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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, 1998
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 18, 1998, there were 47,708,939 shares of Common Stock
outstanding. The aggregate market value of shares of such Common Stock (based
upon the last sale price of $2.38 of a share as reported for September 18, 1998
on the NASDAQ National Market System) held by non-affiliates was approximately
$113,171,932.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement to be dated October 1,
1998 in connection with Registrant's 1998 Annual Meeting of Stockholders
scheduled to be held on October 30, 1998 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 computer
systems, software, and services for the real-time and video-on-demand markets.
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. Video-on-demand
systems supply users with interactive video for the cable, hotel,
intranet/distance learning, and other related markets.
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 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.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company considers its
products to be one class of products which accounted for 46.1%, 51.4%, and 44.3%
of total revenues in the 1998, 1997, and 1996 fiscal years, respectively.
Service and other operating revenues (including maintenance, support, and
training) accounted for 53.9%, 48.6%, and 55.7% of total revenues in the 1998,
1997, and 1996 fiscal years, respectively.
Financial information about the Company's foreign operations is included in
Note 12 to the consolidated financial statements included herein. The Company
recently took control of its Japanese-based company as a wholly-owned
subsidiary. Previously, the Company operated the Japanese operation as a joint
venture with Nippon Steel Corporation.
(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.
1
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
testing; range and telemetry systems; servers for interactive real-time
applications, such as interactive video-on-demand and wagering and gaming;
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, industrial systems, 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. Customers
typical of this market include The Boeing Company, Lockheed Martin Corporation,
Flight Safety International, Daimler-Benz Aerospace Airbus, CAE Electronics
Ltd., and Dassault Electronique.
Data Acquisition. Concurrent is a leading supplier of systems for radar
control, data fusion applications, and weather analysis, all of which require
the ability to gather, analyze, and display continuous flows of information from
simultaneous sources. Primary applications include environmental analysis and
display, range and telemetry, and command and control. Customers typical of
this market include Lockheed Martin Corporation, TRW Inc., Logicon Inc., Harris
Corporation, Aerospatiale Aeronautique, Dassault Electronique, and Mitsubishi
Precision Co., Ltd.
2
Industrial Systems. Concurrent also manufactures systems to collect,
control, analyze, and distribute test data from multiple high-speed sources for
industrial automation systems, product test systems (particularly engine test),
Supervisory Control and Data Acquisition (SCADA) systems, and instrumentation
systems. Concurrent's strategy to serve this market involves the employment of
third-party software applications to provide a unique solution for its
customers. Customers typical of this market include United Technologies, Inc.,
BFGoodrich, Ford Motor Company, General Motors Corporation, debis Systemhaus,
Lucas Aerospace, and Nissin (Japan).
Interactive Video-On-Demand (IVOD). Concurrent has positioned itself as
one of the leading providers of digital video servers for this emerging growth
market. The Company's MediaHawk video server offers interactive, time critical
video-on-demand capabilities which give the Company a competitive advantage.
This advantage was created by integrating the core technology and real-time
software into the VOD software and combining that with commodity hardware,
creating the best price performance in the marketplace.
The Company has identified four segments of the IVOD market for which its
MediaHawk is ideally suited: the hospitality industry, residential
entertainment market, intranet video systems, and in-flight entertainment.
The Company introduced its MediaHawk video server in fiscal year 1997.
This system utilizes commercial hardware and, combined with the Company's
market-leading software, provides the leading price/performance system in the
market. Concurrent's strategy is to supply servers and server technology for
IVOD applications that require "true" video-on-demand and reliable delivery of
multiple interactive systems of high quality video. Concurrent intends to
continue to develop this product line to provide additional software
functionality that is tailored to customer requirements in the targeted market
segments.
Real-time Software. Concurrent has ported its real-time software and tools
to the Motorola PowerPC computers. This allows the Company to offer real-time
development and real-time environment solutions to customers who want to design
their own solution instead of purchasing an integrated computer solution from
the Company.
Products and Services
The Company considers its products and services a total package to provide
complete value-added solutions for the Real-Time and Video-On-Demand markets.
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.
PowerWorks is Concurrent's integrated real-time software development and
operational environment. It was designed to facilitate the development and
execution of real-time applications for a full range of systems from single
processor to symmetric multi-processing. The PowerWorks environment includes
Concurrent's real-time operating system, PowerMAX OS; NightGraphics support
software; optimized compilers for C, C++, Ada, and FORTRAN as well as applicable
run-time libraries; and Concurrent's NightStar Tool Set - a GUI-based,
real-time development tool set. In addition, PowerWorks supports a host of
utility software and device drivers.
3
The MediaHawk utilizes the VME-based systems of 15 loosely-coupled Motorola
single board computers integrated with the Company's MediaHawk software.
OPEN SYSTEMS PRODUCT LINE
POWERWORKS - POWERPC 604
MAX. NO.
MODEL OF CPUS PRICE RANGE
- -------------------- -------- ------------
TurboHawk 8 $40K - $500K
Night Hawk 6800 8 $40K - $500K
PowerMAXION 8 $40K - $400K
Power Hawk 15 $15K - $400K
MediaHawk 15 $20K - $800K
PowerStack 1 $ 15K
Power Works Software N/A $ 1K - $12K
LEGACY SYSTEMS
MAX. NO.
MODEL OF CPUS CPU PRICE RANGE
- --------------- -------- ----------- --------------
Night Hawk 5800 8 MC88110 $ 35K - $350K
Night Hawk 4800 8 MC88100 $ 20K - $250K
MAXION 4 MIPS $ 27K - $170K
7000 Series 3 MC68040 $ 24K - $150K
3200 Series 6 Proprietary $55K - $1,350K
Traditional Services. One of the largest benefits to the Company of its
extensive installed customer base is the large and generally predictable revenue
stream generated from Traditional Services. While Traditional Services revenue
has declined and is expected to further decline as a result of the industry
shift to open systems, the Company expects this business to be a significant
source of revenue and cash flow for the foreseeable future. The Company offers
a variety of service and support programs to meet the customer's maintenance
needs for both its hardware and software products. The Company also offers
contract service for selected third party equipment. The service and support
programs offered by Concurrent include rentals and exchanges, diagnostic and
repair service, on-call and time and materials service, and preventive
maintenance. The Company routinely offers long-term service and support of its
products for as long as fifteen to twenty years.
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.
