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 December 31, 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 No. 0-13150
_____________
CONCURRENT COMPUTER CORPORATION
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
4375 River Green Parkway, Duluth, GA 30096
Telephone: (678) 258-4000
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 February 10, 2000 was 53,450,954.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------------- -------------------
(UNAUDITED) (UNAUDITED)
Net sales:
Computer systems. . . . . . . . . . . . . . . . . $ 9,458 $ 9,068 $ 17,062 $15,796
Service and other . . . . . . . . . . . . . . . . 7,464 10,113 15,544 20,259
--------- -------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . . 16,922 19,181 32,606 36,055
Cost of sales:
Computer systems. . . . . . . . . . . . . . . . . 5,043 4,244 8,833 7,258
Service and other . . . . . . . . . . . . . . . . 4,126 5,103 8,380 10,214
--------- -------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . . 9,169 9,347 17,213 17,472
--------- -------- --------- --------
Gross margin. . . . . . . . . . . . . . . . . . . . 7,753 9,834 15,393 18,583
Operating expenses:
Selling, general and administrative . . . . . . . 7,850 6,750 14,006 12,583
Research and development. . . . . . . . . . . . . 2,409 2,545 4,631 5,249
In-process computer software technology . . . . . 14,000 - 14,000 -
Relocation and restructuring. . . . . . . . . . . - - 2,367 -
--------- -------- --------- --------
Total operating expenses. . . . . . . . . . . . . . 24,259 9,295 35,004 17,832
--------- -------- --------- --------
Operating income (loss) . . . . . . . . . . . . . . (16,506) 539 (19,611) 751
Interest income (expense) - net . . . . . . . . . . 73 (30) 83 (56)
Other non-recurring income (expense). . . . . . . . - 341 761 (88)
Other income (expense) - net. . . . . . . . . . . . (38) 151 (105) (32)
--------- -------- --------- --------
Income (loss) before provision for income taxes . . (16,471) 1,001 (18,872) 575
Provision for income taxes. . . . . . . . . . . . . 150 86 300 86
--------- -------- --------- --------
Net income (loss) available to common shareholders. $(16,621) $ 915 $(19,172) $ 489
========= ======== ========= ========
Basic and diluted net income (loss) per share . . . $ (0.32) $ 0.02 $ (0.38) $ 0.01
========= ======== ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-1-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DEC. 31, JUNE 30,
1999 1999
--------- ---------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 7,952 $ 6,872
Accounts receivable - net. . . . . . . . . . . . . . . . . . 14,769 14,879
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 4,383 4,641
Prepaid expenses and other current assets. . . . . . . . . . 706 1,053
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . 27,810 27,445
Property, plant and equipment - net. . . . . . . . . . . . . . 11,474 10,936
Facilities held for sale . . . . . . . . . . . . . . . . . . . - 1,223
Purchased developed computer software. . . . . . . . . . . . . 1,868 -
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,101 -
Other long-term assets . . . . . . . . . . . . . . . . . . . . 1,898 965
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 46,151 $ 40,569
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . $ 9,327 $ 8,973
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . 2,536 3,778
--------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . 11,863 12,751
Other long-term liabilities. . . . . . . . . . . . . . . . . . 1,827 1,807
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 13,690 14,558
--------- ---------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 532 485
Capital in excess of par value . . . . . . . . . . . . . . . 124,384 98,916
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (92,028) (72,856)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . (58) (58)
Cumulative translation adjustment. . . . . . . . . . . . . . (369) (476)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . 32,461 26,011
