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, 1998
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 May 13, 1998 were 47,605,024.
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 NINE MONTHS ENDED
MARCH 31, MARCH 29, MARCH 31, MARCH 29,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net sales
Computer systems. . . . . . . . . . $ 9,544 $ 16,440 $ 28,169 $ 42,196
Service and other . . . . . . . . . 10,850 12,215 33,846 40,841
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . 20,394 28,655 62,015 83,037
Cost of sales
Computer systems. . . . . . . . . . 5,123 8,529 13,916 22,199
Service and other . . . . . . . . . 5,670 6,593 17,852 21,742
Transition. . . . . . . . . . . . . - 171 - 973
----------- ----------- ----------- -----------
Total . . . . . . . . . . . . . . 10,793 15,293 31,768 44,914
----------- ----------- ----------- -----------
Gross margin. . . . . . . . . . . . . 9,601 13,362 30,247 38,123
Operating expenses:
Research and development. . . . . . 2,739 3,439 8,253 10,238
Selling, general and administrative 5,845 6,732 17,739 21,760
Transition/restructuring. . . . . . - 71 (607) 2,177
Post-retirement benefit reversal. . - (300) - (2,481)
----------- ----------- ----------- -----------
Total operating expenses. . . . . . . 8,584 9,942 25,385 31,694
Operating income. . . . . . . . . . . 1,017 3,420 4,862 6,429
Interest expense. . . . . . . . . . . (159) (549) (609) (1,740)
Interest income . . . . . . . . . . . 51 71 109 152
Other non-recurring charge. . . . . . - 64 420 (1,867)
Other income (expense) - net. . . . . 120 (325) (122) (690)
----------- ----------- ----------- -----------
Income before provision . . . . . . . 1,029 2,681 4,660 2,284
for income taxes
Provision for income taxes. . . . . . 24 401 932 1,371
----------- ----------- ----------- -----------
Net income. . . . . . . . . . . . . . $ 1,005 $ 2,280 $ 3,728 $ 913
Preferred stock dividends and
accretion of preferred shares . . . - - (18) -
----------- ----------- ----------- -----------
Net income available to
common shareholders . . . . . . . . $ 1,005 $ 2,280 $ 3,710 $ 913
=========== =========== =========== ===========
Basic income per share. . . . . . . . $ 0.02 $ 0.05 $ 0.08 $ 0.02
=========== =========== =========== ===========
Diluted income per share. . . . . . . $ 0.02 $ 0.05 $ 0.08 $ 0.02
=========== =========== =========== ===========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
1998 1997
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 4,877 $ 4,024
Trading securities . . . . . . . . . . . . . . . . . . . . . - 2,718
Accounts receivable - net. . . . . . . . . . . . . . . . . . 21,531 25,720
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 6,475 8,399
Prepaid expenses and other current assets. . . . . . . . . . 2,171 2,286
----------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 35,054 43,147
Property, plant and equipment - net. . . . . . . . . . . . . . 12,589 14,207
Facilities held for disposal . . . . . . . . . . . . . . . . . - 4,700
Other long-term assets . . . . . . . . . . . . . . . . . . . . 1,350 1,474
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,993 $ 63,528
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . $ 4,224 $ 5,399
Current portion of long-term debt. . . . . . . . . . . . . . - 1,668
Revolving credit facility. . . . . . . . . . . . . . . . . . - 3,118
Accounts payable and accrued expenses. . . . . . . . . . . . 14,339 23,866
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . 4,748 4,402
----------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . 23,311 38,453
Long term debt . . . . . . . . . . . . . . . . . . . . . . . . - 4,493
Other long-term liabilities. . . . . . . . . . . . . . . . . . 1,516 1,219
Total liabilities. . . . . . . . . . . . . . . . . . . . . 24,827 44,165
----------- ----------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . - 1,243
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 474 461
Capital in excess of par value . . . . . . . . . . . . . . . 95,118 92,650
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (70,877) (74,587)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . (58) (58)
Cumulative translation adjustment. . . . . . . . . . . . . . (491) (346)
Total stockholders' equity . . . . . . . . . . . . . . . . 24,166 18,120
----------- ----------
