of common stock of BBN Planet and BBN HARK, the Company
has agreed to grant substitute options to holders of BBN Planet and BBN
HARK options. The exchange, when completed, 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 will result
in the issuance of approximately 219,000 BBN options at a price below
market value and will result in a charge to operations of approximately
$2,400,000 which will be charged to expense over the vesting period, of
which $1,500,000 was recorded in the third quarter of FY1996. See
Footnote C to the consolidated financial statements.
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
C. Goodwill Write-Off and Other Charges
In the third quarter of FY1996, the Company recorded a charge of
approximately $20,718,000 to write off goodwill previously recorded in
connection with the acquisitions of BARRNet and SURAnet in August 1994
and March 1995, respectively, and certain other costs and employee
related expenses in connection with its announced reorganization (see
Footnote B to the consolidated financial statements). The goodwill write-
off was precipitated by a business evaluation, which included a review of
the Company's current Internet-related business in comparison to
expectations established at the time of the acquisitions. The Internet
services market has changed significantly and is continuing to develop
rapidly, including the emergence of new competition, increasing downward
pressure on prices, rapidly changing technology, and frequent new product
and service introductions. In response to this dynamic market and the
opportunities which it presents, the Company decided to reorganize its
business units, as described in Footnote B to the consolidated financial
statements, to principally focus on the Internet. The amount of the
charge was determined in accordance with the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS
121") which was issued by the Financial Accounting Standards Board in
March 1995. SFAS 121 requires recognition of an impairment loss when the
sum of undiscounted expected future cash flows is less than the carrying
amount of the assets.
D. Operating Charge
During the three months ended September 30, 1995, the Company
recorded a charge of $1,700,000 at BBN Domain 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
six months ended March 31, 1996.
E. 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.
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
F. Supplemental Information by Business Unit
The following is a summary of revenue and operating income (loss) by
business unit for the three and nine months ended March 31, 1996 and
1995, presented on an as reorganized basis: Systems and Technologies
provides networking solutions for the federal government, performs
contract research and development and includes the BBN HARK business;
Internet activities includes BBN Planet's Internet access and value-added
services business and the America Online contract; BBN Domain focuses on
process optimization and clinical trial software for manufacturing and
pharmaceutical customers; and LightStream Corporation, an 80%-owned
subsidiary of the Company, sold substantially all of its assets on January
11, 1995.
Dollars in Thousands Three Months Ended Nine Months Ended
March 31 March 31
---------------------- ----------------------
1996 1995 1996 1995
Revenue: ---------- ---------- ---------- ----------
Systems and Technologies $ 40,976 $ 38,475 $ 119,689 $ 112,091
Internet activities 20,557 4,113 47,382 9,815
Domain 10,529 10,230 30,066 26,607
LightStream Corporation 8,445
Intercompany eliminations (715) (861) (1,464) (2,086)
---------- ---------- ---------- ----------
$ 71,347 $ 51,957 $ 195,673 $ 154,872
========== ========== ========== ==========
Income (loss) from operations:
Systems and Technologies $ 80 $ 105 $ 2,370 $ 2,628
Internet activities (8,597) (3,192) (23,455) (5,815)
Domain (922) (1,468) (8,825) (3,746)
LightStream Corporation (3,689)
Goodwill write-off and other
charges (20,718) (20,718)
Unallocated corporate
expense, net (17) (1,042) (413) (1,574)
---------- ---------- ---------- ----------
$ (30,174) $ (5,597) $ (51,041) $ (12,196)
========== ========== ========== ==========
G. 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 institution of such proceedings against the Company
could, and suspension or debarment from contracting with the government
would, materially adversely affect the Company's business, financial
condition, and results of operations. The Company's policy has been and
continues to be to conduct its activities in compliance with all
applicable rules and regulations.
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
G. Commitments and Contingencies (continued)
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 for the
Company have been established and billings audited for years through
fiscal year 1991, except for the Company's former BBN Communications
activities, for which final contract billing rates have been established
and billings audited only through fiscal year 1984. The audit by DCAA of
the Company's former BBN Communications activities for fiscal years 1985
through 1993, which had been delayed, is currently in progress. U.S.
government revenue for BBN Communications activities during the nine-year
period under audit represented approximately 40% of the Company's total
U.S. government revenue during the period. DCAA has advised the Company
that, based upon DCAA's interpretations of government contract
regulations, DCAA intends to recommend to the responsible governmental
administrative contracting officer that adjustments to BBN Communications
contract billings be made which, if asserted and sustained upon appeal,
would have a material adverse effect on the Company's financial condition
and results of operations. The amount of any adjustments which may
ultimately be asserted by the administrative contracting officer
following receipt of the DCAA recommendations is not currently
determinable. The Company and its counsel believe that DCAA's intended
recommendations, in substantial part, are based upon incorrect
interpretations of government contract regulations and are inconsistent
with decided cases. The Company expects that any adjustments which may
ultimately be asserted and sustained on appeal as a result of audits of
the Company's fiscal years 1985 through 1995 (including the 1985 through
1993 period for BBN Communications) will not have a material adverse
effect on the Company's financial condition and 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 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.
