1
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 Quarter Ended September 30, 1996
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 No. 0-13150
-------------
CONCURRENT COMPUTER CORPORATION
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
2101 West Cypress Creek Road, Ft. Lauderdale, FL 33309
Telephone: (954) 974-1700
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
--- ---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of November 11, 1996 were 44,757,172.
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------- ---------
Net sales
Computer systems $ 13,374 $ 11,533
Service and other 14,383 14,919
--------- ---------
Total 27,757 26,452
Cost of sales
Computer systems 7,109 6,471
Service and other 7,758 8,776
Transition 738 0
--------- ---------
Gross margin 12,152 11,205
--------- ---------
Operating expenses:
Research and development 3,356 3,715
Selling, general and administrative 7,231 7,952
Transition 1,234 0
Post-retirement benefit reversal (981) 0
--------- ---------
Total 10,840 11,667
Operating income (loss) 1,312 (462)
Interest expense (659) (694)
Interest income 52 111
Other non-recurring charges (4,068) (1,700)
Other income (expense) - net (259) (487)
--------- ---------
Income (loss) before provision for income taxes (3,622) (3,232)
Provision for income taxes 440 400
--------- ---------
Net income (loss) $ (4,062) $ (3,632)
========= =========
Net income (loss) per share $ (0.10) $ (0.12)
The accompanying notes are an integral part of the consolidated financial
statements.
1
3
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1996 1996
--------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 4,312 $ 3,562
Trading securities 5,029 10,077
Accounts receivable - net 26,293 27,948
Inventories 13,036 11,683
Prepaid expenses and
other current assets 1,580 2,384
------- -------
Total current assets 50,250 55,654
Property, plant and equipment - net 16,493 16,453
Facilities held for disposal 4,700 4,700
Other long-term assets 2,221 3,407
------- -------
Total assets $73,664 $80,214
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,406 $ 5,013
Current portion of long-term debt 1,658 1,241
Revolving credit facility 4,661 5,014
Accounts payable and accrued expenses 37,116 40,638
Deferred revenue 4,333 4,573
------- -------
Total current liabilities 53,174 56,479
Long-term debt 6,085 6,603
Other long-term liabilities 3,374 4,454
Class B 9% cumulative convertible, redeemable,
exchangeable preferred stock, mandatory redemption
value of $6,263,000, $.01 par value per share
1.000,000 authorized--Issued and outstanding
1,000,000 at September 30, 1996 5,736 5,610
Stockholders' equity:
Common stock 429 412
Capital in excess of par value 86,411 84,252
Accumulated deficit after
eliminating accumulated
deficit of $81,826 at December 31, 1991,
date of quasi-reorganization (80,802) (76,740)
Treasury stock (58) (58)
Cumulative translation adjustment (685) (798)
------- -------
Total stockholders' equity 5,295 7,068
------- -------
Total liabilities and stockholders' equity $73,664 $80,214
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
2
4
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------- ---------
Cash flows provided by operating activities:
Net loss $ (4,062) $ (3,632)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation, amortization and other 1,160 3,068
Provision for inventory reserves 323 636
Realized loss on sale of trading securities 376 0
Unrealized loss on trading securities 3,698 0
Non-cash interest and amortization
of financing costs 126 93
Non-cash compensation expense 571 519
Other non-recurring charge 0 1,700
Decrease (increase) in current assets:
Accounts receivable 1,655 266
Inventories (1,043) 233
Prepaid expenses and other current assets 804 246
Decrease in current liabilities,
other than debt obligations (3,242) (2,935)
Decrease (increase) in other long-term assets 1,186 (50)
Decrease in other long-term liabilities (1,080) (123)
-------- --------
Total adjustments to net loss 4,534 3,653
-------- --------
Net cash provided by operating activities 472 21
-------- --------
Cash flows provided by (used by) investment activities:
Additions to property, plant and equipment (833) (704)
Net proceeds from sale of trading securities 974 0
Net cash provided by (used by) investing activities 141 (704)
-------- --------
Cash flow provided by (used by) financing activities:
Net proceeds of notes payable 393 476
Net payments of revolving credit facility (353) (2,290)
Repayment of long-term debt (101) (368)
Net proceeds from sale and
issuance of common stock 85 102
-------- --------
Net cash provided by (used by) financing activities 24 (2,080)
Effect of exchange rates on cash
and cash equivalents 113 380
-------- --------
Increase (decrease) in cash and cash
equivalents $ 750 $ (2,383)
======== ========
Cash paid during the period for:
Interest $ 500 $ 400
======== ========
Income taxes (net of refunds) $ 207 $ 685
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
5
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The foregoing financial information
reflects all adjustments which are, in the opinion of management, necessary for
a fair presentation of the results for the periods presented. All such
adjustments are of a normal recurring nature.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes included in the Annual Report on Form 10-K
as filed with the Securities and Exchange Commission.