Total liabilities and stockholders' equity . . . . . . . . . . $ 48,993 $ 63,528
=========== ==========
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
MARCH 31, MARCH 29,
1998 1997
----------- -----------
Cash flows provided by (used by) operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,728 $ 913
Adjustments to reconcile net income
to net cash provided by operating activities:
Unrealized loss on CyberGuard Stock. . . . . . . . . . . . . - 2,622
Realized loss on CyberGuard Stock. . . . . . . . . . . . . . (420) (755)
Gain on sale of facility . . . . . . . . . . . . . . . . . . (706) -
Depreciation, amortization and other . . . . . . . . . . . . 4,317 4,102
Other non-cash expenses. . . . . . . . . . . . . . . . . . . 1,027 2,537
Decrease (increase) in current assets:
Accounts receivable. . . . . . . . . . . . . . . . . . . . 4,189 (2,480)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 1,703 883
Prepaid expenses and other current assets. . . . . . . . . (775) 260
Decrease in current liabilities other than debt obligations. (9,197) (10,054)
Decrease in other long-term assets . . . . . . . . . . . . . 83 1,898
Increase (decrease) in other long-term liabilities . . . . . 297 (2,823)
----------- -----------
Total adjustments to net income. . . . . . . . . . . . . . . . 518 (3,810)
----------- -----------
Net cash provided by (used by) operating activities. . . . . . . 4,246 (2,897)
----------- -----------
Cash flows provided by investing activities:
Net additions to property, plant and equipment . . . . . . . . (1,977) (2,566)
Net proceeds from sale of trading securities . . . . . . . . . 2,668 4,590
Proceeds from sale of facility . . . . . . . . . . . . . . . . 5,406 -
Net cash provided by investing activities. . . . . . . . . . . . 6,097 2,024
----------- -----------
Cash flows provided by (used by) financing activities:
Net payments of notes payable. . . . . . . . . . . . . . . . . (462) (143)
Net proceeds (payments) of revolving credit facility . . . . . (3,118) 224
Repayment of long-term debt. . . . . . . . . . . . . . . . . . (6,161) (1,159)
Net proceeds from sale and
issuance of common stock . . . . . . . . . . . . . . . . . . 679 1,236
----------- -----------
Net cash provided by (used by) financing activities. . . . . . . (9,062) 158
----------- -----------
Effect of exchange rates on cash
and cash equivalents . . . . . . . . . . . . . . . . . . . . . (428) (138)
----------- -----------
Increase (decrease) in cash and cash equivalents . . . . . . . . $ 853 $ (853)
=========== ===========
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 594 $ 1,948
=========== ===========
Income taxes (net of refunds). . . . . . . . . . . . . . . . $ 891 $ 1,079
=========== ===========
<FN>
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 and nine months
ended March 29,1997, curtailment gains of $0.3 million and $2.5 million,
respectively, were recognized. 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. EARNINGS PER SHARE
In the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS No. 128"),
which supersedes APB Opinion No. 15, "Earnings Per Share", and specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
FAS No. 128 replaces primary and fully diluted EPS with basic and diluted EPS,
respectively. It also requires dual presentation of Basic EPS and Diluted EPS
on the face of the income statement and requires a reconciliation of the
numerator and denominator of the Basic EPS computation to the numerator and
denominator of the Diluted EPS computation.
Basic EPS, unlike Primary EPS, excludes all dilution while Diluted EPS,
like Fully Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
The number of shares used in computing basic and fully diluted earnings per
share for the three months ended March 31, 1998 was 47,260,000 and 49,058,000,
respectively. The number of shares used in computing basic and diluted earnings
per share for the three months ended March 29, 1997 was 45,439,000 and
46,162,000, respectively. The number of shares used in computing basic and
fully diluted earnings per share for the nine months ended March 31, 1998 was
46,816,000 and 48,641,000, respectively. The number of shares used in computing
basic and diluted earnings per share for the nine months ended March 29, 1997
was 43,930,000 and 44,653,000, respectively.