H. 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
I. Subsequent Event
In April 1996, the Company entered into a capital lease agreement to
finance certain equipment acquisitions. The total cost of the assets to
be covered by the lease is limited to $15,000,000. The agreement
includes a sale and leaseback of assets purchased during the nine months
ended March 31, 1996 of approximately $7,000,000, and an $8,000,000
commitment for assets to be purchased through September 30, 1996. Assets
acquired under the lease serve to collateralize the debt. Each borrowing
bears interest at an effective rate of 8.5% and has a term of thirty-six
months, with principal and interest payable quarterly in advance. The
lease includes purchase and renewal options at fair market values. The
lease will be classified as a capital lease in accordance with Statement
of Financial Accounting Standards No. 13, "Accounting for Leases".
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[Underline]Forward-Looking Statements[End-Underline]
This Report includes certain forward-looking statements about the
Company's revenue growth, including from its Internet-related activities,
expected expenses and operating losses, possible capital needs, and government
audit contingencies. 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 8-K
dated May 15, 1996 for its fiscal year ended June 30, 1995 filed with the
Securities and Exchange Commission.
[Underline]The Company[End-Underline]
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 included 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, focused its business on data analysis and process
optimization software products for pharmaceutical and manufacturing
applications. BBN Planet Corporation ("BBN Planet"), a 95% owned subsidiary of
the Company, provided managed Internet services to businesses and other
organizations. BBN HARK Systems Corporation ("BBN HARK"), a wholly owned
subsidiary of the Company, was an early stage company which developed and
marketed 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 Internet
and internetworking services operations. 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 managed Internet access and value-added
services and related network operations, the Company's contract with AT&T Corp.
("AT&T"), the America Online ("AOL") network management contract, and related
Internet dial-up access 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,
previously undertaken by BBN HARK, are being integrated into BBN Systems and
Technologies. BBN Domain currently remains a wholly owned subsidiary of the
Company, focusing on process optimization and clinical trial software for
manufacturing and pharmaceutical customers.
The following discussion of the results of operations for the three and
nine months ended March 31, 1996 and the comparable prior year periods is
presented on an as reorganized basis.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
[Underline]Overview[End-Underline]
The Company has historically derived the majority of its revenue from
contracts and subcontracts with the U.S. government, and currently
approximately one-half of the Company's revenue is derived from 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. Overall defense budgets have been
declining, and the Company expects this general decline and attendant increased
competition within the consolidating defense industry to continue over the next
several years. Further, funding limitations could result in 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
periods. The Company anticipates that competition in all defense-related areas
will continue to be intense and accordingly, that there will be continued
significant competitive pressure to lower prices, which may reduce
profitability in this area of the Company's business.
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 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. In
April 1996, the Company completed performance under a six-month extension to
the DDN contract, valued at approximately $8.3 million. The Company is
currently performing under an additional contract extension. The Company is
competing for the new contract, which is expected to be announced by August
1996 at a reduced funding level. 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 $16.1
million.
The markets in which the Company competes are characterized by rapidly
changing technology, evolving industry standards, intense competition, and
frequent new service and product introductions, which require, among other
things, the Company to make significant and on-going investment. 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(TM) data analysis and
visualization software, the T/10(TM) 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.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
During FY1995 and the first three quarters of FY1996, the Company has also
made significant investments in Internet-related services. In support of its
Internet business strategy, the Company may make acquisitions or enter into
strategic alliances. In June 1995, BBN and AT&T entered into a strategic
relationship under which BBN 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 customers of AT&T's Business Communications
Services division in the United States. 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. As part of the recently announced reorganization, the Company and AT&T
Venture Company, L.P. are currently in discussion concerning the exchange of
AT&T Venture Company, L.P.'s investment in BBN Planet into common stock of BBN
Corporation (see Footnote B to the consolidated financial statements).
The market for Internet services is rapidly expanding, and there are
considerable uncertainties as to how the market will develop. The markets for
the Company's Internet services are highly competitive. In general there are
no substantial barriers to entry to the Internet services market 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 other 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 the
Company's 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 products, and
the Company expects that the success of its Internet-related efforts will
depend upon a number of factors, including the development and expansion of the
market for Internet access services and products, and of the networks which
comprise the Internet; the ability of the Company to continue and expand its
current relationships with AT&T and AOL; the capacity, reliability, cost, and
security of it's network infrastructure; its ability to finance the expansion
of its network infrastructure; its ability to develop price competitive
services that meet changing customer requirements; its ability on a timely
basis 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 funds through public or
private debt or equity financings in order to implement its strategy. There
can be no assurance that any such funding will be available, or of the terms or
timing of any such funding.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company's traditional commercial products, consisting principally of
minicomputer-based data analysis software and X.25 network systems, have
reached maturity in their respective life cycles, and 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 effort, related to the systems business as a whole. The Company
believes that sales of these mature products will continue to decline. 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 Footnote D to the consolidated financial statements).
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.
