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 March 31, 2000
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 May 8, 2000 was 53,860,762.
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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
------------ -------- --------- --------
(Unaudited) (Unaudited)
Net sales:
Product sales
Real-time systems $ 6,367 $ 8,215 $ 20,220 $23,779
Video-on-demand systems 3,703 351 6,912 583
------------ -------- --------- --------
Total product sales 10,070 8,566 27,132 24,362
Service and other 6,950 9,110 22,494 29,369
------------ -------- --------- --------
Total 17,020 17,676 49,626 53,731
Cost of sales
Real-time and video-on-demand systems 5,235 3,403 14,068 10,661
Service and other 3,995 5,016 12,375 15,230
------------ -------- --------- --------
Total 9,230 8,419 26,443 25,891
------------ -------- --------- --------
Gross margin 7,790 9,257 23,183 27,840
Operating expenses:
Sales and marketing 4,728 4,880 14,978 13,846
Research and development 2,685 2,371 7,316 7,620
General and administrative 2,476 1,444 6,232 5,061
Cost of purchased in process computer
software technology - - 14,000 -
Relocation and restructuring - - 2,367 -
------------ -------- --------- --------
Total operating expenses 9,889 8,695 44,893 26,527
------------ -------- --------- --------
Operating income (loss) (2,099) 562 (21,710) 1,313
Interest income (expense) - net 53 (11) 136 (67)
Other non-recurring income (expense) - - 761 (88)
Other income (expense) - net (19) (205) (124) (237)
------------ -------- --------- --------
Income (loss) before income taxes (2,065) 346 (20,937) 921
Provision for income taxes 150 52 450 138
------------ -------- --------- --------
Net income (loss) $ (2,215) $ 294 $(21,387) $ 783
============ ======== ========= ========
Net income (loss) per share
Basic $ (0.04) $ 0.01 $ (0.42) $ 0.02
============ ======== ========= ========
Diluted $ (0.04) $ 0.01 $ (0.42) $ 0.02
============ ======== ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2000 1999
ASSETS (Unaudited)
------------ ----------
Current assets:
Cash and cash equivalents $ 6,093 $ 6,872
Accounts receivable - net 17,240 14,879
Inventories 4,764 4,641
Prepaid expenses and other current assets 871 1,053
------------ ----------
Total current assets 28,968 27,445
------------ ----------
Property, plant and equipment - net 11,533 10,936
Facilities held for sale - 1,223
Purchased developed computer software 1,821 -
Goodwill 3,022 -
Other long-term assets 1,764 965
------------ ----------
Total assets $ 47,108 $ 40,569
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 11,298 $ 8,973
Deferred revenue 3,213 3,778
------------ ----------
Total current liabilities 14,511 12,751
------------ ----------
Other long-term liabilities 1,674 1,807
------------ ----------
Total liabilities 16,185 14,558
------------ ----------
Stockholders' equity:
Common stock 537 485
Capital in excess of par value 125,492 98,916
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (94,243) (72,856)
Treasury stock (58) (58)
Accumulated other comprehensive loss (805) (476)
------------ ----------
Total stockholders' equity 30,923 26,011
------------ ----------
Total liabilities and stockholders' equity $ 47,108 $ 40,569
============ ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
MARCH 31,
2000 1999
--------------------
(Unaudited)
OPERATING ACTIVITIES
Net income (loss) $(21,387) $ 783
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 4,143 3,701
Other non cash expenses 1,001 19
Changes in operating assets and liabilities:
Accounts receivable (2,326) 2,782
Inventories (523) 423
Prepaid expenses and other current assets (558) (753)
Other long-term assets (483) 192
Accounts payable and accrued expenses 1,941 (3,809)
Deferred revenue (565) (420)
Other long-term liabilities (133) 70
--------- ---------
Total adjustments to net income (loss) 16,497 2,634
--------- ---------
Net cash provided by (used in) operating activities (4,890) 3,417
INVESTING ACTIVITIES
Net additions to property, plant and equipment (3,297) (2,957)
Proceeds from sale of facility 1,223 -
Other 76 -
--------- ---------
Net cash used in investing activities (1,998) (2,957)
FINANCING ACTIVITIES
Payments of notes payable - (425)
Proceeds from borrowings under revolving credit facility - 39,995
Repayments of borrowings under revolving credit facility - (41,118)
Proceeds from sale and issuance of common stock 6,552 969
--------- ---------
Net cash provided by (used in) financing activities 6,552 (579)
Effect of exchange rates on cash and cash equivalents (443) (7)
--------- ---------
Decrease in cash and cash equivalents (779) (126)
Cash and cash equivalents at beginning of period 6,872 5,733
--------- ---------
Cash and cash equivalents at end of period $ 6,093 $ 5,607
========= =========
Cash paid during the period for:
Interest $ 163 $ 190
========= =========
Income taxes (net of refunds) $ 230 $ 875
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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 NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each year.
