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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
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, 1997
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)
2101 WEST CYPRESS CREEK ROAD, FORT LAUDERDALE, FLORIDA 33309-1892 (954)
974-1700
(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 19, 1997, there were 46,544,808 shares of Common Stock
outstanding. The aggregate market value of shares of such Common Stock (based
upon the last sale price of $2.6875 of a share as reported for September 22,
1997 on the NASDAQ National Market System) held by non-affiliates was
approximately $124,644,980.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement to be dated October 1,
1997 in connection with Registrant's 1997 Annual Meeting of Stockholders
scheduled to be held on October 30, 1997 are incorporated by reference in Part
III hereof.
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS Concurrent Computer Corporation
("Concurrent" or the "Company") is a supplier of high-performance real-time
computer systems, software and services. 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, interactive video-on-demand, multimedia and mission critical data
services such as financial market information.
The Company was incorporated in Delaware in 1981 under the name
Massachusetts Computer Company.
On June 27, 1996, pursuant to a negotiated agreement, Concurrent acquired
the assets of the Real-Time Division of Harris Computer Systems Corporation
("HCSC") and 683,178 newly-issued shares of HCSC, which was renamed CyberGuard
Corporation, in exchange for 10,000,000 shares of Common Stock of Concurrent,
1,000,000 shares of convertible exchangeable preferred stock of Concurrent
with a 9% cumulative annual dividend payable quarterly in arrears and a
mandatory redemption value of $6,263,000, and the assumption of certain
liabilities relating to the HCSC Real-Time Division (the "Acquisition"). The
issuance of the shares in connection with the Acquisition was approved by a
special meeting of shareholders held on June 26, 1996. The Company believes
that the Acquisition offered a number of significant strategic and financial
benefits to Concurrent and its shareholders, as well as its employees and
customers. These benefits include an enhanced competitive position through
the combination of the best of both technologies of the two businesses; a
larger and more diverse market coverage; significant cost savings primarily
obtained through headcount reductions, as well as facilities cost reductions
through the integration of corporate management and administrative functions,
the consolidation of production and research and development facilities and
the consolidation of sales and service offices.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company considers
its products to be one class of products which accounted for 51.4%, 44.3% and
51.4% of total revenues in the 1997, 1996 and 1995 fiscal years, respectively.
Service and other operating revenues (including maintenance, support and
training) accounted for 48.6%, 55.7% and 48.6% of total revenues in the 1997,
1996 and 1995 fiscal years, respectively.
Financial information about the Company's foreign operations is included
in Note 11 to the consolidated financial statements included herein. The
Company's Tokyo-based subsidiary, a joint venture with Nippon Steel
Corporation, provides for marketing and sales in the Japanese market and
accounted for approximately $6.0 million in net sales (5.6%) for the 1997
fiscal year. The Company and Nippon Steel Corporation consider the renewal of
the joint venture agreement on an annual basis. The agreement has been
renewed through June 30, 1998.
(C) NARRATIVE DESCRIPTION OF BUSINESS
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 nearly 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 sales offices, distributors and strategic
alliances to end-users, as well as to original equipment manufacturers,
systems integrators and value-added resellers. End uses of the Company's
systems include product design and testing; simulation and training systems;
engine test; range and telemetry systems; servers for interactive real time
applications, such as interactive video-on-demand and wagering and gaming;
power plant control and simulation; 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 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
open-system computing platforms.
Markets
Concurrent focuses its business on the following strategic target
markets: simulation; data acquisition; instrumentation and process control;
interactive video-on- demand and real-time software. 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, scenario
trainers for battle management, mission planning and rehearsal, engineering
design simulation for avionics and automotive labs and modeling systems for
war gaming and synthetic environments. 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.
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, Doppler weather radar, and numerical weather prediction.
For example, the Company provides the computer systems which power the
computing requirements for the Department of Commerce's Next Generation Radar
(NEXRAD) weather program and Terminal Doppler Weather Radar (TDWR) systems for
use in determining wind shear activity. Other customers typical of this
market include Lockheed Martin Corporation on the Navy's Aegis systems and
NASA for the Atlas Centaur Vehicle.
Instrumentation and Process Control. 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
Pratt & Whitney for jet engine test, Weyerhauser for factory automation, Ford
Motor Company for instrumentation, and Nissin (Japan) for SCADA.
Interactive Video-On-Demand. Concurrent is pursuing an emerging growth
market in which it believes its interactive, time critical video-on-demand
capabilities provide a unique advantage. The Company has identified five
segments of this market for which it believes its capabilities are
particularly well-suited: the hospitality industry, residential markets,
intranet video systems, video information management systems, and in-flight
entertainment. Concurrent's strategy is to position itself as a supplier of
servers and server technology for Interactive Video-On-Demand (IVOD)
applications which require reliable delivery of multiple interactive streams
of high quality video.
In addition, Concurrent is a leading provider of systems for the wagering
and gaming industry. Concurrent has provided the processing systems for the
wagering and gaming industry's largest provider of public lottery systems, the
majority of tabulator (off-track betting) systems in Australia and
Asia/Pacific and for large scale casino systems such as Keno.
Real-time Software. Concurrent has ported its real-time software and
tools to the Motorola PowerPC computers. This allows the Company to offer a
low-end solution to customers who want to design their own solution instead of
purchasing an integrated solution from the Company.
Series 3200 Systems Installed Base. Concurrent's reputation in the
industry has historically been attributable to its proprietary real-time
computing systems. Now in their fifth generation, these proprietary systems
meet customers' needs in extremely demanding real-time environments. Many of
the applications using the Series 3200 systems are unique with long life
cycles and "mission critical" demands and are the result of a significant
investment in application software by the customer. The Company is committed
to continuing to meet the needs of its 3200 customer base.
Products and Services
The Company considers its products and services a total package to
provide complete value-added real-time solutions. The Company offers two
types of systems, open and proprietary, as well as Traditional Services and
Professional Services.
PowerWorks , 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.
This unique and comprehensive real-time technology package can be
purchased for a wide range of PowerPC 604 platforms. At the high end,
Concurrent provides the optimum real-time platform with its Night Hawk
products. The Company's PowerMaxion is the industry's only 6U VME based
symmetrical multi-processor (SMP). The Power Hawk is a VME based system that
provides up to 15 "loosely coupled" Motorola processors. The Company's
PowerStack provides desk top convenience and augments the graphics
capabilities of the Night Hawk and the PowerMaxion. PowerWorks is also
available on disk to customers with large volume and flexible purchasing
needs. The MediaHawk product utilizes the VME-based systems of 15 loosely
coupled Motorola processors integrated with the Company's MediaHawk software.
OPEN SYSTEMS PRODUCT LINE
POWERWORKS - POWERPC 604
MAX. NO.
MODEL OF CPUS PRICE RANGE
- -------------------- -------- ------------
TurboHawk 12 $40K - $500K
Night Hawk 6800 8 $40K - $500K
PowerMaxion 8 $40K - $400K
Power Hawk 15 $15K - $400K
MediaHawk 15 $20K - $800K
PowerStack 1 $ 15K
Software Stand Alone N/A $ 3K - $40K
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 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 revenues 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 resident service, and
preventive maintenance. The Company routinely offers long-term service and
support of its products for as long as fifteen to twenty years.
Professional Services and Custom Engineering. 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 competitor's 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 Customer Engineering effort may be small in
comparison to total revenues, increased customer satisfaction is an integral
part of the business plan of the Company.
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 an enhanced 6000 and new TurboHawk Series of NightHawk
and PowerMaxion computers, integrating expected future versions of the IBM
PowerPC microprocessor chip. The Company has also implemented a new
technology road map which combines the best technologies of its NightHawk and
MAXION product lines. The Company has delivered a unique balance of
supporting industry standards while providing innovative superiority in key
architectural issues.
The Company introduced the MediaHawk in fiscal year 1997. This system,
which is targeted for the IVOD market, utilizes commercial hardware and,
combined with the Company's market-leading software, provides the leading
price/performance system in the market. Concurrent intends to continue to
develop this product line to provide additional software functionality that is
tailored to customer requirements in the targeted market segments.
Sales and Service
The Company sells its systems in key markets worldwide through direct
field sales and services offices, as well as through value-added resellers
(VARs), distributors and systems integrators. The Company does not believe
the loss of any particular distributor 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, particularly its
proprietary systems, is an important element in Concurrent's business strategy
and generates significant revenue and cash flow to the Company. Total service
revenues in fiscal year 1997 were approximately $52.7 million (48.6% 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 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, has accounted for 10% or more of
Concurrent's net sales in the three fiscal years ended June 30, 1997. For the
1997 fiscal year, approximately $27.7 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 26% of the Company's
worldwide revenues, compared to 23% and 28% for the 1996 and 1995 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 (e.g., several agencies
participate under the NEXRAD program). Sales to Unisys Corp., as prime
contractor, under the NEXRAD program are considered sales to the U.S.
Government. The NEXRAD program contributed approximately $0, $0.7 and $17.5
million in revenues in fiscal years 1997, 1996 and 1995, respectively. In an
effort to reduce total program costs, sales of spare parts by Concurrent under
the program are now being made directly to the Government. The program is
completed and no significant revenue is planned for future periods. U.S.
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 researching and
utilizing the latest available hardware and software computer technology.
Concurrent invested $13.6 million in fiscal year 1997, and combined with
HCSC,on a proforma basis, $19.0 million in fiscal year 1996, and $26.0 million
in fiscal year 1995, in research and development. Research and development
investment was made across all of Concurrent's key technology areas for both
open and proprietary systems. New networking products, graphics, data
acquisition sub-systems, enhancements to the proprietary OS/32 and UNIX-based
operating systems, and the 6000 Series NightHawk Series open systems, as well
as the MediaHawk resulted from this investment. Although in terms of absolute
dollar amounts total research and development investment has declined over the
past several years, the Company expects a greater return on its total research
and development investment for two reasons. First, research and development
investment is focused solely on products and applications for its target
markets. Second, the Company's increasing use of joint research and
development and technology sharing arrangements is expected to leverage the
Company's investment in research and development. The Company's strategy is
to acquire or co-develop technology when the market requires parity with
competitive technology and to develop technology internally when market
leadership is possible. This strategy is expected to give the Company greater
flexibility in meeting the technology requirements of its customers and to
allow it to provide increasingly higher performance products by focusing its
research and development resources where it can add the most value.
