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, 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 February 7, 2001 was 55,050,580.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
-------- --------- -------- ---------
Revenues:
Product sales
Real-time systems $ 6,738 $ 7,336 $11,449 $ 13,853
Video-on-demand systems 1,832 2,120 7,269 3,209
-------- --------- -------- ---------
Total product sales 8,570 9,456 18,718 17,062
Service and other 5,963 7,466 12,127 15,544
-------- --------- -------- ---------
Total 14,533 16,922 30,845 32,606
Cost of sales
Real-time and video-on-demand systems 4,640 5,043 10,201 8,833
Service and other 3,231 4,126 6,391 8,380
-------- --------- -------- ---------
Total 7,871 9,169 16,592 17,213
-------- --------- -------- ---------
Gross margin 6,662 7,753 14,253 15,393
Operating expenses:
Sales and marketing 4,066 5,723 8,139 10,250
Research and development 2,818 2,409 5,449 4,631
General and administrative 3,544 2,127 5,780 3,756
Cost of purchased in-process research
and development - 14,000 - 14,000
Relocation and restructuring - - - 2,367
-------- --------- -------- ---------
Total operating expenses 10,428 24,259 19,368 35,004
-------- --------- -------- ---------
Operating loss (3,766) (16,506) (5,115) (19,611)
Interest income - net 26 73 17 83
Other non-recurring income - - - 761
Other expense - net (37) (38) (92) (105)
-------- --------- -------- ---------
Loss before income taxes (3,777) (16,471) (5,190) (18,872)
Provision for income taxes 150 150 300 300
-------- --------- -------- ---------
Net loss $(3,927) $(16,621) $(5,490) $(19,172)
======== ========= ======== =========
Net loss per share
Basic $ (0.07) $ (0.32) $ (0.10) $ (0.38)
======== ========= ======== =========
Diluted $ (0.07) $ (0.32) $ (0.10) $ (0.38)
======== ========= ======== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-1-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2000 2000
-------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 6,292 $ 10,082
Accounts receivable - net 15,227 12,907
Inventories 8,305 5,621
Prepaid expenses and other current assets 2,534 2,381
-------------- ----------
Total current assets 32,358 30,991
Property, plant and equipment - net 11,008 11,314
Purchased developed computer software 1,678 1,773
Goodwill - net 2,785 2,943
Other long-term assets - net 841 1,019
-------------- ----------
Total assets $ 48,670 $ 48,040
============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,617 $ 13,297
Deferred revenue 5,385 2,608
-------------- ----------
Total current liabilities 19,002 15,905
Other long-term liabilities 2,791 2,902
-------------- ----------
Total liabilities 21,793 18,807
Stockholders' equity:
Common stock 549 538
Capital in excess of par value 129,308 125,740
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (101,445) (95,955)
Treasury stock (58) (58)
Accumulated other comprehensive loss (1,477) (1,032)
-------------- ----------
Total stockholders' equity 26,877 29,233
-------------- ----------
Total liabilities and stockholders' equity $ 48,670 $ 48,040
============== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-2-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net loss $ (5,490) $(19,172)
Adjustments to reconcile net loss to net
cash used in operating activities:
Write-off of in-process research and development - 14,000
Accrual of non-cash warrants 238 -
Depreciation, amortization and other 2,481 2,747
Other non cash expenses 672 647
Changes in operating assets and liabilities (net of effect of business acquired):
Accounts receivable (2,613) 186
Inventories (3,058) 8
Prepaid expenses and other current assets (153) (179)
Other long-term assets 84 (569)
Accounts payable and accrued expenses 320 220
Deferred revenue 2,777 (1,242)
Other long-term liabilities (76) 20
--------- ---------
Total adjustments to net loss 672 15,838
--------- ---------
Net cash used in operating activities (4,818) (3,334)
INVESTING ACTIVITIES
Net additions to property, plant and equipment (1,839) (2,168)
Proceeds from sale of facility - 1,223
Other - 76
--------- ---------
Net cash used in investing activities (1,839) (869)
FINANCING ACTIVITIES
Net repayment of capital lease obligation (35) -
Proceeds from sale and issuance of common stock 3,334 5,352
--------- ---------
Net cash provided by financing activities 3,299 5,352
Effect of exchange rates on cash and cash equivalents (432) (69)
--------- ---------
Decrease in cash and cash equivalents ( 3,790) 1,080
Cash and cash equivalents at beginning of period 10,082 6,872
--------- ---------
Cash and cash equivalents at end of period $ 6,292 $ 7,952
========= =========
Cash paid during the period for:
Interest $ 178 $ 113
========= =========
Income taxes (net of refunds) $ 284 $ 70
========= =========
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 accounting
principles generally accepted in the United States of America. 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 thereto 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 December 31, 2000 and the six months ended December
31, 2000 was 54,675,000 and 54,332,000, respectively. The number of shares used
in computing basic and diluted net 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 were anti-dilutive and were not considered in the diluted
earnings per share calculations.
