-----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, QKo/eJ/fX+5u5hk9ezJk6lc0CDnHdap+oqhaEw09+0nnDj6zYOhF+QL3SiOZ3bug xcn/qOxocfMSHgbeBtnJLw== 0000950144-99-013191.txt : 19991117 0000950144-99-013191.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950144-99-013191 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARBINGER CORP CENTRAL INDEX KEY: 0000947116 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 581817306 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26298 FILM NUMBER: 99753640 BUSINESS ADDRESS: STREET 1: 1277 LENOX PK BLVD CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4048414334 10-Q 1 HARBINGER CORPORATION 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [MARK ONE] [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 0-26298 HARBINGER CORPORATION (Exact name of registrant as specified in its charter) GEORGIA 58-1817306 (State or other Jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 1277 LENOX PARK BOULEVARD 30319 ATLANTA, GEORGIA (Zip Code) (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 467-3000 Indicate by check mark 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) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of shares of the issuer's class of capital stock outstanding as of November 11, 1999, the latest practicable date, is as follows: 38,713,565 shares of Common Stock, $.0001 par value. =============================================================================== 2 HARBINGER CORPORATION FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) September 30, 1999 and December 31, 1998..................................................... Consolidated Statements of Operations (Unaudited) - Three Months and Nine Months Ended September 30, 1999 and 1998................... Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three Months and Nine Months Ended September 30, 1999 and 1998............. Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 1999 and 1998.............................. Notes to Consolidated Financial Statements (Unaudited)..................... Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................ Item 6. Exhibits......................................................................... SIGNATURES................................................................................
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HARBINGER CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31, 1999 1998 -------------- -------------- ASSETS Current assets: Cash and cash equivalents......................................... $ 9,706 $ 33,059 Short-term investments............................................ 57,491 59,248 Accounts receivable, less allowances for returns and doubtful accounts of $4,725 at September 30, 1999 and $5,464 at December 31, 1998................................. 47,087 35,891 Royalties receivable, less allowance for doubtful accounts of $0 at September 30, 1999 and $3,614 at December 31, 1998..... 322 1,730 Deferred income taxes............................................. 2,103 2,103 Other current assets.............................................. 4,373 5,622 -------------- -------------- Total current assets.......................................... 121,082 137,653 -------------- -------------- Property and equipment, less accumulated depreciation and amortization................................................ 26,668 23,150 Intangible assets, less accumulated amortization.................. 16,357 16,803 Deferred income taxes............................................. 698 698 Other assets...................................................... 2,256 65 -------------- -------------- $ 167,061 $ 178,369 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................................. $ 5,971 $ 5,566 Accrued expenses.................................................. 21,523 31,571 Deferred revenues................................................. 19,795 21,213 -------------- -------------- Total current liabilities..................................... 47,289 58,350 -------------- -------------- Commitments and contingencies Redeemable preferred stock: Zero coupon redeemable preferred stock, no par value; 0 and 2,000,000 shares authorized, issued and outstanding at -- -- September 30, 1999 and December 31, 1998........................ Shareholders' equity: Preferred stock, no par value; 20,000,000 and 18,000,000 shares authorized at September 30, 1999 and December 31, 1998; -- -- none issued or outstanding ..................................... Common stock, $0.0001 par value; 100,000,000 shares authorized, 42,942,226 shares and 42,313,031 shares issued as of September 30, 1999 and December 31, 1998.................. 4 4 Additional paid-in capital........................................ 204,363 201,615 Accumulated deficit............................................... (58,182) (73,528) Accumulated other comprehensive loss.............................. (1,369) (622) Treasury stock, 4,323,050 shares and 1,562,100 shares as of September 30, 1999 and December 31, 1998........................ (25,044) (7,450) -------------- -------------- Total shareholders' equity............................. 119,772 120,019 -------------- -------------- $ 167,061 $ 178,369 ============== ==============
See accompanying notes to consolidated financial statements. 4 HARBINGER CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ------------------------ 1999 1998 1999 1998 ----------- ---------- --------- --------- Revenues: Services ...................................................... $ 29,599 $ 22,137 $ 81,406 $ 63,878 Software ...................................................... 11,313 13,283 31,736 34,772 --------- --------- --------- --------- Total revenues .............................................. 40,912 35,420 113,142 98,650 --------- --------- --------- --------- Direct costs: Services ...................................................... 12,038 9,123 34,285 24,236 Software ...................................................... 1,139 1,169 3,626 2,839 --------- --------- --------- --------- Total direct costs .......................................... 13,177 10,292 37,911 27,075 --------- --------- --------- --------- Gross margin ............................................. 27,735 25,128 75,231 71,575 --------- --------- --------- --------- Operating costs: Selling and marketing ......................................... 9,900 9,157 27,393 23,321 General and administrative .................................... 6,190 13,914 19,458 25,467 Depreciation and amortization ................................. 2,445 2,036 6,860 5,831 Product development ........................................... 