Manufacturing Operations
The Company's manufacturing operations are currently located at its Ft.
Lauderdale, Florida facility. Manufacturing operations occupy approximately
60,000 square feet of the Ft. Lauderdale facility. During the second quarter
of fiscal year 1998, the Company plans to move its manufacturing operations
to a 40,000 square foot facility about one-half mile from the present
facility. The Company recently sold its Oceanport, New Jersey facility for
$5.5 million and entered into a three-year agreement to lease back 25,000
square feet as a repair center for its 3200 Series systems. Utilization of
manufacturing capacity was approximately 40% based on a limited two shift
operation in fiscal year 1997. The Company leases its Ft. Lauderdale
facility from Calvary Chapel pursuant to a lease which expires December 1999.
Management believes that the manufacturing capacity available at its existing
and future facilities could be significantly increased (with minimal capital
spending) to meet increased manufacturing requirements either by raising the
utilization 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, which has resulted
in significant cost savings. The Company's manufacturing operations are now
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 test usually occur 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, components are being purchased by the Company from a single
supplier to obtain the required technology. The Company depends on the
availability of various key components, such as processors, memory, and asics,
in the manufacturing of its OS/32, Maxion, NightHawk 5800, 6800 and
PowerMaxion series computers. For its current and next generation PowerMaxion
computer systems, the Company will depend on the availability of PowerPC
microprocessors chips from both IBM and Motorola. 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
circuits without the appropriate lead time would result in a delay in
shipments of certain products. Since revenue is recognized upon shipments,
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 market 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. 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 Digital Equipment 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., Stratus Computer, Inc., and Tandem Computers, Inc.; (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. 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, 1997, the Company employed approximately 580 employees
worldwide, of whom approximately 400 were employed in the United States,
compared to approximately 900 and 825 employees worldwide at June 30, 1996 and
1995, respectively. The Company's employees are not unionized. The Company
has developed a restructuring plan which contemplates reduction of total
headcount to approximately 550 employees by the end of the second quarter of
fiscal year 1998.
Backlog
Generally, the Company records in "backlog" computer orders which it is
anticipated will be shipped during the subsequent six months or, where special
engineering is required, in the subsequent twelve months. The backlog of
unfilled computer systems orders was approximately $1.0 million on June 30,
1997, compared to approximately $12.0 million a year earlier. 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 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 Ft. Lauderdale 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, 1997, 1996 and 1995,
respectively, is presented at Note 11 to the financial statements of the
Registrant included herein.
ITEM 2. PROPERTIES
Listed below are Concurrent's principal facilities as of June 30, 1997.
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 Fort Lauderdale, Florida manufacturing facility has more
than sufficient capacity to meet the Company's projected manufacturing
requirements. The Company plans to move its Ft. Lauderdale manufacturing
operations to another Southern Florida location in the second quarter of
fiscal year 1998.
APPROX. FLOOR
OWNED EXPIRATION AREA
LOCATION PRINCIPAL USE OR LEASED DATE OF LEASE (SQ. FEET)
- ---------------------------- ------------------------ ---------- ------------- --------------
2101 West Cypress Creek Road Corporate Headquarters, Leased December 1999 100,000 (1)
Fort Lauderdale, Florida Sales and Service,
Marketing, Manufacturing
N/A
2 Crescent Place Repair and Service Depot Owned (2)
Oceanport, New Jersey 285,000
227 Bath Road Sales/Research & Leased 1998
Slough, Berkshire, England Development 36,000
(1) The Company plans to reduce square footage subject of this lease to approximately 55,000
square feet in December 1997 and to relocate its manufacturing operations pursuant to a lease for
40,000 square feet for a term expiring in December 1999.
(2) The Company sold this facility in July 1997 and agreed to lease back 25,000 square feet
to be used as a repair center for its 3200 Series systems for a term expiring in July 2000.
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.
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 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. The Company is
currently involved in one such investigation and is cooperating with the
representatives of the responsible government agencies. Management does not
believe that the outcome of this investigation will have a material adverse
effect on the financial position or the business of the Company.
There are no material legal proceedings pending to which the Company or
any of its subsidiaries is a party or to which any of the Company's or any of
its subsidiaries' property is subject. 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. No material legal proceedings were
terminated during the fourth quarter of the fiscal year ended June 30, 1997.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
Executive 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 executive officers as of September 25, 1997:
NAME POSITION AGE
- ------------------ ----------------------------------------------------- ---
E. Courtney Siegel Director, President and Chief Executive Officer 47
Daniel S. Dunleavy Executive Vice President, Chief Financial Officer and 44
Chief Administrative Officer
George E. Chapman Vice President, International Operations 63
Robert E. Chism Vice President, Development 44
Karen G. Fink Vice President, General Counsel and Secretary 41
Fred R. Lee Vice President, Production Operations & Logistics 69
Robert T. Menzel Vice President, Real-Time Systems 44
Michael N. Smith Vice President, Video-On-Demand 44
E. COURTNEY SIEGEL. DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER.
Mr. Siegel was elected to this position in June 1996. He previously served as
Chairman, President and Chief Executive Officer of Harris Computer Systems
Corporation (renamed CyberGuard Corporation) since October 1994. 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.
DANIEL S. DUNLEAVY. EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
CHIEF ADMINISTRATIVE OFFICER. Mr. Dunleavy was elected Executive Vice
President in June 1997. He has served as Vice President, Chief Financial
Officer and Chief Administrative Officer since June 1996. He previously
served in the same position with Harris Computer Systems Corporation (renamed
CyberGuard 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 is 1978, Mr. Dunleavy served
in various positions of increasing responsibility including Controller of the
Harris Computer Systems Division from 1988 until 1991.
GEORGE E. CHAPMAN. VICE PRESIDENT, INTERNATIONAL OPERATIONS. Mr. Chapman was
elected to this position in November 1994. Since that time, Mr. Chapman has
also had responsibility for North American Sales as Vice President, Worldwide
Sales from February through June 1997 and as Vice President, Field Operations
from January through June 1996. He previously served as Vice President,
Marketing from January 1994 to November 1994. He joined Concurrent in 1992 as
Director, Business Development for Weather and Airspace Management. In 1988,
after retiring as a Brigadier General from the United States Air Force, he
joined Lockheed Corporation's Austin Division as Senior Staff Engineer working
toward the worldwide commercial application of high technology systems
developed for the U.S. Government. In December 1989, he received an
appointment as Executive Director to the newly legislated Texas Workers
Compensation Commission. His career with the U.S. Air Force spanned 36 years,
with the last six years devoted to leadership of a 5,000 person organization
responsible for the long-range technology, investment and training
requirements for the nation's weather prediction and warning capability
supporting U.S. forces throughout the world.
ROBERT E. CHISM. VICE PRESIDENT, DEVELOPMENT. Mr. Chism was elected to this
position in June 1996. He previously served as Vice President, Technical and
Production Operations of Harris Computer Systems Corporation (renamed
CyberGuard Corporation) since October 1994. 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.
KAREN G. FINK. VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Ms. Fink was
elected to this position in July 1996. She joined the Company from Harris
Corporation where she served since 1985, most recently as Counsel and
Assistant Secretary. Prior to that time, Ms. Fink was associated with the law
firm of Seward & Kissel.
FRED R. LEE. VICE PRESIDENT, PRODUCTION OPERATIONS AND LOGISTICS. Mr. Lee
was elected to this position in June 1996. He previously served as President
of TQM TRACKS, INC., a privately held management services company since its
inception in 1990. From 1984 to 1990, Mr. Lee served as Director - Operations
of Rockwell International Corporation. He served in various positions over a
twenty-nine year period at General Dynamics Electronics, from which he retired
in 1984 as Vice President, Production.
ROBERT T. MENZEL. VICE PRESIDENT, REAL-TIME SYSTEMS. Mr. Menzel was elected
to this position in 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 (renamed CyberGuard
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.
MICHAEL N. SMITH. VICE PRESIDENT, VIDEO-ON-DEMAND. Mr. Smith was elected to
this position in June 1997. 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 (renamed CyberGuard 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 1997
Quarter Ended:
September 30, 1996 2 7/16 2 3/16
December 28, 1996 2 1 25/32
March 29, 1997 2 5/16 2 5/32
June 30, 1997 1 27/32 1 7/16
Fiscal Year 1996
Quarter Ended:
September 30, 1995 2 7/8 1 7/16
December 31, 1995 2 25/32
March 31, 1996 1 7/8 3/4
June 30, 1996 3 23/32 1 5/8
As of September 19, 1997, there were 46,544,808 shares of Common Stock
outstanding, held of record by approximately 2,264 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 15 of Notes to Consolidated Financial Statements.)
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data
for Concurrent are attached.
PAGE
----
Independent Auditors' Reports 21
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995 23
Consolidated Balance Sheets as of June 30, 1997 and 1996 24
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995 25
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1997, 1996 and 1995 26
Notes to Consolidated Financial Statements 27
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 26, 1996.
There have been no disagreements with the independent accountants on
accounting and financial disclosure matters.
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, 1997 in connection with its Annual Meeting of Stockholders to be held on
October 30, 1997 ("Registrant's 1997 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 1997 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 "Management".
(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 1997 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 1997 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 1997 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 1997 Proxy Statement.
(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 1997 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 1997 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' Reports
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1997, 1996 and 1995
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.
(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)
*10.1(a) 1991 Restated Stock Option Plan. (g)
*10.1(b) Amendment No. 1 to 1991 Restated Stock Option Plan. (g)
*10.1(c) Amendment to 1991 Restated Stock Option Plan dated May 13, 1996. (a)
*10.2(a) Form of Employment Agreement between the Company and its executive officers. All
agreements contain substantially the same terms other than annual base salary and annual
target bonus percentage. (h)
*10.2(b) Employment Agreement dated as of March 25, 1996 between the Company and E.
Courtney Siegel. (i)
*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. (j)
*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.
10.4(a) Third Amended and Restated Credit Agreement dated June 29, 1995 among the Company
and the banks named therein. (k)
10.4(b) First Amendment to Third Amended and Restated Credit Agreement.
