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, 1994
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.)
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 May 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 Nine Months Ended
March 31, March 31,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
Net sales:
Computer systems $ 22,178 $ 31,248 $ 65,886 $ 90,740
Service and other 21,881 24,842 68,221 74,046
-------- -------- -------- --------
Total 44,059 56,090 134,107 164,786
Cost of sales:
Computer systems 14,243 15,327 37,796 42,954
Service and other 12,285 14,641 40,145 45,023
-------- -------- -------- --------
Total 26,528 29,968 77,941 87,977
Gross margin 17,531 26,122 56,166 76,809
Operating expenses:
Research and development 5,585 6,597 18,360 19,575
Selling, general and
administrative 10,318 14,550 37,597 43,366
Provision for restructuring - - 12,000 -
Sales and use tax credit - - (1,440) -
-------- -------- -------- --------
Total operating expenses 15,903 21,147 66,517 62,941
-------- -------- -------- --------
Operating income (loss) 1,628 4,975 (10,351) 13,868
Interest expense (686) (3,324) (2,827) (10,156)
Interest income 132 267 437 850
Other income (expense) - net (195) (204) (287) (115)
-------- -------- -------- --------
Income (loss) before
provision for income taxes,
extraordinary loss and
cumulative effect of change
in accounting principles 879 1,714 (13,028) 4,447
Provision for income taxes 300 700 900 1,700
-------- -------- -------- --------
Income (loss) before
extraordinary loss and
cumulative effect of change
in accounting principles 579 1,014 (13,928) 2,747
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) $ 579 $ 1,014 $(42,121) $ 2,747
======== ======== ======== ========
Income (loss) per share:
Income (loss) before
extraordinary loss and
cumulative effect of change
in accounting principles $ 0.02 $ 0.10 $ (0.51) $ 0.28
Extraordinary loss on early
extinguishment of debt - - (0.84) -
Cumulative effect of change
in accounting principles
for income taxes and post-
retirement benefits - - (0.18) -
-------- -------- -------- --------
Net income (loss) $ 0.02 $ 0.10 $ (1.53) $ 0.28
======== ======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
1
<PAGE>
Concurrent Computer Corporation
Consolidated Balance Sheets
(Dollars in thousands)
Pro Forma
June 30,
March 31, 1993 June 30,
1994 (See Note 2) 1993
--------- ----------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 9,499 $ 18,162 $ 30,422
Accounts receivable - net 33,109 37,502 37,502
Inventories 19,066 21,920 21,920
Prepaid expenses and other
current assets 10,008 10,874 10,874
--------- ----------- --------
Total current assets 71,682 88,458 100,718
Property, plant and equipment - net 45,088 48,220 48,220
Other long-term assets 7,128 8,948 8,148
--------- ----------- --------
Total assets $ 123,898 $ 145,626 $157,086
========= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,563 $ 2,783 $ 2,783
Current portion of long-term debt 11,000 8,250 8,250
Accounts payable and accrued
expenses 44,978 47,334 47,334
Deferred revenue 6,616 7,575 7,575
--------- ----------- --------
Total current liabilities 68,157 65,942 65,942
Long-term debt 15,308 24,731 67,938
Other long-term liabilities 7,960 4,703 4,703
Stockholders' equity:
Preferred stock - - 70
Common stock 296 293 26
Capital in excess of par value 71,517 70,429 15,626
Accumulated earnings (deficit)
after eliminating accumulated
deficit of $81,826 at December
31, 1991, date of quasi-
reorganization (37,319) (18,451) 4,802
Treasury stock (58) (58) (58)
Cumulative translation adjustment (1,963) (1,963) (1,963)
--------- ----------- --------
Total stockholders' equity 32,473 50,250 18,503
--------- ----------- --------
Total liabilities and
stockholders' equity $ 123,898 $ 145,626 $157,086
========= =========== ========
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE>
Concurrent Computer Corporation
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended
March 31,
-------------------
1994 1993
-------- --------
Cash flows provided by (used by) operating
activities:
Net income (loss) $(42,121) $ 2,747
Adjustments to reconcile net income (loss) -------- --------
to net cash provided by operating activities:
Depreciation, amortization and other 9,038 9,773
Non-cash interest and amortization of
financing costs 931 6,734
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 4,472 (3,398)
Inventories 2,944 (279)
Prepaid expenses and other current assets 906 1,864
Decrease in current liabilities,
other than debt obligations (13,578) (3,803)
(Increase) decrease in other long-term assets (1,446) 610
Increase in other long-term liabilities 717 100
-------- --------
Total adjustments to net income (loss) 42,737 11,601
-------- --------
Net cash provided by operating activities 616 14,348
-------- --------
Cash flows used by investing activities:
Additions to property, plant and equipment (5,473) (6,685)
-------- --------
Cash flow provided by (used by) financing
activities:
Net proceeds of notes payable 2,544 1,241
Repayment of long-term debt (74,412) (7,194)
Issuance of long-term debt 708 -
Net proceeds from sale and issuance
of common stock 55,001 5
-------- --------
Net cash used by financing activities (16,159) (5,948)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 93 (1,328)
-------- --------
(Decrease) increase in cash and cash equivalents $(20,923) $ 387
======== ========
Cash paid during the year for:
Interest $ 2,162 $ 3,625
======== ========
Income taxes (net of refunds) $ 400 $ 1,292
======== ========
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, plus 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 and November 18, 1993 and on February 18, 1994, the
Company's Amended Term Loan agreement 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 and December 31, 1993, respectively.
