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, 1993
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
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CONCURRENT COMPUTER CORPORATION
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
2 Crescent Place, Oceanport, New Jersey 07757
Telephone: (908) 870-4500
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 1, 1994 were 29,584,548.
<PAGE>
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 Six Months Ended
December 31, December 31,
------------------ ----------------
1993 1992 1993 1992
-------- ------- ------- -------
Net sales:
Computer systems $ 19,393 $ 31,471 $ 43,708 $ 59,492
Service and other 21,295 23,008 46,340 49,204
-------- -------- -------- --------
Total 40,688 54,479 90,048 108,696
Cost of sales:
Computer systems 11,360 14,562 23,553 27,627
Service and other 13,545 14,724 27,860 30,382
-------- -------- -------- --------
Total 24,905 29,286 51,413 58,009
Gross margin 15,783 25,193 38,635 50,687
Operating expenses:
Research and development 6,551 6,319 12,775 12,978
Selling, general and
administrative 13,371 14,389 27,279 28,816
Provision for restructuring - - 12,000 -
Sales and use tax credit (1,440) - (1,440) -
-------- -------- -------- --------
Total operating expenses 18,482 20,708 50,614 41,794
-------- -------- -------- --------
Operating income (loss) (2,699) 4,485 (11,979) 8,893
Interest expense (640) (3,255) (2,141) (6,832)
Interest income 144 294 305 583
Other income (expense) - net (147) (319) (92) 89
-------- -------- -------- --------
Income (loss) before
provision for income taxes,
extraordinary loss and
cumulative effect of change
in accounting principles (3,342) 1,205 (13,907) 2,733
Provision for income taxes 150 500 600 1,000
-------- -------- -------- --------
Income (loss) before
extraordinary loss and
cumulative effect of change
in accounting principles (3,492) 705 (14,507) 1,733
Extraordinary loss on early
extinguishment of debt - - (23,193) -
Cumulative effect of change in
accounting principles for
income taxes and postretirement
benefits - - (5,000) -
-------- -------- -------- --------
Net income (loss) $ (3,492) $ 705 $(42,700) $ 1,733
======== ======== ======== ========
Income (loss) per share:
Primary:
Income (loss) before
extraordinary loss and
cumulative effect of change
in accounting principles $ (0.12) $ 0.07 $ (0.55) $ 0.18
Extraordinary loss on early
extinguishment of debt - - (0.87) -
Cumulative effect of change
in accounting principles
for income taxes and post-
retirement benefits - - (0.19) -
-------- -------- -------- --------
Net income (loss) $ (0.12) $ 0.07 $ (1.61) $ 0.18
======== ======== ======== ========
Fully diluted:
Income (loss) before
extraordinary loss and
cumulative effect of change
in accounting principles $ (0.12) $ 0.07 $ (0.55) $ 0.17
Extraordinary loss on early
extinguishment of debt - - (0.87) -
Cumulative effect of change
in accounting principles
for income taxes and post-
retirement benefits - - (0.19) -
-------- -------- -------- --------
Net income (loss) $ (0.12) $ 0.07 $ (1.61) $ 0.17
======== ======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
1
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Concurrent Computer Corporation
Consolidated Balance Sheets
(Dollars in thousands)
Pro Forma
June 30,
December 31, 1993 June 30,
1993 (See Note 2) 1993
------------ ------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ 7,752 $ 18,162 $ 30,422
Accounts receivable - net 32,568 37,502 37,502
Inventories 24,462 21,920 21,920
Prepaid expenses and other
current assets 10,904 10,874 10,874
----------- ----------- --------
Total current assets 75,686 88,458 100,718
Property, plant and equipment - net 45,383 48,220 48,220
Other long-term assets 7,108 8,948 8,148
----------- ----------- --------
Total assets $ 128,177 $ 145,626 $157,086
=========== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,496 $ 2,783 $ 2,783
Current portion of long-term debt 9,625 8,250 8,250
Accounts payable and accrued
expenses 51,135 47,334 47,334
Deferred revenue 5,997 7,575 7,575
----------- ----------- --------
Total current liabilities 71,253 65,942 65,942
Long-term debt 17,390 24,731 67,938
Other long-term liabilities 7,630 4,703 4,703
Stockholders' equity:
Preferred stock - - 70
Common stock 296 293 26
Capital in excess of par value 71,687 70,429 15,626
Accumulated earnings (deficit)
after eliminating accumulated
deficit of $81,826 at December
31, 1991, date of quasi-
reorganization (37,898) (18,451) 4,802
Treasury stock (58) (58) (58)
Cumulative translation adjustment (2,123) (1,963) (1,963)
----------- ----------- --------
Total stockholders' equity 31,904 50,250 18,503
----------- ----------- --------
Total liabilities and
stockholders' equity $ 128,177 $ 145,626 $157,086
=========== =========== ========
The accompanying notes are an integral part of the
consolidated financial statements.
