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 September 30, 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 November 11, 1998 was 47,904,836.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-------- --------
(UNAUDITED)
Net sales:
Computer systems. . . . . . . . . . . . . . . . . $ 6,728 $ 8,866
Service and other . . . . . . . . . . . . . . . . 10,146 11,739
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . 16,874 20,605
Cost of sales:
Computer systems. . . . . . . . . . . . . . . . . 3,014 4,277
Service and other . . . . . . . . . . . . . . . . 5,111 6,445
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . 8,125 10,722
-------- --------
Gross margin. . . . . . . . . . . . . . . . . . . . 8,749 9,883
Operating expenses:
Research and development. . . . . . . . . . . . . 2,704 2,820
Selling, general and administrative . . . . . . . 5,833 6,024
Restructuring . . . . . . . . . . . . . . . . . . - (607)
-------- --------
Total operating expenses. . . . . . . . . . . . . . 8,537 8,237
-------- --------
Operating income. . . . . . . . . . . . . . . . . . 212 1,646
Interest expense. . . . . . . . . . . . . . . . . . (78) (262)
Interest income . . . . . . . . . . . . . . . . . . 52 22
Other non-recurring charge. . . . . . . . . . . . . (429) 420
Other income (expense) - net. . . . . . . . . . . . (183) (201)
-------- --------
Income (loss) before provision for income taxes . . (426) 1,625
Provision for income taxes. . . . . . . . . . . . . - 325
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . . $ (426) $ 1,300
Preferred stock dividends and accretion of
mandatory redeemable preferred shares . . . . . . - (18)
-------- --------
Net income (loss) available to common shareholders. $ (426) $ 1,282
======== ========
Basic and diluted net income (loss) per share . . . $ (0.01) $ 0.03
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1998 1998
----------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 5,424 $ 5,733
Accounts receivable - net . . . . . . . . . . . . . . . . . . 15,579 18,996
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 6,207 6,263
Prepaid expenses and other current assets . . . . . . . . . . 1,783 1,487
----------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . 28,993 32,479
Property, plant and equipment - net . . . . . . . . . . . . . . 13,010 12,419
Other long-term assets. . . . . . . . . . . . . . . . . . . . . 1,119 1,337
----------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 43,122 $ 46,235
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . $ 102 $ 365
Revolving credit facility . . . . . . . . . . . . . . . . . . 310 1,123
Accounts payable and accrued expenses . . . . . . . . . . . . 10,684 13,321
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . 3,970 4,018
----------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . 15,066 18,827
Other long-term liabilities . . . . . . . . . . . . . . . . . . 2,052 1,898
----------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 17,118 20,725
----------- ----------
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . 477 476
Capital in excess of par value. . . . . . . . . . . . . . . . 97,235 97,136
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization. (71,617) (71,191)
Treasury stock. . . . . . . . . . . . . . . . . . . . . . . . (58) (58)
Cumulative translation adjustment . . . . . . . . . . . . . . (33) (853)
----------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . 26,004 25,510
----------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . . $ 43,122 $ 46,235
=========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ---------
(UNAUDITED)
Cash flows provided by operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . $ (426) $ 1,300
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Realized gain on trading securities . . . . . . . . - (420)
Gain on sale of facility. . . . . . . . . . . . . . - (706)
Loss on dissolution of subsidiary . . . . . . . . . 429
Depreciation, amortization and other. . . . . . . . 1,289 1,295
Other non-cash expenses . . . . . . . . . . . . . . 6 671
Decrease (increase) in assets:
Accounts receivable . . . . . . . . . . . . . . . 3,413 3,720
Inventories . . . . . . . . . . . . . . . . . . . 54 416
Prepaid expenses and other current assets . . . . (539) 1,055
Other long-term assets. . . . . . . . . . . . . . 204 (50)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses . . . . . . (2,685) (6,292)
Other long-term liabilities . . . . . . . . . . . 154 (54)
------------ ---------
Total adjustments to net income (loss). . . . . . . . 2,325 (365)
------------ ---------
Net cash provided by operating activities . . . . . . . 1,899 935
------------ ---------
Cash flows provided by (used in) investing activities:
Net additions to property, plant and equipment. . . . (1,417) (427)
Proceeds from sale of facility. . . . . . . . . . . . - 5,406
Proceeds from sale of trading securities. . . . . . . - 2,668
------------ ---------
Net cash provided by (used in) investing activities . . (1,417) 7,647
------------ ---------
Cash flow used in financing activities:
Payments of notes payable . . . . . . . . . . . . . . (263) (259)
Proceeds of revolving credit facility . . . . . . . . 13,515 17,593
Payments of revolving credit facility . . . . . . . . (14,328) (20,711)
Repayment of long-term debt . . . . . . . . . . . . . - (4,194)
Proceeds from sale and issuance of common stock . . . 100 32
------------ ---------
Net cash used in financing activities . . . . . . . . . (976) (7,539)
------------ ---------
Effect of exchange rates on cash and cash equivalents . 185 (258)
------------ ---------
Increase (decrease) in cash and cash equivalents. . . . $ (309) $ 785
============ =========
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . $ 69 $ 264
============ =========
Income taxes (net of refunds) . . . . . . . . . . . $ 175 $ 260
============ =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Concurrent
Computer Corporation ("Concurrent" or the "Company") have been prepared in
accordance with the instructions to Form 10-Q and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The foregoing financial information reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented. All such adjustments are
of a normal recurring nature.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and the notes included in the Annual Report on
Form 10-K as filed with the Securities and Exchange Commission.
