<PAGE>
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, 1997 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 May
5, 1997: 21,230,097
Exhibit index appears on page 20
<PAGE>
BBN CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996....................3
Consolidated Statements of Operations -
Nine Months Ended March 31, 1997 and 1996.....................4
Consolidated Balance Sheets -
as of March 31, 1997 and June 30, 1996........................5
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1997 and 1996.....................6
Notes to Consolidated Financial Statements.......................7
Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................11
Part II. Other Information
Item 2. Changes in Securities..................................18
Item 6. Exhibits and Reports on Form 8-K.......................18
Signatures......................................................19
Note: Page references relate solely to this document in its
traditional filing format.
<PAGE>
ITEM 1. PART I. FINANCIAL INFORMATION
BBN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Amounts in thousands, except shares and per-share data
Three Months Ended
------------------------------
March 31 March 31
1997 1996
------------ ------------
Revenue $ 95,926 $ 60,818
------------ ------------
Costs and expenses:
Cost of revenue 83,535 48,281
Research and development 3,364 3,839
Selling, general and administrative 21,169 17,770
Goodwill write-off and other charges 20,718
------------ ------------
108,068 90,608
------------ ------------
Loss from operations (12,142) (29,790)
Interest income 1,312 1,167
Interest expense (1,380) (1,077)
------------ ------------
Loss from continuing operations
before income taxes (12,210) (29,700)
Income taxes (1,022)
------------ ------------
Loss from continuing operations (12,210) (28,678)
Loss from discontinued operations
(net of applicable income taxes) (463)
------------ ------------
Net loss $ (12,210) $ (29,141)
============ ============
Loss per share:
Continuing operations $ (.58) $ (1.61)
Discontinued operations (.03)
------------ ------------
Net loss per share $ (.58) $ (1.64)
============ ============
Shares used in per-share calculations 21,220,000 17,802,000
============ ============
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Amounts in thousands, except shares and per-share data
Nine Months Ended
------------------------------
March 31 March 31
1997 1996
------------ ------------
Revenue $ 254,145 $ 165,607
------------ ------------
Costs and expenses:
Cost of revenue 214,025 126,065
Research and development 9,256 8,826
Selling, general and administrative 64,438 54,022
Goodwill write-off and other charges 20,718
------------ ------------
287,719 209,631
------------ ------------
Loss from operations (33,574) (44,024)
Interest income 4,591 3,754
Interest expense (4,163) (3,336)
------------ ------------
Loss from continuing operations
before income taxes (33,146) (43,606)
Income taxes (4,953)
------------ ------------
Loss from continuing operations (33,146) (38,653)
Income (loss) from discontinued operations
(net of applicable income taxes) 20,000 (7,029)
------------ ------------
Net loss $ (13,146) $ (45,682)
============ ============
Income (loss) per share:
Continuing operations $ (1.54) $ (2.19)
Discontinued operations .93 (.40)
------------ ------------
Net loss per share $ (.61) $ (2.59)
============ ============
Shares used in per-share calculations 21,566,000 17,670,000
============ ============
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
March 31 June 30
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (includes restricted
cash of $4,711 at June 30, 1996) $ 50,054 $ 79,533
Short-term investments 54,388 40,742
Accounts receivable, net 81,499 60,825
Other current assets 5,762 10,314
Net assets of discontinued operations 8,082
------------ ------------
Total current assets 191,703 199,496
Property, plant and equipment, net 73,327 48,069
Other assets 7,077 1,772
------------ ------------
Total assets $ 272,107 $ 249,337
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,011 $ 27,702
Accrued compensation and retirement plan 6,457 8,272
Accrued restructuring charges 6,289 7,352
Other accrued costs 30,046 16,649
Short term lease obligations 9,029 4,041
Deferred revenue 28,772 15,369
------------ ------------
Total current liabilities 106,604 79,385
6% convertible subordinated debentures due 2012 73,170 73,170
Capital lease obligation 15,294 8,692
Minority interests 23 754
Redeemable convertible preferred stock of subsidiary 8,000
Redeemable common stock 8,000
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value, authorized:
100,000,000 shares; issued: 25,226,548 shares at
March 31, 1997 and 24,911,529 shares at
June 30, 1996 25,227 24,912
Additional paid-in capital (net of $1,639 of 113,279 114,536
deferred compensation at March 31, 1997)
Accumulated deficit (41,071) (27,925)
------------ ------------
97,435 111,523
Less shares in treasury, at cost: 3,997,551 and
4,527,464 shares at March 31, 1997 and
June 30, 1996, respectively (28,419) (32,187)
------------ ------------
Total shareholders' equity 69,016 79,336
------------ ------------
Total liabilities and shareholders' equity $ 272,107 $ 249,337
============ ============
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
1997 1996
------------ ------------
Cash flows from continuing operating activities:
Loss from continuing operations $ (33,146) $ (38,653)
------------ ------------
Adjustments to reconcile loss from continuing operations
to net cash used by operating activities:
Depreciation and amortization 13,288 7,650
Amortization of goodwill 1,043
Goodwill write-off and other charges 20,718
Change in assets and liabilities:
Accounts receivable (20,674) (13,595)
Other assets (1,953) (2,310)
Accounts payable and other liabilities 5,685 7,740
Restructuring expenditures (1,063) (1,490)
Deferred revenue 13,403 6,730
Income taxes, net 6,200 (5,300)
Other (1,162)
------------ ------------
Total adjustments 14,886 20,024
------------ ------------
Net cash used by continuing operating
activities (18,260) (18,629)
------------ ------------
Cash flows from discontinued operating activities (2,272) (2,594)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of BBN Domain 36,000
Purchases of short-term investments, net (13,646) (36,442)
