<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
November 10, 1997
Computervision Corporation
(Exact name of registrant as specified in charter)
Delaware 1-7760/0-20290 04-2491912
- ---------------------- -------------- ----------
(State or other (Commission (IRS Employer
jurisdiction File Numbers) Identification
of incorporation) Number)
100 Crosby Drive, Bedford, MA 01730
(Address of principal executive offices) (zip code)
(617) 275-1800
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
- --------------------
Subsequent to March 27, 1997, the Company has experienced significant shortfalls
in revenue, incurred significant operating losses and has significant negative
working capital at September 28, 1997. In addition, if the Company is unable to
secure additional financing, it 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 ongoing operations and would adversely
affect the solvency of the Company. These issues raise substantial doubt about
the Company's ability to continue as a going concern. Based on these factors,
the Company's independent auditors have reissued their original report dated
March 27, 1997 (except with respect to the matter discussed in Note 4, as to
which the date is April 15, 1997) on the December 31, 1996 financial statements
included in the Company's Form 10-K and their original review report dated April
24, 1997 on the March 30, 1997 financial statements included in the Company's
Form 10-Q to include an explanatory paragraph that describes the substantial
doubt about the Company's ability to continue as a going concern.
Item 7. Financial Statements and Exhibits
- -----------------------------------------
(a) Financial Statements of business acquired:
Not applicable
(b) Pro Forma financial information
Not applicable
(c) Exhibits
(99) (a) 1996 Form 10-K financial statements.
(b) Q1 1997 Form 10-Q financial statements.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and 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)
By /s/ Anthony N. Fiore, Jr.
Anthony N. Fiore, Jr.
Vice President, Business
Operations and General Counsel
Date: November 10, 1997
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computervision Corporation:
We have audited the accompanying consolidated balance sheets of
Computervision Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on those consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Computervision Corporation and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed further in Note 15, subsequent to March 27, 1997, the original
date of our report, (except with respect to the matter discussed in Note 4, as
to which the date is April 15, 1997), the Company has experienced significant
shortfalls in revenue, has incurred significant losses from operations, and,
based on unaudited financial statements, has significant negative working
capital at September 28, 1997. These factors, among others, as described in Note
15, create substantial doubt about the Company's ability to continue as a going
concern. Management's plans are also discussed in Note 15. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 1997 (except with
respect to the matter discussed
in Note 4, as to which the
date is April 15, 1997 and the
matters discussed in Note 15,
as to which the date is
November 10, 1997)
<PAGE>
COMPUTERVISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $50,979 $38,565
Accounts receivable, less allowance for doubtful
accounts of $3,623 and $2,929, respectively 92,271 102,509
Current deferred income taxes 16,444 7,448
Prepaid expenses and other current assets 18,003 16,019
---------------- ----------------
TOTAL CURRENT ASSETS 177,697 164,541
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and leasehold improvements 41,367 35,524
Production and test equipment 7,230 4,777
Computer systems and spares 99,780 67,001
Office equipment and other 22,261 19,251
---------------- ----------------
170,638 126,553
Less - accumulated depreciation (124,230) (95,498)
---------------- ----------------
PROPERTY AND EQUIPMENT, NET 46,408 31,055
---------------- ----------------
DEFERRED INCOME TAX ASSETS 10,766 4,113
CAPITALIZED SOFTWARE 2,105 1,276
DEFERRED FINANCE COSTS 5,344 3,734
OTHER ASSETS 4,597 3,626
---------------- ----------------
$246,917 $208,345
================ ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $27,259 $19,776
Notes payable and current portion of long-term debt 9,186 9,888
Accrued compensation, severance and related costs 61,722 57,482
Deferred revenue and customer advances 39,148 40,503
Accrued and deferred income taxes 31,910 15,019
Other current liabilities and accrued expenses 90,977 81,822
---------------- ----------------
TOTAL CURRENT LIABILITIES 260,202 224,490
---------------- ----------------
DEFERRED INCOME TAXES 27,284 30,174
LONG-TERM DEBT, LESS CURRENT PORTION 222,641 217,346
OTHER LONG-TERM LIABILITIES 74,516 53,110
COMMITMENTS AND CONTINGENCIES (see Notes 2, 6 and 13)
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; 62,815,017 and 63,509,999 shares,
respectively, issued and outstanding 628 635
Capital in excess of par value 1,183,056 1,186,109
Retained deficit (1,533,351) (1,511,148)
Cumulative translation adjustment 11,941 7,629
---------------- ----------------
TOTAL STOCKHOLDERS' DEFICIT (337,726) (316,775)
---------------- ----------------
$246,917 $208,345
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
COMPUTERVISION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31, 1994, 1995 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
1994 1995 1996
---------------- ---------------- ---------------
<S> <C> <C> <C>
SOFTWARE REVENUE
Product $163,199 $163,716 $191,728
Services 122,980 122,885 111,087
---------------- ---------------- ---------------
TOTAL SOFTWARE REVENUE 286,179 286,601 302,815
OTHER SERVICES REVENUE 287,458 220,473 174,384
---------------- ---------------- ---------------
TOTAL REVENUE 573,637 507,074 477,199
COST OF SALES
Software
Product 30,218 17,181 16,382
Services 72,682 70,704 67,748
Other Services 196,743 154,870 134,686
---------------- ---------------- ---------------
TOTAL COST OF SALES 299,643 242,755 218,816
---------------- ---------------- ---------------
GROSS PROFIT 273,994 264,319 258,383
SELLING AND ADMINISTRATIVE EXPENSE
Software 117,503 113,611 119,465
Other Services 37,720 26,900 23,501
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSE
Software 57,223 41,533 40,144
Other Services 2,096 1,600 700
NON-RECURRING CHARGES
Software -- -- 14,500
Other Services -- -- 5,000
---------------- ---------------- ---------------
OPERATING INCOME
Software 8,553 43,572 44,576
Other Services 50,899 37,103 10,497
---------------- ---------------- ---------------
Total 59,452 80,675 55,073
INTEREST AND OTHER EXPENSE, NET 49,681 44,924 30,806
---------------- ---------------- ---------------
INCOME BEFORE INCOME TAXES 9,771 35,751 24,267
PROVISION FOR INCOME TAXES -- 5,005 2,610
---------------- ---------------- ---------------
NET INCOME BEFORE EXTRAORDINARY CHARGE 9,771 30,746 21,657
EXTRAORDINARY CHARGE -- (7,930) --
---------------- ---------------- ---------------
NET INCOME $ 9,771 $ 22,816 $ 21,657
================ ================ ===============
EARNINGS (LOSS) PER SHARE
Earnings before extraordinary charge $ 0.20 $ 0.58 $ 0.33
Extraordinary Charge -- (0.15) --
---------------- ---------------- ---------------
Net Earnings $ 0.20 $ 0.43 $ 0.33
================ ================ ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 48,367 52,591 64,784
================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
COMPUTERVISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1994, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
Common Stock Capital
------------------------------ in Excess Cumulative
Number Par of Par Accumulated Translation
of Shares Value Value Deficit Adjustment
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 48,183 482 1,024,704 (1,565,222) 9,859
Issuance of Common Stock under
employee stock purchase plan 227 2 669 0 0
Restricted Stock Compensation 0 0 257 0 0
Minimum pension liability adjustment 0 0 0 7,824 0
Translation adjustment 0 0 0 0 2,241
Net income 0 0 0 9,771 0
------------- ------------- -------------- ------------- --------------
BALANCE AT DECEMBER 31, 1994 48,410 484 1,025,630 (1,547,627) 12,100
Issuance of Common Stock under
employee stock purchase plan 165 2 671 0 0
Issuance of Common Stock under
stock option plan 440 4 1,748 0 0
Restricted Stock Compensation 0 0 514 0 0
Issuance of Common Stock, net of
underwriting fees and expenses 13,800 138 154,493 0 0
Minimum pension liability adjustment 0 0 0 (8,540) 0
Translation adjustment 0 0 0 0 (159)
Net income 0 0 0 22,816 0
------------- ------------- -------------- ------------- --------------
BALANCE AT DECEMBER 31, 1995 62,815 628 1,183,056 (1,533,351) 11,941
Issuance of Common Stock under
employee stock purchase plan 83 1 678 0 0
Issuance of Common Stock under
stock option plan 612 6 2,375 0 0
Minimum pension liability adjustment 0 0 0 546 0
Translation adjustment 0 0 0 0 (4,312)
Net income 0 0 0 21,657 0
============= ============= ============== ============= ==============
BALANCE AT DECEMBER 31, 1996 63,510 $ 635 $ 1,186,109 $ (1,511,148) $ 7,629
============= ============= ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COMPUTERVISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATIONS
Net income $9,771 $22,816 $21,657
Add items not requiring cash:
Depreciation of property and equipment 42,460 25,093 21,748
Amortization of intangibles 14,474 5,864 1,715
Amortization of finance costs and debt discounts 3,404 5,290 2,911
Provision for doubtful accounts 7,701 88 212
Provision (benefit) for deferred income taxes 1,216 67 17
Write-off of purchased in process R&D -- -- 3,500
Changes in assets and liabilities:
Accounts receivable 74,070 14,212 (11,306)
Prepaid expenses and other 15,497 (1,752) 3,997
Accounts payable, accrued expenses and income taxes (177,758) (57,917) (36,510)
Other (1,336) (1,800) (59)
-------------- -------------- --------------
Total cash flows from (used for) operations (10,501) 11,961 7,882
-------------- -------------- --------------
INVESTING ACTIVITIES
Expenditures for property and equipment (15,116) (9,172) (11,479)
Decrease in other assets 693 2,521 (643)
Acquisitions 0 0 (1,070)
-------------- -------------- --------------
Total cash flows used for investments (14,423) (6,651) (13,192)
-------------- -------------- --------------
FINANCING ACTIVITIES
(Decrease) increase in notes payable 7,739 (4,927) 465
Payments on long-term borrowings (2,035) (126,655) (6,360)
Net proceeds from Stock Offering - 154,631 -
Proceeds from issuance of Common Stock 671 2,425 3,060
-------------- -------------- --------------
Total cash from (used for) financing activities 6,375 25,474 (2,835)
-------------- -------------- --------------
Foreign exchange impact on cash (5,563) 4,955 (4,269)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (24,112) 35,739 (12,414)
Cash and cash equivalents at beginning of period 39,352 15,240 50,979
-------------- -------------- --------------
Cash and cash equivalents at end of period $15,240 $50,979 $38,565
============== ============== ==============
Supplementary data requirements:
Cash interest paid $45,295 $48,066 $27,299
Cash taxes paid (refunded) ($4,508) ($373) $957
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
COMPUTERVISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
(1) ORGANIZATION AND RECAPITALIZATION
Computervision Corporation (the "Company") develops, produces and
markets software and provides support services that are designed to aid
manufacturing companies in enhancing their product development and manufacturing
processes. The Company's principal products include design automation and
product data management software. Manufacturers use the Company's software to
design, enhance and modify their products and to access, share and manage their
product data collaboratively. The Company's support services include
implementation, consulting and training services designed to assist customers in
reengineering their product development processes and in increasing
productivity.
