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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
COMMISSION FILE NUMBER 0-13150
CONCURRENT COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2735766
(State of Incorporation) (I.R.S. Employer
Identification Number)
4375 RIVERGREEN PARKWAY, DULUTH, GEORGIA, 30096 (678) 258-4000
(Address and telephone number of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock (par value $0.01 per share)
Preferred Stock Purchase Rights
Indicate by check mark whether 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 17, 1999, there were 49,209,673 shares of Common Stock
outstanding. The aggregate market value of shares of such Common Stock (based
upon the last sale price of $7.44 of a share as reported for September 17, 1999
on the NASDAQ National Market System) held by non-affiliates was approximately
$362,777,019.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement to be dated October 1,
1999 in connection with Registrant's 1999 Annual Meeting of Stockholders
scheduled to be held on October 28, 1999 are incorporated by reference in Part
III hereof.
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Concurrent Computer Corporation ("Concurrent" or the "Company") is a
leading supplier of high-performance computer systems, software, and services.
In August 1999, the Company's emerging Video-On-Demand ("VOD") Division opened
its own facilities separate from the Real-Time Division in order to maximize the
focus of each of these businesses. The VOD Division will target the markets
utilizing the Company's interactive video-on-demand technology. To date, the
Company has only $1.2 million in revenues from the VOD Division, but believes
the division will be an operating segment for fiscal year 2000.
Concurrent is a leading supplier of digital video server systems to a wide
range of industries, and its VOD Division serves a variety of markets, including
the broadband/cable, hospitality, intranet/distance learning, and other related
markets. Based on a scalable, real-time software architecture, Concurrent's VOD
hardware and software are integrated to deliver fault-tolerant, deterministic
streaming video to a broad spectrum of VOD applications.
Concurrent is also a leading provider of high-performance, real-time
computer systems, solutions, and software for commercial and government markets.
The company's Real-Time Division focuses on strategic market areas that include
hardware-in-the-loop and man-in-the-loop simulation, data acquisition,
industrial systems, and software and embedded applications.
A "real-time" system or software is one specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real time - that is, with microsecond response as changes occur. Concurrent has
nearly thirty years of experience in real-time systems, including specific
expertise in systems, applications software, productivity tools, and networking.
Its systems provide real-time applications for gaming, simulation, engine test,
air traffic control, weather analysis, and mission critical data services such
as financial market information.
The Company was incorporated in Delaware in 1981 under the name
Massachusetts Computer Company.
(b) Financial Information About Industry Segments
For fiscal year 1999, the Company considers its products to be one class
and its operations are entirely within one segment. Product revenue accounted
for 45.2%, 46.1%, and 51.4%, of total revenues in the 1999, 1998, and 1997
fiscal years, respectively. Service and other operating revenues (including
maintenance, support, and training) accounted for 54.8%, 53.9%, and 48.6% of
total revenues in the 1999, 1998, and 1997 fiscal years, respectively. However,
the Company is establishing facilities, personnel and reporting procedures to
separate its VOD and Real-Time Divisions for fiscal 2000.
Financial information about the Company's foreign operations is included in
Note 18 to the consolidated financial statements included herein. The Company
recently took control of its Japanese-based company as a wholly-owned
subsidiary. Previously, the Company operated the Japanese operation as a joint
venture with Nippon Steel Corporation.
1
(C) NARRATIVE DESCRIPTION OF BUSINESS
VOD DIVISION
Concurrent is one of the major digital video server suppliers whose VOD
Division is competing in this emerging, yet explosive, marketplace. Concurrent
has established itself early on as a leader, gaining recognition for its
superior technology, its customer support, and its integration with leading
software and hardware from other well-established technology vendors.
REAL-TIME DIVISION
Concurrent's vision is to remain the premier supplier of high-technology
real-time computer systems, software, and services through customer focus, total
quality, and the rapid development of standard and custom products with the
objective of profitable growth. Real-time systems concurrently acquire, analyze,
store, display, and control data to provide critical information within a
predictable time as real world events occur. Compared to general purpose
computer systems, these unique real-time capabilities are applicable to a wide
range of application requirements, including higher performance processing,
higher data throughput, predictable and repeatable response times, reliably
meeting required deadlines, consistently handling peak loads, and better
balancing of system resources.
Concurrent has over thirty years of real-time systems experience, including
specific design, development, and manufacturing expertise in system
architectures, system software, application software, productivity tools, and
networking. Concurrent's real-time systems and software are currently used in
host, client server, and distributed computing solutions, including
software-controlled configurations to provide fault tolerance. The Company
sells its systems worldwide through its direct sales offices, resellers, system
integrators, and other global partners. End uses of the Company's systems
include product design and testing, simulation and training systems, engine
testing, range and telemetry systems, weather satellite data acquisition and
forecasting, and intelligence data acquisition and analysis.
Concurrent designs, manufactures, sells, and supports real-time
standards-based open computer systems and proprietary computer systems. It
offers worldwide hardware and software maintenance and support services
("Traditional Support Services") for its products and for the products of other
computer and peripheral suppliers. The Company routinely offers and successfully
delivers long-term service and support of its products for as long as fifteen to
twenty years. The Company also has a long and successful history of customizing
systems with both specialized hardware and software to meet unique customer
requirements. Frequently in demand, these special support services
("Professional Services") have included system integration, performance and
capacity analysis, and application migration.
As the computer market shifted in end-user demand to open systems, the
Company developed a strategy to adjust service offerings to those more
appropriate for open systems, while maintaining support for its proprietary
systems. The Company's strategy also strikes a balance between appropriate
upgrades for proprietary system offerings while predominantly investing in its
real-time operating system and integrated computer system solutions.
Markets
VOD
The VOD market is in its infancy. Concurrent has no significant VOD
revenues to date. However, Concurrent has positioned itself to be one of the
leading providers of digital video servers for this emerging growth market. The
Company's MediaHawk(TM) video server offers interactive, time critical
video-on-demand capabilities that give the Company a competitive advantage.
2
This advantage was created by integrating the core technology and real-time
software into the VOD software and combining that with commercial hardware,
creating the best price/performance in the marketplace.
The Company introduced its MediaHawk Video Server in fiscal year 1997. This
system utilizes readily-available commercial hardware platforms and, combined
with the Company's market-leading software, provides the leading
price/performance system in the market. Concurrent's strategy is to supply
servers and server technology for interactive VOD applications that require
"true" VOD and reliable delivery of multiple interactive systems of high quality
video. Concurrent intends to continue to develop this product line to provide
additional software functionality that is tailored to customer requirements in
its targeted market segments. Concurrent focuses its VOD business on the
following strategic target markets: broadband/cable, hospitality,
intranet/distance learning, and other related markets. Summaries of these
markets follow.
Broadband and Cable. Concurrent is a recognized leader in VOD systems
for the broadband and cable markets. Primary applications include VOD
systems for cable operators who are deploying new interactive digital
services such as VOD. A key segment of this market for the Company is the
top Multiple Service Operators ("MSOs") in the United States. Concurrent is
addressing this segment by working with technology partners such as
Scientific-Atlanta, General Instruments, Viewer's Choice, and other key
partners to provide total end-to-end systems that offer the most flexible,
scalable, cost-effective solutions available to customers. Furthermore,
Concurrent's pre-sales, sales, post-sales, custom engineering, and service
departments are committed to fulfilling each customer's unique network and
operational requirements from start to finish. A customer typical of this
market is Time Warner Cable.
Hospitality. Concurrent's VOD system brings the capabilities of
interactive VOD to the hospitality industry. Concurrent's hospitality VOD
systems are integrated industry solutions designed to satisfy the specific
requirements of a hospitality entertainment system. Concurrent's systems
provide the highest quality video outputs using the latest in digital
technology and are compatible with the existing cable systems found in most
properties. The system scalability allows hotels of all sizes to select a
server that achieves the optimum price performance. For example, systems
that develop four independent streams of interactive video from a common
content storage system can be configured as easily as systems that develop
24 or more streams. VCR-like controls (stop, pause, fast forward, and
rewind) are available for each stream. A customer typical of this market is
DOMINTEL CONCEP, S.L, a Spanish company that specializes in the worldwide
distribution of complete interactive video systems to private hospitals,
hotels, airports, and colleges.
Intranet/Distance Learning. Concurrent has been one of the first
companies to offer a true VOD system for Intranet and distance learning
applications. Primary applications include VOD systems for universities
that are deploying new interactive digital services through their existing
networks to bring video to the desktop. Customers typical of this market
include Wake Forest University and the University of Central Florida. Other
primary applications include VOD systems for corporations and public
institutions that want to deploy distance learning or other training
through their existing networks. Concurrent is addressing these market
segments by working with Value Added Resellers ("VARs"). Customers typical
of this market include Safari and Campus Televideo.
Other Related VOD Markets. Concurrent's high-performance VOD system
features a flexible architecture that is suitable to deliver VOD to a wide
range of other markets. Examples of other target applications include
broadcast video-editing systems, presentation system and kiosk systems,
debriefing systems, etc. Customers typical of this market include OLYMPUS
Optical Company Europa, who is using Concurrent's VOD system in its
surgical endoscopy systems, and DMF, who is using Concurrent's products in
its presentation systems.
3
Real-Time
Concurrent focuses its real-time business on the following strategic target
markets: simulation, data acquisition, and industrial systems. Summaries of
these markets follow.
Simulation. Concurrent is a recognized leader in real-time systems for
simulation. Primary applications include trainers/simulators for operators
in commercial and military aviation, vehicle operation and power plants,
mission planning and rehearsal, engineering design simulation for avionics
and automotive labs. A key segment of this market for the Company is
Hardware-In-The-Loop (HITL), in which accurate simulations are constructed
to verify hardware designs, thereby minimizing or eliminating entirely the
need for expensive prototypes. Concurrent is addressing this segment by
selecting software applications that provide a unique real-time advantage
to its customers and integrating these applications to provide unique
solutions. Customers typical of this market includes The Boeing Company,
Lockheed Martin Corporation, Flight Safety International, DaimlerChrysler,
CAE Electronics Ltd., and Dassault Electronique.
Data Acquisition. Concurrent is a leading supplier of systems for
radar control, data fusion applications, and weather analysis, all of which
require the ability to gather, analyze, and display continuous flows of
information from simultaneous sources. Primary applications include
environmental analysis and display, range and telemetry, and command and
control. Customers typical of this market include Lockheed Martin
Corporation, TRW Inc., Logicon Inc., Aerospatiale Aeronautique, Dassault
Electronique, and Mitsubishi Precision Co., Ltd.
Industrial Systems. Concurrent also manufactures systems to collect,
control, analyze, and distribute test data from multiple high-speed sources
for industrial automation systems, product test systems (particularly
engine test), Supervisory Control and Data Acquisition (SCADA) systems, and
instrumentation systems. Concurrent's strategy to serve this market
involves the employment of third-party software applications to provide a
unique solution for its customers. Customers typical of this market include
United Technologies, Inc., BFGoodrich, Ford Motor Company, General Motors
Corporation, debis Systemhaus, Lucas Aerospace, and Nissin (Japan).
Products and Service
The Company considers its products and services a total package to provide
complete value-added solutions for the VOD and Real-Time markets. The Company
offers two types of systems: open and proprietary. The Company also offers a
full range of maintenance, custom engineering, and integration services.
VOD
MediaHawk Video Servers are highly scalable, high-performance, open
multiprocessor systems optimized for the unique and demanding requirements of
interactive VOD applications. MediaHawk Video Servers can be easily configured
to support centralized and distributed broadband topologies, achieving industry
leading price/performance.
The MediaHawk Video Servers have now been fully integrated into residential
cable architectures featuring a full BackOffice Software Suite for subscriber
and provider management, and Digital Navigator enabling not only VOD movie
applications, but e-commerce as well. The server architecture is extremely
flexible, fault-tolerant, highly scalable, and has achieved industry-leading
price/performance. The server technology is also well suited for Intranet and
training applications due to the wide variety network protocols, industry
standards, and interfaces that are supported.
4
Real-Time
PowerWorks(TM), the Company's real-time technology package, includes an
industry standard UNIX operating system that is enhanced for real-time
performance, a set of tools that allows developers to quickly bring new
real-time applications to market, and a set of compilers that are designed to
obtain maximum real-time performance.
PowerWorks is Concurrent's integrated real-time software development and
operational environment. It was designed to facilitate the development and
execution of real-time applications for a full range of systems from single
processor to symmetric multiprocessing. The PowerWorks environment includes
Concurrent's real-time operating system, PowerMAX OS; NightGraphics(TM) support
software; optimized compilers for C, C++, Ada, and FORTRAN as well as applicable
run-time libraries; and Concurrent's NightStar(TM) Tool Set - a GUI-based,
real-time development tool set. In addition, PowerWorks supports a host of
utility software and device drivers.
OPEN SYSTEMS PRODUCT LINE
POWERWORKS - POWERPC(TM) 604
MAX. NO.
MODEL OF CPUS PRICE RANGE
- -------------------- -------- ------------
TurboHawk(TM) 8 $40K - $500K
Night Hawk 6800 8 $40K - $500K
PowerMAXION(TM) 8 $40K - $400K
Power Hawk(TM) 15 $15K - $400K
MediaHawk 15 $20K - $800K
PowerStack(TM) 1 $ 15K
Power Works Software N/A $ 1K - $12K
LEGACY SYSTEMS
MAX. NO.
