SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
__________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7760/0-20290
Computervision Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2491912
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
100 Crosby Drive, Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 275-1800
(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 twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days.
Yes X No
At August 11, 1997 the registrant had outstanding an aggregate of 63,703,532
shares of its Common Stock, $.01 par value.
1
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Computervision Corporation
INDEX
PART I. FINANCIAL INFORMATION Page
Consolidated Balance Sheets at December 31, 1996 and
June 29, 1997 (Unaudited) 3
Consolidated Statements of Operations (Unaudited) for the Three
and Six Months Ended June 30, 1996 and June 29, 1997 4
Consolidated Statements of Cash Flows (Unaudited) for the Six
Months Ended June 30, 1996 and June 29, 1997 5
Notes to Consolidated Financial Statements (Unaudited) 6-8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-12
PART II. OTHER INFORMATION 13
Signatures 14
EXHIBIT INDEX 15
2
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<TABLE>
<CAPTION>
COMPUTERVISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
December 31, June 29,
ASSETS 1996 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $38,565 $17,052
Accounts receivable, less allowance for
doubtful accounts of $2,929 and $2,836,
respectively 102,509 80,203
Current deferred income taxes 7,448 7,184
Prepaid expenses and other current assets 16,019 15,756
-------- --------
TOTAL CURRENT ASSETS 164,541 120,195
PROPERTY AND EQUIPMENT, NET 31,055 19,752
DEFERRED INCOME TAX ASSETS 4,113 3,692
CAPITALIZED SOFTWARE 1,276 3,746
DEFERRED FINANCE COSTS 3,734 2,930
OTHER ASSETS 3,626 3,566
-------- --------
$208,345 $153,881
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $19,776 $28,743
Notes payable and current portion of long-term
debt 9,888 17,203
Accrued compensation, severance and related
costs 57,482 63,972
Deferred revenue and customer advances 40,503 50,502
Accrued and deferred income taxes 15,019 13,587
Other current liabilities and accrued expenses 81,822 81,881
-------- --------
TOTAL CURRENT LIABILITIES 224,490 255,888
DEFERRED INCOME TAXES 30,174 30,052
LONG-TERM DEBT, LESS CURRENT PORTION 217,346 217,379
OTHER LONG-TERM LIABILITIES 53,110 62,158
STOCKHOLDERS' DEFICIT
Preferred stock, $0.01 par value; 5,000,000
shares authorized; none issued and outstanding
Common stock, $0.01 par value; 100,000,000
shares authorized; 63,509,999 and 63,573,899
shares, respectively, issued and outstanding 635 636
Capital in excess of par value 1,186,109 1,186,507
Retained deficit (1,511,148) (1,604,860)
Cumulative translation adjustment 7,629 6,121
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (316,775) (411,596)
-------- --------
$208,345 $153,881
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
COMPUTERVISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
SOFTWARE REVENUE
Product $43,851 $26,640 $83,890 $43,249
Services 27,759 24,948 56,437 49,700
------- ------- ------- -------
Total Software Revenue 71,610 51,588 140,327 92,949
OTHER SERVICES REVENUE 47,347 36,887 91,865 73,335
------- ------- ------- -------
Total Revenue 118,957 88,475 232,192 166,284
COST OF SALES
Software
Product 3,773 4,056 7,736 6,133
Services 15,630 16,276 32,084 33,065
Other services 35,348 32,020 67,638 65,514
------- ------- ------- -------
Total Cost of Sales 54,751 52,352 107,458 104,712
------- ------- ------- -------
GROSS PROFIT 64,206 36,123 124,734 61,572
SELLING AND ADMINISTRATIVE EXPENSE
Software 28,383 27,800 55,435 56,386
Other Services 6,115 4,861 12,008 10,443
RESEARCH, DEVELOPMENT AND
ENGINEERING EXPENSE
Software 10,066 9,594 20,390 19,897
Other Services 175 138 350 269
NON-RECURRING CHARGES
Software 0 45,000 0 45,000
Other Services 0 0 0 7,000
------- ------- ------- -------