The results of interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. 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 is computed by dividing income (loss) after deduction of
preferred stock dividends by the weighted average number of common shares
outstanding during each year. Diluted EPS is computed by dividing income (loss)
after deduction of preferred stock dividends 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 EPS for the three
months ended September 30, 1998 was 47,675,000. Because of the loss for the
quarter, the common share equivalents are anti-dilutive and are not considered
in the diluted EPS calculation. The number of shares used in computing basic
and diluted EPS for the three months ended September 30, 1997 was 46,506,000 and
47,255,000, respectively.
3. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components of
inventories are as follows:
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1998 1998
---------- ---------
Raw materials . $ 4,735 $ 4,780
Work-in-process 1,103 959
Finished goods. 369 524
---------- ---------
$ 6,207 $ 6,263
========== =========
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
SEPT. 30, JUNE 30,
1998 1998
---------- ---------
Accounts payable, trade . . . $ 3,024 $ 4,946
Accrued payroll, vacation and
other employee expenses . . 4,188 4,695
Restructuring reserve . . . . 484 661
Other accrued expenses. . . . 2,988 3,019
---------- ---------
$ 10,684 $ 13,321
========== =========
5. PROVISION FOR RESTRUCTURING
During the first quarter of fiscal year 1999, severance payments of $0.2
were made and taken against the restructuring reserve leaving $0.5 million as of
September 30, 1998. The remaining reserve consists solely of estimated payments
to be made to the Industrial Development Authority of Ireland (the "IDA") during
fiscal year 1999. On May 5, 1992, the Company entered into an agreement with
the IDA to maintain a presence in Ireland through April 30, 1998. The Company
closed its Ireland operations in December 1996. As a result of the closing, the
Company is required to repay grants to the IDA of approximately $0.5 million.
6. DISSOLUTION OF SUBSIDIARY
During the quarter ended September 30, 1998, the Company dissolved its
subsidiary Concurrent Computer Corporation France (the "French Branch"). Note
that the French Branch should not be confused with Concurrent Computer
Corporation S.A., the Company's continuing French subsidiary. In connection
with the dissolution, all assets and liabilities of the French Branch were
assumed by the Company. A loss of $429,000, representing the write off of the
French Branch's cumulative translation adjustment, was recorded as other
non-recurring charges in the condensed consolidated statement of operations.
7. YEAR 2000
The Company converted its computer systems and believes such systems
are Year 2000 compliant. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. The Company has expensed all costs associated with these
systems changes.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE QUARTER ENDED SEPTEMBER 30, 1998 COMPARED WITH THE QUARTER ENDED SEPTEMBER
30, 1997.
Net Sales. Net sales decreased to $16.9 million for the quarter ended
September 30, 1998 from $20.6 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 $6.7 million for the quarter ended September 30,
1998 as compared with $8.9 million for the quarter ended September 30,
1997. Sales of proprietary systems continue to decline, and the selling
price of open systems is significantly lower than that of proprietary
products. International Sales were lower due to the economic crisis in
Asia, as well as a slow summer in Europe due to vacation periods. In the
US, sales were a bit lower than expected due to delays in government
programs. Maintenance sales decreased from $11.7 million in the quarter
ended September 30, 1997 to $10.1 million in the quarter ended September
30, 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 $1.2 million during the current
quarter to $8.7 million compared with $9.9 million for the three months ended
September 30, 1997. The decrease reflects the Company's lower sales this
quarter. The gross margin as a percentage of sales increased from 48% in the
quarter ended September 30, 1997 to 52% in the current quarter due to the
Company's ongoing cost reduction efforts.