Additions to property, plant and equipment (40,546) (17,289)
Additions to property, plant and equipment
from discontinued operations (2,128)
Investment in joint venture (5,000)
Payments to minority owner (762) (2,827)
------------ ------------
Net cash used by investing activities (23,954) (58,686)
------------ ------------
Cash flows from financing activities:
Sale of redeemable convertible preferred 8,000
stock of subsidiary
Equipment sale and leaseback 14,589
Repayments on capital lease obligations (2,999)
Employee stock purchase and option plans 3,417 (1,180)
------------ ------------
Net cash provided by financing activities 15,007 6,820
------------ ------------
Net decrease in cash and cash equivalents (29,479) (73,089)
Cash and cash equivalents-beginning of period 79,533 107,608
------------ ------------
Cash and cash equivalents-end of period $ 50,054 $ 34,519
============ ============
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Agreement and Plan of Merger with GTE Corporation
Effective on May 5, 1997, the Board of Directors of the Company approved
an Agreement and Plan of Merger between the Company and GTE Corporation
("GTE") under which GTE would acquire, for cash, all of the outstanding
shares of BBN common stock at a price of $29 per share. Based on the
number of shares of BBN stock currently outstanding, the equity portion of
the transaction is valued at approximately $616 million. GTE has commenced
a cash tender offer to acquire all of the outstanding shares of BBN. As
soon as practicable following the conclusion of the tender offer, GTE
would initiate a merger through which any remaining shares of BBN not
otherwise purchased by GTE in the tender offer would be converted in the
merger into the right to receive cash at the tender offer price. If the
proposed transaction with GTE is not consummated, it is anticipated that
the Company's current management, under the general direction of the
Company's Board, will continue to manage the Company on an ongoing basis.
B. Basis of Presentation
The following financial information gives no effect to the transaction
disclosed above in Footnote A, "Agreement and Plan of Merger with GTE
Corporation". The financial information included herein, with the
exception of the consolidated balance sheet at June 30, 1996, 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. The results for these periods are not necessarily
indicative of the results for the full fiscal year. The net assets and
liabilities of BBN Domain at June 30, 1996, and the related results of
operations and cash flows for the periods presented, are classified as
discontinued operations in the consolidated financial statements. Refer
to Footnote G, "Discontinued Operations" for further discussion.
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 and
Exchange Commission for the year ended June 30, 1996.
C. Change in Accounting Estimate
Effective July 1, 1996, the Company revised its estimate of the useful
life of certain data communications equipment from three to five years to
better reflect the useful service period of the related equipment. The
change had the effect of reducing depreciation expense and the loss from
continuing operations by approximately $1,000,000 or $.05 per share, and
$2,000,000 or $.09 per share for the three and nine months ended March 31,
1997, respectively.
D. 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 a reorganization. The goodwill write-off was
precipitated by a business evaluation, which included a review of the
Company's then-current Internet-related business in comparison to
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
expectations established at the time of the acquisitions. 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.
E. Segment Information
The following is a summary of business segment information from continuing
operations for the three and nine months ended March 31, 1997 and 1996,
respectively.
Three Months Ended Nine Months Ended
March 31 March 31
-------------------- --------------------
Dollars in thousands 1997 1996 1997 1996
--------- --------- --------- ---------
Revenue:
BBN Planet $ 48,231 $ 20,557 $120,115 $ 47,381
BBN Systems and Technologies 49,204 40,976 136,782 119,692
Eliminations (1,509) (715) (2,752) (1,466)
--------- --------- --------- ---------
$ 95,926 $ 60,818 $254,145 $165,607
========= ========= ========= =========
Income (loss) from operations:
BBN Planet $(13,388) $ (8,597) $(35,944) $(23,458)
BBN Systems and Technologies 1,609 80 3,497 2,378
Goodwill write-off and other
charges (20,718) (20,718)
Unallocated corporate expenses (363) (555) (1,127) (2,226)
--------- --------- --------- ---------
$(12,142) $(29,790) $(33,574) $(44,024)
========= ========= ========= =========
F. Other Assets
On August 14, 1996, the Company and Andersen Consulting LLP entered into a
joint venture aimed at exploring and developing opportunities in the
Internet market. The Company contributed $5,000,000 in exchange for an
approximately 12.5% ownership stake in the venture entity; Andersen
Consulting LLP retains the remaining 87.5% interest. The Company entered
into an agreement with Andersen Consulting LLP to provide the joint
venture with technical and engineering services. The value of such
services for the nine months ended March 31, 1997 was approximately
$2,500,000.
G. Discontinued Operations
On July 31, 1996 the Company completed the divestiture of a majority
interest in its former subsidiary BBN Domain Corporation ("Domain").
Under the terms of the agreement, Domain has been recapitalized, a
significant portion of the Company's interest has been redeemed, and a
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
majority of the stock interest in Domain has been purchased by an
investment group. The Company received a cash payment of $36,000,000 and
will retain a minority interest in the voting stock of the renamed Domain
Solutions Corporation. Domain Solutions Corporation has retained
substantially all assets and liabilities related to its operations. The
net gain recorded on the divestiture was $20,000,000 after considering
costs of approximately $8,000,000 including facilities, employee related
costs and other costs incurred in connection with the divestiture. The
net assets, liabilities, results of operations and cash flows of Domain
are classified as discontinued operations in the consolidated financial
statements.