OPERATING INCOME (LOSS)
Software 13,758 (51,138) 24,682 (67,532)
Other Services 5,709 (132) 11,869 (9,891)
------- ------- ------- -------
Total Operating Income (Loss) 19,467 (51,270) 36,551 (77,423)
INTEREST AND OTHER EXPENSE, NET 7,361 8,498 15,166 16,289
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 12,106 (59,768) 21,385 (93,712)
PROVISION FOR INCOME TAXES 1,453 0 2,564 0
------- ------- ------- -------
NET INCOME (LOSS) $10,653 ($59,768) $18,821 ($93,712)
======= ======= ======= =======
EARNINGS (LOSS) PER SHARE $0.16 ($0.94) $0.29 ($1.47)
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 64,923 63,573 64,933 63,570
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
COMPUTERVISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Six Months Ended
June 30, June 29,
CASH FLOWS FROM (USED FOR) OPERATIONS 1996 1997
<S> <C> <C>
Net Income (Loss) $18,821 ($93,712)
Add items not requiring cash:
Depreciation of property and equipment 10,562 8,122
Amortization of intangibles 1,134 179
Amortization of finance costs and debt
discounts 1,455 1,455
Provision for doubtful accounts (121) (16)
Non-cash portion of non-recurring charge 0 6,634
Changes in assets and liabilities:
Accounts receivable (9,438) 16,733
Prepaid expenses and other (2,339) (879)
Accounts payable, accrued expenses and
income taxes (31,230) 40,668
------- -------
Cash flows used for continuing operations (11,156) (20,816)
------- -------
INVESTING ACTIVITIES
Expenditures for property and equipment (6,237) (4,643)
(Increase) decrease in other assets 68 (194)
Acquisition 0 (1,600)
------- -------
Total cash flows used for investments (6,169) (6,437)
------- -------
FINANCING ACTIVITIES
Increase in notes payable 466 7,230
Payments on long-term borrowings (1,342) (533)
Issuance of common stock under Employee Stock
Purchase Plan 308 173
Issuance of common stock under Stock Option Plan 2,065 226
------- -------
Total cash flows from financing activities 1,497 7,096
------- -------
Foreign exchange impact on cash (1,860) (1,356)
------- -------
Net decrease in cash and cash equivalents (17,688) (21,513)
Cash and cash equivalents at beginning of period 50,979 38,565
------- -------
Cash and cash equivalents at end of period $33,291 $17,052
======= =======
Supplementary data requirements:
Cash interest paid $14,331 $13,574
Cash taxes paid $297 $1,065
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments (all of which are of a normal
recurring nature) which, in the opinion of management, are necessary for a
fair statement of the results of the interim periods presented. The unaudited
results of operations for the quarter and six months ended June 29, 1997 are
not necessarily an indication of the results of operations for the full year.
These financial statements do not include all disclosures associated with
annual financial statements and, accordingly, should be read in conjunction
with the financial statements and footnotes for the year ended December 31,
1996 included in the Company's Form 10-K where certain terms have been
defined. All amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
(1) Notes Payable and Long-Term Debt
December 31, June 29,
1996 1997
<S> <C> <C>
Notes Payable:
Notes Payable to Banks $3,277 $3,841
Revolving Credit Arrangement - 6,666
-------- --------
Total Notes Payable $3,277 $10,507
Long-Term Debt:
8% Convertible Subordinated Debentures, due 2009,
net of unamortized discount of $17,456 and
$16,836, and current portion of $5,500 and
$5,500, respectively 31,154 31,774
11 3/8% Senior Subordinated Notes, due 1999 175,000 175,000
Other Long-Term Debt, less current portion of
$1,111 and $1,196 11,192 10,605
-------- --------
Total Long-Term Debt, less current portion $217,346 $217,379
======== ========
</TABLE>
Notes Payable to Banks
Notes payable to banks consist of borrowings by the Company's international
subsidiaries under certain of the Company's lines of credit. Borrowings
under such lines bear interest at prevailing or negotiated rates.