For the three months ended March 31, 1996, the Company reported an
operating loss of $30.2 million, which includes a $20.7 million charge to
writeoff goodwill and certain other costs and employee related expenses in
connection with its announced reorganization; the operating loss for the
comparable quarter of FY1995 was $5.6 million. For the nine months ended March
31, 1996, the operating loss was $51.0 million, which includes the $20.7
million charge, compared to $12.2 million for the comparable period in FY1995.
The operating losses reflect continued investment in Internet-related
activities, including network infrastructure, sales and marketing activities,
and the development of new value-added Internet services. The Company is
accelerating the expansion of its national backbone network for its Internet
operations in order to meet increasing demand. Results for the three and nine-
month periods ended March 31, 1996 also reflect operating losses at BBN Domain,
the write-off of goodwill and other costs, operating losses at BBN HARK and
lower profitability at Systems and Technologies.
The net loss for the three and nine-month periods ended March 31, 1996 was
$29.1 million and $45.7 million, respectively, compared to net income of $74.5
million and $70.7 million, respectively, for the three and nine-month periods
ended March 31, 1995. Net income for the FY1995 periods includes a pre-tax
gain of $105.1 million from the sale of the assets of LightStream Corporation
in January 1995.
The Company expects to report continued operating losses for the remainder
of FY1996 primarily as a result of its ongoing investment in Internet-related
activities.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
[Underline]Revenue[End-Underline]
Revenue for the three months ended March 31, 1996 increased $19.4 million
to $71.4 million, compared to $52.0 million for the comparable three months
ended March 31, 1995. The increase relates primarily to the Company's Internet
activities which reported FY1996 third quarter revenue of $20.6 million
compared to $4.1 million for the corresponding prior year period; approximately
one-half of the increase relates to the AOL network management contract.
Revenue for the nine months ended March 31, 1996 increased $40.8 million
to $195.7 million compared to $154.9 million for the comparable nine months
ended March 31, 1995. Revenue in the prior year period included $8.4 million
associated with LightStream. Revenue from the Company's Internet activities
increased $37.6 million; approximately one-half of the increase relates to the
AOL network management contract. Revenue from BBN Systems and Technologies'
collaborative systems and from BBN Domain's data analysis software activities
also increased.
[Underline]Cost of Sales[End-Underline]
Cost of services and products as a percentage of revenue for the three and
nine months ended March 31, 1996 was 70% and 68%, respectively, compared to 64%
and 62%, respectively, for the comparable prior year periods. The increase in
the cost of sales percentages is principally related to lower margins on
increased Internet services revenue.
[Underline]Research and Development Expenses[End-Underline]
A significant portion of the Company's current internally funded research
and development spending is related to efforts by BBN Domain. Research and
development costs were relatively unchanged for the three months ended March
31, 1996 compared to the corresponding prior year period, reflecting decreased
spending at BBN Domain, partially offset by increased spending for Internet
activities projects. Research and development costs increased $1.3 million
during the nine months ended March 31, 1996 compared to the prior year period.
Research and development expenses in the prior year nine-month period included
$3.9 million associated with LightStream. Excluding LightStream, the increase
for the nine-month period was primarily in the Company's Internet activities.
[Underline]Selling, General and Administrative Expenses[End-Underline]
Selling, general, and administrative expenses for the three and nine
months ended March 31, 1996 increased $6.3 million and $22.6 million,
respectively, from the comparable FY1995 periods. Selling, general and
administrative expenses in the FY1995 nine-month period included $2.8 million
associated with LightStream. Excluding LightStream in the FY1995 nine-month
period, the increases for both the three and nine month periods ended March 31,
1996 primarily reflect the Company's continued investment in the sales and
marketing efforts of the Company's Internet-related activities. The increase
in the current period also includes $1.4 million of the charge recorded in the
nine-month period at BBN Domain to provide for employee related costs
associated with the decision to refocus its business (see Footnote D to the
consolidated financial statements).
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
[Underline]Goodwill Write-Off and Other Charges[End-Underline]
In the third quarter of FY1996, the Company recorded a charge of
approximately $20.7 million to write off goodwill previously recorded in
connection with the acquisitions of BARRNet and SURAnet in August 1994 and
March 1995, respectively, and certain other costs and employee related expenses
in connection with its announced reorganization (see Footnotes B and C to the
consolidated financial statements). The goodwill write-off was precipitated by
a business evaluation, which included a review of the Company's current
Internet-related business in comparison to expectations established at the time
of the acquisitions. The Internet services market has changed significantly
and is continuing to develop rapidly, including the emergence of new
competition, increasing downward pressure on prices, a more capital intensive
infrastructure, rapidly changing technology, and frequent new product and
service introductions (see Footnotes B and C to the consolidated financial
statements).
[Underline]Interest[End-Underline]
Interest income for the three and nine months ended March 31, 1996
decreased $0.5 million and increased $0.9 million, respectively, from the
comparable FY1995 periods. The changes are directly related to the level of
invested cash balances.
[Underline]Other Income[End-Underline]
Other income for the three months ended March 31, 1995 primarily includes
a $105.3 million gain, before taxes and minority interest, relating to the sale
of substantially all the assets of LightStream on January 11, 1995.
