UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________
Commission File No.: 0-25592
PERIPHONICS CORPORATION
(exact name of registrant as specified in its charter)
Delaware 11-2699509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Veterans Memorial Highway, Bohemia, New York 11716
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 468-9000
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports(s), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: October 10, 1996
Class of Number of
Common Equity Shares
Common Stock, 6,812,566
par value $.01
<PAGE>
PERIPHONICS CORPORATION
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - August 31, 1996 3
and May 31, 1996
Consolidated Statements of Earnings - Three 4
Months Ended August 31, 1996 and August 31, 1995
Consolidated Statements of Cash Flows - Three 5
Months Ended August 31, 1996 and August 31, 1995
Notes to Consolidated Financial Statements 6-7
Item 2. Managements's Discussion and Analysis of Financial 8-11
Condition and Results of Operations
Part II. Other Information 12
Signatures 13
2
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
August 31,
1996 May 31, 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 23,655 $ 18,664
Short-term investments............................................... 4,697 8,603
Accounts receivable, less allowance for doubtful accounts of
$890 and $750 respectively . . . . . . . . . . .................... 23,458 23,829
Inventories........................................................... 13,102 11,097
Deferred income taxes................................................ 1,217 1,261
Prepaid expenses and other current assets............................ 1,055 935
-------- -------
TOTAL CURRENT ASSETS............................................. 67,184 64,389
PROPERTY, PLANT AND EQUIPMENT, net..................................... 11,076 10,426
OTHER ASSETS........................................................... 295 288
------- -------
$ 78,555 $ 75,103
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 5,804 $ 4,247
Accrued expenses and other current liabilities....................... 11,292 11,666
------- -------
TOTAL CURRENT LIABILITIES........................................ 17,096 15,913
DEFERRED INCOME TAXES.................................................. 237 409
-------- -------
17,333 16,322
------- -------
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01 per share, 1,000,000 authorized,
none issued
Common stock, par value $.01 per share, 15,000,000 shares authorized 6,810,166
shares outstanding as of August 31, 1996
6,799,082 shares outstanding as of May 31, 1996 . . . . ........... 68 68
Additional paid-in capital............................................ 41,964 41,838
Retained earnings..................................................... 19,190 16,875
------- -------
61,222 58,781
------- -------
$ 78,555 $ 75,103
======= =======
</TABLE>
3
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1996 1995
------ -----
(Unaudited)
<S> <C> <C>
System sales........................................................................ $ 17,755 $ 13,887
Service revenues.................................................................... 5,504 3,657
------- -------
Total revenues.................................................................... 23,259 17,544
------- ------
Cost of system sales................................................................ 8,022 6,408
Cost of service revenues............................................................ 3,304 2,267
------- -------
Cost of revenues.................................................................. 11,326 8,675
------- -------
Gross profit........................................................................ 11,933 8,869
------- -------
Operating expenses:
Selling, general and administrative............................................... 6,165 4,865
Research and development.......................................................... 2,420 1,612
------- -------
8,585 6,477
------- -------
Earnings from operations............................................................ 3,348 2,392
------- -------
Other income (expense):
Interest and other income......................................................... 329 191
Foreign exchange gain (loss) ..................................................... 118 (125)
------- -------
447 66
------- --------
Earnings before provision for income taxes.......................................... 3,795 2,458
Provision for income taxes.......................................................... 1,480 1,008
------- -------
Net earnings . . . . . . . . . . . . . ............................................. $ 2,315 $ 1,450
======= =======
Net earnings per common and common equivalent share. . . . ......................... $ .33 $ .23
======== ========
Weighted average number of common and common equivalent shares...................... 6,991 6,279
======= =======
</TABLE>
4
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1996 1995
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................................................... $ 2,315 $ 1,450
Adjustments to reconcile net earnings to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization....................................................... 823 578
Deferred income taxes............................................................... (128) (28)
Changes in operating assets and liabilities:
Decrease in accounts receivable . . . . . ....................................... 371 889
Increase in inventories.......................................................... (2,005) (2,937)
Increase in prepaid expenses and other current assets............................ (120) (138)
Increase in other assets......................................................... (7) (20)
Increase in accounts payable and accrued expenses other
current liabilities........................................................... 1,183 1,067
------ ------
Net cash and cash equivalents provided by operating activities ....... . . . . 2,432 861
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.......................................... (1,473) (725)
Proceeds from sale of short-term investments........................................ 4,876 ---
Purchases of short-term investments................................................. (970) ---
------ ------
Net cash and cash equivalents used in investing activities.................... 2,433 (725)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised............................................... 126 156
------ ------
Net cash and cash equivalents provided by financing activities................ 126 156
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................ 4,991 292
CASH AND CASH EQUIVALENTS, beginning of period........................................... 18,664 8,753
------ ------
CASH AND CASH EQUIVALENTS, end of period................................................. $ 23,655 $ 9,045
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .............................................................................. --- ---
Income Taxes........................................................................... $ 593 $ 754
</TABLE>
5
<PAGE>
PERIPHONICS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position, the
results of operations, and the cash flows at August 31, 1996 and for all periods
presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction with
the Consolidated Financial Statements and Notes included in the Company's May
31, 1996 Annual Report on Form 10-K as filed with the Securities and Exchange
Commission.