--------- ---------
Total liabilities and stockholders' equity . . . . . . . . . . $ 46,151 $ 40,569
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-2-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
1999 1998
--------- ---------
(UNAUDITED)
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $(19,172) $ 489
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Write-off of in-process software technology . . . . . . 14,000 -
Loss on dissolution of subsidiary . . . . . . . . . . . - 429
Depreciation, amortization and other. . . . . . . . . . 2,747 2,551
Other non-cash expenses . . . . . . . . . . . . . . . . 647 12
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . 186 1,592
Inventories . . . . . . . . . . . . . . . . . . . . . 8 75
Prepaid expenses and other current assets . . . . . . (179) (433)
Other long-term assets. . . . . . . . . . . . . . . . (569) 98
Accounts payable and accrued expenses . . . . . . . . 220 (769)
Deferred revenue. . . . . . . . . . . . . . . . . . . (1,242) (2,455)
Other long-term liabilities . . . . . . . . . . . . . 20 197
--------- ---------
Total adjustments to net income (loss). . . . . . . . . . 15,838 1,297
--------- ---------
Net cash provided by (used in) operating activities . . . . (3,334) 1,786
--------- ---------
INVESTING ACTIVITIES:
Net additions to property, plant and equipment. . . . . . (2,168) (2,238)
Proceeds from sale of facility. . . . . . . . . . . . . . 1,223 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 76 -
--------- ---------
Net cash used in investing activities . . . . . . . . . . . (869) (2,238)
--------- ---------
FINANCING ACTIVITIES:
Payments of notes payable . . . . . . . . . . . . . . . . - (5)
Proceeds from borrowings under revolving credit facility. - 28,054
Repayments of borrowings under revolving credit facility. - (28,255)
Proceeds from sale and issuance of common stock . . . . . 5,352 390
--------- ---------
Net cash provided by financing activities . . . . . . . . . 5,352 184
--------- ---------
Effect of exchange rates on cash and cash equivalents . . . (69) 312
--------- ---------
Increase in cash and cash equivalents . . . . . . . . . . . 1,080 44
Cash and cash equivalents at beginning of period. . . . . . 6,872 5,733
--------- ---------
Cash and cash equivalents at end of period. . . . . . . . . $ 7,952 $ 5,777
========= =========
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $ 113 $ 148
========= =========
Income taxes (net of refunds) . . . . . . . . . . . . . $ 70 $ 318
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
CONCURRENT COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Concurrent
Computer Corporation ("Concurrent" or the "Company") 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 condensed
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. BASIC AND DILUTED LOSS PER SHARE
Basic income (loss) per share is computed by dividing income (loss) by the
weighted average number of common shares outstanding during each year. Diluted
income (loss) per share is computed by dividing income (loss) by the weighted
average number of shares including common share equivalents. Under the treasury
stock method, incremental shares representing the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued are included in the computation.
The number of shares used in computing basic and diluted loss per share for
the three months ended December 31, 1999 and the six months ended December 31,
1999 was 51,560,000 and 50,262,000, respectively. Because of the losses for
these periods, the common share equivalents are anti-dilutive and are not
considered in the diluted EPS calculations. The number of shares used in
computing basic and diluted EPS for the three months ended December 31, 1998 was
47,852,000 and 49,214,000, respectively. The number of shares used in computing
basic and diluted EPS for the six months ended December 31,1998 was 47,763,000
and 49,220,000, respectively.
-4-
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)