4
<PAGE>
On November 10, 1993, the Amended Term Loan agreement 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.
The February 18, 1994 amendment allowed 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. The deferred payments are in addition to the regular
monthly amortization payments due on these dates. 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 per share of $1.50 (the fair market value of a share
of the Company's common stock on February 18, 1994) and expire on
September 30, 1994. The warrants provide for the possibility of an
extension, at the option of the banks, of the expiration date of
these warrants in consideration of further extensions of the four
monthly principal amortization payments and a restructuring of the
Amended 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
5
<PAGE>
carryforwards and operating loss carryforwards. A valuation
allowance is established to reduce deferred tax assets if it is more
likely than not that 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 related to:
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 related to:
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 nine months ended March 31,
1994 and 1993, respectively, is based on the weighted average number
of shares of common stock outstanding and for the three and nine
months ended March 31, 1993 includes common stock equivalents
(Convertible Preferred Stock and dilutive stock options). Income per
share on a primary and fully diluted basis for the three and nine
months ended March 31, 1993 are equivalent. The number of shares
used in computing earnings per share were as follows:
7
<PAGE>
(Shares in thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1994 1993 1994 1993
-------- -------- ------- -------
Primary 29,585 10,144 27,544 9,687
======== ======== ======= =======
Fully Diluted 29,585 10,144 27,544 9,815
======== ======== ======= =======
Supplemental net loss per share for the nine months ended March 31,
1994 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:
Nine Months Ended
March 31, 1994
-----------------
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) $(0.47)
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 $(1.43)
=======
Note 9: Inventories
March 31, June 30,
1994 1993
--------- --------
(Dollars in thousands)
Raw materials $ 9,653 $ 11,177
Work-in-process 3,051 6,633
Finished goods 6,362 4,110
--------- --------
$ 19,066 $ 21,920
========= ========
Note 10: Accumulated Depreciation
Accumulated depreciation at March 31, 1994 and June 30, 1993 was
$26,617,000 and $18,155,000, respectively.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
In the quarter ended March 31, 1994, Concurrent returned to
profitability and achieved revenue growth, compared to the prior
quarter ended December 31, 1993, after two quarters of losses and
declining revenues from the effects of a significant unexpected
decline in incoming business during its first fiscal quarter ended
September 30, 1993. The Company's profit performance for the
quarter reflects the combination of improved revenues and a
substantial cost reduction effort. Product margins were reduced by
discounting of older products, trade-in credits, unfavorable product
mix and manufacturing expenses associated with ramp-up of full-scale
production of the Company's new MAXION multiprocessor system
introduced in October 1993. The goals for the fourth quarter of
fiscal year 1994 are to achieve improved profitability and revenue
growth; however, there can be no assurance that these goals will be
achieved.
During the quarter ended March 31, 1994, the first full-scale
production units of the MAXION open system and Series 3200-850
proprietary system were shipped on time to customers. Both products
were introduced during the quarter ended December 31, 1993. The
Series 3200-850 proprietary 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
MAXION open system is the world's first multiprocessor system
employing crosspoint architecture. It is among the most
price/performance competitive multiprocessing systems available in
the market today. The MAXION system has been well received in the
market and the Company believes the MAXION system has strengthened
its competitive position in the marketplace. The Company is also in
the process of preparing to apply for patents in connection with the
MAXION architecture but there can be no assurance that patents will
be issued.