The results of operations for the three months ended August 31, 1996 and
1995 are not necessarily indicative of the results to be expected for the full
year. Dollar amounts are presented in thousands.
2. INVENTORIES
Inventories consist of the following:
August 31, 1996 May 31, 1996
Raw materials $7,040 $6,218
Work-in-process 6,062 4,879
------ ------
$13,102 $11,097
======= =======
3. INITIAL PUBLIC OFFERING
On March 30, 1995, the Company consummated an initial public offering
("IPO") of 2,750,000 shares of common stock at a price of $14.00 per share. Of
the shares offered, 2,150,000 were sold by the Company and 600,000 shares were
sold by shareholders of the Company.
In April 1995, the underwriters of the IPO exercised their over allotment
option to purchase an additional 412,500 shares from the selling shareholders.
The Company did not receive any of the proceeds from the exercise of the over
allotment option.
The net proceeds to the Company from the sale of the 2,150,000 shares of
Common Stock offered was approximately $27.1 million (after deducting the
underwriting discount and offering expenses payable by the Company). The net
proceeds to the Company were used to repay indebtedness of $14.2 million and to
redeem 750,000 shares of its Common Stock from Exxon Corporation for
approximately $8.8 million (plus the payment to Exxon of approximately $0.2
million of accumulated dividends on the Series A Preferred Stock which was
converted into such Common Stock). The balance of the net proceeds,
approximately $3.9 million, is to be used for general corporate purposes,
including working capital.
6
<PAGE>
4. SECONDARY PUBLIC OFFERING
On November 17, 1995, the Company consummated a secondary public offering
of 1,255,000 shares of common stock at a price of $25.50 per share. Of the
shares offered, 600,000 were sold by the Company and 655,000 were sold by
certain stockholders of the Company.
Also in November 1995, the underwriters of the secondary offering exercised
their over-allotment option to purchase an additional 188,250 shares from the
selling stockholders. The Company did not receive any of the proceeds from the
exercise of the over-allotment option.
The net proceeds to the Company from the sale of the 600,000 shares of
Common Stock offered was approximately $14.0 million (after deducting the
underwriting discount and offering expenses payable by the Company). The net
proceeds to the Company are to be used for general corporate purposes, including
working capital, facilities expansion and possible acquisitions of businesses,
products or technologies complementary to the Company's business.
5. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 115 & NO. 121
During the third quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". The Company has determined that their investments
should be classified as held-to-maturity because the Company has the positive
intent and ability to hold the investments to maturity. Held-to-maturity
investments are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. The aggregate fair value of the
Company's investments as of August 31, 1996 was $4,780.
During the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived and for Long-Lived Assets to be Disposed Of ("SFAS 121"). The
adoption of SFAS 121 has not had a material impact on the Company's Consolidated
Financial Statements.
6. STOCK SPLIT AND CHANGES IN AUTHORIZED CAPITAL
On September 20, 1996, the Board of Directors approved a two-for-one split
of its common stock to be effected as a stock dividend on October 31, 1996 to
shareholders of record at the close of business on October 15, 1996. After
giving effect to the stock split, the shares outstanding will increase from
6,812,566 to 13,625,132.
Also, on September 20, 1996, the Board of Directors determined it advisable
to amend the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 15,000,000 shares to 30,000,000 shares.
The proposed amendment to the Amended and Restated Certificate of Incorporation
has been submitted for shareholder approval. The results of this matter will be
announced at the 1996 Annual Meeting of Stockholders to be held on November 8,
1996.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended August 31, 1996 compared to Three Months ended August
31, 1995
Total Revenues. Total revenues increased by 32.6% to $23.3 million in the
three months ended August 31, 1996 from $17.5 million in the three months ended
August 31, 1995. System sales increased by 27.9% to $17.8 million in the three
months ended August 31, 1996 from $13.9 million in the three months ended August
31, 1995. The increase in system sales was primarily due to an increase in unit
sales volume. Service revenues increased by 50.5% to $5.5 million in the three
months ended August 31, 1996 from $3.7 million in the three months ended August
31, 1995, primarily due to the addition of more units to the service base as
well as an increase installation revenues.