Revolving Credit Arrangement
In 1995, the Company entered into a three-year, $50,000 credit facility (the
"Revolving Credit Facility") with its lending banks. The Revolving Credit
Facility provided for a revolving line of credit of $50,000 for working
capital and for sinking fund payments on the Company's 8% Convertible
Subordinated Debentures (unpaid principal balance of $54,110 at December 31,
1996), of which $20,000 is available for letters of credit. Due to a
financial covenant violation which occurred in the first quarter of 1997, the
Company amended and restated the Revolving Credit Facility on May 22, 1997,
to reset the financial covenants to conform with the Company's revised
business plan for 1997 and to implement a borrowing base limitation. Under
the amended facility, the Company could borrow funds secured by the accounts
receivable of the Company, Computervision Pty. Limited (Australia),
Computervision SA (France), Computervision GmbH (Germany) and Computervision
Limited (U.K.). Pursuant to the terms of the Revolving Credit Facility, the
Company has granted the lenders a security interest in all of the Company's
U.S. assets. Letters of credit outstanding at June 29, 1997 were $3,595 and
borrowings outstanding were $6,666. Borrowings under the amended Revolving
Credit Facility bear interest at LIBOR plus 2.5% for borrowings of $25,000 or
less and LIBOR plus 3% for borrowings greater than $25,000. On June 29,
1997, the rates ranged from 8.19% to 10.0%.
As a result of the shortfall in revenue and the non-recurring charge of
$45,000 in the quarter ended June 29, 1997, the Company was unable to satisfy
certain of the financial covenants, as amended, under the Revolving Credit
Facility. The default has not been waived by the lending banks, and the
Company is seeking to enter into new credit arrangements with other lenders
to meet the needs of its restructured software business. Subsequent to
quarter end, the Company repaid all of
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<PAGE>
the outstanding borrowings under the Revolving Credit Facility, including
cash collateralizing the letters of credit (see Note 7 "Subsequent Event").
The Company is no longer able to borrow under this facility. The Company
has signed a commitment letter with an affiliate of M.D. Sass Investors
Services, Inc., a major shareholder of the Company, for a bridge term loan
of up to $10,000, subject to satisfactory completion of due diligence and
documentation. The bridge term loan matures on the earlier of 180 days or
the establishment of a replacement credit arrangement. The Company, however,
can give no assurance that it will be successful in closing the bridge term
loan or in effecting such replacement credit arrangement.
Interest and Other Expense, net
Interest and Other Expense, net for the periods ended June 30, 1996 and June
29, 1997 consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Interest income $(262) $(274) $(801) $(659)
Interest expense 8,036 7,953 16,025 15,966
Other expense, net (413) 819 (58) 982
------ ------ ------ ------
Interest and other expense, net $7,361 $8,498 $15,166 $16,289
====== ====== ====== ======
</TABLE>
(2) Non-recurring Charge
The results for the second quarter of 1997 include a non-recurring charge of
$45,000, related primarily to the restructuring of the software business in
order to reduce the costs in the business and improve operating results in
future periods. Of the $45,000 non-recurring charge, $38,000 represents the
cash portion and consists of primarily personnel reductions of approximately
300 positions and the closing of facilities. During the second quarter of
1997, the Company paid out approximately $580 related to personnel reductions
and facility closings.
The results for the first quarter of 1997 include a non-recurring charge of
$7,000 related primarily to the reorganization of the OSS business as a stand
alone business unit (approximately $4,360 related to personnel reductions of
approximately 60 positions in OSS and the closing of facilities), as well as
expenses incurred in connection with the terminated agreement to sell the OSS
business to J.F. Lehman. During the second quarter and first six months of
1997, the Company paid out approximately $800 and $1,644, respectively,
related to personnel reductions and facility closings.
Of the $11,000 of restructuring costs included in the non-recurring charge of
$14,500 recorded in the fourth quarter of 1996, the Company paid out
approximately $3,000 and $4,600, respectively, during the second quarter and
first six months of 1997.