MODEL OF CPUS CPU PRICE RANGE
- --------------- -------- ----------- --------------
Night Hawk 5800 8 MC88110 $ 35K - $350K
Night Hawk 4800 8 MC88100 $ 20K - $250K
MAXION(TM) 4 MIPS $ 27K - $170K
7000 Series 3 MC68040 $ 24K - $150K
3200 Series 6 Proprietary $55K - $1,350K
Traditional Services. One of the largest benefits to the Company of its
extensive installed customer base is the large and generally predictable revenue
stream generated from Traditional Services. While Traditional Services revenue
has declined and is expected to further decline as a result of the industry
shift to open systems, the Company expects this business to be a significant
source of revenue and cash flow for the foreseeable future. The Company offers
a variety of service and support programs to meet the customer's maintenance
needs for both its hardware and software products. The Company also offers
contract service for selected third party equipment. The service and support
programs offered by Concurrent include rentals and exchanges, diagnostic and
repair service, on-call and time and materials service, and preventive
maintenance. The Company routinely offers long-term service and support of its
products for as long as fifteen to twenty years.
5
Professional Services. Throughout the Company's history, it has supported
its customers through Professional Services and custom engineering efforts. The
Company provides custom and integration engineering services in the design of
special hardware and software to help its customers with their specific
applications. This may include custom modifications to the Company's products or
integration of third party interfaces or devices into the Company's systems.
Many customers use Professional Services to migrate existing applications from
earlier generations of the Company's or competitors' systems to the Company's
state-of-the-art systems. Professional Services also include classroom and
on-site training, system and site performance analysis, and multiple vendor
support planning. Although the total revenues associated with any single
Professional Services or custom engineering effort may be small in comparison to
total revenues, increased customer satisfaction is an integral part of the
Company's business plan.
Systems and Technology
Concurrent has made a considerable investment in developing its product
lines and today offers computer systems satisfying a broad range of
high-performance requirements for real-time applications. While maintaining a
competitive capability and continued enhancement of the Company's proprietary
product line for a still significant installed base, the primary investments
have been in the evolution of the open systems product line. The Company is
currently developing enhancements, both in real-time hardware and software, to
closely couple single-board computers and to add symmetrical multi-processing
capabilities to multiple single-board computers. The Company has delivered a
unique balance of supporting industry standards while providing innovative
superiority in key architectural issues.
By utilizing core competencies that have been developed by the Real-Time
business area for over thirty years, VOD has leveraged commercially-available
hardware platforms to achieve industry-leading price/performance. Technology
efforts currently are focused on adding the necessary application functionality
to the base architecture enabling the pursuit of targeted VOD markets.
Sales and Service
The Company sells its systems in key markets worldwide through direct field
sales and support offices, as well as through VARs and systems integrators. The
Company does not believe the loss of any particular VAR or systems integrator
would have a material impact on the Company's operating results. The Company's
principal customers are original equipment manufacturers (OEMs), systems
integrators, and VARs who combine the Company's products with other equipment or
with additional application software for resale to end-users.
Servicing the Company's large installed base is an important element of
Concurrent's business strategy and generates significant revenue and cash flow
to the Company. Total service revenues in fiscal year 1999 were approximately
$38.4 million (54.8%) of total revenues. Substantially all of Traditional
Services revenues are generated from maintenance and support contracts which
generally run from one to three years with annual renewal provisions. The
Company's existing installed base of proprietary systems also represents an
opportunity for incremental sales of both computer systems and Traditional and
Professional Services. The Company has experienced a decline in service revenues
as customers have moved from proprietary to open systems and expects this trend
to continue.
No customer, other than the U.S. Government and a commercial customer,
accounted for 10% or more of Concurrent's net sales in any of the years in the
three-year period ended June 30, 1999. For the year ended June 30, 1999,
approximately $23.1 million of the Company's revenues were attributable directly
or indirectly to entities related to branches of the U.S. Government. This
amount represented approximately 33% of the Company's worldwide revenues,
compared to 27% and 26% for the 1998 and 1997 fiscal years, respectively. The
Company's revenues related to sales to the U.S. Government are derived from
various Federal agencies, no one of which accounted for more than 5% of total
revenues. U.S.
6
Government contracts and subcontracts generally contain provision for
cancellation at the convenience of the Government. Substantially all of the
Company's U.S. Government related orders are subcontracts and most are for
standard catalog equipment, which would be available for sale to others in the
event of cancellation. To date, there have been no cancellations that have had
a material impact on the Company's business or results of operations.
Research and Development
The Company's continued success depends heavily on the implementation and
utilization of the latest hardware and software computer technology. Concurrent
invested $10.0 million in fiscal year 1999; $10.9 million in fiscal year 1998;
and $13.6 million in fiscal year 1997 in research and development. Research and
development investment focused on key technologies within real-time and VOD
product development. The real-time product development emphasized
high-performance and cost-effective scalable architectures allowing the end user
unsurpassed flexibility. New product development in real-time included new
hardware and software to add symmetrical multiprocessing capabilities to the
Power Hawk line of computers. The VOD product development emphasized
advancements in the software architectural design that has enabled the use of
off-the-shelf commodity hardware, resulting in industry-leading
price/performance in the broadband/cable, hospitality, and Intranet training
markets. Although total research and development has declined over the past
years, in terms of absolute dollar amounts, the Company expects a greater return
on its total research and development investment in the future for the following
two reasons. First, the real-time product development has successfully
transitioned to a base, commercially-available platform and VOD has completed
its software architectural design and core elements have been successfully
deployed. Second, the Company's product strategy continually focuses on markets
that rely primarily on a system software solution that utilizes core technology
that has been developed over many years. The Company will continue to develop
technology internally in those areas in which it exercises market leadership and
will acquire commercially-available technology where it cannot demonstrate
market leadership.
No software development costs were capitalized in fiscal year 1999. The
costs incurred by the Company between technological feasibility and the point at
which the products were ready for market were negligible.
Manufacturing Operations
The Company's manufacturing operation occupies approximately 40,000 square
feet of its Pompano Beach, Florida facility. The Company also operates a repair
center for its 3200 Series systems in approximately 25,000 square feet at its
former Oceanport, New Jersey facility under a three-year lease. The Company
leases its Pompano Beach facility from Calvary Chapel pursuant to a lease that
expires December 2000. The Company has entered into a lease for a 30,000 square
feet facility across the street from its Pompano Beach manufacturing facility.
The Company plans to move its Real-Time Division to this new location in
November 1999. Management believes that the manufacturing capacity available at
its current facility could be significantly increased (with minimal capital
spending) to meet increased manufacturing requirements either by raising the
yield rate or by adding personnel on its first and second shift or by adding a
third shift. The Company outsources several subassembly operations, including
some of its printed circuit board subassemblies, with continued substantial cost
savings. The Company's manufacturing operation is focused on systems assembly,
systems integration and systems test. Extensive testing and burn-in conditioning
is performed at the board and subassembly levels and at final system
integration. Because of the wide range of product configurations, final assembly
and final acceptance test occurs when a specific customer order is being
prepared for shipment.
Sources of Supply
Concurrent has multiple commercial sources of supply throughout the world
for most of the materials and components it uses to produce its products. In
some cases, the Company is purchasing components from a single source to obtain
the required technology. The Company depends on the availability of various key
components, such as processors, memory, and ASICS, in the support of its 3200
Series, MAXION, Night Hawk and PowerMAXION series computers. For its current
7
and next generation Power Hawk computer systems, the Company will depend on the
availability of the PowerPC boards. Although the Company has not experienced
any materially adverse impact on its operating results as a result of a delay in
supplier performance, any delay in delivery of components may cause a delay in
shipments by the Company of certain products. The Company estimates that a lead
time of up to 16-24 weeks may be necessary to switch to an alternate supplier of
custom application specific integrated circuits and printed circuit assemblies.
A change in the supplier of these boards without the appropriate lead time would
result in a delay in shipments of certain products. Since revenue is recognized
upon shipment, any delay may result in a delay of revenue recognition for any
given accounting period. The Company works closely with its suppliers and
regularly monitors their ability to meet its requirements in a timely manner.
Management believes it has good relationships with its suppliers and expects
that adequate sources of supply for components and peripheral equipment will
continue to be available.
Competition
The Company operates in a highly competitive environment, driven by rapid
technological innovation. The shift from proprietary systems to standards-based
open systems has resulted in increased competition, making product
differentiation a more important factor. Due in part to the range of performance
and applications capabilities of its products; the Company competes in various
markets against a number of companies, many of which have greater financial and
operating resources than the Company.
VOD
In the VOD market, the Company competes with the following corporations:
(1) in the broadband/cable and hospitality markets - principally, SeaChange
International, Inc., nCUBE, and Diva Communications; and (2) in the
intranet/distance learning markets - principally, companies such as Compaq
Computer Corporation, Sun Microsystems, Inc., and International Business
Machines Corp.
Real-Time
Competition in the high performance real-time computing systems and
applications market comes from four sources: (1) major computer companies that
participate in the real-time marketplace by layering specialized hardware and
software on top of or as an extension of their general purpose product platforms
- - these are principally Compaq Computer Corporation and Hewlett-Packard
Corporation; (2) other computer companies that provide solutions for
applications that address a specific characteristic of real-time, such as fault
tolerance or high-performance graphics - these computer companies include
Silicon Graphics Inc., Inc., and Compaq Computer Corporation; (3) general
purpose computing companies that provide a platform on which third party vendors
add real-time capabilities - these computer companies include International
Business Machines Corp. and Sun Microsystems, Inc.; and (4) single board
computer companies that provide board-level processors that are typically
integrated into a customer's computer system - these computer companies include
Force Computers, Inc. and Motorola, Inc.
Intellectual Property
The Company relies on a combination of contracts and copyright, trademark,
and trade secret laws to establish and protect its proprietary rights in its
technology. The Company distributes its products under software license
agreements which grant customers perpetual licenses to the Company's products
and which contain various provisions protecting the Company's ownership and
confidentiality of the licensed technology. The source code of the Company's
products is protected as a trade secret and as an unpublished copyright work.
In addition, in limited instances, the Company licenses its products under
licenses that give licensees limited access to the source code of certain of the
Company's products, particularly in connection with its strategic alliances.
8
Despite precautions taken by the Company, however, there can be no assurance
that the Company's products or technology will not be copied or otherwise
obtained and used without authorization. In addition, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. The Company believes that, due to the rapid pace of innovation
within its industry, factors such as the technological and creative skills of
its personnel are more important to establishing and maintaining a technology
leadership position within the industry than are the various legal protections
of its technology.
Concurrent has entered into licensing agreements with several third-party
software developers and suppliers. Generally, such agreements grant to the
Company non-exclusive, worldwide licenses with respect to certain software
provided as part of computers and systems marketed by the Company and terminate
on varying dates. For example, Concurrent is licensed by Santa Cruz Operation
(SCO) to use and sublicense SCO's operating system in the Company's computer
systems. The Company has entered into licensing agreements with SCO for internal
use of source code version of the UNIX operating system and for the sublicensing
of binary version of the UNIX operating system. Both licenses are perpetual
unless terminated in accordance with the notice provisions and address versions
of the UNIX operating system through and including System V, Release 4.0 (SVR4).
The Company pays a royalty to SCO for each computer system shipped using the
UNIX operating system equal to approximately 2% of the list price of the basic
(minimum) configuration of the system.
Employees
As of June 30, 1999, the Company employed approximately 490 employees
worldwide, of whom approximately 330 were employed in the United States,
compared to approximately 530 and 580 employees worldwide at June 30, 1998 and
1997, respectively. The Company's employees are not unionized.
Backlog
Generally, the Company records in "backlog" computer orders which it
anticipates shipping during the subsequent six months or, where special
engineering is required, in the subsequent twelve months. While the Company
anticipates shipping the majority of backlog during subsequent periods, the
number of orders in backlog is not necessarily a meaningful indicator of
business trends for the Company. This is because orders may be canceled before
shipment or rescheduled for a subsequent period, which may affect the amount of
backlog that may be realized in revenue in any succeeding period. In addition,
with the increasing emphasis on open systems, more customers are placing orders
within the quarter where delivery is expected; thus backlog is a less meaningful
measurement of anticipated revenue.
Environmental Matters
The Company purchases, uses, and arranges for certified disposal of
chemicals used in the manufacturing process at its Pompano Beach facility. As a
result, the Company is subject to federal and state environmental protection and
community right-to-know laws. Violations of such laws, in certain
circumstances, can result in the imposition of substantial remediation costs and
penalties. The Company believes it is in compliance with all material
environmental laws and regulations.
(d) Financial Information About Foreign And Domestic Operations And Export Sales
A summary of net sales (consolidated net sales reflects sales to
unaffiliated customers), attributable to Concurrent's foreign and domestic
operations for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively, is presented at Note 18 to the financial statements of the
Registrant included herein.
9
ITEM 2. PROPERTIES
Listed below are Concurrent's principal facilities as of June 30, 1999.
Management considers all facilities listed below to be suitable for the
purpose(s) for which they are used, including manufacturing, research and
development, sales, marketing, service, and administration. Management believes
that its Pompano
Beach, Florida manufacturing facility has more than sufficient capacity to meet
the Company's projected manufacturing requirements.
APPROX.
OWNED EXPIRATION FLOOR AREA
LOCATION PRINCIPAL USE OR LEASED DATE OF LEASE (SQ. FEET)
- ---------------------------- ------------------------- --------- ------------- -----------
2101 West Cypress Creek Road Corporate Headquarters, Leased December 1999 50,000
Fort Lauderdale, Florida * Sales, Marketing, and
Administration
2800 Gateway Drive Manufacturing and Service Leased December 2000 40,000
Pompano Beach, Florida
2 Crescent Place Repair and Service Depot Leased May 2001 25,000
Oceanport, New Jersey
Concurrent House Sales/Service/Research & Leased 2003 10,000
Railway Terrace Development
Slough, Berks, England
In addition to the facilities listed above, Concurrent also leases space in
various domestic and international industrial centers for use as sales and
service offices and warehousing.
* In August 1999, the Company relocated its Corporate Headquarters and the
Video-On-Demand Division's offices to 4375 River Green Parkway, Duluth, Georgia.
The Company has entered into a lease for 26,000 square feet with a term expiring
at the end of August 2006.
