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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 30, 1996
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24544
HARRIS COMPUTER SYSTEMS CORPORATION
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(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
FLORIDA 65-510339
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
2101 WEST CYPRESS CREEK ROAD, FORT LAUDERDALE, FLORIDA 33309
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(Address of Principle Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 954-974-1700
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
</TABLE>
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports),
Yes X No
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and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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The number of shares of each of the Registrant's classes of common stock,
outstanding as of May 6, 1996, were 5,996,143
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARRIS COMPUTER SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDTIED)
<TABLE>
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 30, MARCH 31, MARCH 30, MARCH 31,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Sales
Equipment $9,822 $11,059 $18,942 $20,848
Maintenance 3,292 3,449 6,622 6,938
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Total sales 13,114 14,508 25,564 27,786
Cost of sales
Equipment 5,239 5,138 10,051 9,711
Maintenance 1,679 1,828 3,279 3,612
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Total cost of sales 6,918 6,966 13,330 13,323
Gross income 6,196 7,542 12,234 14,463
Other operating expense
Research and development 1,722 2,038 3,580 3,890
Selling, general and administrative 5,535 5,384 11,266 10,582
Transaction expense 820 0 820 0
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Total other operating expenses 8,077 7,422 15,666 14,472
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Operating income (loss) (1,881) 120 (3,432) (9)
Interest income/(expense) 68 57 155 207
Other income 3 23 2 25
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Total other income/(expense) 71 80 157 232
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Income before taxes (1,810) 200 (3,275) 223
Provision for taxes 0 0 0 8
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Net income (loss) ($1,810) $200 ($3,275) $215
======= ======= ======= =======
Earnings per common and common equivalent share ($0.31) $0.03 ($0.55) $0.04
Weighted average number of common and common
equivalent shares outstanding (in thousands) 5,929 5,911 5,924 5,911
</TABLE>
See accompanying notes to condensed consolidated statements.
2
<PAGE> 3
HARRIS COMPUTER SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<CAPTION>
MARCH 30, SEPT. 30,
1996 1995
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<S> <C> <C>
Cash and cash equivalents $1,307 $8,265
Accounts and notes receivable, less allowance for
uncollectible accounts of $1,158 at March 30, 1996
and $1,513 at September 30, 1995 15,335 9,994
Inventories 6,381 9,080
Prepaid expenses 660 530
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Total current assets 23,683 27,869
Machinery and equipment at cost, less accumulated
depreciation of $25,383 at March 30, 1996 and
$24,629 at September 30, 1995 5,912 5,947
Capitalized computer software development costs, less
accumulated amortization of $7,936 at March 30, 1996
and $6,870 at September 30, 1995 8,135 6,734
Other assets 822 881
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Total assets $38,552 $41,431
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Accounts payable 4,565 3,493
Deferred revenue 628 401
Accrued expenses 4,219 5,441
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Total current liabilities 9,412 9,335
Shareholders' equity
Common stock par value $0.01 authorized 20,000,000
shares; issued and outstanding 5,996,143 at
at March 30, 1996 and 5,911,437 at September 30, 1995 60 59
Additional paid in capital 44,144 43,662
Accumulated deficit (14,363) (11,088)
Cumulative translation adjustment (701) (537)
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Total shareholders' equity 29,140 32,096
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Total liabilities and shareholders' equity $38,552 $41,431
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</TABLE>
See accompanying notes to condensed consolidated statements.
3
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HARRIS COMPUTER SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
<TABLE>
(DOLLARS IN THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
MARCH 30, MARCH 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($3,275) $215
Adjustment to reconcile net earnings (loss) to net cash
provided from (used in) operating activities:
Depreciation 1,389 2,005
Amortization 1,066 653
Compensation expense 321 0
Deferred income taxes 0 1,414
Changes in assets and liabilities
Receivables (5,341) (6,351)
Due from Harris Corporation 0 6,386
Inventories 2,699 1,893
Trade payables 1,073 (822)
Other expenses and accruals (1,222) (2,422)
Deferred revenue 227 336
Other (235) 596
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Net cash provided from (used in) operating activities (3,298) 3,903
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Cash flows from investing activities
Additions to machinery and equipment (1,354) (1,281)
Software development costs (2,467) (854)
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Net cash used in investing activities (3,821) (2,135)
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Cash flows from financing activities
Proceeds (payment) of short term borrowings 0 0
Additions to business equity 161 0
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Net cash provided from financing activities 161 0
Net increase (decrease) in cash (6,958) 1,768
Cash and cash equivalents at beginning of period 8,265 7,649
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Cash and cash equivalents at end of period $1,307 $9,417
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</TABLE>
See accompanying notes to condensed consolidated statements.