H. Capital Lease Agreements
In March 1997, the Company entered into an agreement to finance certain
equipment acquisitions. The agreement includes a sale/leaseback of assets
purchased during the nine months ended March 31, 1997 at a cost of
approximately $14,589,000. Assets acquired under the lease serve to
collateralize the debt. The borrowing bears interest at an effective rate
of 9.75% and has a term of sixty months, with principal and interest
payable quarterly in advance and payments commencing April 1, 1997. The
lease includes purchase and renewal options at fair market values, and has
been classified as a capital lease in accordance with Statement of
Financial Accounting Standards No. 13, "Accounting for Leases."
I. Redeemable Common Stock and Preferred Stock of Subsidiary
In July 1995, AT&T Venture Company, L.P. ("AT&T Venture") purchased
1,000,000 shares of BBN Planet's Series A Redeemable Convertible Preferred
Stock for $8,000,000. On August 6, 1996, AT&T Venture's preferred stock
investment was exchanged for 400,000 common shares of BBN Corporation.
The common shares, which were sold from treasury shares in a private
offering, are restricted and were not registered under the Securities Act
of 1933 ("the Act") and may not be transferred or assigned before the
sooner of the filing of an effective registration statement under the Act
or an exemption from registration is available. The Company could be
required, under certain circumstances, to register the shares under the
Act; in addition, the holders of the shares are entitled to certain
registration rights in connection with the filing of a registration
statement initiated by the Company. During one year following the
exchange, AT&T Venture may require the Company to repurchase all or any
part of the common shares at a price of $20.00 per share.
J. Common Stock
As of September 9, 1996, the common stock investments held by four
institutional minority shareholders in BBN Planet were converted into an
aggregate of 92,000 common shares of BBN Corporation. The shares, which
were sold from treasury shares in a private offering, are restricted and
were not registered under the Act and may not be offered or sold before
the sooner of the filing of an effective registration statement under the
Act or an exemption from registration is available. The Company could be
required, under certain circumstances, to register 80,000 of the shares
under the Act; in addition, the holder of such 80,000 shares is entitled
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
to certain registration rights in connection with the filing of a
registration statement initiated by the Company. Refer to Footnote I,
"Redeemable Common Stock and Preferred Stock of Subsidiary," for
discussions of the conversion of BBN Planet's preferred shareholder's
investment into common shares of BBN Corporation.
K. Restricted Stock Grants
In November 1996, the Company issued 80,300 shares of restricted common
stock under its 1986 Stock Incentive Plan to certain key technical and
operational employees. The restrictions lapse on 25% of the shares per
year over the four years following issuance. The value of the shares on
the date of grant has been recorded to deferred compensation, and will be
amortized over the four-year restriction period.
L. 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.
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 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. Based upon its interpretations of government contract
regulations, DCAA in August 1996 recommended 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 on the basis of the DCAA recommendations is not
currently determinable. The Company and its counsel believe that DCAA's
recommendations, in substantial part, are based upon incorrect
interpretations of government contract regulations and are inconsistent
<PAGE>
BBN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
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.
On May 13, 1997, the Company entered into a long-term lease arrangement to
occupy 100,000 square feet of space in Burlington, Massachusetts. The
lease also provides an option for the Company to occupy additional space
in the building. The initial term of the lease is ten years commencing
April 1998, with a right to extend. The space requirement is necessitated
by the growth in the Company's business and the expiration, in June 1998,
of an existing lease in Cambridge, Massachusetts. The estimated annual
minimum lease commitment will approximate $2 million. The Company has
made a security deposit of $2 million which is subject to reduction during
the term of the lease.
M. Recent Pronouncements
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.
During 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 requires the
Company to disclose a basic and diluted earnings per share calculation.
Basic earnings per share excludes common stock equivalents from the EPS
calculation, while diluted EPS is calculated consistent with the Company's
fully diluted earnings per share calculation. The Company will adopt the
provisions of SFAS No. 128 within the December 31, 1997 period-end
consolidated financial statements. Income (loss) per share, as computed
under SFAS No. 128, would not be significantly different from income
(loss) per share as reported for the periods presented.
<PAGE>
ITEM 2.
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
- --------------------------
This discussion includes certain forward-looking statements about the
Company's revenue growth, including from its Internet-related activities, the
need for additional investment including capital expenditures, expected
expenses, operating losses, and possible capital and funding needs. Any such
statements are subject to risks that could cause the actual results or needs to
vary materially. Certain of these risks are discussed in the appropriate
sections of this Report. Each of these risk factors, and others, affecting the
Company's business are further discussed from time to time in the Company's
filings with the Securities and Exchange Commission, including its Report on
Form 8-K dated November 14, 1996. In addition, actual results and capital
needs may vary materially because of the effects of the proposed GTE
transaction described below or because the proposed GTE transaction is not
consummated.
Agreement and Plan of Merger
- ----------------------------
Effective on May 5, 1997, the Board of Directors of the Company approved
an Agreement and Plan of Merger between the Company and GTE Corporation
("GTE"), under which GTE would acquire, for cash, all the outstanding shares of
BBN common stock at a price of $29 per share. Based on the number of shares of
BBN stock currently outstanding, the equity portion of the transaction is
valued at approximately $616 million. GTE has commenced a cash tender offer to
acquire all the outstanding shares of BBN. As soon as practicable following
the conclusion of the tender offer, GTE would initiate a merger through which
any remaining shares of BBN not otherwise purchased by GTE in the tender offer
would be converted in the merger into the right to receive cash at the tender
offer price.