In 1989, DR Holdings Inc. of Delaware ("DR Holdings") acquired the
Company (the "Acquisition") in a purchase transaction. In August 1992, the
Company completed a recapitalization (the "Recapitalization"), which included
the sale of $300,000 of common stock and $300,000 of notes to the public. The
proceeds were used to retire debt. In addition, a loan from Lehman Brothers
Holdings Inc. ("Lehman Holdings") was retired through the payment of cash and
the issuance of common stock of the Company. As a result of the
Recapitalization, and subsequent liquidation of DR Holdings, the common stock of
the Company owned by DR Holdings was distributed to the creditors.
On October 25, 1995, the Company completed a public offering of
13,800 shares of common stock at $12.00 per share. The net proceeds from this
sale, approximately $155,000, were applied on December 4, 1995 to the redemption
in full of the outstanding $125,000 Senior Notes due in 1997. The total cost of
the redemption, including the redemption premium and interest accrued to the
redemption date, was approximately $135,000.
OPERATING ENVIRONMENT
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for discussion of the Company's current operating
environment and revenue trends.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its domestic and foreign subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
In accordance with AICPA Statement of Position 91-1 "Software Revenue
Recognition", revenue from software sales is recognized at the time the product
is delivered, if collection is probable. Revenue from post-contract and other
services is deferred and recognized ratably over the contractual period. Revenue
from consulting and training services is recognized as the services are
provided.
6
<PAGE>
TRANSLATION OF FOREIGN CURRENCIES AND HEDGING INSTRUMENTS
Assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at the period-end exchange rates, while equity accounts are
translated at historical rates. Revenues and expenses are translated at the
average exchange rates during the period.
The Company enters into forward foreign exchange contracts to hedge
firm intercompany balances. The Company does not engage in speculation and,
therefore, the forward exchange contracts do not subject the Company to risk due
to exchange rate movements as gains and losses on these contracts offset losses
and gains on the assets or liabilities of the transactions being hedged. As of
December 31, 1996 and 1995, the Company had $9,933 and $1,451 of net forward
exchange contracts outstanding, 65% and 84% of which were in European
currencies, respectively. The forward exchange contracts generally have
maturities of three months or less.
PROPERTY AND EQUIPMENT
The Company provides for depreciation and amortization by charges to
operations on the straight-line method in amounts estimated to expense the cost
of buildings, equipment and improvements over their estimated useful lives as
follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION USEFUL LIVES
------------------------------------------------ ------------
<S> <C>
Buildings and leasehold improvements 3-30 years
Production and test equipment 3-8 years
Computer systems and spares 3-5 years
Office equipment and other 3-8 years
</TABLE>
Maintenance and repairs are charged to operations as incurred. When
equipment and improvements are fully depreciated, sold or otherwise disposed of,
the asset cost and accumulated depreciation are removed from the accounts and
the resulting gain or loss, if any, is included in the results of operations.
CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards No. 86
("SFAS 86"), "Accounting for the Costs of Computer Software to Be Sold, Leased
or Otherwise Marketed", the Company has capitalized certain computer software
development costs. During the years ended December 31, 1996, 1995 and 1994 the
Company capitalized $0, $0 and $1,545 of software costs, respectively. The
capitalized software is being amortized over lives ranging from three to five
years. The Company charged to expense $14,215, $5,359 and $1,715 of amortization
of capitalized software costs for the years ended December 31, 1994, 1995 and
1996, respectively.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted 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", with no material impact on the
financial position or results of operations.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation". The Company has elected to continue to account
for stock options at intrinsic value under APB Opinion No. 25 with disclosure of
the effects of fair value accounting on net income and earnings per share on a
pro forma basis (See Note 11 "Stock Plans").
7
<PAGE>
INCOME TAXES
The Company adopted the liability method of accounting for income
taxes under Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes" as of January 1, 1993 with no cumulative effect of
a change in accounting for income taxes on the reported results of operations.
RECLASSIFICATIONS
Certain prior year balances in the financial statements have been
reclassified to conform to the current year financial statement presentation.
EARNINGS/LOSS PER SHARE
Earnings/Loss Per Share for the years ended December 31, 1994, 1995
and 1996 have been computed based upon the weighted average number of shares of
Common Stock and equivalents outstanding, if dilutive, during the year. Fully
diluted net income per share for all periods has not been presented as it is not
materially different from primary net income per share. On October 25, 1995, the
Company completed a public offering of 13,800 shares of common stock. The net
proceeds of approximately $155,000 were applied on December 4, 1995 to the
redemption in full of the outstanding $125,000 Senior Notes due in 1997. If this
transaction had occurred as of January 1, 1995, the net earnings per share for
1995 would have been $0.55 vs the reported $0.43.
(3) CASH, CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS
The Company classifies all cash investments with an original maturity
of less than ninety days as cash equivalents and values them at cost which
approximates market. The Company's policy is to invest cash primarily in income
producing short-term money market instruments and to keep uninvested cash
balances at minimum levels.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and accounts receivable. As of December 31, 1996, the Company had no significant
concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value: (i) forward foreign exchange contracts (used for hedging
purposes) were estimated by obtaining quotes from brokers and (ii) long-term
debt was estimated based on the closing market price of the issue for the Senior
Subordinated Notes and based upon the most recent quoted market prices for the
8% Convertible Subordinated Debentures.
The estimated fair values of the Company's financial instruments at
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------------------------------- --------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Forward foreign exchange contracts - net payable $67 $68 $201 $205
Long-term debt:
8% Convertible Subordinated Debentures 36,066 46,822 36,654 50,322
11 3/8% Senior Subordinated Notes 175,000 182,823 175,000 182,035
</TABLE>
8
<PAGE>
The Company would not be able to sell its forward foreign exchange
contracts without exposing the Company to significant risk of movements in
foreign exchange rates. Also, certain financing agreements prohibit repurchase
or redemption of the long-term debt before its maturity.
(4) NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31, 1995 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Notes Payable:
Notes Payable to banks $2,812 $3,277
Revolving Credit Facility - -
============== ==============
Total Notes Payable $2,812 $3,277
============== ==============
Long-Term Debt:
8% Convertible Subordinated Debentures, due 2009, net of
unamortized discount of $19,019 and $17,456 and
current portion of $975 and $5,500, respectively $35,091 $31,154
11 3/8% Senior Subordinated Notes, due 1999 175,000 175,000
Other Long-Term Debt, less current portion of $5,399 and $1,111 12,550 11,192
============== ==============
Total Long-Term Debt, less current portion $222,641 $217,346
============== ==============
</TABLE>
The average amount of short-term borrowing outstanding during 1996
was $1,256, with a maximum outstanding of $11,500. The weighted average interest
rates on December 31, 1996 and for the year then ended was 9.25%.
NOTES PAYABLE TO BANKS
Notes payable to banks at December 31, 1995 and 1996 consisted 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 ARRANGEMENTS
On November 17, 1995, the Company entered into a three-year, $50,000
credit facility (the "Revolving Credit Facility") with Bankers Trust Company
(Fleet Bank of Massachusetts later became a co-agent) to replace the existing
Revolving Credit Agreement.
The Revolving Credit Facility provided for a revolving line of credit
(the "Revolving Credit Line") 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. 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 December 31, 1996
were $8,521 and there were no borrowings outstanding. The Revolving Credit
Facility requires the Company to satisfy certain financial and other covenants.
