SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A - AMENDMENT NO. 1
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
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the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1993
or
---- Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period from to
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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
29,584,365 shares of the Registrant's Common Stock, par
value $0.01 per share, were outstanding as of November 1, 1993.
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Concurrent Computer Corporation hereby amends the Management's
Discussion and Analysis of Financial Condition and Results of
Operations section of its quarterly report on Form 10-Q for the
three months ended September 30, 1993 to read in its entirety as
follows:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Concurrent is experiencing continuing slow business conditions
throughout the world affecting investment in capital goods, combined
with worldwide industry and government spending controls, and delays
in orders for spare parts under the Department of Commerce's Next
Generation Weather Radar (NEXRAD) program. As a result of these
factors, the Company is restructuring its operations to position its
cost structure and to focus its revenue generating activities in a
manner to fund growth and ensure that ongoing development programs,
particularly related to the new MAXION and 3200-850 product lines,
remain on schedule, and achieve profitability. 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 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. The Company believes that ultimately orders
for spare parts under the NEXRAD program will resume, however,
because of the uncertainty as to timing, the Company has not assumed
any revenue from the sales of spare parts under the program during
fiscal year 1994.
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 heavily in developing its real-time open-system
hardware and operating systems. It also requires the development
and marketing of professional services, such as performance and
capacity analysis and systems integration ("Professional Services").
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
("Traditional Services"), while increasing sales of its open systems
and Professional Services. A shift in sales from proprietary
systems may result in lower gross margins. Currently, gross margins
on open systems are lower than gross margins on proprietary
systems. 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 introduction of new
next generation open systems products, the first of which was
introduced during October 1993, which the Company believes will
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generate higher gross margins than its existing 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.
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 end users. The Company is
developing new next generation open-systems products (based on the
MIPS R4400 microprocessor) which are expected to strengthen the
Company's competitive position.
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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
September 30,
1993 1992
Net sales:
Computer systems 49.3 % 51.7 %
Service and other 50.7 48.3
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Total net sales 100.0 100.0
Cost of sales (% of respective sales
category):
Computer systems 50.1 46.6
Service and other 57.2 59.8
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Total cost of sales 53.7 53.0
Gross margin 46.3 47.0
Operating expenses:
Research and development 12.6 12.3
Selling, general and administrative 28.2 26.6
Provision for restructuring 24.3 -
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Total operating expenses 65.1 38.9
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Operating income (loss) (18.8) 8.1
Interest expense (3.0) (6.6)
Interest income 0.3 0.5
Other income (expense) - net 0.1 0.8
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Income (loss) before provision for income
taxes, extraordinary loss and cumulative
effect of change in accounting principles (21.4) 2.8
Provision for income taxes 0.9 0.9
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Income (loss) before extraordinary loss and
cumulative effect of change in accounting
principles (a) (22.3)% 1.9 %
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(a) The ratio for the three months ended September 30, 1993 excludes
consideration of 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 September 30, 1993 in Comparison to Three Months
Ended September 30, 1992
Net Sales
Net sales for the three months ended September 30, 1993 were $49.4
million, a decrease of $4.9 million from the prior year period. This
decrease was due to a decrease of $3.7 million, or 13.2%, in
computer systems and a decrease of $1.2 million, or 4.4%, in service
and other revenues. The decrease in computer system sales was
primarily due to a decline in domestic business and, to a lesser
extent, unfavorable foreign exchange rates partially offset by an
increase in European business which trend is not expected to
continue in the near term. The decrease in service and other
revenues was primarily due to unfavorable foreign exchange rates.
Gross Margin
Gross Margin, as measured in dollars and as a percentage of net
sales, was $22.8 million and 46.3%, respectively, for the three
months ended September 30, 1993 compared to $25.5 million and
47.0%, 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 product mix and
unfavorable foreign exchange rates.
Operating Income (Loss)
Operating loss for the current year period was $9.3 million
compared with operating income of $4.4 million for the prior year
period. The $13.7 million change was due to the aforementioned $2.7
million decrease in gross margin and a $12.0 million provision for
restructuring partially offset by a $1.0 million reduction in
operating expenses.