The Company
- -----------
The Company is a leading provider of Internet and internetworking services
and solutions to businesses and other organizations, and a provider of contract
research, development, and consulting services to governmental and other
organizations. The Company operates through two principal business units: BBN
Planet and BBN Systems and Technologies. BBN Planet is responsible for BBN's
Internet offerings to business and other organizational customers, and includes
the Company's managed Internet access and value-added services and related
network operations, the Company's contract with AT&T Corp. ("AT&T"), and the
Company's network management contract with America Online, Incorporated ("AOL")
and related Internet dial-up access capabilities. BBN Systems and Technologies
focuses on providing networking solutions and contract research and
development, principally for the federal government, and is organized into
three principal groups: Internetwork Technologies, Information Systems and
Technologies, and Physical Systems and Technologies. The Company's commercial
speech recognition activities are included in BBN Systems and Technologies.
On July 31, 1996, the Company completed the divestiture of a majority
interest in BBN Domain, then a wholly-owned subsidiary of the Company engaged
in selling data analysis and process optimization software products for
pharmaceutical and manufacturing applications. BBN Domain is now accounted for
as a discontinued operation. Upon consummation of the transaction, the Company
received a cash payment of $36 million, and recorded a gain from
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
discontinued operations of $20 million during the first quarter ended September
30, 1996. With the divestiture of BBN Domain, a number of products, which in
recent years had significant development efforts, including BBN Domain's
Cornerstone, Clintrial, and Starfire software, are no longer offered for sale
by the Company.
BBN Planet
- ----------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
(dollars in millions)
Revenue $ 48.2 $ 20.5 $ 120.1 $ 47.4
Costs and expenses:
Cost of revenue 46.8 19.1 115.1 43.8
Research and development 1.9 1.4 5.2 2.7
Selling, general and administrative 12.9 8.6 35.7 24.3
-------- -------- -------- --------
Loss from operations $ (13.4) $ (8.6) $ (35.9) $ (23.4)
======== ======== ======== ========
BBN Planet provides a range of Internet services and solutions to
businesses and other organizations. BBN Planet operates a high-bandwidth
digital data communications network providing dedicated Internet access to its
customers across the United States. BBN Planet's Internet access services
include a range of dedicated leased line connectivity options, bulk private-
label business dial-up services, network design, implementation, management,
monitoring, and problem-resolution services. In addition to Internet access
services, BBN Planet currently offers a range of value-added Internet services,
including managed Internet security, World Wide Web server hosting,
applications development, and systems integration services.
BBN Planet's revenue includes monthly connectivity and value-added
services fees, related installation fees, sales of related equipment, and
consulting and network management service fees. Approximately 48% and 47% of
BBN Planet's revenues for the three and nine month periods ended March 31,
1997, respectively, were derived from the development, operations, and
maintenance of a portion of AOL's dial-up network. A substantial portion of
this AOL-related revenue represents the pass-through costs to BBN for
telecommunications circuits and services.
In support of its Internet business strategy, the Company has entered into
strategic alliances. In FY1995, the Company entered into a five-year agreement
with AOL, originally valued at approximately $11 million per year, to develop,
operate, and maintain a portion of AOL's nationwide, high-speed, dial-up
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
network. In October 1996, AOL and the Company significantly expanded this
relationship by signing a four year replacement agreement, valued at $340
million, under which BBN will continue to develop, operate, and maintain a
portion of AOL's network. The Company has subsequently received substantial
additional work, expanding the value of the contract to in excess of $700
million over the four years. The current contract provides for cost recovery
on a per modem basis within an agreed upon range, plus a fee consistent with
cost reimbursement contracts. The contract provides that BBN and AOL will
share equally in cost reductions below a minimum specified cost per modem,
while in certain circumstances cost per modem above a specified maximum will be
the responsibility of BBN. As with the original agreement, the replacement
agreement includes substantial pass-through costs to BBN, primarily for
telecommunications circuits. As part of BBN's agreement with AOL, the Company
has access to use certain capacity of the portion of the AOL network operated
by BBN, and BBN has the right to resell a portion of such capacity as the basis
for its own bulk dial-up service for business users. The availability of this
network capacity is currently limited primarily to business hours under the
agreement, and may be further limited by general availability limitations on
the AOL network.
In FY1995, BBN and AT&T entered into a strategic relationship under which
BBN provides 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. BBN is the exclusive provider under this
agreement for the first two years of the agreement. Not later than September 1,
1997, BBN will cease being the exclusive provider to AT&T and AT&T may obtain
such services from other providers or may provision such services itself. At
such time BBN will be permitted to market and provide such services to other
large telecommunications carriers. Under the terms of the Internet Services
Agreement, AT&T had agreed to purchase a minimum amount of services during the
first three years of the agreement, subject to certain adjustments. During the
first year of the agreement ended August 31, 1996, AT&T met its first year
minimum commitment of $20 million, accounting for a substantial portion of BBN
Planet's new high-speed connections orders. The number of new AT&T-related
connections continued to be a substantial portion of BBN Planet's total new
connections in the three month period ended March 31, 1997. The Company and
AT&T are currently in discussions concerning the Internet Services Agreement
and have initiated the dispute resolution procedures provided for in the
Agreement in order to resolve material disagreements regarding terms of the
contract. These disagreements may limit the number of new AT&T customers being
added to BBN's network and related revenues. In addition, AT&T has the right
to terminate the Internet Services Agreement in connection with the change of
control of the Company contemplated by the proposed GTE transaction.