(3) Litigation
The Company is currently involved in lawsuits which could have an adverse
impact upon the Company's short-term liquidity and results of operations if
unfavorable judgments are rendered against the Company. On July 23, 1997,
the Company reached an agreement for settlement of the class action lawsuit
commenced in March 1991 against the Company and certain individual defendants
by Joseph and Josephine Dieter. As its contribution to the settlement fund,
the Company has agreed to issue 2,712 shares of its common stock valued at $4
per share. The agreement provides for a reduction in the number of shares to
be distributed in the event the average price exceeds $6 during the
predistribution period. The settlement agreement also provides for an
increase in the number of shares to be distributed to the plaintiffs in the
event that the average price of the Company's common stock is less than $4
during the period prior to the distribution of the shares to the plaintiffs.
The settlement is subject to the approval of the Delaware Chancery Court.
Distribution of the shares will be made after Court approval of the
settlement and expiration of the applicable appeal period, assuming no appeal
is made. The Company had previously provided for the settlement; therefore,
the settlement will have no impact on the Company's results of operations.
7
<PAGE>
Other than as described above, there have been no significant changes to the
Company's outstanding litigation since the filing of the Company's Form 10-K
for the twelve months ended December 31, 1996.
(4) Related Party Transaction
The Company recognized $11,200 of software product revenue from Peugeot SA
during the quarter ended March 31, 1996. A member of senior management of
Peugeot SA is also a director of the Company.
(5) Earnings Per Share
Fully diluted earnings per share for the three months ended June 29, 1997
would have been the same as primary earnings per share and, therefore, have
not been presented separately.
During 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share,"
which specifies a new computation for earnings per share. SFAS 128 is
effective for periods ending after December 15, 1997. Had SFAS 128 been
adopted as of January 1, 1996, there would have been no effect on the
Company's reported earnings per share for the quarters and six month periods
ended June 29, 1997 and June 30, 1996.
(6) Reclassifications
Certain prior year balances in the financial statements have been
reclassified to conform to the current year financial statement presentation.
(7) Subsequent Event
On July 18, 1997, the Company completed the sale of its Open Service
Solutions business unit to CVSI. Inc. ("CVSI"). As a result of this
transaction, the Company received $32,600 in cash, of which $7,600 was paid
by M.D. Sass Investors Services, Inc. ("Buyer"), which owns 17% of the
Company's outstanding common stock, for 76% of CVSI's Class A voting stock.
The remaining $25,000 was paid to the Company by CVSI, and, in addition, the
Company received a subordinated note from CVSI in the principal amount of
$10,000. The Company will retain 24% of CVSI's Class A voting common stock
(to which it has currently assigned a nominal value) and 100% of its Class B
non-voting stock. The Buyer has been provided incentive options to purchase
the remaining 24% Class A common stock held by the Company should it retire
within the first year the $10,000 subordinated note as well as purchase all
of the Class B non-voting stock for $15,000. In addition, the Company has
agreed that if CVSI does not achieve certain specified levels of product
revenues and operating margins from Computervision-initiated referrals, CVSI
will have the option to purchase, at a nominal price, some or all of the
remaining Class A stock held by the Company. In no instance can CVSI raise
additional funds without first applying the proceeds to retire the $10,000
subordinated note and purchase Class B stock for $15,000. The Company used
approximately $14,000 of the cash proceeds to pay outstanding borrowings
under the Revolving Credit Facility. The remaining cash proceeds will be
used for transaction costs and other working capital needs. After
transaction costs, the Company does not expect to realize a material gain as
a result of the sale transaction.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (In Thousands, Except Per Share Data)
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the financial statements and
footnotes contained in the Company's Form 10-Q for the three months ended
June 29, 1997 and the Form 10-K, including the Factors That May Affect Future
Results section of Management's Discussion and Analysis of Financial
Condition and Results of Operations, for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
Software Revenue and Gross Margins
Total software revenue for the second quarter of 1997 decreased $20,022 or
28%, as product revenue decreased $17,211 or 39% and service revenue
decreased $2,811 or 10% from the corresponding period in 1996. For the six
month period ended June 29, 1997, total software revenue decreased $47,378 or
34%, as product revenue decreased $40,641 or 48% and service revenue
decreased $6,737 or 12%. Total software revenue for the second quarter and
first six months of 1997 included unfavorable foreign exchange impacts of
$1,295 and $1,945, respectively, attributable to product revenue, and $1,190
and $2,390, respectively, attributable to service revenue.
