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, 1995, or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number : 1-10386
CONVEX COMPUTER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-1838006
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3000 Waterview Parkway
Richardson, Texas 75080
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 497-4000
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 30 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.
Class Outstanding at April 30, 1995
Common Stock - $0.01 Par value 26,725,787
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONVEX COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, Dec. 31,
1995 1994
---------- ---------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 25,813 $ 34,422
Short-term investments 10,655 5,194
Receivables, net 40,274 44,922
Inventory 22,775 23,655
Current portion of long-term receivables 10,721 13,122
Prepaid expenses and other current assets 8,938 7,998
--------- ---------
Total current assets 119,176 129,313
--------- ---------
Fixed assets, net 30,721 29,433
Long-term receivables 13,693 16,594
Long-term investments 6,373 6,373
Other assets, net 4,886 4,477
_________ _________
Total assets $174,849 $186,190
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 9,374 $ 10,547
Accrued payroll and related taxes 4.407 4,327
Current portion of notes payable 8,625 9,884
Deferred revenue 15,152 14,207
Other current liabilities 22,883 25,912
--------- ---------
Total current liabilities 60,441 64,877
--------- ---------
Long-term Liabilities:
Notes payable 8,525 9,678
6% convertible subordinated debentures 53,500 53,500
--------- ---------
Total long-term liabilities 62,025 63,178
Contingencies and commitments -- --
Shareholders' equity:
Preferred stock ($.01 par value); 5,000,000 shares authorized,
and none outstanding -- --
Common stock ($.01 par value); 40,000,000 shares authorized;
26,723,635 shares and 26,533,485 shares outstanding
in 1995 and 1994, respectively 267 265
Additional capital 154,263 153,574
Accumulated (deficit) (102,284) (94,305)
Cumulative translation adjustment 137 (1,399)
--------- ---------
Total shareholders' equity 52,383 58,135
--------- ---------
Total liabilities and shareholders' equity $174,849 $186,190
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
CONVEX COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
----------------------
1995 1994
--------- ---------
Revenue:
Product and other revenue $ 21,330 $ 10,362
Service revenue 13,833 18,057
--------- ---------
Total revenue 35,163 28,419
--------- ---------
Costs and expenses:
Cost of product and other revenue 14,092 8,280
Cost of service revenue 7,999 12,315
Research and development 7,630 7,869
Selling, general and administrative 12,982 15,436
--------- ---------
Total costs and expenses 42,703 43,900
--------- ---------
Operating (loss) (7,540) (15,481)
Other (expense), net (400) (287)
--------- ---------
(Loss) before provision for income taxes (7,940) (15,768)
Provision for income taxes 38 64
--------- ---------
Net (loss) $ (7,978) $(15,832)
========= =========
Net (loss) per common share $ (.30) $ (.62)
========= =========
Weighted average number of common shares outstanding 26,655 25,668
The accompanying notes are an integral part of these consolidated financial
statements.
CONVEX COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
----------------------
1995 1994
--------- ---------
Operating activities:
Net income (loss) $ (7,979) $ (15,832)
Adjustments to reconcile net (loss) to net cash
(used for) operating activities:
Depreciation and amortization 4,701 3,977
Foreign currency losses 155 180
Deferred income taxes (36) (43)
Changes in assets and liabilities:
Decrease in receivables 6,041 15,834
Decrease (increase) in inventory 1,280 (2,373)
Decrease (increase) in prepaid expenses
and other current assets 458 (1,047)
Decrease in long-term receivables 5,475 4,198
(Decrease) in accounts payable (1,285) (3,136)
Increase (decrease) in income taxes payable 21 (1,583)
(Decrease) in deferred revenue (442) (1,635)
(Decrease) in other current liabilities (5,712) (3,585)
---------- ----------
Total adjustments 10,656 10,787
---------- ----------
Net cash provided by (used for) operating activities 2,677 (5,045)
---------- ----------
Investing activities:
(Additions) to fixed assets, net (3,784) (4,110)
(Increase) in short-term investments (5,462) (848)
(Increase) in long-term investments -- (2,332)
(Increase) in other assets (995) (769)
Foreign currency hedging activity (97) (735)
---------- ----------
Net cash (used for) investing activities (10,338) (8,794)
---------- ----------
Financing activities:
Issuance of common stock under stock option
and purchase plans, net 691 1,047
Proceeds from long-term debt 1,170 282
Principal payments on long-term debt (3,580) (3,109)
---------- ----------
Net cash (used for) financing activities (1,719) (1,780)
---------- ----------
Effect of exchange rate fluctuations on cash
and cash equivalents 771 983
---------- ----------
(Decrease) in cash and cash equivalents (8,609) (14,636)
Cash and cash equivalents, beginning of period 34,422 43,094
---------- ----------
Cash and cash equivalents, end of period $ 25,813 $ 28,458
========== ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the quarter for:
Interest $ 1,219 $ 1,354
Income taxes, net of refunds $ -- $ (190)
The accompanying notes are an integral part of these consolidated financial
statements.