10.5 AT&T Information Systems Sublicensing Agreement. (b)
10.6(a) Loan and Security Agreement dated June 29, 1995 between the Company and the lender
named therein. (k)
10.6(b) Amended and Restated Amendment No. 1 to Loan and Security Agreement dated October
17, 1995. (i)
10.6(c) Amendment No. 2 to Loan and Security Agreement dated October 12, 1995. (i)
10.6(d) Amendment No. 3 to Loan and Security Agreement dated December 6, 1995. (i)
10.6(e) Amendment No. 4 to Loan and Security Agreement dated January 25, 1996. (i)
10.6(f) Amendment No. 5 to Loan and Security Agreement dated February 16, 1996. (i)
10.6(g) Amendment No. 6 to Loan and Security Agreement dated February 27, 1996. (i)
10.6(h) Amendment No. 7 to Loan and Security Agreement dated April 26, 1996. (i)
10.6(i) Amendment No. 8 to Loan and Security Agreement dated June 11, 1996. (i)
10.6(j) Amendment No. 9 to Loan and Security Agreement dated June 27, 1996. (i)
10.6(k) Amendment No. 10 to Loan and Security Agreement dated August 28, 1996. (i)
10.6(l) Amendment No. 11 to Loan and Security Agreement dated September 19, 1996. (l)
10.6(m) Amendment No. 12 to Loan and Security Agreement dated October 21, 1996. (m)
10.6(n) Amendment No. 13 to Loan and Security Agreement dated November 5, 1996. (m)
10.6(o) Amendment No. 14 to Loan and Security Agreement dated January 15, 1997. (n)
10.6(p) Amendment No. 15 to Loan and Security Agreement dated April 4, 1997. (n)
11 Statement re: computation of per share earnings.
21 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
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 Notice of 1991 Annual Meeting of Stockholders and Proxy
Statement, dated January 10, 1992.
(h) 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.
(i) Incorporated herein by referenced to Exhibit 10 of Item 14 of the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996.
(j) 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).
(k) 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, 1995.
(l) Incorporated herein by reference to Exhibit Number 10 of Item 14 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1996.
(m) Incorporated herein by reference to Exhibit Number 10 of Item 14 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended December 28, 1996.
(n) Incorporated herein by reference to Exhibit Number 10 of Item 14 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 29, 1997.
REPORTS ON FORM 8-K.
None.
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
Executive Vice President, Chief Financial Officer and
Chief Administrative Officer
Date: September 25, 1997
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 Director, President and Chief Executive Officer
- --------------------- (Principal Executive Officer)
E. Courtney Siegel
/s/DANIEL S. DUNLEAVY Executive Vice President, Chief Financial Officer
- ---------------------- and Chief Administrative Officer
Daniel S. Dunleavy (Principal Financial and Accounting Officer)
/s/MICHAEL A. BRUNNER Director
- -----------------------
Michael A. Brunner
/s/C. FORBES DEWEY, JR. Director
- -----------------------
C. Forbes Dewey, Jr.
/s/MORTON E. HANDEL Chairman of the Board, Director September 25, 1997
- ---------------------
Morton E. Handel
/s/C. SHELTON JAMES Director
- ---------------------
C. Shelton James
/s/MICHAEL F. MAGUIRE Director
- -----------------------
Michael F. Maguire
/s/RICHARD P. RIFENBURGH Director
- ------------------------
Richard P. Rifenburgh
/s/ROBERT R. SPARACINO Director
- ------------------------
Robert R. Sparacino
CONCURRENT COMPUTER CORPORATION
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED JUNE 30, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Concurrent Computer Corporation:
We have audited the accompanying consolidated balance sheet of Concurrent
Computer Corporation and subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. In connection with our audit of the consolidated
financial statements, we also have audited the financial statement schedule
for the year ended June 30, 1997, as listed in Item 14(a)(2) of the Company's
1997 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 audit. The
consolidated financial statements of Concurrent Computer Corporation and
subsidiaries as of and for the year ended June 30, 1996, prior to their
restatement for the prior period adjustment described in Note 18 to the
consolidated financial statements, and for the year ended June 30, 1995, were
audited by other auditors whose report dated August 12, 1996, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audit provides 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, 1997, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the year ended June 30, 1997, when considered
in relation to the basic 1997 consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We have also audited the adjustments described in Note 18 that were applied to
restate the 1996 consolidated financial statements. In our opinion, such
adjustments are appropriate and have been properly applied.
KPMG PEAT MARWICK LLP
September 5, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors
of Concurrent Computer Corporation
We have audited the accompanying consolidated balance sheet of Concurrent
Computer Corporation (the "Company") as of June 30, 1996, and the related
consolidated statements of operations, shareholders' equity (deficiency) and
cash flows for the year ended June 30, 1996 (not presented herein), and the
accompanying consolidated statements of operations, shareholders' equity
(deficiency) and cash flows of the Company for the year ended June 30, 1995.
In addition, we have audited the financial statement schedules for the years
ended June 30, 1996 and 1995 as listed in Item 14(a) of the Company's Annual
Report on Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Concurrent
Computer Corporation as of June 30, 1996, and the consolidated results of
their operations and their cash flows for the years ended June 30, 1996 and
1995, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to
be included therein.
/s/COOPERS & LYBRAND L.L.P.
------------------------------
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
August 12, 1996
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
-------------------------------
1997 1996 (1) 1995
--------- --------- ---------
Net sales:
Computer systems $ 55,664 $ 42,430 $ 72,074
Service and other 52,703 53,370 68,070
--------- --------- ---------
Total 108,367 95,800 140,144
Cost of sales:
Computer systems 27,662 27,487 38,639
Service and other 28,426 33,048 40,838
Transition 1,068 - -
--------- --------- ---------
Total 57,156 60,535 79,477
Gross margin 51,211 35,265 60,667
--------- --------- ---------
Operating expenses:
Research and development 13,577 13,837 19,464
Selling, general and administrative 28,604 29,818 36,921
Provision for restructuring - 24,480 3,200
Transition expense 2,292 - -
Sales and use tax credit - - (1,000)
Curtailment gain on postreturement benefit obligation (2,501) - -
Total operating expenses 41,972 68,135 58,585
--------- --------- ---------
Operating income (loss) 9,239 (32,870) 2,082
Interest expense (2,034) (2,316) (2,638)
Interest income 164 226 513
Other non-recurring charges - (3,297) (1,000)
Realized and unrealized loss on CyberGuard stock (1,577) - -
Other income (expense) - net (350) (1,502) 737
--------- --------- ---------
Income (loss) before provision for income taxes 5,442 (39,759) (306)
Provision for income taxes 1,381 1,550 1,700
--------- --------- ---------
Net income (loss) 4,061 (41,309) (2,006)
Preferred stock dividends and accretion of
mandatory redeemable preferred shares (311) - -
--------- --------- ---------
Net income (loss) available to common stockholders $ 3,750 $(41,309) $ (2,006)
========= ========= =========
Net income (loss) per share $ 0.08 $ (1.35) $ (0.07)
Weighted average number of shares 45,112 30,568 30,095
========= ========= =========
(1) Restated to reflect a prior period adjustment (see Note 18).
The accompanying notes are an integral part of the consolidated financial
statements.
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, JUNE 30,
1997 1996 (1)
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,024 $ 3,562
Trading securities 2,718 10,077
Accounts receivable, less allowance for doubtful
Accounts of $913 and $1,143 in 1997 and 1996, respectively 25,720 27,807
Inventories 8,399 11,683
Prepaid expenses and other current assets 2,286 2,384
---------- ----------
Total current assets 43,147 55,513
Property, plant and equipment - net 14,207 16,453
Facilities held for disposal 4,700 4,700
Other long-term assets 1,474 3,407
---------- ----------
Total assets $ 63,528 $ 80,073
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,399 $ 5,013
Current portion of long-term debt 1,668 1,241
Revolving credit facility 3,118 5,014
Accounts payable and accrued expenses 23,866 40,638
Deferred revenue 4,402 4,573
---------- ----------
Total current liabilities 38,453 56,479
Long-term debt 4,493 6,603
Other long-term liabilities 1,219 4,454
---------- ----------
Total liabilities 44,165 67,536
---------- ----------
Class B 9% cumulative, convertible, redeemable, exchangeable preferred
Stock, mandatory redemption value of $1,378,000 and $6,263,000 at June 30,
1997 and 1996, respectively; $.01 par value per share 1,000,000 authorized;
220,000 and 1,000,000 issued and outstanding at June 30, 1997 and 1996,
respectively 1,243 5,610
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;
46,102,872 and 41,223,610 issued at June 30, 1997 and 1996, respectively 461 412
Capital in excess of par value 92,650 84,252
Accumulated deficit after eliminating accumulated deficit
of $81,826 at December 31, 1991, date of quasi-reorganization (74,587) (78,337)
Treasury stock, at cost; 840 shares (58) (58)
Cumulative foreign currency translation adjustment (346) 658
---------- ----------
Total stockholders' equity 18,120 6,927
---------- ----------
Total liabilities and stockholders' equity $ 63,528 $ 80,073
========== ==========
(1) Restated to reflect a prior period adjustment (see Note 18).
The accompanying notes are an integral part of the consolidated financial
statements.