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)
DECEMBER 31, JUNE 30,
2000 2000
------------- ---------
Raw materials $ 6,410 $ 4,333
Work-in-process 1,270 947
Finished goods 625 341
------------- ---------
$ 8,305 $ 5,621
============= =========
-4-
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2000 2000
------------- ---------
Accounts payable, trade $ 5,234 $ 4,484
Accrued payroll, vacation and
other employee expenses 5,570 6,292
Other accrued expenses 2,813 2,521
------------- ---------
$ 13,617 $ 13,297
============= =========
5. COMPREHENSIVE INCOME (LOSS)
The Company's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
-------- --------- -------- ---------
Net loss $(3,927) $(16,621) $(5,490) $(19,172)
Other comprehensive income (loss):
Foreign currency translation gain (loss) (33) (305) (445) 107
-------- --------- -------- ---------
Total comprehensive loss $(3,960) $(16,926) $(5,935) $(19,065)
======== ========= ======== =========
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. Shared expenses are
primarily allocated based on either revenues or headcount. There were no
material intersegment sales or transfers. Corporate costs include costs related
to the offices of the Chief Executive Officer, Chief Financial Officer, Investor
Relations and other administrative costs including annual audit and tax fees,
Board of Director fees and similar costs. The
-5-
following summarizes the operating income (loss) by segment for the three month
periods ended December 31, 2000 and December 31, 1999, respectively:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, 2000 (UNAUDITED)
-------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
Revenues:
Product sales $ 6,738 $ 1,832 $ - $ 8,570
Service and other 5,963 - - 5,963
---------- -------- ----------- --------
Total 12,701 1,832 - 14,533
Cost of sales
Systems 3,502 1,138 - 4,640
Service and other 3,231 - - 3,231
---------- -------- ----------- --------
Total 6,733 1,138 - 7,871
---------- -------- ----------- --------
Gross margin 5,968 694 - 6,662
Operating expenses
Sales and marketing 1,870 2,060 136 4,066
Research and development 844 1,974 - 2,818
General and administrative 505 363 2,676 3,544
---------- -------- ----------- --------
Total operating expenses 3,219 4,397 2,812 10,428
---------- -------- ----------- --------
Operating income (loss) $ 2,749 $(3,703) $ (2,812) $(3,766)
========== ======== =========== ========
THREE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
---------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- --------- ----------- ---------
Revenues:
Product sales $ 7,336 $ 2,120 $ - $ 9,456
Service and other 7,466 - - 7,466
---------- --------- ----------- ---------
Total 14,802 2,120 - 16,922
Cost of sales
Systems 3,350 1,693 - 5,043
Service and other 4,126 - - 4,126
---------- --------- ----------- ---------
Total 7,476 1,693 - 9,169
---------- --------- ----------- ---------
Gross margin 7,326 427 - 7,753
Operating expenses
Sales and marketing 3,451 2,201 71 5,723
Research and development 962 1,447 - 2,409
General and administrative 514 434 1,179 2,127
Cost of purchased in-process research
and development - 14,000 - 14,000
---------- --------- ----------- ---------
Total operating expenses 4,927 18,082 1,250 24,259
---------- --------- ----------- ---------
Operating income (loss) $ 2,399 $(17,655) $ (1,250) $(16,506)
========== ========= =========== =========
The following summarizes the operating income (loss) by segment for the six
month periods ended December 31, 2000 and December 31, 1999, respectively:
-6-
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, 2000 (UNAUDITED)
-------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
Revenues:
Product sales $ 11,449 $ 7,269 $ - $18,718
Service and other 12,127 - - 12,127
---------- -------- ----------- --------
Total 23,576 7,269 - 30,845
Cost of sales
Systems 5,892 4,309 - 10,201
Service and other 6,391 - - 6,391
---------- -------- ----------- --------
Total 12,283 4,309 - 16,592
---------- -------- ----------- --------
Gross margin 11,293 2,960 - 14,253
Operating expenses
Sales and marketing 3,787 4,032 320 8,139
Research and development 1,673 3,776 - 5,449
General and administrative 774 793 4,213 5,780
---------- -------- ----------- --------
Total operating expenses 6,234 8,601 4,533 19,368
---------- -------- ----------- --------
Operating income (loss) $ 5,059 $(5,641) $ (4,533) $(5,115)
========== ======== =========== ========
SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