Professional Services. Throughout the Company's history, it has supported
its customers through Professional Services and custom engineering efforts. The
Company provides custom and integration engineering services in the design of
special hardware and software to help its customers with their specific
applications. This may include custom modifications to the Company's products
or integration of third party interfaces or devices into the Company's systems.
Many customers use Professional Services to migrate existing applications from
earlier generations of the Company's or competitors' systems to the Company's
state-of-the-art systems. Professional Services also include classroom and
on-site training, system and site performance analysis, and multiple vendor
support planning. Although the total revenues associated with any single
Professional Services or custom engineering effort may be small in comparison to
total revenues, increased customer satisfaction is an integral part of the
Company's business plan.
4
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 Night Hawk 6000 and new TurboHawk series of
Night Hawk and PowerMAXION computers, integrating expected future versions of
the IBM PowerPC microprocessor chip. The Company has delivered a unique balance
of supporting industry standards while providing innovative superiority in key
architectural issues.
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) and
systems integrators. The Company does not believe the loss of any particular
VAR or systems integrator would have a material impact on the Company's
operating results. The Company's principal customers are original equipment
manufacturers (OEMs), systems integrators, and VARs who combine the Company's
products with other equipment or with additional application software for resale
to end-users.
Servicing the Company's large installed base, particularly its proprietary
systems, is an important element of Concurrent's business strategy and generates
significant revenue and cash flow to the Company. Total service revenues in
fiscal year 1998 were approximately $44.4 million (54%) of total revenues.
Substantially all of Traditional Services revenues are generated from
maintenance and support contracts which generally run from one to three years
with annual renewal provisions. The Company's existing installed base of
proprietary systems also represents an opportunity for incremental sales of both
computer systems and Traditional and Professional Services. The Company has
experienced a decline in service revenues as customers have moved from
proprietary to open systems and expects this trend to continue. No customer,
other than the U.S. Government, has accounted for 10% or more of Concurrent's
net sales in the three fiscal years ended June 30, 1998. For the 1998 fiscal
year, approximately $22.2 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 27% of the Company's worldwide revenues,
compared to 26% and 23% for the 1997 and 1996 fiscal years, respectively. The
Company's revenues related to sales to the U.S. Government are derived from
various Federal agencies, no one of which accounted for more than 5% of total
revenues. U.S. Government contracts and subcontracts generally contain
provision for cancellation at the convenience of the Government. Substantially
all of the Company's U.S. Government related orders are subcontracts and most
are for standard catalog equipment which would be available for sale to others
in the event of cancellation. To date, there have been no cancellations that
have had a material impact on the Company's business or results of operations.
Research and Development
The Company's continued success depends heavily on the implementation and
utilization of the latest hardware and software computer technology. Concurrent
invested $10.9 million in fiscal year 1998; $13.6 million in fiscal year 1997;
and, combined with HCSC, on a proforma basis, $19.0 million in fiscal year 1996
in research and development. Research and development investment focused on key
technologies within real-time and video-on-demand product development. The
real-time product development emphasized high performance and cost effective
scalable architectures allowing the end user unsurpassed flexibility. New
product development in real-time included the TurboHawk, UNIX-based operating
system, compilation systems, development tools, data acquisition sub-systems,
graphics, and closely-coupled architectures. The video-on-demand product
development emphasized advancements in the software architectural design that
has enabled the use of off-the-shelf commodity hardware, resulting in
industry-leading price/performance in the hospitality, residential, and intranet
training markets. Although total research and development has declined over the
past years, in terms of absolute dollar amounts, the Company expects a greater
return on its total research and development investment in the future for the
following two reasons. First, research and development investment is focused
solely on products and applications for its target markets. Second, the
Company's product strategy continually focuses on markets that rely primarily on
a system software solution that utilizes core technology that has been developed
over many years. The Company will continue to develop technology internally in
those areas in which it exercises market leadership and will acquire commodity
technology where it cannot demonstrate market leadership. This deliberate
allocation of research and development efforts is expected to provide the
Company greater flexibility in meeting the technological requirements of its
customers and allowing it to provide increasingly higher performing products.
5
Manufacturing Operations
The Company's manufacturing operation occupies approximately 40,000 square
feet of its Pompano Beach, Florida facility. The Company also operates a repair
center for its 3200 Series systems in approximately 25,000 square feet at its
former Oceanport, New Jersey facility under a three-year lease. The Company
leases its Pompano Beach facility from Calvary Chapel pursuant to a lease that
expires December 1999, but can be renewed for two two-year terms. Management
believes that the manufacturing capacity available at its current facility could
be significantly increased (with minimal capital spending) to meet increased
manufacturing requirements either by raising the 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, with continued substantial cost savings. The Company's
manufacturing operation is focused on systems assembly, systems integration and
systems test. Extensive testing and burn-in conditioning is performed at the
board and subassembly levels and at final system integration. Because of the
wide range of product configurations, final assembly and final acceptance test
occurs when a specific customer order is being prepared for shipment.
Sources of Supply
Concurrent has multiple commercial sources of supply throughout the world
for most of the materials and components it uses to produce its products. In
some cases, 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 3200 Series, MAXION, Night Hawk and PowerMAXION series
computers. For its current and next generation Night Hawk computer systems, the
Company will depend on the availability of the IBM PowerPC microprocessors
chips. 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
shipment, any delay may result in a delay of revenue recognition for any given
accounting period. The Company works closely with its suppliers and regularly
monitors their ability to meet its requirements in a timely manner. Management
believes it has good relationships with its suppliers and expects that adequate
sources of supply for components and peripheral equipment will continue to be
available.
Competition
The Company operates in a highly competitive 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.
6
Competition in the high performance real-time computing systems and
applications market comes from four sources: (1) major computer companies that
participate in the real-time marketplace by layering specialized hardware and
software on top of or as an extension of their general purpose product platforms
- - these are principally Compaq Computer Corporation and Hewlett-Packard
Corporation; (2) other computer companies that provide solutions for
applications that address a specific characteristic of real-time, such as fault
tolerance or high-performance graphics - these computer companies include
Silicon Graphics Inc., Stratus Computer, Inc., and Compaq Computer Corporation;
(3) general purpose computing companies that provide a platform on which third
party vendors add real-time capabilities - these computer companies include
International Business Machines Corp. and Sun Microsystems, Inc.; and (4) single
board computer companies that provide board-level processors that are typically
integrated into a customer's computer system - these computer companies include
Force Computers, Inc. and Motorola, Inc.