As a result of the non-recurring charges of $19,500 in the fourth quarter of
1996 (See Note 5 "Non-recurring Charges") and an expected non-recurring
charge of $7,000 in the first quarter of 1997, the Company would not have
satisfied the financial covenants of its Revolving Credit Facility. As a result,
the Company and its lending banks signed an amendment which modifies the
financial covenants through December 31, 1997. The Company also agreed with its
banks that it would amend the Revolving Credit Facility to provide for a
borrowing base limitation and would limit outstanding borrowings to $18,800
including letters of credit ($3,800 outstanding at March 27, 1997) until the
facility is so amended.
9
<PAGE>
Loans under the Revolving Credit Facility will bear interest at a Base Rate or
Eurodollar rate, as selected by the Company, plus an Applicable Margin. On
December 31, 1996, the rates ranged from 7.5% to 9.25%.
Due to the substantial shortfall in revenue for the quarter ended
March 30, 1997, the Company was unable to satisfy certain of the financial
covenants, as amended, under the Revolving Credit Facility (under which no
borrowings were outstanding) ("Bank Covenants"). On April 15, 1997, the Company
reached an agreement with its lending banks to waive the default in the Bank
Covenants for the quarter ended March 30, 1997, to amend the Bank Covenants to
conform with the Company's revised business plan for 1997, and to implement a
borrowing base limitation (the "April 1997 Amendment"). Pursuant to the terms
of the April 1997 Amendment, the Company may borrow funds secured by the
accounts receivable of the Company, Computervision Pty. Limited (Australia),
Computervision S.A. (France), Computervision GmbH (Germany) and Computervision
Limited (U.K.). Until such time as the April 1997 Amendment is executed, the
Company may borrow on its U.S. accounts receivable ($8,800 at March 30, 1997).
Thereafter, until the security interests are perfected, the Company may borrow
the lesser of the borrowing base limitation and (1) $25,000 for the period from
April 15, 1997 to June 30, 1997, and (ii) $35,000 thereafter. In addition, the
April 1997 Amendment also limits the borrowings outstanding at the end of each
fiscal quarter ($18,000 for the second quarter of 1997, $21,000 for the third
quarter of 1997 and $16,000 for each subsequent quarter), and increases the
interest rate to LIBOR plus 2.5% for borrowings of $25,000 or less and LIBOR
plus 3% for borrowings greater than $25,000.
Because the Company's borrowings under the amended Revolving Credit
Facility will be limted to a fixed percentage of the Company's accounts
receivable, the Company's ability to fund its operations over the short term is
dependent upon its success in achieving its revised business plan for 1997. If
the Company is unsuccessful in achieving its business plan, its short-term
liquidity will be adversely impacted, which could require a curtailment of
certain business activities that in turn could have a material adverse effect on
the Company's business.
CONVERTIBLE SUBORDINATED DEBENTURES
The 8% Convertible Subordinated Debentures due December 1, 2009 are
convertible into cash at the rate of 33.33% of the principal amount at any time
prior to maturity at the option of the holder. No material conversions occurred
during the years ended December 31, 1994, 1995 and 1996. At the time of the
Acquisition, the 8% Convertible Subordinated Debentures were revalued to reflect
their current market values. The discount is being amortized to interest expense
over the remaining life of the debentures. A sinking fund requirement to retire
$5,500 principal amount of debentures per year began in December 1995. The
December 1995 sinking fund requirement was satisfied by delivery for
cancellation of debentures held by the Company. The December 1996 sinking fund
requirement was satisfied in part by delivery for cancellation of $4,525
principal amount of debentures held by the Company. The remaining requirement
was satisfied by purchase and delivery of $975 principal amount of debentures.
SENIOR NOTES AND SENIOR SUBORDINATED NOTES
The Company's previous Senior Notes bore interest at 10 7/8% per
annum with semi-annual interest payments due February 15 and August 15,
commencing February 15, 1993. The Senior Notes were to mature on August 15, 1997
and were redeemable in whole or in part at the option of the Company on or after
August 15, 1995, at 104.35% of the principal amount thereof and on or after
August 15, 1996 at 102.175% of the principal amount thereof, in each case
together with accrued interest to the date of redemption.
On October 25, 1995 the Company completed a public offering of 13,800
shares of common stock at $12 per share. The net proceeds from this sale,
approximately $155,000, were applied on December 4, 1995 to the redemption in
full of the outstanding $125,000 Senior Notes due in 1997. The total cost of the
redemption, including the redemption premium and interest accrued to the
redemption date, was approximately $135,000.
10
<PAGE>
The Senior Subordinated Notes bear interest at 11 3/8% per annum with
semi-annual interest payments due February 15 and August 15, commencing on
February 15, 1993. The Senior Subordinated Notes mature on August 15, 1999 and
are redeemable in whole or in part at the option of the Company on or after
August 15, 1997, at 101.896% of the principal amount thereof, and on or after
August 15, 1998 at 100% of the principal amount thereof, in each case together
with accrued interest to the date of redemption.
The Senior Subordinated Note indenture contains certain restrictions
on the payment of annual dividends and specifies certain events of default.
INTEREST AND OTHER EXPENSE, NET
Interest and Other Expense, net for the years ended December 31,
1994, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest income $ (1,307) $ (1,864) $ (1,750)
Interest expense to third parties 46,741 46,113 32,277
Interest expense to related parties 2,030 - -
Other expense, net 2,217 675 279
----------------- ----------------- -----------------
Interest and other, net $ 49,681 $ 44,924 $ 30,806
================= ================= =================
</TABLE>
(5) NON-RECURRING CHARGES
The 1996 results include a non-recurring charge of $14,500 which
includes $3,500 related to the fair value of purchased in process R&D associated
with the acquisition of 3rd Angle Ltd., a UK-based technology company. This in
process R&D had not yet reached technological feasibility and had no alternative
future use. The balance relates to $11,000 of restructuring costs associated
with the implementation of ongoing cost savings (primarily personnel reductions
of approximately 100 positions in R&D, sales and marketing, and the closing of
facilities). The 1996 results also include a non-recurring charge of $5,000
associated with the write-off of fees and expenses incurred in connection with
the terminated agreement to sell the Open Service Solutions business to J.F.
Lehman & Company. There were no non-recurring charges in 1995 or 1994.
(6) CAPITAL LEASES, LEASE COMMITMENTS AND RENT EXPENSE
The Company conducts its operations primarily in leased facilities
under lease arrangements expiring on various dates through the year 2014.
Certain long-term capital leases have been included in Property and Equipment
and Long-Term Debt in the accompanying consolidated balance sheets.
Future minimum lease payments under capital and operating leases with
initial terms of one year or more are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------------------ --------------- ---------------
<S> <C> <C>
1997 $2,348 $30,812
1998 2,359 25,859
1999 2,359 21,218
2000 1,799 18,873
2001 1,647 15,863
Thereafter 4,722 71,026
--------------- ===============
Total minimum lease payments 15,234 $183,651
===============
Less: Amount representing
interest on capital leases 5,531
===============
Present value of minimum lease
payments at December 31, 1996 $9,703
===============
</TABLE>
11
<PAGE>
Total rent payments for the Company (including vacant or partially
vacant leased premises) for the years ended December 31, 1994, 1995 and 1996
were $70,440, $59,049 and $40,105, respectively.
As a result of the Acquisition and the subsequent reorganization of
the Company (as discussed in Notes 1 and 5), certain of the above facilities
have been considered excess. The Company has accrued $72,500 and $61,500 at
December 31, 1995 and 1996, respectively, in connection with its net vacant
facility obligations.
(7) PROVISION FOR INCOME TAXES
The components of domestic and foreign income (loss) from operations
before income taxes were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Domestic ($14,129) $10,869 $17,187
Foreign 23,900 24,882 7,080
================ ================ ================
Total income before income taxes $9,771 $35,751 $24,267
================ ================ ================
</TABLE>
Significant components of the provision for income taxes by taxing
jurisdiction are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Current:
Federal $0 $150 $0
Foreign (1,216) 4,388 2,501
State 0 400 92
---------------- ---------------- ----------------
Total current (1,216) 4,938 2,593
Deferred:
Federal 0 0 0
Foreign 1,216 67 17
State 0 0 0
---------------- ---------------- ----------------
Total deferred 1,216 67 17
================ ================ ================
Total income tax provision $0 $5,005 $2,610
================ ================ ================
</TABLE>
The components of deferred tax assets, valuation allowance and
deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Deferred tax assets and valuation allowance:
Restructuring reserves and accruals $35,799 $32,985
Other reserves and accruals not yet deductible 16,647 17,633
Book over tax depreciation 606 9,591
Liabilities assumed in purchase business combination 3,230 1,824
Tax loss carryforwards 167,221 152,701
General business credit carryforward 17,199 17,053
Alternative minimum tax credit carryforward 1,769 1,825
Valuation allowance (188,052) (182,945)
--------------- ---------------
Total net deferred tax assets 54,419 50,667
Deferred tax liabilities:
Other expenses previously deducted on tax return 3,881 935
Assets acquired in purchase business combination 7,076 6,287
Investment in foreign subsidiaries 43,529 43,529
--------------- ---------------
Total deferred tax liabilities 54,486 50,751
=============== ===============
Net deferred tax asset and liabilities ($67) ($84)
=============== ===============
</TABLE>
12
<PAGE>
SFAS 109 requires recognition of income tax benefits for loss
carryforwards, credit carryforwards, and certain temporary differences. The net
tax benefits have been reduced by a valuation allowance as they do not satisfy
the recognition criteria set forth in SFAS 109. Of the valuation allowance at
December 31, 1996 $7,083 will be recorded directly in equity when realized
related to stock option benefits and minimum pension liability adjustments.
