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 February 28, 1999
[ ] 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 11-269950
(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 are 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 [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of April 6, 1999 is as follows:
Class of Number
Common Equity of Shares
Common Stock, 13,101,946
Par value $.01
<PAGE>
PERIPHONICS CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - February 28, 1999 3
and May 31, 1998
Consolidated Statements of Earnings - Three Months and Nine 4
Months Ended February 28, 1999 and 1998
Consolidated Statements of Cash Flows- Nine Months 5
Ended February 28, 1999 and 1998
Notes to Unaudited Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial 8-14
Condition and Results of Operations
Part II. Other Information 15
Signatures 16
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
February 28, 1999 May 31, 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................ $ 14,640 $ 14,810
Short-term investments ................................................... 8,988 11,033
Accounts receivables, less allowance for doubtful
accounts of $1,466 and $1,266, respectively .......................... 39,074 37,721
Inventories .............................................................. 17,256 14,066
Deferred income taxes .................................................... 2,025 1,687
Prepaid expenses and other current assets ................................ 1,461 1,367
------- -------
Total current assets .................................................. 83,444 80,684
Property, plant and equipment, net ....................................... 19,668 19,498
Other assets ................................................................ 492 425
------- -------
TOTAL ASSETS ............................................................ $103,604 $100,607
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ......................................................... $ 6,894 $ 8,273
Accrued expenses and other current liabilities ........................... 18,535 14,328
------- -------
Total current liabilities ............................................ 25,429 22,601
Deferred income taxes .................................................... --- 146
------- -------
TOTAL LIABILITIES ...................................................... 25,429 22,747
------- -------
Stockholders' Equity:
Preferred stock, par value $.01 per share, --- ---
1,000,000 shares authorized, none issued
Common stock, par value $.01 per share, 139 138
30,000,000 shares authorized, 13,914,546 issued and
13,351,946 shares outstanding as of February 28, 1999;
13,843,305 shares issued and outstanding as of May 31, 1998
Additional paid-in capital ............................................... 44,242 43,780
Retained earnings ........................................................ 37,985 33,942
------- -------
82,366 77,860
Treasury stock at cost, 562,600 shares ................................... (4,191) ---
------- -------
Total stockholders' equity ........................................... 78,175 77,860
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY ................................ $103,604 $100,607
======= =======
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
System revenues................................ $23,274 $25,852 $73,098 $63,021
Maintenance revenues .......................... 8,755 7,795 25,013 21,777
------ ------ ------ ------
Total revenues ............................. 32,029 33,647 98,111 84,798
------ ------ ------ ------
Cost of system revenues ....................... 11,287 12,159 35,747 30,768
Cost of maintenance revenues................... 4,601 4,371 13,508 12,723
------ ------ ------ ------
Cost of revenues ........................... 15,888 16,530 49,255 43,491
------ ------ ------ ------
Gross profit .................................. 16,141 17,117 48,856 41,307
------ ------ ------ ------
Operating expenses:
Selling, general and administrative........ 9,731 9,546 29,561 26,012
Research and development................... 4,439 3,968 13,656 10,729
------ ------ ------ ------
14,170 13,514 43,217 36,741
------ ------ ------ ------
Earnings from operations ...................... 1,971 3,603 5,639 4,566
------ ------ ------ ------
Other income (expense):
Interest and other income ................. 243 322 903 1,032
Foreign exchange loss ..................... (103) (162) (73) (224)
------ ------ ------ ------
140 160 830 808
------ ------ ------ ------
Earnings before provision for
income taxes ............................. 2,111 3,763 6,469 5,374
Provision for income taxes .................... 792 1,411 2,426 2,015
------ ------ ------ -----
Net earnings .................................. $ 1,319 $ 2,352 $ 4,043 $ 3,359
====== ====== ====== =====
Per share data:
Basic earnings ................................ $ 0.10 $ 0.17 $ 0.30 $ 0.24
====== ====== ====== =====
Diluted earnings .............................. $ 0.10 $ 0.17 $ 0.29 $ 0.24
====== ====== ====== =====
Weighted average shares:
Basic ......................................... 13,393 13,784 13,538 13,744