The Company believes the decline in incoming business during its
quarter ended September 30, 1993 reflected worldwide economic
conditions which have not 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.
The business has also been affected by further declines and delays
in certain government spending around the world.
In reaction to the first fiscal quarter decline in incoming
business, the Company took 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 system
and Series 3200-850 product lines, and to achieve profitability.
Restructuring and other actions taken since the first fiscal quarter
9
<PAGE>
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 began during the third quarter of fiscal
year 1994 and will 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 1,300; consolidating certain field offices; and
reducing spending. Actions taken to focus revenue generating
activities include restructuring the sales, services and marketing
field operations. The actions are expected to enhance revenue
growth by decentralizing and localizing appropriate decision-making
authority 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 assumed a revenue trend for the
three remaining quarters of the fiscal year on average below the
first quarter of fiscal year 1994 but growing on a quarter to
quarter basis from the second quarter of fiscal year 1994, which is
expected to be the low point for the fiscal year. Revenues for the
first three quarters of fiscal year 1994 were $49.4, $40.7 and $44.1
million, respectively. There can be no assurance that the foregoing
revenue assumptions will be achieved in future quarters. The
Company has not assumed any future revenue from the sales of spare
parts under the Department of Commerce's Next Generation Weather
Radar (NEXRAD) program. The Company has submitted proposals in
response to two Department solicitations for spare parts that are
conditioned on a comprehensive resolution of all outstanding matters
related to the sale of spare parts under the NEXRAD program. There
can be no assurance that there will be a near-term comprehensive
resolution or that the Company will have continuing sales of spare
parts under the program and, as such, none are planned. The
Government has asserted that Concurrent's prices for spare parts
under the program are too high and issued an October 1993 advisory
notice to that effect to various Government contracting
authorities. Such notice, which subsequently came to the attention
of the Company, has had the effect of delaying the contracting
process of other Government related business. The Company believes
that its pricing practices are in compliance with applicable
regulations and has conditioned the comprehensive resolution to
include remedial actions by the Government.
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 the development of 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.
10
<PAGE>
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. The Company's operating
income would be adversely affected by such a shift unless total net
sales increase, the gross margins on its open systems improve and/or
total operating expenses are further reduced. Although there can be
no assurance that this will be the case, the Company believes gross
margins on its open systems will improve with the continued
implementation of its value-added market strategy. This strategy
involves the continued introduction of new next generation open
system products, which the Company believes will generate higher
gross margins than its older open systems products. It also
involves the development and sale of needed value-added products and
services such as software productivity and development tools, and
packaged services comprised of Traditional Services and Professional
Services, which sales are expected to have an aggregate positive
impact on total gross margins.
Effective May 5, 1994, Michael J. King resigned as a director of the
Company due to pressures on his time which made it difficult to
commit to regular attendance at board of directors' meetings.
11
<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 Nine Months Ended
March 31, March 31,
------------------ -----------------
1994 1993 1994 1993
------- ------- ------ -------
Net sales:
Computer systems 50.3% 55.7% 49.1% 55.1%
Service and other 49.7 44.3 50.9 44.9
----- ----- ----- -----
Total net sales 100.0 100.0 100.0 100.0
Cost of sales (% of respective
sales category):
Computer systems 64.2 49.0 57.4 47.3
Service and other 56.1 58.9 58.8 60.8
----- ----- ----- -----
Total cost of sales 60.2 53.4 58.1 53.4
Gross margin 39.8 46.6 41.9 46.6
Operating expenses:
Research and development 12.7 11.8 13.7 11.9
Selling, general and
administrative 23.4 25.9 28.0 26.3
Provision for restructuring - - 9.0 -
Sales and use tax credit - - (1.1) -
----- ----- ----- -----
Total operating expenses 36.1 37.7 49.6 38.2
----- ----- ----- -----
Operating income (loss) 3.7 8.9 (7.7) 8.4
Interest expense (1.6) (5.9) (2.1) (6.1)
Interest income 0.3 0.5 0.3 0.5
Other income (expense) - net (0.4) (0.4) (0.2) (0.1)
----- ----- ----- -----
Income (loss) before provision
for income taxes, extra-
ordinary loss and cumulative
effect of change in
accounting principles 2.0 3.1 (9.7) 2.7
Provision for income taxes 0.7 1.3 0.7 1.0
----- ----- ----- -----
Income (loss) before extra-
ordinary loss and cumulative
effect of change in
accounting principles (a) 1.3% 1.8% (10.4)% 1.7%
===== ===== ===== =====
(a) The percentage for the nine months ended March 31, 1994 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.