Diluted net income (loss) per share is computed by dividing net 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 net loss per share
for the three months ended March 31, 2000 and the nine months ended March 31,
2000 was 53,503,000 and 51,335,000, 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 net income per share for the three months ended
March 31, 1999 was 48,043,000 and 50,981,000, respectively. The number of
shares used in computing basic and diluted EPS for the nine months ended March
31, 1999 was 47,855,000 and 49,186,000, 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)
MARCH 31, JUNE 30,
2000 1999
Raw materials $ 3,403 $ 3,103
Work-in-process 1,022 1,175
Finished goods 339 363
---------- ---------
$ 4,764 $ 4,641
========== =========
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2000 1999
Accounts payable, trade $ 3,383 $ 2,941
Accrued payroll, vacation and
other employee expenses 5,103 4,314
Restructuring reserve 321 90
Other accrued expenses 2,491 1,628
---------- ---------
$ 11,298 $ 8,973
---------- ---------
5. COMPREHENSIVE INCOME (LOSS)
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 (loss) is as follows:
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
-------- ------ --------- ------
Net income (loss) $(2,215) $ 294 $(21,387) $ 783
Other comprehensive income (loss):
Foreign currency translation gains (losses) (436) (559) (329) 508
-------- ------ --------- ------
Total comprehensive income (loss) $(2,651) $(265) $(21,716) $1,291
======== ====== ========= ======
6. SEGMENT INFORMATION
The Company operates its business in two divisions: real-time and
video-on-demand ("VOD"). Its Real-Time division 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 division 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 divisions 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 (loss) by segment for the three-month and
nine-month periods ended March 31, 2000:
THREE MONTHS ENDED MARCH 31, 2000 NINE MONTHS ENDED MARCH 31, 2000
REAL-TIME VOD TOTAL REAL-TIME VOD TOTAL
------------ ------------ -------- ---------- --------- ---------
(Unaudited) (Unaudited)
Net sales:
Product sales $ 6,367 $ 3,703 $10,070 $ 20,220 $ 6,912 $ 27,132
Service and other 6,950 - 6,950 22,494 - 22,494
------------ ------------ -------- ---------- --------- ---------
Total 13,317 3,703 17,020 42,714 6,912 49,626
Cost of sales:
Systems 2,921 2,314 5,235 9,316 4,752 14,068
Service and other 3,995 - 3,995 12,375 - 12,375
------------ ------------ -------- ---------- --------- ---------
Total 6,916 2,314 9,230 21,691 4,752 26,443
------------ ------------ -------- ---------- --------- ---------
Gross margin 6,401 1,389 7,790 21,023 2,160 23,183
Operating expenses
Sales and marketing 2,768 1,960 4,728 9,163 5,815 14,978
Research and development 1,094 1,591 2,685 3,269 4,047 7,316
General and administrative 1,397 1,079 2,476 3,642 2,590 6,232
Purchased in process computer
software technology - - - - 14,000 14,000
Relocation and restructuring - - - 1,208 1,159 2,367
------------ ------------ -------- ---------- --------- ---------
Total operating expenses 5,259 4,630 9,889 17,282 27,611 44,893
------------ ------------ -------- ---------- --------- ---------
Operating income (loss) $ 1,142 $ (3,241) $(2,099) $ 3,741 $(25,451) $(21,710)
============ ============ ======== ========== ========= =========
It is impracticable to attain comparable information for the three-month and
nine-month periods ended March 31, 1999.