CONVEX COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation of Interim Financial Statements
The accompanying unaudited consolidated financial statements of Convex Computer
Corporation and subsidiaries (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information in footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to those rules and regulations. However,
the Company believes that the disclosures contained herein are adequate to make
the information presented not misleading. It is suggested that these financial
statements be read in connection with the financial statements and notes thereto
included in the Company's most recent annual report to shareholders.
While the financial information furnished is unaudited, the financial statements
included in this report reflect all adjustments (consisting of normal, recurring
adjustments) which the Company considers necessary for a fair presentation of
the results of operations for the interim periods covered and of the financial
condition of the Company at the interim balance sheet dates. In order to
maintain consistency and comparability between periods presented, certain
amounts have been reclassified from the previously reported 1994 financial
statements in order to conform to 1995 presentation.
Revenue Recognition
Product revenue is recognized at the time of shipment except in those cases
where (a) specified functional or performance criteria cannot be factory
tested or otherwise verified prior to shipment, or (b) contract terms or funding
contingencies would render the earnings process not substantially complete. In
cases where revenue is deferred at the time of shipment, revenue will be
recognized when the product functionality or performance can be verified or when
contract terms or funding contingencies are resolved.
Service revenue is recognized ratably over the term of each maintenance contract
or, for other services, as those services are provided. For maintenance
contracts, customers are given the option to prepay for service, in which case
the prepayment is accounted for as deferred revenue and recognized ratably over
the service period.
Inventory
Inventory is recorded at the lower of cost (on a first-in, first-out basis) or
market. Inventory consists of the following (in thousands):
March 31, Dec. 31,
1995 1994
---------- ----------
Raw material $ 8,892 $ 10,119
Work-in-process 3,469 2,957
Finished goods 10,414 10,579
---------- ----------
$22,775 $23,655
========== ==========
Income Taxes
The operating loss for the Company in the first quarter of 1995 is anticipated
to result in no tax benefit in the current year. The Company believes it may
incur tax expenses in various foreign subsidiaries which could result in a net
tax expense for the year. At March 31, 1995, the Company had foreign and
domestic operating loss carryforwards which are available to offset future
taxable income. The realization of the tax benefits related to the loss
carryforwards is dependent on the future profitability of the Company and its
foreign subsidiaries.
Earnings per Common and Common Equivalent Share
The computation of primary earnings per share is based on the weighted average
number of common and common equivalent (stock options) shares assumed to be
outstanding during the period. Because of net losses in the periods presented,
common stock equivalents have been excluded from the computation since the
effect of their inclusion would be anti-dilutive.
Legal Proceedings
On August 1, 1994, the United States District Court for the Northern District of
Texas approved an agreement to settle the consolidated class action lawsuit
filed against the Company in August 1991. The court's approval has become
final and the period to appeal the judgment has expired. In the third quarter
of 1994, the Company paid $2.2 million to fund its share of claims made under
this agreement through the end of the claims period.
