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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the quarterly period ended January 30, 1999
Commission File Number 0-19558
CENTIGRAM COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2418021
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
91 East Tasman Drive
San Jose, California 95134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (408) 944-0250
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
---- ----
The number of outstanding shares (not including treasury shares) of the
Registrant's Common Stock as of February 26, 1999, was 6,492,000.
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<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
Centigram Communications Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
January 30, October 31,
1999 1998
----------- -----------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $12,478 $23,430
Short-term investments 37,070 33,760
Trade receivables, net 13,513 14,566
Inventories 4,206 5,297
Other current assets 1,623 1,745
----------- -----------
Total current assets 68,890 78,798
Property and equipment, net 5,550 6,653
Intangible assets, net 6,345 6,637
Deposits and other assets 3,851 3,889
----------- -----------
$84,636 $95,977
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $5,414 $5,985
Accrued compensation 2,930 4,034
Patent settlement payable -- 9,200
Deferred income 4,776 4,394
Accrued expenses and other liabilities 5,398 5,179
Warranty and retrofit reserves 1,840 1,977
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Total current liabilities 20,358 30,769
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000
authorized; none outstanding -- --
Common stock, $.001 par value, 25,000,000
authorized; 7,171,000 outstanding and
capital in excess of par value 90,516 90,625
Treasury stock, 610,000 and 597,000 shares,
at cost (6,923) (6,867)
Accumulated deficit (19,523) (18,844)
Accumulated other comprehensive income 208 294
----------- -----------
Total stockholders' equity (26,238) (25,417)
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($5,880) $5,352
=========== ===========
Note: The balance sheet at October 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. See accompanying notes.
<PAGE>
Centigram Communications Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
----------------------
January 30, January 31,
1999 1998
---------- ----------
<S> <C> <C>
Net revenue $20,233 $18,158
Cost and expenses:
Costs of goods sold 8,934 9,071
Research and development 4,153 4,972
Selling, general and administrative 8,320 10,741
---------- ----------
Total costs and expenses 21,407 24,784
---------- ----------
Operating loss (1,174) (6,626)
Other income and expense, net 590 723
---------- ----------
Loss before income taxes (584) (5,903)
Provision for income taxes 95 75
---------- ----------
Net loss ($679) ($5,978)
========== ==========
Basic loss per share ($0.10) ($0.85)
========== ==========
Diluted loss per share ($0.10) ($0.85)
========== ==========
Shares used for basic and diluted loss
per share 6,572 7,016
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
Centigram Communications Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Quarter Ended
----------------------
January 30, January 31,
1999 1998
---------- ----------
<S> <C> <C>
Cash and equivalents, beginning of period $23,430 $19,791
Cash flows from operations:
Net loss (679) (5,978)
Depreciation and amortization 1,574 2,174
Trade receivables 1,053 6,174
Inventories 1,091 257
Other assets 160 409
Accounts payable (571) 572
Patent settlement payable (9,200) --
Accrued expenses and other liabilities (640) (447)
---------- ----------
(7,212) 3,161
---------- ----------
Cash flows used for investing:
Purchase of short-term investments (21,320) (8,320)
Proceeds from sales and maturities of
short-term investments 17,947 10,822
Purchase of property and equipment (204) (672)
---------- ----------
(3,577) 1,830
---------- ----------
Cash flows from financing:
Proceeds from sale of common stock 342 2,079
Purchase of treasury shares (505) (1,559)
Principal payments on capital leases -- (40)
---------- ----------
(163) 480
---------- ----------
Net change in cash and equivalents (10,952) 5,471
---------- ----------
Cash and equivalents, end of period $12,478 $25,262
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
Centigram Communications Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Basis of Presentation
The accompanying condensed consolidated financial statements have
been prepared by the Company without audit and reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary to reflect a fair statement of the results for the
interim periods. For further information, refer to the audited
Consolidated Financial Statements and footnotes included in the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1998. The
results of operations for the three month period ended January 30, 1999 may
not necessarily be indicative of the results for the fiscal year ending
October 30,1999 or any future period.