The decrease in software product revenue for both the second quarter and first
six months of 1997 was attributable in large part to the Company's failure to
consummate several large EPD contracts. In the comparable six months in 1996,
the Company's software product revenue included $11,200 related to a contract
with Peugeot SA, including Automobiles Peugeot and Citroen. Revenue from the
Company's product data management software products decreased $5,100 and
$9,000, or 50% and 49%, respectively, for the three and six month periods
ended June 29, 1997. Revenue from CADDS software products decreased $12,800
and $26,700 or 44% and 51%, respectively, for the same periods. In addition,
revenue from several older mechanical CAD software products continued to
decline year over year, as planned.
The decrease in software service revenue for the three and six month periods
ended June 29, 1997 was due to an unfavorable foreign exchange impact and a
decrease in maintenance revenue, offset in part by increased training and
consulting revenue. The maintenance revenue decrease reflected primarily the
impact of lower pricing on new products and upgrades within the existing
customer base, as well as the impact of the shortfall in product revenue
during the first quarter of 1997. The shortfall in product revenue during
the first six months of 1997 will continue to have an adverse effect on
maintenance revenue in future quarters.
Software product margins for the second quarter and first six months of 1997
were 84.8% and 85.8%, respectively, compared to 91.4% and 90.8%,
respectively, for the corresponding periods in 1996. The decrease in
software product margins primarily resulted from unabsorbed fixed costs due
to lower revenue, increased sales of third party software, and increased
royalties for software licensed from third parties. Software service margins
for the second quarter and first six months of 1997 were 35% and 33%,
respectively, compared to 44% and 43%, respectively, for the corresponding
periods in 1996. The decline in software service margin in 1997 primarily
resulted from decreased maintenance margins, due to decreased maintenance
revenue, offset in part by increased training and consulting margins.
Other Revenue and Gross Margins
Other services revenue (representing the OSS business unit) for the second
quarter and first six months of 1997 decreased $10,460 and $18,530 or 22% and
20%, respectively, from the corresponding periods in 1996 and included
unfavorable period over period foreign exchange impacts of $1,700 and $2,800,
respectively. The decrease in other services revenue was primarily due to
the expected continuing reduction in hardware services, which declined $8,300
and $17,000 or 25% and 25%, respectively.
Other services margins for the second quarter and first six months of 1997
were 13% and 11%, respectively, compared to 25% and 26%, respectively, for
the corresponding periods in 1996. The decrease in margins was attributable
to several factors, including unabsorbed fixed costs as a result of a
declining service base and increased system integration and networking
services which contribute a lower margin.
On July 18, 1997, the Company completed the sale of the OSS business unit to
CVSI, Inc. (See Note 7 "Subsequent Event" of the Notes to the Consolidated
Financial Statements.)
9
<PAGE>
Selling and Administrative Expense
Total selling and administrative expense for the second quarter and first six
months of 1997 decreased $1,837 and $614, or 5% and 1%, respectively, from
the corresponding periods in 1996. The decreases were primarily due to
favorable foreign exchange impacts of $1,144 and $2,044, respectively, and
the cost benefits associated with the recent restructurings, offset by
decreased commissions received for third party hardware referrals.
Research, Development and Engineering Expense
Total research, development and engineering expense for the second quarter
and first six months of 1997 decreased $509 and $574 or 5% and 3%,
respectively, from the corresponding periods in 1996. The decreases resulted
primarily from the cost benefits associated with the recent restructurings.
