-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KYMO20RU3RK1h9l7JQNJQIphilv3YZyPpomaK+dAIbrVCyxK52K+3RwArANONEyv X+uauu9enTS1/2+I7r4Nkw== 0001009448-99-000107.txt : 19991018 0001009448-99-000107.hdr.sgml : 19991018 ACCESSION NUMBER: 0001009448-99-000107 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERIPHONICS CORP CENTRAL INDEX KEY: 0000937598 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 112699509 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25592 FILM NUMBER: 99729063 BUSINESS ADDRESS: STREET 1: 4000 VETERANS MEMORIAL HIGHWAY CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 5164670500 MAIL ADDRESS: STREET 1: 4000 VETERANS MEMORIAL HIGHWAY STREET 2: PERIPHONICS CORP CITY: BOHEMIA STATE: NY ZIP: 11716 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 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 a 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 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: October 14, 1999 Class of Number Common Equity of Shares ------------- --------- Common Stock, 13,334,390 Par value $.01 PERIPHONICS CORPORATION AND SUBSIDIARIES INDEX
Part I. Financial Information Page No. - ----------------------------- -------- Item 1. Financial Statements Consolidated Balance Sheets - August 31, 1999 3 and May 31, 1999 Consolidated Statements of Earnings - Three Months 4 Ended August 31, 1999 and August 31, 1998 Consolidated Statements of Cash Flows -Three Months 5 Ended August 31, 1999 and August 31, 1998 Notes to Unaudited Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial 8-12 Condition and Results of Operations Part II. Other Information 13 Signatures 14
PERIPHONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
August 31, 1999 May 31, 1999 (Unaudited) (Audited) ----------- --------- ASSETS Current Assets: Cash and cash equivalents ...................................................................... $ 19,409 $ 26,564 Short-term investments ......................................................................... 11,841 1,000 Accounts receivables, less allowance for doubtful accounts of $1,783 and $1,783, respectively ................................................ 45,374 45,187 Inventories .................................................................................... 17,037 16,078 Deferred income taxes .......................................................................... 2,120 1,852 Prepaid expenses and other current assets ...................................................... 1,947 1,833 --------- --------- Total current assets ........................................................................ 97,728 92,514 Property, plant and equipment, net ............................................................. 20,218 20,072 Other assets ................................................................................... 478 461 --------- --------- TOTAL ASSETS ................................................................................... $ 118,424 $ 113,047 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payables .............................................................................. $ 8,850 $ 8,250 Accrued expenses and other current liabilities ................................................. 23,718 23,483 --------- --------- Total current liabilities .................................................................. 32,568 31,733 Deferred income taxes .......................................................................... 7 104 --------- --------- TOTAL LIABILITIES .............................................................................. 32,575 31,837 --------- --------- Stockholders' Equity: Preferred stock, par value $.01 per share, ..................................................... -- -- 1,000,000 shares authorized, none issued Common stock, par value $.01 per share, ........................................................ 140 140 30,000,000 shares authorized, 14,108,390 issued and 13,251,590 shares outstanding as of August 31, 1999; 13,999,190 shares issued and 13,142,390 shares outstanding as of May 31, 1999 Additional paid-in capital ..................................................................... 45,423 44,718 Retained earnings .............................................................................. 46,784 42,850 --------- --------- 92,347 87,708 Treasury stock at cost, 856,800 shares ......................................................... (6,498) (6,498) --------- --------- Total stockholders' equity ................................................................. 85,849 81,210 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................................. $ 118,424 $ 113,047 ========= =========
PERIPHONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) (Unaudited)
Three Months Ended August 31, 1999 1998 ---- ---- System revenues............................................................... $32,904 $22,166 Maintenance revenues.......................................................... 10,244 8,239 ------ ------- Total revenues............................................................. 43,148 30,405 ------ ------ Cost of system revenues....................................................... 15,230 10,380 Cost of maintenance revenues.................................................. 5,228 4,360 ------ ------ Cost of revenues........................................................... 20,458 14,740 ------ ------ Gross profit.................................................................. 22,690 15,665 ------ ------ Operating expenses: Selling, general and administrative....................................... 11,313 9,777 Research and development.................................................. 5,053 4,610 Expenses associated with pending merger .................................. 805 -- ------ ------ 17,171 14,387 ------ ------ Earnings from operations...................................................... 5,519 1,278 ------ ------ Other income: Interest and other income................................................. 308 333 Foreign exchange gain .................................................... 133 234 ------ ------ 441 567 ------ ------ Earnings before provision for income taxes.................................... 5,960 1,845 Provision for income taxes.................................................... 2,026 729 ------ ------ Net earnings.................................................................. $ 3,934 $ 1,116 ====== ====== Per share data: Basic earnings................................................................ $ 0.30 $ 0.08 ====== ====== Diluted earnings.............................................................. $ 0.28 $ 0.08 ====== ====== Weighted average shares: Basic......................................................................... 13,205 13,852 ====== ====== Diluted....................................................................... 14,187 13,937 ====== ======
PERIPHONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended August 31, 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings ............................................................. $ 3,934 $ 1,116 Adjustments to reconcile net earnings to net cash and cash equivalents used in operating activities: Depreciation and amortization ......................................... 1,694 1,628 Deferred income taxes ................................................. (365) (202) Changes in operating assets and liabilities: Increase in accounts receivables ...................................... (187) (331) Increase in inventories ............................................... (959) (1,970) (Increase) decrease in prepaid expenses and other current assets ...... (114) 95 Increase in other assets .............................................. (35) (34) Increase (decrease) in accounts payable and accrued expenses and other current liabilities ........................................ 835 (277) -------- -------- Net cash and cash equivalents provided by operating activities ........ 4,803 25 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ......................... (1,822) (1,952) Proceeds from sales of short-term investments....................... 1,000 7,615 Purchases of short-term investments................................. (11,841) (7,796) -------- -------- Net cash and cash equivalents used in financing activities ......... (12,663) (2,133) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock ......................................... -- (2,263) Proceeds from stock options exercised including related tax benefits 705 -- -------- -------- Net cash and cash equivalents provided by (used in) financing activities ........................................................ 705 (2,263) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS ................................ (7,155) (4,371) CASH AND CASH EQUIVALENTS beginning of year .............................. 26,564 14,810 -------- -------- CASH AND CASH EQUIVALENTS, end of period ................................. $ 19,409 $ 10,439 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income Taxes ............................................................. $ 1,010 $ 2,183
PERIPHONICS CORPORATION AND SUBSIDIATIES 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 August 31, 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, 1999 Annual Report and Form 10-K as filed with the Securities and Exchange Commission. The results of operations for the three months ended August 31, 1999 and August 31, 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: August 31, 1999 May 31, 1999 --------------- ------------ Raw material $ 7,527 $ 8,730 Work-in-proces 9,510 7,348 ------ ------ $17,037 $16,078 ====== ====== 4. INDUSTRY SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREA In 1997, the Financial Accounting Standards Board issued SFAS NO. 131 "Disclosures about Segments of an Enterprise and Related Information," which established standards for the way in which public business enterprises report information about operating segments in annual financial statements. The Company operates in two reportable segments: sales and maintenance of interactive voice response systems. Summarized financial information concerning the Company's reportable segments is shown in the following table. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The "Corporate" Column includes corporate related items not allocated to reportable segments and the elimination of intercompany transactions. Identifiable assets are those tangible and intangible assets used in operations in each reportable segment.
Quarter Ended August 31, 1999 System Maintenance Corporate Total ------ ----------- --------- ----- Total Revenues $32,904 $10,244 $ - $43,148 ======= ======= ======== ======= Interest Income $ $ - $ 308 $ 308 ======= ======= ======== ======= Depreciation and amortization expense $ 668 $ 469 $ 557 $ 1,694 ======= ======= ======== ======= Earnings before provision for income taxes $ 5850 $ 3,777 $ (3,667) $ 5,960 ======= ======= ======== ======= Income Tax Expense $ 1,989 $ 1,284 $ (1,247) $ 2,026 ======= ======= ======== ======= Capital Expenditures $ 666 $ 649 $ 507 $ 1,822 ======= ======= ======== ======= Identifiable assets $59,690 $10,649 $ 48,085 $118,424 ======= ======= ======== ======== Quarter Ended August 31, 1998 Total Revenues $22,166 $ 8,239 $ - $30,405 ======= ======= ======== ======= Interest Income $ - $ - $ 333 $ 333 ======= ======= ======== ======= Depreciation and amortization expense $ 628 $ 452 $ 548 $ 1,628 ======= ======= ======== ======= Earnings before provision for income taxes $ 902 $ 2,712 $ (1,769) $ 1,845 ======= ======= ======== ======= Income Tax Expense $ 356 $ 1,071 $ (698) $ 729 ======= ======= ======== ======= Capital Expenditures $ 796 $ 624 $ 532 $ 1,952 ======= ======= ======== ======= Identifiable assets $51,699 $10,123 $ 37,265 $99,087 ======= ======= ======== =======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended August 31, 1999 compared to Three Months Ended August 31,1998 Total Revenues. Total revenues increased by 41.9% to $43.1 million in the first three months of fiscal 2000 from $30.4 million in the comparable period of the prior fiscal year. System revenues increased by 48.4% to $32.9 million in the first three months of fiscal 2000 compared with $22.2 million in the same period in the prior fiscal year. The increase in system revenues was due to a 16.4% increase in domestic sales and a 111.5% increase in international sales. The increase in system revenues was primarily due to an increase in unit sales volume. Maintenance revenues increased by 24.3% to $10.2 million in the first three months of fiscal 2000 compared with $8.2 million in the same period of the prior fiscal year, primarily due to additions to the service base. Gross