Inventories
Inventories consisted of (in thousands):
January 30, October 31,
1999 1998
----------- -----------
Raw materials..................... $650 $1,198
Work-in-process................... 1,732 1,793
Finished goods.................... 1,824 2,306
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$4,206 $5,297
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Loss Per Share
Basic and diluted earnings per share are computed using the weighted
average number of common shares outstanding during the period. In
computing diluted earnings per share in periods with income, the dilutive
effect of options and convertible securities are also included in the
earnings per share computation. Options were outstanding during the three-
month periods ended January 30, 1999 and January 31, 1998, but were
excluded from the computation of diluted net loss per share because the
effect in these periods would have been anti-dilutive.
Basic and diluted loss per share amounts are computed by dividing
net loss by the average number of shares outstanding. The details of
these computations are as follows:
Quarter Ended
-------------------------
January 30, January 31,
(in thousands, except per share data) 1999 1998
- ------------------------------------------- ----------- -----------
Net loss ($679) ($5,978)
=========== ===========
Weighted average shares outstanding 6,572 7,016
Effect of dilutive securities:
Shares issued upon exercise of dilutive
outstanding stock options -- --
----------- -----------
Adjusted weighted average shares 6,572 7,016
=========== ===========
Basic loss per share ($0.10) ($0.85)
=========== ===========
Dilluted loss per share ($0.10) ($0.85)
=========== ===========
Comprehensive Income (Loss)
As of November 1, 1998, the Company adopted the Statement on
Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting
and display of comprehensive income and its components; however adoption
of this Statement had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires unrealized gains or losses on
the Company's available-for-sale securities and foreign currency
translation adjustments to be included in other comprehensive income.
Prior to adoption, unrealized gains or losses related to foreign
currency translation adjustments were reported as a separate component
of shareholders' equity.
The following are the components of comprehensive income (loss):
Quarter Ended
-------------------------
January 30, January 31,
(in thousands) 1999 1998
- ------------------------------------------- ----------- -----------
Net loss ($679) ($5,978)
Unrealized gain (loss) on investments (63) 83
Foreign curency translation adjustment (23) 7
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($765) ($5,888)
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The following are the components of accumulated other comprehensive
income, net of related tax:
January 30, October 31,
(in thousands) 1999 1998
- ------------------------------------------- ----------- -----------
Unrealized gain on investments $279 $342
Foreign currency translation adjustment (71) (48)
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$208 $294
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Pro Forma Information
In June 1998, the Company purchased substantially all of the
assets of The Telephone Connection, Inc. ("TTC") for approximately $11.6
million in cash, including transaction costs of $0.4 million. The
acquisition has been accounted for using the purchase method of
accounting.
In May 1998, the Company licensed and sold certain Customer
Premise Equipment ("CPE') business unit assets to Mitel Corporation
("Mitel") for $26.8 million in cash, and Mitel assumed certain of the
Company's liabilities.
The following pro forma summary represents the combined results of
operations of the Company, plus the purchase of substantially all of the
assets of TTC as adjusted to reflect the amortization of tangible and
intangible assets acquired in the purchase, less the sale of the CPE
business unit, as if each of these transactions had occurred at the
beginning of fiscal 1998. This summary does not purport to be
indicative of what operating results would have been had these
transactions been made as of the beginning of fiscal 1998 nor are they
necessarily indicative of future operating results.
Quarter Ended
-------------------------
January 30, January 31,
(in thousands, except per share data) 1999 1998
- ------------------------------------------- ----------- -----------
Net revenue $20,233 $12,816
Loss before income taxes ($584) ($6,801)
Net loss ($679) ($6,876)
Basic and diluted loss per share ($0.10) ($0.98)
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains forward-looking statements
regarding future events or the future financial performance of Centigram
that involve risks and uncertainties. These statements include but are
not limited to statements related to changes in Centigram's research and
development and selling, general and administrative expenses,
Centigram's effective tax rate, Centigram's expenditures for capital
equipment, and the sufficiency of Centigram's cash reserves. Actual
results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set
forth in this Management's Discussion and Analysis of Financial
Condition and Results of Operations under "Certain Trends and
Uncertainties," and elsewhere herein.