4
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HARRIS COMPUTER SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnotes necessary for a fair presentation
of financial position, results of operations, and cash flows in conformity
with generally accepted accounting principles. The information furnished,
in the opinion of management, reflects all adjustments, which consist of
normal recurring adjustments, necessary to present fairly the results of
operations of the Company for the three and six month periods ended March
30, 1996 and March 31, 1995.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes included in the Form 10K as filed with
the Securities and Exchange Commission.
The results of operations of interim periods are not necessarily indicative
of results which may be expected for any other interim period or for the
year as a whole.
2. EARNINGS PER SHARE
Net earnings (loss) per share for the periods presented have been computed
using the weighted average number of common and common equivalent shares
(stock options) outstanding during the period, except in periods where their
effect is anti-dilutive.
3. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components
of inventories are as follows:
MARCH 30, SEPT. 30,
1996 1995
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(in thousands)
Raw materials $4,702 $ 5,702
Work in process 4,817 7,416
Finished goods 325 356
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9,844 13,474
Allowance for obsolescence (3,463) (4,394)
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$6,381 $9,080
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4. STOCK SPLIT
On March 5, 1996, the Board of Directors declared a three-for-one common
stock split distributable on March 29 to shareholders of record at the close
of business on March 18, 1996. All applicable share and per share data have
been restated for the stock split.
5. LINE OF CREDIT
On April 1, 1996, the Company entered into a line of credit of up to $5.0
million with Foothill Capital Corporation. The line of credit allows for the
borrowing of up to 80% of eligible domestic accounts receivables. The line
is backed by all the domestic assets of the Company. The line of credit will
terminate upon the consummation of the sale of the Company's Real-time
Business.
6. COMMITMENTS
The Company entered into an employment agreement, dated as of March 5,
1996, to be effective as of April 12, 1996 and terminating on April 11,
1999. The agreement provides for the employment of an individual as
President and Chief Executive Officer of the Company's Trusted Systems
Division. The executive is expected to serve as Chairman, President and
Chief Executive Officer of the Company following the sale of the Company's
Real-time Business. The employment agreement provides for an annual base
salary of $200,000, $225,000, and $250,000 for the first, second and third
twelve-month periods, respectively. The employment agreement also provides
for options to purchase 339,000 shares of the Company's Common Stock at an
exercise price of $10.67 per share and becoming exercisable in three equal
installments on March 5, 1997, 1998 and 1999, respectively, and a target
bonus of 50% of base salary subject to certain conditions and performance
objectives. The employment agreement provides for severance of varying
amounts if the employment is terminated for any reason other than cause or
if the employment is terminated within one year following a change in
control of the Company.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The quarter ended March 30, 1996 compared to the quarter ended March 31, 1995
Net Sales
Net sales were lower in the quarter ended March 30, 1996 compared to the
quarter ended March 31, 1995. Overall, net sales were $13.1 million for the
quarter ended March 30, 1996 compared to $14.5 million for the quarter ended
March 31, 1995.
International sales were $3.4 million in the quarter ended March 30, 1996,
compared to $4.8 million for the same period in 1995. International sales
decreased due to delay in government activity in France for real-time products
and the March 31, 1995 numbers being increased by a $1.9 million shipment from
a Russian customer as described below, offset by an increase in sales for
Trusted. Domestic sales remained flat at $9.7 million for the quarters ended
March 30, 1996 and March 31, 1995.
Product sales were $9.8 million and were $1.2 million lower in the quarter
ended March 30, 1996 as compared to the same period in 1995. The decrease in
sales was the result of the sales for the 1995 quarter being high due to an
initial shipment of $1.9 million to Lukon, a Russian customer, offset by an
increase in domestic real-time sales principally to commercial customers.