The $1.0 million decrease in operating expenses was primarily due to
a $0.6 million increase in capitalized software production costs and
a $0.5 million decrease in selling, general and administrative
expenses. The Company increased its gross research and development
expenses by $0.1 million during the current year period reflecting
the cost of its recently announced next generation open-systems
products and new 3200-850 systems.
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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 $11.0 million in the current year
period compared to income of $1.0 million for the prior year
period. Income (loss) before extraordinary loss and cumulative
effect of change in accounting principles changed by $12.0
million as a result of a $12.0 million provision for
restructuring and a $1.7 million decrease in operating income
(excluding the provision for restructuring) partially offset by
a $1.7 million decrease in non-operating expenses. The
decrease in non-operating expenses was primarily due to a $2.1
million decrease in interest expense resulting from the
reduction of the Company's indebtedness 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."
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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 revenues from its installed base, from long-term
programs, and long-term customer relationships which have
provided a stable and generally predictable source of cash
flow. The future liquidity of the Company's business will
depend to a significant extent on: 1) its ability to develop
and market competitive open systems as 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; and
3) its ongoing cost containment efforts.
Due to lower than expected sales and orders volume in the first
quarter of fiscal year 1994, resulting from the continuing slow
business conditions throughout the world affecting investment
in capital goods, combined with worldwide industry and
government spending controls 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 efforts. 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 position its cost structure and to focus its
revenue generating activities in a manner to fund growth and
ensure that ongoing development programs, particularly related
to the new MAXION and 3200-850 product lines, remain on
schedule, and achieve profitability.
The Company estimates that the cost savings related to the
restructuring of operations and other actions will be
approximately $7 million per quarter when fully realized. Such
savings can be expected to begin during the second quarter of
fiscal year 1994 and be fully realized during the first quarter
of fiscal year 1995. The cost savings actions primarily
include reductions in work force (employee terminations),
office closings or downsizings and reduced or controlled
spending on items such as annual salary increases, employee
benefits, consulting, auto leases, travel and other costs.
Total cash outlays are not expected to decline until the
quarter ending March 31, 1994, and not substantially 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 through cash flow from
operations under the restructured organization and by managing
the timing of certain restructuring payments (e.g., office
lease buy-outs). The Company also expects to explore the
possibility of deferring certain principal amortization
payments under its term loan with its lenders.
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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 September 30, 1993, the Company had a current ratio of
1.2 to 1, an inventory turnover ratio of 4.8 times and net
working capital of $13.1 million. At September 30, 1993, cash
and cash equivalents amounted to $9.7 million and accounts
receivable amounted to $40.6 million.
At September 30, 1993, the outstanding balance of the Existing
Term Loan was $29.4 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, and November 18, 1993, the Company's
bank term loan was amended to modify certain financial
covenants. The latter amendment also waived the Company's
obligations with respect to certain financial covenants for the
three months ended September 30, 1993. On November 10, 1993,
the term loan was also amended to allow the Company to defer up
to four monthly principal amortization payments depending on
cash balances and to provide for up to $3 million in standby
letters of credit in connection with overseas lines of credit.
In connection with that amendment the Company made a $3 million
prepayment to be applied to the amortization payment due on the
June 15, 1995 maturity date. The three amendments were
obtained to provide the Company with greater financial
flexibility in light of lower than expected revenues and
earnings for the three months ended September 30, 1993, a $12.0
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million provision for restructuring recorded during the same
period and anticipated financial results for fiscal year 1994.
The Company has placed its Tinton Falls 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 of the Existing 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 computing systems and the
Company's ongoing restructuring actions and cost containment
efforts. The decline in revenue during the three months ended
September 30, 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 bank 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 does not anticipate being able to
fund this potential need for increased working capital through
internal cash flow and may 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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Signatures
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused this
amendment to the quarterly report for the quarter ended
September 30, 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
Treasurer and
Chief Financial Officer
Dated: February 4, 1994
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