BBN Planet has experienced significant revenue growth and incurred
substantial operating losses. The Company expects continued revenue growth in
BBN Planet, and it expects to incur substantial operating losses in FY1997 as a
result of its continued investment in Internet network infrastructure,
increased sales and marketing, and the development of new value-added services.
Additionally, network usage per connection has been growing and is projected to
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
increase rapidly, requiring an additional level of investment in the second
half of FY1997 for network capacity, redundancy and systems infrastructure,
including expansion of BBN Planet's customer care services, which is expected
to negatively affect margins. The Company believes that the revenue growth in
BBN Planet's value added services during FY1997 will not be sufficient to
offset the increased infrastructure investment.
The Company expects that the success of BBN Planet 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 capacity, reliability, cost, and security of its network
infrastructure; its ability to finance expansion and upgrade of its network
infrastructure; its ability to develop price competitive services that meet
rapidly changing customer requirements or acquire rights to such products and
services from other providers; its ability to compete with larger competitors,
including telecommunications companies with greater resources and existing
customer relationships and with significant distribution capacity, installed
infrastructure and compatible service offerings; the ability of the Company to
continue and expand its current relationships with AOL, satisfactorily resolve
its disagreements with AT&T regarding terms of its Internet Services Agreement,
and develop additional strategic relationships (see Footnote A to the Notes to
Consolidated Financial Statements regarding information on the proposed
acquisition of the Company by GTE Corporation); its ability on a timely basis
to attract and retain additional highly qualified management, technical,
marketing, and sales personnel; its ability to manage its growth; and its
ability to improve its overall margins through improved operating efficiencies
and an increase in the value-added services portion of its revenues. Changes
in the regulatory environment relating to the Internet, the Internet access
industry, or the telecommunications industry in general, including regulatory
changes which directly or indirectly affect telecommunications costs (including
local access charges), the Company's status or regulation under the
telecommunications laws, or the scope of competition from regional telephone
companies or others, could have an adverse effect on the Company's business.
BBN Systems and Technologies
- ----------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
(dollars in millions)
Revenue $ 49.2 $ 41.0 $ 136.8 $ 119.7
Costs and expenses:
Cost of revenue 38.5 30.5 103.4 84.9
Research and development 1.5 2.4 4.1 5.9
Selling, general and administrative 7.6 8.0 25.8 26.5
-------- -------- -------- --------
Income from operations $ 1.6 $ .1 $ 3.5 $ 2.4
======== ======== ======== ========
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company, through its BBN Systems and Technologies business unit, has
historically derived the majority of its revenue from contracts and
subcontracts with the U.S. government. BBN Systems and Technologies currently
derives approximately 85% of its revenues from the U.S. government and its
agencies, particularly the Department of Defense. In recent years, 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 it is expected that this general decline and attendant increased
competition within the consolidating defense industry will continue over the
next several years. Further, funding limitations could result in reduction,
delay, or cancellation of existing or emerging programs. Although BBN's U.S.
government revenue increased in FY1996 compared to FY1995, and for the three
and nine month periods ended March 31, 1997 compared to the comparable three
and nine month periods ended March 31, 1996, there can be no assurance that
such increases will continue in the future (see also the information on the
Defense Data Network below). The Company also 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 Department of Defense, including to the Defense Data Network ("DDN").
The Company's multi-year contract to support the DDN expired in April 1996.
The Company was awarded a one-year extension of the contract to support the
DDN, which continued the Company's existing activities for DDN into FY1997.
This contract was terminable at the convenience of the U.S. government, and as
expected the U.S. government exercised its termination right, effective March
1997, following the commencement of operations under a follow-on contract which
was awarded to another contractor, thereby discontinuing BBN's activities
related to this contract. Revenues recorded on this contract for FY1996 and
the nine months ended March 31, 1997 were $16.2 million and $5.5 million,
respectively.
In recent years, the Company's traditional commercial systems and products
businesses, consisting principally of X.25 network systems and products, have
reached maturity in their life cycles. BBN Systems and Technologies has been
experiencing substantially lower revenue, and has significantly reduced its
development and selling efforts, for such X.25 network systems and products.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Consolidated Results of Continuing Operations: Three and nine month periods
- ---------------------------------------------------------------------------
ended March 31, 1997 compared to the three and nine month periods ended
- -----------------------------------------------------------------------
March 31, 1996
- --------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
(dollars in millions)
Revenue $ 95.9 $ 60.8 $ 254.1 $ 165.6
Costs and expenses:
Cost of revenue 83.5 48.3 214.0 126.1
Research and development 3.3 3.8 9.2 8.8
Selling, general and administrative 21.2 17.8 64.4 54.0
Goodwill write-off and other charges 20.7 20.7
-------- -------- -------- --------
Loss from operations $ (12.1) $ (29.8) $ (33.5) $ (44.0)
======== ======== ======== ========
Overview
- --------
For the three and nine month periods ended March 31, 1997, the Company's
continuing operations reported operating losses of $12.1 million and $33.5
million, compared to operating losses of $29.8 million and $44.0 million for
the three and nine month periods ended March 31, 1996, respectively. The
operating loss for the three and nine month periods ended March 31, 1996
includes a $20.7 million charge due to the write-off of goodwill and related
costs of approximately $17.6 million and certain employee-related costs in
connection with the Company's reorganization effective April 1, 1996. The
operating losses reflect continued investment in BBN Planet, including the
upgrade and expansion of the Company's network infrastructure, increased sales
and marketing activities, and the development of new value-added Internet
services. During the year, the Company has expanded its national backbone
network and is upgrading other parts of its network infrastructure for its
Internet operations in order to meet increasing demand and to improve
reliability. Additionally, the results of operations of BBN Systems and
Technologies include operating losses of its commercial speech recognition
activities of approximately $1.3 million for the three months ended March 31,
1996, and $1.2 million and $4.3 million for the nine month periods ended March
31, 1997 and March 31, 1996, respectively.