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 an operating expense
in the quarter ended September 30, 1999. This expense represents workforce
reductions of approximately 38 employees in all areas of the Company. Cash
expenditures of $1.3 million were made against this provision during the nine
months ended March 31, 2000 leaving a $0.3 million restructuring accrual at
March 31, 2000.
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. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which will
require that all derivative financial instruments be recognized as either assets
or liabilities in the balance sheet. SFAS 133 will be effective for the
Company's first quarter of fiscal 2001. The company's current investment policy
does not allow for the use of hedging instruments. In anticipation of the
adoption of SFAS 133, the Company is currently reviewing all outstanding
contracts for evidence of embedded derivatives. Based on the procedures
undertaken through this point, management does not believe that adoption of SFAS
133 will have a material impact on its results of operations.
11. 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 quarter ended
December 31, 1999 as a one-time charge.
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.
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 in both periods:
Nine Months Nine Months
Ended Ended
Mar. 31, 2000 Mar. 31, 1999
--------------- ---------------
Revenues $ 49,980 $ 54,232
=============== ===============
Net income (loss) $ (22,083) $ (14,374)
=============== ===============
Basic and Diluted Net Income (loss) Per Share $ (0.42) $ (0.29)
=============== ===============
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
The following table sets forth selected operating data as a percentage of
net sales for certain items in the Company's consolidated statements of
operations for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
(Unaudited) (Unaudited)
Net Sales:
Product sales:
Real-time systems 37.4 % 46.5 % 40.7 % 44.3 %
Video-on-demand systems 21.8 2.0 13.9 1.1
----- ----- ----- -----
Total product sales 59.2 48.5 54.7 45.3
Service and other 40.8 51.5 45.3 54.7
----- ----- ----- -----
Total 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems 52.0 39.7 51.9 43.8
Service and other 57.5 55.1 55.0 51.9
----- ----- ----- -----
Total 54.2 47.6 53.3 48.2
----- ----- ----- -----
Gross margin 45.8 52.4 46.7 51.8
Operating expenses:
Sales and marketing 27.8 27.6 30.2 25.8
Research and development 15.8 13.4 14.7 14.2
General and administrative 14.5 8.2 12.6 9.4
Cost of purchased in process computer
software technology - - 28.2 -
----- ----- ----- -----
Relocation and restructuring - - 4.8 -
Total operating expenses 58.1 49.2 90.5 49.4
----- ----- ----- -----
Operating income (loss) (12.3) 3.2 (43.7) 2.4
Interest income (expense) - net 0.3 (0.1) 0.3 (0.1)
Other non-recurring income (expense) - - 1.5 (0.2)
Other income (expense) - net (0.1) (1.2) (0.2) (0.4)
----- ----- ----- -----
Income (loss) before income taxes (12.1) 2.0 (42.2) 1.7
Provision for income taxes 0.9 0.3 0.9 0.3
----- ----- ----- -----
Net income (loss) (13.0)% 1.7 % (43.1) % 1.5 %
===== ===== ===== =====
RESULTS OF OPERATIONS
THE QUARTER ENDED MARCH 31, 2000 COMPARED TO THE QUARTER ENDED MARCH 31, 1999
Product Sales. Total product sales were $10.1 million for the three months
ended March 31, 2000 as compared with $8.6 million for the three months ended
March 31, 1999. Sales of VOD products increased to $3.7 million in the
three-month period ended March 31, 2000 from $0.4 million in the three months
ended March 31, 1999. The increase in VOD product sales, which is primarily due
to higher sales of video systems to domestic multiple system operators, was
partially offset by a decrease in sales of real-time products of $1.8 million
resulting from declining sales of proprietary systems and the lower selling
price of open systems as compared with proprietary products.
Service and Other Sales. Service revenues decreased to $7.0 million in the
three months ended March 31, 2000 from $9.1 million in the three months ended
March 31, 1999, continuing the decline experienced over the past years as the
Company's real-time customers move from proprietary systems to open systems
which require less maintenance.