====== ====== ====== ======
Diluted ....................................... 13,854 13,909 13,775 13,931
====== ====== ====== ======
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................................. $4,043 $ 3,359
Adjustments to reconcile net earnings to net cash and cash
equivalents used in operating activities:
Depreciation and amortization ............................................. 4,937 3,918
(Increase) decrease in deferred income taxes .............................. (484) 314
Changes in operating assets and liabilities:
Increase in accounts receivables .......................................... (1,353) (1,554)
Increase in inventories ................................................... (3,190) (773)
Increase in prepaid expenses and other current assets .................... (94) (45)
Increase in other assets .................................................. (67) (34)
Increase (decrease) in accounts payable and accrued expenses
and other current liabilities ............................................ 2,828 (2,991)
----- ------
Net cash and cash equivalents provided by operating activities ............ 6,620 2,194
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ................................ (5,107) (6,099)
Proceeds from sales of short-term investments ............................ 21,495 10,691
Purchases of short-term investments ..................................... 19,450) (21,724)
------ ------
Net cash and cash equivalents used in investing activities .............. (3,062) (17,132)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock............................................... (4,191) ---
Proceeds from stock options exercised .................................... 463 835
------ ------
Net cash and cash equivalents (used in) provided by financing
activities ............................................................. (3,728) 835
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS ..................................... (170) (14,103)
CASH AND CASH EQUIVALENTS, beginning of period ................................ 14,810 25,092
------ ------
CASH AND CASH EQUIVALENTS, end of period ...................................... $14,640 $10,989
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest ...................................................................... --- ---
Income Taxes .................................................................. $1,592 $ 3,294
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIATIES
NOTES TO UNAUDITED CONSOLIDATION OF 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 February 28, 1999 and for all periods
presented.
Certain information and footnote disclosures normally included in annual
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, 1998 Annual Report and Form
10-K as filed with the Securities and Exchange Commission.
The results of operations for the three and nine months ended February
28, 1999 and February 28, 1998 are not necessarily indicative of the
results to be expected for the full year. Dollar amounts are presented in
thousands except per share amount.
2. EARNINGS PER SHARE
In the third quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings Per Share". Basic income
per share is determined using the weighted average number of shares of
common stock outstanding during each period. Diluted income per share
further assumes the issuance of common shares for all dilutive securities
including stock options.
3. INVENTORIES
Inventories consist of the following:
February 28, 1999 May 31, 1998
----------------- ------------
Raw material $ 9,559 $ 8,528
Work-in-process 7,697 5,538
------ ------
$17,256 $14,066
====== ======
4. STOCKHOLDERS' EQUITY
On September 23, 1998, the Board of Directors approved a plan to offer to
the holders of certain outstanding stock options, excluding all executive
officers and members of the Board of Directors, the opportunity to cancel
their existing options and receive new options for the same number of
shares but with an exercise price per share at the then current fair
market value and with new vesting requirements. As a result as of October
8, 1998, approximately 576,700 options with exercise prices ranging from
$7.00 to $31.00 per share were exchanged for new options with an exercise
price of $6.75 per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended February 28, 1999 compared to Nine Months Ended February
28, 1998
Total Revenues. Total revenues increased by 15.7% to $98.1 million in
the first nine months of fiscal 1999 from $84.8 million in the comparable period
of the prior fiscal year. System revenues increased by 16.0% to $73.1 million in
the first nine months of fiscal 1999 compared with $63.0 million in the same
period in the prior fiscal year. The increase in system revenues was due to a
7.7% increase in domestic sales and a 31.4% increase in international sales. The
increase in system revenues was primarily due to an increase in unit sales
volume. Maintenance revenues increased by 14.9% to $25.0 million in the first
nine months of fiscal 1999 compared with $21.8 million in the same period of the
prior fiscal year, primarily due to the addition of more units to the
maintenance base.