2
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Concurrent Computer Corporation
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Months Ended
December 31,
----------------
1993 1992
------ -----
Cash flows provided by (used by) operating
activities:
Net income (loss) $(42,700) $ 1,733
Adjustments to reconcile net income (loss) -------- --------
to net cash provided by (used by) operating
activities:
Depreciation, amortization and other 6,267 6,477
Non-cash interest and amortization of
financing costs 801 4,401
Extraordinary loss on extinguishment of debt 23,193 -
Cumulative effect of change in accounting
principles 5,000 -
Provision for restructuring 12,000 -
Sales and use tax credit (1,440) -
Decrease (increase) in current assets:
Accounts receivable 4,538 4,014
Inventories (2,338) 81
Prepaid expenses and other current assets (70) 850
Decrease in current liabilities,
other than debt obligations (7,668) (3,719)
(Increase) decrease in other long-term assets (1,457) 456
Increase (decrease) in other long-term
liabilities 461 (168)
-------- --------
Total adjustments to net income (loss) 39,287 12,392
-------- --------
Net cash (used by) provided by operating
activities (3,413) 14,125
-------- --------
Cash flows used by investing activities:
Additions to property, plant and equipment (3,497) (5,305)
-------- --------
Cash flow provided by (used by) financing
activities:
Net proceeds (payments) of notes payable 1,908 (666)
Repayment of long-term debt (73,615) (4,914)
Issuance of long-term debt 708 -
Net proceeds from sale and issuance
of common stock 55,001 5
-------- --------
Net cash used by financing activities (15,998) (5,575)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 238 (1,201)
-------- --------
(Decrease) increase in cash and cash equivalents $(22,670) $ 2,044
======== ========
Cash paid during the year for:
Interest $ 1,642 $ 2,640
======== ========
Income taxes (net of refunds) $ 204 $ 872
======== ========
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE>
Concurrent Computer Corporation
Notes To Consolidated Financial Statements
- ---------------------------------------------------------------------
Note 1: Basis of Presentation
The accompanying consolidated financial statements are unaudited and
have been prepared in accordance 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. These results,
however, are not necessarily indicative of the results to be expected
for the full fiscal year.
Note 2: Refinancing
On July 21, 1993, the Company completed a comprehensive refinancing
(the "Refinancing"). The Refinancing consisted of the following: a)
the sale and issuance of $59.1 million in common stock (the
"Offering"); b) the modification of the Company's existing bank term
loan (the "Existing Term Loan") to, among other things, extend the
maturity date and reduce the interest rate (the "Amended Term Loan");
and c) the conversion of all of the outstanding shares of the
Company's convertible participating preferred stock (the "Convertible
Preferred Stock") into shares of common stock at a ratio of one to
one.
The net proceeds of the Offering ($55.0 million) together with
approximately $12 million of Company cash were used to redeem in full
the Company's outstanding 12.08% Senior Subordinated Notes due 1997
(the "Subordinated Debt") at face amount, including accrued interest,
as of July 21, 1993. The Subordinated Debt was originally recorded
with an original issue discount resulting in an effective
yield-to-maturity of 25%. The redemption of the Subordinated Debt
resulted in an extraordinary charge reducing net income by
approximately $23 million during the three months ended September 30,
1993 based on an aggregate cash redemption price of approximately $67
million and a book value of approximately $44 million. The
Refinancing, including the effect of the redemption of the
Subordinated Debt and related $23 million extraordinary charge,
resulted in an estimated $32 million increase to stockholders' equity
during the three months ended September 30, 1993.
Note 3: Debt Covenants
On September 28, 1993, November 18, 1993 and February 18, 1994, the
Company's bank term loan was amended to modify certain financial
covenants. The amendments on November 18, 1993 and February 18, 1994
also waived the Company's requirements with respect to certain
financial covenants for the three months ended September 30, 1993 and
December 31, 1993, respectively.
4
<PAGE>
On November 10, 1993, the term loan was amended to allow the Company
to defer up to four monthly principal amortization payments,
depending on cash balances, until April 1, 1994 and to provide for up
to $3 million in standby letters of credit in connection with
overseas lines of credit. In consideration of the amendment, the
Company made a $3 million principal prepayment, which was applied to
the term loan amortization payment due on the June 30, 1995 maturity
date, from the proceeds of borrowings under such overseas lines of
credit.
On February 18, 1994, the term loan was further amended to allow the
Company to further defer the four monthly principal amortization
payments until September 30, 1994, at which time two of the deferred
monthly principal amortization payments are due, and December 31,
1994, at which time the remaining two deferred monthly principal
amortization payments are due. In connection with this amendment,
the Company granted an aggregate of 600,000 of stock purchase
warrants to the banks. The warrants were issued with an exercise
price equal to the fair market value of a share of the Company's
common stock on the date of the amendment and expire on September 30,
1994. The warrants provide for the possibility of an extension, at
the option of the banks, of the expiration of these warrants in
consideration of further extensions of the four monthly principal
amortization payments and a restructuring of the term loan.