The Company plans to relocate its Real-Time Division offices in the late
fall of 1999 to 2881 Gateway Drive, Pompano Beach, Florida. The Company has
entered into a lease for 30,000 square feet with a term expiring at the end of
December 2004.
ITEM 3. LEGAL PROCEEDINGS
From time to time, as a normal incident of the nature and kind of business
in which the Company is engaged, various claims or charges are asserted and
litigation commenced against the Company arising from or related to product
liability; patents; trademarks, or trade secrets; breach of warranty; antitrust;
distribution; or contractual relations. Claimed amounts may be substantial, but
may not bear any reasonable relationship to the merits of the claim or the
extent of any real risk of court awards. In the opinion of management, final
judgments, if any, which might be rendered against the Company in such
litigation are reserved against or would not have a material adverse effect on
the financial position or the business of the Company as a whole.
The Company may from time to time be, either individually or in conjunction
with other major U.S. manufacturers or defense contractors, the subject of U.S.
government investigations for alleged criminal or civil violations of
procurement or other federal laws. No criminal charges are presently known to
be filed against the Company and the Company is unable to predict the outcome of
such investigations or to estimate the amounts of claims or other actions that
10
could be instituted against it, its officers or employees as a result of such
investigations. Under present government procurement regulations, indictment
could result in a government contractor, such as the Company, being suspended or
debarred from eligibility for awards of new government contracts for up to three
years. In addition, the Company's foreign export control licenses could be
suspended or revoked.
To Concurrent's knowledge there are no material legal proceedings to which
any director, officer, or affiliate of Concurrent, or any owner of record or
beneficially of more than five percent of Common Stock, or any associate of any
of the foregoing, is a party adverse to Concurrent or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 10. OFFICERS OF THE REGISTRANT
Officers of Concurrent are elected by the Board of Directors to hold office
until their successors have been chosen and qualified or until earlier
resignation or removal. Set forth below are the names, positions, and ages of
the Company's officers as of September 15, 1999:
NAME POSITION AGE
- --------------------- ----------------------------------------------------------------- ---
E. Courtney Siegel * Chairman of the Board, President, and Chief Executive 49
Officer
Daniel S. Dunleavy * President, Real-Time Division, and Acting Chief Financial Officer 46
Steve Nussrallah * President, Video-On-Demand Division 49
Robert E. Chism Vice President, Development, Video-On-Demand 46
Division
Robert T. Menzel Vice President, Sales, Real-Time Division 46
David S. Morales Vice President, Sales and Marketing, Video-On-Demand 38
Division
David Nicholas Vice President - Sales, Video-On-Demand Division 45
Michael N. Smith Vice President - Marketing, Video-On-Demand 46
Division
* Denotes Executive Officers of the Company
E. COURTNEY SIEGEL. CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF EXECUTIVE
OFFICER. Mr. Siegel was elected Chairman of the Board in November 1997. He has
served as President and Chief Executive Officer since June 1996. He served as
Chairman, President, and Chief Executive Officer of Harris Computer Systems
Corporation from October 1994 through June 1996. Prior to that time, and since
1990, Mr. Siegel served as a Vice President, General Manager of the Harris
Computer Systems Division of Harris Corporation. Mr. Siegel's twenty year
career in the computer technology field includes serving as Vice President of
standoff weapons at Rockwell International Corporation, a producer of
electronics, aerospace, automotive, and graphics equipment, and as Vice
President of Harris Government Support Systems Division's Orlando Operation.
11
DANIEL S. DUNLEAVY. PRESIDENT, REAL-TIME DIVISION AND ACTING CHIEF
FINANCIAL OFFICER. Mr. Dunleavy was elected to this position in April 1999.
Mr. Dunleavy served as Chief Operating Officer from October 1997 to April 1999
and as Executive Vice President from June 1997 to April 1999. He served as Vice
President, Chief Financial Officer and Chief Administrative Officer from June
1996 to October 1997. He previously served in the same position with Harris
Computer Systems Corporation since October 1994. Mr. Dunleavy served as Vice
President, Strategic Alliances and International Operations of the Harris
Computer Systems Division of Harris Corporation from February 1991 through
October 1994. After joining Harris Corporation in 1978, Mr. Dunleavy served in
various positions of increasing responsibility including Controller of the
Harris Computer Systems Division from 1988 until 1991.
STEVE G. NUSSRALLAH. PRESIDENT, VIDEO-ON-DEMAND DIVISION. Mr. Nussrallah
was elected President, Video-On-Demand Division effective January 1999. From
March 1996 to March 1998, he served as President and Chief Operating Officer of
Syntellect Inc., a leading supplier of call center solutions to the Cable TV
(CATV) industry. Prior to that time, and since January 1990, Mr. Nussrallah
served in the same position at Telecorp Systems Inc., which was acquired by
Syntellect Inc. in March 1996. From 1984 to 1990, Mr. Nussrallah was employed
by Scientific-Atlanta, Inc., which he joined as vice president of engineering
for its CATV operation. He served in positions of increasing responsibility at
Scientific-Atlanta, including Vice President and General Manager of its
Subscriber Business Unit.
ROBERT E. CHISM. VICE PRESIDENT, DEVELOPMENT, VIDEO-ON-DEMAND DIVISION.
Mr. Chism was elected to this position in April 1999. He served as Vice
President, Development from June 1996 to April 1999. He served as Vice
President, Technical and Production Operations of Harris Computer Systems
Corporation from October 1994 through June 1996. He joined the Harris Computer
Systems Division of Harris Corporation in June 1993 as Director, Simulation
Business Area. Before joining the Division, he held diverse engineering,
program management and marketing assignments in computer and related industries
with General Electric Company from May 1978 through June 1993, where he was
Subsection Manager of Satellite Command and Data Handling at the time he left to
join the Harris Computer Systems Division.
ROBERT T. MENZEL. VICE PRESIDENT, WORLDWIDE SALES AND MARKETING, REAL-TIME
DIVISION. Mr. Menzel was elected to this position in April 1999. He served as
Vice President, Real-Time Systems from June 1997. Mr. Menzel served as Vice
President, North American Sales from June 1996 to February 1997, and from that
time to June 1997 as Vice President, Interactive Video-On-Demand. From April
1995 to June 1996, he served as Vice President, General Manager of the Trusted
Systems Division of Harris Computer Systems Corporation. From October 1994 to
April 1995, he served as Vice President, National Sales of Harris Computer
Systems Corporation. He joined the Harris Computer Systems Division of Harris
Corporation in 1992 as Manager, Secure Systems Marketing, later assumed
responsibility for the entire Secure Business Area and ultimately became Vice
President, National Sales. Prior to joining the Harris Computer Systems
Division, he held positions of increasing responsibility over a twelve year
period at the Aerospace Division of General Electric Company within the Business
Development and Marketing Group, serving as Manager, Army Business Development
at the time he joined the Harris Computer Systems Division.
DAVID S. MORALES. VICE PRESIDENT, SALES AND MARKETING, VIDEO-ON-DEMAND
DIVISION. Mr. Morales was elected to this position in August 1999. From April
1996 to May 1999, he served as Corporate Vice President, International of
Syntellect, Inc. From June 1989 to April 1996 he was employed at
Scientific-Atlanta, Inc., serving in positions of increased responsibility,
including President, Latin America and CEO of one of Scientific-Atlanta's joint
venture companies.
DAVID M. NICHOLAS. VICE PRESIDENT, SALES, VIDEO-ON-DEMAND DIVISION. Mr.
Nicholas was elected to this position in March 1999. From September 1995 to
February 1999, he served as Executive Vice President of Pioneer New Media
Technologies, Inc. From August 1993 to August 1995, he served as Vice
President and General Manager of Texscan Network Systems. Prior to that time,
he served in various positions at Pioneer Communications of America, Panasonic
Industrial, and Magnavox.
12
MICHAEL N. SMITH. VICE PRESIDENT, MARKETING, VIDEO-ON-DEMAND. Mr. Smith
was elected to this position in June 1998. Prior to that time, he served as
Vice President, Marketing since June 1996. From April 1995 to June 1996, he
served as Vice President, General Manager of the Real-Time Division of Harris
Computer Systems Corporation. From October 1994 to April 1995, Mr. Smith served
as Vice President, Marketing of Harris Computer Systems Corporation. He joined
the Harris Computer Systems Division of Harris Corporation in March 1992 as
Director, Secure Systems Business and later became Vice President, Marketing, a
position he served in from January 1993 to October 1994. Prior to that time, he
served in positions of increasing responsibility over a fifteen year period at
the Aerospace Division of General Electric Company, serving as Program Manager,
Armor Training at the time he joined the Harris Computer Systems Division.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is currently traded under the symbol "CCUR" on the NASDAQ
National Market System. The following table sets forth the high and low sale
information for the Common Stock for the periods indicated, as reported by
NASDAQ.
HIGH LOW
----- ---
Fiscal Year 1999
Quarter Ended:
September 30, 1998 4.063 1.688
December 31, 1998 3.75 1.75
March 31, 1999 5.125 3.25
June 30, 1999 7.50 3.00
Fiscal Year 1998
Quarter Ended:
September 30, 1997 2.813 1.250
December 31, 1997 3.500 1.781
March 31, 1998 3.375 1.688
June 30, 1998 5.00 2.906
As of September 17, 1999, there were 49,209,673 shares of Common Stock
outstanding, held of record by approximately 2,005 stockholders.
The Company has never declared or paid any cash dividends on its capital
stock. The Company's present policy is to retain earnings to finance expansion
and growth, and no change in the policy is anticipated. In addition, the terms
of the Company's loan agreement with its lender prohibit the Company from
payment of cash dividends on its capital stock. As a result, it is not
anticipated that cash dividends will be paid in the foreseeable future.
On July 31, 1992, the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of Common Stock and then
outstanding Convertible Preferred Stock of the Company to stockholders of record
at the close of business on August 14, 1992. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Participating Cumulative Preferred Stock, par value $.01 per share, at a cash
purchase price of $30.00 per Right, subject to adjustment, which become
exercisable upon the occurrence of certain events (see Note 16 to the
Consolidated Financial Statements.)
13
ITEM 6. SELECTED FINANCIAL DATA
This information is set forth in the Selected Financial Data section of the
Consolidated Financial Statements in Item 8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
This information is set forth in the Management's Discussion and Analysis
of Financial Conditions and Results of Operations section of the Consolidated
Financial Statements in Item 8.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company, in the normal course of doing business, is exposed to the
risks associated with foreign currency exchange rates. The Company does not
hold any market risk sensitive instruments, and minimizes its exposure through
judicious management of its international assets and liabilities.
The Company minimizes its foreign inventory levels, and enters into foreign
currency transactions only in those countries where it has foreign operations,
and is therefore able to offset resultant assets with local liabilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data for
Concurrent are included herein.
PAGE
----
Independent Auditors' Report 21
Consolidated Balance Sheets as of June 30, 1999 and 1998 22
Consolidated Statements of Operations for each of the years
in the three-year period ended June 30, 1999 23
Consolidated Statements of Redeemable Preferred Stock,
Stockholders' Equity and Comprehensive Income for each of
the years in the three-year period ended June 30, 1999 24
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended June 30, 1999 25
Notes to Consolidated Financial Statements 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
A change in independent accountants has previously been reported. See the
Company's Current Report on Form 8-K filed on September 13, 1999.
There have been no disagreements with the independent accountants on
accounting and financial disclosure matters.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) IDENTIFICATION OF DIRECTORS
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Election of Directors" in Registrant's
Proxy Statement to be dated October 1, 1999 in connection with its Annual
Meeting of Stockholders to be held on October 29, 1999 ("Registrant's 1999 Proxy
Statement").
(b) IDENTIFICATION OF EXECUTIVE OFFICERS
The information called for hereunder is included in Part I of this
Form 10-K under the caption "Executive Officers of the Registrant".
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES
Not applicable.
(d) FAMILY RELATIONSHIPS
There is no family relationship between any director and/or executive
officer of the Company.
(e) BUSINESS EXPERIENCE
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Election of Directors" in Registrant's
1999 Proxy Statement with respect to the business experience of Registrant's
directors. The information called for by this Item 10 with respect to executive
officers of Registrant is included in Part I of this Form 10-K under the caption
"Executive Officers of the Registrant".
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Election of Directors" in Registrant's
1999 Proxy Statement.
(g) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in Registrant's 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant hereby incorporates by reference in this Form 10-K
certain information contained under the caption "Executive Compensation" in
Registrant's 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in Registrant's 1999 Proxy Statement.
15
(b) SECURITY OWNERSHIP OF MANAGEMENT
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in Registrant's 1999 Proxy Statement.
(c) CHANGES IN CONTROL
The Registrant knows of no contractual arrangements, including any pledge
by any person of securities of the Registrant, the operation of which may at a
subsequent date result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the captions "Security Ownership of Certain
Beneficial Owners and Management," "Election of Directors" and "Executive
Compensation" in Registrant's 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT:
Independent Auditors' Report
Consolidated Balance Sheets as of June 30, 1999 and 1998
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 1999
Consolidated Statements of Redeemable Preferred Stock, Stockholders'
Equity and Comprehensive Income for each of the years in the
three-year period ended June 30, 1999
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 1999
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts
All other financial statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the Notes thereto, or is not applicable, material or required.