Gross Margin. Gross margin decreased by $1.5 million to $7.8 million for
the three months ended March 31, 2000 as compared to $9.3 million for the three
months ended March 31, 1999. The gross margin as a percentage of sales decreased
to 45.8% in the three-month period ended March 31, 2000 from 52.4% in the three
months ended March 31, 1999 which is primarily due to the lower margin realized
in the early stages of the VOD business and two large real-time system sales to
small customers in the prior year with unusually high margins. The gross margin
on real-time service revenue decreased to 42.5% in the three months ended March
31, 2000 compared to 44.9% in the three months ended March 31, 1999 primarily
due to the cancellation of some of the larger, more profitable maintenance
contracts by certain customers.
Sales and Marketing. Sales and marketing expenses as a percentage of sales
was 27.8% for the three months ended March 31, 2000 as compared to 27.6% for the
three months ended March 31, 1999. These expenses decreased 3.1% to $4.7
million in 2000 from $4.9 million in 1999 primarily due to the decrease in the
Real-Time division's worldwide sales and marketing personnel which was partially
offset by the increase in the number of worldwide sales and marketing personnel
and related activities in the Company's Xstreme division.
Research and Development. Research and development expenses increased as a
percentage of sales to 15.8% in the three-month period ended March 31, 2000 from
13.4% in the three-month period ended March 31, 1999. These expenses increased
13.2% to $2.7 million in 2000 from $2.4 million in 1999 primarily due to the
growth in the Xstreme division research and development personnel and the
additional development personnel as a result of the acquisition of Vivid
Technology in October of 1999. These increases were partially offset by
deliberate cost reduction efforts in the Real-Time division and a reduction in
expenses relating to Concurrent Vibrations, one of our French subsidiaries,
which was sold in the first quarter of fiscal year 2000.
General and Administrative. General and administrative expenses increased
to 14.5% of sales in the three-month period ended March 31, 2000 from 8.2% in
the three-month period ended March 31, 1999. These expenses increased 71.5% to
$2.5 million in 2000 from $1.4 million in 1999 primarily due to a $0.7 million
severance charge recorded in the period ended March 31, 2000 and the increase in
Xstreme division management and other executive corporate administrative
personnel.
Income Taxes. We recorded income tax expense of $0.2 million in the
three-month period ended March 31, 2000 on a pre-tax loss of $2.1 million. The
expense is higher than the amount calculated using the domestic statutory tax
rate of 35% due to the inability to recognize the tax benefit of the current
period net operating loss and the non-deductible amortization of intangible
assets acquired fromVivid Technology.
Net Income (loss). We recorded a net loss of $2.2 million or $0.04 per
share for the three months ended March 31, 2000 compared to net income of $0.3
million or $0.01 per share for the three months ended March 31, 1999.
THE NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1999
Product Sales. Total product sales were $27.1 million for the nine months
ended March 31, 2000 as compared with $24.4 million for the nine months ended
March 31, 1999. Sales of VOD products increased to $6.9 million in the
nine-month period ended March 31, 2000 from $0.6 million in the nine months
ended March 31, 1999. The increase in VOD product sales, which is primarily due
to higher sales of video systems to domestic multiple system operators, was
partially offset by a decrease in sales of real-time products of $3.6 million
resulting from declining sales of proprietary systems and the lower selling
price of open systems as compared with proprietary products.
Service and Other Sales. Service revenues decreased to $22.5 million in
the nine months ended March 31, 2000 from $29.4 million in the nine months ended
March 31, 1999, continuing the decline experienced over the past years as the
Company's real-time customers move from proprietary systems to open systems
which require less maintenance and the removal of certain larger proprietary
systems from service by certain customers.
Gross Margin. Gross margin decreased by $4.6 million to $23.2 million for
the nine months ended March 31, 2000 as compared to $27.8 million for the nine
months ended March 31, 1999. The gross margin as a percentage of sales decreased
to 46.7% in the nine-month period ended March 31, 2000 from 51.8% in the nine
months ended March 31, 1999 which is primarily due to the lower margin realized
in the early stages of the VOD business and a decrease in the gross margin on
real-time service revenue to 45.0% in the nine months ended March 31, 2000
compared to 48.1% in the nine months ended March 31, 1999. The decrease in the
gross margin on service revenue is the result of the cancellation by certain
customers of some of our larger and more profitable maintenance contracts as
they move from proprietary systems to less complicated open systems.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of total sales to 30.2% in the nine-month period ended March 31, 2000
from 25.8% in the nine-month period ended March 31, 1999. These expenses
increased 8.2% to $15.0 million in the nine months ended March 31, 2000 from
$13.8 million in the nine months ended March 31, 1999. The increase is
principally the result of an increase in the number of worldwide sales and
marketing personnel in the Company's Xstreme division, increased participation
in trade show and other marketing activities, and a non-cash compensation
expense of $0.4 million recorded in the second quarter of fiscal year 2000.