Centigram designs, manufactures and markets wireless and wireline
messaging, enhanced services and communication systems that integrate
voice and facsimile on the Company's communications server and provide
access to this multimedia information through a telephone or a PC.
Centigram's applications all operate on common hardware and software
platforms based on industry-standard hardware and software which is the
Company's implementation of its Modular Expandable System Architecture
(MESA). Centigram's system architecture enables a user generally to
expand the capacity of a system in cost-effective increments from the
Company's smallest to its largest system configuration.
Centigram's systems can be integrated with wireline and wireless
switches and paging terminal systems. Such systems are used for
switching telephone calls and integrating voice and facsimile messaging
in a variety of service provider environments. In addition, Centigram
systems located at different sites can be linked together in a digital
network.
Pro Forma Combined Condensed Statements of Operations
In June 1998, the Company purchased substantially all of the
assets of The Telephone Connection, Inc. ("TTC") for approximately $11.6
million in cash, including transaction costs of $0.4 million. The
acquisition has been accounted for using the purchase method of
accounting.
In May 1998, the Company licensed and sold certain Customer
Premise Equipment business unit assets to Mitel Corporation (the "CPE
Sale") for $26.8 million in cash, and Mitel assumed certain of the
Company's liabilities
The following pro forma statements represent the combined results
of operations of the Company, plus the purchase of substantially all of
the assets of TTC as adjusted to reflect the amortization of tangible
and intangible assets acquired in the purchase, less the sale of the CPE
business unit, as if each of these transactions had occurred at the
beginning of fiscal 1998. This summary does not purport to be
indicative of what operating results would have been had these
transactions been made as of the beginning of fiscal 1998 nor are they
necessarily indicative of future operating results.
Quarter Ended
-------------------------
January 30, January 31,
(in thousands, except per share data) 1999 1998
- ------------------------------------------- ----------- -----------
Net revenue $20,233 $12,816
Cost and expenses:
Costs of goods sold 8,934 6,793
Research and development 4,153 4,587
Selling, general and administrative 8,320 8,976
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Total costs and expenses 21,407 20,356
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Operating loss (1,174) (7,540)
Other income and expense, net 590 739
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Loss before income taxes (584) (6,801)
Provision for income taxes 95 75
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Net loss ($679) ($6,876)
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Basic and diluted loss per share ($0.10) ($0.98)
=========== ===========
Shares used for basic and diluted loss
per share 6,572 7,016
=========== ===========
Results of Operations
Net revenue for the first quarter of fiscal 1999 was $20.2
million, which was 11% higher than net revenue for the corresponding
quarter of fiscal 1998. The increase in net revenue from the first
quarter of 1998 reflects higher sales of large systems and system
expansion products offset in part by lower sales of smaller system
products. The decrease in sales of smaller system products from the
prior year was primarily due to the CPE Sale. Sales to international
customers were 39% of revenues for the first quarter as compared to 42%
in the similar period of 1998.
On a pro forma basis, net revenue was $20.2 million and $12.8
million for the first quarter of 1999 and 1998, respectively. This
increase in net revenue reflect higher sales of large systems and system
expansion products to domestic customers.
Gross margin was 55.8% and 50.0% of net revenue in the first
quarters of 1999 and 1998, respectively. This 5.8% increase from the
prior year's first quarter reflects a favorable mix of increased sales
of the Company's large system and systems expansion products which
typically have higher gross margins. See "Certain Trends and
Uncertainties."
On a pro forma basis, gross margin was 55.8% and 47.0% for the
first quarter of 1999 and 1998, respectively. These increases in year
over year pro forma gross margins reflect essentially the same factors
as noted above.