2,974 2,798 8,967 7,641 Charge for purchased in-process product development, write-off of software development costs, restructuring, acquisition related and other charges ....................... -- 13,978 -- 27,027 --------- --------- --------- --------- Total operating costs .................................... 21,509 41,883 62,678 89,287 --------- --------- --------- --------- Operating income (loss) .............................. 6,226 (16,755) 12,553 (17,712) Interest income, net .............................................. 717 1,202 2,376 3,780 --------- --------- --------- --------- 6,943 (15,553) 14,929 (13,932) Income (loss) from continuing operations before income taxes ...... Income tax expense ................................................ 571 560 939 705 --------- --------- --------- --------- Income (loss) from continuing operations .......................... 6,372 (16,113) 13,990 (14,637) Income (loss) from discontinued operations ........................ 1,356 (7,331) 1,356 (8,185) --------- --------- --------- --------- Net income (loss) ........................................... $ 7,728 $ (23,444) $ 15,346 $ (22,822) ========= ========= ========= ========= Basic earnings per common share: Income (loss) from continuing operations ...................... $ 0.17 $ (0.39) $ 0.36 $ (0.36) Income (loss) from discontinued operations .................... 0.03 (0.17) 0.03 (0.19) --------- --------- --------- --------- Net income (loss) per common share .......................... $ 0.20 $ (0.56) $ 0.39 $ 0.55) ========= ========= ========= ========= Weighted average number of common shares outstanding .............. 38,607 42,163 38,986 41,691 ========= ========= ========= ========= Earnings per common share assuming dilution: Income (loss) from continuing operations ...................... $ 0.16 $ (0.39) $ 0.35 $ (0.36) Income (loss) from discontinued operations .................... 0.03 (0.17) 0.03 (0.19) --------- --------- --------- --------- Net income (loss) per common share .......................... $ 0.19 $ (0.56) $ 0.38 $ (0.55) ========= ========= ========= ========= Weighted average number of common shares outstanding assuming dilution ...................................................... 40,812 42,163 40,421 41,691 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 5 HARBINGER CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (IN THOUSANDS)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------ 1999 1998 1999 1998 --------- --------- --------- --------- Net income (loss) ................................................. $ 7,728 $ (23,444) $ 15,346 $ (22,822) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ...................... (5) 1,040 (747) 549 --------- --------- --------- --------- Comprehensive income (loss) ................................... $ 7,723 $ (22,404) $ 14,599 $ (22,273) ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 6 HARBINGER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended September 30, ------------------------- 1999 1998 --------- --------- Cash flows provided by operating activities .................................. $ 3,501 $ 2,924 --------- --------- Cash flows from investing activities: Net (purchases) redemptions of short-term investments .................... 1,757 (34,134) Purchases of property and equipment ...................................... (9,360) (9,279) Additions to software development costs .................................. (4,389) (2,837) Proceeds from sale of discontinued operations .......................... 500 -- Acquisitions and investment in joint venture ........................... (300) (3,547) --------- --------- Net cash used in investing activities ................................ (11,792) (49,797) --------- --------- Cash flows from financing activities: Exercise of stock options and warrants and issuance of stock under employee stock purchase plan ........................................... 2,748 11,540 Principal payments under notes payable and long-term debt ................ -- (623) Purchases of common stock ................................................ (17,594) -- --------- --------- Net cash provided by (used in) financing activities .................... (14,846) 10,917 --------- --------- Net decrease in cash and cash equivalents .................................... (23,137) (35,956) Cash and cash equivalents at beginning of period ............................. 33,059 69,811 Effect of exchange rates on cash held in foreign currencies .................. (216) 80 Cash received from acquisitions .............................................. -- 52 --------- --------- Cash and cash equivalents at end of period ................................... $ 9,706 $ 33,987 ========= ========= Supplemental disclosures: Cash paid for interest ....................................................... $ -- $ 50 ========= ========= Cash paid for income taxes ................................................... $ 239 $ 530 ========= =========
See accompanying notes to consolidated financial statements. 7 HARBINGER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included herein is unaudited. However, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations, comprehensive income (loss) and cash flows for the interim periods. Operating results for the three months and nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in Harbinger Corporation's ("Harbinger" or the "Company") Form 10-K for the year ended December 31, 1998 and the Company's current reports on Form 8-K dated April 2, 1999 and September 30, 1999. RECLASSIFICATIONS Certain reclassifications have been made to the 1998 consolidated financial statements to conform with the 1999 presentation. 2. DISTRIBUTION AGREEMENT During the second quarter of 1999 the Company executed an agreement ("Agreement") with a former distributor. Under the agreement, the distributor paid the Company a total of approximately $2.0 million in defined installments through August 30, 1999 in settlement of certain royalty receivables, maintenance services provided to the distributor's customers by the Company from 1995 through 1999 and an additional license of source code provided to the distributor. The settlement proceeds were allocated pro-rata to the three components of the Agreement based on their relative fair values. The following credits were recorded to the Company's unaudited consolidated statement of operations in each of the second and third quarters of 1999 for the total $2.0 million received: $502,000 to general and administrative costs for collection of bad debts, $314,000 to direct costs of services for reimbursement of maintenance costs and $210,000 to software revenue for license of source code. In 1995 the Company issued to this distributor 4,000,000 shares of zero coupon redeemable preferred stock, of which 2,000,000 shares were outstanding at December 31, 1998. These shares have been cancelled in conjunction with the termination of the original distributor agreement. 