SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period from ____ to ____
Commission File No. 0-13150
_____________
CONCURRENT COMPUTER CORPORATION
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
2101 West Cypress Creek Road, Ft. Lauderdale, FL 33309
Telephone: (954) 974-1700
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No___
---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of November 13, 1997 were 47,202,203.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------- --------
Net sales
Computer systems $ 8,866 $13,374
Service and other 11,739 14,383
-------- --------
Total 20,605 27,757
Cost of sales
Computer systems 4,277 7,109
Service and other 6,445 7,758
Transition - 738
-------- --------
Total 10,722 15,605
-------- --------
Gross margin 9,883 12,152
Operating expenses:
Research and development 2,820 3,356
Selling, general and administrative 6,024 7,231
Transition/restructuring (607) 1,234
Post-retirement benefit reversal - (981)
-------- --------
Total operating expenses 8,237 10,840
Operating income (loss) 1,646 1,312
Interest expense (262) (659)
Interest income 22 52
Other non-recurring charge 420 (4,068)
Other income (expense) - net (201) (259)
-------- --------
Income (loss) before provision for income taxes 1,625 (3,622)
Provision for income taxes 325 440
-------- --------
Net income (loss) $ 1,300 $(4,062)
Preferred stock dividends and accretion of
mandatory redeemable preferred shares (18) -
-------- --------
Net income (loss) available to common shareholders $ 1,282 $(4,062)
======== ========
Net income (loss) per share $ 0.03 $ (0.10)
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1997 1997
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,809 $ 4,024
Trading securities - 2,718
Accounts receivable - net 22,000 25,720
Inventories 7,983 8,399
Prepaid expenses and other current assets 1,231 2,286
----------- ----------
Total current assets 36,023 43,147
Property, plant and equipment - net 13,353 14,207
Facilities held for disposal - 4,700
Other long-term assets 1,510 1,474
Total assets $ 50,886 $ 63,528
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,898 $ 5,399
Current portion of long-term debt 834 1,668
Revolving credit facility - 3,118
Accounts payable and accrued expenses 17,779 23,866
Deferred revenue 4,213 4,402
----------- ----------
Total current liabilities 27,724 38,453
Long term debt 1,132 4,493
Other long-term liabilities 1,165 1,219
Total liabilities 30,021 44,165
----------- ----------
Class B 9% cumulative convertible, redeemable, exchangeable
preferred stock, mandatory redemption value of $751,560; $.01
par value per share, 1,000,000 authorized; 120,000 issued and
outstanding at September 30, 1997 682 1,243
Stockholders' equity:
Common stock 465 461
Capital in excess of par value 93,442 92,650
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (73,305) (74,587)
Treasury stock (58) (58)
Cumulative translation adjustment (361) (346)
Total stockholders' equity 20,183 18,120
----------- ----------
Total liabilities and stockholders' equity $ 50,886 $ 63,528
=========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
--------- --------
Cash flows provided by operating activities:
Net income (loss) $ 1,300 $(4,062)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Unrealized loss on CyberGuard Stock - 3,698
Realized (gain) loss on CyberGuard Stock (420) 376
Gain on sale of facility (706) -
Depreciation, amortization and other 1,295 1,160
Other non-cash expenses 671 1,020
Decrease (increase) in current assets:
Accounts receivable 3,720 1,655
Inventories 416 (1,043)
Prepaid expenses and other current assets 1,055 804
Decrease in current liabilities other than debt obligations (6,292) (3,242)
Decrease (increase) in other long-term assets (50) 1,186
Decrease in other long-term liabilities (54) (1,080)
---------
Total adjustments to net income (loss) (365) 4,534
--------- --------
Net cash provided by operating activities 935 472
--------- --------
Cash flows provided by investing activities:
Net additions to property, plant and equipment (427) (833)
Net proceeds from sale of trading securities 2,668 974
Proceeds from sale of facility 5,406 -
Net cash provided by investing activities 7,647 141
--------- --------
Cash flow provided by (used by) financing activities:
Net proceeds of notes payable (259) 393
Proceeds of revolving credit facility 17,593 -
Payments of revolving credit facility (20,711) (353)
Proceeds of long-term debt - -
Repayment of long-term debt (4,194) (101)
Net proceeds from sale and
issuance of common stock 32 85
--------- --------
Net cash provided by (used by) financing activities (7,539) 24
--------- --------
Effect of exchange rates on cash
and cash equivalents (258) 113
--------- --------
Increase in cash and cash equivalents $ 785 $ 750
========= ========
Cash paid during the period for:
Interest $ 264 $ 500
========= ========
Income taxes (net of refunds) $ 260 $ 207
========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The foregoing financial information
reflects all adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the periods presented. All such
adjustments are of a normal recurring nature.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes included in the Annual Report on Form 10-K
as filed with the Securities and Exchange Commission.