Operating Income. Operating income decreased $1.4 million to $0.2 million
in the current quarter compared with $1.6 million in the quarter ended September
30, 1997. Operating expenses increased $0.3 million in the current quarter
compared with the quarter ended September 30, 1997 primarily due to the $0.6
million gain on sale of facility offsetting operating expenses in the prior
year. Without this offset, the expenses would have decreased by $0.3 million
due to the continued cost reduction efforts.
Net Income (Loss). Net income (loss) decreased from a profit of $1.3
million in the quarter ended September 30, 1997 to a loss of $0.4 million in the
current quarter. The decrease of $1.7 million is primarily due to the decrease
in operating income discussed above and a $0.4 million loss on the dissolution
of the Company's French Branch (defined in Note 6 to the condensed consolidated
financial statements) in the current year as compared to a $0.4 million gain on
the sale of trading securities in the prior year. These items were partially
offset by a $0.2 million reduction in interest expense due to decreased
borrowings and a decrease in the income tax provision due to the current period
loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is dependent on many factors, including sales
volume, operating profit ratio, debt service and the efficiency of asset use and
turnover. The future liquidity of the Company depends to a significant extent
on (i) the actual versus anticipated decline in sales of proprietary systems and
service maintenance revenue; (ii) revenue growth from open systems; and (iii)
ongoing cost control actions. Liquidity will also be affected by: (i) timing of
shipments which predominately occur during the last month of the quarter; (ii)
the percentage of sales derived from outside the United States where there are
generally longer accounts receivable collection cycles and which receivables are
not included in the Company's borrowing base under its revolving credit
facility; (iii) the sales level in the United States where related accounts
receivable are included in the borrowing base of the Company's revolving credit
facility; and (iv) the number of countries in which the Company will operate,
which may require maintenance of minimum cash levels in each country and, in
certain cases, may restrict the repatriation of cash, such as cash held on
deposit to secure office leases. The Company believes that it will be able to
fund fiscal 1999 operations through its operating results and existing financing
facilities.
On March 1, 1998, the Company entered into a new agreement providing for an
$8 million revolving credit facility through August 1, 2000. At September 30,
1998, the outstanding balance under the revolving credit facility was $0.3
million. The entire outstanding balance of the revolving credit facility has
been classified as a current liability at September 30, 1998. The revolving
credit facility bears interest at the prime rate plus .75%. The revolving
credit facility may be repaid and reborrowed, subject to certain collateral
requirements, at any time prior to its maturity. The Company has pledged
substantially all of its domestic assets as collateral for the revolving credit
facility. Certain early termination fees apply if the Company terminates the
facility in its entirety prior to June 30, 1999.
The Company had debt to outside financial institutions of $0.4 million at
September 30, 1998 as compared to $1.5 million at June 30, 1998.
The Company and Nippon Steel Corporation ("NSC") terminated the joint
venture in Concurrent Nippon Corporation ("CNC") in the quarter ended June 30,
1998, and the Company acquired 100% of the stock in CNC. In connection with
this transaction, NSC paid the Company $1.2 million and the Company paid off
debt owed to certain Japanese banks on behalf of CNC.
The Company had cash and cash equivalents on hand of $5.4 million
representing a slight decrease from $5.7 million as of June 30, 1998 primarily
due to repayment of notes payable and timing differences. Accounts receivable
decreased by $3.4 million due to the decrease in sales from the quarter ended
June 30, 1998 ($20.2 million) to the quarter ended September 30, 1998 ($16.9
million). Accounts payable and accrued expenses decreased by $2.6 million
primarily due to decreased inventory purchases.
YEAR 2000
The Company has been aggressively addressing Year 2000 issues related to
the processing of date-sensitive data. A cross-functional team was assembled,
and a determination was made as to which systems were Year 2000 non-compliant.
The Company believes that all of the Company's critical financial,
manufacturing, R&D and other systems are fully compliant.
Concurrent has reviewed customer and supplier relationships, and has a Year
2000 software product available which many of our customers have implemented.