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30,
1997 1996 (1) 1995
--------- --------- ---------
Cash flows provided by operating activities:
Net income (loss) $ 4,061 $(41,309) $ (2,006)
Adjustments to reconcile net income (loss)
to net cash provided by (used by) operating activities:
Unrealized loss on CyberGuard stock 2,334 - -
Realized gain on CyberGuard stock (757) - -
Depreciation and amortization 5,177 11,067 12,284
Other non-cash expenses 1,404 5,117 5,787
Provision for restructuring - 24,480 3,200
Other non-recurring charge - 3,297 1,000
Sales and use tax credit - - (1,000)
Decrease (increase) in current assets:
Accounts receivable 2,087 6,086 10,431
Inventories 3,917 (157) (2,044)
Prepaid expenses and other current assets (29) 555 998
Decrease in current liabilities, other than debt obligations (16,714) (6,104) (18,017)
Decrease in other long-term assets 1,879 880 599
Decrease in other long-term liabilities (3,235) (639) (1,983)
--------- --------- ---------
Total adjustments to net income (loss) (3,937) 44,582 11,255
--------- --------- ---------
Net cash provided by operating activities 124 3,273 9,249
--------- --------- ---------
Cash flows provided by (used by) investment activities:
Net additions to property, plant and equipment (2,510) (2,513) (5,140)
Proceeds from sale of facility - 2,300 -
Acquisition of business, net of cash received and non-cash transactions - (2,980) -
Proceeds from sale of trading securities 5,782 - -
Net cash provided by (used by) investing activities 3,272 (3,193) (5,140)
--------- --------- ---------
Cash flow provided by (used by) financing activities:
Net proceeds (payments) of notes payable 386 (99) (100)
Repayment of debt (3,579) (3,915) (23,395)
Issuance of debt - - 15,761
Proceeds from sale and issuance of common stock 1,263 1,031 150
--------- --------- ---------
Net cash used by financing activities (1,930) (2,983) (7,584)
Effect of exchange rates changes on cash and cash equivalents (1,004) 737 (171)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 462 (2,166) (3,646)
Cash and cash equivalents - beginning of year 3,562 5,728 9,374
--------- --------- ---------
Cash and cash equivalents - end of year $ 4,024 $ 3,562 $ 5,728
========= ========= =========
Cash paid during the year for:
Interest 2,255 1,931 2,256
Income taxes (net of refunds) 1,685 1,659 727
Non-cash investing/financing activities
Issuance of common stock - 10,111 -
Issuance of preferred stock - 5,610 -
Conversion of preferred stock 4,387 - -
Dividends on preferred stock 311 - -
(1) Restated to reflect a prior period adjustment (see Note 18).
The accompanying notes are an integral part of the consolidated financial
statements.
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
CUMULATIVE
FOREIGN
COMMON STOCK CAPITAL IN CURRENCY
------------------
PAR EXCESS OF ACCUMULATED TRANSLATION TREASURY STOCK
SHARES VALUE PAR VALUE DEFICIT ADJUSTMENT SHARES COST
---------- ------ ---------- --------- ------------ ------- ------
Balance at June 30, 1994 29,585,388 $ 296 $ 71,547 $(35,022) $ (1,715) (840) $ (58)
Sale of common stock under stock plans 85,358 1 149
Issuance of common stock under
retirement savings plan 368,823 3 762
Issuance of common stock under bonus plan 168,707 2 324
Other 30
Net loss (2,006)
Foreign currency translation adjustment 557
Quasi-reorganization related adjustments:
Utilization of net operating loss
carryforwards 300
---------- ------ ---------- --------- ------------ ------- ------
Balance at June 30, 1995 30,208,276 302 73,112 (37,028) (1,158) (840) (58)
Sale of common stock under stock plans 379,679 4 513
Issuance of common stock under
retirement savings plan 270,109 3 516
Issuance of common stock in connection
with acquisition of business, including
certain advisory fees 10,365,546 103 10,111
Net loss (39,712)
Foreign currency translation adjustment 360
---------- ------ ---------- --------- ------------ ------- ------
Balance at June 30, 1996, as previously reported 41,223,610 412 84,252 (76,740) (798) (840) (58)
Prior period adjustment (see Note 18) (1,597) 1,456
---------- ------ ---------- --------- ------------ ------- ------
Balance at June 30, 1996, as restated 41,223,610 412 84,252 (78,337) 658 (840) (58)
Sale of common stock under stock plans 1,064,981 11 1,252
Issuance of common stock under
retirement savings plan 629,847 6 1,271
Issuance of common stock for severance 1,234,434 12 1,508
Conversion of cumulative, convertible
redeemable exchangeable preferred stock 1,950,000 20 4,367
Net income 4,061
Dividends on preferred stock (311)
Foreign currency translation adjustment (1,004)
---------- ------ ---------- --------- ------------ ------- ------
Balance at June 30, 1997 46,102,872 $ 461 $ 92,650 $(74,587) $ (346) (840) $ (58)
========== ====== ========== ========= ============ ======= ======
TOTAL
---------
Balance at June 30, 1994 $ 35,048
Sale of common stock under stock plans 150
Issuance of common stock under
retirement savings plan 765
Issuance of common stock under bonus plan 326
Other 30
Net loss (2,006)
Foreign currency translation adjustment 557
Quasi-reorganization related adjustments:
Utilization of net operating loss
carryforwards 300
---------
Balance at June 30, 1995 35,170
Sale of common stock under stock plans 517
Issuance of common stock under
retirement savings plan 519
Issuance of common stock in connection
with acquisition of business, including
certain advisory fees 10,214
Net loss (39,712)
Foreign currency translation adjustment 360
---------
Balance at June 30, 1996, as previously reported 7,068
Prior period adjustment (see Note 18) (141)
---------
Balance at June 30, 1996, as restated 6,927
Sale of common stock under stock plans 1,263
Issuance of common stock under
retirement savings plan 1,277
Issuance of common stock for severance 1,520
Conversion of cumulative, convertible
redeemable exchangeable preferred stock 4,387
Net income 4,061
Dividends on preferred stock (311)
Foreign currency translation adjustment (1,004)
---------
Balance at June 30, 1997 $ 18,120
=========
The accompanying notes are an integral part of the consolidated financial
statements.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW OF THE BUSINESS
Concurrent Computer Corporation ("Concurrent" or the "Company"),
headquartered in Ft. Lauderdale, Florida, is a leading supplier of
high-performance, real-time computer systems and services. A real-time system
is one specially designed to acquire, process, store and display large amounts
of rapidly changing information in real time with microsecond response as
changes occur. Concurrent sells its systems in strategic target markets
worldwide, primarily through direct field sales and service offices. Such
target markets include simulation; data acquisition; instrumentation and
process control; interactive real time (includes video on demand, multimedia,
wagering and gaming) and telecommunications. The Company operates in 28
countries worldwide. It provides sales and support from offices 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
majority-owned domestic and foreign subsidiary companies. 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
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 (losses) on foreign currency transactions of $138,000, ($934,000),
and $175,000 for the fiscal years ended June 30, 1997, 1996 and 1995,
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
The Company's investments, other than those considered cash equivalents,
are considered 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, any unrealized holding gains and losses are included as a
component of the statement of operations. Market values of the securities are
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.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 (hardware and software, including bundled
software) are recorded when the earnings process is complete, typically upon
shipment to customers. Service contract revenue related to hardware and
software 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.
Revenue from long-term development contracts is accounted for by the
percentage of completion method whereby income is recognized based on the
estimated stage of completion of individual contracts using costs incurred as
a percentage of total estimated costs at completion. Losses on long-term
contracts are recognized in the period in which such losses are determined.
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.
Capitalized Software
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed", the Company commences
capitalization of software development and production costs upon the
achievement of technological feasibility and ceases capitalization upon the
achievement of customer availability. Such costs are amortized over the
greater of the ratio of the product's current to total revenue stream or the
straight-line method over its estimated useful life. Such amortization period
generally does not exceed three years. For the years ended June 30, 1997,
1996 and 1995, amortization expense relating to software development and
production costs which is included as a component of cost of sales amounted to
$29,000, $1,070,000, and $1,160,000, respectively.
During fiscal year 1997, fully amortized software was written off and no
software development and production costs were capitalized. Accumulated
amortization amounted to $0 and $2,261,000 at June 30, 1997 and 1996,
respectively. Capitalized software (net), included in other long term assets,
amounted to $0 and $29,000 at June 30, 1997 and 1996, respectively.
Research and Development
Research and development expenditures are expensed as incurred.
Income (loss) per Share
Income (loss) per share is computed by dividing income (loss) after
deduction of preferred stock dividends by the weighted average number of
common shares outstanding during each year for the period. In addition, for
those periods in which the Company is profitable, the weighted average number
of shares also includes common share equivalents. The number of shares used
in computing income (loss) per share were 45,111,921, 30,568,000 and
30,095,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
Impairment of Long-Lived Assets
On July 1, 1995, the Company adopted the provisions of SFAS No. 121
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed of" ("SFAS No. 121"). 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
adoption of this standard did not materially affect the Company's earnings,
financial condition or cash flows as this was essentially the same method used
in the past to measure and record asset impairments. The Company's fiscal
1996 provision for restructuring included the recognition of certain asset
impairments as a result of the Company's restructuring plans.
Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal
income tax return. 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.
Stock-Based Compensation
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", 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
exercise price. During fiscal year 1997, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation", which 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 income and pro forma earnings per share disclosures (which for the Company
would include employee stock option grants made in fiscal year 1996 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.
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.
In fiscal year 1995, the Company recorded a sales and use tax credit of
$1.0 million, or $.03 per share, related to a change in the estimate of state
sales and use tax reserves based on a final state audit determination.
Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform with the 1997 presentation.
3. ACQUISITION
On June 27, 1996 Concurrent acquired the assets of the Real-Time Division
of CyberGuard Corporation, formerly 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 fair value of $5.6
million); 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 has been 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.
In connection with the Acquisition, the Company recorded a $1.4 million
liability for the estimated costs of exiting certain activities of the
acquired business and the cost of termination benefits for employees of the
acquired business. This liability included the estimated costs for workforce
reductions (including the termination of approximately ten employees), office
closings and other related costs which represented approximately 45%, 45% and
10% of the provision, respectively.
The assets acquired and liabilities assumed as a result of the
Acquisition, after eliminating the excess of acquired net assets over cost by
allocating such excess to reduce proportionately the values assigned to
non-current assets, were as follows:
(DOLLARS IN THOUSANDS)
-----------------------
Cash 420
Trading Securities 10,077
Accounts receivable 9,695
Inventories 3,785
Other current assets 110
Property, plant and equipment 921
Other assets 376
Accounts payable and accrued liabilities (6,674)
-----------------------
Total - net $ 18,710
=======================
The value assigned to trading securities reflects the acquisition of
683,173 shares of CyberGuard common stock at the market price per share on the
date of the Acquisition of $14.75 per share. During fiscal year 1997, 377,995
shares were sold leaving 305,178 shares at June 30, 1997 valued at $2.7
million or $8.91 per share. The market value of this asset is subject to
changes in the market price of CyberGuard stock. The amount the Company will
ultimately realize from any disposition of these securities could differ
materially from the amount reflected in the June 30, 1997 consolidated balance
sheet.