3. INVESTMENT IN JOINT VENTURE During the third quarter of 1999, the Company became one-third owner of a limited liability company, GLINK, LLC ("GLINK"), a joint venture established to develop an electronic market place for the grocery industry. The Company made an initial $300,000 cash investment, which was recorded in "Other assets" on the unaudited consolidated balance sheets at September 30, 1999. During the third quarter of 1999, GLINK licensed certain Company software for $250,000 8 and contracted for $252,000 in professional services for which the Company received a 12-month note receivable. The Company will account for its ownership in GLINK using the equity method of accounting, which requires the Company to record its share of gains and losses of GLINK to the Company's consolidated statements of operations in the period they occur. Such earnings or losses were immaterial for the quarter ended September 30, 1999. 4. SHAREHOLDERS' EQUITY On March 22, 1999 the Board of Directors approved the purchase of an additional 10% of the Company's outstanding shares of common stock under its existing stock repurchase program. This is in addition to the 10% repurchase authorized on October 2, 1998 and completed on March 19, 1999. 5. CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE DEVELOPMENT COSTS, RESTRUCTURING, ACQUISITION RELATED AND OTHER CHARGES For the nine months ended September 30, 1999, the Company did not incur charges for purchased in-process product development, write-off of software development costs, restructuring, acquisition related and other charges ("Charges"). A summary of the Charges incurred in 1998 is as follows (in thousands):
Three Months Ended Nine Months Ended September 30, 1998 September 30, 1998 ------------------ ------------------ Integration costs $ 2,894 $ 13,919 Lease termination and other 4,490 4,490 Transaction charges -- 638 Asset write downs 4,193 4,459 Severance costs -- 1,120 Other restructuring charges 2,401 2,401 -------- -------- $ 13,978 $ 27,027 ======== ========
Approximately $372,000 and $4.1 million of the Charges incurred in the three months and nine months ended September 30, 1998, respectively, resulted from the redirection of internal resources and their associated costs ("Integration Activity Costs") to manage integration activities. In 1999 the management of these activities has been completed and these internal resources and their associated costs are therefore recorded to their original operating cost categories. At September 30, 1999 the accrued liabilities related to the Charges were approximately $4.0 million, compared to approximately $7.5 million at December 31, 1998. These liabilities consist primarily of reserves for lease terminations, severance costs and continued service obligations and professional fees associated with phased-out products. Certain Charges involve management estimates, including lease termination costs and liabilities and obligations associated with phasing out products. Actual results could vary from these estimates. 6. INCOME TAXES The Company reduced its valuation allowance in the quarter-ended March 31, 1999 by $844,000. This relates to the reduction in the gross deferred income tax assets that are realized through reversals of existing deductible temporary differences. The Company continually reviews the adequacy of the valuation allowance and recognizes these benefits as reassessment indicates it is more likely than not that the benefits will be realized. 9 7. DISCONTINUED OPERATIONS The Company discontinued its TrustLink Procurement business ("TLP") on September 30, 1998 and established a $6.4 million reserve for the estimated loss on disposal of TLP, including anticipated losses during the phase-out period. In the second quarter of 1999 the Company sold the intangible assets and certain property and equipment of TLP for $1.3 million, comprised of cash of $500,000 and a note receivable of $800,000. The resulting loss on disposal of TLP was $2.0 million. The operating loss incurred for TLP from the measurement date to September 30, 1999 was $1.2 million. Repayment on the note will occur at the earlier of the buyer achieving certain sales targets or December 31, 2000. At September 30, 1999 the remaining balance in the loss reserve was $3.2 million, available for certain remaining contingencies associated with the disposal of TLP. Such contingencies primarily relate to lease termination costs, customer transition issues and collection risks associated with notes and accounts receivable. The assets and liabilities of TLP are included in the Company's consolidated balance sheets as follows (in thousands):
September 30, December 31, 1999 1998 ------------- ------------ Accounts receivable $ 226 $ 454 Other current assets 62 106 Property and equipment, net -- 766 Intangible assets, net -- 2,454 Deferred revenues -- (45) Current liabilities (106) (281) --------- --------- Net assets $ 182 $ 3,454 ========= =========
The Company discontinued its TrustedLink Banker division ("Banker") on December 31, 1997 and established a $4.0 million reserve for the estimated loss on disposal of Banker, including anticipated losses during the phase-out period. The disposal and operations of Banker were substantially completed by December 31, 1998. During the third quarter of 1999, the Company reversed the remaining reserve to "Income (loss) from discontinued operations," as remaining contingencies associated with the disposal of Banker were resolved. 8. RELATED PARTY TRANSACTIONS The Company received notes receivable during the first quarter of 1999 of $605,000 from five employees who are the former shareholders of EDI Works! LLC., a company acquired in 1998. The terms of the full-recourse notes are 18 months with an annual interest rate of 8.75%. Interest accrues on a monthly basis with principal and interest due at the end of the term of the notes. 9. SEGMENT INFORMATION The Company operates in a single industry segment: the establishment and management of electronic commerce relationships between businesses. The Company manages its business along geographical lines, thus resulting in three reportable segments: North America, Europe, and Asia Pacific and Latin America. The accounting policies of each segment are the same as those described in the summary of significant accounting policies. Revenues are attributed to a reportable segment based on the location of the customer. Management evaluates the performance of each segment on the basis of operating income, excluding integration and restructuring charges and certain general and administrative credits. Intersegment royalties are calculated based upon revenues, as defined, derived from the sales of certain software products and services at agreed upon percentages between the segments. A summary of the Company's reportable segments for the nine months ended September 30, 1999 and September 30, 1998 is presented below (in thousands): 10