DEC. 31, JUNE 30,
1999 1999
--------- ---------
Raw materials . $ 3,185 $ 3,103
Work-in-process 891 1,175
Finished goods. 307 363
--------- ---------
$ 4,383 $ 4,641
========= =========
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
DEC. 31, JUNE 30,
1999 1999
--------- ---------
Accounts payable, trade . . . $ 3,020 $ 2,941
Accrued payroll, vacation and
other employee expenses . . 3,599 4,314
Restructuring reserve . . . . 667 90
Other accrued expenses. . . . 2,041 1,628
--------- ---------
$ 9,327 $ 8,973
========= =========
5. COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS No. 130").
FAS No. 130 requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income. The
Company's total comprehensive income is as follows:
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
--------- ------ --------- ------
Net income (loss) . . . . . . . . . . . . . . $(16,621) $ 915 $(19,172) $ 489
Other comprehensive income (loss):
Foreign currency translation gains (losses) (305) 247 107 1,067
--------- ------ --------- ------
Total comprehensive income (loss) . . . . . . $(16,926) $1,162 $(19,065) $1,556
========= ====== ========= ======
-5-
6. SEGMENT INFORMATION
The Company operates its business in two reportable segments: real-time and
video-on-demand ("VOD"). Its real-time segment is a leading provider of
high-performance, real-time computer systems, solutions and software for
commercial and government markets focusing on strategic market areas that
include hardware-in-the-loop and man-in-the-loop simulation, data acquisition,
industrial systems, and software and embedded applications. Its VOD segment is
a leading supplier of digital video server systems to a wide range of industries
serving a variety of markets, including the broadband/cable, hospitality,
intranet/distance learning, and other related markets.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the consolidated financial
statements and related footnotes for the fiscal year ended June 30, 1999
included in the Company's Annual Report on Form 10-K. Shared expenses are
primarily allocated based 50 percent on revenues and 50 percent on headcount.
There were no material intersegment sales or transfers. The following
summarizes the operating income (expense) by segment for the quarter ended
December 31, 1999:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999
---------- --------- --------- ---------- --------- ---------
REAL-TIME VOD TOTAL REAL-TIME VOD TOTAL
---------- --------- --------- ---------- --------- ---------
Revenue. . . . . . . . . . . . . . . $ 14,802 $ 2,120 $ 16,922 $ 29,397 $ 3,209 $ 32,606
Cost of sales. . . . . . . . . . . . 7,476 1,693 9,169 14,775 2,438 17,213
---------- --------- --------- ---------- --------- ---------
Gross margin . . . . . . . . . . . . 7,326 427 7,753 14,622 771 15,393
Selling, general and administrative. 4,670 3,180 7,850 8,640 5,366 14,006
Research and development . . . . . . 962 1,447 2,409 2,175 2,456 4,631
In-process computer
software technology . . . . . . - 14,000 14,000 - 14,000 14,000
Relocation and restructuring . . . . - - - 1,208 1,159 2,367
---------- --------- --------- ---------- --------- ---------
Total operating expenses . . . . . . 5,632 18,627 24,259 12,023 22,981 35,004
---------- --------- --------- ---------- --------- ---------
Operating income (expense) . . . . . $ 1,694 $(18,200) $(16,506) $ 2,599 $(22,210) $(19,611)
========== ========= ========= ========== ========= =========
It is impracticable to attain comparable information for the quarter and six
months ended December 31, 1998.
7. RESTRUCTURING AND RELOCATION
In August 1999, the Company relocated its Corporate Headquarters and its
VOD Division to Duluth, Georgia. In connection with this move, the Company
incurred employee relocation costs of $769,000, which is recorded as an
operating expense in the condensed consolidated statement of operations for the
quarter ended September 30, 1999.
In addition to the relocation discussed above, management decided in the
first quarter to "right-size" the Real-Time Division to bring its expenses in
line with its anticipated revenues. In connection with these events, the
Company recorded a $1.6 million restructuring provision as on operating expense
in quarter ended September 30, 1999. This expense represents workforce
reductions of approximately 38 employees in all areas of the Company. Cash
expenditures of $0.4 million and $0.5 million were made against this provision
in the first and second quarters, respectively, leaving a $0.7 million
restructuring accrual at December 31, 1999.
-6-
8. DISSOLUTION OF SUBSIDIARY
During the quarter ended September 30, 1998, the Company dissolved its
subsidiary Concurrent Computer Corporation France (the "French Branch"). In
connection with the dissolution, all assets and liabilities of the French Branch
were assumed by the Company. A loss of $429,000, representing the write off of
the French Branch's cumulative translation adjustment, was recorded as other
non-recurring charges in the condensed consolidated statement of operations. The
Company continues to operate a French Subsidiary, Concurrent Computer
Corporation S.A.
9. SALE OF SUBSIDIARY
On September 8, 1999, the Company entered into an agreement to sell the
stock of Concurrent Vibrations, a wholly owned subsidiary of Concurrent Computer
Corporation S.A., to Data Physics, Inc. The transaction, which had an effective
date of August 31, 1999, resulted in a gain of $761,000. This gain is recorded
in other non-recurring items in the condensed consolidated statement of
operations in the quarter ended September 30, 1999.