Transition expenses include charges for costs associated with the
combination of Concurrent and the HCSC Real-Time Division.
The following unaudited pro forma financial information gives effect to
the Acquisition as if it had been consummated as of July 1, 1995 and 1994. In
accordance with generally accepted accounting principles, pro forma
adjustments related to the depreciation and amortization of assets, preferred
stock dividends, interest income and certain other adjustments are included in
the pro forma financial information. The pro forma financial
information is not necessarily indicative of the results of operations that
would have occurred had the Acquisition been in effect at the beginning of the
periods nor of the future results of operations of the combined companies.
YEAR ENDED JUNE 30,
---------------------
1996 1995
--------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales $133,871 $180,438
Net loss $(44,498) $ 8,102)
Net loss per share $ (1.10) $ (0.22)
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the Acquisition (see note 3), Concurrent issued
1,000,000 shares of newly issued Class B 9.00% Cumulative Convertible
Redeemable Exchangeable Preferred Stock ("Preferred Stock"). Each share of
Preferred Stock is 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. The
carrying value is increased to the redemption value by a change to
stockholders' equity ratably over the period from issue date to redemption
date. Cumulative dividends are accrued based on the preferred stock's stated
rate of 9.00% per annum. During fiscal year 1997, CyberGuard Corporation
converted 780,000 shares of Concurrent Preferred Stock into outstanding common
stock. At June 30, 1997, the Company had 220,000 shares of Preferred Stock
carried at $1.243 million with a current liquidation preference of $1.378
million. The stock is mandatorially redeemable on June 30, 2006 at
liquidation value.
5. PROVISION FOR RESTRUCTURING
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 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.
In October 1995, the Company's management approved a plan to restructure
its operations. In connection with this restructuring, the Company recorded a
$1.3 million provision. This plan provided for a reduction of approximately
55 employees worldwide and the downsizing or closing of certain office
locations, representing approximately 85% and 15% of this provision.
During the year ended June 30, 1996, the actual cash payments related to
the 1996 restructurings amounted to approximately $1.4 million and were
primarily related to employee termination costs. In the year ended June 30,
1997, cash expenditures related to this reserve were $9.6 million.
During the year ended June 30, 1995, the Company recorded a $3.2 million
restructuring provision in connection with its operational restructuring to
reduce its worldwide cost structure. The provision included workforce
reductions, office closings or downsizings and other related costs which
represented approximately 60%, 30% and 10% of the provision, respectively.
During the year ended June 30, 1996 actual cash payments related to the 1995
restructuring amounted to approximately $0.7 million.
On May 5, 1992 the Company had entered into an agreement with the
Industrial Development Authority (the "IDA") to maintain a presence in Ireland
through April 30, 1998. In connection with the Acquisition, the Company
closed its Ireland operations in December 1996. As a result of the closing,
the Company may be required to repay grants to the IDA. Current negotiations
with the IDA indicate that the potential liability is approximately $150,000
(100,000 Irish Pounds).
6. DEBT AND LINES OF CREDIT
On June 28, 1996, the Company entered into a new credit agreement
providing for a $19.9 million credit facility which matures August 1, 1999
(the "New Credit Agreement"). The facility includes a $7.2 million term loan
(the "Term Loan") and a $12.7 million revolving credit facility (the
"Revolver"). In addition, the Company is a guarantor for notes totaling $2.8
million in connection with Concurrent Nippon Corporation, a joint venture of
Concurrent Computer Corporation and Nippon Steel Corporation.
At June 30, 1997, the outstanding balances under the Term Loan and the
Revolver were $6.2 and $3.1 million, respectively. The entire outstanding
balance of the Revolver has been classified as a current liability at June 30,
1997. Both the Term Loan and the Revolver bear interest at the prime rate
plus 2.0%. The Term Loan is payable in 28 monthly installments of
approximately $139,000 each, commencing October 1, 1996 and ending January 1,
1999, with the final balance of approximately $3.3 million payable August 1,
1999. The Revolver may be repaid and reborrowed, subject to certain
collateral requirements, at any time during the term ending August 1, 1999.
The Company has pledged substantially all of its domestic assets as collateral
for the Term Loan and the Revolver. The Company may repay the Term Loan at
any time without penalty.
On July 7, 1997, the Company closed on the sale of its Oceanport, New
Jersey facility. Proceeds of $5.4 million were applied against the Company's
debt. Certain early termination fees apply if the Company terminates the
facility in its entirety prior to August 1, 1999.
The New Credit Agreement contains various covenants (for periods
subsequent to June 30, 1996) 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 on a periodic basis, the most
restrictive of which relate to the maintenance of collateral coverage and debt
coverage all as defined in the agreement. In addition, the New Credit
Agreement contains a subjective provision entitling the lender to accelerate
payments under the Term Loan and Revolver. At June 30, 1997, the Company was
in compliance with such covenants and restrictions.
The Company's foreign subsidiaries have certain bank borrowing
arrangements in local currencies which provide for borrowings of up to
$6,619,000 at prevailing rates of interest ranging from 0.90625% to 9.25% at
June 30, 1997. At June 30, 1997, $5,111,000 of demand notes were outstanding
under such arrangements of which $1,832,000 is guaranteed by the minority
shareholder in the Company's Japanese subsidiary and $2,843,000 is guaranteed
by the Company (one of these demand notes is not guaranteed by either the
Company or the minority shareholder). Foreign unused lines of credit can be
withdrawn at any time at the option of either the Company or the lending
institutions. The joint venture agreement with the Japanese subsidiary is to
expire on June 30, 1998. Management believes that this joint venture will be
renewed. There can be no assurance that the transaction will be completed as
contemplated.
Annual maturities of all the Company's debt (including $5,111,000 of
foreign demand notes) are as follows:
ANNUAL
MATURITIES
-----------------------
(DOLLARS IN THOUSANDS)
1998 10,185
1999 1,165
2000 3,328
-----------------------
Total $ 14,678
=======================
7. INVENTORIES
Inventories consist of:
JUNE 30,
--------
1997 1996
------ -------
(DOLLARS IN THOUSANDS)
Raw materials $5,823 $ 8,789
Work-in-process 2,191 352
Finished goods 385 2,542
------ -------
$8,399 $11,683
====== =======
At June 30, 1997, some portion of the Company's inventory was in excess
of the current requirements based upon the planned level of sales for fiscal
year 1998. Accordingly, the Company has recorded a provision for inventory
reserves of $4.8 million to reduce the value of the inventory to its estimated
net realizable value. There can be no assurance that the amounts the Company
will ultimately realize from the disposition of this inventory will not differ
materially from the reported amounts.
8. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-TERM ASSETS
Property, plant and equipment consists of:
JUNE 30,
--------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Land $ 529 $ 2,449
Buildings and leasehold improvements 2,820 3,015
Machinery, equipment and customer support spares 33,920 55,202
--------- ---------
37,269 60,666
Less: Accumulated depreciation (23,062) (44,213)
--------- ---------
$ 14,207 $ 16,453
========= =========
For the years ended June 30, 1997, 1996 and 1995, depreciation and
amortization expense for property plant and equipment amounted to $5,123,000,
$9,254,000, and $10,641,000, respectively.
In fiscal year 1996, the Company completed the sale of its Tinton Falls,
New Jersey facility. The net proceeds from this transaction amounted to
approximately $2.3 million. During the year and prior to the sale, the
Company recorded a non-recurring charge of $1.7 million to adjust the book
value of this facility to its estimated fair value of $2.3 million.
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 $6.8 million write down was included in the provision for
restructuring recorded in the quarter ended June 30, 1996 (see Note 5).
Subsequent to the end of the fiscal year, the sale was finalized. $5.5
million less closing costs of $0.1 million was received by the Company and
applied against the Company's debt. The Company realized a gain of $0.7
million with such sale that will be reflected in the statement of operations
of the first quarter of fiscal year 1998.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
JUNE 30,
--------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
Accounts payable - trade $ 7,451 $ 9,453
Accrued payroll, vacation and other
employee expenses 5,891 7,934
Restructuring costs 2,876 12,975
Other accrued expenses 7,648 10,276
------- -------
$23,866 $40,638
======= =======
10. INCOME TAXES
The domestic and foreign components of income (loss) before provision for
income taxes are as follows:
YEAR ENDED JUNE 30,
-------------------
1997 1996 (1) 1995
------ --------- --------
(DOLLARS IN THOUSANDS)
United States $3,202 $(35,588) $(4,705)
Foreign 2,240 (4,171) 4,399
------ --------- --------
$5,442 $(39,759) $ (306)
====== ========= ========
(1) Restated to reflect prior period adjustment (see Note 18).
The components of the provision for income taxes are as follows:
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
Current:
Federal $ - $ - $ -
Foreign 1,347 1,550 1,700
State - - -
------ ------ ------
Total $1,347 $1,550 $1,700
------ ------ ------
Deferred:
Federal $ - $ - $ -
Foreign 34 - -
State - $ - -
------ ------ ------
Total $ 34 $ - $ -
------ ------ ------
Total $1,381 $1,550 $1,700
====== ====== ======
For the fiscal year ended June 30, 1995, the current provision for income
taxes includes an equivalent charge of $300,000, which was fully offset in
capital in excess of par value due to the utilization of tax loss
carryforwards which originated prior to the Company's quasi-reorganization,
effected on December 31, 1991.
A reconciliation of the Federal statutory tax provision to the Company's
provision for income taxes is as follows:
JUNE 30,
--------
1997 1996 (1) 1995
-------- --------- --------
(DOLLARS IN THOUSANDS)
Income (loss) before provision for
Income taxes $ 5,442 $(39,759) $ (306)
-------- --------- --------
Tax at Federal statutory rate 1,850 (13,518) (104)
U.S. Federal and non U.S. net operating
losses for which no tax benefit was recorded 3,335 12,617 2,890
U.S. Federal net operating losses from prior years
for which benefit is recorded in the current year (1,089)
Difference between U.S. and non
U.S. income tax rates - 70 (1,146)
Tax benefit related to permanent
differences (204) - -
State income tax benefit - - -
Other (2,511) 2,381 60
-------- --------- --------
Provision for income taxes $ 1,381 $ 1,550 $ 1,700
======== ========= ========
(1) Restated to reflect prior period adjustment (see Note 18).