Research and development ("R&D") expenses decreased 16% in the
first quarter of 1999 as compared to the corresponding quarter of 1998
and represented 21% and 27% of net revenue, respectively. These
reductions in R&D expenses reflect savings resulting from lower R&D
staffing levels and related costs and outside services due to the CPE
Sale. The Company believes that ongoing development of new products and
features is required to maintain and enhance its competitive position
and accordingly, the Company expects to continue to invest in R&D.
On a pro forma basis, R&D expenses decreased $0.4 million in the
first quarter of 1999 as compared to 1998. These reductions in pro
forma R&D spending reflect savings from lower R&D staffing levels and
related costs.
Selling, general and administrative ("SG&A") expenses for the
first quarter were 23% below the SG&A expenses for the first quarter of
fiscal 1998. These decreases reflect primarily reduced sales,
marketing and customer support expenses, including decreases in salaries
and related costs due to the CPE Sale and other reductions in average
headcount. SG&A expenses represented 41%, and 59% of net revenue for
the first quarter of 1999 and 1998, respectively.
On a pro forma basis, SG&A expenses decreased $0.7 million in the
first quarter of 1999 as compared to 1998. These decreases reflect the
same factors as noted above.
Other income and expense, net was $0.6 million and $0.7 million for
the first quarter of 1999 and 1998, respectively. Other income and
expense, net, is composed primarily of interest income on investments,
interest expense, and foreign currency transaction gains and losses. The
decrease in year over year balances was primarily due to decreases in
interest income on investments principally due to lower average investment
balances.
The Company recorded a provision for income taxes for the first
quarter of fiscal 1999 and 1998 for anticipated foreign income tax
liabilities. No income tax benefits were recorded for the losses
incurred in fiscal years 1999 and 1998 because realization of the
deferred tax asset arising as a result of the losses sustained is
dependent upon future taxable income, the amount and timing of which are
uncertain. Accordingly, a valuation allowance has been established to
fully offset the deferred tax asset other than that which represents
potentially refundable taxes.
Liquidity and Capital Resources
Cash and cash equivalents and short-term investments at January
30, 1999 were $49.5 million, decreasing $7.7 million from the year end
balance of $57.2 million.
For the first three months ended January 30, 1999 the net cash
used for operating activities was $7.2 million. Trade receivables
decreased $1.1 million from the year-end balance and days sales
outstanding (computed using quarterly revenues) were 60 days in the
first quarter as compared to 65 days at end of fiscal 1998. This
decrease in trade receivables and decrease in days sales outstanding was
primarily due to improved linearity of shipments during the first
quarter versus the fourth quarter and improved collections from domestic
customers during the quarter. Inventory levels at January 30, 1999 were
$1.1 million lower than the year-end balance due to improved management
of the Company's inventory stocking levels. The Company expects
investments in receivables and inventories will continue to represent a
significant portion of working capital.
In October 1998 the Company settled a patent dispute with Lucent
Technologies Inc. ("Lucent") with an intellectual property cross-
licensing agreement and in November 1998 paid Lucent $9.2 million.
During the three months ended January 30, 1999, the Company made
capital expenditures of approximately $0.2 million. These expenditures
consisted primarily of purchases of computer equipment, software, and
engineering lab equipment. The Company currently expects to spend
approximately $3.0 to $4.0 million for capital equipment during fiscal
1999, although actual expenditures may differ from this forecast. In
addition, the Company's Board of Directors has authorized a stock
repurchase program whereby up to 1.5 million shares of its Common Stock
may be repurchased in the open market from time-to-time. During the
first quarter of fiscal 1999 the Company purchased approximately 50,000
shares at a cost of $0.5 million. The Company has purchased
approximately 950,000 shares under this program at a total cost of
approximately $11.3 million. The Company may, in its discretion,
purchase additional shares under this program during fiscal 1999. The
Company presently believes, notwithstanding its accumulated deficit,
that its existing cash and short-term investments and amounts available
under its line of credit, will be sufficient to support the Company's
working capital, capital equipment purchase requirements, and stock
repurchase program at least through fiscal 1999.