Gross Profit. The Company's gross profit increased by $7.6 million to $48.9
million in the first nine months of fiscal 1999 compared with $41.3 million in
the comparable period of the prior fiscal year. Gross profit as a percentage of
total revenues increased to 49.8% in the first nine months of fiscal 1999
compared with 48.7% in the comparable period of the prior year. Gross profit on
system revenues increased by $5.1 million to $37.4 million in the first nine
months of fiscal 1999 compared with $32.3 million in the comparable period of
the prior fiscal year. The gross margin on system revenues decreased to 51.1% in
the first nine months of fiscal 1999 compared with 51.2% in the same period of
the prior fiscal year. The Company attributes this decrease primarily to the
product mix during the current nine month period, with a smaller percentage of
higher margin standard hardware and software products and to an improved margin
on custom programming revenues.
Gross profit on maintenance revenues increased by $2.4 million, or
27.1% to $11.5 million in the first nine months of fiscal 1999 compared with
$9.1 million in the comparable period of the prior fiscal year. Gross margins on
maintenance revenues increased to 46.0% in the first nine months of fiscal 1999
compared with 41.6% in the comparable period of the prior fiscal year. The
increase in margin was attributed to the growth in the maintenance base and an
increase in installation revenues.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses were $29.6 million, or 30.1% of total revenues,
compared with $26.0 million, or 30.7% of total revenues, for the first nine
months of fiscal 1999 and 1998, respectively. The increased expense level can be
attributed primarily to the Company's continued expansion of its sales and
marketing efforts designed to increase its market penetration and market share
on a global basis.
<PAGE>
Research and Development Expenses. Research and Development ("R&D")
expenses, primarily for new products and features, increased 27.3% to $13.7
million, or 13.9% of total revenues, compared with $10.7 million, or 12.7% of
total revenues, for the first nine months of fiscal 1999. The increase in the
dollar amount of R&D expenses reflects the continued efforts of the Company to
broaden the scope of its product offerings in order to address growth
opportunities in the marketplace. R&D expenses are charged to operations as
incurred, and no software development costs have been capitalized. The Company
expects such expenditures to continue to increase, although such expenses as a
percentage of total revenues may vary from period to period.
Other Income (Expense). Other income was $0.8 million for both nine
month periods ended February 28, 1999 and February 28, 1998. Interest and other
income was $0.9 million in the nine months ended February 28, 1999 and $1.0
million for the nine months ended February 28, 1998. The Company had a foreign
exchange loss of $0.1 million in the nine months ended February 28, 1999
compared to a foreign exchange loss of $0.2 million for the nine months ended
February 28, 1998. 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 the utilization of research and development tax credits, state and local
income taxes, and exempt income of the Company's foreign sales corporation. The
Company's effective income tax rates were 37.5% for both nine month periods
ended February 28, 1999 and February 28, 1998.
Foreign Operations. The Company's European subsidiary had earnings from
operations of approximately $4.9 million during the nine months ended February
28, 1999 as compared to a loss of approximately $1.2 million during the nine
months ended February 28, 1998. These earnings were attributed to an increase in
gross profit primarily attributable to an increase of approximately 150% in
system revenues and an increase of approximately 16% in maintenance revenues
offset in part by increased SG&A expenses to support the expansion of the sales
and marketing effort. 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
$1.3 million and $0.4 million of intercompany gross profit earned by the
Company's North American operations on system revenues by the European
subsidiary to third parties during the nine months ended February 28, 1999 and
February 28, 1998, respectively.
