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 November 30, 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: January 10, 1997.
Class of Number of
Common Equity Shares
Common Stock, 13,645,288
par value $.01
<PAGE>
PERIPHONICS CORPORATION
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - November 30, 1996 3
and May 31, 1996
Consolidated Statements of Earnings - Six Months 4
Ended November 30, 1996 and November 30, 1995
Consolidated Statements of Earnings - Three Months 5
Ended November 30, 1996 and November 30, 1995
Consolidated Statements of Cash Flows - Six Months 6
Ended November 30, 1996 and November 30, 1995
Notes to Consolidated Financial Statements 7-8
Item 2. Managements's Discussion and Analysis of Financial 9-13
Condition and Results of Operations
Part II. Other Information 14-15
Signatures 16
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
November 30, 1996 May 31, 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 16,479 $ 18,664
Short-term investments............................................... 5,313 8,603
Accounts receivable, less allowance for doubtful accounts of
$890 and $750 respectively . . . . . . . . . . .................... 32,736 23,829
Inventories.......................................................... 12,150 11,097
Deferred income taxes................................................ 1,151 1,261
Prepaid expenses and other current assets............................ 938 935
--------- ---------
TOTAL CURRENT ASSETS............................................. 68,767 64,389
PROPERTY, PLANT AND EQUIPMENT, net..................................... 12,775 10,426
OTHER ASSETS........................................................... 283 288
--------- ---------
$ 81,825 $ 75,103
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 6,073 $ 4,247
Accrued expenses and other current liabilities....................... 11,292 11,666
--------- ---------
TOTAL CURRENT LIABILITIES........................................ 17,365 15,913
DEFERRED INCOME TAXES.................................................. 140 409
--------- ---------
17,505 16,322
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01 per share, 1,000,000 authorized, none issued
Common stock, par value $.01 per share, 30,000,000 shares authorized
13,627,132 shares outstanding as of November 30, 1996
13,598,164 shares outstanding as of May 31, 1996 . . . . .......... 136 136
Additional Paid-in Capital.......................................... 41,955 41,770
Retained Earnings................................................... 64,320 58,781
--------- ---------
$ 81,825 $ 75,103
========= =========
</TABLE>
3
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1996 1995
(Unaudited)
<S> <C> <C>
System sales........................................................................ $ 40,449 $ 31,422
Service revenues.................................................................... 11,493 7,669
-------- --------
Total revenues.................................................................... 51,942 39,091
-------- --------
Cost of system sales................................................................ 18,929 14,595
Cost of service revenues............................................................ 6,951 4,934
-------- --------
Cost of revenues.................................................................. 25,880 19,529
-------- --------
Gross profit........................................................................ 26,062 19,562
-------- --------
Operating expenses:
Selling, general and administrative............................................... 13,279 10,339
Research and development.......................................................... 5,035 3,466
-------- --------
18,314 13,805
-------- --------
Earnings from operations............................................................ 7,748 5,757
-------- --------
Other income (expense):
Interest and other income......................................................... 701 293
Foreign exchange gain (loss) ..................................................... 328 (132)
-------- --------
1,029 161
-------- --------
Earnings before provision for income taxes.......................................... 8,777 5,918
Provision for income taxes.......................................................... 3,423 2,426
-------- --------
Net earnings . . . . . . . . . . . . . ............................................. $ 5,354 $ 3,492
======== =========
Net earnings per common and common equivalent share. . . . ......................... $ 0.38 $ 0.27
======== ========
Weighted average number of common and common equivalent shares...................... 13,951 12,764
======== ========
</TABLE>
4
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
1996 1995
(Unaudited)
<S> <C> <C>
System sales........................................................................ $ 22,694 $ 17,535
Service revenues.................................................................... 5,989 4,012
--------
Total revenues.................................................................... 28,683 21,547
-------- --------
Cost of system sales................................................................ 10,907 8,187
Cost of service revenues............................................................ 3,647 2,667
-------- --------
Cost of revenues.................................................................. 14,554 10,854
-------- --------
Gross profit........................................................................ 14,129 10,693
-------- --------
Operating expenses:
Selling, general and administrative............................................... 7,114 5,474
Research and development.......................................................... 2,615 1,854
-------- --------
9,729 7,328
-------- --------
Earnings from operations............................................................ 4,400 3,365
-------- --------
Other income (expense):
Interest and other income......................................................... 372 102