12
<PAGE>
Results Of Operations
Three Months Ended March 31, 1994 in Comparison to Three Months
Ended March 31, 1993
Net Sales
Net sales for the three months ended March 31, 1994 were $44.1
million, a decline of $12.0 million from the prior year period. This
decline was due to a decrease of $9.0 million, or 29.0%, in computer
systems sales and a decrease of $3.0 million, or 11.9%, 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 certain
government spending around the world. The decrease in service and
other revenues was primarily due to the decline in computer system
sales experienced in prior periods which resulted in fewer
maintenance contracts.
Gross Margin
Gross margin, as measured in dollars and as a percentage of net
sales, was $17.5 million and 39.8%, respectively, for the three
months ended March 31, 1994 compared to $26.1 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, unfavorable discounting of
older products, the issuance of trade-in credits, unfavorable
product mix and manufacturing expenses associated with ramp-up of
full-scale production of the MAXION multiprocessor system partially
offset by cost savings resulting from the operational restructuring
during fiscal year 1994.
Operating Income (Loss)
Operating income for the current year period was $1.6 million
compared with operating income of $5.0 million for the prior year
period. The $3.4 million change was due to the aforementioned $8.6
million decrease in gross margin offset by a $5.2 million reduction
in operating expenses.
The $5.2 million decrease in operating expenses was primarily due to
a $4.2 million decrease in selling, general and administrative
expenses, a $0.5 million decrease in gross research and development
expenses and a $0.5 million increase in capitalized software
production costs. The decrease in selling, general and
administrative and gross research and development expenses is
primarily due to cost savings resulting from the operational
restructuring during fiscal year 1994 and the completion of
extensive development effort on the MAXION multiprocessor system.
13
<PAGE>
Income (Loss) Before Extraordinary Loss and Cumulative Effect of
Change in Accounting Principles
Income before extraordinary loss and cumulative effect of change in
accounting principles was $0.6 million in the current year period
compared to income of $1.0 million for the prior year period. The
$0.4 million change compared to the prior year period results from a
$3.4 million decrease in operating income partially offset by 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 and a decrease in the provision for income taxes.
Nine Months Ended March 31, 1994 in Comparison to Nine Months Ended
March 31, 1993
Net Sales
Net sales for the nine months ended March 31, 1994 were $134.1
million, a decline of $30.7 million from the prior year period.
This decline was due to a decrease of $24.9 million, or 27.4%, in
computer systems sales and a decrease of $5.8 million, or 7.9%, 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 certain
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 the decline in computer system
sales experienced in prior periods which resulted in fewer
maintenance contracts and unfavorable foreign exchange rates.
Gross Margin
Gross margin, as measured in dollars and as a percentage of net
sales, was $56.2 million and 41.9%, respectively, for the nine
months ended March 31, 1994 compared to $76.8 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, unfavorable discounting of
older products, the issuance of trade-in credits, unfavorable
product mix and manufacturing expenses associated with ramp-up of
full-scale production of the MAXION multiprocessor system partially
offset by cost savings resulting from the operational restructuring
during fiscal year 1994.
Operating Income (Loss)
Operating loss for the current year period was $10.3 million
compared with operating income of $13.9 million for the prior year
period. The $24.2 million change was due to the aforementioned
$20.6 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 $7.0 million reduction in operating expenses.
14
<PAGE>
The $7.0 million decrease in operating expenses was primarily due to
a $5.8 million decrease in selling, general and administrative
expenses and a $1.4 million increase in capitalized software
production costs partially offset by a $0.2 million increase in
gross research and development expenses. The decrease in selling,
general and administrative expenses is primarily due to cost savings
resulting from the operational restructuring during fiscal year
1994. The increase in gross research and development expenses
during the current year period compared to the prior year period
reflects the Company's commitment to new product development and the
cost of its recently released MAXION multiprocessor system and the
new series 3200-850 system partially offset by cost savings
resulting from the operational restructuring during fiscal year
1994.
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 $13.9 million in the current year period
compared to income of $2.7 million for the prior year period. The
$16.6 million change compared to the prior year period results from
a $13.6 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 $7.6 million net decrease in
non-operating expenses. The decrease in non-operating expenses was
primarily due to a $7.3 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."