In the IVOD market, the Company competes with the following corporations in
the market segment indicated: (1) in the cable and hospitality market segments
- - principally, SeaChange International, Inc.; nCUBE; and Diva Communications;
(2) in the intranet/distance learning market segment - principally, companies
such as Compaq Computer Corporation; Sun Microsystems, Inc.; and International
Business Machines Corp.; and (3) in the in-flight market segment - Hughes-Avicom
International and B/E Aerospace.
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, 1998, the Company employed approximately 530 employees
worldwide, of whom approximately 350 were employed in the United States,
compared to approximately 580 and 900 employees worldwide at June 30, 1997 and
1996, respectively. The Company's employees are not unionized.
7
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. 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 Pompano Beach facility. As a
result, the Company is subject to federal and state environmental protection and
community right-to-know laws. Violations of such laws, in certain
circumstances, can result in the imposition of substantial remediation costs and
penalties. The Company believes it is in compliance with all material
environmental laws and regulations.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
A summary of net sales (consolidated net sales reflects sales to
unaffiliated customers), attributable to Concurrent's foreign and domestic
operations for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively, is presented at Note 12 to the financial statements of the
Registrant included herein.
ITEM 2. PROPERTIES
Listed below are Concurrent's principal facilities as of June 30, 1998.
Management considers all facilities listed below to be suitable for the
purpose(s) for which they are used, including manufacturing, research and
development, sales, marketing, service, and administration. Management believes
that its Pompano Beach, Florida manufacturing facility has more than sufficient
capacity to meet the Company's projected manufacturing requirements.
APPROX.
FLOOR
OWNED EXPIRATION AREA
LOCATION PRINCIPAL USE OR LEASED DATE OF LEASE (SQ. FEET)
- ---------------------------- ------------------------- --------- ------------- ----------
2101 West Cypress Creek Road Corporate Headquarters, Leased December 1999 50,000
Fort Lauderdale, Florida Sales, Marketing, and
Administration
2800 Gateway Drive Manufacturing and Service Leased December 1999 40,000
Pompano Beach, Florida
2 Crescent Place Repair and Service Depot Leased December 1999 25,000
Oceanport, New Jersey
Concurrent House Sales/Service/Research & Leased 2003 10,000
Railway Terrace Development
Slough, Berks, England
In addition to the facilities listed above, Concurrent also leases space in
various domestic and international industrial centers for use as sales and
service offices and warehousing.
8
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.
On December 19, 1997, the United States filed suit against Concurrent
Computer Corporation (the "Company") in the United States District Court for
the Eastern District of Virginia, alleging that the Company filed false and/or
fraudulent claims in connection with the pricing of the Company's spare parts in
1991 under the Company's subcontract to Unisys Corporation as prime contractor
for the U.S. Department of Commerce's Next Generation Weather Radar (NEXRAD)
program. The government is seeking treble its unspecified damages and all
allowable civil penalties. The Company denies these allegations and is
vigorously defending against these claims. The trial in this matter commenced
September 15, 1998, and is expected to conclude the week of September 21, 1998.
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, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
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 18, 1998:
NAME POSITION AGE
- ------------------ ------------------------------------------------------ ---
E. Courtney Siegel Chairman of the Board, President, and Chief Executive 48
Officer
Daniel S. Dunleavy Executive Vice President, Chief Operating Officer, and 45
Chief Financial Officer
Robert E. Chism Vice President, Development 45
Karen G. Fink Vice President, General Counsel and Secretary 42
Robert T. Menzel Vice President, Real-Time Systems 45
Michael N. Smith Vice President, Video-On-Demand 45
E. COURTNEY SIEGEL. CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF EXECUTIVE
OFFICER. Mr. Siegel was elected Chairman of the Board in November 1997. He has
served as President and Chief Executive Officer since June 1996. He served as
Chairman, President, and Chief Executive Officer of Harris Computer Systems
Corporation from October 1994 through June 1996. Prior to that time, and since
1990, Mr. Siegel served as a Vice President, General Manager of the Harris
Computer Systems Division of Harris Corporation. Mr. Siegel's twenty year
career in the computer technology field includes serving as Vice President of
standoff weapons at Rockwell International Corporation, a producer of
electronics, aerospace, automotive, and graphics equipment, and as Vice
President of Harris Government Support Systems Division's Orlando Operation.
DANIEL S. DUNLEAVY. EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER, AND
CHIEF FINANCIAL OFFICER. Mr. Dunleavy was elected Executive Vice President,
Chief Operating Officer in October 1997. He has served as Vice President, Chief
Financial Officer, and Chief Administrative Officer since June 1996. He served
as Vice President, Chief Financial Officer with Harris Computer Systems
Corporation from October 1994 through June 1996. Mr. Dunleavy served as Vice
President, Strategic Alliances and International Operations of the Harris
Computer Systems Division of Harris Corporation from February 1991 through
October 1994. After joining Harris Corporation in 1978, Mr. Dunleavy served in
various positions of increasing responsibility including Controller of the
Harris Computer Systems Division from 1988 until 1991.
ROBERT E. CHISM. VICE PRESIDENT, DEVELOPMENT. Mr. Chism was elected to
this position in June 1996. He served as Vice President, Technical and
Production Operations of Harris Computer Systems Corporation from October 1994
through June 1996. He joined the Harris Computer Systems Division of Harris
Corporation in June 1993 as Director, Simulation Business Area. Before joining
the Division, he held diverse engineering, program management and marketing
assignments in computer and related industries with General Electric Company
from May 1978 through June 1993, where he was Subsection Manager of Satellite
Command and Data Handling at the time he left to join the Harris Computer
Systems Division.
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.
10
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. 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. 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.
11
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 1998
Quarter Ended:
September 30, 1997 2.813 1.250
December 31, 1997 3.500 1.781
March 31, 1998 3.375 1.688
June 30, 1998 5.00 2.906
Fiscal Year 1997
Quarter Ended:
September 30, 1996 2.438 1.000
December 28, 1996 2.969 1.719
March 31, 1997 2.844 1.563
June 30, 1997 2.406 1.438
As of September 18, 1998, there were 47,708,939 shares of Common Stock
outstanding, held of record by approximately 2,172 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 17 to the
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.
12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company, in the normal course of doing business, is exposed to the
risks associated with foreign currency exchange rates. The Company does not
hold any market risk sensitive instruments, and minimizes its exposure through
judicious management of its international assets and liabilities.