Asia Pacific North America Europe and Latin America Total ------------- ------ ----------------- ---------- Revenues: 1999 $ 98,056 $ 15,990 $ 2,181 $ 116,227 1998 $ 84,108 $ 15,226 $ 2,119 $ 101,453 Intersegment Royalties: 1999 $ 3,085 $ -- $ -- $ 3,085 1998 $ 2,803 $ -- $ -- $ 2,803 Operating Income (as defined): 1999 $ 8,864 $ 1,738 $ 196 $ 10,798 1998 $ 14,523 $ 670 $ 582 $ 15,775
1999 1998 ----------- ----------- Revenues: Total gross revenues for reportable segments $ 116,227 $ 101,453 Elimination of intersegment royalties (3,085) (2,803) ----------- ----------- Total consolidated revenues $ 113,142 $ 98,650 =========== =========== 1999 1998 ----------- ----------- Operating Income (loss) (as defined): Total operating income for reportable segments $ 10,798 $ 15,775 Charges for integration and restructuring -- (27,027) Certain general and administrative credits (charges) 1,755 (6,460) ----------- ----------- Total consolidated operating income (loss) $ 12,553 $ (17,712) =========== ===========
A summary of the Company's reportable segments for the quarters ended September 30, 1999 and September 30, 1998 is presented below (in thousands):
Asia Pacific North America Europe and Latin America Total ------------- -------- ----------------- -------- Revenues: 1999 $ 36,030 $ 5,159 $ 645 $ 41,834 1998 $ 30,361 $ 4,961 $ 969 $ 36,291 Intersegment Royalties: 1999 $ 922 $ -- $ -- $ 922 1998 $ 871 $ -- $ -- $ 871 Operating Income (as defined): 1999 $ 5,016 $ 666 $ 42 $ 5,724 1998 $ 3,015 $ 308 $ 360 $ 3,683
1999 1998 ----------- ----------- Revenues: Total gross revenues for reportable segments $ 41,834 $ 36,291 Elimination of intersegment royalties (922) (871) ----------- ----------- Total consolidated revenues $ 40,912 $ 35,420 =========== ===========
11
1999 1998 ----------- ----------- Operating Income (loss) (as defined): Total operating income for reportable segments $ 5,724 $ 3,683 Charges for integration and restructuring -- (13,978) Certain general and administrative credits (charges) 502 (6,460) ----------- ----------- Total consolidated operating income (loss) $ 6,226 $ (16,755) =========== ===========
10. CONTINGENCIES The Company is involved in certain legal actions and other claims arising out of the ordinary course of business, including discontinued operations and the phase-out of certain non-strategic software products. Additionally, a shareholder class action lawsuit was filed against the Company in September 1999 (see Part II, Item 1 of this Form 10-Q). While the ultimate results and outcomes of these actions and claims cannot be determined, management does not expect that they will have a material adverse effect on the Company's results of operations or financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein and the Company's Form 10-K for the year ended December 31, 1998 and the Company's current reports on Form 8-K dated April 2, 1999 and September 30, 1999. OVERVIEW Harbinger Corporation (the "Company") primarily generates revenues from various services and license fees on software sales. Revenues for services principally include subscription fees for transactions on HARBINGER.NET, the Company's electronic commerce portal; software maintenance, and professional service fees for implementation, outsourcing, and training. Subscription fees are a combination of monthly access charges and transaction-based usage charges and are recognized as incurred each month. Software maintenance is billed in advance with revenue deferred and recognized ratably over the one-year service period. Revenues for professional services are based on actual services rendered and are recognized as services are performed. License fees for software are generally recognized upon shipment, net of estimated returns or may be billed on monthly subscription terms generally over a 2-3 year period. Software revenues also include royalty revenues under distribution agreements with third parties which are recognized either on shipment of software to a distributor or upon sales to end users by a distributor, depending on the terms of the distribution agreement. RESULTS OF OPERATIONS REVENUES Total revenues increased 15% to $113.1 million in the nine months ended September 30, 1999 from $98.7 million in the same period in 1998. Revenues for services increased 27% to $81.4 million in the nine months ended September 30, 1999 from $63.9 million in the same period in 1998. This increase is attributable to growth in the Company's outsourcing and implementation services, as well as growth in subscription fees for HARBINGER.NET. Service revenues for the nine months ended September 30, 1999 include $400,000 for past services that were billed in the third quarter of 1999. Revenue from software sales decreased 9% to $31.7 million in the nine months ended September 30, 1999 from $34.8 million in the same period in 1998 due to the phase-out of certain non-strategic software products, ("Sunset Products") and the discontinued relationships with certain third party resellers of the Company's software products. 12 Total revenues increased 16% to $40.9 million in the three months ended September 30, 1999 from $35.4 million in the same period in 1998. Revenues for services increased 34% to $29.6 million in the three months ended September 30, 1999 from $22.1 million in the same period in 1998. Service revenues for the three months ended September 30, 1999 include $924,000 for past services that were billed in the third quarter of 1999. Excluding these billings, revenues from services would have increased 29.5% to $28.7 million in the three months ended September 30, 1999, primarily attributable to growth in the Company's outsourcing and implementation services as well as subscription fees for HARBINGER.NET. Revenues from software license fees decreased 15% to $11.3 million in the three months ended September 30, 1999 from $13.3 million in the same period in 1998 due to the phase-out of certain non-strategic software products ("Sunset Products") and the discontinued relationships with certain third party resellers of the Company's software products. DIRECT COSTS Direct costs for services increased to $34.3 million, or 42.1% of services revenues, in the nine months ended September 30, 1999, from $24.2 million, or 37.9% of services revenues, in the nine