The results of interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. CHANGES IN ACCOUNTING POLICY
Postretirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (FAS No. 106). This standard
requires companies to accrue postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
The transition obligation (the accumulated postretirement benefit obligation at
the date of adoption) may be recognized either immediately or by amortization
over the longer of the average remaining service period of active employees or
20 years.
In connection with the adoption of this standard in fiscal year 1994, the
Company recorded a non-cash charge of $3.0 million representing the immediate
recognition of the accumulated postretirement benefit obligation at the date of
the adoption.
As a result of the Acquisition, (as defined in Management's Discussion
and Analysis of Financial Condition and Results of Operation), the Company has
decided to terminate the benefits offered under the medical and life insurance
plan for retirees. The Company will offer continued coverage through COBRA
programs. The effective date of termination is September 16, 1996; however, a
grace period was provided to the retirees and dependents through December 31,
1996. In the current quarter, a curtailment gain of approximately $1.0 million
was recorded relating to the active participants. In the second quarter, Man-
agement anticipates a curtailment gain for the remaining obligation of approx-
imately $1.5 million less any related expenses.
Stock-Based Compensation
On July 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (FAS No. 123). This standard establishes a fair value method
for accounting for stock-based compensation plans based upon the fair value of
stock options and similar instruments, but does not require the adoption of
this preferred method. The adoption of this standard will not impact results
of operations, financial position or cash flows.
4
6
INCOME (LOSS) PER SHARE
Income (loss) per share for the three months ended September 30, 1996 and
1995, respectively, is based on the weighted average number of shares of common
stock outstanding . The number of shares used in computing loss per share was
42,345,000 and 30,311,000 for the three months ended September 30, 1996 and
1995 respectively.
3. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components of
inventories are as follows:
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1996 1996
--------- --------
Raw Materials $ 8,425 $ 8,789
Work-in-process 2,373 352
Finished Goods 2,238 2,542
--------- --------
$ 13,036 $ 11,683
========= ========
4. ACCUMULATED DEPRECIATION
Accumulated depreciation for property, plant and equipment at September
30, 1996 and June 30, 1996 was $43,186,000 and $34,555,000, respectively.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1996 1996
--------- --------
Accounts Payable, Trade $ 11,898 $ 9,453
Accrued payroll, vacation and other
employee expenses 6,730 7,934
Restructuring costs 8,727 12,975
Other accrued expenses 9,761 10,276
--------- --------
$ 37,116 $ 40,638
========= ========
6. SALE/LEASEBACK
On September 27, 1996, the Company entered into a Purchase and Sale
Agreement providing for the sale/leaseback of its Oceanport, New Jersey
facility. The transaction is contingent upon the buyer's ability to lease
approximately 100,000 square feet of the 280,000 square foot building. The
transaction is expected to close during the December, 1996 or January, 1997
timeframe. The $5.0 million sales price will be reduced by estimated selling
costs of approximately $0.3 million. In accordance with the terms of the
agreement under the New Term Loan, (as defined in Management's Discussion
and Analysis of Financial Condition and Results of Operations) the Company is
required to prepay the New Term Loan in an amount equal to 75% of the net
proceeds of the sale of the facility. Accordingly, the net proceeds will be
applied to the remaining outstanding balance of the New Term Loan
(approximately $3.5 million). The remainder of the net proceeds will be
available for working capital purposes. However, there can be no assurance
that the transaction will be completed as contemplated.