Other income for the nine months ended March 31, 1995 includes the
LightStream gain, and amounts arising from contracts which were substantially
completed in prior years. In December 1994, the Company settled a claim with
the U.S. government for approximately $0.7 million, resulting in a reduction in
liabilities of approximately $2.6 million which is included in other income for
the nine months ended March 31, 1995. Other income for the nine months ended
March 31, 1995 also includes approximately $0.9 million resulting from lower
than expected costs associated with a previously divested contract.
[Underline]Income Taxes[End-Underline]
The income tax benefit recorded in the nine-month period ended March 31,
1996 was approximately 10% and represents 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; the remaining income tax benefit at March
31, 1996 is approximately $1.3 million. The tax provision in the nine-month
period of FY1995 related primarily to the gain on the sale of Lightstream.
[Underline]Liquidity and Capital Resources[End-Underline]
As of March 31, 1996, the Company had cash and cash equivalents and short
term investments amounting to $72.5 million, a decrease of $38.3 million from
June 30, 1995. The decrease includes $22.9 million used by operations, $19.4
million used for capital expenditures, and $2.8 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 Footnote B to the consolidated financial
statements). Changes in cash balances due to fluctuation in foreign exchange
rates were insignificant.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Working capital, excluding cash and cash equivalents and short-term
investments, increased $6.2 million as a result of an increased level of
receivables and a $5.3 million tax refund due which is included in other
current assets.
The balance of accrued restructuring costs of $7.7 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.
In April 1996, the Company entered into a capital lease agreement to
finance certain equipment acquisitions. The total cost of the assets to be
covered by the lease is limited to $15.0 million. The agreement includes a
saleand leaseback of assets purchased during the nine months ended March 31,
1996 of approximately $7.0 million, and an $8.0 million commitment for assets
to be purchased through September 30, 1996.
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 at least through
the remainder of the current fiscal year. The Company may need to raise
additional funds through public or private debt or equity financings in order
to implement its strategy. There can be no assurance that any such funding
will be available, or of the terms or timing of any such funding. 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:
10.1 BBN Corporation 1996 Stock Incentive Plan
11.1 Computation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K dated May 15,
1996 with the Commission on May 15, 1996 reporting on
cautionary statements for the purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 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: May 15, 1996
<PAGE>
BBN CORPORATION
LIST OF EXHIBITS
10.1 BBN Corporation 1996 Stock Incentive Plan (page 21)
11.1 Computation of Net Income (Loss) Per Share (page 33)
27.1 Financial Data Schedule (page 34)
<PAGE>
<PAGE>
[Bold]BBN CORPORATION
1996 STOCK INCENTIVE PLAN[End-Bold]
SECTION 1. [Italics]General Purpose of the Plan; Definitions.[End-Italics]
The name of the plan is the BBN Corporation 1996 Stock Incentive Plan (the
"Plan"). The Plan has been adopted with a view toward facilitating and
increasing the long-term growth and profitability of BBN Corporation (the
"Company") and its subsidiaries by promoting Common Stock ownership by key
employees whose efforts can contribute to such long-term growth and
profitability.
The following terms shall be defined as set forth below:
a. "Award" or "Awards" means either Stock Options or Restricted Stock
awards or both, as the context requires.
b. "Board" means the Board of Directors of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations, and interpretations.
d. "Committee" means the Committee referred to in Section 2. If at any
time no Committee shall be in office, the functions of the Committee shall be
exercised by the Board.
e. "Disability" means disability as determined in accordance with
standards and procedures similar to those used under the Company's long-term
disability program.
f. "Fair Market Value" on any given date means the last sale price
regular way at which Stock is traded on such date as reflected in the New York
Stock Exchange-Composite Transactions Index or, where applicable, the value of
a share of Stock as determined by the Committee in accordance with the
applicable provisions of the Code.
g. "Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries on or after the normal retirement date specified
in the Company's tax qualified Retirement Trust Agreement.
h. "Restricted Stock Award" is defined in Section 7(a).
i. "Stock" means the Common Stock, $1.00 par value, of the Company,
subject to adjustments pursuant to Section 3.
j. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 6.
k. "Subsidiary" means any corporation or other entity (other than the
Company) in an unbroken chain beginning with the Company if each of the
entities (other than the last entity in the unbroken chain) owns stock or other
interests possessing 50% or more of the total combined voting power of all
classes of stock or other interest in one of the other corporations in the
chain.
<PAGE>
SECTION 2. [Italics]Committee Authority to Select Participants and Determine
Awards, Etc. [End-Italics]
The Plan shall be administered by the Compensation and Stock Option
Committee of the Board, which is appointed by the Board and serves at the
pleasure of the Board.