For U.S. tax return purposes at December 31, 1996, the Company has
$469,809 of loss carryforwards and $18,878 of federal income tax credits which
should be available to reduce future income tax liabilities. These loss
carryforwards will expire beginning in 2003 through 2011 and the federal credit
carryforwards will expire in 1997 through 2003. The Company also has $111,866 of
foreign loss carryforwards at December 31, 1996. These foreign loss
carryforwards will expire beginning in 1997.
The NOLs and tax credit carryforwards generally should be available
to be carried forward to future years. However, Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"), contains provisions which limit a
corporation's use of NOLs and tax credits after a change of more than 50% of the
ownership of the corporation. Subject to these limitations, the NOLs generally
are available to offset a taxpayer's taxable income in future years. In 1996, a
change of more than 50% of the ownership of the corporation occurred which
results in an annual limitation on the usage of NOLs of approximately $40,000
to $50,000. Although the Company has computed its NOLs and reported them to the
Internal Revenue Service (the "IRS") in a manner that indicates that they
generally will be available to be used to offset the Company's taxable income in
future years, there is a significant possibility that the IRS will disagree with
the Company's determination of the amount of NOLs that could be so used. In such
event, if the IRS were to prevail, the use of a portion or all of the Company's
NOLs could be disallowed.
The U.S. federal statutory tax rate on corporations was 35% in 1994,
1995 and 1996. A reconciliation between the Company's effective tax rate
(provision for income taxes as a percentage of income/loss before income taxes)
and the statutory tax rate is as follows:
<TABLE>
<CAPTION>
1994 % 1995 % 1996 %
-------------- ------------ --------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision (benefit) at federal
statutory rate $3,420 35.0% $12,514 35.0% $8,494 35.0%
Increase (reduction) due to:
Difference between U.S. tax rate and
tax rate rates used in other
jurisdictions 4,120 42.2% (2,752) -7.7% 719 3.0%
State taxes, net of federal income
tax benefit 0 0.0% 260 0.7% 60 0.2%
Increase (decrease) in valuation
allowance (7,705) -78.8% (10,882) -30.4% (10,107) -41.7%
Nondeductible compensation 0 0.0% 1,000 2.8% 400 1.6%
Tax on repatriation of foreign
income in excess of foreign
tax credits 0 0.0% 2,400 6.7% 1,674 6.9%
Other, net 165 1.6% 2,465 6.9% 1,370 5.7%
============== ============ =============== ============ ============= ============
Effective tax provision and rate $0 0.0% $5,005 14.0% $2,610 10.7%
============== ============ =============== ============ ============= ============
</TABLE>
13
<PAGE>
At December 31, 1996, the undistributed earnings of the foreign
subsidiaries upon which no U.S. income taxes have been provided is immaterial.
(8) INDUSTRY SEGMENT AND GEOGRAPHIC OPERATIONS
The Company operates in two industry sements: Software - providing
CAD/CAM solutions and services including training and consulting services
incident to those products; and OSS - providing services and training for other
hardware and software products. Segment financial information is as follows:
<TABLE>
<CAPTION>
Software OSS Consolidated
----------------- ----------------- -----------------
<S> <C> <C> <C>
1994
Revenue $ 286,179 $ 287,458 $ 573,637
Gross Margin 183,279 90,715 273,994
Operating Expenses 174,726 39,816 214,542
Operating Income 8,553 50,899 59,452
Identifiable Assets
Accounts Receivable 68,316 34,224 102,540
Fixed Assets 43,420 24,955 68,375
Other 7,464 750 8,214
Corporate Assets(b) - - 84,055
--------
Total Assets 263,184
Capital Expenditures 6,077 9,039 15,116
Depreciation and Amortization 31,782 25,152 56,934
1995
Revenue 286,601 220,473 507,074
Gross Margin 198,716 65,603 264,319
Operating Expenses 155,144 28,500 183,644
Operating Income 43,572 37,103 80,675
Identifiable Assets
Accounts Receivable 64,332 27,939 92,271
Fixed Assets 26,991 19,417 46,408
Other 2,105 200 2,305
Corporate Assets(b) - - 105,933
--------
Total Assets 246,917
Capital Expenditures 2,032 7,140 9,172
Depreciation and Amortization 18,811 12,146 30,957
1996
Revenue 302,815 174,384 477,199
Gross Margin 218,685 39,698 258,383
Operating Expenses (a) 174,109 29,201 203,310
Operating Income 44,576 10,497 55,073
Identifiable Assets
Accounts Receivable 76,563 25,946 102,509
Fixed Assets 18,072 12,983 31,055
Other 1,276 - 1,276
Corporate Assets(b) - - 73,505
--------
Total Assets 208,345
Capital Expenditures 7,255 4,224 11,479
Depreciation and Amortization 13,138 10,325 23,463
</TABLE>
14
<PAGE>
- --------------------
(a) Operating expenses for 1996 software company include a non-recurring charge
of $14,500 for purchased R&D associated with an acquisition and
restructuring costs associated with ongoing cost savings. Operating expenses
for 1996 OSS business include a non-recurring charge of $5,000 associated
with the write-off of fees and expenses incurred in connection with a
terminated agreement to sell the OSS business.
(b) Corporate assets includes cash and cash equivalents, deferred tax assets,
deferred finance costs, prepaid expenses and other assets.
Geographic financial information is as follows:
<TABLE>
<CAPTION>
Adjustments
United Pacific and
States Europe Rim Eliminations Consolidated
--------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
1994
Sales to unaffiliated customers $194,014 $275,544 $104,079 $0 $573,637
Intercompany transfers 106,726 28,976 0 (135,702) 0
=============== =============== =============== ============== =================
Total revenue 300,740 304,520 104,079 (135,702) 573,637
=============== =============== =============== ============== =================
Operating income (loss) (13,130) 42,396 30,186 0 59,452
=============== =============== =============== ============== =================
Identifiable assets 109,634 116,102 37,448 0 263,184
=============== =============== =============== ============== =================
1995
Sales to unaffiliated customers $164,891 $250,875 $91,308 $0 $507,074
Intercompany transfers 92,056 25,847 0 (117,903) 0
=============== =============== =============== ============== =================
Total revenue 256,947 276,722 91,308 (117,903) 507,074
=============== =============== =============== ============== =================
Operating income 15,326 52,837 12,512 0 80,675
=============== =============== =============== ============== =================
Identifiable assets 74,919 132,490 39,508 0 246,917
=============== =============== =============== ============== =================
1996
Sales to unaffiliated customers $176,503 $221,702 $78,994 $0 $477,199
Intercompany transfers 86,291 10,238 0 (96,529) 0
=============== =============== =============== ============== =================
Total revenue 262,794 231,940 78,994 (96,529) 477,199
=============== =============== =============== ============== =================
Operating income (loss) 23,133 32,014 (74) 0 55,073
=============== =============== =============== ============== =================
Identifiable assets 56,757 122,629 28,959 0 208,345
=============== =============== =============== ============== =================
</TABLE>
Intercompany transfers between geographic areas are accounted for at
prices which approximate arm's length transactions. Expenses incurred in one
geographic area which benefit other areas have been allocated to each area on a
percentage of revenue basis.
15
<PAGE>
Sales to unaffiliated customers outside the United States, including
U.S. export sales, were approximately $395,805, $369,048 and $346,950 for the
years ended December 31, 1994, 1995 and 1996, respectively, which represented
69%, 73% and 73% of total revenue.
(9) QUARTERLY RESULTS (UNAUDITED)
Financial results by quarter for 1995 and 1996 are summarized below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1995
Total revenue $119,475 $131,362 $125,387 $130,850
Gross profit 59,231 66,977 65,214 72,897
Operating income 14,547 20,209 21,221 24,698
Net income (a) 2,946 7,127 8,023 4,720
Net earnings per share (b) 0.06 0.14 0.16 0.08
1996
Total revenue $113,235 $118,957 $123,253 $121,754
Gross profit 60,528 64,206 67,914 65,735
Operating income (loss) (c) 17,084 19,467 22,753 (4,231)
Net income (loss) (c) 8,168 10,653 13,094 (10,258)
Net earnings (loss) per share 0.13 0.16 0.20 (0.16)
</TABLE>
(a) Net income for the fourth quarter of 1995 includes an extraordinary charge
of $7,930 relating to a redemption premium and fees associated with the
early retirement of the Company's $125,000 10 7/8% Senior Notes.
(b) The sum of the quarterly per share amounts does not equal the full year
total due to the Company's share offering in the fourth quarter of 1995.
(c) The fourth quarter of 1996 includes a non-recurring charge of $14,500 for
purchased R&D associated with an acquisition and restructuring costs
associated with the ongoing cost savings and a non-recurring charge of
$5,000 associated with the write-off of fees and expenses incurred in
connection with a terminated agreement to sell the OSS business.
(10) EMPLOYEE RETIREMENT AND SALARY CONTINUATION PROGRAMS
The Company maintains various employee retirement and salary
continuation programs, as discussed below. The Company does not, however,
maintain any post-employment benefit plans other than retirement plans.