The above amendments were obtained to provide the Company with
greater financial flexibility in light of lower than expected
revenues and financial results for the first six months of fiscal
year 1994, a $12 million provision for restructuring recorded during
the three months ended September 30, 1993 and anticipated financial
results for the remainder of the fiscal year.
Note 4: Provision for Restructuring
During the three months ended September 30, 1993, the Company
recorded a provision for restructuring of $12.0 million in connection
with its operational restructuring to bring costs in line with
current and anticipated revenue levels.
Note 5: Change in Accounting Estimate
During the three months ended December 31, 1993, the Company recorded
a sales and use tax credit of $1.4 million, or $.05 per share,
related to a change in the estimate of state sales and use tax
reserves.
Note 6: Income Taxes
On July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS No. 109"). This standard requires a change from the deferred
method to the asset and liability method of accounting for income
taxes. Under the asset and liability method, a deferred tax asset or
liability is recognized for temporary differences between financial
reporting and income tax bases of assets and liabilities, tax credit
carryforwards and operating loss carryforwards. A valuation
5
<PAGE>
allowance is established to reduce deferred tax assets if it is more
likely than not that all, or some portion, of such deferred tax
assets will not be realized. The provisions of FAS No. 109 have been
applied without restating the prior years' financial statements.
In connection with the adoption of this standard, the Company
recorded a non-cash charge of $2.0 million representing a valuation
allowance to reduce its deferred tax assets as of the date of
adoption. As of the date of adoption, the Company's deferred tax
assets and liabilities were comprised of the following:
(Dollars in thousands)
Gross deferred tax assets:
Net operating loss carryforwards $ 14,320
Accumulated depreciation 10,121
Accrued compensation 2,772
Inventory reserves 2,342
Other 5,118
--------
Gross deferred tax assets 34,673
Gross deferred tax liabilities:
Subordinated debt (9,045)
--------
Sub-total 25,628
Valuation allowance (25,628)
--------
Net deferred tax assets/liabilities $ 0
========
During the three months ended September 30, 1993, the deferred tax
liability related to the Company's Subordinated Debt was reversed
upon the early extinguishment of such debt. In connection with this
reversal, the Company recorded a corresponding increase to its
deferred tax asset valuation allowance.
Note 7: Postretirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This standard requires
companies to accrue postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those
benefits. The transition obligation (the accumulated postretirement
benefit obligation at the date of adoption) may be recognized either
immediately or by amortization over the longer of the average
remaining service period for active employees or 20 years.
6
<PAGE>
The Company has a plan for retiree medical and life insurance
benefits for its U.S. employees but does not have any significant
foreign plans. Based on the terms of the U.S. plan, participants
must be age 55 with at least 10 years of service to be eligible for
medical benefits. If the retiree is age 55 and has a minimum of five
years of service, but less than 10 years of service, coverage of
certain medical benefits can be purchased through the Company. The
comprehensive plan, which may be amended at the Company's discretion,
provides lifetime coverage for retirees and coverage for spouses
until one year after the death of the retiree. The plan provides
that the Company's costs will be capped at the 1993 level.
Eligibility for life insurance is restricted to employees who retired
prior to January 1993.
In connection with the adoption of this standard, the Company
recorded a non-cash charge of $3.0 million representing the
accumulated postretirement benefit obligation at the date of
adoption. The unfunded status of the Company's plan on the date of
adoption was as follows:
Accumulated Postretirement Benefit Obligation:
(Dollars in thousands)
Active Ineligible Plan Participants $1,134
Active Eligible Plan Participants 619
Retirees and Dependents 1,247
------
$3,000
======
The weighted-average discount rate and the rate of increase in
compensation levels used in determining the accumulated
postretirement benefit obligation was 7.5% and 5.0%, respectively.
Assumed health care cost increases, estimated to be 11% for the year
1993, decline at a rate of approximately 0.5% to 1.0% per year to the
ultimate trend rate of 5.0% in the year 2001. Notwithstanding the
above, a 1% increase in the health care cost trend rate would not
have an effect on the accumulated postretirement benefit obligation
since the plan provides that the Company's future costs will be
capped at the 1993 level.