<PAGE>
Three Months Ended February 28, 1999 compared to Three Months Ended
February 28, 1998
Total Revenues. Total revenues decreased by 4.8% to $32.0 million in
the third quarter of fiscal 1999 compared with $33.6 million in the comparable
period of the prior fiscal year. System revenues decreased by 10.0 % to $23.3
million in the third quarter of fiscal 1999 compared with $25.9 million in the
comparable period of the prior fiscal year. The decrease in system revenues was
due to a 28.8% decrease in domestic revenues partially offset by a 33.7%
increase in international revenues. The decrease in system revenues was
primarily due to a decrease in domestic unit sales volume. Maintenance revenues
increased by 12.3% to $8.8 million in the third quarter of fiscal 1999 compared
with $7.8 million in the comparable period of the prior fiscal year, primarily
due to the addition of more units to the maintenance base.
Gross Profit. The Company's gross profit decreased by $1.0 million to
$16.1 million in the third quarter of fiscal 1999 compared with $17.1 million in
the comparable period of the prior fiscal year. Gross profit as a percentage of
total revenues decreased to 50.4% in the third quarter of fiscal 1999 compared
with 50.9% in the comparable period of the prior year. Gross profit on system
revenues decreased by $1.7 million to $12.0 million in the third quarter of
fiscal 1999 compared with $13.7 million in the comparable period of the prior
fiscal year. The gross margin on system revenues decreased to 51.5% in the third
quarter of fiscal 1999 compared with 53.0% in the same period of the prior
fiscal year. The Company attributes this decrease primarily to the product mix
during the current three month period with a smaller percentage of higher margin
standard hardware and software products and to an improved margin on custom
programming revenues.
Gross profit on maintenance revenues increased by $0.7 million, or
21.3% to $4.2 million in the third quarter of fiscal 1999 compared with $3.4
million in the comparable period of the prior fiscal year. Gross margins on
maintenance revenues increased to 47.4% in the third quarter of fiscal 1999
compared with 43.9% in the comparable period of the prior fiscal year. This
increase in margin was attributed to the growth in the maintenance base and an
increase in installation revenues.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses were $9.7 million and $9.5 million for the
third quarter of fiscal 1999 and 1998, respectively, or 30.4% and 28.4% of total
revenues, respectively. The increased expense level can be attributed primarily
to the Company's continued expansion of its sales and marketing efforts designed
to increase its market penetration and market share on a global basis.
Research and Development Expenses. Research and Development ("R&D")
expenses, primarily for new products and features, increased 11.9% to $4.4
million, or 13.9% of total revenues for the third quarter of fiscal 1999,
compared with $4.0 million, or 11.8 % of total revenues, for the third quarter
of fiscal 1998. The increase in the dollar amount of R&D expenses reflects the
continued efforts of the Company to broaden the scope of its product offerings
in order to address growth opportunities in the marketplace. R&D expenses are
charged to operations as incurred, and no software development costs have been
capitalized. The Company expects such expenditures to continue to increase,
although such expenses as a percentage of total revenues may vary from period to
period.
<PAGE>
Other Income (Expense). Other income was $0.1 million and $0.2 million
for the three months ended February 28, 1999 and 1998, respectively. Interest
and other income was $0.2 million and $0.3 million in the three months ended
February 28, 1999 and February 28, 1998, respectively. The Company had a foreign
exchange loss of $0.1 million in the three months ended February 28, 1999
compared to a foreign exchange loss of $0.2 million for the three months ended
February 28, 1998. 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 the utilization of research and development tax credits, state and local
income taxes, and exempt income of the Company's foreign revenues corporation.
The Company's effective income tax rates were 37.5% for the three months ended
February 28, 1999 and February 28, 1998.
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 $6.6
million and $2.2 million for the nine months ended February 28, 1999 and 1998,
respectively. The Company's investing activities included purchases of capital
expenditures totaling $5.1 million and $6.1 million during the nine months ended
February 28, 1999 and February 28, 1998, respectively. Financing activities
during the first nine months of fiscal 1999 included the repurchase of 562,600
shares of the Company's common stock at a cost of approximately $4.2 million,
pursuant to authorization by its Board of Directors during fiscal 1999 to
repurchase up to 1,300,000 shares.