4. TRADING SECURITIES
As of June 30, 1996, the Company held 683,173 shares of CyberGuard
Corporation ("CyberGuard") stock with a market value of $14.75 per share.
During the quarter ended September 27, 1996 the Company sold 91,500 shares at
$10.645 per share, resulting in a realized loss of $376 thousand. The value of
the stock as of September 27, 1996 was $8.50 per share, resulting in an
unrealized loss of $3.7 million for the quarter then ended. During the quarter
ended December 28, 1996, the Company sold 261,500 shares at an average price of
$12.748 per share resulting in a realized gain of $1.1 million, and sold a call
option on an additional 300,000 shares. As of December 28, 1996, the value of
the stock was $11.625, resulting in an unrealized gain for the quarter of $1.0
million. During the quarter ended March 29, 1997, the Company sold 22,500 shares
at $12.514 per share, resulting in a realized gain of $20,000. As of March 29,
the Company held 307,678 shares, including the 300,000 shares subject to the
call option. The market value of these shares was $2,730,642 or $8.875 per
share at March 29, 1997. The unrealized loss was netted against the earned
proceeds of the call option, leaving a balance of $279 thousand deferred
revenue. During the remainder of fiscal year 1997, the Company sold 2,495
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, the remaining 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)
MARCH 31, JUNE 30,
1998 1997
---------- ---------
Raw Materials . $ 4,570 $ 5,823
Work-in-process 1,332 2,191
Finished Goods. 573 385
---------- ---------
$ 6,475 $ 8,399
========== =========
6. ACCUMULATED DEPRECIATION
Accumulated depreciation for property, plant and equipment at March 31,
1998 and June 30, 1997 was $22,607,000 and $23,062,000 respectively. The
decrease primarily reflects exchange rate fluctuations and asset write off's.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
1998 1997
---------- ---------
Accounts payable, trade . . . $ 4,875 $ 7,451
Accrued payroll, vacation and
other employee expenses . . 4,461 5,891
Restructuring reserve . . . . 563 2,876
Other accrued expenses. . . . 4,440 7,648
---------- ---------
$ 14,339 $ 23,866
========== =========
8. SALE OF FACILITY
During fiscal year 1996, in connection with the Acquisition (as hereinafter
defined) the Company's Oceanport, New Jersey 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 $0.7 million
that is reflected in the statement of operations in the nine months ended March
31, 1998.
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 and nine months ended March 31, 1998, restructuring
expenditures amounted to $0.2 million and $2.3 million, respectively,
representing workforce reductions and lease terminations. The balance of the
restructuring reserve at March 31, 1998 was $0.6 million.
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 ("CyberGuard"), 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 MARCH 31, 1998 COMPARED WITH THE QUARTER ENDED MARCH 29, 1997.
Net Sales. Net sales decreased to $20.4 million for the quarter ended March
31, 1998 from $28.7 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 $9.5 million for the quarter ended March 31, 1998 as
compared with $16.4 million for the quarter ended March 29, 1997. Sales of
proprietary systems continue to decline, and the selling price of open systems
is significantly lower than that of proprietary products. As the Company
increasingly moves to a software value-added business, the price of computers
decreases as the Company utilizes commercial products from Motorola which have a
significantly lower price than the Company's open systems product. Maintenance
sales decreased from $12.2 million in the quarter ended March 29, 1997 to $10.9
million in the quarter ended March 31, 1998 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 $3.8 million during the current
quarter to $9.6 million (47.1% as a percentage of sales) compared with $13.4
million (46.6%) for the three months ended March 29, 1997. The improved margin
resulted from increased efficiencies and economies of scale brought about by
combining the Company's manufacturing and maintenance facilities with those of
HCSC. The overall decrease in gross margin reflects the Company's lower sales
this quarter.