Capital Accumulation Plan
The Capital Accumulation Plan is available to all U.S. employees upon
completion of one year of service. The plan provides various alternative
investment funds in which the employee may elect to contribute pre-tax savings
and the Company's matching contribution on a tax deferred basis. Under the plan,
each participant may elect to withhold a percentage of their annual
compensation. The Company makes matching contributions to the plan based on the
employee's length of service with the Company. The matching contributions are
made on a fiscal year basis to participants who are employed by the Company as
of December 31 of each fiscal year. The matching contribution expense for the
years ended December 31, 1994, 1995 and 1996 was $2,417, $1,989 and $1,905,
respectively.
16
<PAGE>
Pension Plans
The Company and its subsidiaries maintain various defined benefit and
defined contribution pension plans covering substantially all employees.
Benefits under the defined benefit plans are based upon length of service and
average compensation and generally vest over two to ten years of service.
Effective April 1, 1990, the Company froze the benefits under the U.S.
Pension Plan indefinitely.
The actuarially computed net periodic pension cost for the defined
benefit plans for the years ended December 31, 1994, 1995 and 1996 was comprised
of the following:
<TABLE>
<CAPTION>
U.S. Plan Foreign Plans
------------------------------------------- ------------------------------------------
1994 1995 1996 1994 1995 1996
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest cost $2,427 $2,305 $2,607 $2,538 $2,628 $3,097
Service cost 0 0 0 3,241 2,530 2,269
Actual return on plan assets (176) (1,877) (1,247) 700 (4,148) (3,779)
Net amortization and deferral (561) 707 (11) (3,738) 1,184 579
============= ============ ============ ============ ============ ============
Net periodic pension cost $1,690 $1,135 $1,349 $2,741 $2,194 $2,166
============= ============ ============ ============ ============ ============
</TABLE>
The funded status of the defined benefit plans as of December 31,
1995 and 1996 is as follows:
<TABLE>
<CAPTION>
U.S. Plan Foreign Plans
--------------------------- ---------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actuarial present value of the accumulated
benefit obligation $35,262 $35,898 $33,880 $41,125
============ ============ ============ ============
Vested benefit obligation 35,262 35,898 30,285 38,626
============ ============ ============ ============
Projected benefit obligation 35,262 35,898 38,424 45,994
Plan assets at fair value 19,282 24,034 37,440 42,349
------------ ------------ ------------ ------------
Excess of projected benefit obligation over
plan assets 15,980 11,864 984 3,645
Unrecognized net gain (loss) (8,540) (7,994) 5,427 1,681
Minimum pension liability adjustment 8,540 7,994 0 0
============ ============ ============ ============
Accrued pension cost $15,980 $11,864 $6,411 $5,326
============ ============ ============ ============
</TABLE>
Three international plans had an accumulated benefit obligation in
excess of plan assets of $5,191 and $6,433 at December 31, 1995 and 1996,
respectively.
The following assumptions were used to determine the accrued pension
cost for the U.S. plan in 1995 and 1996, respectively: the discount rates for
computing the projected benefit obligation were 7.25% and 7.5%; the rate of
compensation increase was zero for both years since benefits were frozen; and
the annual rate of return on plan assets was 7.5% for both years. As a result of
reducing the discount rate for computing the projected benefit obligation at
December 31, 1995, the Company was required to record a minimum pension
liability adjustment of $8,540. The Company did not record the tax benefit on
this adjustment as realization was not assured. An adjustment of $546 was
recorded in 1996 to reflect the increase in the discount rate. The plan assets
consist primarily of guaranteed interest and investment contracts with insurance
companies and banks. The Company contributes all amounts deemed necessary on an
actuarial basis to provide the U.S. plan with assets sufficient to meet the
benefits to be paid to plan participants. The amounts are determined by an
independent actuary based on the Projected Unit Credit Actuarial Cost Method.
Based on the actuarial valuations, the Company contributed $4,062, $6,306 and
$4,919 to the plan during 1994, 1995 and 1996, respectively.
The accrued international pension cost was actuarially computed using
assumptions applicable to each subsidiary plan and economic environment. The
following range of assumptions were used in the determination of the accrued
pension cost in 1995 and 1996, respectively: the discount rates for computing
the projected benefit obligation were 4.5% to 8.5% and 4.0% to 8.5%; the rates
of compensation increase were 3.5% to 6.0%
17
<PAGE>
for both years; the rates of social security increases were 0.0% to 5.5% for
both years; and the annual rates of return on plan assets were 5.5% to 9.0% and
4.5% to 9.0%. Plan assets primarily consist of guaranteed interest and
investment contracts with insurance companies.
The total expense for the defined contribution plans for the years
ended December 31, 1994, 1995 and 1996 was approximately $347, $117 and $60,
respectively.
Officers Life Insurance and Supplementary Retirement Plan
The Company had an Officers Life Insurance and Supplementary
Retirement Plan for certain former executives of the former Computervision. The
full cost of this plan has been accrued for in the Consolidated Balance Sheets.
The Company made retirement benefit payments of $294, $334 and $458 to certain
former executives under this plan for the years ended December 31, 1994, 1995
and 1996, respectively.
Employment Agreements
Russell E. Planitzer, Chairman of the Board of Directors and Kathleen
A. Cote, President and Chief Executive Officer, have each entered into
employment agreements with the Company which provide for severance payments in
the event their employment is terminated prior to the expiration of their
employment terms. The severance amounts range from $300 to $5,600, depending on
the timing and circumstances of the termination.
All other executive officers have been afforded continuation of
salary protection for one year if their employment with the Company is
involuntarily terminated. The Company has entered into Retention Agreements with
its corporate officers and certain key employees that provide for a continuation
of salary and benefits in the event of a termination of employment under
circumstances after a change of control of the Company has occured.
(11) STOCK PLANS
The Company accounts for its stock issuance plans in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees". Effective January 1, 1996, the Company adopted the provisions of
SFAS 123, "Accounting for Stock-Based Compensation". The Company has elected to
continue to account for stock options at intrinsic value with disclosure of the
effects of fair value accounting on net income and earnings per share on a pro
forma basis.
Restricted Stock Agreements
During 1994, the Company received 300 shares of Common Stock from
Lehman Holdings on the condition that the Company grant the shares to four
executive officers under a Restricted Stock Agreement. The shares were issued
without charge to four executive officers and vested ratably over a twelve month
period ending September 1995. The Restricted Stock Agreement qualified as a
compensatory stock plan, with the deferred compensation cost of $771 recognized
ratably over the twelve month period from the issuance date.
Stock Option Plan
In June 1992, the Board of Directors adopted the Company's 1992 stock
option plan which provides for the grant of options to officers, employees, and
consultants of the Company and its subsidiaries. A total of 4,400 shares of
Common Stock was originally reserved for issuance under the Stock Option Plan.
The Board of Directors amended the plan in September 1994 to authorize and
reserve an additional 5,000 shares for grant under the plan. Options granted may
be either incentive or non-qualified options. The options generally expire ten
years from the date of grant and vest ratably over the first five years or four
years, as determined by the
18
<PAGE>
Compensation Committee. The Company has amended its 1992 Stock Option Plan to
provide that 50% of the then unvested options of each option holder shall vest
immediately upon a change of control of the Company.
Director Stock Option Plans
In April 1993, the Board of Directors adopted the Company's 1993
Director Stock Option Plan to encourage ownership in the Company by non-employee
Directors whose continued services are considered essential to the Company's
future progress and to provide them with further incentive to remain as
Directors of the Company. A total of 200 shares of Common Stock were reserved
for issuance under this plan. Options for 102 shares were granted, of which 100
shares remain outstanding under this plan. Options granted are non-qualified and
at the fair market value at the date of grant and vest ratably over a five year
period.
In January 1995, the Board of Directors adopted a new Director Option
Plan which was approved by stockholders at the 1995 Annual Meeting of
Stockholders. An additional 400 shares have been reserved for issuance. Options
for 106 shares were granted in January 1995 in recognition of past service at an
exercise price of $5.00 (fair value at grant date) and vest ratably over three
years. The Plan provides that Directors will receive an annual option grant of 6
shares each that will vest in one year. The 1995 Director Option Plan supersedes
the 1993 Director Stock Option Plan.
SUMMARY OF STOCK OPTION PLAN ACTIVITY
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------------------
RESERVED WEIGHTED-AVERAGE
SHARES NUMBER EXERCISE PRICE
-------------- --------------- ----------------------
<S> <C> <C> <C>
Balance, December 31, 1993 4,600 3,737 $8.09
Additional Reserved 5,000
Granted - 4,236 3.96
Exercised - -
Cancelled - (3,202) 8.67
-------------- ---------------
Balance, December 31, 1994 9,600 4,771 3.77
Additional Reserved 400
Granted - 2,310 7.66
Exercised - (440) 4.08
Cancelled - (572) 4.15
-------------- ---------------
Balance, December 31, 1995 10,000 6,069 5.30
Additional Reserved
Granted - 2,396 9.90
Exercised - (612) 3.84
Cancelled - (754) 4.67
============== ===============
Balance, December 31, 1996 10,000 7,099 $7.02
============== ===============
</TABLE>
At December 31, 1996 options to purchase 2,123 common shares were
exercisable with a weighted average exercise price of $4.87 and 2,901 shares
were available for future option grants.