The Committee shall have the power and authority to grant Awards
consistent with the terms of the Plan, including the power and authority:
i. to select from among the eligible persons and entities described in
Section 4 those to whom Awards may from time to time be granted;
ii. to determine the time or times of Awards and the extent to which any
Award will consist of Stock Options or Restricted Stock or both;
iii. to determine the number of shares to be covered by any Award;
iv. to determine the terms and conditions, including restrictions, not
inconsistent with the terms of the Plan, of any Award, which terms
and conditions may differ among individual Awards and participants;
v. to determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the participant
and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
vi. to adopt, alter, and repeal such rules, guidelines and practices for
administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the
Plan and any Award (including related Award Agreements); to make all
determinations it deems advisable for the administration of the Plan;
to decide all disputes arising in connection with the Plan; and to
otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. [Italics]Shares Issuable Under the Plan; Mergers; Substitution [End-
Italics]
a. [Italics]Shares Issuable. [End-Italics] The maximum number of
shares of Stock reserved and available for issuance under the Plan
shall be 820,000, including shares issued in lieu of or upon
reinvestment of dividends arising from Awards. Awards and Stock which
are forfeited, reacquired by the Company, or satisfied without the
issuance of Stock shall not be counted against this limit. Shares
issued under the Plan shall consist of previously issued shares that
have been reacquired by the Company.
b. [Italics]Stock Dividends, Mergers, etc. [End-Italics] In the
event of a stock dividend, stock split, or similar change in
capitalization affecting the Stock, the Committee shall make
appropriate adjustments in (i) the number and kind of shares of stock
<PAGE>
or securities on which Awards may thereafter be granted, (ii) the
number and kind of shares remaining subject to outstanding Awards,
and (iii) the option or purchase price in respect of such shares. In
the event of any merger, consolidation, dissolution, or liquidation
of the Company, the Committee in its sole discretion may, as to any
outstanding Awards, make such substitution or adjustment in the
aggregate number of shares reserved for issuance under the Plan and
in the number and purchase price (if any) of shares subject to such
Awards as it may determine, or accelerate, amend, or terminate such
Awards upon such terms and conditions as it shall provide (which, in
the case of the termination of the vested portion of any Award, shall
require payment or other consideration which the Committee deems
equitable in the circumstances).
c. [Italics]Substitute Awards. [End-Italics] Subject to 3(a)
above, the Company may grant Awards under the Plan in substitution
for stock and stock based awards held by employees of or other
persons providing services to another corporation (including a
corporation affiliated with the Company) which corporation is merged
into or consolidated with the Company or a Subsidiary or the property
or stock of which is acquired by the Company or a Subsidiary. The
Committee may direct that the substitute awards be granted on such
terms and conditions as the Committee considers appropriate in the
circumstances.
SECTION 4. [Italics]Eligibility. [End-Italics]
Participants in the Plan will be such full or part time officers and other
key employees of the Company and its Subsidiaries ("Employees") and other
persons or entities who are responsible for or contribute to the management,
growth, or profitability of the Company and its Subsidiaries and who are
selected from time to time by the Committee. Persons who are directors of the
Company, other than any such person who is a full time employee or who is
providing (whether or not on a full time basis) consulting or similar services
to the Company in addition to services as a director, shall not be eligible for
awards under the Plan.
SECTION 5. [Italics]Limitations on Term and Dates of Awards. [End-Italics]
a. [Italics]Duration of Awards. [End-Italics] Subject to Sections
12(a), 12(c), and 12(d) below, no restrictions or limitations on
Awards shall extend beyond 10 years from the grant date, except that
deferrals, elected by participants, of the receipt of Stock or other
benefits under the Plan may extend beyond such date.
b. [Italics]Latest Grant Date. [End-Italics] No Award shall be
granted after January 1, 2006, but then-outstanding Awards may extend
beyond such date.
<PAGE>
SECTION 6. [Italics]Stock Options. [End-Italics]
Each Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve. Only nonstatutory Stock Options --
[Italics]i.e.,[End-Italics] Stock Options that do not qualify as "incentive
stock options" within the meaning of Section 422(b) of the Code -- may be
granted under the Plan.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall deem
desirable.
a. [Italics]Option Price. [End-Italics] The option price per share
of Stock purchasable under a Stock Option shall be determined by the
Committee and may be equal to or less than the Fair Market Value on
the date of grant.
b. [Italics]Option Term. [End-Italics] The term of each Stock
Option shall be fixed by the Committee but shall not exceed 10 years
from the date the option is granted.
c. [Italics]Exercisability. [End-Italics] Stock Options shall be
exercisable at such time or times, whether or not in installments, as
shall be determined by the Committee at or after the date of grant.
The Committee may at any time accelerate the exercisability of all or
any portion of any Stock Option.
d. [Italics]Method of Exercise. [End-Italics] Stock Options may be
exercised in whole or in part, by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such
notice shall be accompanied by payment in full of the purchase price,
either by certified or bank check or other instrument acceptable to
the Committee. As determined by the Committee, in its discretion, at
or after the time of grant, payment in full or in part may also be
made in the form of shares of Stock not then subject to restrictions
under any Company plan (but which may include shares the disposition
of which constitutes a disqualifying disposition for purposes of
obtaining incentive stock option treatment for federal tax purposes),
unless the Board should in any case determine otherwise. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date. An optionee shall have the rights of a shareholder
only as to shares acquired upon the exercise of a Stock Option and
not as to unexercised Stock Options.
e. [Italics]Non-transferability of Options. [End-Italics] No Stock
Option shall be transferable by the optionee otherwise than by will
or by the laws of descent and distribution, and all Stock Options
shall be exercisable, during the optionee's lifetime, only by the
optionee.