---------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- --------- ----------- ---------
Revenues:
Product sales $ 13,853 $ 3,209 $ - $ 17,062
Service and other 15,544 - - 15,544
---------- --------- ----------- ---------
Total 29,397 3,209 - 32,606
Cost of sales
Systems 6,395 2,438 - 8,833
Service and other 8,380 - - 8,380
---------- --------- ----------- ---------
Total 14,775 2,438 - 17,213
---------- --------- ----------- ---------
Gross margin 14,622 771 - 15,393
Operating expenses
Sales and marketing 6,350 3,773 127 10,250
Research and development 2,175 2,456 - 4,631
General and administrative 1,013 598 2,145 3,756
Cost of purchased in-process research
and development - 14,000 - 14,000
Relocation and restructuring 1,208 1,159 - 2,367
---------- --------- ----------- ---------
Total operating expenses 10,746 21,986 2,272 35,004
---------- --------- ----------- ---------
Operating income (loss) $ 3,876 $(21,215) $ (2,272) $(19,611)
========== ========= =========== =========
-7-
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
six months ended December 31, 1999.
In addition to the VOD Division relocation discussed above, management
decided in the first quarter of fiscal year 2000 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 operating
expense in the condensed consolidated statement of operations for the six months
ended December 31, 1999. This expense represents workforce reductions of
approximately 38 employees in all areas of the Company.
8. 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 for the six months ended December 31, 1999.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Upon adoption, all
derivative instruments will be recognized in the balance sheet at fair value,
and changes in the fair values of such instruments must be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 was
effective for the Company on July 1, 2000. As the Company does not have any
hedging and derivative positions, adoption of these pronouncements did not have
a material effect on the Company's financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on
applying generally accepted accounting principles to revenue recognition issues
in financial statements. The Company will adopt SAB 101 as required in the
fourth fiscal quarter of 2001. The adoption of this pronouncement is not
expected to have a material impact on the operations of the Company.
-8-
10. ACQUISITION OF VIVID TECHNOLOGY
On October 28, 1999, the Company acquired Vivid Technology, Inc. ("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:
(DOLLARS IN THOUSANDS)
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 six months 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, 1999
and includes the one-time charge related to the write-off of the purchased IPR&D
of $14 million in the three month and six month periods ended December 31, 1999:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
-------- --------- -------- ---------
Revenues $14,533 $ 17,022 $30,845 $ 32,960
======== ========= ======== =========
Net loss $(3,927) $(16,837) $(5,490) $(19,868)
======== ========= ======== =========
Basic and diluted net loss per share $ (0.07) $ (0.32) $ (0.10) $ (0.37)
======== ========= ======== =========
-9-
ITEM 2. 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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(Unaudited) (Unaudited)
2000 1999 2000 1999
------- ------- ------- -------
Net sales:
Product sales (% of respective product sales category):
Real-time systems 46.4% 43.4% 37.1% 42.5%
Video-on-demand systems 12.6 12.5 23.6 9.8
------- ------- ------- -------
Total product sales 59.0 55.9 60.7 52.3
Service and other 41.0 44.1 39.3 47.7
------- ------- ------- -------
Total 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems 54.1 53.3 54.5 51.8
Service and other 54.2 55.3 52.7 53.9
------- ------- ------- -------
Total 54.2 54.2 53.8 52.8
------- ------- ------- -------
Gross margin 45.8 45.8 46.2 47.2
Operating expenses:
Sales and marketing 28.0 33.8 26.4 31.4
Research and development 19.4 14.2 17.7 14.2
General and administrative 24.4 12.6 18.7 11.5
Cost of purchased in-process research and - - - -
development - 82.7 - 42.9
Relocation and restructuring - - - 7.3
------- ------- ------- -------
Total operating expenses 71.8 143.4 62.8 107.4
------- ------- ------- -------
Operating loss (25.9) (97.5) (16.6) (60.1)
Interest income - net 0.2 0.4 0.1 0.3
Other non-recurring income - - - 2.3
Other expense - net (0.3) (0.2) (0.3) (0.3)