The results of interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. CHANGES IN ACCOUNTING POLICY
Post-retirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" ("FAS No. 106"). This standard
requires companies to accrue post-retirement benefits throughout the
employees' active service periods until they attain full eligibility for those
benefits. The transition obligation (the accumulated post-retirement benefit
obligation at the date of adoption) may be recognized either immediately or by
amortization over the longer of the average remaining service period of active
employees or 20 years.
In connection with the adoption of this standard in fiscal year 1994, the
Company recorded a non-cash charge of $3.0 million representing the immediate
recognition of the accumulated post-retirement benefit obligation at the date
of the adoption.
As a result of the Acquisition as defined in Management's Discussion and
Analysis, the Company terminated the retirement benefits of current employees
and former employees who are not yet retired. In the quarter ended September
30, 1996, a curtailment gain of $1.0 million was recognized. The total
year-to-date curtailment gain during fiscal year 1997 was $2.5 million. The
Company believes there will be no material expenses in connection with this
Plan.
Stock-Based Compensation
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. During fiscal year 1997, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123"), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures (which for the Company would
include employee stock option grants made in fiscal year 1996 and future
years) as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123.
3. INCOME (LOSS) PER SHARE
Income (loss) per share for the three months ended September 30, 1997 and
1996, respectively, is based on the weighted average number of shares of
common stock outstanding. The number of shares used in computing primary and
fully diluted earnings per share for the three months ended September 30, 1997
was 46,648,000 and 47,255,000, respectively. For the three months ended
September 30, 1996, the weighted average number of shares outstanding was
42,345,000.
4. TRADING SECURITIES
As of June 30, 1996, the Company held 683,173 shares of CyberGuard stock
with a market value of $14.75 per share. During the quarter ended September
30, 1996 the Company sold 91,500 shares at $10.645 per share, resulting in a
realized loss of $376 thousand. In addition, the value of the stock at the
end of the quarter ended September 30, 1996 was $8.50 per share, resulting in
an unrealized loss of $3.7 million. During the remainder of fiscal year 1997,
the company sold 286,495 shares leaving 305,178 shares at June 30, 1997 valued
at $2.7 million or $8.91 per share.
During the quarter ended September 30, 1997, 259,352 shares of CyberGuard
stock were sold resulting in a realized gain for the period of $358 thousand.
On September 4, 1997, 45,826 shares valued at $10.25 per share were issued as
bonuses to Company employees. This resulted in a realized gain of $62
thousand.
5. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components
of inventories are as follows:
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1997 1997
---------- ---------
Raw Materials $ 5,863 $ 5,823
Work-in-process 1,443 2,191
Finished Goods 677 385
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$ 7,983 $ 8,399
========== =========
6. ACCUMULATED DEPRECIATION
Accumulated depreciation for property, plant and equipment at September
30, 1997 and June 30, 1997 was $22,871,000 and $23,062,000 respectively. The
decrease primarily reflects exchange rate fluctuations.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1997 1997
---------- ---------
Accounts payable, trade $ 4,811 $ 7,451
Accrued payroll, vacation and
other employee expenses 5,300 5,891
Restructuring reserve 1,474 2,876
Other accrued expenses 6,194 7,648
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$ 17,779 $ 23,866
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8. SALE OF FACILITY
During fiscal year 1996, in connection with the Acquisition (as
hereinafter defined) and the resulted planned disposition of the Company's
Oceanport, New Jersey facility, the book value of land and building related to
this facility was written down by $6.8 million to its estimated fair value of
$4.7 million, based on a valuation by independent appraisers, and classified
as a facility held for sale. In the quarter ended September 30, 1997, the
sale of this facility was finalized. $5.5 million less closing costs of $0.1
million was received by the Company and applied against the Company's debt.
The Company realized a gain of $0.6 million that is reflected in the statement
of operations as an operating income and accrued $0.1 million for potential
expenses which may occur while transferring the building to the new owners.