The loss from continuing operations, which includes interest and other
income and expense, for the three and nine month periods ended March 31, 1997
was $12.2 million and $33.1 million compared to a loss from continuing
operations for the three and nine month periods ended March 31, 1996 of $29.7
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
million and $43.6 million, respectively. The loss from continuing operations
for the three and nine months ended March 31, 1996 also includes a tax benefit
of $1.0 million and $5.0 million, respectively, which represents the Company's
first quarter and year-to-date FY1996 benefit of utilizing its FY1996 losses to
recover taxes paid in FY1995. There is no tax benefit in the current year
periods since the loss carrybacks were fully utilized in FY1996. The Company
expects that it will incur substantial operating losses in fiscal 1997 as it
continues to invest in BBN Planet's Internet-related business.
Revenue
- -------
Revenue for the three months ended March 31, 1997 increased $35.1 million
or 58% to $95.9 million, compared to $60.8 million for the comparable three
month period ended March 31, 1996. The increase relates primarily to BBN
Planet, which reported revenues for the three months ended March 31, 1997 of
$48.2 million, a 135% increase compared to revenue of $20.5 million in the
comparable period of the prior year. Approximately 53% of the increased BBN
Planet revenue relates to the AOL network management contract. Additionally,
BBN Systems and Technologies revenue increased 20% to $49.2 million for the
three months ended March 31, 1997, compared to $41.0 million for the three
months ended March 31, 1996.
Revenue for the nine months ended March 31, 1997 increased $88.5 million
to $254.1 million compared to $165.6 million for the comparable nine months
ended March 31, 1996. The increase for the nine month period is also primarily
related to BBN Planet, whose revenue for the nine month period ended March 31,
1997 increased by 153% to $120.1 million from $47.4 million in the comparable
nine month period of the prior year. Approximately 55% of the BBN Planet
increase relates to the AOL network management contract. BBN Systems and
Technologies revenue for the nine months ended March 31, 1997 increased 14% to
$136.8 million compared to $119.7 million for the nine month period ended March
31, 1996.
Cost of Revenue
- ---------------
Cost of revenue as a percentage of revenue for the three and nine months
ended March 31, 1997 was approximately 87% and 84% compared to 79% and 76%,
respectively, for the comparable prior year periods. The increase in the cost
of revenue percentage is principally related to lower margins on increased BBN
Planet Internet services revenue. BBN Planet revenue was 50% and 47% of
consolidated BBN revenue for the three and nine months ended March 31, 1997,
respectively, compared to 34% and 29% of consolidated BBN revenue for the
comparable prior year three and nine month periods. Cost of revenue for BBN
Planet consists of telecommunications circuit and services costs, labor and
expenses of operating the network infrastructure and supporting customers, and
the depreciation of network equipment. The increased cost of revenue percentage
reflects the costs associated with higher network utilization, the investment
in the expansion and upgrading of the network infrastructure, expanded customer
care services, and the impact of the investment in the introduction of new
Internet services. Effective July 1, 1996, the Company revised its estimate of
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
the useful life of certain data communications equipment from three to five
years to better reflect the useful service period of the related equipment.
The change had the effect of reducing depreciation expense and the loss from
continuing operations by approximately $1.0 million and $2.0 million for the
three and nine month periods ended March 31, 1997. Additionally, the cost of
revenue percentage increased in BBN Systems and Technologies resulting from a
shift in mix to lower margin contracts containing a higher component of
subcontract costs.
Research and Development Expenses
- ---------------------------------
Research and development expenses for the three months ended March 31,
1997 were $3.3 million compared to $3.8 million for the three months ended
March 31, 1996. For the nine month period ended March 31, 1997, research and
development expenses increased to $9.2 million from $8.8 million in the
comparable nine month period. The change for the nine month period reflects
increased development expenses for Internet-related services at BBN Planet of
$2.4 million, offset by lower development costs for BBN Systems and
Technologies' commercial legacy and speech recognition products.
Selling, General, and Administrative Expenses
- ---------------------------------------------
Selling, general, and administrative expenses for the three and nine month
periods ended March 31, 1997 increased $3.4 million and $10.4 million,
respectively, from the comparable FY1996 periods. As a percentage of revenue,
selling, general, and administrative expenses decreased to approximately 22%
and 25% of revenue for the three and nine month periods ended March 31, 1997
compared to approximately 29% and 33% in the comparable FY1996 periods. The
dollar increase in both the three and nine month periods of FY1997 reflects the
Company's increasing investment during FY1996, and during the nine months ended
March 31, 1997, in sales and marketing infrastructure, including expansion of
indirect sales channels, advertising costs, and other promotional activities,
primarily at BBN Planet.