The Company's principal sources of liquidity as of January 30,
1999 consisted of $49.5 million of cash and cash equivalents and short-
term investments and $15.0 million available under the Company's bank
line of credit which expires May 29, 1999. This bank line requires the
Company to maintain certain financial ratios, minimum working capital,
minimum tangible net worth, and financial performance, and requires the
bank's consent for the payment of cash dividends. There were no
borrowings outstanding under the bank line as of January 30, 1999.
Certain Trends and Uncertainties
The Company has in the past experienced and will likely in the
future experience substantial fluctuations in quarterly operating
results. The Company generally has no long-term order commitments from
its customers, and a significant portion of bookings and shipments in
any quarter have historically occurred near the end of the quarter.
Accordingly, the Company has historically operated with very little
backlog, and net revenue has been difficult to predict. In addition, the
portion of backlog shippable in the next quarter varies over time. As a
result, revenue in future quarters will depend largely on the level of
orders received during such quarters.
If new order bookings do not meet expected levels, or if the
Company experiences delays in shipments at the end of a quarter,
operating results will be adversely affected, and these developments may
not become apparent to the Company until near or at the end of a
quarter. Net revenue can also be affected by product sales mix,
distribution mix, the size and timing of customer orders and shipments,
customer returns and reserves provided therefor, competitive pricing
pressures, the effectiveness of key distributors and the Company's sales
force in selling the Company's products, changes in distributor
inventory levels, the ability of the Company's joint marketing partners
to ship products during the quarter, the timing of new product
introductions by the Company and its competitors, regulatory approvals,
and the availability of components for the Company's products, each of
which is difficult to predict accurately. Each of such factors has in
the past affected the Company's revenue. The Company has in the past
experienced higher than usual headcount turnover which has had an
adverse effect on the Company's booking levels. There can be no
assurance that such turnover will not continue in future periods. Any
failure by the Company to attract, retain and train additional sales and
other personnel could have a material adverse effect on the Company's
business and results of operations.
A significant portion of the Company's net revenue is attributable
to a limited number of customers. The Company's top five customers,
representing a combination of major distributors and service providers,
accounted for approximately 58% and 39% of the Company's net revenue in
the three month periods of fiscal 1999 and 1998, respectively, although
the Company's five largest customers were not the same in the two
periods. The Company has no long-term order commitments from any of its
customers. Any material reduction in orders from one or more of such
customers or the cancellation or deferral of any significant portion of
backlog could have an adverse effect on net revenue and operating
results. Such concentration of sales typically results in a
corresponding concentration of accounts receivable. Although the
Company has established reserves for uncollectible accounts, the
inability of any large customer to pay the Company could have a material
adverse impact on the Company's financial position, results of
operations and cash flows.
Approximately 39% of the Company's sales in the first fiscal
quarter ended January 30, 1999 consisted of sales outside of the United
States. The Company's international sales are subject to a number of
additional risks generally associated with international sales,
including the effect on demand for the Company's products in
international markets as the results of any strengthening or weakening
of the U.S. dollar, the effect of currency fluctuations on consolidated
multinational financial results, state imposed restrictions on the
repatriation of funds, import and export duties and restrictions, the
need to modify products for local markets, and the logical difficulties
of managing multinational operations. In particular, the Company's
sales in Asia and Latin American have been adversely affected in recent
quarters by financial difficulties in these regions and may be so
adversely affected in the future.
The Company's gross margin can be affected by a number of factors,
including changes in product configuration and mix including the volume
of OEM products, distribution channel and customer mix, cost and
availability of parts and components, royalty obligations to suppliers
of licensed software, provisions for warranty, retrofits, and excess and
obsolete inventory, customer returns, and competitive pressures on
pricing. The Company has experienced increasing competitive pricing
pressure in its markets and expects this pricing pressure to continue.
Further, distributors purchase products at discounts, and the Company's
margins can therefore vary depending upon the mix of distributor and
direct end user sales in any particular fiscal period. While the
Company anticipates that its sales mix will continue to fluctuate in
future periods, the Company anticipates selling an increasing percentage
of sales through direct sales rather than through distribution.