Foreign exchange gain (loss) ..................................................... 210 (7)
-------- --------
582 95
-------- --------
Earnings before provision for income taxes.......................................... 4,982 3,460
Provision for income taxes.......................................................... 1,943 1,418
-------- --------
Net earnings . . . . . . . . . . . . . ............................................. $ 3,039 $ 2,042
======== ========
Net earnings per common and common equivalent share. . . . ......................... $ 0.22 $ 0.16
======== ========
Weighted average number of common and common equivalent shares...................... 13,956 12,838
======== ========
</TABLE>
5
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1996 1995
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings......................................................................... $ 5,354 $ 3,492
Adjustments to reconcile net earnings to net cash and cash equivalents
used in operating activities:
Depreciation and amortization...................................................... 1,679 1,147
Deferred income taxes.............................................................. (159) (12)
Changes in operating assets and liabilities:
Increase in accounts receivable . . . . . ...................................... (8,907) (1,415)
Increase in inventories......................................................... (1,053) (5,249)
(Increase) Decrease in prepaid expenses and other current assets................ (3) 288
Decrease (Increase) in other assets............................................. 5 (86)
Increase in accounts payable and accrued expenses and other
current liabilities.......................................................... 1,452 1,640
-------- --------
Net cash and cash equivalents used in operating activities .......... . . . . (1,632) (195)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment......................................... (4,028) (1,842)
Proceeds from sale of short-term investments....................................... 9,573 ---
Purchases of short-term investments................................................ (6,283) ---
-------- --------
Net cash and cash equivalents used in investing activities................... (738) (1,842)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised........................................... 185 156
Proceeds from Secondary Public Offering of Common Stock.......................... --- 14,131
-------- --------
Net cash and cash equivalents provided by financing activities............... 185 14,287
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................... (2,185) 12,250
CASH AND CASH EQUIVALENTS, beginning of period.......................................... 18,664 8,753
-------- --------
CASH AND CASH EQUIVALENTS, end of period................................................ $ 16,479 $ 21,003
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ............................................................................. --- ---
Income Taxes.......................................................................... $ 2,534 $ 1,654
</TABLE>
6
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Periphonics Corporation and subsidiaries (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 November 30, 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 and six months ended November 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the full year. Dollar amounts are presented in thousands except per share
amounts.
2. 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 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 increased from
approximately 6,812,566 to approximately 13,625,132.
All historical share and per share data appearing in the consolidated
financial statements and notes thereto have been retroactively adjusted for the
stock split.
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
was submitted for shareholder approval. Shareholder approval was announced on
November 8, 1996 at the 1996 Annual Meeting of Stockholders.
3. INVENTORIES
Inventories consist of the following:
November 30, 1996 May 31, 1996
Raw materials $ 7,723 $ 6,218
Work-in-process 4,427 4,879
------- -------
$12,150 $11,097
======= =======
7
<PAGE>
4. INITIAL PUBLIC OFFERING
On March 30, 1995, the Company consummated an initial public offering
("IPO") of 5,500,000 shares of common stock at a price of $7.00 per share. Of
the shares offered, 4,300,000 were sold by the Company and 1,200,000 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 825,000 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 4,300,000 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 1,500,000 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, was used for general corporate purposes, including
working capital.
4. SECONDARY PUBLIC OFFERING
On November 17, 1995, the Company consummated a secondary public offering
of 2,510,000 shares of common stock at a price of $12.75 per share. Of the
shares offered, 1,200,000 were sold by the Company and 1,310,000 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 376,500 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 1,200,000 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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended November 30, 1996 compared to Six Months Ended
November 30, 1995
Total Revenues. Total revenues increased by 32.9% to $51.9 million in the
first six months of fiscal 1997 from $39.1 million in the first six months of
fiscal 1996. System sales increased by 28.7% to $40.4 million in the first six
months of fiscal 1997 from $31.4 million in the first six months of fiscal 1996.
The increase in system sales was primarily due to an increase in unit sales
volume. Service revenues increased by 49.9% to $11.5 million in the first six
months of fiscal 1997 from $7.7 million in the first six months of fiscal 1996,
primarily due to the addition of more units to the service base as well as an
increase in installation revenues.