Restructuring and Other Charges
A summary of the Company's restructuring and other charges is as follows (in
millions):
1994 Quarters 1993 Quarters
---------------------- ----------------------
Item 4th 3rd 2nd 1st 4th 3rd 2nd 1st
---- ---- ---- ---- ---- ---- ---- ----
Severance and related
employee costs $0.0 $0.0 $2.1 $0.0 $0.0 $0.0 $7.5 $0.0
Fixed asset
write-downs/write-offs 0.0 0.0 2.9 0.0 0.0 0.0 7.0 0.0
Demo equipment write-downs 0.0 0.0 1.6 0.0 0.0 0.0 0.7 0.0
Sales office closures 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0
---- ---- ---- ---- ---- ---- ---- ----
Restructuring charges 0.0 0.0 6.6 0.0 0.0 0.0 16.3 0.0
C3 inventory
write-downs/write-offs 0.0 0.0 11.7 0.0 1.5 0.0 10.0 0.0
Unfavorable purchase
commitment 0.0 0.0 0.0 0.0 0.5 0.0 2.4 0.0
Long-term investments
write-downs 0.0 0.0 0.0 0.0 0.0 0.0 1.9 0.0
Class action litigation
settlement 0.0 0.0 0.0 0.0 2.5 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0 0.0 0.0 0.9 0.0
---- ---- ---- ---- ---- ---- ---- ----
Other charges 0.0 0.0 11.7 0.0 4.5 0.0 15.2 0.0
---- ---- ---- ---- ---- ---- ---- ----
RESTRUCTURING AND
OTHER CHARGES $0.0 $0.0 $18.3 $0.0 $4.5 $0.0 $31.5 $0.0
==== ==== ==== ==== ==== ==== ==== ====
The Company implemented restructuring actions in 1993 and 1994 primarily as a
result of the substantial decline in order rates and revenues of the Company's
C3 product line. These actions were designed to reduce operating costs and to
increase the efficiency of the Company's operations. These actions included
reductions of the Company's workforce and resulted in payments to terminated
employees for salaries and severance, benefits during the severance period and
outplacement services. Additionally, the restructuring actions resulted in
write-downs of certain of the Company's assets which were either obsolete or
lacked future utility to the Company. The fixed asset write-downs included
costs related to the retirement of fixed assets, principally assets used in the
assembly and test of both hardware and software products for the C3 product
lines, and charges to accelerate the end of the depreciable lives of certain C3
production assets to mid-1994. In addition, the Company wrote-down the carrying
value of its C3 sales demonstration and marketing equipment. The restructuring
charges also included the estimated costs of closing certain of the Company's
sales offices around the world in locations where the Company determined such
offices not to be economically justifiable in light of declines in sales. These
closing costs related primarily to the early termination of leases and the
disposal of the related office equipment.
The Company recorded other charges aggregating $31.4 million in 1993 and 1994.
The majority of these charges related to the write-downs of the carrying values
of the Company's inventories. The 1993 inventory write-downs related to C3
inventories held in excess of manufacturing requirements due to the unusual and
dramatically reduced demand for this product line. The additional write-downs
in 1994 were the result of the continued decline in demand for C3 products below
levels estimated in the second quarter of 1993 and the resulting reductions in
sales prices for the entire C3 family of products.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Subsequent to a trend of improving revenue growth and a narrowing of quarterly
losses established in the second half of 1994, the Company had expected the
first quarter of 1995 to be weak, with revenue and profit levels at or below the
levels achieved in the fourth quarter of 1994. For the first quarter of 1995,
the Company reported revenues of $35 million and a net loss of $8 million.
These results represent an improvement over the $28 million of revenue and the
$16 million loss in the first quarter of 1994, but fell below the $44 million in
revenue and the $5 million loss reported in the fourth quarter of 1994.
Revenue in the first quarter of 1995 was below the previous quarter primarily
because of a decrease in the number of C4 systems shipped. The Company
believes that unit volumes for this product line will be highly variable. The
Company believes the shipment rate for C4 systems could exceed the first quarter
rate in each of the remaining quarters of 1995, but is unlikely to repeat the
rate experienced in the fourth quarter of 1994.
Revenue for the first quarter of 1995 exceeded the levels of a year ago because
of the revenue generated from the Exemplar SPP family. The SPP1000 family,
based on Hewlett-Packard Company's PA-RISC technology, was first introduced in
March 1994.
The Company reported expenses $2 million below those of the previous quarter and
$3 million below the levels of a year ago.
The Company believes revenues for the second quarter of 1995 will continue to be
below the level needed to achieve break-even operating results. Improved system
capabilities and a new distribution channel for Exemplar products increase the
potential for financial performance improvements in 1995. However, the Company
expects customers in the high performance technical marketplace will continue to
be faced with a wide array of technology choices, resulting in delayed buying
decisions, lengthened sales cycles and intense price competition throughout 1995
and the foreseeable future.