While the Company is taking all reasonable efforts, including direct mailings
and internet web site, to make information on the Year 2000 readiness of its
products available to its customers, this information may not reach all
customers, particularly third-party customers. Although the Company believes it
has addressed Year 2000 readiness issues related to its products, there may be
disruptions and/or product failures that are unforeseen.
The Company is requesting assurances from its major suppliers that
they are addressing these issues and that products procured by the Company will
function properly in the Year 2000. It is expected that certain critical
suppliers may be unwilling or unable to provide such assurances. As a result,
it is difficult for the Company to assess the impact on its business of such
entities' failure to be Year 2000 compliant.
Although Concurrent will incur additional time and effort in Year 2000
compliance, these costs are not expected to be material.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain matters discussed in this Form 10-Q may be "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. Concurrent
Computer Corporation cautions investors that any forward-looking statements made
herein are not guarantees of future performance and that a variety of factors
could cause its actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. The risks and uncertainties which could affect Concurrent Computer
Corporation's performance or results include, without limitation, changes in
product demand; economic conditions; various inventory risks due to changes in
market conditions; uncertainties relating to the development and ownership of
intellectual property; uncertainties relating to the ability of Concurrent
Computer Corporation and other companies to enforce their intellectual property
rights; the pricing and availability of equipment, materials and inventories;
technological developments; delays in testing of new products; rapid technology
changes; the highly competitive environment in which Concurrent Computer
Corporation operates; the entry of new well-capitalized competitors into
Concurrent Computer Corporation's markets, and other risks and uncertainties.
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------ ------
Net sales:
Computer systems . . . . . . . . . . . . . . . 39.9% 43.0%
Service and other. . . . . . . . . . . . . . . 60.1% 57.0%
------ ------
Total. . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of sales:
Computer systems . . . . . . . . . . . . . . . 44.8% 48.2%
Service and other. . . . . . . . . . . . . . . 50.4% 54.9%
------ ------
Total. . . . . . . . . . . . . . . . . . . . 48.2% 52.0%
------ ------
Gross margin . . . . . . . . . . . . . . . . . . 51.8% 48.0%
Operating expenses:
Research and development . . . . . . . . . . . 16.0% 13.7%
Selling, general and administrative. . . . . . 34.6% 29.2%
Transition/restructuring . . . . . . . . . . . 0.0% (2.9%)
------ ------
Total operating expenses . . . . . . . . . . . . 50.6% 40.0%
Operating income . . . . . . . . . . . . . . . . 1.3% 8.0%
Interest expense . . . . . . . . . . . . . . . . (0.5%) (1.3%)
Interest income. . . . . . . . . . . . . . . . . 0.3% 0.1%
Other non-recurring charge . . . . . . . . . . . (2.5%) 2.0%
Other income (expense) - net . . . . . . . . . . (1.1%) (1.0%)
------ ------
Income (loss) before provision for income taxes. (2.5%) 7.9%
Provision for income taxes . . . . . . . . . . . 0.0% 1.6%
------ ------
Net income (loss). . . . . . . . . . . . . . . . (2.5%) 6.3%
====== ======
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 23, 1998, a jury in the United States District Court for the
Eastern District of Virginia found Concurrent Computer Corporation (the
"Company") not liable under the False Claims Act in the lawsuit filed against
the Company by the United States Department of Justice in December 1997. In the
suit, the Department of Justice had alleged that the Company filed false and/or
fraudulent claims in connection with the pricing of the Company's spare parts in
1991 under the Company's subcontract to Unisys Corporation as prime contractor
for the U.S. Department of Commerce's Next Generation Weather Radar (NEXRAD)
program.
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.
On September 24, 1998, the Company filed a Current Report on Form 8-K with
respect to the lawsuit described in Part II, Item 1 of this Report on Form 10-Q.
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, 1998 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: November 13, 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)
CONCURRENT COMPUTER CORPORATION
EXHIBIT 12
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED
SEPTEMBER 30, 1998
BASIC/DILUTED
---------------
Average outstanding shares: . . . . 47,675
Diluted options outstanding . . . . -
---------------
Equivalent Shares . . . . . . . . . 47,675
===============
Net loss. . . . . . . . . . . . . . $ (426)
Preferred stock dividends
and accretion of preferred shares -
---------------
Net loss available to common
stockholders. . . . . . . . . . . $ (426)
===============
Loss per share. . . . . . . . . . . $ (0.01)
===============