------- ------- ------- -------
Loss before income taxes (26.0) (97.3) (16.8) (57.9)
Provision for income taxes 1.0 0.9 1.0 0.9
------- ------- ------- -------
Net loss (27.0)% (98.2)% (17.8)% (58.8)%
======= ======= ======= =======
-10-
RESULTS OF OPERATIONS
THE QUARTER ENDED DECEMBER 31, 2000 COMPARED TO THE QUARTER ENDED DECEMBER 31,
1999
Product Sales. Total product sales were $8.6 million for the three months
ended December 31, 2000, a decrease of $.9 million or 9.4% from $9.5 million for
the three months ended December 31, 1999. Sales of Real-Time products decreased
to $6.7 million in the three month period ended December 31, 2000 from $7.3
million in the three month period ended December 31, 1999, continuing the
decline in sales of real-time computer systems. Sales of VOD products decreased
to $1.8 million in the three month period ended December 31, 2000 from $2.1
million in the three month period ended December 31, 1999. The decrease is the
result of an unexpected delay in an order of VOD products for 3 systems of a
single multiple system operator (MSO) for the three months ended December 31,
2000.
Service and Other Sales. Service revenues decreased to $6.0 million or
20.1% for the three months ended December 31, 2000 from $7.5 million for the
three months ended December 31, 1999. The decline resulted from customers
switching from proprietary systems to Concurrent's open systems which are less
expensive to maintain, and the cancellation of other proprietary computer
maintenance contracts as the machines are removed from service.
Gross Margin. Gross margin decreased 14.1% to $6.7 million for the three
months ended December 31, 2000 from $7.8 million for the three months ended
December 31, 1999. The gross margin as a percentage of sales remained unchanged
at 45.8% in the three month period ended December 31, 2000 as compared to the
three month period ended December 31, 1999. The gross margin on real-time
service revenue increased to 45.8% for the three months ended December 31, 2000
compared to 44.7% for the three months ended December 31, 1999, due to cost
reduction efforts made in previous quarters.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 28.0% for the three months ended December 31, 2000 as
compared to 33.8% for the three months ended December 31, 1999. These expenses
decreased to $4.1 million in the three month period ended December 31, 2000 from
$5.7 million in the three month period ended December 31, 1999 primarily due to
the decrease in the Real-Time Division's worldwide sales and marketing
personnel.
Research and Development. Research and development expenses increased as a
percentage of sales to 19.4% in the three month period ended December 31, 2000
from 14.2% in the three month period ended December 31, 1999. These expenses
increased to $2.8 million in the three month period ended December 31, 2000 from
$2.4 million in the three month period ended December 31, 1999 primarily due to
the growth in the VOD Division research and development personnel and the
additional development personnel as a result of the acquisition of Vivid in
October of 1999. These increases were partially offset by cost reduction
efforts in the Real-Time Division.
General and Administrative. General and administrative expenses increased
to 24.4% of sales in the three month period ended December 31, 2000 from 12.6%
in the three month period ended December 31, 1999. These expenses increased to
$3.5 million in the three month period ended December 31, 2000 from $2.1 million
in the three month period ended December 31, 1999 primarily due to a $1.2
million severance charge recorded in the three month period ended December 31,
2000 related to the resignation of the Company's Chief Executive Officer in
October, 2000.
Other. Included in operating expenses in the three month period ended
December 31, 1999 is a $14.0 million non-cash charge for the write-off of
in-process research and development in connection with the acquisition of Vivid.
Income Taxes. The Company recorded income tax expense of $150,000 in each
of the three month periods ended December 31, 2000 and December 31, 1999 on
pre-tax losses of $3.8 million and $16.5 million, respectively, due to the
inability to recognize the future tax benefit of the respective period's net
operating loss.
-11-
Net Loss. The Company recorded a net loss of $3.9 million or $.07 per
share for the three months ended December 31, 2000 compared to a net loss of
$16.6 million or $.32 per share for the three months ended December 31, 1999.