As of June 30, 1997 and 1996, the Company's deferred tax assets were
comprised of the following:
JUNE 30,
--------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Gross deferred tax assets related to:
Net operating loss carryforwards $ 35,900 $ 40,657
Accumulated depreciation 8,316 7,579
Restructuring reserves 4,029 7,833
Inventory reserves 6,698 5,609
Accrued compensation 655 496
Post-retirement benefits (6) 844
Other 11,381 1,879
--------- ---------
Total gross deferred tax assets 66,973 64,897
Valuation allowance (66,973) (64,897)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
Any future benefits attributable to the 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 are limited to approximately $1.3 million per year 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 $0.3 million per year. The
Company's net operating loss carryforwards begin to expire in 2004. As of
June 30, 1997, after giving effect to the aforementioned Internal Revenue Code
limitation, the Company has remaining utilizable net operating loss
carryforwards of approximately $105.6 million for income tax purposes.
Approximately $61.0 million of these net operating loss carryforwards
originated prior to the Company's quasi-reorganization, effected on December
31, 1991. In addition, approximately $9.0 million of these net operating loss
carryforwards originated subsequent to the Company's quasi-reorganization
through the date of the 1993 Refinancing.
Deferred income taxes have not been provided on approximately $10.0
million of undistributed earnings of foreign subsidiaries, which originated
subsequent to the Company's quasi-reorganization, primarily due to either the
Company's required investment in certain subsidiaries or foreign tax rates
which exceed the U.S. tax rate.
Additionally, deferred income taxes have not been provided on
approximately $3.0 million of 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, 1997 and
1996 was approximately $67.0 million and $65 million, respectively. The net
change in the total valuation allowance for the year ended June 30, 1997 was
an increase of approximately $2 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 some portion of these deferred tax assets will not be realized.
11. GEOGRAPHIC INFORMATION
A summary of the Company's financial data by geographic area follows:
YEAR ENDED JUNE 30,
-------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Net Sales:
United States $ 60,039 $ 43,119 $ 75,362
Intercompany 11,031 10,065 15,265
--------- --------- ---------
71,070 53,184 90,627
--------- --------- ---------
Europe 28,119 27,668 39,431
Intercompany 1,759 141 127
--------- --------- ---------
29,878 27,809 39,558
--------- --------- ---------
Asia/Pacific 11,078 12,554 14,100
Japan 5,999 10,410 7,818
Other 3,132 2,049 3,433
--------- --------- ---------
121,157 106,006 155,536
Eliminations (12,790) (10,206) (15,392)
--------- --------- ---------
Total $108,367 $ 95,800 $140,144
========= ========= =========
Operating income (loss):
United States $ 4,881 $(17,110) $ (5,139)
Europe 985 (18,583) 4,602
Asia/Pacific 2,857 3,457 3,809
Japan (1,055) (388) (1,792)
Other 565 441 863
Eliminations 1,006 (687) (261)
--------- --------- ---------
Total $ 9,239 $(32,870) $ 2,082
========= ========= =========
JUNE 30,
--------
1997 1996
--------- -----------
(DOLLARS IN THOUSANDS)
Identifiable assets:
United States $ 42,105 $ 103,601
Europe 27,346 24,379 (1)
Asia/Pacific 12,707 10,736
Japan 4,962 8,467
Other 2,079 2,438
Eliminations (25,671) (69,548)
--------- -----------
Total $ 63,528 $ 80,073
========= ===========
(1) Adjusted to reflect the prior period adjustment (see Note 18).
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
$49,534,000, $54,236,000 and $66,913,000 for the years ended June 30, 1997,
1996 and 1995, respectively, which amounts represented 46%, 57% and 48% of
total sales for the respective years.
Sales to the U.S. Government and its agencies amounted to approximately
$27,737,000, $21,750,000 and $39,200,000 for the years ended June 30, 1997,
1996 and 1995, respectively, which amounts represented 26%, 23% and 28% of
total sales for the respective years. The Company's revenues are derived from
various customer sources including Unisys Corp., the prime contractor under
the U.S. Department of Commerce's Next Generation Radar (NEXRAD) program and
the U.S. Department of Commerce under the NEXRAD program. There were no other
customers during 1997 representing more than 10% of total revenues.
12. RETIREMENT 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. In fiscal year 1997, the Company matched 100% of the
employees' Plan contributions up to 6%. In fiscal years 1996 and 1995, the
Company provided an annual contribution of 2% of the employees' eligible
earnings and matched 25% of the employees' Plan contributions up to 4%, in
accordance with the terms of the Plan then in effect.
The Company's annual and matching contributions under this plan are as
follows:
1997 1996 1995
------ ---- ----
(DOLLARS IN THOUSANDS)
Annual contribution in common stock $ - $326 $518
Matching contribution 1,439 147 251
------ ---- ----
Total $1,439 $473 $769
====== ==== ====
Certain foreign subsidiaries of the Company maintain pension plans for
their employees which conform to the common practice in their respective
countries. The pension expense related to these plans amounted to $109,000,
$263,000 and $381,000 for the years ended June 30, 1997, 1996 and 1995,
respectively.
The funded status of the Company's international pension plans at June
30, 1997 and 1996 was as follows:
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation $ 7,786 $ 7,751
Accumulated benefit obligation 7,883 7,887
Projected benefit obligation 9,304 9,556
Plan assets at fair value 11,606 11,097
-------- --------
Plan assets in excess of projected
Benefit obligation 2,302 1,541
Unrecognized net asset at transition (1,071) (346)
Unrecognized net gain (2,640) (2,112)
-------- --------
Accrued pension liability $(1,409) $ (917)
======== ========
In determining the present value of benefit obligations and the expected
return on plan assets for the Company's foreign pension plans, the following
assumptions were used for the years ended June 30, 1997, 1996 and 1995:
1997 1996 1995
---------------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Discount rate 6.5% to 9.0% 6.5% to 9.0% 6.0% to 9.0%
Rate of increase in future compensation levels 3.5% to 7.0% 3.5% to 7.0% 4.0% to 7.0%
Expected long-term rate of return 7.0% to 9.0% 7.0% to 9.0% 7.0% to 9.0%
Plan assets are comprised primarily of investments in managed funds
consisting of common stock, money market and real estate investments.
13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
On July 1, 1993, the Company adopted the provisions of SFAS No. 106. 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
fiscal year 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. Only stock
options, which for the most part contain limited stock appreciation rights in
connection with a change of control followed by certain subsequent events,
have been granted under the plan. The plan terminates on January 31, 2002.
Stockholders have approved the purchase of up to 9,000,000 shares under the
plan.
Changes in options outstanding under the plan during the years ended June
30, 1997 and 1996 are as follows:
1997 1996
----------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES* PRICE
------------ --------- ----------- ---------
Outstanding at beginning of year 5,483,527 $ 1.91 3,167,075 $ 1.59
Granted 1,711,000 $ 2.26 3,085,675 $ 2.09
Exercised (1,066,362) $ 1.12 (322,614) $ 1.42
Forfeited (111,936) $ 1.92 (446,609) $ 1.22
------------ -----------
Outstanding at year-end 6,016,229 $ 2.15 5,483,527 $ 1.91
============ ===========
Options exercisable at year end 2,493,536 2,553,501
Weighted average fair value of
Options granted during the year $ 2.19 $ 2.09
* Corrected
Options with respect to 2,493,536 shares of common stock, with an average
exercise price of $2.15, were exercisable at June 30, 1997. The per share
weighted-average fair value of the stock options granted during 1997 and 1996
was $3,024,711 and $5,037,527, respectively, on the date of grant using the
Black Scholes option-pricing model. The weighted-average assumptions used
were: 1997 - expected dividend yield 0%, risk-free interest rate of 5.7%, an
expected life of 4.01 years and an expected volatility of 139%; 1996 -
expected dividend yield 0%, risk-free interest rate of 5.52%, an expected life
of 4.01 years and an expected volatility of 139%.
The following table summarizes information about stock options outstanding and
exercisable at June 30, 1997:
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES LIFE AT JUNE 30, 1997 PRICE AT JUNE 30, 1997 PRICE
- -------------- ----------- ---------------- --------- ---------------- ---------
0.10 - $47.50 8.53 years 6,016,229 $ 2.15 2,493,536 $ 2.12
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:
YEAR ENDED JUNE 30,
1997 1996
------ ---------
(DOLLARS IN THOUSANDS)
----------------------
Net income (loss) applicable to common
Shareholders
As reported $3,750 $(41,309)
Pro forma $1,844 $(44,483)
Net income (loss) per share
As reported $ 0.08 ($1.35)
Pro forma $ 0.04 ($1.46)
Pro forma net income reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period of 3 years and compensation cost for options granted prior to
July 1, 1995 is not considered.
15. 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
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.
16. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results for the years ended
June 30, 1997 and 1996:
THREE MONTHS ENDED
--------------------
SEPTEMBER 30, DECEMBER 28, MARCH 29, JUNE 30,
1996 1996 1997 1997
--------------- ------------- ---------- ---------
1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Sales $ 27,757 $ 26,625 $ 28,655 $ 25,330
Gross Margin $ 12,152 $ 12,609 $ 13,362 $ 13,088
Net income (loss) (a) $ (4,062) $ 2,695 $ 2,280 $ 3,148
Net income (loss) per share $ (0.10) $ 0.06 $ 0.05 $ 0.07
(a) Net loss for the quarter ended September 30, 1996 reflects a curtailment
gain of $1.0 million and realized and unrealized losses on CyberGuard stock of $4.0
million. Net income for the quarter ended December 28, 1996 reflects a curtailment
gain of $1.2 million and realized and unrealized gains on CyberGuard stock of $2.1
million. Net income for the quarter ended March 29, 1997 reflects a curtailment
gain of $0.3 million and realized and unrealized gains on CyberGuard stock of $0.1
million. Net income for quarter ended June 30, 1997 reflects realized and
unrealized gains on CyberGuard stock of $0.3 million.