Research and Development. Research and development expenses increased as a
percentage of sales to 14.7% in the nine-month period ended March 31, 2000 from
14.2% in the nine-month month period ended March 31, 1999. These expenses
decreased 4.0% to $7.3 million in the nine months ended March 31, 2000 from $7.6
million in the nine months ended March 31, 1999 primarily due to deliberate cost
reduction efforts in the Real-Time division and a reduction in expenses relating
to Concurrent Vibrations, one of our French subsidiaries, which was sold in the
first quarter of fiscal year 2000. These decreases were partially offset by the
build-up in the research and development personnel in the Xstreme division
focusing on the video server hardware and software development and the
additional development personnel as part of the acquisition of Vivid Technology
in October of 1999.
General and Administrative. General and administrative expenses increased
to 12.6% of sales in the nine-month period ended March 31, 2000 from 9.4% in the
nine-month period ended March 31, 1999. These expenses increased 23.1% to $6.2
million in the nine months ended March 31, 2000 from $5.1 million in the nine
months ended March 31, 1999 primarily due to a $0.7 million severance charge,
the increase in Xstreme division management and other corporate executive
administrative personnel, and the move of the corporate headquarters and Xstreme
division to Atlanta, Georgia.
Other. Included in operating expenses in the nine-month period ended March
31, 2000 is a $14.0 million non-cash charge for the write-off of in-process
computer software technology in connection with the acquisition of Vivid
Technology and a $2.4 million restructuring and relocation provision for
personnel reduction costs in the Real-Time division and the relocation of the
corporate headquarters and Xstreme division offices to Atlanta, Georgia.
Included in other non-recurring items in the nine-month period ended March
31, 2000 is a $0.8 million gain related to the sale of the stock of Concurrent
Vibrations, one of our French subsidiaries, to Data Physics, Inc.
Income Taxes. We recorded income tax expense of $0.5 million in the
nine-month period ended March 31, 2000 on a pre-tax loss of $20.9 million due to
the inability to recognize the tax benefit of the current period net operating
loss and the non-deductible write-off of acquired in-process research and
development and amortization of other assets acquired in the acquisition of
Vivid Technology.
Net Income (loss). We recorded a net loss of $21.4 million or $0.42 per
share for the nine months ended March 31, 2000 compared to net income of $0.8
million or $0.02 per share for the nine months ended March 31, 1999.
ACQUISITION OF VIVID TECHNOLOGY, INC.
On October 28, 1999, the Company acquired Vivid Technology, Inc. ("Vivid"),
a former competitor in the video-on-demand industry. Vivid's interactive
stand-alone video-on-demand system ("the Vivid VOD system") was specifically
being designed to integrate with the most popular digital set-top boxes used by
General Instruments Corporation. The Vivid VOD system was also expected to be
compatible with the digital set-top boxes used by other leading cable operators
such as Philips, Panasonic and Sony. The Vivid VOD system was 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 was also being designed to eventually provide VOD service including
pause, rewind, and fast forward VCR-like functions. The Vivid VOD system would
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 was being
designed to support other interactive applications such as on-line banking, home
shopping, merchandising and on-demand/addressable advertising.
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 were yet to be completed which would be required in order for
the Vivid VOD system to be deployed on a commercial basis:
- 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 were based upon the
incremental revenues likely to be generated upon completion of the project and
the beginning of commercial sales of the Vivid VOD system, as estimated by
Company management to begin in the quarter ending December 31, 2000. The
projections assumed that the Vivid VOD system would be successful and the
products' development and commercialization were as set forth by management. The
discount rate used in this analysis was an after-tax rate of 28%.