Interest Income and Expense
- ---------------------------
Interest income for the three and nine month periods ended March 31, 1997
was $1.3 million and $4.6 million, respectively, compared to $1.2 million and
$3.8 million for the comparable three and nine month periods of FY1996. The
increases reflect a higher level of invested cash balances during the FY1997
periods. Interest expense for the three and nine months ended March 31, 1997
increased $ .3 million and $ .8 million, respectively, from the comparable
FY1996 periods. The increases relate to interest expense associated with
capital leases entered into during the fourth quarter of FY1996.
Income Taxes
- ------------
There is no income tax benefit for the three and nine month periods ended
March 31, 1997, compared to tax benefits of $1.0 million and $5.0 million,
respectively, for the comparable FY1996 periods and which represent the three
and nine month benefits reflected in the FY1996 periods of utilizing FY1996
losses to recover taxes paid in FY1995. There is no current year benefit since
the loss carryback was fully utilized in FY1996.
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Liquidity and Capital Resources
- -------------------------------
As described in Footnote A of the Notes to Consolidated Financial
Statements, on May 5, 1997, the Company and GTE Corporation entered into an
agreement and plan of merger. This discussion regarding BBN's liquidity and
capital resources is independent of that proposed transaction. If the proposed
transaction with GTE is not consummated, it is anticipated that the Company's
current management, under the general direction of the Company's Board, will
continue to manage the Company on an ongoing basis.
At March 31, 1997, the Company's cash, cash equivalents, and short-term
investments (which consisted primarily of investment funds, short-term U.S.
government securities, and commercial paper) were $104.4 million, compared to
$120.3 million at June 30, 1996, a decrease of $15.9 million. The decrease
includes $18.3 million used by operations, $40.5 million used for capital
expenditures, in each case primarily at BBN Planet, and in August 1996, a $5.0
million investment for a 12.5% ownership stake in a joint venture with Andersen
Consulting LLP aimed at exploring and developing opportunities in the Internet
market. These uses were partially offset by the proceeds from the divestiture
of BBN Domain of $36.0 million. Changes in cash balances due to fluctuation in
foreign exchange rates were insignificant.
Accrued restructuring costs of $6.3 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 certain 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 principal portion of the lease
payments under this agreement for the three and nine month periods ended March
31, 1997 was approximately $1.0 million and $3.0 million, respectively. In
March 1997, the Company entered into a capital lease agreement to finance
additional equipment acquisitions. This agreement included proceeds from a
sale and leaseback of assets of $14.6 million with principal payments
commencing in the fourth quarter of FY1997.
The Company's capital requirements include investments for network
capacity, redundancy, and system infrastructure, including the expansion of
customer care services; for further investments in working capital, other
capital equipment, and customer acquisition costs including selling and
marketing infrastructure; and for pursuing potential investments, acquisitions,
and other expansion opportunities, and are expected to be significant. The
Company believes that existing cash balances are adequate to meet its
requirements through FY1997. The Company expects that within the next twelve
months it will need to raise additional funds through public or private debt or
equity financing in order to execute its strategy (but see the information in
Footnote A to the Notes to Consolidated Financial Statements regarding the
proposed acquisition of the Company by GTE). The Company's ability to raise
such funds, if required, will be dependent on, among other things, its ability
<PAGE>
BBN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
to execute its business plan, the then-current state of the Internet market,
and the availability of such funds within the capital markets. There can be no
assurance that any such funding will be available, or of the terms or timing of
any such funding. If such funding is not available or is available on terms
not acceptable to the Company, the Company may have to change its business
strategy or seek alternative sources of capital. Currently, the Company does
not have any bank lines of credit.
Recent Accounting Pronouncements
- --------------------------------
See the information in Footnote M of the Notes to Consolidated Financial
Statements regarding new accounting pronouncements effective for the Company's
financial statements subsequent to June 30, 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(a) By an amendment No. 1 to the Company's Common Stock Rights
Agreement dated as of June 23, 1988 between the Company and The
First National Bank of Boston, as Rights Agent (the "Rights
Agreement"), the terms of the Company's Common Stock Purchase
Rights (the "Rights") have been amended by (a) excluding from
the definition of an "Acquiring Person" as defined in the Rights
Agreement any Person who or which, together with all Affiliates,
becomes the Beneficial Owner of 20% or more of the outstanding
shares of Common Stock of the Company solely as a result of the
transactions relating to and contemplated by the Agreement and
Plan of Merger dated as of May 5, 1997 by and among the Company,
GTE Corporation, and an acquisition subsidiary of GTE
Corporation (the "Merger Agreement"), and (b) amending the
definition of "Offer Commencement Date" as defined in the Rights
Agreement to exclude the date of commencement of, or the first
public announcement of the intent of GTE Corporation or any of
its Affiliates acting pursuant to the terms of the Merger
Agreement to commence a tender or exchange offer if upon
consummation thereof GTE Corporation or any of its Affiliates
would be the Beneficial Owner of 30% or more of the then
outstanding shares of Common Stock.
Under the terms of the Merger Agreement (Section 6.3), the
Company has covenanted that during the period from the date of
the Merger Agreement until the Effective Time (as defined in the
Merger Agreement), the Company will conduct its operations
according to its ordinary course of business, consistent with
past practices; included among the specific covenants regarding
interim operations of the Company is the covenant that the
Company will not declare any dividend or other distribution in
respect of the Company's capital stock.