Note 8: Income (Loss) Per Share
Income (loss) per share for the three and six months ended December
31, 1993 and 1992, respectively, is based on the weighted average
number of shares of common stock outstanding and for the three and
six months ended December 31, 1992 includes common stock equivalents
(Convertible Preferred Stock and dilutive stock options). The number
of shares used in computing earnings per share were as follows:
7
<PAGE>
(Shares in thousands)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ -----------------
1993 1992 1993 1992
-------- -------- ------- -------
Primary 29,585 9,659 26,524 9,490
======== ======== ======= =======
Fully Diluted 29,585 10,075 26,524 9,980
======== ======== ======= =======
Supplemental net loss per share for the six months ended December 31,
1993 which is calculated assuming the Company's comprehensive
refinancing (as described in Note 2) took place at the beginning of
the fiscal year on July 1, 1993 was as follows:
Six Months Ended
December 31, 1993
-----------------
Loss before extraordinary loss and cumulative
effect of change in accounting principles
(including a $12.0 million, or $0.41 per share,
provision for restructuring) $(0.49)
Extraordinary loss on early extinguishment of debt (0.79)
Cumulative effect of change in accounting principles
for income taxes and postretirement benefits (0.17)
-------
Net loss $(1.45)
=======
Note 9: Inventories
December 31, June 30,
1993 1993
------------ --------
(Dollars in thousands)
Raw materials $ 11,824 $ 11,177
Work-in-process 6,172 6,633
Finished goods 6,466 4,110
------------ --------
$ 24,462 $ 21,920
============ ========
Note 10: Accumulated Depreciation
Accumulated depreciation at December 31, 1993 and June 30, 1993 was
$23,826,000 and $18,155,000, respectively.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Concurrent is experiencing the effects of a significant unexpected
decline in incoming business during its first fiscal quarter which
ended September 30, 1993. The Company believes this decline
reflected worldwide economic conditions which have not, until
recently, been conducive to the capital goods investment cycle as
customers delayed spending until signs of recovery are stronger.
This trend was particularly noticeable in the Company's previously
predictable proprietary systems business. This and other business
has also been affected by further declines and delays in certain
defense related government spending around the world.
In other government business, shipments of systems under the
Department of Commerce's Next Generation Weather Radar (NEXRAD)
program have been accelerated at the request of the customer. The
Government has asserted that Concurrent's prices for spare parts
under the program are too high and issued an advisory notice to that
effect to various Government contracting authorities. Such notice,
which subsequently came to the attention of the Company, may result
in delays in the contracting process of other government related
business. The Company believes that its pricing practices are in
compliance with applicable regulations and is contesting the
Government's actions.
The Company has taken steps to restructure its operations to reduce
its cost structure and to focus its revenue generating activities
with the objectives to fund growth and ongoing development programs,
particularly related to the new MAXION multiprocessing system and
Series 3200-850 product lines, and to achieve profitability.
Restructuring and other actions taken through February 2, 1994 have
reduced the Company's cost structure by approximately $8.0 million
per quarter. Such cost savings began during the second quarter of
fiscal year 1994 and are expected to be fully realized during the
fourth quarter of fiscal year 1994. Total cash flow savings from
these actions are expected to begin during the third quarter of
fiscal year 1994 and be significantly realized after the fourth
quarter of fiscal 1994. Cost reduction actions taken included
reducing the Company's worldwide work force by about 300 employees,
or 18%, to about 1350; consolidating certain field offices; and
reducing spending. Actions taken to focus revenue generating
activities include restructuring the sales, services and marketing
field operations which is intended to enhance revenue growth by
decentralizing and localizing appropriate decisions with the
intended effect to be more competitive and responsive to customers.
For purposes of restructuring its operations to achieve the
foregoing objectives, the Company has assumed a revenue trend for
the remaining quarters of the fiscal year on average at
approximately the average of the first two quarters of fiscal year
1994. There can be no assurance that the foregoing revenue
assumptions will be achieved. The Company has not assumed any
future revenue from the sales of spare parts under the NEXRAD
program.
9
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The Company's objective is to increase revenues by providing
real-time computer systems and services to its installed base of
proprietary systems and to its open-systems target markets. The
achievement of these objectives requires that the Company continue
to enhance its proprietary hardware and operating system platforms,
while investing in developing its real-time open-system hardware and
operating systems and providing industry standard product
enhancements, such as networking, graphics and data acquisition.
The future growth of the Company's business and its future financial
performance will depend, to a significant extent, upon its ability
to develop and market competitive open systems which meet the
real-time computing needs of its targeted customers.
During the quarter ended December 31, 1993, the Company announced
significant product developments to both its proprietary and open
system hardware and operating system platforms. On October 14,
1993, the Company announced its new Series 3200-850 proprietary
multiprocessing system. The system provides improved
price/performance and an upward growth path for the Company's Series
3200 customers -- a significant portion of its installed base. The
Company also introduced its MAXION multiprocessor open system -- the
world's first crosspoint multiprocessor system. The MAXION system
is among the most price/performance competitive multiprocessing
systems available in the market today. Customer response in the
beta phase has been favorable and production shipments are scheduled
to begin during the quarter ending March 31, 1994. The Company
believes that the introduction of the MAXION system has strengthened
its competitive position in the marketplace. The Company is also in
the process of applying for patents in connection with the MAXION
architecture; however, there can be no assurance that patents will
be issued.