The Company minimizes its foreign inventory levels, and enters into foreign
currency transactions only in those countries where it has foreign operations,
and is therefore able to offset resultant assets with local liabilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data for
Concurrent are included herein.
PAGE
----
Independent Auditors' Reports 20
Consolidated Balance Sheets as of June 30, 1998 and 1997 22
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996 23
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1998, 1997 and 1996 24
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996 25
Notes to Consolidated Financial Statements 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
A change in independent accountants has previously been reported. See the
Company's Current Report on Form 8-K filed on September 26, 1996.
There have been no disagreements with the independent accountants on
accounting and financial disclosure matters.
13
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, 1998 in connection with its Annual
Meeting of Stockholders to be held on October 30, 1998 ("Registrant's 1998 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 1998 Proxy Statement with respect to the business
experience of Registrant's directors. The information called for by this Item
10 with respect to executive officers of Registrant is included in Part I of
this Form 10-K under the caption "Executive Officers of the Registrant".
(F) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Election of Directors" in Registrant's
1998 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 1998 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 1998 Proxy Statement.
14
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 1998 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 1998 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 1998 Proxy Statement.
15
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 Balance Sheets as of June 30, 1998 and 1997
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996
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)
4.4 Warrant to Purchase Shares of Common Stock of the Company dated August 17, 1998 issued
to Scientific-Atlanta, Inc.
*10.1(a) 1991 Restated Stock Option Plan (As amended as of October 30, 1997). (g)
16
*10.2(a) Form of Employment Agreement between the Company and its executive officers. All
agreements, other than Mr. Siegel's, 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. (b)
10.5 AT&T Information Systems Sublicensing Agreement. (b)
10.6(a) Amended and Restated Loan and Security Agreement dated March 1, 1998 between the
Company and the lender named therein. (l)
11 Statement re: computation of per share earnings.
21 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
- -----------------
* Management contract or compensatory plan or arrangement.
(a) Incorporated herein by reference to the Exhibits to the Company's proxy materials dated May 23, 1996.
(b) Incorporated herein by reference to the Exhibits to the Company's Registration Statement on Form S-2
(No. 33-62440).
(c) Incorporated herein by reference to the Exhibits to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 28, 1996.
(d) Incorporated herein by reference to the Exhibits to the Company's Current Report on Form 8-K, dated
April 19, 1996.
(e) Incorporated herein by reference to Exhibit Number 4.4 of Item 14 of the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1992.
(f) Incorporated herein by reference to the Company's Current Report on Form 8-K dated August 20, 1992.
(g) Incorporated herein by reference to Exhibit Number 10 to the Company's Quarterly Report on Form 10-
Q for the fiscal quarter ended December 31, 1997.
(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, 1997.
(l) Incorporated herein by reference to Exhibit Number 10 of the Company's Quarterly Report on Form 10-
Q for the fiscal quarter ended March 31, 1998.
REPORTS ON FORM 8-K.
None.
17
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 Operating Officer
and Chief Financial Officer
Date: September 22, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Registrant and in
the capacities and on the date indicated.
NAME CAPACITY
- -------------------------- --------------------------------------------------
/s/ E. COURTNEY SIEGEL Chairman of the Board, President and -|
- -------------------------- |
E. Courtney Siegel Chief Executive Officer |
(Principal Executive Officer) |
|
/s/ DANIEL S. DUNLEAVY Executive Vice President, Chief Operating Officer |
- -------------------------- |
Daniel S. Dunleavy and Chief Financial Officer |
(Principal Financial and Accounting Officer) |
|
/s/ MICHAEL A. BRUNNER Director |
- -------------------------- |
Michael A. Brunner | September 22, 1998
|
/s/ MORTON E. HANDEL Director |
- -------------------------- |
Morton E. Handel |
/s/ C. SHELTON JAMES Director |
- -------------------------- |
C. Shelton James |
|
/s/ RICHARD P. RIFENBURGH Director |
- -------------------------- |
18
CONCURRENT COMPUTER CORPORATION
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED JUNE 30, 1998
19
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Concurrent Computer Corporation:
We have audited the accompanying consolidated balance sheets of Concurrent
Computer Corporation and subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, redeeemable preferred stock and
stockholders' equity, and cash flows for the years then ended. In connection
with our audit of the consolidated financial statements, we also audited the
financial statement schedule for the years ended June 30, 1998 and 1997, as
listed in Item 14(a)(2) of the Company's 1998 Annual Report on Form 10-K. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits. The consolidated financial statements and
financial statement schedule of Concurrent Computer Corporation and subsidiaries
for the year ended June 30, 1996, prior to their restatement for the prior
period adjustment described in Note 21 to the consolidated financial statements
were audited by other auditors whose report dated August 12, 1996, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Concurrent Computer
Corporation and subsidiaries as of June 30, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule for the years ended June 30, 1998 and 1997,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
We have also audited the adjustments described in Note 21 that were applied to
restate the 1996 consolidated financial statements. In our opinion, such
adjustments are appropriate and have been properly applied.
/s/ KPMG PEAT MARWICK LLP
-----------------------------
July 31, 1998
20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors
of Concurrent Computer Corporation
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Concurrent Computer Corporation (the
"Company") for the year ended June 30, 1996 (not presented herein). In
addition, we have audited the financial statement schedule for the year ended
June 30, 1996 as listed in Item 14(a) of the Company's Annual Report on Form
10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.
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 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Concurrent Computer Corporation for the year ended June 30, 1996, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule 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.