f. [Italics]Termination by Death. [End-Italics] If an optionee's
employment by or other service relationship with the Company and its
Subsidiaries terminates by reason of death, the Stock Option may
thereafter be exercised, both as to that portion which was
exercisable by the optionee immediately prior to death and, except as
otherwise determined by the Committee, as to any remaining portion,
<PAGE>
by the legal representative or legatee of the optionee, for a period
of three years (or such other period, not to exceed three years, as
the Committee shall specify at or after the time of grant) from the
date of death or until the expiration of the stated term of the
option, if earlier.
g. [Italics]Termination by Reason of Disability. [End-Italics] Any
Stock Option held by an optionee whose employment by or other service
relationship with the Company and its Subsidiaries has terminated, or
who has been designated an inactive employee, by reason of Disability
may thereafter be exercised to the extent it was exercisable at the
time of the earlier of such termination or such designation (or on
such accelerated basis as the Committee shall at any time determine
prior to such termination or designation) for a period of three years
(or such other period, not to exceed three years, as the Committee
shall specify at or after the time of grant) from the date of such
termination of employment or other service relationship or
designation or until the expiration of the stated term of the option,
if earlier. Except as otherwise provided by the Committee at the
time of grant, the death of an optionee during the final year of such
exercise period shall extend such period for one year following
death, or until the expiration of the stated term of the option, if
earlier. The Committee shall have the authority to determine whether
a participant has been terminated or designated an inactive employee
by reason of Disability.
h. [Italics]Termination by Reason of Normal Retirement. [End-
Italics] If an optionee's employment by the Company and its
Subsidiaries terminates by reason of Normal Retirement, any Stock
Option held by such optionee may thereafter be exercised to the
extent that it was then exercisable (or on such accelerated basis as
the Committee shall at any time determine) for a period of three
years (or such other period, not to exceed three years, as the
Committee shall specify at or after the time of grant) from the date
of Normal Retirement or until the expiration of the stated term of
the option, if earlier. Except as otherwise provided by the
Committee at the time of grant, the death of an optionee during the
final year of such exercise period shall extend such period for one
year following death, or until the expiration of the stated term of
the option, if earlier.
i. [Italics]Other Termination. [End-Italics] Unless otherwise
determined by the Committee, if an optionee's employment by or other
service relationship with the Company or its Subsidiaries terminates
for any reason other than death, Disability or Normal Retirement, any
Stock Option held by such optionee may thereafter be exercised to the
extent it was exercisable on the date of termination of employment or
other termination of the service relationship (or on such accelerated
basis as the Committee shall determine at or after the time of grant)
for a period of sixty (60) days (or such longer period up to three
years as the Committee shall specify at or after the time of grant)
from the date of termination of employment or other termination of
the service relationship or until the expiration of the stated term
of the option, if earlier, [Italics]provided,[End-Italics] that if
the optionee's employment or other service relationship is terminated
<PAGE>
for "cause" as a result of the optionee's misconduct which, in the
judgment of the Committee, casts discredit on him or her, or is
otherwise harmful to the business, interests or reputation of the
Company, its parent, or a Subsidiary, all Stock Options shall
terminate immediately.
For purposes of the preceding paragraph, if an optionee's employment
by the Company or its Subsidiaries is terminated under circumstances
entitling the optionee to cash severance pay under any written
severance plan, program, policy, or agreement of the Company or its
Subsidiaries in force at the time of such termination of employment
(a "Severance Program"), then except as otherwise determined by the
Committee any Stock Option held by the optionee at termination of
employment shall be treated as "exercisable on the date of
termination of employment" as to those shares for which it was in
fact exercisable immediately prior to termination of employment plus
any additional shares for which it would have become exercisable
during the severance period (as hereinafter defined) had the optionee
remained employed by the Company or its Subsidiaries. For purposes
of the preceding sentence, the severance period in the case of any
terminated employee entitled to severance under a Severance Program
shall be the period of weeks over which his or her cash severance, if
paid as salary continuation, would have been paid (whether or not
such severance is in fact so paid in such form).
j. [Italics]Form of Settlement. [End-Italics] Subject to Sections
12(a), 12(c), and 12(d) below, shares of Stock issued upon exercise
of a Stock Option shall be free of all restrictions under the Plan,
except that the Committee in its discretion may provide at time of
grant that the shares to be issued upon the exercise of a Stock
Option shall be in the form of Restricted Stock, or may reserve the
right to so provide after time of grant.
SECTION 7. [Italics]Restricted Stock; Unrestricted Stock. [End-Italics]
a. [Italics]Nature of Restricted Stock Award. [End-Italics] A
Restricted Stock Award is an Award entitling the recipient to acquire
shares of Stock for a purchase price (which may be zero), subject to
such conditions, including a Company right during a specified period
or periods to repurchase such shares at their original purchase price
(or to require forfeiture of such shares, if the purchase price was
zero) upon the participant's termination of employment or other
service relationship, as the Committee may determine at the time of
grant. The original purchase price, if any, shall be determined by
the Committee.
b. [Italics]Award Agreement. [End-Italics] A participant who is
granted a Restricted Stock Award shall have no rights with respect to
such Award unless the participant shall have accepted the Award
(within such period following the award date as the Committee may
specify) by making payment to the Company by certified or bank check
or other instrument acceptable to the Committee in an amount equal to
the specified purchase price, if any, of the shares covered by the
Award and by executing and delivering to the Company a Restricted
Stock Award Agreement in such form as the Committee shall determine.