Gross Profit. The Company's gross profit increased by $3.0 million, or
34.5%, to $11.9 million in the three months ended August 31, 1996 from $8.9
million in the three months ended August 31, 1995. Gross profit as a percentage
of total revenues increased to 51.3% in the three months ended August 31, 1996
from 50.6% in the three months ended August 31, 1995. Gross profit on system
sales increased by $2.3 million, or 30.1%, to $9.7 million in the three months
ended August 31, 1996 from $7.5 million in the three months ended August 31,
1995. The gross margin on system sales increased to 54.8% in the three months
ended August 31, 1996 from 53.9% in the three months ended August 31, 1995. The
Company attributes this increase primarily to manufacturing and productivity
efficiencies of scale resulting from increased sales volume during the period.
Gross profit on service revenues increased by $.8 million, or 58.3%, to $2.2
million in the three months ended August 31, 1996 from $1.4 million in the three
months ended August 31, 1995. Gross margin on service revenues increased to
40.0% in the three months ended August 31, 1996 from 38.0% in the three months
ended August 31, 1995. This increase was attributable to higher installation
revenues and an increase in the service base.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses were $6.2 million and $4.9 million for the
three months ended August 31, 1996 and 1995, respectively, or 26.5% and 27.7% of
total revenues, respectively. The increase in the dollar amount of SG&A expenses
was primarily due to both the continued expansion of the Company's sales effort
in domestic and international markets and to increases in SG&A expenses
necessary to support the increased level of sales. SG&A expenses decreased as a
percentage of total revenues due to the Company's ability to leverage certain
fixed expenses over its growing revenue base.
Research and Development Expenses. Research and Development ("R&D")
expenses were $2.4 million and $1.6 million for the three months ended August
31, 1996 and 1995, respectively, or 10.4% and 9.2% of total revenues,
respectively. The increase in the dollar amount of R&D expenses reflects the
continued expansion of the Company's R&D staff which increased to 100 from 79
between August 31, 1995 and August 31, 1996. R&D expenses are charged to
operations as incurred, and no software development costs have been capitalized.
The Company expects the dollar amount of R&D expenditures to continue to
increase, although such expenses as a percentage of total revenues will vary
from period to period.
Other Income (Expense). Other income was $.4 and $.1 million for the three
months ended August 31, 1996 and 1995 respectively. Interest and other income
increased to $.3 million
8
<PAGE>
in the three months ended August 31, 1996 from $.2 million in the three
months ended August 31, 1995 primarily due to increased cash balances. The
Company had a foreign exchange gain of $.1 million for the three months ended
August 31, 1996 compared to a foreign exchange loss of $.1 million for the three
months ended August 1995. To the extent the Company is unable to match revenue
received in foreign currencies with expense paid in the same currency it is
exposed to fluctuations on international currency transactions.
Income Taxes. Variations in the customary relationship between the
provision for income taxes and the statutory federal income tax rate primarily
result from foreign subsidiaries' net operating losses which did not produce
current tax benefits, the utilization of research and development tax credits
and state and local income taxes. The Company's effective income tax rates were
39.0% and 41.0% for the three months ended August 31, 1996 and 1995,
respectively.
Foreign Operations. The Company's European subsidiary operated at
approximately a $.4 million loss during the three months ended August 31, 1996
as compared to approximately break-even during the three months ended August 31,
1995. The increase in such losses was attributed to a decrease in the gross
margin and increase in the dollar amount of SG&A expenses to support the
expansion of the sales and marketing effort in the three months ended August 31,
1996. Transfers from the Company's North American operations to its European
subsidiary are accounted for at cost, plus a reasonable profit.
Liquidity and Capital Resources
On November 17, 1995, the Company consummated a secondary public offering
of 1,255,000 share of common stock at a price of $25.50 per share. Of the shares
offered, 600,000 were sold by the Company and 655,000 were sold by certain
stockholders of the Company.
Also in November 1995, the underwriters of the offering exercised their
over allotment option to purchase an additional 188,250 shares from the selling
stockholders. The Company did not receive any of the proceeds from the exercise
of the over allotment option.
The net proceeds to the Company from the sale of the 600,000 shares of
Common Stock offered was approximately $14.0 million (after deducting the
underwriting discount and offering expenses payable by the Company). The net
proceeds to the Company are to be used for general corporate purposes, including
working capital, facilities expansion and possible acquisitions of businesses,
products or technologies complementary to the Company's business.
The Company's principal cash requirement to date has been to fund working
capital and capital expenditures in order to support the growth of revenues. The
Company has historically financed this requirement primarily through cash flow
from operations and bank borrowings. Cash flow from operations was $2.4 million
and $.9 million for the three months ended August 31, 1996 and 1995,
respectively. At August 31, 1996, the Company had working capital of $50.1
million, including $28.4 million of cash and cash equivalents and short-term
investments. The Company expects its working capital needs to increase along
with future revenue growth.