--------------------------------
Parsippany, New Jersey
August 12, 1996
21
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, JUNE 30,
1998 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 5,733 $ 4,024
Trading securities - 2,718
Accounts receivable, less allowance for doubtful
accounts of $503 and $913 in 1998 and 1997, respectively 18,996 25,720
Inventories 6,263 8,399
Prepaid expenses and other current assets 1,487 2,286
--------- ---------
Total current assets 32,479 43,147
Property, plant and equipment - net 12,419 14,207
Facilities held for disposal - 4,700
Other long-term assets 1,337 1,474
--------- ---------
Total assets $ 46,235 $ 63,528
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 365 $ 5,399
Current portion of long-term debt - 1,668
Revolving credit facility 1,123 3,118
Accounts payable and accrued expenses 13,321 23,866
Deferred revenue 4,018 ,402
--------- ---------
Total current liabilities 18,827 38,453
Long-term debt - 4,493
Other long-term liabilities 1,898 1,219
--------- ---------
Total liabilities 20,725 44,165
--------- ---------
Class B 9% cumulative, convertible, redeemable, exchangeable preferred
Stock, mandatory redemption value of $1,378,000 at June 30, 1997;
$.01 par value per share; 1,000,000 authorized; 220,000 issued and
outstanding at June 30, 1997; none outstanding at June 30, 1998 - 1,243
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;
47,632,309 and 46,102,872 issued at June 30, 1998 and 1997, respectively 476 461
Capital in excess of par value 97,136 92,650
Accumulated deficit after eliminating accumulated deficit of
$81,826 at December 31, 1991, date of quasi-reorganization (71,191) (74,587)
Treasury stock, at cost; 840 shares (58) (58)
Cumulative foreign currency translation adjustment (853) (346)
--------- ---------
Total stockholders' equity 25,510 18,120
--------- ---------
Total liabilities and stockholders' equity $ 46,235 $ 63,528
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
22
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED JUNE 30,
------------------------------
1998 1997 1996 (1)
-------- --------- ---------
Net sales
Computer systems $37,868 $ 55,664 $ 42,430
Service and other 44,347 52,703 53,370
-------- --------- ---------
Total 82,215 108,367 95,800
Cost of sales
Computer systems 18,556 27,662 27,487
Service and other 23,269 28,426 33,048
Transition - 1,068 -
-------- --------- ---------
Total 41,825 57,156 60,535
-------- --------- ---------
Gross margin 40,390 51,211 35,265
Operating expenses:
Selling, general and administrative 25,134 28,604 29,818
Research and development 10,947 13,577 13,837
Restructuring (607) - 24,480
Transition - 2,292 -
Curtailment gain on postretirement benefit obligation - (2,501) -
Non-cash development expenses 1,605 - -
-------- --------- ---------
Total operating expenses 37,079 41,972 68,135
-------- --------- ---------
Operating income (loss) 3,311 9,239 (32,870)
Interest expense (833) (2,034) (2,316)
Interest income 185 164 226
Other non-recurring items 1,434 (1,577) (3,297)
Other income (expense) - net 277 (350) (1,502)
-------- --------- ---------
Income (loss) before provision for income taxes 4,374 5,442 (39,759)
Provision for income taxes 960 1,381 1,550
-------- --------- ---------
Net income (loss) 3,414 4,061 (41,309)
Preferred stock dividends and accretion of
mandatory redeemable preferred shares (18) (311) -
-------- --------- ---------
Net income (loss) available to common shareholders $ 3,396 $ 3,750 $(41,309)
======== ========= =========
Basic and diluted net income (loss) per share $ 0.07 $ 0.08 $ (1.35)
======== ========= =========
(1) Restated to reflect a prior period adjustment (see Note 21).
The accompanying notes are an integral part of the consolidated financial
statements.
23
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
CUMULATIVE
FOREIGN
REDEEMABLE COMMON STOCK CAPITAL IN CURRENCY
------------------
PREFERRED PAR EXCESS OF ACCUMULATED TRANSLATION TREASURY STOCK
------------------ --------------
STOCK SHARES VALUE PAR VALUE DEFICIT ADJUSTMENT SHARES
-------- ---------- ------ ---------- --------- ------------ -------
Balance at June 30, 1995 $ - 30,208,276 $ 302 $ 73,112 $(37,028) $ (1,158) (840)
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 - - -
Issuance of preferred stock in connection with - - - - - - -
Acquisition (see Note 3) 5,610 - - - - - -
Net loss - - - - (39,712) - -
Foreign currency translation adjustment - - - - - 360 -
-------- ---------- ------ ---------- --------- ------------ -------
- - - - - - -
Balance at June 30, 1996, as previously reported 5,610 41,223,610 412 84,252 (76,740) (798) (840)
Prior period adjustment (see Note 21) - - - -- (1,597) 1,456 -
-------- ---------- ------ ---------- --------- ------------ -------
-- -- - -- - - -
Balance at June 30, 1996, as restated 5,610 41,223,610 412 84,252 (78,337) 658 (840)
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 (4,387) 1,950,000 20 4,367 - - -
Net income - - - - 4,061 - -
Dividends on and accretion of preferred stock 20 - - - (311) - -
Foreign currency translation adjustment - - - - - (1,004) -
-------- ---------- ------ ---------- --------- ------------ -------
- - - - - - -
Balance at June 30, 1997 1,243 46,102,872 461 92,650 (74,587) (346) (840)
Sale of common stock under stock plans - 678,213 6 961 - - -
Issuance of common stock under - - - - - - -
Retirement savings plan - 296,224 3 581 - - -
Conversion of cumulative, convertible - - - - - - -
Redeemable exchangeable preferred stock (1,245) 555,000 6 1,239 - - -
Issuance of warrants - - - 1,605 - - -
Quasi-reorganization related adjustment - - - 100 - - -
Net income - - - - 3,414 - -
Dividends on and accretion of preferred stock 2 - - - (18) - -
Foreign currency translation adjustment - - - - - (507) -
-------- ---------- ------ ---------- --------- ------------ -------
- - - - - - -
Balance at June 30, 1998 $ - 47,632,309 $ 476 $ 97,136 $(71,191) $ (853) (840)
======== ========== ====== ========== ========= ============ =======
TREASURY STOCK
---------
COST TOTAL
--------- --------
Balance at June 30, 1995 $ (58) $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
Issuance of preferred stock in connection with - -
Acquisition (see Note 3) - -
Net loss (39,712)
Foreign currency translation adjustment - 360
--------- --------
- -
Balance at June 30, 1996, as previously reported (58) 7,068
Prior period adjustment (see Note 21) - (141)
--------- --------
- -
Balance at June 30, 1996, as restated (58) 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 and accretion of preferred stock - (311)
Foreign currency translation adjustment - (1,004)
--------- --------
- -
Balance at June 30, 1997 (58) 18,120
Sale of common stock under stock plans - 967
Issuance of common stock under - -
Retirement savings plan - 584
Conversion of cumulative, convertible - -
Redeemable exchangeable preferred stock - 1,245
Issuance of warrants - 1,605
Quasi-reorganization related adjustment - 100
Net income - 3,414
Dividends on and accretion of preferred stock - (18)
Foreign currency translation adjustment - (507)
--------- --------
- -
Balance at June 30, 1998 $ (58) $25,510
========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
24
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30,
-------------------------------
1998 1997 1996 (1)
--------- --------- ---------
Cash flows provided by operating activities:
Net income $ 3,414 $ 4,061 $(41,309)
Adjustments to reconcile net income
to net cash provided by operating activities:
Unrealized loss on trading securities - 2,334 -
Realized gain on trading securities (420) (757) -
Gain on sale of facility (706) - -
Depreciation and amortization 5,656 5,177 11,067
Other non-cash expenses 1,014 1,404 5,117
Provision for restructuring - - 24,480