15
<PAGE>
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 and declines and delays in certain government spending
around the world, 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 are
estimated to be approximately 60%, 25% and 15% 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 since the
first fiscal quarter 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. Primarily due to employee
termination costs which are paid out over a period of time
following termination, total cash outlays related to the cost
savings actions are not expected to decline until the quarter
ending June 30, 1994, and not significantly until after that
quarter. 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).
16
<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 $23.2 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 March 31, 1994, the Company had a current ratio of 1.05
to 1, an inventory turnover ratio of 4.9 times and net working
capital of $3.5 million. At March 31, 1994, cash and cash
equivalents amounted to $9.5 million and accounts receivable
amounted to $33.1 million.
At March 31, 1994, the outstanding balance of the Amended Term
Loan was $25.1 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 and November 18, 1993 and on February 18, 1994,
the Company's Amended Term Loan agreement 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 and December 31, 1993,
respectively.
On November 10, 1993, the Amended Term Loan agreement 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.
17
<PAGE>
The February 18, 1994 amendment allowed 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. The deferred payments are in
addition to the regular monthly amortization payments due on
these dates. 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 per
share of $1.50 (the fair market value of a share of the
Company's common stock on February 18, 1994) and expire on
September 30, 1994. The warrants provide for the possibility
of an extension, at the option of the banks, of the expiration
date of these warrants in consideration of further extensions
of the four monthly principal amortization payments and a
restructuring of the Amended 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. Depending on the revenue levels attained, the Company
may need to seek additional flexibility with respect to its
obligations under its Amended Term Loan, particularily
financial covenants for fiscal year 1995.
The Company has placed its Tinton Falls office facility for
sale. In the event the Company sells the facility, the Company
will be required 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. Although
revenues for the three months ended March 31, 1994 increased
compared to the preceding three month period, future declines
may adversely affect the Company's ability to meet obligations
when due. 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
18
<PAGE>
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.
19
<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 March 31, 1994.
20
<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 March 31, 1994 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: May 13, 1994
21
<PAGE>
Exhibit Index
Exhibit No. Description
11.1 Computation of primary earnings per share
11.2 Computation of fully diluted earnings per
share
22
Concurrent Computer Corporation
Exhibit 11.1
Primary Earnings Per Share Computation
(Dollars and shares in thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
Income (loss) before extra-
ordinary loss and cumulative
effect of change in
accounting principles $ 579 $ 1,014 $(13,928) $ 2,747
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) $ 579 $ 1,014 $(42,121) $ 2,747
======== ======== ======== ========
Weighted average number
of common shares 29,585 2,509 27,544 2,298
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 - 652 - 406
-------- -------- -------- --------
Total 29,585 10,144 27,544 9,687
======== ======== ======== ========
Income (loss) per share:
Income (loss) before extra-
ordinary loss and
cumulative effect of change
in accounting principles $ 0.02 $ 0.10 $ (0.51) $ 0.28
Extraordinary loss on early
extinguishment of debt - - (0.84) -
Cumulative effect of change
in accounting principles
for income taxes and
postretirement benefits - - (0.18) -
-------- -------- -------- --------
Net income (loss) $ 0.02 $ 0.10 $ (1.53) $ 0.28
======== ======== ======== ========
23
Concurrent Computer Corporation
Exhibit 11.2
Fully Diluted Earnings Per Share Computation
Dollars and shares in thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
Income (loss) before extra-
ordinary loss and cumulative
effect of change in
accounting principles $ 579 $ 1,014 $(13,928) $ 2,747
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) $ 579 $ 1,014 $(42,121) $ 2,747
======== ======== ======== ========
Weighted average number
of common shares 29,585 2,509 27,544 2,298
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 - 652 - 534
-------- -------- -------- --------
Total 29,585 10,144 27,544 9,815
======== ======== ======== ========
Income (loss) per share:
Income (loss) before extra-
ordinary loss and
cumulative effect of change
in accounting principles $ 0.02 $ 0.10 $ (0.51) $ 0.28
Extraordinary loss on early
extinguishment of debt - - (0.84) -
Cumulative effect of change
in accounting principles
for income taxes and
postretirement benefits - - (0.18) -
-------- -------- -------- --------
Net income (loss) $ 0.02 $ 0.10 $ (1.53) $ 0.28
======== ======== ======== ========
24