months ended September 30, 1998. Excluding past services that were billed in the third quarter of 1999, direct costs for services would have increased to 42.3% of services revenue for the nine months ended September 30, 1999. This increase in direct costs for services as a percentage of total services revenues primarily reflects the effects of a higher mix of professional services revenues in 1999 and the effect of reallocating costs to Integration Activity Costs in 1998. Direct costs for software increased to $3.6 million, or 11.4% of software revenues, in the nine months ended September 30, 1999, from $2.8 million, or 8.2% of software revenues, in the nine months ended September 30, 1998. The increase in direct software costs as a percentage of software revenues is primarily due to increased amortization of capitalized software costs combined with the decline in software revenues from Sunset Products. Direct costs for services increased to $12.0 million, or 40.7% of services revenue, in the three months ended September 30, 1999, from $9.1 million, or 41.2% of services revenue, in the three months ended September 30, 1998. Excluding past services that were billed in the third quarter of 1999, direct costs for services would have increased to 42.0% of services revenue for the three months ended September 30, 1999. This increase in direct costs for services as a percentage of services revenues reflects the effects of a higher mix of professional services revenues in 1999, principally through increased outsourcing and implementation activities, as well as the effect of reallocating costs to Integration Activity Costs during the three months ended September 30, 1998. Direct costs for software decreased to $1.1 million, or 10.1% of software revenues, in the three months ended September 30, 1999, from $1.2 million, or 8.8% of software revenues, in the three months ended September 30, 1998. The increase in direct software costs as a percentage of software revenues is primarily attributable to a decline in software revenues from Sunset Products. SELLING AND MARKETING Selling and marketing expenses increased 17% to $27.4 million, or 24.2% of revenues, in the nine months ended September 30, 1999 from $23.3 million, or 23.6% of revenues, in the nine months ended September 30, 1998. For the third quarter, selling and marketing expenses increased 8% to $9.9 million, or 24.2% of revenues, in the three months ended September 30, 1999, from $9.2 million, or 25.9% of revenues, in the three months ended September 30, 1998. For both the nine-month and three-month period comparisons, the increase in expenses is primarily due to positioning of the Company's E-Commerce portal HARBINGER.NEt. In addition, the increase for the nine-month period in 1999 is partially attributable to the effect of reallocating costs to Integration Activity Costs in 1998. The Company expects selling and marketing expenses to continue to increase, as it recently announced its intention to spend approximately $21 million in sales marketing and brand awareness over the next five quarters. GENERAL AND ADMINISTRATIVE General and administrative expenses decreased 24% to $19.5 million in the nine months ended September 30, 1999, from $25.5 million in the nine months ended September 30, 1998. As a percentage of revenues, these expenses decreased to 17.2% of revenues in the nine months ended September 30, 1999 from 25.8% of revenues in the nine months ended September 30, 1998. The 1999 period includes a credit of $1.7 million due to the receipt of an outstanding royalty 13 receivable from a specific customer that had been reserved for in 1998. The 1998 period includes a charge of $6.5 million due to a reserve recorded for an outstanding royalty and accounts receivables from a reseller and certain other customer accounts. If this receipt and charge had not occurred, general and administrative expense would have been $21.2 million or 18.8% of revenues in 1999 and $19.0 million or 19.3% of revenues in 1998. Excluding the aforementioned bad debt recovery and bad debt reserve, the increase in general and administrative expense is primarily attributable to the effect of reallocating costs to Integration Activity Costs in 1998, an increase in office space in 1999 to accommodate expansion and investments in information technology in 1999. For the third quarters, general and administrative expenses decreased 56% to $6.2 million in the three months ended September 30, 1999 from $13.9 million in the three months ended September 30, 1998. As a percentage of revenues, these expenses decreased to 15.1% of revenues in the three months ended September 30, 1999 from 39.3% of revenues in the three months ended September 30, 1998. The quarter ended September 30, 1999 includes a credit of $502,000 due to the receipt of an outstanding royalty receivable from a specific customer that had been reserved for in 1998. The quarter ended September 30, 1998 includes a charge of $6.5 million due to a reserve recorded for outstanding royalty and accounts receivables from a reseller and certain other customer accounts. If this receipt and charge had not occurred, general and administrative expenses would have been $6.7 million or 16.4% of revenues in 1999 and $7.4 million or 21.0% of revenues in 1998. This decrease as a percentage of revenues is attributed to savings realized from newly negotiated rebates with national suppliers and improved operational efficiencies derived from the Company's infrastructure investments in 1999. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased 18% to $6.9 million in the nine months ended September 30, 1999 from $5.8 million in the nine months ended September 30, 1998. As a percentage of revenues, these expenses increased to 6.1% of revenues in the nine months ended September 30, 1999 from 5.9% revenues in the nine months ended September 30, 1998. For the third quarters, depreciation and amortization increased 20% to $2.4 million in the three months ended September 30, 1999 from $2.0 million in the three months ended September 30, 1998. As a percentage of revenues, these expenses were 6.0% and 5.7% for the three months ended September 30, 1999 and September 30, 1998, respectively. The increase in depreciation and amortization for the nine-month and three-month periods of 1999 compared to 1998, respectively, is due to the purchase of computer hardware and software associated with the Company's investment in its information technology infrastructure. PRODUCT DEVELOPMENT Total expenditures for product development, including capitalized software development costs, increased to $11.7 million in the nine months ended September 30, 1999 from $10.5 million in the same period in 1998. The Company capitalized