9. PROVISION FOR RESTRUCTURING
The Company recorded a restructuring provision of $24.5 million during
the year ended June 30, 1996. This charge included the estimated costs
related to the rationalization of facilities, workforce reductions, asset
writedowns and other costs. The balance of the restructuring reserve at June
30, 1996 was $13.0 million. During fiscal year 1997, expenditures related to
this restructuring amounted to approximately $10.1 million leaving a balance
$2.9 million at June 30, 1997.
During the quarter ended September 30, 1997, restructuring expenditures
amounted to $1.4 million representing workforce reductions and lease
terminations. The balance of the restructuring reserve at September 30, 1997
was $1.5 million.
On May 5, 1992, the Company had entered into an agreement with the
Industrial Development Authority (the "IDA") to maintain a presence in Ireland
through April 30, 1998. In connection with the Acquisition, the Company
closed its Ireland operations in December 1996. As a result of the closing,
the Company may be required to repay grants to the IDA. Current negotiations
with the IDA indicate that the potential liability is approximately $150,000
(100,000 Irish Pounds).
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 27, 1996, the Company acquired the Real-Time Division of Harris
Computer Systems Corporation ("HCSC"), along with 683,178 shares of newly
issued shares of HCSC, which was renamed CyberGuard Corporation, in exchange
for 10,000,000 shares of Concurrent common stock, 1,000,000 shares of
convertible exchangeable preferred stock of Concurrent with a 9% cumulative
annual dividend payable quarterly in arrears and a mandatory redemption value
of $6,263,000 and the assumption of certain liabilities related to the HCSC
Real-Time Division ("Acquisition"). The aggregate purchase price of the
Acquisition was approximately $18.7 million. The Acquisition has been
accounted for as a purchase effective June 30, 1996.
RESULTS OF OPERATIONS
THE QUARTER ENDED SEPTEMBER 30, 1997 COMPARED WITH THE QUARTER ENDED SEPTEMBER
30, 1996.
Net Sales. Net sales decreased to $20.6 million for the quarter ended
September 30, 1997 from $27.8 million in the comparable period a year ago.
The Company considers its computer systems and service business to be one
class of products.
Net product sales were $8.9 million for the quarter ended September 30, 1997
as compared with $13.4 million for the quarter ended September 30, 1996.
Sales of proprietary systems continue to decline, and the selling price of
open systems is significantly lower than that of proprietary products.
Maintenance sales decreased from $14.4 million in the quarter ended September
30, 1996 to $11.7 million in the quarter ended September 30, 1997 continuing
the decline experienced over the past years as customers move from proprietary
systems to open systems which require less maintenance.
Gross Margin. Gross margin decreased $2.3 million during the current
quarter to $9.9 million (48.0% as a percentage of sales) compared with $12.2
million (43.8%) for the three months ended September 30, 1996. The decrease
reflects the Company's lower sales this quarter.
Operating Income. Operating income increased $0.3 million to a profit of
$1.6 million in the current quarter compared with an income of $1.3 million in
the quarter ended September 30, 1996. Expenses decreased $2.6 million in the
current quarter compared with the quarter ended September 30, 1996, which is
primarily due to continued cost reduction efforts and the reduction of
transition costs as the transition process relating to the Acquisition has
been completed.
Net Income. Net income increased from a loss of $4.1 million in the
quarter ended September 30, 1996 to a profit of $1.3 million in the current
quarter. The increase of $5.4 million is due to the expense reductions
discussed above, a reduction in interest expense due to decreased borrowings,
and a $0.4 million gain on CyberGuard stock in the current quarter as compared
to a $4.1 million loss on CyberGuard stock in the quarter ended September 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company sold its Oceanport, New Jersey facility in July 1997 for $5.5
million. The net proceeds for the sale ($5.4 million) were used to reduce
debt. The company also sold 259,352 shares of CyberGuard stock for $2.7
million during the current quarter which was used in operations. The
Company's liquidity is dependent on many factors, including sales volume,
operating profit ratio, debt service and the efficiency of asset use and
turnover. The future liquidity of the Company depends to a significant extent
on (i) the actual versus anticipated decline in sales of proprietary systems
and service maintenance revenue; (ii) revenue growth from open systems; (iii)
both the related costs and the length of time to realize the anticipated
benefits from the combination of the real-time businesses of the Company and
HCSC; and (iv) ongoing cost control actions. Liquidity will also be affected
by: (i) timing of shipments which predominately occur during the last month of
the quarter; (ii) the percentage of sales derived from outside the United
States where there are generally longer accounts receivable collection cycles
and which receivables are not included in the Company's borrowing base under
its revolving credit facility; (iii) the sales level in the United States
where related accounts receivable are included in the borrowing base of the
Company's revolving credit facility; (iv) the number of countries in which the
Company will operate, which may require maintenance of minimum cash levels in
each country and, in certain cases, may restrict the repatriation of cash,
such as cash held on deposit to secure office leases. The Company believes
that it will be able to fund 1998 operations through its operating results and
existing financing facilities. There is no assurance that the Company's plans
will be achieved.