Cash and short-term investments were $36 million at the end of the first quarter
of 1995, a reduction of $3 million from the fourth quarter of 1994.
Revenue
Revenue for the first quarter of 1995 was $35 million, a 24% increase from the
$28 million reported for the first quarter of 1994 but 21% below the $44 million
reported for the fourth quarter of 1994, as shown below.
Quarter ended
---------------------------
Revenue ($000,000) 3/31/95 3/31/94 12/31/94
------------------ ------- ------- --------
Product and Other $ 21 $ 10 $ 28
Service 14 18 16
Total 35 28 44
3/31/95 Quarter Revenue -
Percent change from quarter ended
---------------------------------
Product and Other Revenue 0 106 (25)
Service Revenue 0 (23) (13)
Total Revenue 0 24 (21)
System Shipments
----------------
C4600 1 0 8
C3000 4 6 2
Meta Series 3 4 2
Exemplar SPP 27 7 27
Product revenue increased $11 million over the first quarter of 1994, primarily
as a result of the increase in revenue from the Exemplar SPP shipments. This
product was introduced in the first quarter of 1994. The Company has added
features and expanded the capabilities of the Exemplar family in each quarter
since its introduction. In the third and fourth quarters of 1994, respectively,
the Company introduced two new scalability features: PVM (Parallel Virtual
Machine, a message passing operating system feature) and GSM (Globally Shared
Memory, a software feature unique to the Exemplar family which makes the system
easier to use and configure than most competing systems). In the first quarter
of 1995, the Company added software features which allow expansion of individual
systems up to 64 processors. In addition, the Company shipped the initial
(three) Exemplar SPP1200 systems which utilize an upgraded PA-RISC processor
from Hewlett-Packard Company.
Product revenue decreased $7 million from the fourth quarter of 1994, primarily
as a result of a decrease in C4 shipments. Unit shipments of the C4 family,
which was introduced in June 1994, increased to eight in the fourth quarter of
1994, but only one unit shipped in the first quarter of 1995. The Company
believes the high average selling price and the low unit volume of the C4
product will lead to highly variable results for this product line. The Company
also believes the order rate for the C4 product could exceed one system per
quarter, but is not expected to return to the level achieved in fourth quarter
of 1994. The average price for a C4 system has been in excess of $1 million.
The Company entered the first quarter of 1995 with no order backlog for the C4
system and ended the quarter with no backlog.
Service revenue in the first quarter of 1995 decreased $4 million from the first
quarter of 1994 and $2 million from the fourth quarter of 1994. Service revenue
includes revenue from maintenance contracts and systems integration. Systems
integration includes the integration components for the data management business
and the Meta Series product line. The maintenance contract component of the
service business has remained relatively constant at approximately $12 million
per quarter. The decline in service revenue results from a corresponding
decline in systems integration revenue. The Meta Series product line has
declined as it has been replaced by the Exemplar product line. In addition,
during 1994 a major data management vendor chose to sell equipment directly to
customers, rather than through the Company, contributing to the decline in
systems integration revenue. The Company believes that systems integration
revenue will fluctuate from quarter to quarter and will depend to a large
degree on the success of the data management business.
The Company's markets continue to be intensely competitive. The Company's major
competitors are shipping products based on processors introduced more recently
than those on which the Company's products are based. As a result, the
Company's products face intense competition on a price for performance basis.
To respond to this competition, Convex introduced a second generation Exemplar
SPP based on an updated PA-RISC microprocessor in May 1995. The Company expects
volume production of the second generation SPP to be available in the third
quarter of 1995. However, the Company expects to see continued pressure on
the performance of its products. Accordingly, the Company's future success
depends to a substantial extent upon the timely introduction of competitive
PA-RISC microprocessors by the Hewlett-Packard Company.
The Company believes that some customers, particularly government agencies and
research laboratories, have reduced their capital spending levels in response
to, or anticipation of, funding cutbacks. In addition, some customers have
delayed, and may continue to delay, purchases in anticipation of enhanced
functionality and improved price for performance that may become available from
newer products.