Operating Income. Operating income decreased $2.4 million to $1.0 million
in the current quarter compared with an income of $3.4 million in the quarter
ended March 29, 1997. Expenses decreased $1.4 million in the current quarter
compared with the quarter ended March 29, 1997, which is primarily due to
continued cost reduction efforts. This was partially offset by an increase
resulting from the reversal of a $0.3 million post-retirement benefit accrual
that occurred in the quarter ended March 29, 1997.
Net Income. Net income decreased from $2.3 million in the quarter ended
March 29, 1997 to $1.0 million in the current quarter. The decrease of $1.3
million is due to the decreased gross margin discussed above. This was offset
by the reduction of operating expenses discussed above, a decline in interest
expense due to decreased borrowings, and an international income tax credit
recorded in the current quarter.
THE NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THE NINE MONTHS ENDED MARCH
29, 1997.
Net Sales. Net sales decreased to $62.0 million for the nine months ended
March 31, 1998 from $83.0 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 $28.2 million for the nine months ended March 31, 1998 as
compared with $42.2 million for the nine months ended March 29, 1997. Sales of
proprietary systems continue to decline, while open system products are
increasing. As the Company increasingly moves to a software value-added
business, the price of computers decreases as the Company utilizes commercial
products from Motorola which have a significantly lower price than the Company's
open systems product. Maintenance sales decreased from $40.8 million in the
nine months ended March 29, 1997 to $33.8 million for the comparable nine months
of fiscal year 1998, continuing the decline experienced over the past years as
customers move from proprietary to open systems which require less maintenance.
Gross Margin. Gross margin as a percentage of sales increased to 48.8% in
the current nine month period from 45.9% for the nine months ended March 29,
1997. This increase reflects the Company's increased efficiencies and cost
improvement efforts.
Operating Income. Operating income decreased $1.6 million to a profit of
$4.9 million compared with an income of $6.4 million in the nine months ended
March 29, 1997. Expenses decreased $6.3 million in the current nine months
compared with the nine months ended March 29, 1997 which is primarily due to
continued cost reduction efforts, the reduction of transition costs as the
transition process relating to the Acquisition has been completed and a gain on
the sale of the building recorded as an offset to restructuring expense in the
current nine months. This was partially offset by an increase resulting from
the reversal of a $2.5 million post-retirement benefit accrual that occurred in
the nine months ended March 29, 1997.
Net Income. Net income increased from $0.9 million in the nine months
ended March 29, 1997 to $3.7 million in the current nine months. This increase
of $2.8 million is due to a $0.4 million gain on CyberGuard stock in the current
nine months as compared to the $1.9 million loss on CyberGuard stock in the
prior year, a significant decrease in interest expense resulting from decreased
borrowings and an international income tax credit recorded in the current
quarter. This was offset by the $1.6 million decrease in operating income
discussed above.
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.
During the first quarter of fiscal year 1998, the Company sold 259,352 shares of
CyberGuard stock for $2.7 million 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 and the move from the
Company's open systems to Motorola boards and the Company's software; and (iii)
ongoing cost control actions. Liquidity will also be affected by: (i) timing of
shipments which predominately occur during the last month of the quarter; (ii)
the percentage of sales derived from outside the United States where there are
generally longer accounts receivable collection cycles and which receivables are
not included in the Company's borrowing base under its revolving credit
facility; (iii) the sales level in the United States where related accounts
receivable are included in the borrowing base of the Company's revolving credit
facility; (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 fiscal
year 1998 operations through its operating results and existing financing
facilities. There is no assurance that the Company's plans will be achieved.
During the quarter ended March 31, the Company paid the $1.8 million
remaining balance on the term loan under its then existing loan agreement with
Foothill Capital Corporation. On March 1, 1998, the Company entered into a new
agreement with Foothill, which replaced its existing credit facilities. The
agreement runs through June 30, 2000, and provides for an $8 million revolving
credit facility, subject to certain restrictions, and up to a $5 million letter
of credit to support the Company's obligation for its Japanese joint venture.