THREE MONTHS ENDED
--------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 (1)
--------------- -------------- ---------- ----------
1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 26,452 $ 24,483 $ 26,173 $ 18,692
Gross margin $ 11,205 $ 10,587 $ 10,890 $ 2,583
Net income (loss) (b) $ (3,632) $ (2,557) $ 533 $ (35,653)
Net income (loss) per share $ (0.12) $ (0.08) $ .02 $ (1.16)
(1) Adjusted to reflect a $1.6 million prior period adjustment (see Note
18).
(b) Net loss for the three months ended December 31, 1995 and June 30, 1996
reflect a provision for restructuring of $1.3 and $23.2 million, respectively. Net
income for the three months ended September 30, 1995 reflects non-recurring charge of
$1.7 million to reduce the carrying amount of certain assets held for sale. Net
income for the three months ended June 30, 1996 reflects a provision for inventory
reserves of $2.6 million.
17. COMMITMENTS AND CONTINGENCIES
The Company leases certain sales and service offices, warehousing, and
equipment. The leases expire at various dates through 2001 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, 1997, future minimum payments under non-cancelable operating
leases for the fiscal years ending June 30 of each year are as follows:
(DOLLARS IN THOUSANDS)
1998 $3,662
1999 1,977
2000 1,310
2001 361
2002 and thereafter 379
------
$7,689
======
Rent expense amounted to $3,776,000, $4,871,000, and $6,686,000 for the
years ended June 30, 1997, 1996 and 1995, respectively.
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.
Additionally, the U.S. government has asserted that the Company's prices
for shipments of spare parts prior to 1994 under the U.S. Department of
Commerce's Next Generation Weather Radar (NEXRAD) program were too high. No
claim or action has been filed against the Company. The Company believes that
its pricing practices are in compliance with applicable regulations and
intends to vigorously defend against any claim. Although there can be no
assurance, the Company expects that any resolution of the matter will not have
a material adverse affect on the Company's financial condition or liquidity.
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-year period (a two-year period in the case of the Chief Executive Officer)
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 paid or,
if determined, payable, to such officer. At June 30, 1997, the maximum
contingent liability under these agreements is approximately $2.2 million.
The Company's employment agreements with its executive officers contain
certain offset provisions, as defined in their respective agreements.
18. PRIOR PERIOD ADJUSTMENT
The Company has restated its consolidated financial statements for the
year ended June 30, 1996. This action resulted from the identification of
certain foreign assets that were disposed of in fiscal year 1996. The impact
of these adjustments on the Company's financial results as originally reported
is summarized below:
YEAR ENDED JUNE 30, 1996
---------------------------
DOLLAR AMOUNTS IN THOUSANDS (EXCEPT PER SHARE DATA) AS REPORTED AS RESTATED
------------ -------------
Other Non-recurring Charges $ 1,700 $ 3,297
Net Loss $ 39,712 $ 41,309
Net Loss per Share $ 1.30 $ 1.35
Accounts Receivable $ 27,948 $ 27,807
Total Current Assets $ 55,654 $ 55,513
Total Assets $ 80,214 $ 80,073
Accumulated Deficit $ 76,740 $ 78,337
Cumulative Translation Adjustment 798 (658)
Total Equity $ 7,068 $ 6,927
Total Liabilities and Equity $ 80,214 $ 80,073
19. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
is effective for fiscal years beginning after December 15, 1997 and
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. SFAS
No. 130 requires all items to be recognized under accounting standards as
components of comprehensive income to be reported in a separate financial
statement. The Company does not believe that the adoption of SFAS No. 130
will have a significant impact on the Company's financial reporting.
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 does not believe that the adoption of SFAS No. 131 will have a
significant impact on the Company's financial reporting.
In February 1997, the 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 the EPS computations include (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 periods ending after December 15, 1997,
including interim periods. The Company does not believe that the adoption of
SFAS No. 128 will have a significant impact on the Company's reported EPS.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 27, 1996, the Company acquired the assets of the Real-Time
Division of Harris Computer Systems Corporation ("HCSC"), along with 683,178
shares of newly issued shares of HCSC, which was renamed CyberGuard
Corporation, in exchange for 10,000,000 shares of Concurrent common stock,
1,000,000 shares of convertible exchangeable preferred stock of Concurrent
with a 9% cumulative annual dividend payable quarterly in arrears and a
liquidation preference of $6,263,000 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. The
Acquisition has been accounted for as a purchase effective June 30, 1996.
The Acquisition offered a number of significant strategic and financial
benefits to Concurrent, including: an enhanced competitive position through
the combination of the best technologies of the two businesses; a larger and
more diverse market coverage; and, significant cost savings primarily obtained
through headcount reductions, as well as facilities cost reductions through
the integration of corporate management and administrative functions, the
consolidation of production and research and development facilities and the
consolidation of sales and service offices.
The increase in total revenue during fiscal year 1997 reflects the
anticipated continued decline in proprietary computer systems sales and the
decline in service revenue, offset by the increase in revenue from the
Acquisition. During fiscal year 1997, revenue from North American markets
exceeded that of International markets, reversing the trend experienced over
the last few years.
The Company focused in 1997 on the consolidation of the operations of the
HCSC Real-Time Division and Concurrent. The consolidation of research and
development has resulted in a single line of products ranging from a
software-only product to an eight-way, multiprocessing computer, all running
the Company's real-time UNIX operating system, Power-Max, which combines the
best features of Concurrent's and HCSC's technologies. The Company uses these
products to exploit its three core markets (simulation, data acquisition,
instrumentation and process control) and its two new markets (interactive
real-time and software sales). See Markets in the BUSINESS section for
further discussion regarding the Company's markets.
The Company experienced improvements in gross margin resulting from
increased volume due to the Acquisition, improved market focus and cost
reductions and efficiencies gained by the closing of its Cork, Ireland
operation and the scale-down of its Oceanport, New Jersey operation from
approximately 285,000 square feet to approximately 25,000 square feet.
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.
1997 1996 (1) 1995
------ -------- ------
Net sales:
Computer systems 51.4% 44.3% 51.4%
Service and other 48.6 55.7 48.6
------ -------- ------
Total net sales 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Computer systems 49.7 64.8 53.6
Service and other 53.9 61.9 60.6
------ -------- ------
Total cost of sales 52.7 63.2 56.7
Gross margin 47.3 36.8 43.3
Operating expenses:
Research and development 12.5 14.4 13.9
Selling, general and administrative 26.4 31.1 26.3
Restructuring expense - 25.6 2.3
Sales and use tax credit - - (0.7)
Transition 2.1 - -
Retirement plan reversal (2.3) - -
------ -------- ------
Total operating expenses 38.7 71.1 41.8
------ -------- ------
Operating income (loss) 8.5 (34.3) 1.5
Interest expense (1.9) (2.4) (1.9)
Interest income 0.2 0.2 0.4
Other non-recurring charge - (3.4) (0.7)
Realized and unrealized loss on CyberGuard stock (1.5) - -
Other income (expense) - net (0.3) (1.6) 0.5
------ -------- ------
Income (loss) before provision for income taxes 5.0 (41.5) (0.2)
Provision for income taxes 1.3 1.6 1.2
------ -------- ------
Net income (loss) 3.7% (43.1)% (1.4)%
====== ======== ======
(1) Restated to reflect a $1.6 million prior period adjustment (see Note
18 to the consolidated financial statements).
RESULTS OF OPERATIONS
FISCAL YEAR 1997 IN COMPARISON TO FISCAL YEAR 1996
Net Sales
Net sales for fiscal year 1997 were $108.4 million, an increase of $12.6
million from fiscal year 1996. This increase resulted from the Acquisition.
Product sales increased by $13.2 million to $55.7 million. Maintenance
and service sales decreased by $0.7 million to $52.7 million. The decline in
maintenance and service sales experienced over the past few years by
Concurrent continued and was offset partially by the Acquisition. This
decrease is expected to continue in the future and to approximate the decline
experienced in the past by the Company before the Acquisition. This decline
was a result of customers switching 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, as measured in dollars and as a percentage of net sales,
increased by $15.9 million to $51.2 million and by 10.5% to 47.3% compared to
fiscal year 1996 results. Product gross margin increased by $13.1 million to
$28.0 million and by 15.1% to 50.3%. This increase was the result of
increased sales, efficiencies gained from the consolidation of Concurrent and
the HCSC Real-Time Division, and the incorporation of the Night Hawk
technology into the Concurrent product line. Fiscal year 1996 results also
included a $4.5 million charge for inventory obsolescence and the
consolidation of product line. The maintenance gross margin increased by $4.0
million as a result of efficiencies gained through the Acquisition. Fiscal
year 1997 results included a $1.1 million charge for expenses associated with
the combination of the two manufacturing and maintenance organizations into
one organization.
Operating Income
Operating income for fiscal year 1997 was $9.2 million compared to a loss
of $32.9 million for fiscal year 1996. The increase in income was the result
of increased sales and gross margin and the efficiencies gained through the
Acquisition which resulted in a savings of $1.7 million in operating expenses
(excluding the 1996 restructuring provision). Also included in the fiscal
year 1996 loss was a charge of $24.5 million for restructuring. Also included
in the operating expenses were $2.3 million of expenses attributed to the
combination of Concurrent and the HCSC Real-Time Division. This one-time
expense was offset by a reversal of postretirement benefits which were
eliminated during the year and resulted in a $2.5 million credit to the income
statement.
Net Income (Loss)
Net income for fiscal year 1997 was $4.1 million compared to a restated
loss of $41.3 million for fiscal year 1996. The increase in income was the
result of increased sales and gross margin and a decrease in operating
expenses. Net interest expense decreased by $0.3 million as the Company
decreased debt. In fiscal year 1997, the Company experienced a $1.6 million
charge for the loss, realized and unrealized, on the sale and retention of the
CyberGuard stock received in connection with the Acquisition. The Company
still retained 305,178 shares of stock at the end of the fiscal year.