At February 28, 1999 the Company had working capital of $58.0 million,
including $23.6 million of cash and cash equivalents and short-term investments.
The Company expects its working capital needs to increase along with future
revenue growth.
The Company believes that its existing sources of working capital and
borrowing available under its revolving line of credit will be sufficient to
fund its operations and capital expenditures for at least 12 months. The Company
does not currently have any material commitments for capital expenditures.
The Company has a $15.0 million unsecured line of credit with a bank
which expires on November 30, 1999. As of February 28, 1999 the Company had no
borrowings under this line of credit. Any borrowings under this line of credit
will bear interest at the prime rate or LIBOR plus 125 basis points.
At February 28, 1999, current assets and current liabilities increased
by $2.8 million and $1.8 million, respectively, compared to May 31, 1998.
Current assets increased primarily as a result of an increase in accounts
receivable and inventory offset by a decrease in cash and cash equivalents as a
result of the repurchase of 562,600 shares the Company's Common Stock at a cost
of approximately $4.2 million. Current liabilities increased primarily due to
increased accrued expenses and other current liabilities.
<PAGE>
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)
for this period were approximately 110 days. The average days sales outstanding
were 107 days, 111 days, and 83 days at May 31, 1998, 1997 and 1996
respectively.
The Company's inventory increased to $17.3 million as of February 28,
1999 from $14.1 million as of May 31, 1998.
Year 2000 Compliance
The Year 2000 issue exists because many computer systems and
applications use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems may not be able to recognize the year 2000
or may do so incorrectly as the year 1900. This inability to recognize or
properly interpret the year 2000 may result in the incorrect processing of
financial and operational information.
The Company has initiated a program to upgrade its internal
information systems to address any year 2000 compliance issues. This program
includes a focus on internal policies, methods and tools, as well as
coordination with customers and suppliers. The Company expects its Year 2000
program to be completed on a timely basis. However, there is no assurance that
the Company will identify and resolve any and all Year 2000 compliance issues
with its information systems in a timely manner, that the expenses associated
with such efforts will not be significant, or that such issues will not have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company has made a thorough review and testing of its products and
believes that its current products are Year 2000 compliant. The Company's
assessment of its current products is partially dependent upon the accuracy of
representations concerning Year 2000 compliance made by its suppliers, such as
Sun and Microsoft, among others. Many of the Company's customers are, however,
using earlier versions of the Company's products, which may not be Year 2000
compliant. The Company has initiated programs to proactively notify such
customers of the risks associated with using these products and to actively
encourage such customers to migrate to the Company's current products.
In addition, the Company's products are generally integrated within a
customer's enterprise system, which may involve products and systems developed
by other vendors. A customer may mistakenly believe that Year 2000 compliance
problems with its enterprise system are attributable to products provided by the
Company. The Company may, in the future, be subject to claims based on Year 2000
compliance issues related to a customer's enterprise system or other products
provided by third parties, custom modifications to the Company's products made
by third parties, or issues arising from the integration of the Company's
products with other products. The Company has not been involved in any
proceeding involving its products or services in connection with Year 2000
compliance, however, there is no assurance that the Company will not, in the
future, be required to defend its products or services in such proceedings
against claims of Year 2000 compliance issues, and any resulting liability of
the Company for damages could have a material adverse effect on the Company's
business, operating results and financial condition.
<PAGE>
Recent Financial Accounting Standards Board Statements
Recent pronouncements of the Financial Accounting Standards Board
("FASB") which are not required to be adopted at this date include, Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"), Statement of Financial
Accounting Standards No. 132, "Employers Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132") and Statement of Financial Accounting
Standards No.133, "Accounting for Derivative Instruments and Hedging
Instruments". SFAS 131 and SFAS 132 are effective for fiscal years beginning
after December 15, 1997 and SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The adoption of these pronouncements is not expected to
have a material impact on the Company's consolidated financial statements.