Profit. The Company's gross profit increased by $7.0 million or 44.8% to $22.7 million in the first three months of fiscal 2000 compared with $15.7 million in the comparable period of the prior fiscal year. Gross profit as a percentage of total revenues increased to 52.6% in the first three months of fiscal 2000 compared with 51.5% in the comparable period of the prior year. Gross profit on system revenues increased by $5.9 million to $17.7 million in the first three months of fiscal 2000 compared with $11.8 million in the comparable period of the prior fiscal year. The gross margin on system revenues increased to 53.7% in the first three months of fiscal 2000 compared with 53.2% in the same period of the prior fiscal year. The Company attributes this increase primarily to the product mix during the current three month period, with a larger 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 $1.1 million, or 29.3% to $5.0 million in the first three months of fiscal 2000 compared with $3.9 million in the comparable period of the prior fiscal year. Gross margins on maintenance revenues increased to 49.0% in the first three months of fiscal 2000 compared with 47.1% in the comparable period of the prior fiscal year. The increase in margin was attributed to the addition of more units to the service base partially offset by higher costs to support organizational growth. Selling, General and Administrative Expenses. Selling, General and Administrative ("SG&A") expenses were $11.3 million (before expenses of approximately $0.8 million associated with the pending merger), or 26.2% of total revenues, compared with $9.8 million, or 32.2% of total revenues, for the first three months of fiscal 2000 and 1999, respectively. SG&A expenses including expenses associated with the pending merger with Nortel Networks were $12.1 million, or 28.1% of total revenues. The increased expense level can be attributed primarily to costs associated with supporting an increased level of sales volume. Research and Development Expenses. Research and Development ("R&D") expenses, primarily for new products and features, increased 9.6% to $5.1 million, or 11.7% of total revenues, compared with $4.6 million, or 15.2% of total revenues, for the first three months of fiscal 2000. 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 $0.4 million and $0.6 million for the three months ended August 31, 1999 and 1998, respectively. Interest and other income was $0.3 million for the three months ended August 31, 1999 and 1998, respectively. The Company had a foreign exchange gain of $0.1 million in the three months ended August 31, 1999 compared to a foreign exchange gain of $0.2 million for the three months ended August 31, 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 34.0% and 39.5% for the three months ended August 31, 1999 and August 31, 1998, respectively. Foreign Operations. The Company's European subsidiary operated at a profit of approximately $2.1 million during the three months ended August 31, 1999 as compared to a profit of $0.7 million during the three months ended August 31, 1998. This profit was attributed to an increase in gross profit primarily attributable to an increase of approximately 203% in system revenues and an increase of approximately 48% 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 $0.7 million and $0.2 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 three months ended August 31, 1999 and August 31, 1998 respectively. 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 $4.8 million and breakeven for the three months ended August 31, 1999 and 1998, respectively. The Company's investing activities included capital expenditures totaling $1.8 million and $2.0 million during the three months ended August 31, 1999 and August 31, 1998, respectively. The Company has not repurchased any shares of the Company's Common Stock since May 31, 1999. At August 31, 1999 the Company had working capital of $65.2 million, including $31.3 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 August 31, 1999 the Company had no borrowings under this line of credit. Any borrowing under this line of credit will bear interest at the prime rate or LIBOR plus 125 basis points. At August 31, 1999, current assets and current liabilities increased by $5.2 million and $0.8 million, respectively, compared to May 31, 1999. Current assets increased primarily as a result of an increase in cash and cash equivalents and short term investments. Current liabilities increased primarily due to higher accounts payable. 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 97 days. The average days sales outstanding were 94 days, 107 days, and 111 days at May 31, 1999, 1998 and 1997 respectively. The Company's inventory increased to $17.0 million as of August 31, 1999 from $16.1 million as of May 31, 1999. Year 2000 Compliance The Year 2000 (Y2K) issue exists because many computer systems and applications have used two-digit date fields to designate a year. As the century date change occurs, date sensitive systems (if they have not been appropriately modified) 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. This issue is discussed below in regard to both the Company's products, the Company's administrative/internal systems and the possible impact on the timing of sales of the Company's systems. The Company is in the final stages of a program to inspect, upgrade where necessary, and verify its internal information systems to address any Y2K compliance issues. This program includes a focus on internal policies, methods and tools, as well as coordination with customers and suppliers. The Company has completed substantially all upgrades to its mission critical information systems to achieve Y2K compliance. The Company is continuing and will continue to further test its internal information systems for Y2K compliance and expects to continue to conduct such tests through October 1999. Because most of the expenses associated with the Company's Y2K compliance upgrade program have been made and will be incurred in the ordinary course of business, the Company does not anticipate that such expenses will have a material impact on the Company's financial condition. As a result of the program to upgrade mission critical internal information systems to Y2K compliance, the Company believes that said systems are already or will be Y2K compliant prior to the year 2000. The Company