One of the goals of the Company's strategy is to minimize the effect
of the anticipated decline in sales of the Company's proprietary
systems and traditional maintenance and support services, while
increasing sales of its open systems and professional services, such
as performance and capacity analysis and systems integration. A
shift in sales from proprietary systems is likely to result in lower
gross margins. Currently, gross margins on open systems are lower
than gross margins on proprietary systems.
10
<PAGE>
Selected Operating Data as a Percentage of Net Sales
The Company considers its computer systems and service business
(including maintenance, support and training) to be one class of
products which accounted for the percentages of net sales set forth
below. 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,
------------------ ----------------
1993 1992 1993 1992
-------- -------- -------- -------
Net sales:
Computer systems 47.7% 57.8% 48.5% 54.7%
Service and other 52.3 42.2 51.5 45.3
----- ----- ----- -----
Total net sales 100.0 100.0 100.0 100.0
Cost of sales (% of respective
sales category):
Computer systems 58.6 46.3 53.9 46.4
Service and other 63.6 64.0 60.1 61.7
----- ----- ----- -----
Total cost of sales 61.2 53.8 57.1 53.4
Gross margin 38.8 46.2 42.9 46.6
Operating expenses:
Research and development 16.1 11.6 14.2 11.9
Selling, general and
administrative 32.8 26.4 30.3 26.5
Provision for restructuring - - 13.3 -
Sales and use tax credit (3.5) - (1.6) -
----- ----- ----- -----
Total operating expenses 45.4 38.0 56.2 38.4
----- ----- ----- -----
Operating income (loss) (6.6) 8.2 (13.3) 8.2
Interest expense (1.6) (6.0) (2.4) (6.3)
Interest income 0.4 0.6 0.4 0.5
Other income (expense) - net (0.4) (0.6) (0.1) 0.1
----- ----- ----- -----
Income (loss) before provision
for income taxes, extra-
ordinary loss and cumulative
effect of change in
accounting principles (8.2) 2.2 (15.4) 2.5
Provision for income taxes 0.4 0.9 0.7 0.9
----- ----- ----- -----
Income (loss) before extra-
ordinary loss and cumulative
effect of change in
accounting principles (a) (8.6)% 1.3% (16.1)% 1.6%
===== ===== ===== =====
(a) The percentage for the six months ended December 31, 1993
excludes a $23.2 million extraordinary loss on early extinguishment
of debt and a $5.0 million non-cash charge for the cumulative effect
of change in accounting principles.
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Results Of Operations
Three Months Ended December 31, 1993 in Comparison to Three Months
Ended December 31, 1992
Net Sales
Net sales for the three months ended December 31, 1993 were $40.7
million, a decrease of $13.8 million from the prior year period.
This decrease was due to a decrease of $12.1 million, or 38.4%, in
computer systems and a decrease of $1.7 million, or 7.4%, in service
and other revenues. The decrease in computer system sales was
primarily due to a decline in worldwide business resulting from
worldwide economic conditions and declines and delays in defense
related government spending around the world. The decrease in
service and other revenues was primarily due to fewer maintenance
contracts resulting from the decline in computer system sales
experienced in prior periods and unfavorable foreign exchange rates.
Gross Margin
Gross margin, as measured in dollars and as a percentage of net
sales, was $15.8 million and 38.8%, respectively, for the three
months ended December 31, 1993 compared to $25.2 million and 46.2%,
respectively, for the prior year period. The decrease in gross
margin dollars and percentage was primarily due to the
aforementioned decline in net sales and unfavorable product mix.
Operating Income (Loss)
Operating loss for the current year period was $2.7 million
compared with operating income of $4.5 million for the prior year
period. The $7.2 million change was due to the aforementioned $9.4
million decrease in gross margin partially offset by a sales and use
tax credit of $1.4 million related to a change in the estimate of
state sales and use tax reserves and a $.8 million reduction in
operating expenses.
The $.8 million decrease in operating expenses was primarily due to
a $1.0 million decrease in selling, general and administrative
expenses and a $0.4 million increase in capitalized software
production costs partially offset by a $0.6 million increase in
gross research and development expenses. The Company increased its
gross research and development expenses during the current year
period compared to the prior year period reflecting its commitment
to new product development and the cost of its recently announced
Maxion system and new Series 3200-850 system.
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Income (Loss) Before Extraordinary Loss and Cumulative Effect of
Change in Accounting Principles
Loss before extraordinary loss and cumulative effect of change in
accounting principles was $3.5 million in the current year period
compared to income of $.7 million for the prior year period. The
$4.2 million change compared to the prior year period results from a
$8.6 million decrease in operating income (excluding the sales and
use tax credit) partially offset by a $1.4 million sales and use tax
credit and a $3.0 million net decrease in non-operating expenses.