16
(3) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------
2 Purchase and Sale Agreement dated March 26, 1996 as amended and restated on May
23, 1996, between Concurrent Computer Corporation (the "Company") and Harris
Computer Systems Corporation ("HCSC"). (a)
3.1 Restated Certificate of Incorporation of the Company. (b)
3.2 Amended and Restated By-laws of the Company (November 1996) (c)
3.3 Certificate of Designation, Preferences and Rights of Class B Convertible Preferred
Stock. (d)
4.1 Form of Share Holding Agreement dated June 27, 1996 between the Company and
HCSC. (d)
4.2 Form of Common Stock Certificate. (e)
4.3 Rights Agreement dated as of July 31, 1992 between the Company and The First
National Bank of Boston, as rights agent. (f)
4.4 Warrant to Purchase Shares of Common Stock of the Company dated August 17, 1998
issued to Scientific-Atlanta, Inc. (g)
*10.1(a) 1991 Restated Stock Option Plan (As amended as of October 30, 1997). (h)
*10.2(a) Form of Employment Agreement between the Company and its officers. All
agreements, other than Messrs. Siegel's and Nussrallah's, contain substantially the same
terms other than annual base salary and annual target bonus percentage. (i)
*10.2(b) Employment Agreement dated as of March 25, 1996 between the Company and E.
Courtney Siegel. (j)
*10.2(c) Amendment to Employment Agreement dated as of January 1, 1999 between the
Company and E. Courtney Siegel. (k)
*10.2(d) Employment Agreement dated as of November 17, 1998 between the Company and
Steve G. Nussrallah. (k)
*10.3(a) Form of Incentive Stock Option Agreement between the Company and its executive
officers. All agreements contain the same terms with the exception of the number of
shares subject of the option and the vesting schedules. (l)
*10.3(b) Form of Non-Qualified Stock Option Agreement between the Company and its
executive officers. All agreements contain the same terms with the exception of the
number of shares subject of the option and the vesting schedules. (m)
10.5 AT&T Information Systems Sublicensing Agreement. (b)
17
10.6(a) Amended and Restated Loan and Security Agreement dated March 1, 1998 between the
Company and the lender named therein. (n)
21 Subsidiaries of Registrant.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
- ------------------------------------------------------------------------------------------------------
* Management contract or compensatory plan or arrangement.
(a) Incorporated herein by reference to the Exhibits to the Company's proxy materials dated
May 23, 1996.
(b) Incorporated herein by reference to the Exhibits to the Company's Registration
Statement on Form S-2 (No. 33-62440).
(c) Incorporated herein by reference to the Exhibits to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended December 28, 1996.
(d) Incorporated herein by reference to the Exhibits to the Company's Current Report on
Form 8-K, dated April 19, 1996.
(e) Incorporated herein by reference to Exhibit Number 4.4 of Item 14 of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1992.
(f) Incorporated herein by reference to the Company's Current Report on Form 8-K dated
August 20, 1992.
(g) Incorporated herein by reference to Exhibit Number 4.4 to Item 14 of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
(h) Incorporated herein by reference to Exhibit Number 10 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1997.
(i) Incorporated herein by reference to Exhibit Number 10 of Item 14 of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1991.
(j) Incorporated herein by reference to Exhibit 10 of Item 14 of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
(k) Incorporated herein by reference to Exhibit Number 10 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1999.
(l) Incorporated herein by reference to the Exhibits to the Company's Amendment No. 1 to
Registration Statement on Form S-1 dated April 20, 1992. (No. 33-45871).
(m) Incorporated herein by reference to Exhibit Number 10 of Item 14 of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
(n) Incorporated herein by reference to Exhibit Number 10 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1998.
REPORTS ON FORM 8-K.
None.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. CONCURRENT
COMPUTER CORPORATION
By: /s/ DANIEL S. DUNLEAVY
---------------------------
Daniel S. Dunleavy
President, Real-Time Division
and Acting Chief Financial Officer
Date: September 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Registrant and in
the capacities and on the date indicated.
NAME CAPACITY
---- --------
/s/ E. COURTNEY SIEGEL Chairman of the Board, President and -|
- ---------------------------- |
E. Courtney Siegel Chief Executive Officer |
(Principal Executive Officer) |
|
/s/ DANIEL S. DUNLEAVY President, Real-Time Division |
- ---------------------------- |
Daniel S. Dunleavy and Acting Chief Financial Officer |
(Principal Financial and Accounting Officer) |
|
/s/ MICHAEL A. BRUNNER Director |
- ---------------------------- |
Michael A. Brunner |- September 24, 1999
|
/s/ MORTON E. HANDEL Director |
- ---------------------------- |
Morton E. Handel |
|
/s/ C. SHELTON JAMES Director |
- ---------------------------- |
C. Shelton James |
|
/s/ RICHARD P. RIFENBURGH Director |
- ---------------------------- |
Richard P. Rifenburgh -|
19
CONCURRENT COMPUTER CORPORATION
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED JUNE 30, 1999
20
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Concurrent Computer Corporation:
We have audited the accompanying consolidated balance sheets of Concurrent
Computer Corporation and subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of operations, redeemable preferred stock,
stockholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended June 30, 1999. In connection with our
audits of the consolidated financial statements, we also audited the financial
statement schedule for each of the years in the three-year period ended June 30,
1999, as listed in Item 14(a)(2) of the Company's 1999 Annual Report on Form
10-K. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Concurrent Computer
Corporation and subsidiaries as of June 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule for
each of the years in the three-year period ended June 30, 1999, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Atlanta, Georgia
July 31, 1999
21
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30,
--------------------
1999 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 6,872 $ 5,733
Accounts receivable, less allowance for doubtful
accounts of $418 at June 30, 1999 and $503 at June 30, 1998 14,879 18,996
Inventories 4,641 6,263
Prepaid expenses and other current assets 1,053 1,487
--------- ---------
Total current assets 27,445 32,479
Property, plant and equipment - net 10,936 12,419
Facilities held for sale 1,223 -
Other long-term assets 965 1,337
--------- ---------
Total assets $ 40,569 $ 46,235
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ 365
Revolving credit facility - 1,123
Accounts payable and accrued expenses 8,973 13,321
Deferred revenue 3,778 4,018
--------- ---------
Total current liabilities 12,751 18,827
Long-term liabilities 1,807 1,898
--------- ---------
Total liabilities 14,558 20,725
--------- ---------
Stockholders' equity:
Shares of preferred stock, par value $.01; 25,000,000 authorized; none issued - -
Shares of common stock, par value $.01; 100,000,000 authorized;
48,516,527 and 47,632,309 issued at June 30, 1999 and 1998, respectively 485 476
Capital in excess of par value 98,916 97,136
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (72,856) (71,191)
Treasury stock, at cost; 840 shares (58) (58)
Accumulated other comprehensive income (476) (853)
--------- ---------
Total stockholders' equity 26,011 25,510
--------- ---------
Total liabilities and stockholders' equity $ 40,569 $ 46,235
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
22
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
-------- -------- ---------
Net sales
Computer systems $31,597 $37,868 $ 55,664
Service and other 38,366 44,347 52,703
-------- -------- ---------
Total 69,963 82,215 108,367
Cost of sales
Computer systems 15,001 18,556 27,662
Service and other 19,625 23,269 28,426
Transition - - 1,068
-------- -------- ---------
Total 34,626 41,825 57,156
-------- -------- ---------
Gross margin 35,337 40,390 51,211
Operating expenses:
Selling, general and administrative 26,157 25,134 28,604
Research and development 10,046 10,947 13,577
Restructuring and transition - (607) 2,292
Curtailment gain on postretirement benefit obligation - - (2,501)
Non-cash development expenses - 1,605 -
Loss on facility held for sale 423 - -
-------- -------- ---------
Total operating expenses 36,626 37,079 41,972
-------- -------- ---------
Operating (loss) income (1,289) 3,311 9,239
Interest expense (261) (833) (2,034)
Interest income 295 185 164
Other non-recurring items (88) 1,434 (1,577)
Other income (expense) - net 41 277 (350)
-------- -------- ---------
(Loss) income before provision for income taxes (1,302) 4,374 5,442
Provision for income taxes 363 960 1,381
-------- -------- ---------
Net (loss) income (1,665) 3,414 4,061
Preferred stock dividends and accretion of
Mandatory redeemable preferred shares - (18) (311)
-------- -------- ---------
Net (loss) income available to common shareholders $(1,665) $ 3,396 $ 3,750
======== ======== =========
Basic and diluted net (loss) income per share ($0.03) $ 0.07 $ 0.08
======== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
23
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1999
ACCUMULATED
COMMON STOCK OTHER
REDEEMABLE ----------------- CAPITAL IN COMPRE- TREASURY STOCK
PREFERRED PAR EXCESS OF ACCUMULATED HENSIVE ---------------
STOCK SHARES VALUE PAR VALUE DEFICIT INCOME SHARES COST TOTAL
-------- ---------- ------ ---------- --------- -------- ------- ------ --------
Balance at June 30, 1996 $ 5,610 41,223,610 $ 412 $ 84,252 $(78,337) $ 658 (840) $ (58) $ 6,927
Sale of common stock under
stock plans 1,064,981 11 1,252 1,263
Issuance of common stock under
retirement savings plan 629,847 6 1,271 1,277
Issuance of common stock for
severance 1,234,434 12 1,508 1,520
Conversion of cumulative,
convertible
redeemable exchangeable
preferred stock (4,387) 1,950,000 20 4,367 4,387
Dividends on and accretion of
preferred stock 20 (311) (311)
Comprehensive income:
Net income 4,061 4,061
Foreign currency translation
adjustment (1,004) (1,004)
--------
Total comprehensive income 3,057
-------- ---------- ------ ---------- --------- -------- ------- ------ --------
Balance at June 30, 1997 1,243 46,102,872 461 92,650 (74,587) (346) (840) (58) 18,120
Sale of common stock under
stock plans 678,213 6 961 967
Issuance of common stock under
retirement savings plan 296,224 3 581 584
Conversion of cumulative,
convertible
redeemable exchangeable
preferred stock (1,245) 555,000 6 1,239 1,245
Issuance of warrants 1,605 1,605
Dividends on and accretion of
preferred stock 2 (18) (18)
Quasi-reorganization related
adjustment 100 100
Comprehensive income:
Net income 3,414 3,414
Foreign currency translation
adjustment (507) (507)
--------
Total comprehensive income 2,907
-------- ---------- ------ ---------- --------- -------- ------- ------ --------
Balance at June 30, 1998 - 47,632,309 476 97,136 (71,191) (853) (840) (58) 25,510
Sale of common stock under
stock plans 884,218 9 1,780 1,789
Comprehensive income:
Net loss (1,665) (1,665)
Foreign currency translation
adjustment 377 377
--------
Total comprehensive loss (1,288)
-------- ---------- ------ ---------- --------- -------- ------- ------ --------
Balance at June 30, 1999 $ - 48,516,527 $ 485 $ 98,916 $(72,856) $ (476) (840) $ (58) $26,011
======== ========== ====== ========== ========= ======== ======= ====== ========
The accompanying notes are an integral part of the consolidated financial
statements.
24
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30,
------------------------------
1999 1998 1997
-------- --------- ---------
Cash flows provided by operating activities:
Net (loss) income $(1,665) $ 3,414 $ 4,061
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Unrealized loss on trading securities - - 2,334
Realized gain on trading securities - (420) (757)
Gain on sale of facility - (706) -
Issuance of non-cash warrants - 1,605 -
Loss on impairment of facility held for sale 423 - -
Loss on dissolution of subsidiary 429 - -
Depreciation and amortization 4,959 5,656 5,177
Provision for inventory reserves 1,087 - -
Stock compensation - 1,054 1,277
Other non-cash expenses 19 (40) 127
Decrease (increase) in assets:
Accounts receivable 4,098 6,864 2,087
Inventories 535 1,915 3,917
Prepaid expenses and other current assets (384) (309) (29)
Other long-term assets 318 83 1,879
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (4,588) (10,945) (16,714)
Other long-term liabilities (91) 679 (3,235)
-------- --------- ---------
Net cash provided by operating activities 5,140 8,850 124
-------- --------- ---------
Cash flows (used in) provided by investing activities:
Net additions to property, plant and equipment (4,194) (2,949) (2,510)
Proceeds from sale of facility - 5,406 -
Proceeds from sale of trading securities - 2,668 5,782
-------- --------- ---------
Net cash (used in) provided by investing activities (4,194) 5,125 3,272
-------- --------- ---------
Cash flows provided by (used in) financing activities:
Net (payments) proceeds of notes payable (425) (4,173) 386
Net repayment of debt (1,123) (8,156) (3,579)
Proceeds from sale and issuance of common stock 1,789 967 1,263
-------- --------- ---------
Net cash provided by (used in) financing activities 241 (11,362) (1,930)
-------- --------- ---------
Effect of exchange rates on cash
and cash equivalents (48) (904) (1,004)
-------- --------- ---------
Increase in cash and cash equivalents 1,139 1,709 462
Cash and cash equivalents - beginning of year 5,733 4,024 3,562
-------- --------- ---------
Cash and cash equivalents - end of year $ 6,872 $ 5,733 $ 4,024
======== ========= =========
Cash paid during the period for:
Interest $ 258 $ 568 $ 2,255
======== ========= =========
Income taxes (net of refunds) $ 1,041 $ 1,434 $ 1,685
======== ========= =========
Non-cash investing/financing activities
Conversion of preferred stock - 1,245 4,387
-------- --------- ---------
Dividends on preferred stock - 18 311
-------- --------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
25
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW OF THE BUSINESS
Concurrent Computer Corporation ("Concurrent" or the "Company") is a
leading supplier of high-performance computer systems, software, and services.
In August 1999, the Company's emerging Video-On-Demand ("VOD") Division opened
its own facilities separate from its Real-Time Division in order to maximize the
focus of each of these businesses. The VOD Division will target the markets
utilizing the Company's interactive video-on-demand technology. To date, the
Company has only $1.2 million in revenues from the VOD Division.
Concurrent is a leading supplier of digital video server systems to a wide
range of industries and its VOD Division serves a variety of markets including
the broadband/cable, hospitality, intranet/distance learning, and other related
markets. Based on a scalable, real-time software architecture, Concurrent's VOD
hardware and software are integrated to deliver fault-tolerant, deterministic
streaming video to a broad spectrum of VOD applications.
Concurrent is also a leading provider of high-performance, real-time
computer systems, solutions, and software for commercial and government markets.