Proprietary sales decreased $.9 million to $.1 million, while Night Hawk
revenue decreased by $.3 million to $9.7 million for the quarter. The Night
Hawk decrease is due to the Lukon sale increasing the 1995 sales revenue.
Maintenance sales decreased by $0.1 million in the quarter ended March 30, 1996
as compared to the same period in 1995. These decreases in proprietary
equipment and maintenance revenue reflect the continuing downward trend
experienced by the Company over the last few years.
Real-time product sales were $7.4 million for the quarter ended March 30,
1996 compared to $8.3 million for the same period in 1995. The decrease was
the result of increased sales to domestic real-time commercial customers and a
decrease in international real-time due to the Lukon shipment described above.
Trusted Systems product sales decreased to $2.4 million compared to $2.8
million for the period ended March 31, 1995. The 1996 quarter included sales
to 43 customers covering 63 units compared to 1995 where a $1.9 million order
came from one customer. Sales to commercial customers (non-US government)
accounted for 75% of the sales compared to 30% for the quarter ended March 31,
1995.
Gross Income
Gross income as a percent of sales decreased to 47.2% from 52.0% for the
quarter ended March 30, 1996. The decrease is a result of decreased sales and
a greater percentage of sales of the entry level CyberGuards(TM) which have
significantly lower gross margins than the real-time products. This resulted
in a decrease of $1.3 million in gross income.
6
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Net income
Expenses increased by $.5 million in the current quarter to $8.0 million.
This increase is the result of $.8 million charge for professional fees
incurred associated with the sale of the real-time assets to Concurrent
Computer Corporation. The decrease in sales and increase in expenses resulted
in a decrease of net income to a $1.8 million loss compared to a $0.2 million
income for the quarter ended March 31, 1995.
The six month period ended March 30, 1996 compared to the six month period
ended March 31, 1995
Net Sales
Net sales were lower in the six month period ended March 30, 1996 compared
to the same period ended March 31, 1995. Overall, net sales were $25.6 million
for the six months ended March 30, 1996 compared to $27.8 million for the
period ended March 31, 1995. The net sales for the 1995 period was favorably
impacted by a $2.9 million sale to Lukon, a Russian company.
International sales were $6.8 million for the six month period ended March
30, 1996, a decrease of $1.6 million from the same period in 1995. This
decrease is the result of a $2.8 million sale for the March 1995 quarter to
Lukon (a Russian company) and a slow down of sales in the French subsidiary as
government slow down of spending impacted the operation, offset by increased
Trusted sales. Domestic sales decreased by $.5 million to $18.8 million as a
result of decreased maintenance sales.
Product sales were $1.9 million lower in the six months ended March 30,
1996 as compared to the same period in 1995. Comparatively lower product sales
resulted from the Russian shipment described above, impacting the 1995 sales
offset by an increase of $1.0 million in sale of Trusted products. Night Hawk
sales decreased to $18.2 million from $19.4 million for the quarter ended March
31, 1995. The $1.9 million decrease was the result of the Russian shipment and
an increase of Trusted product sales described below. Proprietary sales
decreased to $.7 million from $1.4 million for the six months ended March 31,
1995. Maintenance sales decreased by $0.3 million in the six months ended
March 30, 1996 as compared to the same period in 1995. This decrease in
maintenance revenue reflect the continuing downward trend experienced by the
Company over the last few years in these revenue categories.
Real-time product sales were $14.7 million for the six months ended
March 30, 1996 compared to $17.5 million for the same period in 1995. The $2.7
million decrease was due to the non-repeatability of the Lukon order discussed
above.
Trusted product sales were $4.2 million for the six month period ended
March 31, 1995 compared to $3.4 million for the same period in 1996. The 1996
sales were to 63 customers whereas the 1995 sales included an order of $1.9
million to one customer. The 1996 sales were 76% commercial (non-US
government).
Gross Income
Gross income as a percent of sales decreased to 47.9% from 52.1% for the
same period in 1995. Gross income decreased by $2.2 million for the current
period. This was the result of decreased sales and an increase in sales of
CyberGuard(TM) that have lower gross margin.