Issuance of non-cash warrants 1,605 - -
Other non-recurring charge - - 3,297
Decrease (increase) in assets:
Accounts receivable 6,864 2,087 6,086
Inventories 1,915 3,917 (157)
Prepaid expenses and other current assets (309) (29) 555
Other long term assets 83 1,879 880
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (10,945) (16,714) (6,104)
Other long term liabilities 679 (3,235) (639)
--------- --------- ---------
Net cash provided by operating activities 8,850 124 3,273
--------- --------- ---------
Cash flows provided by (used in) investing activities:
Net additions to property, plant and equipment (2,949) (2,510) (2,513)
Proceeds from sale of facility 5,406 - 2,300
Acquisition of business, net of cash received and non-cash transactions - - (2,980)
Proceeds from sale of trading securities 2,668 5,782 -
--------- --------- ---------
Net cash provided by (used in) investing activities 5,125 3,272 (3,193)
--------- --------- ---------
Cash flows used in financing activities:
Net payments of notes payable (4,173) 386 (99)
Repayment of long term debt (8,156) (3,579) (3,915)
Proceeds from sale and issuance of common stock 967 1,263 1,031
--------- --------- ---------
Net cash used in financing activities (11,362) (1,930) (2,983)
--------- --------- ---------
Effect of exchange rates on cash and cash equivalents (904) (1,004) 737
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 1,709 462 (2,166)
Cash and cash equivalents - beginning of year 4,024 3,562 5,728
--------- --------- ---------
Cash and cash equivalents - end of year $ 5,733 $ 4,024 $ 3,562
========= ========= =========
Cash paid during the period for:
Interest $ 568 $ 2,255 $ 1,931
========= ========= =========
Income taxes (net of refunds) $ 1,434 $ 1,685 $ 1,659
========= ========= =========
Non-cash investing/financing activities
Issuance of common stock - - 10,111
--------- --------- ---------
Issuance of preferred stock - - 5,610
--------- --------- ---------
Conversion of preferred stock 1,245 4,387 -
--------- --------- ---------
Dividends on preferred stock 18 311 -
--------- --------- ---------
(1) Restated to reflect a prior period adjustment (see Note 21).
The accompanying notes are an integral part of the consolidated financial
statements.
25
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW OF THE BUSINESS
Concurrent Computer Corporation ("Concurrent" or the "Company"),
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 and subsidiaries
throughout North America, South America, Europe, Asia, and Australia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all
wholly-owned domestic and foreign subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Foreign Currency
The functional currency of substantially all of the Company's foreign
subsidiaries is the applicable local currency. The translation of the
applicable foreign currencies into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using average rates of exchange prevailing
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 $82,000, $138,000, and
($934,000) for the years ended June 30, 1998, 1997, and 1996, 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 consolidated statement of operations. Market values of the
securities are determined by the most recently traded price of the security at
the balance sheet date.
26
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out basis. The Company establishes excess and obsolete
inventory reserves based upon historical and anticipated usage.
Property, Plant and Equipment
Property, plant and equipment are stated at acquired cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the
estimated useful lives of assets ranging from three to forty years. Leasehold
improvements are amortized over the shorter of the useful lives of the
improvements or the terms of the related lease. Gains and losses resulting from
the disposition of property, plant and equipment are included in Other income
(expense) - net. Expenditures for repairs and maintenance are charged to
operations as incurred and expenditures for major renewals and betterments are
capitalized.
Revenue Recognition and Related Matters
Computer systems sales are recorded when the earnings process is complete,
typically upon shipment to customers. Service contract revenue is recognized
separately and as earned, on a straight line basis, over the respective
maintenance period in accordance with the terms of the applicable contract.
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 and 1996, amortization expense relating
to software development and production costs which is included as a component of
cost of sales amounted to $29,000 and $1,070,000, respectively. During fiscal
year 1997, the Company wrote off all of its fully amortized capitalized
software. Subsequently, no additional software development and production costs
have been incurred. The Company does not incur costs related to the development
or purchase of internal use software.
Research and Development
Research and development expenditures are expensed as incurred.
Basic and Diluted Income (Loss) per Share
Basic 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. In fiscal years 1998 and 1997, diluted
income per share is computed using the treasury stock method by dividing income
(loss) after deduction of preferred stock dividends by the weighted average
number of shares including common share equivalents and incremental shares
representing the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. In fiscal
1996, diluted loss per share has not been adjusted due to the effect of the
incremental shares being antidilutive.
27
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies new
standards designed to improve the earnings per share ("EPS") information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements and increasing the
comparability of EPS data on an international basis. Some of the changes made
to simplify EPS computations included (i) eliminating the presentation of
primary EPS and replacing it with basic EPS, (ii) eliminating the modified
treasury stock method and the three percent materiality provision and (iii)
revising the contingent share provisions and the supplemental EPS data
requirements. SFAS No. 128 also makes a number of changes to existing
disclosure requirements.
SFAS No. 128 is effective for financial statements issued for period ending
after December 15, 1997. The adoption of this statement during fiscal year 1998
did not have a significant impact on the Company's previously reported EPS.
Impairment of Long-Lived Assets
The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of."
This statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The 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 (see Note 9).
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
inventories, prepaid expenses, accounts payable and short term debt approximate
fair value because of the short maturity of these instruments.
Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal
income tax return. All foreign subsidiaries file individual tax returns
pursuant to local tax laws. The Company follows the asset and liability method
of accounting for income taxes. Under the asset and liability method, a
deferred tax asset or liability is recognized for temporary differences between
financial reporting and income tax bases of assets and liabilities, tax credit
carryforwards and operating loss carryforwards. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not that
such deferred tax assets will not be realized. Utilization of net operating
loss carryforwards and tax credits, which originated prior to the Company's
quasi-reorganization effected on December 31, 1991, are recorded as adjustments
to capital in excess of par value.