5
7
7. PROVISION FOR RESTRUCTURING
The Company recorded a restructuring provision of $24.5 million during the
year ended June 30, 1996. This charge included the estimated costs related to
the rationalization of facilities, workforce reductions, asset writedowns and
other costs. During the quarter ended September 30, 1996, cash payments
related to the 1996 restructuring amounted to approximately $3.9 million.
Approximately $3.4 million related to employee termination costs.
On May 5, 1992, the Company entered into an agreement with the Industrial
Development Authority (IDA) in Ireland to maintain a presence in Ireland
through April 30, 1998. In connection with the Acquisition, the Company has
decided to close its Ireland operations. As a result, the Company may be
required to pay approximately $575,000 (360,000 Irish pounds) to the IDA which
is provided for in the restructuring provision. The Company is currently in
negotiations with the IDA.
During the year ended June 30, 1995 the Company recorded a provision for
restructuring of $3.2 million. The provision included costs for workforce
reduction, office closings or downsizings and other related costs. During the
quarter ended September 30, 1996, the actual cash payments related to the 1995
restructuring amounted to approximately $83 thousand and were primarily related
to office closing costs.
During the year ended June 30, 1994, the Company recorded a provision for
restructuring of $12.0 million in connection with its operational restructuring
to reduce its worldwide cost structure. The provision included costs for
workforce reduction, office closings or downsizings and other related costs.
During the quarter ended September 30, 1996, the actual cash payments related
to the 1994 restructuring amounted to approximately $23 thousand and were
primarily related to office closing costs.
6
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 27, 1996, the Company acquired the Real-Time Division of Harris
Computer Systems Corporation ("HCSC"), along with 683,178 shares of newly
issued shares of HCSC, which was renamed CyberGuard Corporation, in exchange
for 10,000,000 shares of Concurrent common stock, 1,000,000 shares of
convertible exchangeable preferred stock of Concurrent with a 9% cumulative
annual dividend payable quarterly in arrears and a mandatory redemption value
of $6,263,000 and the assumption of certain liabilities related to the HCSC
Real-Time Division ("Acquisition"). The aggregate purchase price of the
Acquisition was approximately $18.7 million. The Acquisition has been
accounted for as a purchase effective June 30, 1996.
RESULTS OF OPERATIONS
The quarter ended September 30, 1996 compared with the quarter ended September
30, 1995.
Net Sales. Net sales increased to $27.8 million for the quarter ended
September 30, 1996 from $26.5 million in the comparable period a year ago. The
Company considers its computer systems and service business to be one class of
products.
Net product sales were $13.4 million for the quarter ended September 30,
1996 as compared with $11.5 million for the quarter ended September 30, 1995.
Sales of proprietary systems continue to decrease, and the selling price of
open systems is significantly lower than that of proprietary products.
Maintenance sales decreased from $14.9 million in the first quarter of 1995 to
$14.4 million in the first quarter of 1996, continuing the decline experienced
over the past years as customers move from proprietary to open systems which
require less maintenance.
Gross Margin. Gross margin as a percentage of sales increased to 43.8% in
the current quarter from 42.4% for the quarter ended September 30, 1995. The
increase reflects the Company's higher product sales this quarter and its
continued cost improvement efforts. The current quarter was affected by $0.7
million or 2.7% of margin for transition costs associated with combining the
manufacturing operations of the Company.
Operating Income. Operating income increased $1.8 million to a profit of
$1.3 million compared with a loss of $0.5 million in the quarter ended
September 30, 1995. Expenses decreased $0.8 million in the current quarter
compared with the quarter ended September 30, 1995, which was the net of $1.2
million transition costs resulting from the Acquisition, $1.0 million lower
selling, general and administrative, and research and development costs, and
the recognition of a $1.0 million gain on discontinued postretirement benefits
for current employees as a result of the Acquisition.