The Company manufactures and ships its products as soon as practicable after
receiving a purchase order, and generally does not maintain a significant
backlog. At the end of 1994, a few Exemplar systems had been delivered without
certain required system features for which some revenue had been deferred.
These features became available in the first quarter of 1995, and the deferred
revenue was recognized. The Company's future financial performance will depend
on its ability to generate new orders for shipment in the same quarter in which
the orders are received.
Finally, because a significant portion of the Company's shipments occur in the
last month of a quarter, minor timing differences in the receipt of customer
purchase orders and in the Company's shipments can have a significant impact on
quarterly financial results. Due to the high average selling price and low unit
volume of the Company's sales, failure to complete a small number of sales
transactions before the end of a quarter can have a significant negative impact
on financial results.
Gross Margin
Gross margin for the first quarter of 1995 was above the levels achieved in the
first quarter of 1994, but declined to 37% from the 41% reported in the fourth
quarter of 1994 due to lower product margins.
Quarter ended
----------------------------
Gross Margins % Revenue 3/31/95 3/31/94 12/31/94
----------------------- ------- ------- --------
Product and Other Margin 34 20 42
Service Margin 42 32 40
Total Margin 37 28 41
The Company believes product margins in general have been low because the recent
introduction of the SPP product line with new operating system capabilities and
the availability of only early releases of third-party codes have resulted in a
high percentage of the systems being sold to research organizations where
pricing is very competitive. Product margins in the first quarter of 1995
decreased eight percentage points from the fourth quarter of 1994. The decline
in product margins was due to two primary reasons: the lower absorption of
factory overheads on lower product revenue, which accounted for almost half
the decline in product margins, and an increase in the sale of low margin
upgrades.
The improvement in product margins in the first quarter of 1995 over the first
quarter of 1994 is due primarily to the increase in product revenue and the
higher absorption of factory overheads.
Service margins in the first quarter of 1995 improved over both the first and
fourth quarter levels of 1994. Margins have benefited from improved performance
on the contract maintenance business and from the reduction in the lower margin
integration business.
Expenses
Expenses for the Company have been reduced below the previous quarter's level as
shown in the table below, however, they have increased as a percentage of
revenue on the lower revenue results.
Quarter ended
---------------------------
Expenses ($000,000) 3/31/95 3/31/94 12/31/94
------------------- ------- ------- --------
Research and Development 8 8 8
Selling, General and Administrative 13 15 15
Expenses % Revenue
------------------
Research and Development 22 28 18
Selling, General and Administrative 37 54 33
Research and Development
Research and development expenditures of $8 million in the first quarter of 1995
were approximately the same as the first and fourth quarter levels in 1994. The
Company remains committed to aggressive efforts to bring additional product
capabilities to market in 1995, and therefore expects to maintain research and
development expenditures at approximately 1994 levels. However, some increase
in the amount of these expenditures may be necessary because the product
capabilities being developed are critical to the Company's competitiveness and
future financial results.
The Company introduced the Exemplar SPP1000 family in the first quarter of 1994
and the SPP1200 family in the first quarter of 1995. The Exemplar SPP is based
on Hewlett-Packard Company's PA-RISC technology. The Exemplar SPP includes both
a completely new hardware platform and a completely new family of software
products. The software products include a new operating system that
incorporates components from several sources. The integration and performance
tuning of these components is critical to the overall success of the product.
Market acceptance of this product is also highly dependent on third-party
software vendors porting their applications to the product. While the Company
is working with a number of vendors to accomplish this result, there can be no
assurance that the third-party vendors will undertake the necessary efforts, or
that the porting efforts will yield competitive software applications on the
Company's new product.
The Company introduced additional scalability features for the Exemplar SPP in
the first quarter of 1995, and also introduced the SPP1200 model incorporating
updated PA-RISC processors. While the Company expects to introduce new models
soon after the introduction of the new processors by the Hewlett-Packard
Company, there can be no assurance that new processors will be available from
Hewlett-Packard Company on a timely basis or in production quantities or that
the processors will perform at the expected level. In addition, there are still
technical and manufacturing uncertainties involved in bringing new models and
features to market. There can be no assurance that the Company will be able to
introduce these models or features or that these models or features, once
introduced, will gain market acceptance.