Non-recurring Charge
The results for the second quarter of 1997 include a non-recurring charge of
$45,000, related primarily to the restructuring of the software business in
order to reduce the costs in the business and improve operating results in
future periods. Of the $45,000 non-recurring charge, $38,000 represents the
cash portion and consists of primarily personnel reductions of approximately
300 positions and the closing of facilities. During the second quarter of
1997, the Company paid out approximately $580 related to personnel reductions
and facility closings.
The results for the first quarter of 1997 include a non-recurring charge of
$7,000 related primarily to the reorganization of the OSS business as a stand
alone business unit (approximately $4,360 related to personnel reductions of
approximately 60 positions in OSS and the closing of facilities), as well as
expenses incurred in connection with the terminated agreement to sell the OSS
business to J.F. Lehman. During the second quarter and first six months of
1997, the Company paid out approximately $800 and $1,644, respectively,
related to personnel reductions and facility closings.
Of the $11,000 of restructuring costs included in the non-recurring charge of
$14,500 recorded in the fourth quarter of 1996, the Company paid out
approximately $3,000 and $4,600, respectively, during the second quarter and
first six months of 1997.
Interest and Other
Interest expense for the second quarter and first six months of 1997 was
relatively flat with the corresponding periods in 1996, as there were no
significant changes in the debt structure. Other (income) expense for the
second quarter and first six months of 1997 and the corresponding periods of
1996 primarily relates to the Company's foreign currency hedging program.
Short-term Liquidity and Capital Resources
In 1995, the Company entered into a three-year, $50,000 credit facility (the
"Revolving Credit Facility") with its lending banks. The Revolving Credit
Facility provided for a revolving line of credit of $50,000 for working
capital and for sinking fund payments on the Company's 8% Convertible
Subordinated Debentures (unpaid principal balance of $54,110 at December 31,
1996), of which $20,000 is available for letters of credit. Due to a
financial covenant violation which occurred in the first quarter of 1997, the
Company amended and restated the Revolving Credit Facility on May 22, 1997,
to reset the financial covenants to conform with the Company's revised
business plan for 1997 and to implement a borrowing base limitation. Under
the amended facility, the Company could borrow funds secured by the accounts
receivable of the Company, Computervision Pty. Limited (Australia),
Computervision SA (France), Computervision GmbH (Germany) and Computervision
Limited (U.K.). Pursuant to the terms of the Revolving Credit Facility, the
Company has granted the lenders a security interest in all of the Company's
U.S. assets. Letters of credit outstanding at June 29, 1997 were $3,595 and
borrowings outstanding were $6,666. Borrowings under the amended Revolving
Credit Facility bear interest at LIBOR plus 2.5% for borrowings of $25,000 or
less and LIBOR plus 3% for borrowings greater than $25,000. On June 29,
1997, the rates ranged from 8.19% to 10.0%.
As a result of the shortfall in revenue and the non-recurring charge of
$45,000 in the quarter ended June 29, 1997, the Company was unable to satisfy
certain of the financial covenants, as amended, under the Revolving Credit
Facility. The
10
<PAGE>
default has not been waived by the lending banks, and the Company is seeking
to enter into new credit arrangements with other lenders to meet the needs of
its restructured software business. Subsequent to quarter end, the Company
repaid all of the outstanding borrowings under the Revolving Credit Facility,
including cash collateralizing the letters of credit (see Note 7 "Subsequent
Event"). The Company is no longer able to borrow under this facility. The
Company has signed a commitment letter with an affiliate of M.D. Sass
Investors Services, Inc., a major shareholder of the Company, for a bridge
term loan of up to $10,000, subject to satisfactory completion of due
diligence and documentation. The bridge term loan matures on the earlier of
180 days or the establishment of a replacement credit arrangement. The
Company, however, can give no assurance that it will be successful in closing
the bridge term loan or in effecting such replacement credit arrangement.
The Company expects to utilize its $10,000 bridge term loan to fund its
primary third quarter requirements, including the August 15, 1997 $10,000
semi-annual interest payment on its outstanding Senior Subordinated Notes.