<PAGE>
c. [Italics]Rights as a Shareholder. [End-Italics] Upon complying
with paragraph (b) above, a participant shall have all the rights of
a shareholder with respect to the Restricted Stock including voting
and dividend rights, subject to nontransferability restrictions and
Company repurchase or forfeiture rights described in this Section and
subject to any other conditions contained in the Award Agreement.
Unless the Committee shall otherwise determine, certificates
evidencing shares of Restricted Stock shall remain in the possession
of the Company until such shares are free of any restrictions under
the Plan.
d. [Italics]Restrictions. [End-Italics] Shares of Restricted
Stock may not be sold, assigned, transferred, pledged, or otherwise
encumbered or disposed of except as specifically provided herein. In
the event of termination of employment or other service relationship
of the participant with the Company and its Subsidiaries for any
reason, such shares shall be resold to the Company at their purchase
price, or forfeited to the Company if the purchase price was zero,
except as set forth below.
i. The Committee at the time of grant shall specify the date or
dates (which may depend upon or be related to the attainment of
performance goals and other conditions) on which the
nontransferability of the Restricted Stock and the obligation to
resell or forfeit such shares to the Company shall lapse. The
Committee at any time may accelerate such date or dates and
otherwise waive or, subject to Section 10, amend any conditions
of the Award.
ii. Except as may otherwise be provided in the Award Agreement, in
the event of termination of employment by or other service
relationship of a participant with the Company and its
Subsidiaries for any reason (including death), the participant
or the participant's legal representative shall offer to resell
to the Company, at the price paid therefor, all Restricted
Stock, and the Company shall have the right to purchase the same
at such price, or if the price was zero to require forfeiture of
the same, provided that except as provided in the Award
Agreement, the Company must exercise such right of repurchase or
forfeiture not later than the 60th day following such
termination of employment or other service relationship.
e. [Italics]Waiver, Deferral, and Investment of Dividends. [End-
Italics] The Restricted Stock Award Agreement may require or permit
the immediate payment, waiver, deferral, or investment of dividends
paid on the Restricted Stock.
f. [Italics]Unrestricted Stock.[End-Italics] The Committee may, in
its sole discretion, grant (or sell at such purchase price as the
Committee determines) to any participant shares of Stock free of
restrictions under the Plan ("Unrestricted Stock"). Shares of
Unrestricted Stock may be granted or sold as described in the
preceding sentence in respect of past services or other valid
consideration.
<PAGE>
SECTION 8. [Italics]Deemed Dividends; Deferrals; Supplemental Grants.[End-
Italics]
a. [Italics]Deemed Dividend Payments; Deferrals. [End-Italics]
Without limiting the right of the Committee to specify different
terms, the Committee may require or permit the immediate payment,
waiver, deferral, or investment of dividends or deemed dividends
payable or deemed payable on Stock subject to an Award.
b. [Italics]Supplemental Grants. [End-Italics] The Company may in
its sole discretion make a loan to the recipient of an Award
hereunder, either on or after the date of grant of such Award. Such
loans may be made either in connection with the exercise of a Stock
Option or in connection with the payment of any federal income tax in
respect of income recognized with respect to Restricted Stock. The
Committee shall have full authority to decide whether to make a loan
hereunder and to determine the amount, term, and provisions of any
such loan, including the interest rate (which may be zero) charged in
respect of any such loan, whether the loan is to be secured or
unsecured, the terms on which the loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no loan
hereunder shall provide or reimburse to the borrower the amount used
by him for the payment of the par value of any shares of Common Stock
issued, have a term (including extensions) exceeding ten years in
duration, or be in an amount exceeding the total exercise or purchase
price paid by the borrower under an Award or for related Stock under
the Plan plus an amount equal to the cash payment permitted in the
following paragraph.
The Committee may at any time authorize a cash payment, in respect of
the grant or exercise of an Award under the Plan or the lapse or
waiver of restrictions under an Award, which shall not exceed the
amount which would be required in order to pay in full the federal
income tax due as a result of income recognized by the recipient
under both the Award and such cash payment, in each case assuming
that such income is taxed at the regular maximum marginal rate
applicable to individuals under the Code as in effect at the time
such income is includable in the recipient's income. Subject to the
foregoing, the Committee shall have complete authority to decide
whether to make such cash payments in any case, to make provision for
such payments either simultaneously with or after the grant of the
associated Award, and to determine the amount of each such payment.
SECTION 9. [Italics]Transfer, Leave of Absence, Etc. [End-Italics]
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
a. a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another;
or
b. an approved leave of absence for military service or sickness,
or for any other purpose approved by the Company, if the employee's
right to reemployment is guaranteed either by a statute or by
contract or under the policy pursuant to which the leave of absence
was granted or if the Committee otherwise so provides in writing.