The Company adopted Statement of Financial Accounting Standards No.
130 effective June 1, 1998 and the adoption had no effect on the Company's
financial statements as the Company had no components of comprehensive income.
In October of 1997, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued Statement of
Position 97-2 "Software Revenue Recognition" ("SOP 97-2"). This statement
provides guidance on applying generally accepted accounting principles in
recognizing revenues on software transactions. This Statement supercedes
Statement of Position 91-1 "Software Revenue Recognition". The Company adopted
SOP 97-2 effective June 1, 1998.
Based upon Periphonics' reading and interpretation of SOP 97-2, the
implementation of SOP 97-2 has not had a material adverse affect on revenues or
earnings. However, detailed implementation guidelines for this standard have not
yet been issued. Once issued, such detailed guidance could lead to unanticipated
changes in the Company's current revenue accounting practices and material
adverse changes in the Company's reported revenues and earnings. In the event
implementation guidance is contrary to the Company's revenue accounting
practices, the Company believes it may be possible to change its current
business practices to comply with this guidance and avoid any material adverse
effect on reported revenues and earnings. However, there can be no assurance
this will be the case.
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 (primarily
inventories, accounts receivable and intercompany debt) of the foreign
subsidiaries of the Company 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.
<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
February 28, 1999 and its Form 10-K for the fiscal year ended May 31, 1998.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
With particular regard to the possible variability of quarterly
results, fluctuations may occur as a result of factors including the length of
the revenues cycle, the timing of orders from and shipments to customers, delays
in developments and customer acceptance of custom software applications, new
product introductions or announcements by the company and /or competitors, and
the hiring and training of additional staff as well as general economic
conditions.
Historically, the size and timing of the Company's revenues
transactions have varied substantially from quarter, with a substantial
percentage of orders and deliveries occurring in the final weeks of a quarter,
and the Company expects such variations to continue in future periods. Because a
significant portion of the Company's overhead is fixed in the short-term, the
Company's results of operations may be materially adversely affected if revenues
fall below the Company's expectations. Generally, the Company's inventory of
computer and telephony hardware is determined by the Company's forecast of
revenues during the future periods. If management's forecast of product revenues
and product mix prove to be inaccurate, the Company may not have the necessary
inventory available to deliver systems in a timely manner which may have a
material adverse effect on the Company's results of operations during such
period.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 7, 1998 Lucent Technologies, Inc. ("Lucent") filed a patent infringement
action in the United States District Court in the District of Delaware alleging
that Periphonics infringed some nine patents of Lucent. The Company believes the
claims contained in the lawsuit are without merit and, in an answer filed on
September 24, 1998, denied the substantive elements of Lucent's lawsuit and set
forth affirmative defenses and made counterclaims against Lucent. The Company is
involved in certain other legal matters in the normal course of business. The
Company's management does not believe that resolution of these matters will have
a material adverse effect on the Company's consolidated financial statements.
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
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be singed 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
Date: April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000937598
<NAME> Periphonics Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 14,640
<SECURITIES> 8,988
<RECEIVABLES> 40,540
<ALLOWANCES> (1,466)
<INVENTORY> 17,256
<CURRENT-ASSETS> 83,444
<PP&E> 46,012
<DEPRECIATION> 26,344
<TOTAL-ASSETS> 103,604
<CURRENT-LIABILITIES> 25,429
<BONDS> 0
0
0
<COMMON> 139
<OTHER-SE> 78,036
<TOTAL-LIABILITY-AND-EQUITY> 103,604
<SALES> 32,029
<TOTAL-REVENUES> 32,029
<CGS> 15,888
<TOTAL-COSTS> 15,888
<OTHER-EXPENSES> 14,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,111
<INCOME-TAX> 792
<INCOME-CONTINUING> 1,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,319
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