product development costs of $2.8 million and $2.8 million in the nine months ended September 30, 1999 and 1998, respectively, which represented 23.6% and 27.1% of total expenditures for product development in these respective periods. Product development expenses increased to $9.0 million or 7.9% of revenues in the nine months ended September 30, 1999, from $7.6 million or 7.7% of revenue in the nine months ended September 30, 1998, reflecting increased development of internet-based products, the addition of HARBINGER LABS, the Company's development group devoted to next generation products, and the effect of reallocating costs to Integration Activity Costs in 1998. Total expenditures for product development, including capitalized software development costs, increased to $4.0 million in the three months ended September 30, 1999 from $3.6 million in the same period in 1998. The Company capitalized software development costs of $1.0 million and $794,000 in the three months ended September 30, 1999 and 1998, respectively, which represented 24.7% and 22.1% of total expenditures for product development in these respective periods. Product development expenses were $3.0 million or 7.3% of revenues in the three months ended September 30, 1999, and $2.8 million or 7.9% of revenue in the three months ended September 30, 1998, reflecting increased development of internet-based products and the addition of HARBINGER LABS, the Company's development group devoted to next generation products. In addition, during the third quarter of 1999 the Company began marketing and licensed certain software originally developed for internal use and reclassified $1.6 million from property and equipment work-in-progress to capitalized software development costs. 14 CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT, WRITE-OFF OF SOFTWARE DEVELOPMENT COSTS, RESTRUCTURING, ACQUISITION RELATED AND OTHER CHARGES ("CHARGES") The Company incurred Charges of $27.0 million during the nine months ended September 30, 1998 and the year ended December 31, 1998 relating to the costs of integrating its acquisitions in 1998 and 1997 and its restructuring in 1998. Approximately $4.1 million of the Charges consisted of an allocation of resources to integration-related activities associated with these acquisitions ("Integration Activity Costs"). For the quarter ended September 30, 1998, the company incurred $14.0 million in Charges, of which $372,000 related to internal resources allocated to Integration Activity Costs. The integration activities were completed by the end of 1998 and the internal resources and their associated costs are recorded in their original operating cost categories in 1999. (See Note 5 to the accompanying unaudited consolidated financial statements.) INTEREST INCOME, NET Interest income, net, decreased 37% to $2.4 million for the nine months ended September 30, 1999 from $3.8 million for the nine months ended September 30, 1998. On a quarter-to-quarter comparison, interest income, net, decreased 40% to $717,000 in the third quarter of 1999 from $1.2 million in the third quarter of 1998. These decreases are primarily due to a reduction in cash and short-term investments for the Company to acquire its common stock and to invest in its information technology infrastructure. INCOME TAXES Income tax expense increased to $939,000 for the nine months ended September 30, 1999 from $705,000 for the nine months ended September 30, 1998 due to increased income from continuing operations. For the quarters ended September 30, 1999 and 1998 income tax expense increased to $571,000 from $560,000, respectively. The effective income tax rate of 6.2% for the nine months ended September 30, 1999 differs from the expected rate of 39% due to a reduction in the valuation allowance. DISCONTINUED OPERATIONS The Company discontinued its TrustedLink Procurement business ("TLP") on September 30, 1998 and continues to work to resolve certain unsettled contingencies at September 30, 1999. The Company discontinued its TrustedLink Banker division ("Banker") on December 31, 1997. The disposal and operations of Banker were substantially completed by December 31, 1998. During the third quarter of 1999, the Company reversed the remaining reserve that had been established for the estimated loss of disposal of Banker as remaining contingencies associated with the disposal were resolved. The reserve for loss on disposal and reclassified results of TLP for 1998 and the reversal of the reserve in 1999 for TLB are reported in the accompanying consolidated statements of operations under "Income (loss) from discontinued operations." (See Note 7 to the financial statements.) NET INCOME AND EARNINGS PER SHARE Net income increased to $15.3 million or $0.38 per diluted share for the nine months ended September 30, 1999 from a net loss of $22.8 million or $0.55 per diluted share for the nine months ended September 30, 1998. Net income, adjusted to exclude a specific $1.7 million general and administrative credit and a credit for discontinued operations in the nine months ended September 30, 1999 and for the Charges and discontinued operations in 1998, net of income taxes at 39%, would have been $8.0 million or $0.20 per diluted share for the nine months ended September 30, 1999, compared to $12.1 million or $0.28 per diluted share in the same period in 1998, representing a 34% decrease from 1998 to 1999. Net income increased to $7.7 million or $0.19 per diluted share for the quarter ended September 30, 1999 from a net loss of $23.4 million or $0.56 per diluted share for the quarter ended September 30, 1998. Net income, adjusted to exclude a specific $502,000 general and administrative credit and a credit for discontinued operations in the third quarter of 1999 and the Charges and discontinued operations in 1998, net of the effect of income taxes at 39%, would have been 15 $3.9 million or $0.10 per diluted share for the third quarter of 1999, compared to $3.0 million or $0.07 per diluted share in the same period in 1998, representing a 32% increase from 1998 to 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased $5.5 million to $73.8 million as of September 30, 1999 from $79.3 million as of December 31, 1998, primarily due to cash used to acquire common stock of the Company under its ongoing stock repurchase program and investments in its information technology infrastructure offset by an increase in accounts receivable. Management expects the Company will continue to fund its operations, investment needs and capital expenditures through cash flows generated from operations, cash on hand, and additional equity and debt capital. Several factors could have an impact on the Company's cash flows in the future, including