Subsequent to the acquisition date, the Company decided to merge the
Vivid VOD system and the Concurrent VOD system into one standard VOD platform.
The Company expects to begin shipping the new hardware platform during the
quarter ending September 30, 2000. Initially, the new hardware platform will
have two software alternatives, one which will be compatible with digital
set-top boxes used by the General Instrument division of Motorola, Inc.,
using core software technology developed by and purchased from Vivid
Technology, and the other will be compatible with digital set-top boxes used by
Scientific-Atlanta, Inc. All of the above tasks are still required to be
completed prior to commercial sale of the new server. At March 31, 2000, the
Vivid related technology was estimated to be 88% complete and estimated to
cost an additional $355,000 to complete the project in December of 2000.
Beginning in the first half of calendar 2001, the Company expects to also
merge the software solutions into one standard solution which will be
compatible with either General Instrument or Scientific-Atlanta set-top boxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is dependent on many factors, including sales
volume, operating profit, debt service and the efficiency of asset use and
turnover. The Company's future liquidity depends on and will be affected by,
among other things:
- the actual versus anticipated decline in sales of real-time
proprietary systems and service maintenance revenue;
- revenue growth from VOD systems;
- ongoing cost control actions and the Company's expenses, including,
for example, research and development and capital expenditures;
- the margins on the Company's VOD and real time businesses;
- timing of product shipments which occur primarily during the last month
of the quarter;
- 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 borrowing base under
the Company's revolving credit facility;
- 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
- the number of countries in which we 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.
We used cash of $4.9 million in operating activities in the first nine
months of fiscal year 2000 compared to generating cash of $3.4 million in the
first nine months of fiscal year 1999 primarily due to the loss generated by the
Company's VOD business. We have an agreement providing for an $8.0 million
revolving credit facility through August 1, 2000. We currently are evaluating
the Company's options with regard to extending this credit facility. At March
31, 2000, 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.
We invested $3.3 and $3.0 million in property, plant and equipment during
the nine-month periods ended March 31, 2000 and March 31, 1999, respectively.
Current year capital expenditures primarily relate to computer equipment,
development and loaner equipment for the Company's VOD division and leasehold
improvements for the Company's Duluth, Georgia facility and the Company's
Real-Time division's new administrative offices.
We received $6.6 million in proceeds from the issuance of common stock to
employees and directors who exercised stock options during the nine-month period
ended March 31, 2000 compared to $1.0 million during the nine-month period ended
March 31, 1999.
At March 31, 2000, the Company's working capital was $14.5 million, and we
did not have any material commitments for capital expenditures. We believe that
the Company's existing cash balances, available credit facility and funds
generated by operations will be sufficient to meet the Company's anticipated
working capital and capital expenditure requirements for the next twelve months.
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 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'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 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 operates; the entry of new
well-capitalized competitors into Concurrent's markets, and other risks and
uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
We are exposed to market risk from changes in interest rates and foreign
currency exchange rates. We are exposed to the impact of interest rate changes
on the Company's short-term cash investments, which are backed by U.S.
government obligations, and other investments in respect of institutions with
the highest credit ratings, all of which have maturities of three months or
less. These short-term investments carry a degree of interest rate risk. We
believe that the impact of a 10% increase or decline in interest rates would not
be material to the Company's investment income. We conduct business in the
United States and around the world. The Company's most significant foreign
currency transaction exposures relate to the United Kingdom, those Western
European countries that use the euro as a common currency, Australia and Japan.
We currently do not hedge against fluctuations in exchange rates. We believe
that a hypothetical 10% upward or downward fluctuation in foreign currency
exchange rates relative to the United States dollar would not have a material
impact on the Company's future earnings, fair values or cash flows.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(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 Form 8-K containing a press release
relating to the promotion of Steve Nussrallah to the position of President and
Chief Executive Officer of the Company.
On January 11, 2000 the Company filed a Form 8-K/A containing certain financial
statements related to the Company's acquisition of Vivid Technology.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended March 31,
2000 to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 15, 2000 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
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Steven R. Norton
Chief Financial Officer
(Principal Financial and Accounting Officer)