Net Income. Net income decreased from a loss of $3.6 million in the
quarter ended September 30, 1995 to a loss of $4.1 million in the current
quarter. The majority of the loss in the quarter ended September 30, 1996 is
unrealized and is attributable to the revaluation of 591,678 shares of
CyberGuard common stock at $8.50 per share at September 30, 1996, which were
valued at $14.75 per share at June 30, 1996.
7
9
LIQUIDITY AND CAPITAL RESOURCES
The Acquisition and related business integration and consolidation is
expected to improve the Company's liquidity through improved operating
performance, additional borrowing availability, and the planned disposition of
its Oceanport, New Jersey facility. The Company may also utilize its
CyberGuard common stock holdings as an additional source of liquidity if
needed. The Company's liquidity is dependent on many factors, including sales
volume, operating profit ratio, debt service and the efficiency of asset use
and turnover. The future liquidity of the Company depends to a significant
extent on (i) the actual versus anticipated decline in sales of proprietary
systems and service maintenance revenue; (ii) revenue growth from open systems;
(iii) both the related costs and the length of time to realize the anticipated
benefits from the combination of the real-time businesses of the Company and
HCSC; and (iv) ongoing cost control actions. Liquidity will also be affected
by: (i) timing of shipments which predominately occur during the last month of
the quarter; (ii) the percentage of sales derived from outside the United
States where there are generally longer accounts receivable collection cycles
and which receivables are not included in the Company's borrowing base under
its revolving credit facility; (iii) the sales level in the United States where
related accounts receivable are included in the borrowing base of the Company's
revolving credit facility; (iv) the number of countries in which the Company
will operate, which may require maintenance of minimum cash levels in each
country and, in certain cases, may restrict the repatriation of cash, such as
cash held on deposit to secure office leases. The Company believes that it
will be able to fund the acquisition costs, as well as fiscal year 1997
operations, through its operating results, existing financing facilities and
the planned disposition of its Oceanport, New Jersey facility. There is no
assurance that the Company's plans will be achieved.
On June 28, 1996, the Company entered into a new agreement providing
for a $19.9 million credit facility which matures August 1, 1999. The
facility includes a $ 7.2 million term loan (the "New Term Loan") and a
$12.7 million revolving credit facility (the "New Revolver"). The New
Revolver represents a $4.7 million increase to the maximum revolver amount,
subject to certain restrictions. In addition, the Company can borrow up to
$3.0 million in standby letters of credit (the "LOC's") in connection with
overseas lines of credit. The LOC's mature July 31, 1997 at which time the
Company must extend the expiration date of the LOC's to August 1, 1999, or
obtain alternative financing or guaranties in lieu thereof.
At September 30, 1996, the outstanding balances under the New Term Loan
and the New Revolver were $7.2 million and $4.7 million, respectively. The
entire outstanding balance of the New Revolver has been classified as a
current liability at September 30, 1996. Both the New Term Loan and the New
Revolver bear interest at the prime rate plus 2.0%. The New Term Loan is
payable in 28 monthly installments of approximately $139,000 each,
commencing October 1, 1996 and ending January 1, 1999, with the final
balance of approximately $3.3 million payable August 1, 1999. The New
Revolver may be repaid and reborrowed, subject to certain collateral
requirements, at any time during the term ending August 1, 1999. The
Company has pledged substantially all of its domestic assets as collateral
for the New Term Loan and the New Revolver. The Company may repay the New
Term Loan at any time without penalty. In the event of a sale or
sale/leaseback of its Oceanport facility, the Company is required to make a
prepayment of the New Term Loan up to an amount equal to 75% of the net sale
proceeds. Certain early termination fees apply if the Company terminates
the facility in its entirety prior to August 1, 1999.
