-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qeIkjKqRDlHEH76Z60NfHYaE/E+Uz0CDGr/bGyV6mygtjEH4A82OBBGguSTOo18i jd/QUwDHF0AQFtArmTTJaw== 0000950112-94-001323.txt : 19940517 0000950112-94-001323.hdr.sgml : 19940517 ACCESSION NUMBER: 0000950112-94-001323 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCURRENT COMPUTER CORP/DE CENTRAL INDEX KEY: 0000749038 STANDARD INDUSTRIAL CLASSIFICATION: 3571 IRS NUMBER: 042735766 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13150 FILM NUMBER: 94528986 BUSINESS ADDRESS: STREET 1: 2 CRECENT PLACE CITY: OCEANPORT STATE: NJ ZIP: 07757 BUSINESS PHONE: 9088704500 MAIL ADDRESS: STREET 1: 2 CRECENT PLACE CITY: OCEANPORT STATE: NJ ZIP: 07757 FORMER COMPANY: FORMER CONFORMED NAME: MASSACHUSETTS COMPUTER CORP DATE OF NAME CHANGE: 19881018 10-Q 1 CONCURRENT COMPUTER CORPORATION 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. 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 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 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 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 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 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 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 Exhibit Index Exhibit No. Description 11.1 Computation of primary earnings per share 11.2 Computation of fully diluted earnings per share 22 EX-11.1 2 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 EX-11.2 3 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 -----END PRIVACY-ENHANCED MESSAGE-----