The revolver may be repaid and re-borrowed, subject to certain collateral
requirements, at any time during the term. The Company has pledged
substantially all of its domestic assets as collateral for the facility.
At March 31, 1998, the outstanding balance under the credit facility was
$0. The interest rate on outstanding balances is prime plus .75%. This rate is
a substantial improvement over the prime plus 2% rate under the previous credit
facility, and reflects the Company's stronger financial position and credit
worthiness.
The Company's joint venture agreement regarding its Japanese subsidiary has
been renewed through June, 1998. Currently the joint venture has $4.2 million
of debt. The Company's obligation is 60% of the debt. The Company has obtained
a letter of credit for up to $5 million to cover its obligation. If the joint
venture agreement is not renewed, the Company's intention is to continue the
operation and therefore may have to guarantee all the notes.
The Company had cash and cash equivalents on hand of $4.9 million
representing an increase from $4.0 million as of June 30, 1997 primarily due to
the profitability of the Company and its continuing cash management efforts.
Accounts receivable decreased by $4.2 million due to improved collections.
Accounts payable and accrued expenses decreased by $9.5 million primarily due to
reductions in spending, timely vendor payments, 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 NINE MONTHS ENDED
MARCH 31, MARCH 29, MARCH 31, MARCH 29,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net sales
Computer systems . . . . . . . . . . 46.8% 57.4% 45.4% 50.8%
Service and other. . . . . . . . . . 53.2% 42.6% 54.6% 49.2%
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales
Computer systems . . . . . . . . . . 53.7% 51.9% 49.4% 52.6%
Service and other. . . . . . . . . . 52.3% 54.0% 52.7% 53.2%
Transition . . . . . . . . . . . . . 0.0% 0.6% 0.0% 1.2%
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . 52.9% 53.4% 51.2% 54.1%
---------- ---------- ---------- ----------
Gross margin . . . . . . . . . . . . . 47.1% 46.6% 48.8% 45.9%
Operating expenses:
Research and development . . . . . . 13.4% 12.0% 13.3% 12.3%
Selling, general and administrative. 28.7% 23.5% 28.6% 26.2%
Transition/restructuring . . . . . . 0.0% 0.2% (1.0%) 2.6%
Post-retirement benefit reversal . . 0.0% (1.0%) 0.0% (3.0%)
---------- ---------- ---------- ----------
Total operating expenses . . . . . . . 42.1% 34.7% 40.9% 38.2%
Operating income (loss). . . . . . . . 5.0% 11.9% 7.8% 7.7%
Interest expense . . . . . . . . . . . (0.8%) (1.9%) (1.0%) (2.1%)
Interest income. . . . . . . . . . . . 0.3% 0.2% 0.2% 0.2%
Other non-recurring charge . . . . . . 0.0% 0.2% 0.7% (2.2%)
Other income (expense) - net . . . . . 0.6% (1.1%) (0.2%) (0.8%)
---------- ---------- ---------- ----------
Income before provision. . . . . . . . 5.0% 9.4% 7.5% 2.8%
for income taxes
Provision for income taxes . . . . . . 0.1% 1.4% 1.5% 1.7%
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . 4.9% 8.0% 6.0% 1.1%
========== ========== ========== ==========
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(10) Amended and Restated Loan and Security Agreement by and between
Concurrent Computer Corporation and Foothill Capital Corporation dated as of
March 1, 1998
(12) Statement on computation of per share earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On January 6, 1998, the Company filed a Current Report on Form 8-K
with respect to the lawsuit described in Part II, Item 1 of its Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997.
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,
1998 to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 14, 1998 CONCURRENT COMPUTER CORPORATION
By: /s/ Daniel S. Dunleavy
---------------------------
DANIEL S. DUNLEAVY
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)