Both the C4 and the Exemplar SPP use leading-edge semiconductor devices. The
Company currently has only one source for certain key components. The Company's
ability to manufacture these products in production quantities will require that
the Company receive sufficient quantities of those semiconductor devices from
its vendors. There can be no assurance that the Company will receive sufficient
quantities of these devices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 1995 were
$2 million below the levels reported in both the first and fourth quarters of
1994. Although these expenses have been reduced, they have increased as a
percentage of revenue when compared to the fourth quarter of 1994 due to the
corresponding decline in revenues. The Company implemented restructuring
actions in 1993, and again in 1994, to reduce these expenses. The Company
believes the current selling resources will be necessary to support the product
sales planned for 1995, but the Company continues to focus on tight expense
management.
Restructuring and Other Expenses
The Company implemented restructuring actions in 1993 and again in 1994 to
reduce operating costs, to increase the efficiency of the Company's operations,
and to align operating expenses with anticipated future business levels. These
charges totaled $54 million and required approximately $20 million in cash
expenditures. At December 31, 1994, the accruals to provide for expenses
not yet incurred had been reduced to $3 million as shown in the table below and
payments were made or actions taken to further reduce the accruals to $2 million
at March 31, 1995.
12/31/94 Asset 3/31/95
($000,000) Bal. Payments Write-offs Bal
- - ---------- ---- -------- ---------- ---
Severance and Related
Employee Costs $ 1.7 $-0.4 $ 0.0 $ 1.3
Sales Office Closures 0.5 -0.3 0.0 0.2
--- ---- --- ---
Restructuring Charges 2.2 -0.7 0.0 1.5
C3 Inventory
Write-downs/Write-offs 0.4 0.0 -0.4 0.0
Class Action Litigation Settlement 0.3 -0.3 0.0 0.0
Other 0.3 0.0 0.0 0.3
--- ---- --- ---
Other Charges 1.0 -0.3 0.0 0.3
RESTRUCTURING AND
OTHER CHARGES $ 3.2 $-1.0 $-0.4 $ 1.8
=== ==== ==== ===
The remaining accruals are primarily for expenses involved in employment
termination actions in various foreign locations. The cash payments made in the
first quarter 1995 totaled $1 million and the cash remaining to be spent under
the restructuring actions is $2 million.
The Company ended the first quarter of 1995 with 817 full time employees, 176
fewer than a year ago and 40 below the fourth quarter of 1994.
Other Income and Expense
Other income and expense consists of interest earned less interest expenses
incurred and certain costs associated with implementing the Company's foreign
currency hedging program. The net amounts were immaterial in the periods
presented.
Income Taxes
The operating loss for the Company in the first quarter of 1995 is anticipated
to result in no tax benefit in the current year. The Company believes it may
incur tax expenses in various foreign subsidiaries which could result in a net
tax expense for the year. At March 31, 1995, the Company had foreign and
domestic operating loss carryforwards which are available to offset future
taxable income. The realization of the tax benefits related to the loss
carryforwards is dependent on the future profitability of the Company and its
foreign subsidiaries.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investment balances declined
by $3 million in the first quarter of 1995, primarily as a result of the
Company's operating loss in that quarter. This decline compares to a decline of
$11 million in the first quarter of 1994 and no net cash usage in the fourth
quarter of 1994. At March 31, 1995, the Company's cash, cash equivalents and
short-term investment balances aggregated approximately $36 million.
The Company continues to focus on cash conservation. Receivables and inventory
together deceased by $6 million in the first quarter of 1995. However,
performance ratios deteriorated on both items. In the fourth quarter of 1994
the Company achieved 91 days of receivables outstanding. This increased to 103
days at March 31, 1995 with several major collections slipping to early April.
Inventory turns on revenue dropped to 6.2 after reaching 7.5 in the fourth
quarter of 1994. Despite the decrease in turns based on the lower revenue,
inventory was reduced $1 million in the quarter. Capital expenditures for the
first quarter of 1995 were approximately $4 million compared to $4 million for
the first quarter of 1994.