The decrease in non-operating expenses was primarily due to a $2.6
million decrease in interest expense resulting from the reduction of
the Company's indebtedness, an increase in income related to
minority interest and a decrease in the provision for income taxes.
Six Months Ended December 31, 1993 in Comparison to Six Months Ended
December 31, 1992
Net Sales
Net sales for the six months ended December 31, 1993 were $90.0
million, a decrease of $18.6 million from the prior year period.
This decrease was due to a decrease of $15.8 million, or 26.5%, in
computer systems and a decrease of $2.8 million, or 5.8%, in service
and other revenues. The decrease in computer system sales was
primarily due to a decline in worldwide business resulting from
worldwide economic conditions, declines and delays in defense
related government spending around the world and, to a lesser
extent, unfavorable foreign exchange rates. The decrease in service
and other revenues was primarily due to fewer maintenance contracts
resulting from the decline in computer system sales experienced in
prior periods and unfavorable foreign exchange rates.
Gross Margin
Gross margin, as measured in dollars and as a percentage of net
sales, was $38.6 million and 42.9%, respectively, for the six months
ended December 31, 1993 compared to $50.7 million and 46.6%,
respectively, for the prior year period. The decrease in gross
margin dollars and percentage was primarily due to the
aforementioned decline in net sales and unfavorable product mix.
Operating Income (Loss)
Operating loss for the current year period was $12.0 million
compared with operating income of $8.9 million for the prior year
period. The $20.9 million change was due to the aforementioned
$12.1 million decrease in gross margin and a $12.0 million provision
for restructuring partially offset by a sales and use tax credit of
$1.4 million related to a change in the estimate of state sales and
use tax reserves and a $1.8 million reduction in operating expenses.
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<PAGE>
The $1.8 million decrease in operating expenses was primarily due to
a $1.5 million decrease in selling, general and administrative
expenses and a $1.0 million increase in capitalized software
production costs partially offset by a $0.7 million increase in
gross research and development expenses. The Company increased its
gross research and development expenses during the current year
period compared to the prior year period reflecting its commitment
to new product development and the cost of its recently announced
Maxion system and new Series 3200-850 system.
Income (Loss) Before Extraordinary Loss and Cumulative Effect of
Change in Accounting Principles
Loss before extraordinary loss and cumulative effect of change in
accounting principles was $14.5 million in the current year period
compared to income of $1.7 million for the prior year period. The
$16.2 million change compared to the prior year period results from
a $10.3 million decrease in operating income (excluding the
provision for restructuring and the sales and use tax credit) and a
$12.0 million provision for restructuring partially offset by a $1.4
million sales and use tax credit and a $4.7 million net decrease in
non-operating expenses. The decrease in non-operating expenses was
primarily due to a $4.7 million decrease in interest expense
resulting from the reduction of the Company's indebtedness, an
increase in income related to minority interest and a decrease in
the provision for income taxes partially offset by an increase in
foreign exchange losses.
Extraordinary Loss on Early Extinguishment of Debt
The extraordinary loss on early extinguishment of debt of $23.2
million resulted from the redemption in full of the Company's
outstanding Subordinated Debt in connection with the Refinancing.
Cumulative Effect of Change in Accounting Principles
The cumulative effect of change in accounting principles of $5.0
million resulted from the adoption of the provisions of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
14
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Financial Resources and Liquidity
Liquidity of the business is dependent on many factors, including
sales volume, operating profit ratio, debt service and the
efficiency of asset utilization and turnover. Historically, the
Company has derived approximately 75% of its total computer
systems and service revenues from its installed base and from
long-term programs which, until recently, provided a stable and
generally predictable source of revenue and cash flow. The
future liquidity of the Company's business will depend to a
significant extent on: 1) its ability to develop and achieve
significant growth of open systems while revenues attributable to
sales and service of proprietary systems decline; 2) whether
sales and services to its installed base, particularly of
proprietary systems, decline more rapidly than anticipated; 3)
its ongoing cost containment efforts; and 4) efforts to raise
additional debt or equity if necessary.
Due to lower than expected sales and orders volume in the first
quarter of fiscal year 1994, resulting from worldwide economic
conditions, declines and delays in defense related government
spending around the world and delays in orders for spare parts
under the NEXRAD program, the Company recorded a provision for
restructuring of $12.0 million in connection with its operational
restructuring. The provision includes employee termination,
office closing or downsizing and other related costs which
account for approximately 50%, 25% and 25% of the provision,
respectively. The Company is restructuring its operations to
reduce its cost structure and to focus its revenue generating
activities with the objective to fund growth and ongoing
development programs, particularly related to the new MAXION
system and Series 3200-850 product lines, and to achieve
profitability.