Gross Profit. The Company's gross profit increased by $6.5 million, or
33.2%, to $26.1 million in the first six months of fiscal 1997 from $19.6
million in the first six months of fiscal 1996. Gross profit as a percentage of
total revenues increased to 50.2% in the first six months of fiscal 1997 from
50.0% in the first six months of fiscal 1996. Gross profit on system sales
increased by $4.7 million, or 27.9%, to $21.5 million in the first six months of
fiscal 1997 from $16.8 million in the first six months of fiscal 1996. The gross
margin on system sales decreased to 53.2% in the first six months of fiscal 1997
from 53.6% in the first six months of fiscal 1996. The Company attributes this
decrease primarily to the product mix during the current six month period. Gross
profit on service revenues increased by $1.8 million, or 66.1%, to $4.5 million
in the first six months of fiscal 1997 from $2.7 million in the first six months
of fiscal 1996. Gross margin on service revenues increased to 39.5% in the first
six months of fiscal 1997 from 35.7% in the first six months of fiscal 1996.
This increase was attributable to growth in the service base, as well as an
increase in installation revenues.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses were $13.3 million and $10.3 million for the
first six months of fiscal 1997 and 1996, respectively, or 25.6% and 26.4% 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 $5.0 million and $3.5 million for the first six months of fiscal
1997 and 1996, respectively, or 9.7% and 8.9% 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 114 from 88 between
November 30, 1995 and November 30, 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.
9
<PAGE>
Other Income (Expense). Other income was $1.0 million and 0.2 million for
the six months ended November 30, 1996 and 1995 respectively. Interest and other
income increased to $0.7 million in the six months ended November 30, 1996 from
$0.3 million in the six months ended November 30, 1995 primarily due to
increased cash balances. The Company had a foreign exchange gain of $0.3 million
in the six months ended November 30, 1996 compared to a foreign exchange loss of
$0.1 million for the six months ended November 30, 1995. 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 fluctuations in international
currency transactions.
Income Taxes. Variations in the customary relationship between the
provision for income taxes and the statutory 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 six months ended November 30, 1996 and 1995, respectively.
Foreign Operations. The Company's European subsidiary operated at
approximately a $0.6 million loss during the six months ended November 30, 1996
as compared to a loss of $0.4 million during the six months ended November 30,
1995. The increase in such losses was attributed to a decrease in the gross
margin and an increase in the dollar amount of SG&A expenses to support the
expansion of the sales and marketing effort partially offset by a decrease in
the exchange loss in the six months ended November 30, 1996. Transfers from the
Company's North American operations to its European subsidiary are accounted for
at cost, plus a reasonable profit. The cost of revenues for the Company's
European subsidiary includes approximately $0.2 million and $0.2 million of
intercompany gross profit earned by the Company's North American operations on
system sales by the European subsidiary to third parties during the six months
ended November 30, 1996 and 1996, respectively.
Three Months Ended November 30, 1996 compared to Three Months ended
November 30, 1995
Total Revenues. Total revenues increased by 33.1% to $28.7 million in the
three months ended November 30, 1996 from $21.5 million in the three months
ended November 30, 1995. System sales increased by 29.4% to $22.7 million in the
three months ended November 30, 1996 from $17.5 million in the three months
ended November 30, 1995. The increase in system sales was primarily due to an
increase in unit sales volume. Service revenues increased by 49.3% to $6.0
million in the three months ended November 30, 1996 from $4.0 million in the
three months ended November 30, 1995, primarily due to the addition of more
units to the service base as well as an increase in installation revenues.
Gross Profit. The Company's gross profit increased by $3.4 million, or
32.1%, to $14.1 million in the three months ended November 30, 1996 from $10.7
million in the three months ended November 30, 1995. Gross profit as a
percentage of total revenues decreased to 49.3% in the three months ended
November 30, 1996 from 49.6% in the three months ended November 30, 1995. Gross
profit on system sales increased by $2.4 million, or 26.1%, to $11.8 million in
the three months ended November 30, 1996 from $9.4 million in the three months
ended November 30, 1995. The gross margin on system sales decreased to 51.9% in
the three months ended November 30, 1996 from 53.3% in the three months ended
November 30, 1995.