THE SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE SIX MONTHS ENDED DECEMBER
31, 1999
Product Sales. Total product sales were $18.7 million for the six months
ended December 31, 2000, an increase of $1.6 million or 9.7% from $17.1 million
for the six months ended December 31, 1999. Sales of VOD products increased to
$7.3 million in the six month period ended December 31, 2000 from $3.2 million
in the six month period ended December 31, 1999. The increase in VOD product
sales was primarily due to higher sales of video systems to domestic cable
operators, including Time Warner and Cox Communications. Sales of Real-Time
products decreased to $11.4 million in the six month period ended December 31,
2000 from $13.9 million in the six month period ended December 31, 1999
continuing the decline in sales of real-time computer systems resulting from the
move by our customers to less expensive off the shelf systems from the legacy
proprietary systems sold by Concurrent.
Service and Other Sales. Service revenues decreased to $12.1 million or
22.0% for the six months ended December 31, 2000 from $15.5 million for the six
months ended December 31, 1999. The decline resulted from customers switching
from proprietary systems to Concurrent's open systems which are less expensive
to maintain, and the cancellation of other proprietary computer maintenance
contracts as the machines are removed from service.
Gross Margin. Gross margin decreased 7.4% to $14.3 million for the six
months ended December 31, 2000 from $15.4 million for the six months ended
December 31, 1999. The gross margin as a percentage of sales decreased to 46.2%
in the six month period ended December 31, 2000 from 47.2% in the six month
period ended December 31, 1999, primarily due to the increase in VOD sales as a
percent of total product sales and the lower gross margin being realized on VOD
sales compared to real-time sales. The gross margin on real-time service
revenue increased to 47.3% for the six months ended December 31, 2000 compared
to 46.1% for the six months ended December 31, 1999, due to cost reduction
efforts made in previous quarters.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 26.4% for the six months ended December 31, 2000 as
compared to 31.4% for the six months ended December 31, 1999. These expenses
decreased to $8.1 million in the six month period ended December 31, 2000 from
$10.3 million in the six month period ended December 31, 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 VOD Division.
Research and Development. Research and development expenses increased as a
percentage of sales to 17.7% in the six month period ended December 31, 2000
from 14.2% in the six month period ended December 31, 1999. These expenses
increased to $5.4 million in the six month period ended December 31, 2000 from
$4.6 million in the six month period ended December 31, 1999 primarily due to
the growth in the VOD Division research and development personnel and the
additional development personnel as a result of the acquisition of Vivid in
October of 1999. These increases were partially offset by cost reduction
efforts in the Real-Time Division.
General and Administrative. General and administrative expenses increased
to 18.7% of sales in the six month period ended December 31, 2000 from 11.5% in
the six month period ended December 31, 1999. These expenses increased to $5.8
million in the six month period ended December 31, 2000 from $3.8 million in the
six month period ended December 31, 1999 primarily due to a $1.2 million
severance charge recorded in the six month period ended December 31, 2000
related to the resignation of the Company's Chief Executive Officer in October,
2000 as well as the increase in VOD division management and other executive
corporate administrative personnel.
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Other. Included in operating expenses in the six month period ended
December 31, 1999 is a $14.0 million non-cash charge for the write-off of
in-process research and development in connection with the acquisition of Vivid
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 VOD Division offices to Duluth, Georgia.
Income Taxes. The Company recorded income tax expense of $300,000 in each
of the six month periods ended December 31, 2000 and December 31, 1999 on
pre-tax losses of $5.2 million and $18.9 million, respectively, due to the
inability to recognize the future tax benefit of the respective period's net
operating loss.
Net Loss. The company recorded a net loss of $5.5 million or $.10 per
share for the six months ended December 31, 2000 compared to a net loss of $19.2
million or $.38 per share for the six months ended December 31, 1999.
ACQUISITION OF VIVID TECHNOLOGY, INC.
On October 28, 1999, the Company acquired Vivid Technology, Inc., 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, a division of Motorola. 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, did
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 had been implemented using a SQL data base, needed to be ported
to other relational data bases such as Oracle to support high end data
base applications.
- The Resource Manager had been alpha tested; however, an advanced beta
test had 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 had been implemented using a SQL data
base, needed to be ported to other relational data bases such as
Oracle to support high end data base applications.