the effects of the Company's recently announced strategic investment for marketing, sales and technology development projected to be approximately $28 million in additional spending through December 31, 2000. Additionally, the Company expects continued spending for its ongoing common stock repurchase program, liquidation of liabilities incurred due to Charges and discontinued operations and anticipated outlays for the Company's ongoing effort to enhance and consolidate its information technology infrastructure. Additionally, liquidity could be negatively impacted as a result of a shareholder class action lawsuit filed against the Company in the third quarter of 1999. Although the outcome of this action cannot be determined at this time, management, including internal counsel does not believe that the outcome will have a material adverse effect on the Company's financial position. The Company does not believe that inflation has had a material impact on its business, however, there can be no assurance that Harbinger's business will not be affected by inflation in the future. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products will not properly process date information in the time period leading up to, including and following the year 2000. These systems and products often store and process the year field of date information as two digit numbers, and misinterpret dates in the year 2000 and beyond as being dates in the year 1900 or subsequent years. This "Year 2000" issue impacts Harbinger both with respect to its customers as a developer and vendor of computer software products and services and internally for its information technology ("IT") and non-IT systems. The Company formed a Year 2000 Steering Committee in July 1998 to formally address the Company's Year 2000 issues, which formalized the Company's Year 2000 assessment program begun in March 1997. The Year 2000 Steering Committee has overseen the Company's Year 2000 Readiness Assessment Program, which includes establishing the Company's standard for Year 2000 Readiness, designing test parameters for its products, IT and non-IT systems, overseeing the Company's remediation program, including establishing priorities for remediation and allocating available resources, overseeing the communication of the status of the Company's efforts to its customers, and establishing contingency plans in the event the Company experiences Year 2000 disruptions. The Company describes its products and services as "Year 2000 Ready" when they have been successfully tested using the procedure proscribed in its Readiness Assessment Program. This procedure defines the criteria used to design tests that seek to determine the Year 2000 readiness of a product. Under the Company's criteria, a software product is Year 2000 Ready if it: 1. Correctly handles date information before, during, and after January 1, 2000, accepting date input, providing date output and performing calculation on dates or portions of dates. 2. Functions accurately and without interruption before, during and after January 1, 2000 without changes in operation associated with the advent of the new century assuming correct configuration. 16 3. Where appropriate, responds to two-digit date input in a way that resolves the ambiguity as to century in a disclosed, defined and pre-determined manner. 4. Stores and provides output of date information in ways that are unambiguous as to century. 5. Manages the leap year occurring in the year 2000, following the quad-centennial rule. As of September 30, 1999 substantially all of the Company's product readiness testing has been completed. Certain of the Company's customers, including resellers, are currently using legacy versions of the Company's products for which a Year 2000 Ready version will not be developed. The Company has implemented a migration plan to move many of these customers to functionally similar Year 2000 Ready products although some legacy products will not be replaced. The Company has implemented a website on the Internet that includes a general overview of the Company's Readiness Assessment Program, including a list of products and the applicable Year 2000 Ready version numbers of such products. For most of 1999 the Company has been engaged in a significant upgrade of substantially all of its core IT systems, including those related to sales, customer service, human resources, finance, accounting and other enterprise resource planning functions, as a result of its growth in recent years. The Company believes that the upgraded systems, which it expects to have substantially implemented by year-end 1999, are all Year 2000 Ready. The Company is continuing to review its remaining IT systems for Year 2000 Readiness, and expects to modify, replace or discontinue the use of non-compliant systems before the end of 1999. In addition, the Company is in the process of evaluating its Year 2000 readiness with respect to non-IT systems, including systems embedded in the Company's communications and office facilities. In many cases these facilities have been recently upgraded or are scheduled to be upgraded before year-end 1999 as a result of the Company's growth in recent years. Part of the Company's preparation included distributing surveys to its principal IT and non-IT systems and services vendors soliciting information on their Year 2000 Readiness. The Company also surveyed its vendors' websites for additional related information. The majority of the work performed for the Company's Year 2000 Readiness Assessment Program has been completed by the Company's staff. Additionally, the Company engaged outside advisors to evaluate the Readiness Assessment Program and to participate in certain elements of product testing. The total costs for completing the Year 2000 Readiness Assessment Program, including modifications to the Company's software products, is estimated to be between $1 million and $2 million, funded through the Company's internal operating cash flows. This cost does not include the cost for new software, or for modifications to existing software, for the Company's core IT and non-IT systems, as these projects were not accelerated due to the Year 2000 issue. Approximately $15,000 in cost remains to be incurred to complete the Company's Readiness Assessment Program. The Company believes that the purchasing patterns of customers and potential customers may be affected by Year 2000 issues in a variety of ways. Many companies are expending significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products such as those offered by the Company. Potential customers may also choose to defer purchasing Year 2000 compliant products until they believe it is absolutely necessary, thus resulting