The Company's future success will depend in part upon the ability
of the Company to continue to introduce new features and products as the
Company's markets evolve, new technologies become available, and
customers demand additional functionality. The Company's competitors
continue to add functionality to their products, and any failure by the
Company to introduce in a timely manner new products and features that
meet customer requirements would adversely affect the Company's
operating results and cash flows. The Company's ability to develop such
new features and products depends in large measure on its ability to
hire and retain qualified technical talent and outside contractors in
highly competitive markets for such services. There can be no assurance
that the Company's product development efforts will be successful, or
that it will be able to introduce new products in a timely manner. Any
material additional delays in the introduction and market acceptance of
such products would be adverse to the Company's business. Moreover,
customers' expectations of the introduction of new products by the
Company or its competitors can adversely affect sales of current
products. In addition, upon the introduction of new products, the
Company could be subject to higher customer returns with respect to
prior generations of products, which could adversely affect the
Company's financial position, operating results and cash flows.
The Company presently uses third parties to perform printed
circuit board and subsystem assembly. In addition, although the Company
has not experienced significant problems with third-party manufacturers
in the past, there can be no assurance that such problems will not
develop in the future. Although the Company generally uses standard
parts and components for its products, certain microprocessors, line
cards, application cards and other semiconductor devices and other
components are available from sole sources. Other components, including
power supplies, disk drives, certain other semiconductor devices and
subcontracted line card assemblies, are presently available or acquired
from a single source or from limited sources. The Company has been
notified by suppliers that certain components will no longer be
manufactured. To date, the Company has been able to obtain adequate
supplies of these components in a timely manner from existing sources
or, when necessary, from alternative sources of supply although such
alternatives have resulted in increased costs to the Company. However,
the inability to develop such alternative sources if and as required in
the future, to obtain sufficient sole or limited source components as
required, or to locate alternatives to discontinued parts would have a
material adverse affect on the Company's operating results and cash
flows. In addition, the Company's products are dependent on the QNX
software operating system, a multitasking, real-time operating system
for Intel microprocessor-based computers. In future periods, the
Company's products may become increasingly dependent on software
licensed from third party suppliers. There can be no assurance such
licenses will continue to be available to the Company as needed or at
commercially reasonable prices.
In addition, a number of other companies, including competitors of
the Company, hold patents in the same general area as the technology
used by the Company. The Company from time to time has received, and
may receive in the future, letters alleging infringement of patent
rights by the Company's products. For example, in December 1997,
representatives of Lucent informed the Company that they believed that
the Company's products may infringe upon certain patents issued to
Lucent, and that Lucent was seeking compensation for any past
infringement by the Company. The Company evaluated the assertions of
Lucent, and in October 1998 settled with Lucent by signing an
intellectual property cross-licensing agreement and in November 1998
paid Lucent $9.2 million. Third party companies alleging infringement
could seek an injunction prohibiting the Company from selling some or
all of its products, which would have an immediate, adverse impact in
the Company's business, financial condition and results of operations.
There can be no assurance that the Company would prevail in any
litigation to enjoin the Company from selling its products on the basis
of such alleged infringement, or that the Company would be able to
license any valid and infringed patents on reasonable terms, or at all.
Like many other companies, the year 2000 computer issue creates
risks for Centigram. If internal systems do not correctly recognize and
process date information beyond the year 1999, there could be an adverse
impact on the Company's operations. To address the year 2000 issues
with its internal systems, the Company has initiated a comprehensive
program which is designed to deal with the most critical systems first.
Assessment and remediation are proceeding in tandem, and the Company
currently plans to have changes to critical systems completed and tested
by mid-1999. These activities are intended to encompass all major
categories of systems in use by the Company, including manufacturing,
sales, customer service, finance and administration. The Company is
also actively working with critical suppliers of products and services
to determine that the suppliers' operations and the products and
services they provide are year 2000 capable or to monitor their progress
toward year 2000 capability. In addition, the Company has commenced
work on various types of contingency planning to address potential
problems areas with internal systems and with suppliers and other third
parties. At this time, the Company has not completed its contingency
planning and, therefore, it is expected that assessment, remediation and
contingency planing activities will be on-going throughout 1999, with
the goal of appropriately resolving all material internal systems and
third party issues.