Had compensation costs for the stock option plans (including the
Company's Employee Stock Purchase Plan) been determined using the fair value
method, the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
19
<PAGE>
<TABLE>
<CAPTION>
1995 1996
-------------------- ---------------------
<S> <C> <C>
Net Income
As reported $ 22,816 $ 21,657
Pro forma $ 21,690 $ 17,899
Earnings per share
As reported $ 0.43 $ 0.33
Pro forma $ 0.42 $ 0.28
</TABLE>
Consistent with SFAS 123, pro forma net income and earnings per share
have not been calculated for options granted prior to January 1, 1995. Pro forma
compensation cost may not be representative of that to be expected in future
years.
The weighted average fair value of options granted was $4.41 for
options granted during 1995 and $5.43 for options granted during 1996. The
values were estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
1995 and 1996, respectively; risk-free interest rates of 6.25% and 5.99%,
expected dividend yields of 0% for both periods, expected lives of 5 years for
both years and expected volatilities of 57% and 56%.
The following is a summary of options outstanding and exercisable at December
31, 1996;
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------ -----------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- --------------------- ----------------- --------------------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50 - $6.00 3,850 7.4 years 4.19 1,931 4.27
$6.00 - $10.00 876 9.6 7.35 16 6.57
$10.00 - $14.50 2,373 9.0 11.49 176 11.92
----------------- -----------------
7,099 8.2 7.02 2,123 4.87
================= =================
</TABLE>
Employee Stock Purchase Plan
In April 1993, the Company established a domestic and an
international employee stock purchase plan for all employees covering for a
total of 750 shares of the Company's Common Stock. The plans permit employees of
the Company to withhold up to 10% of their base compensation to purchase the
Company's common stock at a 15% discount from the market price. The first
offering commenced on July 1, 1993. Employees purchased 90 and 227 shares in
1995 and 1994, respectively for $264 and $671. The 1993 plans were closed in
1995.
In April 1995, the Company established a new domestic and
international employee stock purchase plan for all employees covering a total of
1,000 shares of the Company's Common Stock. The purchase terms are identical to
the prior plan. The first offering commenced July 1, 1995. Employees purchased
83 and 75 shares in 1996 and 1995, respectively for $678 and $409. For pro forma
compensation expense, the weighted average fair value of shares sold in 1996 was
$2.83.
Stock Warrants
In connection with a 1993 amendment to the Revolving Credit Facility,
the Banks were issued a Common Stock purchase warrant that permits the Banks to
purchase 200 shares of the Company's common stock at an exercise price of $3.88
per share (fair market value at date of issuance) through December 31, 1998. One
bank exercised its warrant to purchase 92 shares in February 1996 for $356.
20
<PAGE>
(12) RELATED PARTIES
The following summarizes the significant related party transactions
(See also Note 15 "Subsequent Event"):
Several directors provided consulting services to the Company in
1994, 1995 and 1996 for which they received fees during a year ranging from $6
to $44.
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.
At December 31, 1996, the Company had a loan of $200 outstanding to
Mr. Gnatovich of which $100 will be forgiven ratably over the next 4 years of
employment, the remaining $100 will be repaid by the deduction of $25 each year
from any bonus payments owed.
In 1994, pursuant to separate, substantially identical Registration
Rights Agreements, the Company registered, under separate registration
statements at the Company's sole expense, the shares of Common Stock owned
by DR Holdings and private purchasers of shares from Lehman Holdings. The
Company is obligated to maintain the Lehman Holdings purchasers' registration
statement until May 31, 1997.
In January 1993, Lehman Holdings (which at the time owned
approximately 22% of the outstanding Common Stock of the Company) provided a
Revolving Loan Facility to the Company which enabled the Company to borrow up to
$25,000 if necessary in connection with posting a bond or paying a settlement or
judgment in connection with certain antitrust litigation. In August 1993,
Lehman Holdings agreed to extend the termination date of the Revolving Loan
Facility from October 3, 1993 to July 3, 1994 for which it was paid an extension
fee of $1,000 and a monthly availability fee of $250 through June 1994. In June
1994, the Company borrowed approximately $7,500 under the Revolving Loan
Facility to settle the antitrust litigation and terminated the remainder of the
commitment. The Company paid interest at LIBOR plus 5% on this loan. The loan
was repaid in full on February 10, 1995.
The Company's bylaws require that all transactions between the
Company and its officers, Directors and other affiliates must (i) be approved by
a majority of the members of the Company's Board of Directors and by a majority
of the disinterested members of the Company's Board and (ii) be on terms no less
favorable to the Company than could be obtained from third parties. In addition,
this policy requires that any loans by the Company to its officers, directors,
or other affiliates be for bona fide business purposes only. The terms of the
indentures associated with the Senior Subordinated Notes and the Revovling
Credit Facility also contain restrictions on transactions with affiliates.
(13) LITIGATION
1) On March 28, 1991, Joseph and Josephine Dieter, former
stockholders of the Company, brought suit against the Company, DR Holdings, DR
Acquisition Corporation, a former subsidiary of DR Holdings, Mr. Russell E.
Planitzer, Chairman of the Board of Directors of the Company, and Messrs. Don E.
Ackerman and Peter M. Castleman, former directors of the Company, in the Court
of Chancery of Delaware as both an individual and a class action (on behalf of
all persons, other than the defendants, who were stockholders of the Company on
December 28, 1989). The suit arises out of the merger between the Company and
certain subsidiaries of DR Holdings, and the related merger agreement. The suit
alleges, among other things, that, in connection with the acquisition of the
Company by DR Holdings, the Board of Directors of the Company breached its
fiduciary duties to the Company stockholders by (i) approving the merger which
plaintiffs allege was unfair to Company stockholders, and (ii) by not
withdrawing from the merger agreement and/or renegotiating the consideration
that was to be received by Company stockholders whose shares were not purchased
in the tender offer. The plaintiffs seek, among other things, an order granting
all Company stockholders as of December 28, 1989 damages in an undetermined
amount. The plaintiffs then filed an
21
<PAGE>
amended and supplemented complaint which removed DR Holdings as a defendant
since it is in bankruptcy, and removed DR Acquisition Corporation since it had
been merged into the Company. The trial occurred in September of 1996. The
Company is in the process of filing post trial briefs and the Court is expected
to have the matter under submission by July 1997. Although the parties have
engaged in post-trial settlement discussions, it is not yet possible to predict
the outcome or quantify any possible exposure to the Company. If this lawsuit is
not settled, and the court awards the plaintiffs substantial monetary damages,
it could have a material adverse effect on the Company's financial condition and
results of operations.
2) In a letter dated June 11, 1993, the United States Environmental
Protection Agency ("EPA") notified the Company of its potential liability
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") for a release of hazardous substances disposed of at the Shaffer
Landfill portion of the Ironhorse Park Superfund Site in Billerica,
Massachusetts ("Shaffer Site"). The Company was one of approximately 60
businesses and individuals to receive such a letter. The Company is cooperating
with approximately 30 other potentially responsible parties ("PRPs") who have
formed a group, and expects to participate in the common efforts of that group.
The Company has informed the EPA of its intent to cooperate with the other PRPs
in common efforts. The Company investigated the extent of its involvement with
the Shaffer Site and participated in a confidential mediation process which
allocated remedial costs among the members of the PRP group. The Company has
received information through the PRP group indicating that the anticipated costs
of completing the EPA's proposed remedy at the Shaffer Site is likely to range
between $20,000 and $33,000. After the PRPs failed to reach agreement with the
EPA regarding settlement, the Department of Justice ("DOJ") and the
Massachusetts Attorney General ("MAG") both filed complaints on January 5, 1995,
seeking past costs against 10 PRPs. The Company was not named. However, it could
be named later by the governments, and some of the named defendants have
indicated they will commence third-party actions against other PRPs, including
the Company, if ongoing negotiations do not result in a settlement. Negotiations
have been ongoing relative to several substantive matters and the Company cannot
predict at this time if any agreement on issues will be reached with the
government.
3) Several tax issues which pertain to Computervision tax returns for
years prior to 1988 (when Computervision was acquired by Prime Computer, Inc.)
remain outstanding. The most significant issue involves the qualification of a
domestic international sales corporation ("DISC") for tax years 1983 and 1984.
If the DISC is disqualified, the Company will be subject to additional tax and
interest in the range of $9,000 to $12,000 after the usage of net operating
losses. A trial on these issues was held before the Tax Court on October 25,
1994. On March 18, 1996 the Tax Court ruled in favor of the Company. On April
16, 1996 the Company filed a motion for Reconsideration with the Tax Court on
the one issue, which concerned whether income was reportable as capital gain or
ordinary income, on which the decision was unfavorable to the Company. The
Motion for Reconsideration was denied by the Judge on May 27, 1996. The Company
does not know whether the government will appeal the decision. Even if the
government does not appeal the decision, the Company will owe some tax and
interest on this case, but is also owed a refund on a related case. The
computation of the tax payment and the timing of the tax payment and refund have
not been determined. The Company's calculation of the adjustments resulting from
the Court's decision were reviewed by Counsel and submitted to the IRS on
November 12, 1996.
4) The Company is involved in numerous other legal proceedings and
litigation incidental to the normal course of the Company's business. The
Company believes that the ultimate disposition of these other proceedings and
litigation will not have a material adverse affect on the Company's financial
position.