The Company's Real-Time Division focuses on strategic market areas that include
hardware-in-the-loop and man-in-the-loop simulation, data acquisition,
industrial systems, and software and embedded applications.
A "real-time" system or software is one specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real time - that is, with microsecond response as changes occur. Concurrent has
nearly thirty years of experience in real-time systems, including specific
expertise in systems, applications software, productivity tools, and networking.
Its systems provide real-time applications for gaming, simulation, engine test,
air traffic control, weather analysis, and mission critical data services such
as financial market information.
In August, 1999, the Company's Corporate Headquarters and VOD Division's
offices were relocated to Duluth, Georgia from Fort Lauderdale, Florida. Its
Real-Time Division's offices and manufacturing facility remain in Fort
Lauderdale and Pompano Beach, Florida.
The Company operates in 28 countries worldwide. It provides sales and
support from offices and subsidiaries throughout North America, South America,
Europe, Asia, and Australia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all
wholly-owned domestic and foreign subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Foreign Currency
The functional currency of substantially all of the Company's foreign
subsidiaries is the applicable local currency. The translation of the
applicable foreign currencies into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using average rates of exchange prevailing
26
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
during the fiscal year. Adjustments resulting from the translation of foreign
currency financial statements are accumulated in a separate component of
stockholders' equity until the entity is sold or substantially liquidated.
Gains or losses resulting from foreign currency transactions are included in the
results of operations, except for those relating to intercompany transactions of
a long-term investment nature which are accumulated in a separate component of
stockholders' equity.
Gains on foreign currency transactions of $132,000, $82,000, and $138,000
for the years ended June 30, 1999, 1998, and 1997, respectively, are included in
other income (expense) - net.
Cash Equivalents
Short-term investments with original maturities of ninety days or less at
the date of purchase are considered cash equivalents. Cash equivalents are
stated at cost plus accrued interest, which approximates market, and represents
cash invested in U.S. Government securities, bank certificates of deposit, or
commercial paper.
Trading Securities
At June 30, 1997, the Company held investments considered to be trading
securities in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Pursuant to the provisions of SFAS No. 115, all
realized gains and losses and unrealized holding gains and losses were included
as a component of other non-recurring charges in the consolidated statements of
operations for the years ended June 30, 1998 and 1997. Market values of the
securities were determined by the most recently traded price of the security at
the balance sheet date.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out basis. The Company establishes excess and obsolete
inventory reserves based upon historical and anticipated usage.
Property, Plant and Equipment
Property, plant and equipment are stated at acquired cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the
estimated useful lives of assets ranging from three to forty years. Leasehold
improvements are amortized over the shorter of the useful lives of the
improvements or the terms of the related lease. Gains and losses resulting from
the disposition of property, plant and equipment are included in other income
(expense) - net. Expenditures for repairs and maintenance are charged to
operations as incurred and expenditures for major renewals and betterments are
capitalized.
Revenue Recognition and Related Matters
Computer systems sales are recorded when the earnings process is complete,
typically upon shipment to customers. Service contract revenue is recognized
separately and as earned, on a straight line basis, over the respective
maintenance period in accordance with the terms of the applicable contract.
27
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. The fair value of an element must
be based on vendor specific objective evidence ("VSOE") of the relative fair
values of the elements. VSOE is determined by the price charged when the element
is sold separately. The revenue allocated to hardware and software products is
generally recognized upon installation and substantial fulfillment of all
obligations under the sales contract.
Capitalized Software
The Company accounts for software development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" ("SFAS No. 86"). Under SFAS No. 86, the costs associated
with software development are required to be capitalized after technological
feasibility has been established and ceases capitalization upon the achievement
of customer availability. Costs incurred by the Company between technological
feasibility and the point at which the products are ready for market are
insignificant and as a result the Company has no capitalized software at June
30, 1999 and 1998.
The Company does not incur costs related to the development or purchase of
internal use software.
Research and Development
Research and development expenditures are expensed as incurred.
Basic and Diluted (Loss) Income per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies new
standards designed to improve the earnings per share ("EPS") information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements and increasing the
comparability of EPS data on an international basis. Some of the changes made
to simplify EPS computations included (i) eliminating the presentation of
primary EPS and replacing it with basic EPS, (ii) eliminating the modified
treasury stock method and the three percent materiality provision and (iii)
revising the contingent share provisions and the supplemental EPS data
requirements. SFAS No. 128 also makes a number of changes to existing
disclosure requirements. SFAS No. 128 is effective for financial statements
issued for period ending after December 15, 1997. The adoption of this
statement during fiscal year 1998 did not have a significant impact on the
Company's previously reported EPS.
Basic (loss) income per share is computed by dividing (loss) income after
deduction of preferred stock dividends by the weighted average number of common
shares outstanding during each year. In fiscal years 1998 and 1997, diluted
income per share is computed using the treasury stock method by dividing income
after deduction of preferred stock dividends by the weighted average number of
shares including common share equivalents and incremental shares representing
the number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. In fiscal year 1999, diluted
loss per share has not been adjusted due to the effect of the incremental shares
being antidilutive.
28
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Impairment of Long-Lived Assets
The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of."
This statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Facilities held for sale at
June 30, 1999 are reported at the lower of the carrying amount or fair value on
the consolidated balance sheet.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
inventories, prepaid expenses, accounts payable and short term debt approximate
fair value because of the short maturity of these instruments.
Fair value estimates are made at a specific point in time, based on the
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision.
Changes in assumption could significantly affect the estimates.
Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal
income tax return. All foreign subsidiaries file individual tax returns pursuant
to local tax laws. The Company follows the asset and liability method of
accounting for income taxes. Under the asset and liability method, a deferred
tax asset or liability is recognized for temporary differences between financial
reporting and income tax bases of assets and liabilities, tax credit
carryforwards and operating loss carryforwards. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not that
such deferred tax assets will not be realized. Utilization of net operating loss
carryforwards and tax credits, which originated prior to the Company's
quasi-reorganization effected on December 31, 1991, are recorded as adjustments
to capital in excess of par value.
Pensions and Postretirement Benefits
In February 1998, SFAS No. 132, "Employer's Disclosures About Pensions and
Other Postretirement Benefits," ("SFAS 132") was issued. SFAS 132 requires
additional disclosures concerning changes in the Company's pension and other
postretirement benefit obligations and assets and eliminates certain disclosures
no longer considered useful. The Company has adopted the provisions of this
standard for 1999 annual reporting purposes. Adoption of these statements did
not impact the Corporation's consolidated financial position, results of
operations, or cash flows, and any effects are limited to the form and content
of its disclosures.
Stock-Based Compensation
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25"), and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
29
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net (loss) income and pro forma (loss) income per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
Segment Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises to report selected information about
operating segments in interim financial reports issued to shareholders. The
Company operates in one segment for management reporting purposes at June 30,
1999. However, the Company is establishing facilities, personnel and reporting
procedures to separate its VOD and Real-Time Divisions for fiscal 2000.
Comprehensive (Loss) Income
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. Comprehensive income is defined as
a change in equity during the financial reporting period of a business
enterprise resulting from non-owner sources.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet dates and the reporting
of revenues and expenses during the reporting periods, to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1998 and 1997 consolidated financial statements have been
reclassified to conform with the 1999 presentation.
3. ACQUISITION
On June 27, 1996 Concurrent acquired the assets of the Real-Time Division
of Harris Computer Systems Corporation ("HCSC") and 683,178 newly-issued shares
of HCSC, in exchange for 10,000,000 shares of common stock of Concurrent (with a
fair value of $9.7 million); 1,000,000 shares of convertible exchangeable
preferred stock of Concurrent with a 9% cumulative annual dividend payable
quarterly in arrears, mandatorially redeemable at $6,263,000 (with an estimated
30
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
fair value of $5.6 million) (see Note 4); and the assumption of certain
liabilities relating to the HCSC Real-Time Division (the "Acquisition"). The
aggregate purchase price of the Acquisition was approximately $18.7 million,
including $3.4 million in transaction expenses (principally financial advisor,
legal and other professional fees). The Acquisition was accounted for as a
purchase effective June 30, 1996. The Acquisition resulted in excess of
acquired net assets over cost (negative goodwill) amounting to approximately
$8.7 million which has been allocated to reduce proportionately the values
assigned to non-current assets.
The 683,173 shares of HCSC common stock acquired by the Company in
connection with the Acquisition were classified as trading securities in the
consolidated balance sheet and valued at their market price of $14.75 per share
or $10.1 million. During fiscal year 1997, the Company sold 377,995 shares
resulting in a realized gain of $757,000. At June 30, 1997, the value of the
remaining shares was $8.91 per share, resulting in an unrealized loss of $2.3
million for the year then ended. During the year ended June 30, 1998, 259,352
shares of stock were sold, resulting in a realized gain for the period of
$358,000, and 45,826 shares valued at $10.25 per share were issued as bonuses to
Company employees resulting in a realized gain of $62,000 and non-cash
compensation expense of $470,000. The gains and losses are included as other
non-recurring charges in the consolidated statements of operations and as
non-cash items in the consolidated statements of cash flows.
Transition expenses for the year ended June 30, 1997 include charges for
costs associated with the combination of Concurrent and the HCSC Real-Time
Division.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the Acquisition, Concurrent issued 1,000,000 shares of
newly issued Class B 9% Cumulative Convertible Redeemable Exchangeable Preferred
Stock ("Preferred Stock"). Each share of Preferred Stock was convertible into
one or more shares of fully paid non-assessable shares of common stock of the
Company at a conversion price of $2.50. The Preferred Stock was recorded at
fair value when issued. During fiscal years 1998 and 1997 respectively, 220,000
and 780,000 shares of Concurrent Preferred Stock were converted into outstanding
common stock. As of June 30, 1999 and 1998, there was no outstanding Preferred
Stock.
5. PROVISION FOR RESTRUCTURING
In connection with the Acquisition, the Company recorded a $23.2 million
restructuring provision as of June 30, 1996. Such charge, based on formal
approved plans, included the estimated costs related to the rationalization of
facilities, workforce reductions, asset writedowns and other costs which
represented approximately 44%, 28%, 26%, and 2%, respectively. The
rationalization of facilities included the planned disposition of the Company's
Oceanport, New Jersey facility, as well as the closing or downsizing of certain
offices located throughout the world. The workforce reductions included the
termination of approximately 200 employees worldwide, encompassing substantially
all of the Company's employee groups. The asset writedowns were primarily
related to the disposition of duplicative machinery and equipment. Cash
expenditures related to this reserve were $600,000, $2.2 million, and $9.6
million for the years ended June 30, 1999, 1998, and 1997, respectively.
As of June 30, 1999, the restructuring reserve was $90,000, which
represents payments owed to the Industrial Development Authority (the "IDA"). On
May 5, 1992 the Company had entered into an agreement with the IDA to maintain a
31
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
presence in Ireland through April 30, 1998. In connection with the Acquisition,
the Company closed its Ireland operations in December 1996 and was required to
repay grants to the IDA of approximately $484,000 (360,000 Irish pounds).
During fiscal year 1999, $394,000 was paid to the IDA and the remainder will be
paid in the first quarter of fiscal year 2000.
6. DISSOLUTION OF JOINT VENTURE
In June 1998, the Company entered into a Share Transfer and Termination of
Shareholders Agreement (the "Termination Agreement") whereby it acquired the 40
percent interest held by the minority shareholders in the Company's Japanese
subsidiary, Concurrent Nippon Corporation ("CNC"). Pursuant to the provisions
of the Termination Agreement, the minority shareholders relinquished their
interest in CNC by transferring 1,200 shares of CNC to the Company and paying
$1.2 million to the Company.
Per the original joint venture agreement, Concurrent and the minority
shareholders shared the income of CNC on a 60-40 basis, respectively. However,
for losses, minority shareholders only assumed its share of the losses until it
reached the 40 percent investment. Subsequent to that point Concurrent had
assumed 100 percent of the losses. The minority shareholders stopped assuming
its share of CNC's losses at the end of fiscal year 1996.
As part of the Termination Agreement, the minority shareholders agreed to
assume its share of CNC losses subsequent to fiscal year 1996 amounting to $1.2
million. The Company accounted for this payment from the minority shareholders
in the consolidated statement of operations as other non-recurring items in
1998.
7. DISSOLUTION OF SUBSIDIARY
During the year ended June 30, 1999, the Company dissolved its subsidiary
Concurrent Computer Corporation France (the "French Branch"). However, the
French Branch should not be confused with Concurrent Computer Corporation S.A.,
the Company's continuing French subsidiary. In connection with the dissolution,
all assets and liabilities of the French Branch were assumed by the Company. As
a result, a loss of $429,000, representing the write off of the French Branch's
cumulative translation adjustment, was recorded in other non-recurring charges
in the consolidated statement of operations for the year ended June 30, 1999.
8. INVENTORIES
Inventories consist of the following:
JUNE 30,
--------------
1999 1998
------ ------
(DOLLARS IN THOUSANDS)
Raw materials $3,103 $4,780
Work-in-process 1,175 959
Finished goods 363 524
------ ------
$4,641 $6,263
====== ======
At June 30, 1999 and 1998, some portion of the Company's inventory was in
excess of the current requirements based upon the planned level of sales for
future years. Accordingly, the Company recorded an accrual for inventory
reserves of $4.6 million to reduce the value of the inventory to its
estimated net realizable value at June 30, 1999 and 1998.
32
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-TERM ASSETS
Property, plant and equipment consists of the following:
JUNE 30,
--------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Land $ 0 $ 513
Buildings and leasehold improvements 1,302 1,409
Machinery, equipment and customer support spares 34,647 28,343
--------- ---------
35,949 30,265
Less: Accumulated depreciation (25,013) (17,846)
--------- ---------
$ 10,936 $ 12,419
========= =========
For the years ended June 30, 1999, 1998, and 1997, depreciation and
amortization expense for property plant and equipment amounted to $4,087,000,
$4,494,000, and $5,123,000, respectively.