10. ACQUISITION OF VIVID TECHNOLOGY
On October 28, 1999, the Company acquired Vivid Technology ("Vivid") for
total consideration of $19.8 million, consisting of 2,233,689 shares of common
stock valued at $16.8 million, $0.2 million of acquisition costs, and 378,983
shares reserved for future issuance upon exercise of stock options with a value
of $2.8 million. The acquisition was treated as a purchase for accounting
purposes, and, accordingly, the assets and liabilities were recorded based on
their fair values at the date of the acquisition. The purchase price allocation
and the respective useful lives of the intangible assets are as follows:
Allocation Life
Working Capital. . . . . . . . . . . . . . . . . $ 72
Fixed Assets . . . . . . . . . . . . . . . . . . 257
Other Long-Term Assets . . . . . . . . . . . . . 13
Developed Completed Computer Software Technology 1,900 10 yrs
Employee Workforce . . . . . . . . . . . . . . . 400 3 yrs
Goodwill . . . . . . . . . . . . . . . . . . . . 3,153 10 yrs
In-Process Computer Software Technology. . . . . 14,000
Amortization of intangible assets is on a straight line basis over the assets'
estimated useful life. Vivid's operations are included in the condensed
consolidated statements of operations from the date of acquisition.
At the acquisition date, Vivid had one product under development that had not
demonstrated technological or commercial feasibility. This product was the Vivid
interactive video-on-demand integrated system. The in-process technology has no
alternative use in the event that the proposed product does not prove to be
feasible. This development effort falls within the definition of In-Process
Research and Development ("IPR&D") contained in Statement of Financial
Accounting Standards ("SFAS") No. 2 and was expensed in the second quarter as a
one-time charge.
Vivid's interactive video-on-demand system is specifically being designed to
integrate with the most popular digital set-top boxes used by General
Instruments Corporation. The system is also expected to be compatible with the
digital set-top boxes used by other leading cable operators such as Philips,
Panasonic, Sony, etc. Vivid's VOD server is based on a cluster of Microsoft
Windows NT computers with proprietary hardware and software added to provide
high video streaming capacity and fault tolerance. The Vivid VOD system is being
designed to eventually provide VOD service including pause, rewind, and fast
forward VCR-like functions. The system will also provide necessary back office
support software for video content management, video selection graphical user
interface, subscriber management, purchase management, billing interfaces,
content provider account settlement and consumer marketing feedback. In
addition, the Vivid VOD system is being designed to support other interactive
applications such as on-line banking, home shopping, merchandising and
on-demand/addressable advertising.
-7-
The in-process computer software technology was estimated to be 80% complete at
the date of acquisition and was estimated to cost an additional $650,000 to
complete the VOD system technology project in December of 2000. A variety of
tasks are yet to be completed which are required in order for the technology to
become commercially acceptable in the VOD marketplace including the following:
- The Content Manager, which is used to load movies from studios, does not
have the functionality necessary to create a royalty payment affidavit
which is required for the cable operators to pay the required royalties to
the movie studios. Also, the Content Manager, which has been implemented
using a SQL data base, will need to be ported to other relational data
bases such as Oracle to support high end data base applications.
- The Resource Manager has been alpha tested; however, an advanced beta test
has not been completed which would validate its ability to scale up to the
required number of subscribers or connections in an actual commercial
deployment.
- The Subscriber Manager, which has been implemented using a SQL data base,
will need to be ported to other relational data bases such as Oracle to
support high end data base applications.
- The Set top VOD application will need to be tested under advanced beta
test conditions to ensure that the back channel key stroke system
performance can fulfill operational requirements.
- The Hub Server, or video pump, will need to be tested under full load in
an operational environment to ensure stability over an extended period of
time. The random conditions resulting from the in home use of tens of
thousands of subscribers can only be simulated in an advanced beta test
which has yet to be performed.