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" ("APB Opinion No. 25"), and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. During fiscal year 1997, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), 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.
28
Year 2000 (unaudited)
Management converted its computer systems and believes they are Year 2000
compliant. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has expensed all costs associated with these systems changes.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet dates and the reporting
of revenues and expenses during the reporting periods, to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1997 and 1996 consolidated financial statements have
been reclassified to conform with the 1998 presentation.
3. ACQUISITION
On June 27, 1996 Concurrent acquired the assets of the Real-Time Division
of Harris Computer Systems Corporation ("HCSC") and 683,178 newly-issued shares
of HCSC, in exchange for 10,000,000 shares of common stock of Concurrent (with a
fair value of $9.7 million); 1,000,000 shares of convertible exchangeable
preferred stock of Concurrent with a 9% cumulative annual dividend payable
quarterly in arrears, mandatorially redeemable at $6,263,000 (with an estimated
fair value of $5.6 million) (see Note 5); and the assumption of certain
liabilities relating to the HCSC Real-Time Division (the "Acquisition"). The
aggregate purchase price of the Acquisition was approximately $18.7 million,
including $3.4 million in transaction expenses (principally financial advisor,
legal and other professional fees). The Acquisition was accounted for as a
purchase effective June 30, 1996. The Acquisition resulted in excess of
acquired net assets over cost (negative goodwill) amounting to approximately
$8.7 million which has been allocated to reduce proportionately the values
assigned to non-current assets.
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.
29
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 HCSC common stock at the market price per share on the date of
the Acquisition of $14.75 per share. During fiscal year 1997, the Company sold
377,995 shares resulting in a realized gain of $757,000. At June 30, 1997, the
value of the remaining shares was $8.91 per share, resulting in an unrealized
loss of $2.3 million for the year then ended. During the year ended June 30,
1998, 259,352 shares of stock were sold, resulting in a realized gain for the
period of $358,000, and 45,826 shares valued at $10.25 per share were issued as
bonuses to Company employees resulting in a realized gain of $62,000 and
non-cash compensation expense of $470,000. The gains are included as other
non-recurring charges in the consolidated statement of operations and the
non-cash expense in the consolidated statement of cash flows.
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. 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
--------------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales $ 133,871
Net loss $ (44,498)
Net loss per share $ (1.10)
4. DISSOLUTION OF JOINT VENTURE
In June 1998, the Company entered into a Share Transfer and Termination of
Shareholders Agreement (the "Termination Agreement") whereby it acquired the 40
percent interest held by the minority shareholders in the Company's Japanese
subsidiary, Concurrent Nippon Corporation ("CNC"). Pursuant to the provisions
of the Termination Agreement, the minority shareholders relinquished their
interest in CNC by transferring 1,200 shares of CNC to the Company and paying
$1.2 million to the Company.
30
Per the original joint venture agreement, Concurrent and the minority
shareholders shared the income of CNC on a 60-40 basis, respectively. However,
for losses, minority shareholders only assumed its share of the losses until it
reached the 40 percent investment. Subsequent to that point Concurrent had
assumed 100 percent of the losses. The minority shareholders stopped assuming
its share of CNC's losses at the end of fiscal year 1996.
As part of the Termination Agreement, the minority shareholders agreed to
assume its share of CNC losses subsequent to fiscal year 1996 amounting to $1.2
million. The Company accounted for this payment from the minority shareholders
in the consolidated statement of operations as other non-recurring items in the
fourth quarter.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the Acquisition, Concurrent issued 1,000,000 shares of
newly issued Class B 9% Cumulative Convertible Redeemable Exchangeable Preferred
Stock ("Preferred Stock"). Each share of Preferred Stock 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. During fiscal years 1998 and 1997 respectively, 220,000
and 780,000 shares of Concurrent Preferred Stock were converted into outstanding
common stock. As of June 30, 1998, there was no outstanding Preferred Stock.
6. PROVISION FOR RESTRUCTURING
In connection with the Acquisition, the Company recorded a $23.2 million
restructuring provision as of June 30, 1996. Such charge, based on formal
approved plans, included the estimated costs related to the rationalization of
facilities, workforce reductions, asset writedowns and other costs which
represented approximately 44%, 28%, 26%, and 2%, respectively. The
rationalization of facilities included the planned disposition of the Company's
Oceanport, New Jersey facility, as well as the closing or downsizing of certain
offices located throughout the world. The workforce reductions included the
termination of approximately 200 employees worldwide, encompassing substantially
all of the Company's employee groups. The asset writedowns were primarily
related to the disposition of duplicative machinery and equipment. Cash
expenditures related to this reserve were $2.2 million, $9.6 million, and $1.4
million for the years ended June 30, 1998, 1997, and 1996, respectively.
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.
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. The Company is required to repay
grants to the IDA of approximately $484,000 (360,000 Irish pounds) during fiscal
year 1999 which has been accrued for as part of this reserve.
7. DEBT AND LINES OF CREDIT
On March 1, 1998, the Company entered into a new credit agreement providing
for an $8 million revolving credit facility maturing on August 1, 2000 (the
"Revolver"). During fiscal year 1998, the Company repaid the outstanding term
loan and revolver from its prior credit agreement, and the Company's Japanese
subsidiary repaid its bank loans for which the Company was a guarantor.
31
At June 30, 1998, the outstanding balance of the revolver was $1.1 million,
which is classified as a current liability in the accompanying consolidated
balance sheet and may be repaid and reborrowed, subject to certain collateral
requirements, at any time prior to its maturity. The interest rate of the
Revolver is prime plus 1.25% (9.75% at June 30, 1998). Pursuant to the terms of
the Revolver, in fiscal year 1999 the interest rate decreased to prime plus .75%
due to the Company achieving certain earnings requirements. The Company has
pledged substantially all of its domestic assets as collateral for the Revolver.
Certain early termination fees apply if the Company terminates the Revolver in
its entirety prior to June 30, 1999.
The Revolver contains various covenants and restrictions, which among other
things, (1) place certain limits on corporate acts of the Company such as
fundamental changes in the corporate structure of the Company, investments in
other entities, incurrence of additional indebtedness, creation of liens or
certain distributions or dispositions of assets, including cash dividends, and
(2) require the Company to meet financial tests of a period basis, the most
restrictive of which relate to the maintenance of collateral coverage and debt
coverage all as defined in the agreement. At June 30, 1998, 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 $457,000 at prevailing
rates of interest ranging from 2.875% to 6.19% at June 30, 1998. At June 30,
1998, $360,000 of demand notes were outstanding under such arrangements.