In fiscal year 1999, the Company entered into an agreement to sell its
France facility. In connection with this transaction, which will be finalized in
the first quarter of fiscal year 2000, the facility was written down by $0.4
million to its estimated fair market value of $1.2 million, based upon a
valuation by the acquiring company, and classified as a facility held for sale
in the consolidated balance sheet. The loss on facility held for sale is
reflected as an operating expense in the consolidated statement of operations
for fiscal year 1999.
During fiscal year 1996, in connection with the Acquisition and the
resulting planned disposition of the Company's Oceanport, New Jersey facility,
the book value of land and building related to this facility was written down by
$6.8 million to its estimated fair value of $4.7 million, based upon a valuation
by independent appraisers, and classified as a facility held for sale. The sale
was finalized during the first quarter of fiscal year 1998 and resulted in net
proceeds of approximately $5.4 million which was used to pay the Company's long
term debt. The Company realized a gain of $0.7 million in the consolidated
statement of operations for the year ended June 30, 1998.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
JUNE 30,
---------------
1999 1998
------ -------
(DOLLARS IN THOUSANDS)
Accounts payable, trade $2,941 $ 4,946
Accrued payroll, vacation and
other employee expenses 4,314 4,695
Restructuring reserve 90 661
Other accrued expenses 1,628 3,019
------ -------
$8,973 $13,321
====== =======
33
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
11. DEBT AND LINES OF CREDIT
On March 1, 1998, the Company entered into a new credit agreement providing
for an $8 million revolving credit facility maturing on August 1, 2000 (the
"Revolver"). During fiscal year 1998, the Company repaid the outstanding term
loan and revolver from its prior credit agreement, and the Company's Japanese
subsidiary repaid its bank loans for which the Company was a guarantor.
At June 30, 1999, the outstanding balance of the Revolver was $0. The
Company may reborrow and repay the Revolver, subject to certain collateral
requirements, at any time prior to the maturity date. The interest rate of the
Revolver is prime plus 0.75% (8.5% at June 30, 1999). The Company has pledged
substantially all of its domestic assets as collateral for the Revolver. During
1999, the outstanding balance on the June 1998 revolver was paid in full in the
amount of $1.1 million.
The Revolver contains various covenants and restrictions, which among other
things, (1) place certain limits on corporate acts of the Company such as
fundamental changes in the corporate structure of the Company, investments in
other entities, incurrence of additional indebtedness, creation of liens or
certain distributions or dispositions of assets, including cash dividends, and
(2) require the Company to meet financial tests of a period basis, the most
restrictive of which relate to the maintenance of collateral coverage and debt
coverage all as defined in the agreement. At June 30, 1999, the Company was in
compliance with such covenants and restrictions or obtained waiver for
noncompliance.
12. INCOME TAXES
The domestic and foreign components of (loss) income before provision for
income taxes are as follows:
YEARS ENDED JUNE 30,
-------------------------
1999 1998 1997
-------- ------ -------
(DOLLARS IN THOUSANDS)
United States $(1,420) $2,143 $ (489)
Foreign 118 2,231 5,931
-------- ------ -------
$(1,302) $4,374 $5,442
======== ====== =======
The components of the provision for income taxes are as follows:
YEARS ENDED JUNE 30,
----------------------
1999 1998 1997
------- ----- ------
(DOLLARS IN THOUSANDS)
Current:
Federal $ - $ - $ -
Foreign 1,056 496 1,347
------- ----- ------
Total $1,056 $ 496 $1,347
------- ----- ------
Deferred:
Federal $ - $ 98 $ -
Foreign (693) 366 34
------- ----- ------
Total $ (693) $ 464 $ 34
------- ----- ------
Total $ 363 $ 960 $1,381
======= ===== ======
34
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
A reconciliation of the income tax (benefit) expense computed using the
Federal statutory income tax rate to the Company's provision for income taxes is
as follows:
YEARS ENDED JUNE 30,
--------------------------
1999 1998 1997
-------- ------- -------
(DOLLARS IN THOUSANDS)
(Loss) income before provision for
income taxes $(1,302) $4,374 $5,442
-------- ------- -------
Tax (benefit) at Federal statutory rate (443) 1,487 1,850
Other, net 806 (572) (469)
-------- ------- -------
Provision for income taxes $ 363 $ 960 $1,381
======== ======= =======
As of June 30, 1999 and 1998, the Company's deferred tax assets and
liabilities were comprised of the following:
JUNE 30,
--------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Gross deferred tax assets related to:
U.S. and foreign net operating loss carryforwards $ 46,809 $ 46,891
Book and tax basis differences for reporting purposes 10,530 10,956
Other reserves 607 569
Accrued compensation 883 1,156
Other 785 1,042
--------- ---------
Total gross deferred tax assets 59,614 60,614
Valuation allowance (57,372) (58,814)
--------- ---------
Total deferred tax asset 2,242 1,800
Gross deferred tax liabilities primarily related to
property and equipment 1,549 1,800
--------- ---------
Total gross deferred tax liability 1,549 1,800
--------- ---------
Deferred income tax assets $ 693 $ -
========= =========
Any future benefits attributable to the U.S. Federal net operating loss
carryforwards which originated prior to the Company's quasi-reorganization are
accounted for through adjustments to capital in excess of par value. Under
Section 382 of the Internal Revenue Code, future benefits attributable to the
net operating loss carryforwards and tax credits which originated prior to the
Company's quasi-reorganization and those which originated subsequent to the
Company's quasi-reorganization through the date of the Company's 1993
comprehensive refinancing ("1993 Refinancing") are limited to approximately
$300,000 per year. The Company's U.S. Federal net operating loss carryforwards
begin to expire in 2004. As of June 30, 1999, the Company has remaining
utilizable U.S. Federal tax net operating loss carryforwards of approximately
$103 million for income tax purposes. Approximately $55 million of these net
operating
35
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
loss carryforwards originated prior to the Company's 1993 Refinancing and are
limited to $300,000 per year. The remaining $48 million of net operating loss
carryforwards may be limited in accordance with IRC Section 382.
Deferred income taxes have not been provided for undistributed earnings of
foreign subsidiaries, which originated subsequent to the Company's
quasi-reorganization, primarily due to the Company's required investment in
certain subsidiaries.
Additionally, deferred income taxes have not been provided on undistributed
earnings of foreign subsidiaries which originated prior to the Company's
quasi-reorganization. The impact of both the subsequent repatriation of such
earnings and the resulting offset, in full, from the utilization of net
operating loss carryforwards will be accounted for through adjustments to
capital in excess of par value.
The valuation allowance for deferred tax assets as of June 30, 1999 and
1998 was approximately $57 million and $59 million, respectively. The net
change in the total valuation allowance for the year ended June 30, 1999 was a
decrease of approximately $1.4 million. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. As such, the deferred tax assets have been reduced by the
valuation allowance since management considers more likely than not that these
deferred tax assets will not be realized.
13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company maintains a retirement savings plan (the "Plan") available to
U.S. employees which qualifies as a defined contribution plan under Section
401(k) of the Internal Revenue Code. The Company may make a discretionary
matching contribution equal to 100% of the first 6% of employees' contributions.
For the years ended June 30, 1999, 1998 and 1997, the Company matched 100% of
the employees' Plan contributions up to 6%.
The Company's matching contributions under the Plan are as follows:
1999 1998 1997
------- ------ ------
(DOLLARS IN THOUSANDS)
Matching contribution $1,040 $1,140 $1,439
36
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Certain foreign subsidiaries of the Company maintain pension plans for
their employees which conform to the common practice in their respective
countries. The related changes in benefit obligation and plan assets and the
amounts recognized in the consolidated balance sheets are presented in the
following tables:
Reconciliation of Funded Status
- ----------------------------------
JUNE 30,
------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year $10,777 $ 9,304
Service cost 336 360
Interest cost 886 858
Plan participants' contributions 71 100
Actuarial loss 2,803 (27)
Foreign currency exchange rate change (586) 249
Benefits paid (57) (67)
-------- --------
Benefit obligation at end of year $14,230 $10,777
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $13,603 $11,606
Actual return on plan assets 957 1,539
Employer contributions 170 205
Plan participants' contributions 71 100
Benefits paid (20) (28)
Foreign currency exchange rate change (700) 181
-------- --------
Fair value of plan assets at end of year $14,081 $13,603
======== ========
Funded status $ (149) $ 2,826
Unrecognized actuarial loss (3) (3,243)
Unrecognized prior service benefit 277 317
Unrecognized net transition obligation (211) (298)
-------- --------
Net amount recognized $ (86) $ (398)
======== ========
Amounts Recognized in the Consolidated Balance Sheet
- ----------------------------------------------------
JUNE 30,
------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
Prepaid benefit cost $ 1,255 $ 1,071
Accrued benefit liability (1,341) (1,469)
-------- --------
Net amount recognized $ (86) $ (398)
======== ========
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $2.4 million, $2.4 million and $1.5 million,
respectively, as of June 30, 1999, and $2.3 million, $2.2 million and $1.4
million, respectively, as of June 30, 1998.
37
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Plan assets are comprised primarily of investments in managed funds
consisting of common stock, money market and real estate investments.
The assumptions used to measure the present value of benefit obligations
and net periodic benefit cost are shown in the following table:
Significant Assumptions
- ------------------------
JUNE 30,
------------------------------------------
1999 1998 1997
------------- ------------ -------------
Discount rate 6.0% to 6.25% 6.5% to 8.5% 6.5% to 9.0%
Expected return on plan assets 6.0% 7.0% to 8.5% 7.0% to 9.0%
Compensation increase rate 3.5% to 4.5% 3.5% to 7.0% 3.5% to 7.0%
Components of Net Periodic Benefit Cost
- --------------------------------------------
YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
------ -------- --------
(DOLLARS IN THOUSANDS)
Service cost $ 336 $ 360 $ 286
Interest cost 886 858 782
Expected return on plan assets (873) (1,130) (1,024)
Amortization of unrecognized net transition obligation (69) (71) (70)
Amortization of unrecognized prior service benefit 25 25 -
Recognized actuarial loss (51) (125) (77)
------ -------- --------
Net periodic benefit cost $ 254 $ (83) $ (103)
====== ======== ========
On July 1, 1993, the Company adopted the provisions of SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions". In
connection with the adoption of this standard, the Company recorded a non-cash
charge of $3.0 million in fiscal year 1994, which represented the immediate
recognition of the accumulated postretirement benefit obligation at the date of
adoption.
The plan was subject to amendment at the Company's discretion, and as a
result of the Acquisition, a decision was made to terminate the plan. The
Company recognized a $2.5 million gain from curtailment of the plan during the
year ended June 30, 1997.
14. EMPLOYEE STOCK PLANS
The Company has a Stock Option Plan providing for the grant of incentive
stock options to employees and non-qualified stock options (NSO's) to employees,
non-employee directors and consultants. The Stock Option Plan is administered
by the Stock Award Committee comprised of members of the Compensation Committee
of the Board of Directors or the Board of Directors, as the case may be. Under
the plan, the Stock Award Committee may award, in addition to stock options,
shares of Common Stock on a restricted basis. The plan also specifically
provides for stock appreciation rights and authorizes the Stock Award Committee
to provide, either at the time of the grant of an option or otherwise, that the
option may be cashed out upon terms and conditions to be determined by the
Committee or the Board. No stock appreciation rights have been granted during
the years ended June 30, 1999, 1998 and 1997. The plan terminates on January
31, 2002. Stockholders have approved the purchase of up to 9,000,000 shares
under the plan.
38
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Changes in options outstanding under the plan during the years ended June
30, 1999, 1998 and 1997 are as follows:
1999 1998 1997
---------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ---------- ----------- ------ ----------- ------
Outstanding at beginning of year 5,852,794 $ 2.13 6,016,229 $ 2.15 5,483,527 $ 1.91
Granted 1,648,500 $ 2.77 630,800 $ 1.86 1,711,000 $ 2.26
Exercised (884,283) $ 2.02 (666,443) $ 1.45 (1,066,362) $ 1.12
Forfeited (231,042) $ 2.17 (127,792) $ 5.06 (111,936) $ 1.92
----------- ----------- -----------
Outstanding at year-end 6,385,969 $ 2.31 5,852,794 $ 2.13 6,016,229 $ 2.15
Options exercisable at year end 3,498,533 3,076,730 2,493,536
Weighted average fair value of
options granted during the year $ 1.56 $ 0.42 $ 0.66
Options with respect to 3,498,533 shares of common stock, with an average
exercise price of $2.31, were exercisable at June 30, 1999. The
weighted-average fair value of the stock options granted during 1999, 1998 and
1997 was $2,571,431, $263,415, and $1,130,324, respectively, on the date of
grant using the Black Scholes option-pricing model. The weighted-average
assumptions used were: expected dividend yield 0%, risk-free interest rate
5.0%, expected life of 4.01 years and an expected volatility of 70%, 35%, and
35% respectively.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 1999:
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
------------------------------------------ -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES LIFE AT JUNE 30, 1999 PRICE AT JUNE 30, 1999 PRICE
- --------------- ----------- ----------------- ---------- ----------------- ------
0.88 - $0.99 5.84 52,901 $ 0.88 52,901 $ 0.88
1.00 - $1.99 7.01 554,246 1.50 318,604 1.49
2.00 - $2.99 7.71 5,578,337 2.34 2,943,209 2.11
3.00 - $3.99 9.11 59,166 3.15 45,834 3.19
4.00 - $4.99 2.22 139,452 4.39 136,118 4.39
5.00 - $5.99 1.98 1,500 5.08 1,500 5.08
6.00 - $6.99 2.06 100 6.88 100 6.88
7.00 - $7.99 2.04 200 7.19 200 7.19
25.63 - $47.50 0.14 67 41.30 67 41.30
----------- ----------------- ---------- ----------------- ------
7.47 6,385,969 $ 2.31 3,498,533 $2.13
39
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income (loss) applicable to common shareholders and net income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
YEARS ENDED JUNE 30,
1999 1998 1997
-------- ------ ------
(DOLLARS IN THOUSANDS)
Net income (loss) applicable to common shareholders
As reported ($1,665) $3,396 $3,750
Pro forma ($2,147) $3,133 $2,620
Net income (loss) per share (basic and diluted)
As reported ($0.03) $ 0.07 $ 0.08
Pro forma ($0.04) $ 0.07 $ 0.06
15. ISSUANCE OF NON-CASH WARRANTS
On May 20, 1998, the Company entered into a Letter of Intent ("LOI") with
Scientific-Atlanta, Inc. ("SAI") providing for the joint development and
marketing of a video-on-demand system to cable network operators. A definitive
agreement was signed on August 17, 1998. In exchange for SAI's technical and
marketing contributions, the Company issued warrants for 2 million shares of its
common stock, exercisable at $5 per share over a four-year term.