The Company estimates that the cost savings related to the
restructuring of operations and other actions taken through
February 2, 1994 will be approximately $8 million per quarter
when fully realized. Such cost savings began during the second
quarter of fiscal year 1994 and are expected to be fully realized
during the fourth quarter of fiscal year 1994. The cost savings
actions primarily include reductions in work force, office
closings or downsizings and reduced or controlled spending on
items such as salaries, employee benefits, consulting, auto
leases, travel and other costs. Total cash outlays related to
the cost savings actions are not expected to decline until the
quarter ending March 31, 1994, and not significantly until after
the quarter ending June 30, 1994 primarily due to employee
termination costs. The Company believes that it will be able to
fund the cash outlays related to the cost savings actions through
cash flow from operations under the restructured organization and
by managing the timing of certain restructuring payments (e.g.,
office lease buy-outs).
15
<PAGE>
On July 21, 1993, the Company completed a comprehensive
refinancing (the "Refinancing"). The objectives of the
Refinancing were to reduce and improve the terms of the
Company's indebtedness, improve the Company's capital structure
and financial flexibility, reduce interest expense and improve
profitability, and increase the market liquidity of the Common
Stock.
The Refinancing reduced total indebtedness by an aggregate
amount of approximately $67 million and, consequently, reduced
the Company's total debt to total capitalization ratio from
greater than 80% to approximately 49% (which also reflects the
results of operations for the three months ended September 30,
1993 including the recognition of a provision for restructuring
of $12.0 million, an extraordinary loss on early extinguishment
of debt of approximately $23 million and a non-cash charge of
$5.0 million for the cumulative effect of change in accounting
principles). Additionally, the Refinancing will reduce annual
interest expense by more than $10 million during each of the
next four fiscal years (with a reduction in cash interest
expense of more than $5 million in fiscal year 1994 and more
than $7 million per year thereafter). The Company also has tax
basis net operating loss carryforwards available to offset
future U.S. federal, state and certain foreign taxable income.
As of December 31, 1993, the Company had a current ratio of 1.1
to 1, an inventory turnover ratio of 4.4 times and net working
capital of $4.4 million. At December 31, 1993, cash and cash
equivalents amounted to $7.8 million and accounts receivable
amounted to $32.6 million.
At December 31, 1993, the outstanding balance of the Amended
Term Loan was $25.8 million. Pursuant to the Refinancing, the
Amended Term Loan amortization schedule was revised to provide
for 24 equal installments of $687,500 each commencing July 30,
1993 and each month thereafter, with a final payment of $15
million payable June 30, 1995. The Company has the right to
prepay the Amended Term Loan at any time without penalty.
On September 28, 1993, November 18, 1993 and February 18, 1994,
the Company's bank term loan was amended to modify certain
financial covenants. The amendments on November 18, 1993 and
February 18, 1994 also waived the Company's requirements with
respect to certain financial covenants for the three months
ended September 30, 1993 and December 31, 1993, respectively.
On November 10, 1993, the term loan was amended to allow the
Company to defer up to four monthly principal amortization
payments, depending on cash balances, until April 1, 1994 and
to provide for up to $3 million in standby letters of credit in
connection with overseas lines of credit. In consideration of
the amendment, the Company made a $3 million principal
prepayment, which was applied to the term loan amortization
payment due on the June 30, 1995 maturity date, from the
proceeds of borrowings under such overseas lines of credit.
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<PAGE>
On February 18, 1994, the term loan was further amended to
allow the Company to further defer the four monthly principal
amortization payments until September 30, 1994, at which time
two of the deferred monthly principal amortization payments are
due, and December 31, 1994, at which time the remaining two
deferred monthly principal amortization payments are due. In
connection with this amendment, the Company granted an
aggregate of 600,000 of stock purchase warrants to the banks.
The warrants were issued with an exercise price equal to the
fair market value of a share of the Company's common stock on
the date of the amendment and expire on September 30, 1994.
The warrants provide for the possibility of an extension, at
the option of the banks, of the expiration of these warrants in
consideration of further extensions of the four monthly
principal amortization payments and a restructuring of the term
loan.
The above amendments were obtained to provide the Company with
greater financial flexibility in light of lower than expected
revenues and financial results for the first six months of
fiscal year 1994, a $12 million provision for restructuring
recorded during the three months ended September 30, 1993 and
anticipated financial results for the remainder of the fiscal
year.
The Company has placed its Tinton Falls office facility for
sale. In the event the Company sells the facility, the Company
will be required under the terms of the Amended Term Loan to
make a prepayment of the Amended Term Loan in an amount equal
to 75% of the net proceeds to the Company from such sale, after
any payments to the lenders under a prior term loan pursuant to
a disposition proceeds sharing arrangement. The prepayment
would be applied to payments due in inverse order of maturity.
Although management believes that anticipated improvements in
cash flow from operations resulting from the restructuring of
operations and other actions, together with reduced debt
service requirements resulting from the Refinancing, will
enhance the Company's ability to manage its cash requirements,
the short term prospects for the Company's liquidity are
dependent to a significant degree upon the level of revenue
from sales and service of its computer systems and the
Company's ongoing restructuring and cost containment actions.