22
<PAGE>
(14) SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1992 1993 1994 1995 1996
--------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue $1,065,579 $827,315 $573,637 $507,074 $477,199
Gross profit 459,587 322,966 273,994 264,319 258,383
Operating income (loss) (a) 48,733 (517,992) 59,452 80,675 55,073
Income (loss) from continuing operations (b) (142,189) (571,107) 9,771 22,816 21,657
Net income (loss) (225,872) (571,107) 9,771 22,816 21,657
Pro forma earnings (loss) and earnings
(loss) per share: (c)
Continuing operations (3.46) (11.89) 0.20 0.43 0.33
Net earnings (loss) (6.09) (11.89) 0.20 0.43 0.33
Cash dividends declared and paid - 1,440 - - -
Total assets 904,312 412,713 263,184 246,917 208,345
Total long-term liabilities, less current portion 443,910 580,798 476,890 324,441 300,630
Stockholders' equity (deficit) 48,979 (530,177) (509,413) (337,726) (316,775)
</TABLE>
- ------------
(a) Operating income (loss) included non-recurring charges of $25,000, $515,800
and $19,500 for the years ended December 31, 1992, 1993 and 1996,
respectively.
(b) Loss from continuing operations for year ended December 31, 1992 also
included charges of $64,050 associated with the Company's 1992
Recapitalization.
(c) Pro forma earnings (loss) from continuing operations per share and pro forma
net loss per share for the year ended December 31, 1992 have been adjusted
to reflect the Company's issuance of 23,000 shares of common stock in 1992
to retire certain long-term debt of the Company (see Note 1). The pro forma
earnings (loss) from continuing operations per share and pro forma net
earnings (loss) per share calculations, therefore, reflect, on a pro forma
basis, the elimination of interest expense related to the retired portion of
the debt and the issuance of the 23,000 shares.
23
<PAGE>
(15) SUBSEQUENT EVENTS
On March 19, 1997, the Company announced a termination of its agreement
with J.F. Lehman & Company for the sale of its Open Service Solutions ("OSS")
business unit and the signing of a non-binding letter of intent with M.D. Sass
Investor Services, Inc. ("Sass"), a 17% shareholder of the Company.
During the quarter ended March 30, 1997, the Company incurred a
non-recurring charge of $7,000 related primarily to the reorganization of the
OSS business as a stand alone business unit (primarily personnel reductions of
approximately 60 positions in OSS and the closing of facilities), as well as
expenses incurred in connection with the termination of the agreement to sell
the OSS business to J.F. Lehman & Company.
During the quarter ended June 29, 1997 the Company recorded a non-recurring
charge, 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.
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 was not waived by the lending banks. As discussed below,
the Company repaid the outstanding borrowings under the Revolving Credit
Facility, including cash collateralizing the letters of credit and has since
terminated the agreement.
On July 18, 1997, the Company completed the sale of OSS to CVSI Inc.
("CVSI"). As a result of this transaction, the Company received $32,600 in cash,
of which $7,600 was paid by Sass, 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 and 100% of its
Class B non-voting stock (to which it has currently assigned no value). Sass 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 were used for transaction costs and other working capital needs.
On September 3, 1997, the Company closed an $8,500 bridge term loan (the
"Bridge Term Loan") with M.D. Sass Corporate Resurgence Partners, L.P., an
affiliate of Sass.
In October 1997, the Company closed $17,500 in bridge financing with
Foothill Capital Corporation, ("Foothill") a subsidiary of Norwest Corporation.
A portion of the proceeds was used to repay the existing Bridge Term Loan. The
$17,500 bridge financing is secured by substantially all of the Company's assets
and matures on November 15, 1997 and accrues interest at a rate of 12.5%. The
Company also received a proposal for a $47,250 credit facility with Foothill,
which will be secured by substantially all of the Company's assets and will have
a term of 18 months. The Company expects to close the facility by November 14,
1997, at which time it will repay the $17,500 bridge financing. Of the $47,250
facility, $41,000 is subject to a fixed borrowing base which does not fluctuate,
and the remainder is subject to available eligible accounts receivable.
24
<PAGE>
The Company has experienced significant shortfalls in revenue, incurred
significant operating losses and has significant negative working capital at
September 28, 1997. The facility described above provides
financing to meet the Company's immediate cash needs. If the Company were unable
to secure additional financing, it 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. These issues raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
On November 3, 1997, the Company announced a definitive merger agreement
with Parametric Technology Corporation ("PTC") under which PTC will acquire the
Company in a stock for stock transaction. Under the terms of the transaction,
each share of the Company's common stock will be exchanged for 0.0866 shares of
PTC common stock. The transaction is intended to be accounted for as a pooling
of interests and to qualify as a tax free reorganization. The agreement is
subject to several conditions, including regulatory approvals and the approval
of the Company's shareholders. If the merger is not consummated, the Company
will have to either substantially curtail its business operations or seek
protection under the bankruptcy laws.
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computervision Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Computervision Corporation and subsidiaries as of March 30, 1997, and the
related consolidated statements of operations and cash flows for the three-month
periods ended March 30, 1997 and March 31, 1996. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8, subsequent to
April 24, 1997 the original date of our review report, the Company has
experienced significant shortfalls in revenue, has incurred significant losses
from operations, and based on unaudited financial statements, has significant
negative working capital at September 28, 1997. As a result of these factors and
other adverse conditions, the Company may be unable to continue as a going
concern. Management's plans to deal with these conditions are also described in
Note 8. The accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Computervision Corporation and
subsidiaries as of December 31, 1996 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year then
ended (not presented separately herein), and in our report dated March 27, 1997
(except with respect to the matter discussed in Note 4, as to which the date is
April 15, 1997 and the matters discussed in Note 15, as to which the date is
November 10, 1997), we included an explanatory paragraph that describes the
substantial doubt about the Company's ability to continue as a going concern. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 24, 1997 (except with
respect to the matters
discussed in Note 8, as to
which the date is November 10, 1997)
<PAGE>
COMPUTERVISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 30,
ASSETS 1996 1997
- ---------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $38,565 $27,557
Accounts receivable, less allowance for doubtful
accounts of $2,929 and $2,823, respectively 102,509 76,792
Current deferred income taxes 7,448 7,190
Prepaid expenses and other current assets 16,019 16,654
---------------- ---------------
TOTAL CURRENT ASSETS 164,541 128,193
PROPERTY AND EQUIPMENT, NET 31,055 26,765
DEFERRED INCOME TAX ASSETS 4,113 3,769
CAPITALIZED SOFTWARE 1,276 1,186
DEFERRED FINANCE COSTS 3,734 3,332
OTHER ASSETS 3,626 3,375
---------------- ---------------
$208,345 $166,620
================ ===============
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ----------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $19,776 $21,753
Notes payable and current portion of long-term debt 9,888 10,298
Accrued compensation, severance and related costs 57,482 50,659
Deferred revenue and customer advances 40,503 45,279
Accrued and deferred income taxes 15,019 14,661
Other current liabilities and accrued expenses 81,822 81,083
---------------- ---------------
TOTAL CURRENT LIABILITIES 224,490 223,733
---------------- ---------------
DEFERRED INCOME TAXES 30,174 30,078
LONG-TERM DEBT, LESS CURRENT PORTION 217,346 217,367
OTHER LONG-TERM LIABILITIES 53,110 48,961
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 63,572,899 shares,
respectively, issued and outstanding 635 636
Capital in excess of par value 1,186,109 1,186,331
Retained deficit (1,511,148) (1,545,092)
Cumulative translation adjustment 7,629 4,606
---------------- ---------------
TOTAL STOCKHOLDERS' DEFICIT (316,775) (353,519)
---------------- ---------------
$208,345 $166,620
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMPUTERVISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, March 30,
1996 1997
--------------- ---------------
<S> <C> <C>
SOFTWARE REVENUE
Product $40,039 $16,609
Services 28,678 24,752
--------------- ---------------
Total Software Revenue 68,717 41,361
OTHER SERVICES REVENUE 44,518 36,448
--------------- ---------------
Total Revenue 113,235 77,809
COST OF SALES
Software
Product 3,963 2,077
Services 16,454 16,789
Other services 32,290 33,494
--------------- ---------------
Total Cost of Sales 52,707 52,360
--------------- ---------------
GROSS PROFIT 60,528 25,449
SELLING AND ADMINISTRATIVE EXPENSE
Software 27,052 28,586
Other Services 5,893 5,582
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSE
Software 10,324 10,303
Other Services 175 131
NON-RECURRING CHARGES
Software 0 0
Other Services 0 7,000
--------------- ---------------
OPERATING INCOME (LOSS)
Software 10,924 (16,394)
Other Services 6,160 (9,759)
--------------- ---------------
Total Operating Income (Loss) 17,084 (26,153)
INTEREST AND OTHER EXPENSE, NET 7,805 7,791
--------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 9,279 (33,944)
PROVISION FOR INCOME TAXES 1,111 -
--------------- ---------------
NET INCOME (LOSS) $8,168 ($33,944)
=============== ===============
EARNINGS (LOSS) PER SHARE $0.13 ($0.53)
=============== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 64,944 63,567
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMPUTERVISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
March 31, March 30,
CASH FLOWS FROM (USED FOR) OPERATIONS 1996 1997
- --------------------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Net Income (Loss) $8,168 ($33,944)
Add items not requiring cash:
Depreciation of property and equipment 5,186 4,144
Amortization of intangibles 732 154
Amortization of finance costs and debt discounts 726 727
Provision for doubtful accounts (134) 56
Changes in assets and liabilities:
Accounts receivable (6,549) 21,164
Prepaid expenses and other (2,803) (111)
Accounts payable, accrued expenses and income taxes (19,125) 2,846
---------------- ----------------
Cash flows used for continuing operations (13,799) (4,964)
---------------- ----------------
<CAPTION>
INVESTING ACTIVITIES
- ---------------------------------------------------------------------------------
<S> <C> <C>
Expenditures for property and equipment (2,159) (3,268)
Increase in other assets (12) (259)
---------------- ----------------
Total cash flows used for investments (2,171) (3,527)
---------------- ----------------
<CAPTION>
FINANCING ACTIVITIES
- ---------------------------------------------------------------------------------
<S> <C> <C>
Increase in notes payable 848 366
Payments on long-term borrowings (622) (260)
Issuance of common stock under Stock Option Plan 944 223
---------------- ----------------
Total cash flows from financing activities 1,170 329
---------------- ----------------
Foreign exchange impact on cash (850) (2,846)
---------------- ----------------
Net decrease in cash and cash equivalents (15,650) (11,008)
Cash and cash equivalents at beginning of period 50,979 38,565
---------------- ----------------
Cash and cash equivalents at end of period $35,329 $27,557
================ ================
Supplementary data requirements:
Cash interest paid $11,147 $10,648
Cash taxes paid $186 $28
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
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 ended March 30, 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.