The LOI between Concurrent and SAI is broken into three phases:
Phase I Technical/Commercial Evaluation and Definitive Agreement
Phase II Initial Development and Video-on-Demand Field Demonstration System
Phase III Commercial Deployment
During Phase I, either party could terminate the negotiations at any time.
In June 1998, the parties moved to Phase II and pursuant to the provisions of
SFAS No. 123, Concurrent recorded a charge of $1.6 million representing the fair
value of the underlying stock using the Black-Scholes option-pricing model for
the warrants to purchase 2 million shares of the Company's stock.
The LOI further stipulates that Concurrent is required to issue additional
warrants to SAI upon achievement of pre-determined revenue targets. These
warrants are to be issued with a strike price of a 15% discount to the then
current market price. To date no such targets have been met.
16. RIGHTS PLAN
On July 31, 1992, the Board of Directors of the Company declared a dividend
distribution of one Series A Participating Cumulative Preferred Right for each
share of the Company's Common Stock and Convertible Preferred Stock. The
dividend was made to stockholders of record on August 14, 1992. Under the
rights plan, each Right becomes exercisable unless redeemed (1) after a third
party owns 20% or more of the outstanding shares of the Company's voting stock
40
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
and engages in one or more specified self-dealing transactions, (2) after a
third party owns 30% or more of the outstanding voting stock or (3) following
the announcement of a tender or exchange offer that would result in a third
party owning 30% or more of the Company's voting stock. Any of these events
would trigger the rights plan and entitle each right holder to purchase from the
Company one one-hundredth of a share of Series A Participating Cumulative
Preferred Stock at a cash price of $30 per right.
Under certain circumstances following satisfaction of third party ownership
tests of the Company's voting stock, upon exercise each holder of a right would
be able to receive common stock of the Company or its equivalent, or common
stock of the acquiring entity, in each case having a value of two times the
exercise price of the right. The rights will expire on August 14, 2002 unless
earlier exercised or redeemed, or earlier termination of the plan.
17. BASIC AND DILUTED (LOSS) INCOME PER SHARE COMPUTATION
The following table presents a reconciliation of the numerators and
denominators of basic and diluted (loss) income per share for the periods
indicated:
YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
-------- ------- -------
(DOLLARS AND SHARE DATA IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Basic EPS calculation:
Net (loss) income $(1,665) $ 3,414 $ 4,061
Less: Preferred stock dividends and accretion - 18 311
-------- ------- -------
Net (loss) income available to common shareholders $(1,665) $ 3,396 $ 3,750
Weighted average number of shares outstanding 47,967 47,002 44,603
-------- ------- -------
Basic EPS $ (0.03) $ 0.07 $ 0.08
======== ======= =======
Diluted EPS calculation:
Net (loss) income $(1,665) $ 3,414 $ 4,061
Less: Preferred stock dividends and accretion - 18 311
-------- ------- -------
Net (loss) income available to common shareholders $(1,665) $ 3,396 $ 3,750
Weighted average number of shares outstanding 47,967 47,002 44,603
Incremental shares from assumed conversion of stock options - 625 509
-------- ------- -------
47,967 47,627 45,112
-------- ------- -------
Diluted EPS $ (0.03) $ 0.07 $ 0.08
======== ======= =======
41
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
18. CONCENTRATION OF RISK
A summary of the Company's financial data by geographic area follows:
YEAR ENDED JUNE 30,
-----------------------------
1999 1998 1997
-------- -------- ---------
(DOLLARS IN THOUSANDS)
Net sales:
United States $41,726 $49,708 $ 60,039
Intercompany 5,843 6,164 11,031
-------- -------- ---------
47,569 55,872 71,070
-------- -------- ---------
Europe 17,453 18,383 28,119
Intercompany 344 1,161 1,759
-------- -------- ---------
17,797 19,544 29,878
-------- -------- ---------
Asia/Pacific 9,519 12,341 17,077
Intercompany 53 26 50
-------- -------- ---------
9,572 12,367 17,127
-------- -------- ---------
Other 1,265 1,783 3,132
-------- -------- ---------
76,203 89,566 121,207
Eliminations (6,240) (7,351) (12,840)
-------- -------- ---------
Total $69,963 $82,215 $108,367
======== ======== =========
Operating (loss) income:
United States $(2,146) $ 394 $ 4,881
Europe 72 1,163 985
Asia/Pacific 560 1,349 1,802
Other 149 390 565
Eliminations 76 15 1,006
-------- -------- ---------
Total $(1,289) $ 3,311 $ 9,239
======== ======== =========
JUNE 30,
--------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
Identifiable assets:
United States $ 54,794 $ 55,778
Europe 14,601 18,048
Asia/Pacific 13,551 14,820
Other 543 1,394
Eliminations (42,920) (43,805)
--------- ---------
Total $ 40,569 $ 46,235
========= =========
Intercompany transfers between geographic areas are accounted for at prices
similar to those available to comparable unaffiliated customers. Sales to
unaffiliated customers outside the U.S., including U.S. export sales, were
$29,058,000, $34,877,000, and $49,534,000 for the years ended June 30, 1999,
1998 and 1997, respectively, which amounts represented 42%, 42%, and 46% of
total sales for the respective fiscal years.
42
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Sales to the U.S. Government and its agencies amounted to approximately
$23,053,000, $22,203,000 and $27,737,000 for the years ended June 30, 1999, 1998
and 1997, respectively, which amounts represented 33%, 27% and 26% of total
sales for the respective fiscal years. Sales to the Company's largest
commercial customer amounted to approximately $8,228,000 or 12% of total sales
for the year ended June 30, 1999. In the three-year period ended June 30, 1999,
there were no other customers representing more than 10% of total revenues in
any given year.
Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers comprising the Company's customer base.
Ongoing credit evaluations of customers' financial condition are performed and
collateral is generally not required.
19. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results for the years
ended June 30, 1999 and 1998:
THREE MONTHS ENDED
-------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1999 1999
--------------- ------------- ---------- ----------
1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 16,874 $ 19,181 $ 17,676 $ 16,232
Gross margin $ 8,749 $ 9,834 $ 9,257 $ 7,497
Operating income (loss) (a) $ 212 $ 539 $ 562 $ (2,602)
Net income (loss) (a) $ (426) $ 915 $ 294 $ (2,448)
Net income (loss) per share $ (0.01) $ 0.02 $ 0.01 $ (0.05)
(a) Net loss for the quarter ended September 30, 1998 reflects a loss of $0.4
million resulting from the Company's dissolution of its subsidiary
Concurrent Computer Corporation France (see Note 7). Net income for the
quarter ended December 31, 1998 reflects an $0.3 million exchange gain
resulting from the settlement of a subsidiary's short term loan to the
Company. Operating loss and net loss for the three months ended June 30,
1999 reflect a $0.4 million loss on impairment of the Company's France
facility (see Note 9).
THREE MONTHS ENDED
--------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1998 1998
------------------- ------------- ---------- ----------
1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 20,605 $ 21,016 $ 20,394 $ 20,200
Gross margin $ 9,883 $ 10,763 $ 9,601 $ 10,143
Operating income (loss) (b) $ 1,646 $ 2,199 $ 1,017 $ (1,551)
Net income (loss) (b) $ 1,300 $ 1,423 $ 1,005 $ (314)
Net income (loss) per share $ 0.03 $ 0.03 $ 0.02 $ (0.01)
(b) Operating loss and net loss for the three months ended June 30, 1998
reflect a $1.6 million non-cash charge relating to the issuance of warrants
for the purchase of 2,000,000 shares of the Company's common stock to
Scientific-Atlanta, Inc. (see Note 15).
43
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
20. COMMITMENTS AND CONTINGENCIES
The Company leases certain sales and service offices, warehousing, and
equipment. The leases expire at various dates through 2005 and generally
provide for the payment of taxes, insurance and maintenance costs.
Additionally, certain leases contain escalation clauses which provide for
increased rents resulting from the pass through of increases in operating costs,
property taxes and consumer price indexes.
At June 30, 1999, future minimum payments under non-cancelable operating
leases for the years ending June 30 are as follows:
(DOLLARS IN THOUSANDS)
2000 $ 2,760
2001 1,624
2002 836
2003 491
2004 and thereafter 274
-------------
5,985
=============
Rent expense amounted to $3,937,000, 4,761,000, and $3,776,000 for the
years ended June 30, 1999, 1998 and 1997, respectively.
In August 1999, the Company entered into a five-year lease commencing on
January 1, 2000 for a 30,000 square foot facility in Pompano Beach, Florida,
directly across the street from its manufacturing facility. The new facility
will house the Real-Time Division's offices. Costs incurred to move from the
Fort Lauderdale facility to the new facility are not expected to be material.
The Company, from time to time, is involved in litigation incidental to the
conduct of its business. The Company and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations or financial condition.
The Company has entered into employment agreements with its executive
officers. In the event an executive officer is terminated directly by the
Company without cause or in certain circumstances constructively by the Company,
the terminated officer will be paid severance compensation for a one or two-year
period (depending on the executive) in an annualized amount equal to the
respective officer's annual salary then in effect plus an amount equal to the
then most recent annual bonus or target bonus paid or, if determined, payable,
to such officer. At June 30, 1999, the maximum contingent liability under these
agreements is approximately $2.7 million. The Company's employment agreements
with certain of its officers contain certain offset provisions, as defined in
their respective agreements.
21. NEW ACCOUNTING PRONOUNCEMENTS
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
SOP 98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires
that costs incurred during start-up activities, including organization costs, be
expensed as incurred. Companies that previously capitalized such costs are
required to write-off the unamortized portion of such costs as the cumulative
effect of a change of accounting principle. The Company does not incur any start
up costs, therefore adoption of this SOP will not have a significant impact on
the Company's financial reporting.
44
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
On March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the costs of software developed or obtained for internal use" ("SOP 98-1"). This
standard requires companies to capitalize qualifying computer software costs,
which are incurred during the application development stage, and amortize them
over the software's estimated useful life. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. The Company expects no impact on its
financial statements related to SOP 98-1.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and the measurement of those instruments at
fair value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 137 amended the effective
date for implementation of SFAS No. 133 until fiscal years beginning after June
15, 2000. The Company does not engage in hedging activities, therefore this SFAS
will not have a significant impact on the Company's financial statements.
45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
YEARS ENDED JUNE 30,
----------------------
1999 1998 1997
------ ------ ------
Net sales:
Computer systems 45.2% 46.1% 51.4%
Service and other 54.8 53.9 48.6
------ ------ ------
Total net sales 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Computer systems 47.5 49.0 49.7
Service and other 51.2 52.5 53.9
------ ------ ------
Total cost of sales 49.5 50.9 52.7
Gross margin 50.5 49.1 47.3
Operating expenses:
Selling, general and administrative 37.4 30.6 26.4
Research and development 14.4 13.3 12.5
Restructuring and transition - (0.7) 2.1
Curtailment gain on postretirement benefit obligation - - (2.3)
Non-cash development expenses - 2.0 -
Loss on facility held for sale 0.6 - -
------ ------ ------
Total operating expenses 52.4 45.1 38.7
------ ------ ------
Operating (loss) income (1.8) 4.0 8.5
Interest expense (0.4) (1.0) (1.9)
Interest income 0.4 0.2 0.2
Other non-recurring items (0.1) 1.7 (1.5)
Other income (expense) - net 0.1 0.3 (0.3)
------ ------ ------
(Loss) Income before provision for income taxes (1.9) 5.3 5.0
Provision for income taxes 0.5 1.2 1.3
------ ------ ------
Net (loss) income (2.4)% 4.2% 3.7%
====== ====== ======
46
RESULTS OF OPERATIONS
FISCAL YEAR 1999 IN COMPARISON TO FISCAL YEAR 1998
Net Sales
Net sales for fiscal year 1999 were $70.0 million, a decrease of $12.3
million from fiscal year 1998. The sales decline was comprised of a $6.3
million decrease in computer systems sales and a $6.0 million decrease in
service and other revenues. The decline in computer systems sales was a result
of continued decline in proprietary systems and the transition to a more
software-oriented business for open systems. An increasing number of customers
purchase the Company's software only at $5,000 to $10,000 or the Company's
software integrated with Motorola boards, which has an average price $40,000 to
$60,000 per system, rather than the Company's open systems, which average
$125,000 to $150,000 per system. Maintenance and service sales decreased to
$38.4 million. This decrease is expected to continue in the future and to
approximate the decline experienced in the past by the Company before the
Acquisition. That decline resulted from customers switching from proprietary
systems to the Company's open systems which are less expensive to maintain, and
the cancellation of other proprietary computer maintenance contracts as the
machines are removed from service.
During fiscal year 1999, the Company entered into three significant
transactions. In March, the Company sold $1.3 million of goods to a customer in
a bill and hold arrangement and the customer paid for the equipment in April.