The method used to allocate the purchase consideration to in-process research
and development ("IPR&D") was the modified income approach. Under the income
approach, fair value reflects the present value of the projected free cash flows
that will be generated by the IPR&D project and that is attributable to the
acquired technology, if successfully completed. The modified income approach
takes the income approach, modified to include the following factors:
- Analysis of the stage of completion of each project
- Exclusion of value related to research and development yet-to-be completed
as part of the on-going IPR&D projects; and
- The contribution of existing products/technologies.
The projected revenues used in the income approach are based upon the
incremental revenues likely to be generated upon completion of the project and
the beginning of commercial sales, as estimated by Company management. The
projections assume that the product will be successful and the products'
development and commercialization are as set forth by management. The discount
rate used in this analysis is an after-tax rate of 28%.
Consistent with the Company's policy for internally developed software, the
Company determined the amounts to be allocated to IPR&D based on whether
technological feasibility had been achieved and whether there was any
alternative future use for the technology. As of the date of the acquisition,
the Company concluded that the IPR&D had no alternative future use after taking
into consideration the potential for usage of the software in different
products, resale of the software and internal usage.
-8-
The following unaudited proforma information presents the results of operations
of the Company as if the acquisition had taken place on July 1, 1998 and
includes the one-time charge related to the write-off of the purchased IPR&D of
$14 million:
Six Months Six Months
Ended Ended
Dec. 31, 1999 Dec. 31, 1998
--------------- ---------------
Revenues . . . . . . . . . . . . . . . . . . . $ 32,960 $ 36,455
Net income (loss). . . . . . . . . . . . . . . (19,868) (14,220)
Basic and Diluted Net Income (loss) Per Share. $ (0.37) $ (0.28)
=============== ===============
-9-
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------- ------ ------- ------
Net sales:
Computer systems . . . . . . . . . . . . . . . 55.9% 47.3% 52.3% 43.8%
Service and other. . . . . . . . . . . . . . . 44.1 52.7 47.7 56.2
------- ------ ------- ------
Total. . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Computer systems . . . . . . . . . . . . . . . 53.3 46.8 51.8 45.9
Service and other. . . . . . . . . . . . . . . 55.3 50.5 53.9 50.4
------- ------ ------- ------
Total. . . . . . . . . . . . . . . . . . . . 54.2 48.7 52.8 48.5
------- ------ ------- ------
Gross margin . . . . . . . . . . . . . . . . . . 45.8 51.3 47.2 51.5
Operating expenses:
Selling, general and administrative. . . . . . 46.4 35.2 43.0 34.9
Research and development . . . . . . . . . . . 14.2 13.3 14.2 14.6
In process computer software technology. . . . 82.7 - 42.9 -
Relocation and restructuring . . . . . . . . . - - 7.3 -
------- ------ ------- ------
Total operating expenses . . . . . . . . . . . . 143.4 48.5 107.4 49.5
------- ------ ------- ------
Operating income (loss)
(97.5) 2.8 (60.1) 2.1
Interest income (expense) - net. . . . . . . . . 0.4 (0.2) 0.3 (0.2)
Other non-recurring income (expense) . . . . . . - 1.8 2.3 (0.2)
Other income (expense) - net . . . . . . . . . . (0.2) 0.8 (0.3) (0.1)
Income (loss) before provision for income taxes. (97.3) 5.2 (57.9) 1.6
Provision for income taxes . . . . . . . . . . . 0.9 0.4 0.9 0.2
------- ------ ------- ------
Net income (loss). . . . . . . . . . . . . . . . (98.2)% 4.8% (58.8)% 1.4%
======= ====== ======= ======
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE QUARTER ENDED DECEMBER 31, 1999 COMPARED WITH THE QUARTER ENDED DECEMBER 31,
1998.