If the Company is unsuccessful in negotiating an adequate replacement credit
facility by the end of the third quarter, or if it is not able to raise
additional funds through an equity or debt financing, the Company would be
unable to meet its remaining principal short-term liquidity requirements,
including debt service, restructuring payments, normal working capital and
other cash requirements, which would have a material adverse effect on the
Company's on-going operations and would adversely affect the solvency of the
Company. No assurances can be given that the Company will be successful in
negotiating a replacement credit arrangement or raising additional funds
through an equity or debt financing.
Despite a significant reduction in the Company's long term indebtedness in
1995, the Company remains highly leveraged and has a stockholders' deficit.
This indebtedness requires the Company to dedicate a significant portion of
its cash flow from operations to service its indebtedness and makes the
Company more vulnerable to unfavorable changes in general economic
conditions.
A substantial portion of the Company's orders and shipments typically occur
in the last two weeks of each quarter. Therefore, the timing of orders and
shipments, including unexpected delays in receiving large orders, such as
occurred in the first two quarters of 1997, or competitors introducing new
competitive products, could result in significant quarterly fluctuations in
the Company's operating results and cash flow. Historically, the Company has
experienced a seasonal decline in revenue in the first and third quarters of
each fiscal year, primarily due to capital budgeting cycles and the European
holiday schedule, respectively.
Long-term Liquidity
The Company's principal long-term liquidity requirements are payments for
interest, previously accrued restructuring obligations, capital expenditures
and the repayment of the Senior Subordinated Notes which mature in 1999. The
Company will require additional funds prior to the maturity of the Senior
Subordinated Notes in 1999 to satisfy these obligations and, as a result,
will seek to obtain such funds through a sale of equity and/or debt
securities or other financing arrangements. However, no assurances can be
given that such funds will be available when required or on terms favorable
to the Company.
Operations and Investments
Cash and cash equivalents were $17,052 at June 29, 1997 compared with $38,565
at December 31, 1996. The decrease of $21,513 in cash and cash equivalents is
primarily due to cash used for operations ($20,816) and cash used for the
purchase of property and equipment ($4,643).
Legal
The Company is currently involved in lawsuits which could have an adverse
impact upon the Company's short-term liquidity and results of operations if
unfavorable judgments are rendered against the Company. On July 23, 1997,
the Company reached an agreement for settlement of the class action lawsuit
commenced in March 1991 against the Company and certain individual defendants
by Joseph and Josephine Dieter. As its contribution to the settlement fund,
the Company has agreed to issue 2,712 shares of its common stock valued at $4
per share. The agreement provides for a reduction in the number of shares to
be distributed in the event the average price exceeds $6 during the
predistribution period. The settlement agreement also provides for an
increase in the number of shares to be distributed to the plaintiffs in the
event that the average price of the Company's common stock is less than $4
during the period prior to the distribution of the shares to the plaintiffs.
The settlement is subject to the approval of the Delaware Chancery Court.
Distribution of the shares will be
11
<PAGE>
made after Court approval of the settlement and expiration of the applicable
appeal period, assuming no appeal is made. The Company had previously
provided for the settlement; therefore, the settlement will have no impact
on the Company's results of operations.
Other than as described above, there have been no significant changes to the
Company's outstanding litigation since the filing of the Company's Form 10-K
for the twelve months ended December 31, 1996.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in lawsuits which could have an adverse
impact upon the Company's short-term liquidity and results of operations if
unfavorable judgments are rendered against the Company. On July 23, 1997,
the Company reached an agreement for settlement of the class action lawsuit
commenced in March 1991 against the Company and certain individual defendants
by Joseph and Josephine Dieter. As its contribution to the settlement fund,
the Company has agreed to issue 2,712 shares of its common stock valued at $4
per share. The agreement provides for a reduction in the number of shares to
be distributed in the event the average price exceeds $6 during the
predistribution period. The settlement agreement also provides for an
increase in the number of shares to be distributed to the plaintiffs in the
event that the average price of the Company's common stock is less than $4
during the period prior to the distribution of the shares to the plaintiffs.