At August 31, 1996 current assets and current liabilities increased by $2.8
million and
9
<PAGE>
$1.2 million, respectively, compared to May 31, 1996. Current assets
increased principally as a result of an increase in inventories to support
higher production volumes offset, in part, by reduced accounts receivable.
During the period ended August 31, 1996, current liabilities increased primarily
due to an increase in accounts payable due to higher operating levels offset, in
part, by a decrease in accrued expenses resulting from the timing of payments.
The average days sales outstanding (calculated by dividing the net accounts
receivable at the balance sheet date for each period by the average sales per
day during the quarter immediately preceding the balance sheet date) were
approximately 93 days and 83 days at August 31, 1996 and May 31, 1996,
respectively. The Company attributes the increase in days' sales outstanding
primarily to increased sales to government agencies which generally have longer
payment cycles. To the extent the Company's sales mix continues to shift towards
government agencies, the average day's sales outstanding is expected to
increase.
The Company's inventory as of May 31, 1996 and August 31, 1996 was $11.1
million and $13.1 million respectively. The increase in inventory from May 31,
1996 to August 31, 1996 reflects an investment by the Company to support future
sales growth.
In January 1995, the Company increased its line of credit to $8.0 million
with interest charged at the prime rate plus 0.25%. The line of credit expires
on November 30, 1996. As of August 31, 1996, the Company had no borrowings under
this line of credit. The Company is presently negotiating to increase and
restructure the line of credit to a revolving line of credit, with a term loan
option.
The Company made capital expenditures totaling $1.5 million and $.7 million
during the three months ended August 31, 1996 and 1995, respectively. The
Company expects that its capital expenditures for facilities expansion, possible
technology licenses and acquisitions, and additional computer equipment utilized
for development and testing of the Company's products, will be substantially
greater than its capital expenditures in the prior several years.
The Company believes that its existing sources of working capital and
borrowings available under its revolving line of credit will be sufficient to
fund its operations and capital expenditures for at least 12 months.
Foreign Currency Transaction
The Company does not currently engage in international currency hedging
transactions to mitigate its foreign currency exposure. Included in the foreign
exchange gain (loss) are unrealized foreign exchange gains and losses resulting
from the currency remeasurement of the financial statements of the Company's
foreign subsidiaries into U.S. dollars. To the extent the Company is unable to
match revenue received in foreign currencies with expenses paid in the same
currency, it is exposed to possible losses on international currency
transactions.
Inflation
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
10
<PAGE>
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q) may contain statements which are
so-called "forward-looking statements" and not historical facts. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The Company's actual
future results may differ significantly from those stated in any forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties, including, but not limited to, product demand, pricing, market
acceptance, litigation, risks in product and technology development and other
risk factors detailed from time to time in the Company's Securities and Exchange
Commission reports including this Form 10-Q for the fiscal quarter ended August
31, 1996 and its Form 10-K for the fiscal year ended May 31, 1996.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A current report on Form 8-K was filed by the Company on August 13, 1996,
with respect to the Company's approval of a rights agreement that was entered
into by the Company and American Stock Transfer and Trust Company, as Rights
Agent on July 31, 1996, setting forth the terms of a stockholder rights plan,
and pursuant thereto declared a dividend of one preferred share purchase right
for each outstanding share of common stock, par value $0.01 per share.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERIPHONICS CORPORATION
Registrant
By: \s\ Peter J. Cohen
------------------------------------
Peter J. Cohen
Chairman of the Board, President
and Chief Executive Officer
(Principal Operating Officer)
By: \s\ Kevin J. O'Brien
------------------------------------
Kevin J. O'Brien
Chief Financial Officer, Vice
President-Finance and Administration
(Principal Accounting Officer),
Secretary and Director
Dated: October 15, 1996
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000937598
<NAME> Periphonics Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-1-1996
<PERIOD-END> AUG-31-1996
<CASH> 23,655
<SECURITIES> 4,697
<RECEIVABLES> 24,348
<ALLOWANCES> (890)
<INVENTORY> 13,102
<CURRENT-ASSETS> 67,184
<PP&E> 24,395
<DEPRECIATION> (13,319)
<TOTAL-ASSETS> 78,555
<CURRENT-LIABILITIES> 17,096
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 61,154
<TOTAL-LIABILITY-AND-EQUITY> 78,555
<SALES> 23,259
<TOTAL-REVENUES> 23,259
<CGS> 11,326
<TOTAL-COSTS> 11,326
<OTHER-EXPENSES> 8,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,795
<INCOME-TAX> 1,480
<INCOME-CONTINUING> 2,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,315
<EPS-PRIMARY> 0.33
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