(1) NOTES PAYABLE AND LONG-TERM DEBT (IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, March 30,
1996 1997
---------- ----------
<S> <C> <C>
Notes Payable:
Notes Payable to Banks $ 3,277 $ 3,643
Revolving Credit Arrangement -- --
---------- ----------
Total Notes Payable $ 3,277 $ 3,643
Long-Term Debt:
8% Convertible Subordinated Debentures, due 2009, net of
unamortized discount of $17,456 and $17,147, and current
portion of $5,500 and $5,500, respectively 31,154 31,463
11-3/8% Senior Subordinated Notes, due 1999 175,000 175,000
Other Long-Term Debt, less current portion of $1,111 and $1,155 11,192 10,904
---------- ----------
Total Long-Term Debt, less current portion $217,346 $217,367
========== ==========
</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. 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
March 30, 1997 were $3,800 and there were no borrowings outstanding. The
Revolving Credit Facility requires the Company to satisfy certain financial and
other covenants. As a result of non-recurring charges of $19,500 in the fourth
quarter of 1996 and the non-recurring charge of $7,000 in the first quarter of
1997, the Company would not have satisfied the financial covenants of its
Revolving Credit Facility. As a result, in March 1997, the Company and its
lending banks signed an amendment which modified the financial covenants through
December 31, 1997. The Company also agreed with its banks that it would amend
the Revolving Credit Facility to provide for a borrowing base limitation. Loans
under the Revolving Credit Facility will bear interest at a Base Rate or
Eurodollar rate, as selected by the Company, plus an Applicable Margin. On March
30, 1997, the rates ranged from 8.19% to 10%.
Due to the substantial shortfall in revenue for the quarter ended March 30,
1997, the Company was unable to satisfy certain of the financial covenants, as
amended, under the Revolving Credit Facility (under which no borrowings were
outstanding) ("Bank Covenants"). On April 15, 1997, the Company reached an
agreement with its lending banks to waive the default in the Bank Covenants for
the quarter ended March 30, 1997, to amend the Bank Covenants to conform with
the Company's revised business plan for 1997, and to implement a borrowing base
limitation (the "April 1997 Amendment"). Pursuant to the terms of the April 1997
Amendment, the Company may borrow funds secured by the accounts receivable of
the Company, Computervision Pty. Limited (Australia), Computervision SA
(France), Computervision GmbH (Germany) and
<PAGE>
Computervision Limited (U.K.). Until such time as the April 1997 Amendment is
executed (which the parties have agreed to execute by May 23, 1997), the Company
may borrow on its U.S. accounts receivable ($8,800 at March 30, 1997).
Thereafter, when the amendment is executed and the security interests are
perfected, the Company may borrow up to a maximum of $50,000, subject to
borrowing base requirements which at March 30, 1997 limited the borrowing
capacity to approximately $30,000. In addition, the April 1997 Amendment also
limits the borrowings outstanding at the end of each fiscal quarter ($18,000 for
the second quarter of 1997, $21,000 for the third quarter of 1997 and $16,000
for each subsequent quarter), and increases the interest rate to LIBOR plus 2.5%
for borrowings of $25,000 or less and LIBOR plus 3% for borrowings greater than
$25,000.
Because the Company's borrowings under the amended Revolving Credit Facility
will be limited to a fixed percentage of the Company's accounts receivable, the
Company's ability to fund its operations over the short-term is dependent upon
its success in achieving its revised business plan for 1997. (See Short-term
Liquidity section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.)
Interest and Other Expense, net
Interest and Other Expense, net for the periods ended March 31, 1996 and March
30, 1997 consists of the following:
<TABLE>
<CAPTION>
March 31, March 30,
1996 1997
--------------------- --------------------
<S> <C> <C>
Interest income $ (539) $ (385)
Interest expense 7,989 8,013
Other expense, net 355 163
--------------------- --------------------
Interest and other expense, net $ 7,805 $ 7,791
===================== ====================
</TABLE>
(2) NON-RECURRING CHARGE
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 (primarily 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.
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 $1,600 during the first quarter of 1997.
As discussed in the Company's Form 10-K for the year ended December 31, 1996,
the Company undertook restructuring its software business due principally to the
Company's failure to meet its revenue plan for the first quarter of 1997 and
reflects revisions to its 1997 business plan. The restructuring efforts are
focussed on reducing the costs in its business. While the Company previously
estimated that the charge would be approximately $12,000, it has not yet
finalized the components or the amount of the charge and the charge could be
substantially larger than previously estimated.
(3) INDUSTRY SEGMENT AND GEOGRAPHIC OPERATIONS
The Company operates in two industry segments: Software - providing CAD/CAM
solutions and services including training and consulting services incident to
those products; and OSS - providing services and training for other hardware and
software products. Segment income statement financial information is broken out
separately on the face of the income statement. Segment balance sheet financial
information is as follows:
<PAGE>
<TABLE>
<CAPTION>
Software OSS Total
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance Sheet and Cash Flow:
December 31, 1996
Accounts Receivable 76,563 25,946 102,509
Fixed Assets 18,072 12,983 31,055
Other 1,276 - 1,276
Corporate Assets - - 73,505
-----------------
Total Assets 208,345
March 30, 1997
Accounts Receivable 50,539 26,253 76,792
Fixed Assets 17,004 9,761 26,765
Other 1,186 - 1,186
Corporate Assets - - 61,877
-----------------
Total Assets 166,620
Capital Expenditures 1,789 1,479 3,268
Depreciation and Amortization 2,348 1,950 4,298
</TABLE>
(4) 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. 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.
(5) 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.
(6) EARNINGS PER SHARE
Fully diluted earnings per share for the three months ended March 30, 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 ended March 30, 1997 and March 31, 1996.
(7) RECLASSIFICATIONS
Certain prior year balances in the financial statements have been reclassified
to conform to the current year financial statement presentation.
<PAGE>
(8) SUBSEQUENT EVENTS
During the quarter ended June 29, 1997 the Company recorded a non-recurring
charge, 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.
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 was not waived by the lending banks. As discussed below,
the Company repaid the outstanding borrowings under the Revolving Credit
Facility, including cash collateralizing the letters of credit and has since
terminated the agreement.
On July 18, 1997, the Company completed the sale of OSS to CVSI Inc.
("CVSI"). As a result of this transaction, the Company received $32,600 in cash,
of which $7,600 was paid by Sass, 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 and 100% of its
Class B non-voting stock (to which it has currently assigned no value). Sass 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 were used for transaction costs and other working capital needs.
On September 3, 1997, the Company closed an $8,500 bridge loan facility
(the "Bridge Term Loan") with M.D. Sass Corporate Resurgence Partners, L.P.,
an affiliate of Sass.
In October 1997, the Company closed $17,500 in bridge financing with
Foothill Capital Corporation ("Foothill"), a subsidiary of Norwest Corporation.
A portion of the proceeds was used to repay the existing Bridge Term Loan. The
$17,500 bridge financing is secured by substantially all of the Company's assets
and matures on November 15, 1997 and accrues interest at a rate of 12.5%. The
Company also received a proposal for a $47,250 credit facility with Foothill,
which will be secured by substantially all of the Company's assets and will have
a term of 18 months. The Company expects to close the facility by November 14,
1997, at which time it will repay the $17,500 bridge financing. Of the $47,250
facility, $41,000 is subject to a fixed borrowing base which does not fluctuate,
and the remainder is subject to available eligible accounts receivable.
The Company has experienced significant shortfalls in revenue, incurred
significant operating losses and has significant negative working capital at
September 28, 1997. The facility described above provides
financing to meet the Company's immediate cash needs. If the Company were unable
to secure additional financing, it 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. These issues raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
On November 3, 1997, the Company announced a definitive merger agreement
with Parametric Technology Corporation ("PTC") under which PTC will acquire the
Company in a stock for stock
<PAGE>
transaction. Under the terms of the transaction, each share of the Company's
common stock will be exchanged for 0.0866 shares of PTC common stock. The
transaction is intended to be accounted for as a pooling of interests and to
qualify as tax free reorganization. The agreement is subject to several
conditions, including regulatory approvals and the approval of the Company's
shareholders. If the merger is not consummated, the Company will have to either
substantially curtail its business operations or seek protection under the
bankruptcy laws.