10
<PAGE>
The Company attributes this decrease primarily to the product mix during
the current three month period. Gross profit on service revenues increased by
$1.0 million, or 74.1 % to $2.3 million in the three months ended November 30,
1996 from $1.3 million in the three months ended November 30, 1995. Gross margin
on service revenues increased to 39.1% in the three months ended November 30,
1996 from 33.5% in the three months ended November 30, 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 $7.1 million and $5.5 million for the
three months ended November 30, 1996 and 1995, respectively, or 24.8% and 25.4%
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 $2.6 million and $1.9 million for the three months ended November
30, 1996 and 1995, respectively, or 9.1% and 8.6% 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 114 from 88
between November 30, 1995 and November 30, 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 $0.6 and $0.1 million for the
three months ended November 30, 1996 and 1995 respectively. Interest and other
income increased to $0.4 million in the three months ended November 30, 1996
from $0.1 million in the three months ended November 30, 1995 primarily due to
increased cash balances. The Company had a foreign exchange gain of $0.2 million
for the three months ended November 30, 1996. 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 November 30, 1996 and 1995,
respectively.
11
<PAGE>
Liquidity and Capital Resources
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.
Historically, the Company has primarily financed this requirement through cash
flow from operations, bank borrowings and two public offerings for the Company's
common stock in 1995, which resulted in an aggregate of $41.1 million of net
proceeds to the Company. Cash flow from operations was $(1.6) million and $(0.2)
million for the six months ended November 30, 1996 and 1995, respectively. At
November 30, 1996, the Company had working capital of $51.4 million, including
$21.8 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 November 30, 1996, current assets and current liabilities increased by
$4.4 million and $1.5 million, respectively, compared to May 31, 1996. Current
assets increased principally as a result of an increase in accounts receivable.
During the period ended November 30, 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 104 days and 83 days at November 30, 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 November 30, 1996 was $11.1
million and $12.1 million respectively. The increase in inventory from May 31,
1996 to November 30, 1996 reflects an investment by the Company to support
future sales growth.
12
<PAGE>
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, 1997. As of November 30, 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 $4.0 million and $1.8
million during the six months ended November 30, 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.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123, "Accounting for Stock-Based Compensation," which must be
adopted by the Company in fiscal 1997. The Company has chosen not to implement
the fair value based accounting method for employee stock options, but has
elected to disclose, commencing with its fiscal 1997 Annual Report, the pro
forma net earnings and net earnings per share as if such method had been used to
account for stock-based compensation costs as described in Statement No. 123.
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
November 30, 1996 and its Form 10-K for the fiscal year ended May 31, 1996.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
The Company declared a 2-for-1 stock split in the form of a stock dividend,
which was paid on October 31, 1996 to holders of record on October 15, 1996.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) On November 8, 1996 the Company held its Annual Meeting of Stockholders
(the "Meeting").
(b) At the Meeting, the Stockholders of the Company elected Edward H. Blum
and Richard A. Daniels as Class II directors.
(c) In addition to electing directors at the Meeting, the Stockholders of
the Company amended the Company's Amended and Restated Certificate of
incorporation to increase the number of authorized shares from 16,000,000 shares
consisting of 15,000,000 shares of common stock and 1,000,000 shares of
preferred stock, to 31,000,000 shares consisting of 30,000,000 shares of common
stock and 1,000,000 shares of preferred stock.
(d) At the Meeting, the Stockholders of the Company approved the amendment
of the Company's 1995 Stock Option Plan to increase the number of shares
reserved for issuance thereunder from 800,000 to 1,200,000.
(e) The Stockholders of the Company then ratified the selection of Deloitte
& Touche LLP as the Company's independent auditors for the fiscal year ending
May 31, 1997. The following sets forth the results of voting on each matter
voted upon at the meeting:
1. Election of Directors
For Against
Edward H. Blum 4,817,065 37,450
Richard A. Daniels 4,817,065 37,450
2. Amendment of the Company's Amended and Restated Certificate
of Incorporation.
For Against
4,672,605 79,200
14
<PAGE>
3. Amendment of the Company's 1995 Stock Option Plan.
For Against
4,539,589 175,680
4. Ratification of Deloitte & Touche LLP as the Company's independent
auditor's for the fiscal year ending May 31, 1997.