On June 28, 1996, the Company entered into a new agreement providing for
a $19.9 million credit facility which matures August 1, 1999. The facility
includes a $7.2 million term loan (the "Term Loan") and a $12.7 million
revolving credit facility (the "Revolver"). The Revolver represents a $4.7
million increase to the maximum revolver amount, subject to certain
restrictions.
At September 30, 1997, the outstanding balances under the Term Loan and
the Revolver were $1.8 million and $0, respectively. Both the Term Loan and
the Revolver bear interest at the prime rate plus 2.0%. The Term Loan is
payable in 28 monthly installments of approximately $139,000 each, commencing
October 1, 1996 and ending January 1, 1999, with the final balance of
approximately $3.3 million payable August 1, 1999. The Revolver may be repaid
and reborrowed, subject to certain collateral requirements, at any time during
the term ending August 1, 1999. The Company has pledged substantially all of
its domestic assets as collateral for the Term Loan and the Revolver. The
Company may repay the Term Loan at any time without penalty. Certain early
termination fees apply if the Company terminates the facility in its entirety
prior to August 1, 1999.
The Company's joint venture agreement regarding its Japanese subsidiary
has been renewed through June 1998. In the event such agreement is not
further extended, the Company could be required to satisfy the then
outstanding amount of demand notes which are guaranteed by the Company ($2.7
million at September 30, 1997). There can be no assurance that the agreement
will be extended or, in the event the agreement is not extended, that the
Company will be able to fully satisfy its demand note requirements.
The Company had cash and cash equivalents on hand of $4.8 million
representing an increase from $4.0 million as of June 30, 1997 primarily due
to the sale of the Oceanport building and the sale of the remaining CyberGuard
stock. Accounts receivable decreased by $3.7 million due to improved
collections. Accounts payable and accrued expenses decreased by $6.1 million
due primarily to an improvement in days outstanding of accounts payable and a
reduction of the restructure reserve.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Form 10-Q contains forward-looking statements that are subject to
risks and uncertainties. Statements indicating that the Company "expects,"
"estimates" or "believes" are forward-looking as are all other statements
concerning future financial results, product offerings or other events that
have not yet occurred. There are several important factors that could cause
actual results or events to differ materially from those anticipated by the
forward-looking statements contained herein. Such factors include, but are
not limited to: the growth rates of the Company's market segments; the
positioning of the Company's products in those segments; the Company's ability
to effectively manage its business, and the growth of its business, in a
rapidly changing environment; the timing of new product introductions;
inventory risks due to changes in market conditions; the competitive
environment in the computer industry; the Company's ability to establish
successful strategic relationships; and general economic conditions.
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
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Net sales
Computer systems 43.0% 48.2%
Service and other 57.0% 51.8%
------ -------
Total 100.0% 100.0%
Cost of sales
Computer systems 48.2% 53.2%
Service and other 54.9% 53.9%
Transition 0.0% n/a
------ -------
Total 52.0% 56.2%
------ -------
Gross margin 48.0% 43.8%
Operating expenses:
Research and development 13.7% 12.1%
Selling, general and administrative 29.2% 26.1%
Transition/restructuring (2.9%) 4.4%
Post-retirement benefit reversal 0.0% (3.5%)
------ -------
Total operating expenses 40.0% 39.1%
Operating income (loss) 8.0% 4.7%
Interest expense (1.3%) (2.4%)
Interest income 0.1% 0.2%
Other non-recurring charge 2.0% (14.7%)
Other income (expense) - net (1.0%) (0.9%)
------ -------
Income (loss) before provision for income taxes 7.9% (13.0%)
Provision for income taxes 1.6% 1.6%
------ -------
Net income (loss) 6.3% (14.6%)
====== =======
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(12) Statement on computation of per share earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended
September 30, 1997 to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: November 14, 1997 CONCURRENT COMPUTER CORPORATION
By: /s/ E. Courtney Siegel E.
--------------------------
COURTNEY SIEGEL
Chairman of the Board, President
and Chief Executive Officer
By: /s/ Daniel S. Dunleavy
------------------------
DANIEL S.DUNLEAVY
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)