Net product sales were $9.5 million for the quarter ended December 31, 1999
as compared with $9.1 million for the quarter ended December 31, 1998. This
increase relates to sales of VOD product, which increased from $0.2 million in
the quarter ended December 31, 1998 to $2.1 million in the current quarter. The
increase in product sales reverses a trend of declining Real-Time product sales
the Company has experienced for a number of years. The expansion of the VOD
business, coupled with a renewed focus on real-time products in existing and new
markets account for the improved results, despite declining sales of proprietary
systems and the lower selling price of open systems as compared with proprietary
products.
Service revenues decreased from $10.1 million in the quarter ended December
31, 1998 to $7.5 million in the quarter ended December 31, 1999, continuing the
decline experienced over the past years as customers move from proprietary
systems to open systems which require less maintenance.
Gross Margin decreased by $2.1 million to $7.8 million for the three months
ended December 31, 1999 as compared to $9.8 million for the quarter ended
December 31, 1998. The gross margin as a percentage of sales decreased from
51.3% in the quarter ended December 31, 1998 to 45.8% in the current quarter
which is primarily due to the first large scale commercial deployment of a VOD
system in the cable television industry during the current quarter.
Operating Income (Loss) decreased $17.0 million to a loss of $16.5 million
in the current quarter as compared with a profit of $0.5 million in the quarter
ended December 31, 1998. This decrease is primarily due a $14.0 million
write-off of in-process computer software technology in connection with the
acquisition of Vivid Technology (see Note 10 to the financial statements) and
the inclusion of Vivid Technology's operating expenses in the current quarter
with only a nominal increase in revenue.
Net Income (Loss) decreased $17.5 million from an income of $0.9 million in
the quarter ended December 31, 1998 to a loss of $16.6 million in the current
quarter. The decrease is primarily due to the decrease in operating income
discussed above.
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THE SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH THE SIX MONTHS ENDED
DECEMBER 31, 1998.
Net product sales were $17.1 million for the six months ended December 31,
1999 as compared with $15.8 million for the six months ended December 31, 1998.
This increase relates to sales of VOD product, which increased from $0.2 million
in the six months ended December 31, 1998 to $3.2 million in the current
six-month period. The increase in VOD product sales was partially offset by a
decline in sales of real-time products of $1.7 million resulting from declining
sales of proprietary systems and the lower selling price of open systems as
compared with proprietary products.
Service revenues decreased from $20.3 million in the six months ended
December 31, 1998 to $15.5 million in the six months ended December 31, 1999,
continuing the decline experienced over the past years as customers move from
proprietary systems to open systems which require less maintenance.
Gross Margin decreased by $3.2 million to $15.4 million for the six months
ended December 31, 1999 as compared to $18.6 million for the six months ended
December 31, 1998. The gross margin as a percentage of sales decreased from
51.5% in the six months ended December 31, 1998 to 47.2% in the current
six-month period which is primarily due to the lower margin realized in the very
early stages of the VOD business.
Operating Income (Loss) decreased $20.4 million to a loss of $19.6 million
in the current six-month period as compared with a profit of $0.8 million in the
six months ended December 31, 1998. This decrease is primarily due to a $14.0
million write-off of in-process computer software technology in connection with
the acquisition of Vivid Technology (see Note 10 to the financial statements),
the inclusion of Vivid Technology's operating expenses in the current quarter,
and $2.4 million of restructuring and relocation provision recognized in the
quarter ended September 30, 1999 (see Note 8 to the financial statements).
Net Income (Loss) decreased $19.7 million from an income of $0.5 million in
the six months ended December 31, 1998 to a loss of $19.2 million in the current
six-month period. The decrease is primarily due to the decrease in operating
income discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
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 video-on-demand systems;
and (iii) 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; and (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 used cash of $3.3 million in operating activities in the first
six months of fiscal year 2000 compared to generating cash of $1.8 million in
the first six months of the previous year primarily due to the loss generated by
the VOD business. The Company has an agreement providing for an $8 million
revolving credit facility through August 1, 2000. At December 31, 1999, no
amounts were outstanding under the revolving credit facility. Borrowings under
the revolving credit facility bear interest at the prime rate plus .75% and are
secured by substantially all of the Company's domestic assets.