For Against
4,831,740 4,690
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Company
10 1995 Stock Option Plan, As Amended
27 Financial Data Schedule
(b) Reports on Form 8-K
None
15
<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
Vice President-Finance and
Administration (Principal
Accounting Officer), Secretary
Dated: January 14, 1997
16
Exhibit 3
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
PERIPHONICS CORPORATION
---------------------------------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
---------------------------------------------------------
The undersigned, Peter J. Cohen and Kevin J. O'Brien, being the President
and Secretary, respectively, of PERIPHONICS CORPORATION, a corporation organized
and existing under the laws of the State of Delaware, do hereby certify as
follows:
FIRST, that the Certificate of Incorporation of said corporation be amended
as follows:
2. By striking out the first paragraph of ARTICLE FOURTH, as it now exists,
and inserting in lieu and instead thereof a new first paragraph of ARTICLE
FOURTH, reading as follows:
"The total number of shares of stock which the corporation shall
have authority to issue is Thirty-One Million (31,000,000),
consisting of Thirty Million (30,000,000) shares of Common Stock,
all of a par value of One Cent ($.01) each, and One Million
(1,000,000) shares of Preferred Stock, all of a par value of One
Cent ($.01) each."
SECOND, that such amendment has been duly adopted in accordance with the
provisions of the General Corporation Law of the State of Delaware by the
written consent of the holders of not less than a majority of the outstanding
stock entitled to vote thereon and that written notice of the corporate action
has been given to those stockholders who have not consented in writing, all in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, we have signed this Certificate this 13th day of
November, 1996.
\s\ Peter J. Cohen
----------------------------
Peter J. Cohen, President
\s\ Kevin J. O'Brien
---------------------------
Kevin J. O'Brien, Secretary
Exhibit 10
PERIPHONICS CORPORATION
1995 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE.
The purpose of this Stock Option Plan, to be known as the 1995 Stock Option
Plan (the "Plan"), is to advance the interests of Periphonics Corporation (the
"Company") by enhancing the ability of the Company to attract and retain
selected employees, consultants, advisors to the Board of Directors and
qualified directors (collectively the "Participants") by creating for such
Participants incentives and rewards for their contributions to the success of
the Company, and by encouraging such Participants to become owners of shares of
the Company's Common Stock, par value $0.01 per share, as the title or par value
may be amended (the "Common Stock"). Options granted pursuant to the Plan may be
incentive stock options ("Incentive Options") as defined in the Internal Revenue
Code of 1986, as amended (the "Code") or non-qualified options, or both. The
proceeds received from the sale of Shares pursuant to the Plan shall be used for
general corporate purposes.
2. EFFECTIVE DATE OF PLAN.
The Plan will become effective upon approval by the Board of Directors (the
"Board"), and shall be subject to the approval of the shareholders of the
Company as provided under the Securities Act of 1933, as amended (the "Act").
3. AVAILABLE SHARES.
The total number of shares of Common Stock for which options may be granted
under the Plan shall not exceed 1,200,000 shares, subject to adjustment in
accordance with Paragraph 12 of the Plan. Shares of Common Stock subject to the
Plan are authorized but unissued shares of Common Stock or shares of Common
Stock that were once issued and subsequently reacquired by the Company. If any
options granted under the Plan are surrendered before exercise or lapse without
exercise, in whole or in part, the shares of Common Stock reserved therefor
shall continue to be available under the Plan.
4. ADMINISTRATION.
The Plan shall be administered by the Board or by a committee appointed by
the Board (the "Committee"). In the event the Board fails to appoint or refrains
from appointing a Committee, the Board shall have all power and authority to
administer the Plan. In such event, the word "Committee" wherever used shall be
deemed to mean the Board. The Committee shall, subject to the provisions of the
Plan, have the power to construe the Plan, to determine all questions hereunder,
and to adopt and amend such rules and regulations for the administration of the
Plan as it may deem desirable. The Committee shall consist of not fewer than two
members. Each of the members of the Committee must be a "disinterested person"
as that term is defined in Rule 16b-3 adopted pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"). A majority of the members of the
Committee shall constitute a quorum, and all determinations of the Committee
shall be made by the majority of its members present at a meeting. Any
determination of the Committee under the Plan may be made without notice or
meeting of the Committee by a writing signed by all of the Committee members.
5. ELIGIBILITY.
The Participants in the Plan shall be all employees, consultants, advisors
to the Board of Directors
<PAGE>
and qualified directors of the Company or any of its present or future
subsidiaries whether or not they are also officers of the Company. Members of
the Committee are eligible only if they do not exercise any discretion in
selecting Participants who receive grants of options, in determining the number
of shares to be granted to any Participant or in determining the exercise price
of any options, or if counsel to the Company may otherwise advise the Committee
that the taking of any such action does not impair the status of such eligible
Committee members as "disinterested persons" within the meaning of Exchange Act
Rule 16b-3.