The Company's joint venture agreement regarding its Japanese subsidiary
has been renewed through calendar year 1996. In the event such agreement is
not further extended, the Company could be required to satisfy the then
outstanding amount of demand notes which are guaranteed by the Company
($2,694,000 at September 30, 1996). There can be no assurance that the
agreement will be extended and, in the event the agreement is not extended,
the Company may be required to extend its guarantees,
8
10
or repay the demand notes and seek alternative financing. The Company
expects to extend the joint venture agreement through June 30, 1998.
The Company had cash and cash equivalents on hand of $4.3 million
representing an increase from $3.6 million as of June 30, 1996. In
addition, the Company holds 591,678 shares of CyberGuard stock, which were
valued at approximately $5.0 million ($8.50 per share) on September 30,
1996. Prepaid expenses and other current assets decreased by $0.8 million
primarily due to timing differences. Other long-term assets decreased by
$1.2 million primarily due to a reduction in the amount held in escrow to
fund the directors and officers liability policy deductible. This
deductible was reduced from $1.0 million to $0.25 million and the
corresponding escrow amount was reduced accordingly. Other long-term
liabilities decreased by $1.1 million due primarily to the reduction in the
postretirement benefit obligation resulting from the plan termination.
9
11
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------ ------
Net Sales:
Computer systems 48.2 % 43.6 %
Service and other 51.8 56.4
----- -----
Total net sales 100.0 100.0
Cost of sales (% of respective sales category)
Computer systems 53.2 56.1
Service and other 53.9 58.8
----- -----
Total cost of sales 56.2 57.6
Gross margin 43.8 42.4
Operating expenses:
Research and development 12.1 14.0
Selling, general and administrative 26.1 30.1
----- -----
Total operating expenses 38.1 44.1
Operating income (loss) 4.7 (1.7)
Interest expense (2.4) (2.6)
Interest income 0.2 0.4
Other non-recurring charge (14.7) (6.4)
Other income (expense) - net (0.9) (1.8)
----- -----
Income (loss before provision for income taxes) (13.0) (12.2)
Provision for income taxes 1.6 1.5
----- -----
Net income (loss) (14.6) % (13.7) %
===== =====
10
12
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(10) Amendment No. Eleven to the Loan and Security Agreement
dated as of September 19, 1996 between the Company and
Foothill Capital Corporation
(11) Statement on computation of per share earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On July 12, 1996, the Company filed a Current Report on Form 8-K
with respect to the completion of its acquisition of the assets of the real-time
computer business (the "Real-Time Business") of CyberGuard Corporation
("CyberGuard") (formerly known as Harris Computer Systems Corporation). The
financial statements of the Real-Time Business were incorporated into the Form
8-K by reference to the financial information set forth in the Joint Proxy
Statement for the Special Meeting of Stockholders of the Company and CyberGuard
(the "Joint Proxy Statement") held on June 26, 1996 which was filed on May 23,
1996, copies of which financial information were attached as Exhibit 99.1 to
the Form 8-K. The pro-forma condensed financial information relating to the
transaction was incorporated into the Form 8-K by reference to the financial
information concerning the Real-Time Business set forth in the Joint Proxy
Statement, copies of which financial information were attached as Exhibit 99.2
to the Form 8-K.
On September 26, 1996, the Company filed a Current Report on
Form 8-K with respect to the selection of KPMG Peat Marwick LLP as the
Company's independent accountants, replacing Coopers & Lybrand L.L.P. in such
capacity.
11
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended
September 30, 1996 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: November 13, 1996 CONCURRENT COMPUTER CORPORATION
By: /s/ E. Courtney Siegel
-----------------------------------
E. COURTNEY SIEGEL
President and Chief Executive
Officer
By: /s/ Daniel S. Dunleavy
-----------------------------------
DANIEL S. DUNLEAVY
Vice President, Chief Financial
Officer and Chief Administrative
Officer (Principal Financial and
Accounting Officer)
12
14
EXHIBIT INDEX
Exhibit No.
10 Amendment No. Eleven to the Loan and
Security Agreement dated as of September 19, 1996
between the Company and Foothill Capital Corporation
11 Statement on computation of per share earnings
27 Financial Data Schedule
13