Also in March, the Company recorded $1.6 million related to products for the
completion of a contract. Although the products were shipped in March 1999, the
payment terms do not require payment until April, 2000. The third significant
transaction was a contract to provide products for the Longbow Helicopter. The
contract is for a total of $2.6 million and will be recorded over approximately
15 months using a percentage of completion basis. Approximately $284,000 was
recorded as income in the fourth quarter of fiscal year 1999.
Gross Margin
Gross margin decreased by $5.1 million to $35.3 million for fiscal year
1999 compared to fiscal year 1998. However, gross margin percent increased by
1.4% to 50.5% compared to fiscal year 1998. Product gross margin decreased by
$2.7 million to $16.6 million compared to fiscal year 1998 and the gross margin
percent increased 1.5% to 52.5%. This decline in margin is a result of
decreased sales partially offset by a higher gross margin percent on the sale of
the newer products. Included in the current year gross margin is a fourth
quarter $1.1 million non-cash charge taken for excess and obsolete inventory.
Service and other gross margin decreased by $2.3 million to $18.7 million as a
result of lower sales. This was offset partially by increased efficiency and
cost management which increased the gross margin percent by 1.3% to 48.8%.
Operating (Loss) Income
Operating (loss) income for fiscal year 1999 was a loss of $1.3 million
compared to an income of $3.3 million for fiscal year 1998. This decrease was
primarily due to the decrease in gross margin discussed above. Selling, general
and administrative expenses increased by $1.0 million primarily due to increased
legal expenses in the current year relating to subsequently resolved lawsuits.
Research and development expenses decreased by $0.9 million due to cost
reduction efforts. Included in the fiscal year 1999 operating loss is a $0.4
million loss on the impairment of the Company's building in France.
47
Net (Loss) Income
Net (loss) income after tax and dividends for preferred stockholders
decreased by $5.1 million to a loss of $1.7 million. Interest expense decreased
$0.6 million as the company paid off its debt during fiscal year 1999. Included
in other non-recurring items is a $0.4 million write-off of foreign currency
translation due to dissolution of the French branch offset by $0.3 million of
foreign currency transaction gains.
FISCAL YEAR 1998 IN COMPARISON TO FISCAL YEAR 1997
Net Sales
Net sales for fiscal year 1998 were $82.2 million, a decrease of $26.2
million from fiscal year 1997. The sales decline was comprised of a $17.8
million decrease in computer system sales and a $8.4 million decrease in service
and other revenues. The decline in computer systems sales was a result of
continued decline in proprietary systems and the transition to a more
software-oriented business for open systems. An increasing number of customers
purchasing the Company's software at only $5,000 to $10,000 or the Company's
software integrated with Motorola boards which have an average price of $40,000
to $60,000 per system, rather than the Company's open systems, which average
around $125,000 to $150,000 per system. Maintenance and service sales decreased
to $44.3 million. This decrease is expected to continue in the future and to
approximate the decline experienced in the past by the Company before the
Acquisition. That decline resulted from customers switching from proprietary
systems to the Company's open systems which are less expensive to maintain, and
the cancellation of other proprietary computer maintenance contracts as the
machines are removed from service.
Gross Margin
Gross margin decreased by $10.8 million to $40.4 million for fiscal year
1998 compared to fiscal year 1997. However, gross margin percent increased by
1.8% to 49.1% compared to fiscal year 1997. Product gross margin decreased $8.7
million to $19.3 million compared to fiscal year 1997 and the gross margin
percent increased 0.7% to 51.0%. This decline in margin is a result of decreased
sales partially offset by a higher gross margin percent on the sale of the newer
products. Service and other gross margin decreased by $3.2 million as a result
of lower sales. This was offset partially by increased efficiency and cost
management which increased the gross margin percent by 1.4% to 47.5%. The gross
margin for fiscal year 1997 also included a $1.1 million charge for expenses
resulting from the transition of the manufacturing operations from Oceanport,
New Jersey to Fort Lauderdale, Florida.
Operating Income
Operating income for fiscal year 1998 was $3.3 million compared to $9.2
million for fiscal year 1997. The decrease in income was the result of the
decrease in gross margin, offset by a decrease in operating expenses of $4.9
million. Included in fiscal year 1998 operating income is $.6 million income
from the sale of the Oceanport, New Jersey facility and a $1.6 million non-cash
charge for the issuance to Scientific-Atlanta, Inc. of warrants to purchase up
to two million shares of the Company's common stock at a price of $5.00 per
share. The warrants were issued in connection with the establishment of an
agreement with Scientific-Atlanta, Inc. The decrease in expenses is a result of
deliberate effort to reduce expenses commensurate with projected revenue.
Research and development expenses decreased by $2.6 million to $10.9 million.
The fiscal year 1997 numbers included expenses required to align the product
lines of the two companies following the Acquisition. During fiscal year 1998,
these expenses were not required. Selling, general and administrative expenses
decreased by $3.5 million, as expenses were reduced in accordance with the
anticipated decrease in revenue.
48
Net Income
Net income after tax and dividends for preferred stockholders decreased by
$0.4 million to $3.4 million. Interest expense decreased $1.2 million as the
Company paid down its debt from $14.7 million at June 30, 1997 to $1.5 million
at June 30, 1998. There were two non-recurring items from fiscal year 1998: (i)
the Company sold the remaining shares of its common stock received in connection
with the Acquisition and recorded a $0.4 million gain; and (ii) the Company
received $1.2 million from Nippon Steel Corporation ("NSC") in connection with
the termination of the joint venture in Concurrent Nippon Corporation (CNC), the
Company's Japanese subsidiary, to reimburse the Company for losses realized by
CNC which exceeded NSC's minority investment.
FINANCIAL RESOURCES AND LIQUIDITY
The Company had positive cash flows in the current year of $1.1 million and
paid off all its external debt. This was funded primarily from operations of
the Company (although the Company had a loss of $1.6 million, $2.0 million was
due to non-cash charges other than depreciation which approximated capital
expenditures), improved accounts receivable collections and proceeds from the
sale and issuance of common stock. Concurrent's liquidity is dependent on many
factors, including sales volume, operating profit ratio, debt service and the
efficiency of asset use and turnover. The future liquidity of Concurrent
depends to a significant extent on (i) the actual versus anticipated decline in
sales of proprietary systems and service maintenance revenue; (ii) revenue
growth from open systems; (iii) revenue growth from its VOD division; and (iv)
ongoing cost control actions. Liquidity will also be affected by: (i) timing of
shipments which predominately occur during the last month of the quarter; (ii)
the percentage of sales derived from outside the United States where there are
generally longer accounts receivable collection cycles and which receivables are
not included in Concurrent's borrowing base under its revolving credit facility;
(iii) the sales level in the United States where related accounts receivable are
included in the borrowing base of Concurrent's revolving credit facility; (iv)
the number of countries in which Concurrent will operate, which may require
maintenance of minimum cash levels in each country and, in certain cases, may
restrict the repatriation of cash, such as cash held on deposit to secure office
leases. The Company believes that it will be able to fund fiscal 2000
operations, through its operating results and existing financing facilities.
On March 1, 1998, the Company entered into a new agreement providing for an
$8 million revolving credit facility (the "Revolver") through August 1, 2000
which bears interest at the prime rate plus 0.75% (8.5% at 6/30/99). At June
30, 1999, the outstanding balance of the Revolver was $0. The revolver may be
reborrowed and repaid, subject to certain collateral requirements, at any time
prior to its maturity. The Company has pledged substantially all of its
domestic assets as collateral for the Revolver.
The Company had debt to outside financial institutions of $0 as of June 30,
1999 as compared to $1.4 million as of June 30, 1998.
As of June 30, 1999, the Company had a current ratio of 2.2 to 1, an
inventory turnover ratio of 2.8 times (based on computer systems cost of sales),
76.6 days sales outstanding and net working capital of $14.7 million compared to
$13.7 million for fiscal year 1998. At June 30, 1999, cash and cash equivalents
amounted to $6.9 million and net accounts receivable amounted to $14.9 million.
In June 1996, in connection with the Acquisition, the Company recorded a
$23.2 million restructuring provision. Such charge, based on formal approved
plans, included the estimated costs related to the rationalization of
facilities, workforce reductions, asset writedowns and other costs which
represent approximately 44%, 28%, 26% and 2%, respectively. The rationalization
of facilities included the planned disposition of the Company's Oceanport, New
Jersey facility, as well as the closing or downsizing of certain offices located
throughout the world. The workforce reductions included the termination of
49
approximately 200 employees worldwide, encompassing substantially all of the
Company's employee groups. The asset writedowns are primarily related to the
planned disposition of duplicative machinery and equipment. During the years
ended June 30, 1999, 1998, and 1997, respectively, expenditures related to this
provision were $0.6 million, $2.2 million, and $9.6 million.
The Company plans to continue to evaluate and manage its resources to
anticipated revenue levels to achieve improved profitability. The Company
believes that it will be able to meet its obligations when due through its
operating results and its existing financing facility.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
SOP 98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires
that costs incurred during start-up activities, including organization costs, be
expensed as incurred. Companies that previously capitalized such costs are
required to write-off the unamortized portion of such costs as the cumulative
effect of a change of accounting principle. The Company does not incur any
start up costs, therefore adoption of this SOP will not have a significant
impact on the Company's financial reporting.
On March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the costs of software developed or obtained for internal use" ("SOP 98-1").
This standard requires companies to capitalize qualifying computer software
costs, which are incurred during the application development stage, and amortize
them over the software's estimated useful life. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The Company expects no impact
on its financial statements related to SOP 98-1.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and the measurement of those instruments at
fair value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 137 amended the effective
date for implementation of SFAS No. 133 until fiscal years beginning after June
15, 2000. The Company does not engage in hedging activities, therefore this
SFAS will not have a significant impact on the Company's financial statements.
YEAR 2000
The Company has been aggressively addressing Year 2000 issues related to
the processing of date-sensitive data. A cross-functional team was assembled,
and a determination was made as to which systems were Year 2000 non-compliant.
The Company believes that all of the Company's critical financial,
manufacturing, R&D and other systems are fully compliant.
Concurrent has reviewed customer and supplier relationships, and has a Year
2000 software product available which many of our customers have implemented.
While the Company is taking all reasonable efforts, including direct mailings
and internet web site, to make information on the Year 2000 readiness of its
products available to its customers, this information may not reach all
customers, particularly third-party customers. Although the Company believes it
has addressed Year 2000 readiness issues related to its products, there may be
disruptions and/or product failures that are unforeseen.
The Company is requesting assurances from its major suppliers that they are
addressing these issues and that products procured by the Company will function
properly in the Year 2000. It is expected that certain critical suppliers may
be unwilling or unable to provide such assurances. As a result, it is difficult
for the Company to assess the impact on its business of such entities' failure
to be Year 2000 compliant.
Although Concurrent will incur additional time and effort in Year 2000
compliance, these costs are not expected to be material.
50
CONCURRENT COMPUTER CORPORATION
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
-------------------------------------------------
INCOME STATEMENT DATA 1999 1998 1997 1996 (1) 1995
- ------------------------------------ -------- ------- -------- --------- ---------
Net sales $69,963 $82,215 $108,367 $ 95,800 $140,144
Gross margin 35,337 40,390 51,211 35,265 60,667
Operating (loss) income (1,289) 3,311 9,239 (32,870) 2,082
(Loss) income before extraordinary
Gain (loss) and cumulative effect
of change in accounting principles (1,665) 3,414 4,061 (41,309) (2,006)
Net (loss) income $(1,665) $ 3,414 $ 4,061 $(41,309) $ (2,006)
(Loss) income per share:
(Loss) income before extraordinary
Gain (loss) and cumulative effect
of change in accounting principles (0.03) 0.07 0.08 (1.35) (0.07)
Net (loss) income $ (0.03) $ 0.07 $ 0.08 $ (1.35) $ (0.07)
JUNE 30,
-------------------------------------------------
BALANCE SHEET DATA 1999 1998 1997 1996 (1) 1995
- ------------------------------------ -------- ------- -------- --------- ---------
Cash and short-term investments $ 6,872 $ 5,733 $ 4,024 $ 3,562 $ 5,728
Working capital 14,694 13,652 4,694 (966) 1,865
Total assets 40,569 46,235 63,528 80,073 98,359
Long-term debt - - 4,493 6,603 9,536
Redeemable preferred stock - - 1,243 5,610 -
Stockholders' equity 26,011 25,510 18,120 6,927 35,170
Book value per share $ 0.54 $ 0.54 $ 0.39 $ 0.17 $ 1.16
(1) Restated to reflect a $1.6 million prior period adjustment.
51
SCHEDULE II
CONCURRENT COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES (a) OTHER OF YEAR
- ---------------------------------- ----------- ------------ ------------ ----------- --------
Reserves and allowances deducted
From asset accounts:
1999
- -----------
Reserve for inventory obsolescence
and shrinkage $4,600 $1,087 $(1,119) - $4,568
Allowance for doubtful accounts 503 19 (104) - 418
1998
- -----------
Reserve for inventory obsolescence
and shrinkage $4,793 - $(193) - $4,600
Allowance for doubtful accounts 913 (140)(c) (258) (12)(b) 503
1997
- -----------
Reserve for inventory obsolescence
and shrinkage $10,677 - $(1,641) $(4,243)(d) $4,793
Allowance for doubtful accounts 1,143 320 (550) - 913
(a) Charges and adjustments to the reserve accounts for write-offs and credits
issued during the year.
(b) Includes adjustments to the reserve account and allowance for doubtful
accounts for foreign currency translation.
(c) Includes reversal of excess reserve due to improved collections. Decrease
in the reserve due to transfer of spares and goods-on-loan inventory and
the related reserves to property, plant and equipment and accumulated
depreciation, respectively, due to a change in
(d) accounting policy.
52