6. GRANTING OF OPTIONS.
(a) Subject to the provisions of the Plan, the Committee, with the approval
of the Chief Executive Officer of the Company, shall determine and designate
from time to time those persons to whom options are to be granted. Options shall
be granted on such terms as the Committee, with the approval of the Chief
Executive Officer of the Company, shall determine except that Incentive Options
shall be granted on terms that comply with the Code and Regulations thereunder.
(b) No options shall be granted after February 8, 2005 but options
previously granted may extend beyond that date.
7. EXERCISE PRICE.
The purchase price of the Common Stock covered by an option granted
pursuant to the Plan shall be 100% of the fair market value per share of a share
of Common Stock on the day the option is granted (the "Exercise Price").
Notwithstanding the foregoing, if any person to whom an option is to be granted
owns in excess of ten percent of the outstanding capital stock of the Company,
then no option may be granted to such person for less than 110% of the fair
market value on the date of grant as determined by the Board. The Exercise Price
will be subject to adjustment in accordance with the provisions of Paragraph 10
of the Plan. For purposes of the Plan, "fair market value" shall be (i) the
closing price of the Company's Common Stock appearing on a national securities
exchange if the Company's Common Stock is listed on such an exchange, or if not
listed, the closing bid price appearing on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"); or (ii) if the Shares
are not listed on NASDAQ, then the closing bid price for the Company's Common
Stock as listed in the National Quotation Bureau's pink sheets; or (iii) if
there are no listed bid prices published in the pink sheets, then the market
value shall be based upon the closing bid price as determined following a
polling of all dealers making a market in the Company's Common Stock.
8. PERIOD OF OPTION.
Unless sooner terminated in accordance with the provisions of Paragraph 10
of the Plan, an option granted hereunder shall be for a term of five (5) years.
9. VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS.
(a) Vesting. Options granted under the Plan shall not be exercisable until
they become vested. Options granted shall vest in the optionee and become
immediately exercisable by the optionee in four annual installments of 25% each
on the first, second, third and fourth anniversaries of the date of grant.
(b) Legend on Certificates. The certificates representing such shares of
Common Stock shall carry such appropriate legends, and such written instructions
shall be given to the Company's transfer agent, as may be deemed necessary or
advisable by counsel to the Company in order to comply with the requirements of
the Securities Act of 1933 or any state securities laws.
2
<PAGE>
(c) Non-transferability. Any option granted pursuant to the Plan shall not
be assignable or transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code, or Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules thereunder, and shall be exercisable during the
optionee's lifetime only by him or her.
10. TERMINATION OF OPTION RIGHTS.
All previously unexercised options including options which have not vested
shall terminate and be forfeited automatically upon the termination for any
reason whatsoever of a Participant's status as an employee, consultant or
advisor to the Board other than termination by reason of the Participant's death
or permanent disability.
If a Participant dies or becomes permanently disabled at a time when he is
entitled to exercise an option, then at any time or times within one year after
his death or permanent disability such options may be exercised, as to all or
any of the Shares which the Participant was entitled to purchase immediately
prior to his death or Permanent Disability, by the Participant or, in the case
of death, by his personal representative or the person or persons to whom the
options are transferred by will or the applicable laws of descent and
distribution, and except as so exercised such options will expire at the end of
such period.
11. EXERCISE OF OPTION.
Subject to the terms and conditions of the Plan and the option agreements,
an option granted hereunder shall, to the extent then exercisable, be
exercisable in whole or in part by giving written notice to the Company by mail
or in person addressed to Periphonics Corporation, 4000 Veterans Memorial
Highway, Bohemia, New York 11716, Attention: Chief Financial Officer, stating
the number of shares of Common Stock with respect to which the option is being
exercised, accompanied by payment in full for such shares of Common Stock.
Payment may be made:
(a) in United States dollars in cash or by certified check; or
(b) by tendering shares of Common Stock of the Company already owned by the
person or persons exercising the option (provided that such shares of Common
Stock have been owned for at least six months prior to tender), valued at fair
market value determined in accordance with the provisions of Paragraph 7; or
(c) by a combination of cash or certified check and Common Stock as
provided in (a) and (b) above; or
(d) in the discretion of the Committee, by the issuance by an optionee of a
promissory note, which shall be payable in more or more installments and over
such period of time (not in excess of five years) as determined by the Committee
and shall bear interest at such rate as shall be determined by the Committee,
which in no event shall be less than the minimum rate required by the provisions
of Section 483 of the Code to award the imputation of income to such optionee.