(b) Concurrently with the execution of the Merger Agreement, the
Company issued to GTE Corporation in a private transaction an
option to purchase 4,225,000 shares of the Company's Common
Stock at a price per share equal to $29.00 pursuant to a Stock
Option Agreement dated as of May 5, 1997 between the Company and
GTE Corporation. Such option was issued in connection with, and
in consideration of the agreements under, the Merger Agreement,
and becomes exercisable by GTE Corporation when a Termination
Fee (as defined in the Merger Agreement) is payable to GTE
Corporation.
<PAGE>
PART II. OTHER INFORMATION, continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Agreement and plan of Merger dated as of May 5, 1997 among
the Company, GTE Corporation, and a subsidiary of GTE
Corporation (filed on May 12, 1997 with the Securities and
Exchange Commission as Exhibit 1 to the Company's Schedule
14D-9 and incorporated herein by reference).
4.1 Form 8-A/A Registration Statement for the Company's Common
Stock Purchase Rights and Amendment No. 1 dated as of May
5, 1997 to the Common Stock Rights Agreement dated as of
June 23, 1988 between the Company and The First National
Bank of Boston, as Rights Agent (filed on May 12, 1997
with the Securities and Exchange Commission and
incorporated herein by reference).
10.1 Stock Option Agreement dated as of May 5, 1997 between the
Company and GTE Corporation (filed on May 12, 1997 with
the Securities and Exchange Commission as Exhibit 2 to the
Company's Schedule 14D-9 and incorporated herein by
reference).
11.1 Computation of Net Loss Per Share
27.1 Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K/A dated May 8,
1997 with the Commission on May 9, 1997 reporting on the
execution and delivery of an Agreement and Plan of Merger among
the Company, GTE Corporation, and a subsidiary of GTE.
<PAGE>
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, 1997
<PAGE>
BBN CORPORATION
LIST OF EXHIBITS
11.1 Computation of Net Loss Per Share (page 21)
27.1 Financial Data Schedule (page 22)
<PAGE>
<PAGE>
BBN CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Amounts in thousands except per-share data)
Three Months Ended
-------------------------------------------
March 31, 1997 March 31, 1996
-------------------- --------------------
Fully Fully
Primary Diluted Primary Diluted
--------- --------- --------- ---------
Weighted average shares
outstanding 21,220 21,220 17,802 17,802
Incremental shares from use of
treasury stock method for
stock options (a) (a) (a) (a)
--------- --------- --------- ---------
Shares used in per-share
calculations 21,220 21,220 17,802 17,802
========= ========= ========= =========
Loss from continuing operations $(12,210) $(12,210) $(28,678) $(28,678)
Loss from discontinued operations (463) (463)
--------- --------- --------- ---------
Net loss $(12,210) $(12,210) $(29,141) $(29,141)
========= ========= ========= =========
Net loss per share amounts:
Loss from continuing operations $ (.58) $ (.58) $ (1.61) $ (1.61)
Loss from discontinued operations (.03) (.03)
--------- --------- --------- ---------
Net loss per share $ (.58) $ (.58) $ (1.64) $ (1.64)
========= ========= ========= =========
(a) Incremental shares were not used as their effect would be antidilutive.
<PAGE>
BBN CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(continued)
(Amounts in thousands except per-share data)
Nine Months Ended
-------------------------------------------
March 31, 1997 March 31, 1996
-------------------- --------------------
Fully Fully
Primary Diluted Primary Diluted
--------- --------- --------- ---------
Weighted average shares
outstanding 20,971 20,971 17,670 17,670
Incremental shares from use of
treasury stock method for
stock options 595 600 (a) (a)
Incremental shares from assumed
conversion of convertible
debentures 2,439 (a) (a)
--------- --------- --------- ---------
Shares used in per-share
calculations 21,566 24,010 17,670 17,670
========= ========= ========= =========
Loss from continuing operations $(33,146) $(33,146) $(38,653) $(38,653)
Interest effect of assumed
debt conversion 3,341
--------- --------- --------- ---------
Adjusted loss from continuing
operations (33,146) (29,805) (38,653) (38,653)
Income (loss) from discontinued
operations 20,000 20,000 (7,029) (7,029)
--------- --------- --------- ---------
Net loss $(13,146) $ (9,805) $(45,682) $(45,682)
========= ========= ========= =========
Net income (loss) per share amounts:
Loss from continuing operations $ (1.54) $ (1.24) $ (2.19) $ (2.19)
Income (loss) from discontinued
operations .93 .83 (.40) (.40)
--------- --------- --------- ---------
Net loss per share $ (.61) $ (.41) $ (2.59) $ (2.59)
========= ========= ========= =========
(a) Incremental shares were not used as their effect would be antidilutive.
<PAGE>
<TABLE> <S> <C>
<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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 50,054
<SECURITIES> 54,388
<RECEIVABLES> 81,499<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191,703
<PP&E> 73,327<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 272,107
<CURRENT-LIABILITIES> 106,604
<BONDS> 73,170
0
0
<COMMON> 25,227
<OTHER-SE> 43,789
<TOTAL-LIABILITY-AND-EQUITY> 272,107
<SALES> 254,145
<TOTAL-REVENUES> 254,145
<CGS> 214,025
<TOTAL-COSTS> 214,025
<OTHER-EXPENSES> 73,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,163
<INCOME-PRETAX> (33,146)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,146)
<DISCONTINUED> 20,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,146)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.41)
<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>