The Company will continue to pursue improvements in working capital ratios in
1995 as a high priority. At present, the Company does not have an established
borrowing facility. While the Company is working to establish a borrowing
facility and other methods of raising capital with several financial
institutions and other organizations, no agreement or commitment to provide the
Company with additional capital presently exists. While the Company believes
additional working capital can be obtained, the Company may experience liquidity
problems if it is unable to significantly reduce or eliminate the losses from
operations in the near term, if its activities to improve asset productivity
prove unsuccessful or if it is unable to establish a borrowing facility. In
addition, the Company will require additional working capital if the Company
experiences significant revenue growth over current levels. There can be no
assurance that the Company will be able to obtain sufficient additional capital
or, if available, that such capital would be at terms acceptable to the
Company.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
3.1 Restated Certificate of Incorporation of the Company. Incorporated
by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994.
3.2 Restated Bylaws. Incorporated by reference from Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
4.1 Indenture between the Company and The First National Bank of
Boston, Trustee, covering $53,500,000 of 6% Convertible Subordinated Debentures
due 2012 (including form of Debenture). Incorporated by reference from Exhibit
4.1 to the Company's Registration Statement on Form S-1 (No. 33-12106).
10.1 Form of Indemnification Agreement entered into between the Company
and each of its officers and directors. Incorporated by reference from Exhibit
10.1 to the Company's Registration Statement on Form S-1 (No. 33-6109).
10.2 Form of Severance Agreement entered into between the Company and
each of its officers. Incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
10.3 Consulting Agreement dated February 7, 1992 between the Company
and Sam K. Smith, a director. Incorporated by reference from Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
10.4 1983 Stock Option Plan, as amended, and forms of Stock Option
Agreements. Incorporated by reference from the Company's Registration Statement
on Form S-8 (Registration No. 33-33700).
10.5 1986 Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement. Incorporated by reference from Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.
10.6 1991 Stock Option Plan, as amended, and form of Non-Statutory
Stock Option Agreement.
10.7 Commercial Lease dated January 26, 1989, as amended, between the
Company and Synergy Park Associates covering property located at Synergy Park,
Richardson, Texas. Incorporated by reference from Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.
10.7.1 Second Amendment to Lease Agreement dated October 1991, amending
the Commercial Lease included as Exhibit 10.8. Incorporated by reference from
Exhibit 10.8.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
10.7.2 Third Amendment to Lease Agreement dated July 13, 1994, amending
the Commercial Lease included as Exhibit 10.8. Incorporated by reference from
Exhibit 10.8.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994.
10.8 Agreement of Limited Partnership dated March 21, 1994 of Ambvex,
Ltd.
10.8.1 First Amendment to Limited Partnership Agreement dated June 10,
1994 of Ambvex, Ltd. amending the Agreement of Limited Partnership included as
Exhibit 10.8.
10.8.2 Second Amendment to Limited Partnership Agreement dated July 13,
1994 of Ambvex, Ltd. amending the Agreement of Limited Partnership included as
Exhibit 10.8.
10.9 Software Agreement dated December 6, 1993 between the Company and
Novell, Inc. (successor in interest to Unix System Laboratory, Inc.), and
Sublicensing Agreement dated December 6, 1993 between the Company and Novell,
Inc. (successor in interest to Unix System Laboratory, Inc.).
10.10 Cross License Agreement dated May 29, 1986 between the Company and
Cray Research, Inc. Incorporated by reference from Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (No. 33-6109).
10.11 Common Stock Purchase Agreement dated March 18, 1992 between the
Company and Hewlett-Packard Company. Incorporated by reference from Exhibit
10.11 to the Company's Annual Report on Form 10-K for the year ended December
31, 1991.
10.12 Registration Rights Agreement dated March 18, 1992 between the
Company and Hewlett-Packard Company. Incorporated by reference from Exhibit
10.12 to the Company's Annual Report on Form 10-K for the year ended December
31, 1991.
11.1 Computation of Per Share Earnings.
13.1 Annual Report to Shareholders for the year ended December 31, 1994
(to be deemed filed only to the extent required by the instruction to exhibits
for reports on Form 10-K).
21.1 Subsidiaries of Registrant
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fiscal quarter ended
March 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONVEX COMPUTER CORPORATION
Registrant
BY: DAVID W. CRAIG
--------------
David W. Craig
Chief Financial Officer and
Vice President, Finance
(Principal Finance and Accounting Officer)
Dated: May 12, 1995
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