The Company's transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares of Common Stock acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares of Common Stock on the books of the Company and shall cause the
fully executed certificate(s) representing such shares of Common Stock to be
delivered to the optionee as soon as practicably after payment of the option
price in full.
The holder of an option shall not have any rights of a stockholder with
respect to the shares of Common Stock covered by the option, except to the
extent that one or more certificates for such
3
<PAGE>
shares of Common Stock shall be delivered to him or her upon the due
exercise of the option.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS.
Upon the occurrence of any of the following events, an optionee's rights
with respect to options granted to him or her hereunder shall be adjusted as
hereinafter provided:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Merger; Consolidation; Liquidation; Sale of Assets. In the event the
Company is merged into or consolidated with another corporation under
circumstances where the Company is not the surviving corporation, or if the
Company is liquidated or sells or otherwise disposes of all or substantially all
of its assets to another corporation while unexercised options remain
outstanding under the Plan:
(i) subject to the provisions of clauses (iii), (iv) and (v) below, after
the effective date of such merger, consolidation or sale, as the case may be,
each holder of an outstanding option shall be entitled, upon exercise of such
option, to receive in lieu of shares of Common Stock, shares of such stock or
other securities as the holders of the shares of Common Stock received pursuant
to the terms of the merger, consolidation or sale; or
(ii) the Committee may waive any discretionary limitations imposed with
respect to the exercise of the option so that all options from and after a date
prior to the effective date of such merger, consolidation, liquidation or sale,
as the case may be, specified by the Committee, shall be exercisable in full; or
(iii) all outstanding options may be cancelled by the Committee as of the
effective date of any such merger, consolidation, liquidation or sale, provided
that notice of such cancellation shall be given to each holder of an option, and
each holder thereof shall have the right to exercise such option in full
(without regard to any discretionary limitations imposed with respect to the
option) during a 30-day period preceding the effective date of such merger,
consolidation, liquidation or sale; or
(iv) all outstanding options may be cancelled by the Committee as of the
date of any such merger, consolidation, liquidation or sale, provided that
notice of such cancellation shall be given to each holder of an option and each
such holder thereof shall have the right to exercise such option but only to the
extent exercisable in accordance with any discretionary limitations imposed with
respect to the option prior to the effective date of such merger, consolidation,
liquidation or sale; or
(v) the Committee may provide for the cancellation of all outstanding
options and for the payment to the holders of some part or all of the amount by
which the value thereof exceeds the payment, if any, which the holder would have
been required to make to exercise such option.
(c) Issuance of Securities. Except as expressly provided herein, no
issuance by the
4
<PAGE>
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares subject to options,
provided, however, in the event the Company issues or sells any Common Stock or
Common Stock Equivalents without consideration or for consideration per share
less than the current fair market value per share (as defined in Paragraph 7
above) on the date of such issuance or sale, or fixes a record date for the
issuance of subscription rights, options or warrants to all holders of Common
Stock entitling them to purchase Common Stock (or Common Stock Equivalents) at a
price per share (or having an exercise or conversion price per share) less than
the then current fair market value per share, the Exercise Price shall be
adjusted so that it will equal the price determined by multiplying the Exercise
Price in effect immediately prior to the adjustment by a fraction, of which the
numerator shall be (i) the number of shares outstanding on the record date for
such sale or issuance, plus (ii) the number of additional shares which the
aggregate consideration received by the Company upon such issuance or sale (plus
the aggregate of any additional amount to be received by the Company upon the
exercise of such subscription rights, options or warrants) would purchase at the
fair market value, and of which the denominator shall be (x) the number of
shares outstanding on the record date for such issuance or sale, plus (y) the
number of additional shares offered for subscription or purchase (or into which
the Common Stock Equivalents so offered are exercisable or convertible). Each
adjustment shall become effective retroactively immediately after the record
date for the issuance. To the extent that Common Stock (or Common Stock
Equivalents) are not delivered after the expiration of such subscription rights,
options or warrants, the Exercise Price shall be readjusted to the Exercise
Price which would then be in effect had the adjustments made upon the issuance
of such rights, options or warrants been made upon the basis of delivery of only
the number of shares (or Common Stock Equivalents) actually delivered. No
adjustments shall be made for dividends paid in cash or in property other than
securities of the Company.