The Company also has a program to assess the capability of its
products to handle the year 2000. The Company believes that its
products are year 2000 compliant, although there can be no assurance of
this. The Company is incurring various costs to provide customer
support and customer satisfaction services regarding year 2000 issues,
and it is anticipated that these expenditures will continue through 1999
and thereafter. As used by Centigram, "Year 2000 Capable" means that
when used properly and in conformity with the product information
provided by Centigram, the Centigram product will accurately store,
display, process, provide, and/or receive data from, into, and between
the twentieth and twenty-first centuries, including leap year
calculations, provided that all other technology used in combination
with the Centigram product properly exchanges date data with the
Centigram product.
The costs incurred to date related to these programs are less than
$250,000. The Company currently expects that the total cost of these
programs, including both incremental spending and redeployed resources,
will not exceed $500,000, although there can be no assurance of this.
The total cost estimate does not include potential costs related to any
customer or other claims or the cost of internal software and hardware
replaced in the normal course of business. In some instances, the
installation schedule of new software and hardware in the normal course
of business is being accelerated to also afford a solution to year 2000
capability issues. The total cost estimate is based on the current
assessment of the projects and is subject to change as the projects
progress.
Based on currently available information, management does not
believe that the year 2000 matters discussed above related to internal
systems or products sold to customers will have a material adverse
impact on the Company's financial condition or overall trends in results
of operations; however, it is uncertain to what extent the Company may
be affected by such matters. In addition, there can be no assurance
that the failure to ensure year 2000 capability by a supplier or another
third party would not have a material adverse effect on the Company.
In April 1998 the Company entered into an Agreement for Purchase
and Sale of Assets with Mitel, Inc. and Mitel Corporation (collectively,
"Mitel") providing for the purchase by Mitel of the Company's customer
premises equipment ("CPE") business. Pursuant to this agreement, the
Company has agreed, until May of 2001, not to compete with Mitel in the
CPE business. As a result, the Company is unable to sell its equipment
or services to certain customers which could adversely affect the
company's business, financial condition and results of operations.
In recent years, stock markets have experienced extreme price and
volume trading volatility. This volatility has had a substantial effect
on the market prices of securities of many high technology companies for
reasons frequently unrelated to the operating performance of the
specific companies. These broad markets fluctuations may adversely
affect the market price of the Company's common stock. In addition, the
trading price of the Company's common stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating
results, announcements of new products or technological innovations by
the Company or its competitors, and general conditions in the computer
and communications industries.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTIGRAM COMMUNICATIONS CORPORATION
(Registrant)
Date: March 10, 1999
By /s/ Robert L. Puette
--------------------------------
Robert L. Puette
President and Chief Executive Officer
Date: March 10, 1999
By /s/ Thomas E. Brunton
--------------------------------
Thomas E. Brunton
Sr. Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 12,478
<SECURITIES> 37,070
<RECEIVABLES> 13,513
<ALLOWANCES> 0
<INVENTORY> 4,206
<CURRENT-ASSETS> 68,890
<PP&E> 5,550
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,636
<CURRENT-LIABILITIES> 20,358
<BONDS> 0
0
0
<COMMON> 90,516
<OTHER-SE> (26,238)
<TOTAL-LIABILITY-AND-EQUITY> 84,636
<SALES> 20,233
<TOTAL-REVENUES> 20,233
<CGS> 8,934
<TOTAL-COSTS> 8,934
<OTHER-EXPENSES> 12,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (584)
<INCOME-TAX> 95
<INCOME-CONTINUING> (679)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (679)
<EPS-PRIMARY> ($0.10)
<EPS-DILUTED> ($0.10)
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