cannot be completely certain that it has identified and will resolve all Y2K compliance issues with its internal information systems in a timely manner, in which case the expenses associated with such efforts could become 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 analysis and test 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 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 implemented programs to proactively notify such customers of the risks associated with using these products and to actively encourage such customers to upgrade to the Company's current products and perform application audits. The Company's products are generally integrated within a customer's enterprise system, which usually involves 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 connections 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. Through discussions with current and potential customers, the Company has determined that Y2K readiness issues for these companies may influence the timing of purchase decisions and deployment schedules. Concerns over Y2K readiness may cause some customers to accelerate the purchase of new, Y2K compliant systems or upgrades to existing systems to ensure that they have Y2K compliant systems in place prior to year 2000. Conversely, some customers may delay purchase decisions and/or deployment schedules due to the diversion of resources (people and/or budget) to Y2K upgrade projects unrelated to the Company's products. Similarly, some customers may delay purchase decisions and or deployment schedules due to the need to stabilize their internal operations and reduce the risk of introducing new systems immediately prior to the year 2000 conversion occurring during the typical peak business period of the calendar fourth quarter. If Y2K concerns result in a net reduction in customer orders and/or delays in deployments, the Company's revenues for the period of a few months before and after January 1, 2000 could be reduced thereby having a material adverse effect on the Company's financial results. Recent Financial Accounting Standards Board Statements In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). Each of these statements required additional disclosure in the Company's consolidated financial statements. SFAS 130 had no effect on the Company's financial statements as the Company had no components of comprehensive income. SFAS 131 did not have a material effect on the Company's consolidated financial position or results of operations. Effective June 1, 1998 and December 15, 1998, respectively, the Company adopted Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2") and Statement of Position 98-9 "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions" ("SOP 98-9"). The implementation of these pronouncements did not have a material effect on the Company's financial statements. 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. 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. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") and Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 is effective for fiscal years beginning after June 15, 2000. Based upon current data the adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements. 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. Certain Factors That May Affect Future Results From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-Q) may contain statements which are so-called "forward-looking statements" and not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual future results may differ significantly from those stated in any forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including, but not limited to, product demand, pricing market, acceptance, litigation, risks in product and technology development and other risk factors detailed from time to time in the Company's Securities and Exchange Commission reports including this Form 10-Q for the fiscal quarter ended August 31, 1999 and its Form 10-K for the fiscal year ended May 31, 1999. 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 to 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. 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 On August 24, 1999, the Company and Nortel Networks Corp. ("Nortel Networks") entered into a definitive merger agreement, pursuant to which Nortel Networks would acquire the common stock of the Company and the Company would become a wholly owned subsidiary of Nortel Networks. The consideration will consist of newly issued Nortel Networks common stock, having an aggregate market value of approximately $436 million. Under the terms of the agreement, each share of the Company will be converted into a fraction of a share of Nortel Networks. The exchange ratio is equal to $29.23 divided by the average price of a Nortel Networks share during a certain period before closing, in a range of 0.62 to 0.76. During this time, if the average Nortel Networks share price is above $47.15, the exchange ratio will be 0.62. If the average share price is below $38.46, the exchange ratio will be 0.76. The Company's Board of Directors has approved the merger and the merger agreement. The completion of the merger is subject to approval of the Periphonics' shareholders, and the receipt of all necessary regulatory approvals. Item 6. Exhibits and Reports on Form 8-K On August 27, 1999, the Company filed a Form 8-K disclosing that it had entered into a definitive merger agreement with Nortel Networks whereby Nortel Networks, subject to the approval of the Company's shareholders, would acquire the Company in a stock for stock transaction as described in Item 5 of this Form 10-Q. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PERIPHONICS CORPORATION Registrant By: /s/ Peter J. Cohen ------------------- Peter J. Cohen Chairman of the Board, President And Chief Executive Officer (Principal Operating Officer) By: /s/ Kevin J. O'Brien --------------------- Kevin J. O'Brien Chief Financial Officer, Vice President-Finance and Administration (Principal Accounting Officer), Secretary and Director Date: October 15, 1999 EX-27 2 FDS --I
5 0000937598 PERIPHONICS CORPORATION 1,000 3-MOS MAY-31-2000 JUN-1-1999 AUG-31-1999 19,409 11,841 47,157 (1,783) 17,037 97,728 48,429 (28,211) 118,424 32,568 0 0 0 140 85,709 118,424 43,148 43,148 20,458 20,458 17,171 0 0 5,960 2,026 3,934 0 0 0 3,934 0.30 0.28
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