<PAGE>
For purposes of Section 6(i) and Section 7(a), except as otherwise determined
by the Committee an optionee employed as an employee by the Company and its
Subsidiaries shall be treated as having incurred a termination of employment by
or other service relationship with the Company and its Subsidiaries on the date
he or she ceases to be an employee, whether or not he or she continues to
provide services to the Company or its Subsidiaries on some other basis.
SECTION 10. [Italics]Amendment and Termination. [End-Italics]
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially
granted under this Plan) for the purpose of satisfying changes in law or for
any other lawful purpose, but no such action shall adversely affect rights
under any outstanding Award without the holder's consent.
SECTION 11. [Italics]Status of Plan. [End-Italics]
With respect to the portion of any Award which has not been exercised and
any payments in cash, stock, or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the provision of the foregoing sentence.
SECTION 12 [Italics]General Provisions. [End-Italics]
a. [Italics]No Distribution; Compliance with Legal Requirements,
etc. [End-Italics] The Committee may require each person acquiring
shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a
view to distribution thereof. No shares of Stock shall be issued
pursuant to an Award until all applicable securities laws and other
legal and stock exchange requirements have been satisfied. The
Committee may require the placing of such stop-orders and restrictive
legends on certificates for Stock and Awards as it deems appropriate.
b. [Italics]Other Compensation Arrangements; No Employment Rights.
[End-Italics] Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases. Without limiting the foregoing, nothing herein shall
be construed as limiting the right of an individual receiving or
holding an Award hereunder from being awarded, or from continuing to
hold, an award under the Company's 1986 Stock Incentive Plan. The
adoption of the Plan does not confer upon any employee or other
person any right to continued employment by or the continuation of
any service relationship with the Company or a Subsidiary, nor does
it interfere in any way with the right of the Company or a Subsidiary
to terminate the employment or other service relationship that may
exist between it and any person.
<PAGE>
c. [Italics]Tax Withholding, etc. [End-Italics] Each participant
shall, no later than the date as of which the value of an Award or of
any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income
tax purposes, pay to the Company, or make arrangements satisfactory
to the Committee regarding payment of, any Federal, state, or local
taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
d. [Italics]Cancellation of Awards. [End-Italics] The Committee
may provide, with respect to any Award, that the Award shall be
canceled or rescinded and any associated shares forfeited, and that
the participant be obligated to pay to the Company any gain received
upon exercise or vesting, in the event that the participant competes
with the Company or its Subsidiaries, discloses confidential
information of the Company or its Subsidiaries, or otherwise is not
in compliance with any provision of the Award, in each case on such
terms and conditions as the Committee considers appropriate in the
circumstances.
SECTION 13. [Italics]Effective Date of Plan. [End-Italics]
The Plan shall be effective as of January 17, 1996, the date of its
adoption by the Board.
<PAGE>
<PAGE>
BBN CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(000's except per-share data)
Three Months Ended
-------------------------------------------
March 31, 1996 March 31, 1995
-------------------- --------------------
Fully Fully
Primary Diluted Primary Diluted
--------- --------- --------- ---------
Weighted average
shares outstanding 17,802 17,802 17,192 17,192
Incremental shares from use
of treasury stock method
for stock options (a) (a) 926 1,071
--------- --------- --------- ---------
Shares used in per-share
calculations 17,802 17,802 18,118 18,263
========= ========= ========= =========
Net income (loss) $(29,141) $(29,141) $ 74,467 $ 74,467
========= ========= ========= =========
Net income (loss) per share $ (1.64) $ (1.64) $ 4.11 $ 4.08
========= ========= ========= =========
Nine Months Ended
-------------------------------------------
March 31, 1996 March 31, 1995
-------------------- --------------------
Fully Fully
Primary Diluted Primary Diluted
--------- --------- --------- ---------
Weighted average
shares outstanding 17,670 17,670 16,873 16,873
Incremental shares from use
of treasury stock method
for stock options (a) (a) 991 1,221
--------- --------- --------- ---------
Shares used in per-share
calculations 17,670 17,670 17,864 18,094
========= ========= ========= =========
Net income (loss) $(45,682) $(45,682) $(70,734) $(70,734)
========= ========= ========= =========
Net income (loss) per share $ (2.59) $ (2.59) $ 3.96 $ 3.91
========= ========= ========= =========
(a) Incremental shares were not used as their effect would be antidilutive.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 36,021
<SECURITIES> 36,442
<RECEIVABLES> 67,309 <F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 150,955
<PP&E> 39,831 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 193,420
<CURRENT-LIABILITIES> 74,666
<BONDS> 73,170
0
8,000
<COMMON> 22,352
<OTHER-SE> 14,480
<TOTAL-LIABILITY-AND-EQUITY> 193,420
<SALES> 71,347
<TOTAL-REVENUES> 71,347
<CGS> 50,252
<TOTAL-COSTS> 50,252
<OTHER-EXPENSES> 51,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,077
<INCOME-PRETAX> (30,163)
<INCOME-TAX> (1,022)
<INCOME-CONTINUING> (29,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,141)
<EPS-PRIMARY> (1.64)
<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>
</TABLE>