(d) Adjustments. Upon the happening of any of the foregoing events, the
class and aggregate number of shares set forth in Paragraph 3 of the Plan that
are subject to options which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect such events. The
Committee shall determine the specific adjustments to be made under this
Paragraph 12 and its determination shall be conclusive.
13. RESTRICTIONS ON ISSUANCE OF SHARES.
Notwithstanding the provisions of Paragraphs 9 and 11 of the Plan, the
Company shall not be obligated to deliver any Common Stock unless and until, in
the opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with, nor, if the outstanding Common Stock is at
the time listed on any securities exchange, unless and until the Common Stock to
be delivered has been listed (or authorized to be added to the list upon
official notice of issuance) upon such exchange, nor unless or until all other
legal matters in connection with the issuance and delivery of the Common Stock
have been approved by the Company's counsel.
14. REPRESENTATION OF OPTIONEE.
If requested by the Company, the optionee shall deliver to the Company
written representations and warranties upon exercise of the option that are
necessary to show compliance with Federal and state securities laws, including
representations and warranties to the effect that a purchase of shares under the
option is made for investment and not with a view to their distribution (as that
term is used in Securities Act of 1933).
15. OPTION AGREEMENT.
5
<PAGE>
Each option is granted under the provisions of the Plan shall be evidenced
by an option agreement, which agreement shall be duly executed and delivered on
behalf of the Company and by the optionee to whom such option is granted. The
option agreement shall contain such terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Committee.
16. TERMINATION AND AMENDMENT OF PLAN.
Options may no longer be granted under the Plan after February 8, 2005, and
the Plan shall terminate when all options granted or to be granted hereunder are
no longer outstanding. The Committee may at any time terminate the Plan or make
such modification or amendment thereof as it deems advisable; provided, however,
that the Committee may not, without approval by the affirmative vote of the
holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the meeting:
(a) increase the maximum number of shares for which options may be granted
under the Plan (except by adjustment pursuant to Section 12);
(b) materially modify the requirements as to eligibility to participate in
the Plan;
(c) materially increase benefits accruing to option holders under the Plan;
or
(d) amend the Plan in any manner which would cause Rule 16b-3 to become
inapplicable to the Plan;
and provided further that the provisions of the Plan specified in Rule
16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under the
Securities Exchange Act of 1934 (including, without limitation, provisions as to
eligibility, amount, price, and timing of awards) may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, ERISA, or the rules thereunder. Termination or any modification or
amendment of the Plan shall not, without consent of a participant, affect his or
her rights under an option previously granted to him or her.
17. WITHHOLDING OF INCOME TAXES.
Upon the exercise of an option, the Company, in accordance with Section
3402(a) of the Internal Revenue Code, may require the optionee to pay
withholding taxes in respect of amounts considered to be compensation includible
in the optionee's gross income.
18. COMPLIANCE WITH REGULATIONS.
It is the Company's intent that the Plan comply with all respects with Rule
16b-3 under the Securities Exchange Act of 1934 (or any successor or amended
version thereof) and any applicable Securities and Exchange Commission
interpretations thereof. If any provision of the Plan is deemed not be in
compliance with Rule 16b-3, the provision shall be null and void.
19. GOVERNING LAW.
The validity and construction of the Plan and the instruments evidencing
options shall be governed by the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
6
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000937598
<NAME> Periphonics Corporation
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> May-31-1997
<PERIOD-START> Jun-1-1996
<PERIOD-END> Nov-30-1996
<CASH> 16,479
<SECURITIES> 5,313
<RECEIVABLES> 33,626
<ALLOWANCES> (890)
<INVENTORY> 12,150
<CURRENT-ASSETS> 68,767
<PP&E> 26,950
<DEPRECIATION> (14,175)
<TOTAL-ASSETS> 81,825
<CURRENT-LIABILITIES> 17,365
<BONDS> 0
0
0
<COMMON> 136
<OTHER-SE> 64,184
<TOTAL-LIABILITY-AND-EQUITY> 81,825
<SALES> 51,942
<TOTAL-REVENUES> 51,942
<CGS> 25,880
<TOTAL-COSTS> 25,880
<OTHER-EXPENSES> 18,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,777
<INCOME-TAX> 3,423
<INCOME-CONTINUING> 5,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,354
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0
</TABLE>