in potentially stalled market sales within the industry. Conversely, Year 2000 issues may cause other companies to accelerate purchases, thereby causing an increase in short-term demand and a consequent decrease in long-term demand for software products. In addition, Year 2000 issues could cause a significant number of companies, including current Company customers, to reevaluate their current software needs, and as a result switch to other systems or suppliers. Any of the foregoing could result in a material adverse effect on the Company's business, operating results and financial condition. The Company has made considerable progress in developing contingency plans and expects to complete its contingency plans prior to year-end 1999. In the case of certain of the Company's value-added network operations, it will be difficult for the Company to seamlessly implement alternative service arrangements due to the nature and complexity of the customer interface. While the Company believes that its Readiness Assessment Program is addressing the risks specific to the Company for the Year 2000 issue, including its operations in markets outside of the United States, we cannot be assured that events will not occur that could have a material adverse impact on our business, operating results and financial condition. Such events include the risk of our failure to successfully test our software and services that we have certified as Year 2000 Ready, lawsuits from customers and our customers' customers and the inability to process data internally on our IT systems. Further, the Company is aware of the risk that domestic and international third parties, 17 including vendors and customers of the Company, will not adequately address the Year 2000 problem and the resultant potential adverse impact on them and us. Regardless of whether the Company's products are Year 2000 compliant, there can be no assurance that customers will not assert Year 2000 related claims against the Company. FORWARD LOOKING STATEMENTS Other than historical information contained herein, certain statements included in this report may constitute "forward looking" statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 related to the Company that involve risks and uncertainties including, but not limited to, quarterly fluctuations in results, the management of growth, market acceptance of certain products, impact of Year 2000 compliance, the inability to predict the outcome of certain litigation matters and other risks. For further information about these and other factors that could affect the Company's future results, please see the Company's most recent Form 10-K filed with the Securities and Exchange Commission. Investors are cautioned that any forward looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward looking statements. The Company undertakes no obligation to update or revise forward looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In September 1999 the Company and certain of its current and former officers and directors were named as defendants in a shareholder class action lawsuit filed in the Federal District Court for the Northern District of Georgia. In general, this lawsuit alleges various violations of the federal securities laws in connection with certain statements made by the Company regarding its operations and prospects during the period from February 4, 1998 to October 1, 1998. The plaintiff is seeking unspecified money damages together with interest, attorneys' fees and costs. The Company believes the action is without merit and intends to defend it vigorously.
ITEM 6. EXHIBITS (a) Exhibits Exhibit 11.1 Computation of Earnings Per Share Exhibit 27.1 Financial Data Schedule (for SEC use only) Exhibit 27.2 Restated Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K Form 8-K dated September 30, 1999 reporting under Item 5 and Item 7 (c) the text of a press release dated September 17, 1999 concerning a shareholder class action lawsuit filed against the Company and certain of its current and former officers and directors.
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. 18 HARBINGER CORPORATION Date: November 12, 1999 /s/ C. Tycho Howle -------------------------------- ----------------------------------- C. Tycho Howle Chief Executive Officer (Principal Executive Officer) Date: November 12, 1999 /s/ James K. McCormick -------------------------------- ----------------------------------- James K. McCormick Chief Financial Officer (Principal Financial Officer) EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 HARBINGER CORPORATION COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ------------------------ 1999 1998 1999 1998 ----------- ----------- ---------- ----------- Basic: Net income (loss) available to common shareholders ................................. $ 7,728 $ (23,444) $ 15,346 $ (22,822) =========== =========== ========== =========== Weighted average number of common shares outstanding ........................... 38,607 42,163 38,986 41,691 =========== =========== ========== =========== Basic earnings (loss) per share ................ $ 0.20 $ (0.56) $ 0.39 $ (0.55) =========== =========== ========== =========== Diluted : Net income (loss) available to common shareholders ................................. $ 7,728 $ (23,444) $ 15,346 $ (22,822) =========== =========== ========== =========== Weighted average number of common shares outstanding ........................... 38,607 42,163 38,986 41,691 Effect of potentially dilutive stock options and warrants 2,205 -- 1,435 -- ----------- ----------- ---------- ----------- Weighted average number of common shares outstanding assuming dilution ......... 40,812 42,163 40,421 41,691 =========== =========== ========== =========== Diluted earnings (loss) per share ............. $ 0.19 $ (0.56) $ 0.38 $ (0.55) =========== =========== ========== ===========
Computational Note: In connection with the computation of diluted earnings per share for the quarter and nine months ended September 30, 1998, all common share equivalents have been excluded because their impact on the Company's net loss per share is antidilutive. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 9,706 57,491 51,812 4,725 0 121,082 54,321 27,653 167,061 47,289 0 0 0 4 119,768 167,061 31,736 113,142 3,626 37,911 62,678 0 0 14,929 939 13,990 1,356 0 0 15,346 .39 .38
EX-27.2 4 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED CONSOLIDATED FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 33,987 66,579 38,815 9,724 0 143,726 41,769 20,150 183,308 64,023 0 0 0 4 119,281 183,308 34,772 98,650 2,839 27,075 89,287 0 64 (13,932) 705 (14,637) (8,185) 0 0 (22,822) (0.55) (0.55)
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