7
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Net income
Expenses increased by $1.1 million to $15.6 million for the current
period compared to the six month period ended March 31, 1995. The increase is
the result of the $.8 million charge for the transaction in which the real-time
assets will be sold to Concurrent Computer Corporation ("Transaction") and an
increase in sales and marketing expense to market the CyberGuard(TM) product.
The decrease in the Company's sales as described above and the increase in
expenses resulted in a decrease in income to a loss of $3.3 million compared to
a profit of $0.2 million for the six month period ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents on hand of $1.3 million
representing a decrease of $7.0 million from $8.3 million as of September 30,
1995. Accounts receivable increased by $5.3 million as a result of increased
sales and slow collection from international customers, especially customers in
France. Inventory decreased by $2.7 million as inventory reduction programs
take affect. Machinery and equipment remained flat as cash conservation
programs offset the purchases required for demo equipment required for the new
products. Capitalized software increased by $1.4 million as the Company
increased development spending in conjunction with the February release of its
enhanced Trusted product offering for the CyberGuard(TM).
To date, the Company's cash requirements have been funded from
operations. The Company has no outstanding bank borrowings or long term debt.
Its principal sources of liquidity at March 30, 1996 consisted of cash,
accounts and notes receivable and vendor trade credit. The future liquidity of
the Company will be affected by numerous factors, including sales volumes,
gross margins, the levels of selling, general and administrative expenses
required to fully implement Trusted systems product sales to commercial
customers, levels of required capital expenditures, and access to external
sources of financing. On April 1, 1996, the Company entered into a line of
credit of up to $5.0 million with Foothill Capital Corporation. The line of
credit allows for the borrowing of up to 80% of eligible domestic accounts
receivables. The line is backed by all the domestic assets of the Company.
The line of credit will terminate upon the consummation of the Transaction. To
replace the line of credit, management is exploring an alternative line of
credit that will be secured by the Concurrent Computer Corporation Common
Stock to be received in the Transaction and the possibility of an underwritten
public offering of Harris Common Stock that may be effected shortly after the
consummation of the Transaction. There can be no assurance that an
alternative line of credit will be available on acceptable terms or that any
offering will be undertaken or that, if undertaken, that such offering will be
successful. If such an offering is undertaken, such offering will be
registered pursuant to the Securities Act, may include shares of Harris Common
Stock to be issued to Concurrent pursuant to the Transaction and certain other
selling shareholders, and will be made only by means of a prospectus meeting
the requirements of state and federal securities laws. Management is not able
to predict whether the proceeds of an alternative line of credit or public
offering will be sufficient to fund the operations on an ongoing basis.
Although there can be no assurance that additional external sources of
financing will be available, or that, if available, such financing will be on
acceptable terms, management believes that additional equity or debt financing
should be available, if required.
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Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits Filed
No. 27-Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended March
31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1996 HARRIS COMPUTER SYSTEMS CORPORATION
By: /s/ E. Courtney Siegel
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E. COURTNEY SIEGEL
Chairman, President and
Chief Executive Officer
By: /s/ Daniel S. Dunleavy
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DANIEL S. DUNLEAVY
Vice-President, Chief Financial
Officer and Chief
Administrative Officer
(Principal Financial
and Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANIES CONSOLIDATED BALANCE SHEET AT MARCH 30, 1996 AND CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-30-1996
<CASH> 1,307
<SECURITIES> 0
<RECEIVABLES> 16,493
<ALLOWANCES> 1,158
<INVENTORY> 6,381
<CURRENT-ASSETS> 23,683
<PP&E> 31,250
<DEPRECIATION> 25,338
<TOTAL-ASSETS> 38,552
<CURRENT-LIABILITIES> 9,412
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 29,080
<TOTAL-LIABILITY-AND-EQUITY> 38,552
<SALES> 18,942
<TOTAL-REVENUES> 6,622
<CGS> 10,051
<TOTAL-COSTS> 13,330
<OTHER-EXPENSES> 15,666
<LOSS-PROVISION> (84)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,275)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,275)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