The decline in revenue during the six months ended December 31,
1993 adversely affected the Company's liquidity. Further
declines may adversely affect the Company's ability to meet
obligations when due. Depending on the revenue levels
attained, the Company may need to seek additional flexibility
with respect to its obligations under its Amended Term Loan.
In addition, to the extent that sales of the Company's new open
systems significantly increase, the Company will have increased
working capital requirements to fund inventory and capital
equipment needs. Management believes its ability to fund this
potential need for increased working capital through internal
cash flow will depend on the rate of growth and there may be a
need to obtain financing from outside sources. There can be no
assurance that such financing can be obtained.
The Company has not adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." The Company is currently
analyzing the standard to determine the impact, if any, on the
Company's reported results of operations or financial
condition. The Company is required to adopt this standard by
fiscal year 1995.
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<PAGE>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 Computation of Primary Earnings Per Share
11.2 Computation of Fully Diluted Earnings Per Share
(b) No reports on Form 8-K were filed during the fiscal
quarter ended December 31, 1993.
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<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this quarterly report for
the quarter ended December 31, 1993 to be signed on its behalf by
the undersigned thereunto duly authorized.
CONCURRENT COMPUTER CORPORATION
(Registrant)
By: /s/ John T. Stihl
-----------------------------------
John T. Stihl
Chairman of the Board,
President and
Chief Executive Officer
By: /s/ James P. McCloskey
-----------------------------------
James P. McCloskey
Vice President,
Finance and Treasurer
Chief Financial Officer
Dated: February 18, 1994
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<PAGE>
Exhibit Index
-------------
Exhibit No. Description
---------- -----------
11.1 Computation of primary earnings per share
11.2 Computation of fully diluted earnings per
share
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<PAGE>
Concurrent Computer Corporation
Exhibit 11.1
Primary Earnings Per Share Computation
(Dollars and shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1993 1992 1993 1992
------ ------ ------ ------
Income (loss) before extra-
ordinary loss and cumulative
effect of change in
accounting principles $ (3,492) $ 705 $(14,507) $ 1,733
Extraordinary loss on early
extinguishment of debt - - (23,193) -
Cumulative effect of change
in accounting principles
for income taxes and post-
retirement benefits - - (5,000) -
-------- -------- -------- --------
Net income (loss) $ (3,492) $ 705 $(42,700) $ 1,733
======== ======== ======== ========
Weighted average number
of common shares 29,585 2,212 26,524 2,192
Increase in weighted average
number of common shares
upon assumed conversion of
preferred stock - 6,983 - 6,983
Increase in weighted average
number of common shares
upon assumed exercise of
stock options - 464 - 315
-------- -------- -------- --------
Total 29,585 9,659 26,524 9,490
======== ======== ======== ========
Income (loss) per share:
Income (loss) before extra-
ordinary loss and
cumulative effect of change
in accounting principles $ (0.12) $ 0.07 $ (0.55) $ 0.18
Extraordinary loss on early
extinguishment of debt - - (0.87) -
Cumulative effect of change
in accounting principles
for income taxes and
postretirement benefits - - (0.19) -
-------- -------- -------- --------
Net income (loss) $ (0.12) $ 0.07 $ (1.61) $ 0.18
======== ======== ======== ========
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<PAGE>
Concurrent Computer Corporation
Exhibit 11.2
Fully Diluted Earnings Per Share Computation
(Dollars and shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1993 1992 1993 1992
------ ------ ------ -----
Income (loss) before extra-
ordinary loss and cumulative
effect of change in
accounting principles $ (3,492) $ 705 $(14,507) $ 1,733
Extraordinary loss on early
extinguishment of debt - - (23,193) -
Cumulative effect of change
in accounting principles
for income taxes and post-
retirement benefits - - (5,000) -
-------- -------- -------- --------
Net income (loss) $ (3,492) $ 705 $(42,700) $ 1,733
======== ======== ======== ========
Weighted average number
of common shares 29,585 2,212 26,524 2,192
Increase in weighted average
number of common shares
upon assumed conversion of
preferred stock - 6,983 - 6,983
Increase in weighted average
number of common shares
upon assumed exercise of
stock options - 880 - 805
-------- -------- -------- --------
Total 29,585 10,075 26,524 9,980
======== ======== ======== ========
Income (loss) per share:
Income (loss) before extra-
ordinary loss and
cumulative effect of change
in accounting principles $ (0.12) $ 0.07 $ (0.55) $ 0.17
Extraordinary loss on early
extinguishment of debt - - (0.87) -
Cumulative effect of change
in accounting principles
for income taxes and
postretirement benefits - - (0.19) -
-------- -------- -------- --------
Net income (loss) $ (0.12) $ 0.07 $ (1.61) $ 0.17
======== ======== ======== ========
22