FISCAL YEAR 1996 IN COMPARISON TO FISCAL YEAR 1995
Net Sales
----------
Net sales for fiscal year 1996 were $95.8 million, a decrease of $44.3
million from fiscal year 1995, partially reflecting the prolonged acquisition
process. The sales decline was comprised of a decrease of $29.6 million, or
41.1%, in computer systems sales and a decrease of $14.7 million, or 21.6%, in
service and other revenues. The decrease in computer system sales was
primarily due to reduced shipments under the U.S. Department of Commerce's
Next Generation Weather Radar (NEXRAD) program and reduced sales of open
systems. The decline in sales of open systems is attributable to a decline in
North America business, which was partially offset by an ongoing increase in
international business. The decrease in sales is also attributable to the
protracted nature of the Acquisition which created instability in the sales
force. The decrease in service and other revenues was primarily due to the
decline in computer system sales experienced in prior periods which resulted
in fewer maintenance contracts and a decline in renewal rates on maturing
contracts partially offset by approximately $0.3 million related to the impact
of favorable foreign exchange rates.
Gross Margin
-------------
Gross Margin, as measured in dollars and as a percentage of net sales,
was $35.3 million and 36.8%, respectively, for fiscal year 1996 compared to
$60.7 million and 43.3%, respectively, for fiscal year 1995. The decrease in
gross margin dollars and percentage was primarily due to the aforementioned
decline in net sales partially offset by cost savings resulting from the
operational restructurings implemented during fiscal year 1995 and fiscal year
1996. Included in fiscal year 1996 cost of sales is a $4.5 million charge,
reflecting the impact of consolidated product lines and a substantial portion
of the Company's manufacturing operations, comprised of $2.6 million for
excess inventory, $0.6 million for the write-off of customer support inventory
and $1.3 million for employee and equipment relocation for both manufacturing
and customer support.
Operating Income (loss)
Operating loss for fiscal year 1996 was $32.9 million compared to
operating income of $2.1 million for fiscal year 1995. The $35.0 million
decrease in operating income was due to the aforementioned $25.4 million
decrease in gross margin, a $21.3 million increase in the provision for
restructuring (a $24.5 million provision for restructuring in the current year
offset by a $3.2 million provision for restructuring in the prior year) and a
$1.0 million reduction in the sales and use tax credit, partially offset by
the $12.7 million decrease in operating expenses. The sales and use tax credit
in the prior period relates to a change in the estimate of state sales and use
tax reserves based on a final state audit determination.
The $12.7 million decrease in operating expenses was primarily due to a
$7.1 million decrease in selling, general and administrative expenses and a
$5.6 million decrease in net research and development expenses. The $5.6
million decrease in net research and development expenses reflects a $5.7
million decrease in gross research and development expenses partially offset
by a $0.1 million decrease in the amount of software production costs which
were capitalized during the period. The decrease in selling, general and
administrative and gross research and development expenses is primarily due to
cost savings resulting from the operational restructurings implemented during
fiscal year 1995 and fiscal year 1996.
Net Income (Loss)
Net loss was $41.3 million for fiscal year 1996 compared to a loss of
$2.0 million for fiscal year 1995. The $39.3 million change results from the
$35.0 million decrease in operating income and a $4.4 million net increase in
non-operating expenses. The increase in non-operating expenses was primarily
due to a $2.2 million increase in other expenses, a $0.3 million decrease in
interest income, and a $2.3 million increase in other non-recurring charges
partially offset by a $0.3 million reduction in interest expense and a $0.2
million decrease in the provision for income taxes. $1.7 million of the
current year non-recurring charge and the $1.0 million non-recurring charge
from the previous year was a result of an adjustment of the carrying value to
its estimated fair value based on current market conditions of the Company's
Oceanport, New Jersey and Tinton Falls, New Jersey facilities, respectively.
$1.6 million of the current year non-recurring charge represents a prior
period adjustment (see Note 18 to the consolidated financial statements). The
decrease in the provision for income taxes relates primarily to international
operations.
FINANCIAL RESOURCES AND LIQUIDITY
The Company sold its Oceanport, New Jersey facility in July 1997 for $5.5
million. The net proceeds from the sale ($5.4 million) were used to reduce
debt. The Company also sold 378,000 shares of CyberGuard stock for $4.6
million and at year-end continued to hold 305,178 shares, which represent an
additional source of liquidity. 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; and (iii) 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 1998
operations, through its operating results and existing financing facilities.
On June 28, 1996, the Company entered into a new agreement providing for
a $19.9 million credit facility which matures August 1, 1999. The facility
includes a $7.2 million term loan (the "Term Loan") and a $12.7 million
revolving credit facility (the "Revolver"). The Revolver represents a $4.7
million increase to the maximum revolver amount, subject to certain
restrictions.
At June 30, 1997, the outstanding balances under the Term Loan and the
Revolver were $6.0 and $3.1 million, respectively. The entire outstanding
balance of the Revolver has been classified as a current liability at June 30,
1997. Both the Term Loan and the Revolver bear interest at the prime rate
plus 2.0%. The Term Loan is payable in 28 monthly installments of
approximately $139,000 each, commencing October 1, 1996 and ending January 1,
1999, with the final balance of approximately $3.3 million payable August 1,
1999. The Revolver may be repaid and reborrowed, subject to certain
collateral requirements, at any time during the term ending August 1, 1999.
The Company has pledged substantially all of its domestic assets as collateral
for the Term Loan and the Revolver. The Company may repay the Term Loan at
any time without penalty. Certain early termination fees apply if the Company
terminates the facility in its entirety prior to August 1, 1999.
The Company's joint venture agreement regarding its Japanese subsidiary
has been renewed through June 30, 1998. In the event such agreement is not
further extended, the Company could be required to satisfy the then
outstanding amount of demand notes which are guaranteed by the Company ($2.8
million at June 30, 1997). There can be no assurance that the agreement will
be extended or, in the event the agreement is not extended, that the Company
will be able to fully satisfy its demand note requirements.
As of June 30, 1997, the Company had a current ratio of 1.12 to 1, an
inventory turnover ratio of 2.8 times (based on computer systems cost of
sales) and net working capital of $4.7 million. At June 30, 1997, cash and
cash equivalents amounted to $4.0 million and accounts receivable amounted to
$25.7 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 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.
In October 1995, the Company's management approved a plan to restructure
its operations. In connection with this restructuring, the Company recorded a
$1.3 million provision. This plan provided for a reduction of approximately
55 employees worldwide and the downsizing or closing of certain office
locations, representing approximately 85% and 15% of this provision.
During the year ended June 30, 1996, the actual cash payments related to
the 1996 restructurings amounted to approximately $1.4 million and were
primarily related to employee termination costs. In the year ended June 30,
1997, cash expenditures related to this reserve were $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 facilities. The Company may
also utilize its CyberGuard common stock holdings as an additional source of
liquidity if needed. However, there can be no assurance that the Company's
operating and financing efforts will be achieved.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997 the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
is effective for fiscal years beginning after December 15, 1997 and
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. SFAS
No. 130 requires all items to be recognized under accounting standards as
components of comprehensive income to be reported in a separate financial
statement. The Company does not believe that the adoption of SFAS No. 130
will have a significant impact on the Company's financial reporting.
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 does not believe that the adoption of SFAS No. 131 will have a
significant impact on the Company's financial reporting.
In February 1997, the 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 the EPS computations include (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 periods ending after December 15, 1997,
including interim periods. The Company does not believe that the adoption of
SFAS No. 128 will have a significant impact on the Company's reported EPS.
CONCURRENT COMPUTER CORPORATION
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED JUNE 30,
---------------------------------------------------
INCOME STATEMENT DATA 1997 1996 (1) 1995 1994 1993
- --------------------------------------- -------- --------- --------- --------- --------
Net sales $108,367 $ 95,800 $140,144 $179,031 $220,464
Gross margin 51,211 35,265 60,667 76,041 104,841
Operating income (loss) 9,239 (32,870) 2,082 (6,993) 18,738
Income (loss) before extraordinary
Gain (loss) and cumulative effect
of change in accounting principles 4,061 (41,309) (2,006) (11,631) 3,869
Net income (loss) $ 4,061 $(41,309) $ (2,006) $(39,824) $ 3,869
Income (loss) per share:
Income (loss) before extraordinary
Gain (loss) and cumulative effect
of change in accounting principles 0.08 (1.35) (0.07) (0.41) 0.40
Net income (loss) $ 0.08 $ (1.35) $ (0.07) $ (1.42) $ 0.40
YEARS ENDED JUNE 30,
------------------------------------------------
BALANCE SHEET DATA 1997 1996 (1) 1995 1994 1993
- ------------------------------- ------- --------- ------- --------- --------
Cash and short-term investments $ 4,024 $ 3,562 $ 5,728 $ 9,374 $ 30,422
Working capital 4,694 (966) 1,865 (616) 36,673
Total assets 63,528 80,073 98,359 123,170 157,086
Long-term debt 4,493 6,603 9,536 13,240 67,938
Redeemable preferred stock 1,243 5,610 - - -
Stockholders' equity 18,120 6,927 35,170 35,048 18,503
Book value per share $ 0.39 $ 0.17 $ 1.16 $ 1.18 $ 1.94
(1) Restated to reflect a $1.6 million prior period adjustment (see Note 18
to the consolidated financial statements).
SCHEDULE II
CONCURRENT COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS (A) OF YEAR
- ---------------------------------- ----------- ----------- ------------ ----------- --------
Reserves and allowances deducted
from asset accounts:
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
1996
Reserve for inventory obsolescence
and shrinkage $ 8,544 $ 4,904 $ (2,597)(b) $ (174) $ 10,677
Allowance for doubtful accounts 1,434 135 (155)(c) - 1,143
1995
Reserve for inventory obsolescence
and shrinkage $ 6,138 $ 5,037 $ (2,712)(b) $ 81 $ 8,544
Allowance for doubtful accounts 3,405 130 (2,117)(c) 16 1,434
(a) Includes adjustments to the reserve account and allowance for doubtful accounts for
foreign currency translation.
(b) Charges and adjustments to the reserve account primarily for inventory write offs.
(c) Charges to the reserve account for uncollectible amounts written off and credits issued
during the year.
(d) Decrease in the reserve due to transfer of spares and good on loan inventory and the
related reserves to property, plant and equipment and accumulated depreciation, respectively, due
to a change in accounting policy.