The Company invested $2.2 million in property, plant and equipment during
each of the six-month periods ended December 31, 1999 and 1998, respectively.
Current year capital expenditures primarily relate to computer, development and
loaner equipment for the VOD Division and leasehold improvements for the
Real-Time Division's new administrative offices.
The Company received $5.4 million in proceeds from the issuance of new
shares of common stock to employees and directors who exercised stock options
during the six-month period ended December 31, 1999 compared to $0.4 million
during the six-month period ended December 31, 1998.
At December 31, 1999, the Company did not have any material commitments for
capital expenditures. The Company believes that its existing cash balances,
available credit facilities and funds generated by operations will be sufficient
to meets its anticipated working capital and capital expenditure requirements
for the foreseeable future.
YEAR 2000
The Company has aggressively addressed Year 2000 issues related to the
processing of date-sensitive data. A cross-functional team was assembled, and a
determination was made as to which systems were Year 2000 non-compliant. The
Company believes that all of the critical financial, manufacturing, R&D and
other systems are fully compliant. All costs associated with making these
systems Year 2000 compliant have been expensed as incurred and have been
insignificant.
Concurrent has reviewed customer and supplier relationships, and has a Year
2000 software product available which many of our customers have implemented.
While the Company has taken all reasonable efforts, including direct mailings
and internet web site, to make information on the Year 2000 readiness of its
products available to its customers, this information may not have reached all
customers, particularly third-party customers. Although the Company believes it
has addressed Year 2000 readiness issues related to its products and through
February 11, 2000 has not experienced any significant Year 2000 issues, there
may be disruptions and/or product failures that are unforeseen.
The Company has requested, and in many cases obtained, assurances from its
major suppliers that they have addressed these issues and that products procured
by the Company will function properly in the Year 2000.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain matters discussed in this Form 10-Q may be "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. Concurrent
Computer Corporation cautions investors that any forward-looking statements made
herein are not guarantees of future performance and that a variety of factors
could cause its actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. The risks and uncertainties which could affect Concurrent Computer
Corporation's performance or results include, without limitation, changes in
product demand; economic conditions; various inventory risks due to changes in
market conditions; uncertainties relating to the development and ownership of
intellectual property; uncertainties relating to the ability of Concurrent
Computer Corporation and other companies to enforce their intellectual property
rights; the pricing and availability of equipment, materials and inventories;
technological developments; delays in testing of new products; rapid technology
changes; the highly competitive environment in which Concurrent Computer
Corporation operates; the entry of new well-capitalized competitors into
Concurrent Computer Corporation's markets, and other risks and uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
As of December 31, 1999, the Company had cash and cash equivalents of $8.0
million invested in liquid money market funds or bank accounts with average
maturities of less than 90 days. The cash and cash equivalents are subject to
interest rate risk and we may receive higher or lower interest income if market
interest rates increase or decrease. A hypothetical increase or decrease in
market interest rates by 10 percent from levels at March 31, 1999 would not have
a material impact on our cash or cash equivalents.
We currently conduct business in a number of foreign countries and we plan to
conduct business in additional regions outside of the United States. A decrease
in the value of foreign currencies relative to the U.S. dollar could result in
losses from foreign currency translations. The Company does not currently hedge
its foreign currency risk.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(10.1) Amended and Restated Employment Agreement of Daniel S. Dunleavy
(10.2) Amended and Restated Employment Agreement of Steve G. Nussrallah
(10.3) Employment Agreement of Steven R. Norton
(11) Statement on computation of per share earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On January 4, 2000, the Company filed a Current Report on Form 8-K
announcing the promotion of Steve Nussrallah to President and Chief Executive
Officer of the Company effective January 1, 2000. In addition, on January 11,
2000, the Company filed a Current Report on Form 8-K/A which amended the Form
8-K filed on November 12, 1999 announcing the acquisition of Vivid Technology,
Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended December
31, 1999 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: February 14, 2000 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
----------------------
Steven R. Norton
Chief Financial Officer
(Principal Financial and Accounting Officer)
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