- The Set Top VOD application needed 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, needed 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.
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The method used to allocate the purchase consideration to 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 began shipping the new hardware platform at the end of the quarter
ended September 30, 2000. Initially, the new hardware platform has two software
alternatives, one which is compatible with digital set-top boxes used by General
Instruments, using core software technology developed by and purchased from
Vivid, and one which is compatible with digital set-top boxes used by
Scientific-Atlanta, Inc. 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 both General Instruments and Scientific-Atlanta
set-top boxes.
-14-
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of the Company is dependent on many factors, including sales
volume, operating profit, debt service and the efficiency of asset use and
turnover. The future liquidity of the Company 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 expenses, including for example,
research and development and capital expenditures;
- The margins on the 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 of the
revolving credit facility; and
- The number of countries in which the Company operates, 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 $4.8 million and $3.3 million in operating
activities during the six month periods ended December 31, 2000 and December 31,
1999, respectively, primarily due to the losses generated by the Company's VOD
business. On November 3, 2000, the Company entered into a $15 million revolving
credit facility with Wachovia Bank which expires June 30, 2002 and replaces the
previous credit facility which expired on October 31, 2000. Borrowings under
the facility are limited to 85% of eligible accounts receivable and bear
interest at between prime and prime plus .75% or between LIBOR plus 2.25% and
LIBOR plus 3.00% depending on the Company's ratio of Consolidated Funded Debt
(as defined in the credit facility) to EBITDA. The Company has pledged
substantially all of its assets as collateral for the facility. No borrowings
were outstanding at January 31, 2001 or December 31, 2000 under the credit
facility. The amount of cash available to borrow under the credit facility was
approximately $3.4 million and $4.8 million at January 31, 2001 and December 31,
2000, respectively. The credit facility contains financial covenants which
limit the ratio of total liabilities to tangible net worth and which require the
Company to achieve on a quarterly basis minimum EBITDA in each of the Company's
operating divisions. The Company was in violation of its EBITDA covenant for the
quarter ended December 31, 2000. However, the bank has waived compliance with
the EBITDA covenant for the quarter ended December 31, 2000.
The Company invested $1.8 and $2.2 million in property, plant and equipment
during the six month periods ended December 31, 2000 and December 31, 1999,
respectively. Current year capital expenditures primarily relate to computer
equipment and development equipment for the Company's VOD Division.
The Company received $3.3 million in proceeds from the issuance of common
stock to employees and directors who exercised stock options during the six
month period ended December 31, 2000 compared to $5.4 million during the six
month period ended December 31, 1999.
At December 31, 2000, the Company's working capital was $13.4 million, and
the Company did not have any material commitments for capital expenditures. The
Company believes that existing cash balances, the 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.
-15-
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Concurrent or its representatives, may
constitute "forward-looking statements" within the meaning of the federal
securities laws. When used in this report, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Statements regarding future events and developments and
Concurrent's future performance, as well as its expectations, beliefs, plans,
estimates or projections relating to the future, are forward-looking statements
within the meaning of these laws. All forward-looking statements are subject to
certain risks and uncertainties that could cause actual events to differ
materially from those projected. The risks and uncertainties which could affect
the Company'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 the Company and other
companies to enforce their intellectual property rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of the VOD segment;
- the concentration of the Company's customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- the highly competitive environment in which the Company operates;
- the entry of new well-capitalized competitors into the Company's
markets and other risks and uncertainties.
Other important risk factors are discussed in Item 5 of Concurrent's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000,
which information is hereby incorporated by reference in this Form 10-Q.
These statements are based on current expectations and speak only as of the
date of such statements. Concurrent undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of future events,
new information or otherwise.
-16-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates. The Company is exposed to the impact of
interest rate changes on its 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 3 months or
less. These short-term investments carry a degree of interest rate risk. The
Company believes that the impact of a 10% increase or decline in interest rates
would not be material to its investment income.
The Company conducts business in the United States and around the world.
The 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. The Company does not hedge against fluctuations
in exchange rates and believes 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 future earnings, fair values, or cash
flows.
-17-
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(11) Statement on computation of per share earnings
(b) Reports on Form 8-K.
None.
-18-
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, 2000 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: February 9, 2001 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
-------------------------
Steven R. Norton
Chief Financial Officer
(Principal Financial and Accounting Officer)
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