The settlement is subject to the approval of the Delaware Chancery Court.
Distribution of the shares will be made after Court approval of the
settlement and expiration of the applicable appeal period, assuming no appeal
is made. The Company had previously provided for the settlement; therefore,
the settlement will have no impact on the Company's results of operations.
Other than as described above, there have been no significant changes to the
Company's outstanding litigation since the filing of the Company's Form 10-K
for the twelve months ended December 31, 1996.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits.
Exhibit 11 - Calculation of Shares Used in Determining Earnings Per Share.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on April 8, 1997, to report (a) the Company's
preliminary financial results for the first quarter of 1997, and (b) the
election of James B. Rubin, Senior Managing Director of M.D. Sass Investors
Services, Inc. a 17% shareholder of the Company, as a member of its Board of
Directors.
A report on Form 8-K was filed on April 30, 1997, to report the Company's
financial results for the first quarter of 1997.
A report on form 8-K was filed on May 28, 1997, to report the nomination of
two new members to the Company's Board of Directors.
A report on form 8-K was filed on June 18, 1997, to report the election of
two new members to the Company's Board of Directors.
A report on Form 8-K was filed on June 26,1997, to report the appointment of
William A. Wilson as Senior Vice President and Chief Financial Officer of the
Company.
A report on form 8-K was filed on July 22, 1997, to report the sale of the
Company's Open Service Solutions business unit to CVSI, Inc..
A report on Form 8-K was filed on July 24, 1997, to report (a) the Company's
financial results for the second quarter of 1997, (b) the settlement of a
shareholder lawsuit, and (c) the acquisition of Knowledge Integration Center
from UES, Inc..
A report on Form 8-K was filed on August 4, 1997, to report the Company's pro
forma financial results after the sale of the Open Service Solutions business
unit.
13
<PAGE>
SIGNATURES
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.
Computervision Corporation
(Registrant)
Date: August 13, 1997
/S/ William A. Wilson
William A. Wilson
Senior Vice-President Finance and
Chief Financial Officer
14
<PAGE>
Exhibit Index
Page
11(a) - Computervision Corporation - Calculation of Shares
Used in Determining Earnings Per Share 16
15
<PAGE>
<TABLE>
<CAPTION>
Computervision Corporation
Calculation of Shares Used in Determining Earnings Per Share
For the Three and Six Months Ended June 30, 1996 and June 29, 1997
(In Thousands)
Three Months Ended Six Months Ended
June 30, June 29, June 30, June 29,
Primary Earnings Per Share 1996 1997 1996 1997
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding during the period 63,287 63,573 63,133 63,570
Common stock equivalents 1,636 0 1,800 0
------ ------ ------ ------
Total 64,923 63,573 64,933 63,570
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 29, June 30, June 29,
Fully Diluted Earnings Per Share 1996 1997 1996 1997
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding during the period 62,287 63,573 63,133 63,570
Common stock equivalents 1,763 0 1,797 0
------ ------ ------ ------
Total 65,050 63,573 64,930 63,570
====== ====== ====== ======
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Form 10-Q for the Quarter ended
June 29, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 17,052
<SECURITIES> 0
<RECEIVABLES> 83,039
<ALLOWANCES> 2,836
<INVENTORY> 0
<CURRENT-ASSETS> 120,195
<PP&E> 103,592
<DEPRECIATION> 83,840
<TOTAL-ASSETS> 153,881
<CURRENT-LIABILITIES> 255,888
<BONDS> 217,379
0
0
<COMMON> 636
<OTHER-SE> (412,232)
<TOTAL-LIABILITY-AND-EQUITY> 153,881
<SALES> 43,249
<TOTAL-REVENUES> 166,284
<CGS> 6,133
<TOTAL-COSTS> 104,712
<OTHER-EXPENSES> 138,995
<LOSS-PROVISION> (16)
<INTEREST-EXPENSE> 15,966
<INCOME-PRETAX> (93,712)
<INCOME-TAX> 0
<INCOME-CONTINUING> (93,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,712)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