Foreign unused lines of credit can be withdrawn at any time at the option of
either the Company or the lending institutions.
8. INVENTORIES
Inventories consist of:
JUNE 30,
--------------
1998 1997
------ ------
(DOLLARS IN THOUSANDS)
Raw materials $4,780 $5,823
Work-in-process 959 2,191
Finished goods 524 385
------ ------
$6,263 $8,399
====== ======
At June 30, 1998, some portion of the Company's inventory was in excess of
the current requirements based upon the planned level of sales for fiscal year
1999. Accordingly, the Company has recorded a provision for inventory reserves
of $4.6 million to reduce the value of the inventory to its estimated net
realizable value. Inventory reserves at June 30, 1997 amounted to $4.8 million.
32
9. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-TERM ASSETS
Property, plant and equipment consists of:
JUNE 30,
--------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
Land $ 513 $ 529
Buildings and leasehold improvements 1,409 2,820
Machinery, equipment and customer support spares 28,343 33,920
--------- ---------
30,265 37,269
Less: Accumulated depreciation (17,846) (23,062)
--------- ---------
$ 12,419 $ 14,207
========= =========
For the years ended June 30, 1998, 1997, and 1996, depreciation and
amortization expense for property plant and equipment amounted to $4,494,000,
$5,123,000, and $9,254,000, 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 6). The sale was finalized during the
first quarter of fiscal year 1998 and resulted in net proceeds of approximately
$5.4 million which was used to pay the Company's long term debt. The Company
realized a gain of $0.7 million that is reflected in the consolidated statement
of operations for the year ended June 30, 1998.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
JUNE 30,
----------------
1998 1997
------- -------
(DOLLARS IN THOUSANDS)
Accounts payable, trade $ 4,946 $ 7,451
Accrued payroll, vacation, and other
Employee expenses 4,695 5,891
Restructuring reserve 661 2,876
Other accrued expenses 3,019 7,648
------- -------
$13,321 $23,866
======= =======
33
11. INCOME TAXES
The domestic and foreign components of income (loss) before provision for
income taxes are as follows:
YEARS ENDED JUNE 30,
--------------------------
1998 1997 1996 (1)
------ ------- ---------
(DOLLARS IN THOUSANDS)
United States $2,143 $ (489) $(35,588)
Foreign 2,231 5,931 (4,171)
------ ------- ---------
$4,374 $5,442 $(39,759)
====== ======= =========
(1) Restated to reflect prior period adjustment (see Note 21).
The components of the provision for income taxes are as follows:
YEARS ENDED JUNE 30,
------------------------
1998 1997 1996(1)
-------- ------ ------
(DOLLARS IN THOUSANDS)
Current:
Federal $ - $ - $-
Foreign 496 1,347 1,550
Total $ 496 $1,347 $1,550
-------- ------ ------
Deferred:
Federal $ 98 $ - $ -
Foreign 366 34 -
Total $ 464 $ 34 $ -
-------- ------ ------
Total $ 960 $1,381 $1,550
======== ====== ======
(1) Restated to reflect prior period adjustment (see Note 21).
A reconciliation of the income tax expense (benefit) computed using the
Federal statutory income tax rate to the Company's provision for income taxes is
as follows:
YEARS ENDED JUNE 30,
-----------------------------
1998 1997 1996 (1)
-------- -------- ---------
(DOLLARS IN THOUSANDS)
Income (loss) before provision for
Income taxes $ 4,374 $ 5,442 $(39,759)
-------- -------- ---------
Tax at Federal statutory rate 1,487 1,850 (13,518)
U.S. Federal and foreign net operating
Losses for which no tax benefit was recorded 575 2,246 12,617
Difference between U.S. and non U.S.
Income tax rates 51 - 70
Other permanent differences (1,153) (2,715) 2,381
-------- -------- ---------
Provision for income taxes $ 960 $ 1,381 $ 1,550
======== ======== =========
(1) Restated to reflect prior period adjustment (see Note 21).
34
As of June 30, 1998 and 1997, the Company's deferred tax assets and
liabilities were comprised of the following:
JUNE 30,
--------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
Gross deferred tax assets related to:
U.S. and foreign net operating loss carryforwards $ 46,891 $ 44,212
Accumulated depreciation 3,087 8,244
Restructuring reserves 2,798 4,029
Inventory reserves 5,071 7,162
Other reserves 569 -
Accrued compensation 1,156 760
Other 1,042 3,853
--------- ---------
Total gross deferred tax assets 60,614 68,260
Valuation allowance (58,814) (66,973)
--------- ---------
Total deferred tax asset 1,800 1,287
Gross deferred tax liabilities primarily related to
property and equipment 1,800 1,287
Total gross deferred tax liability 1,800 1,287
--------- ---------
Deferred income taxes $ - $ -
========= =========
Any future benefits attributable to the U.S. Federal net operating loss
carryforwards which originated prior to the Company's quasi-reorganization are
accounted for through adjustments to capital in excess of par value. Under
Section 382 of the Internal Revenue Code, future benefits attributable to the
net operating loss carryforwards and tax credits which originated prior to the
Company's quasi-reorganization and those which originated subsequent to the
Company's quasi-reorganization through the date of the Company's 1993
comprehensive refinancing ("1993 Refinancing") are limited to approximately $0.3
million per year. The Company's U.S. Federal net operating loss carryforwards
begin to expire in 2004. As of June 30, 1998, the Company has remaining
utilizable U.S. Federal tax net operating loss carryforwards of approximately
$102 million for income tax purposes. Approximately $55 million of these net
operating loss carryforwards originated prior to the Company's 1993 Refinancing
and are limited to $300,000 per year. The remaining $47 million of net
operating loss carryforwards may be limited in accordance with IRC Section 382.
Deferred income taxes have not been provided for undistributed earnings of
foreign subsidiaries, which originated subsequent to the Company's
quasi-reorganization, primarily due to the Company's required investment in
certain subsidiaries.
Additionally, deferred income taxes have not been provided on undistributed
earnings of foreign subsidiaries which originated prior to the Company's
quasi-reorganization. The impact of both the subsequent repatriation of such
earnings and the resulting offset, in full, from the utilization of net
operating loss carryforwards will be accounted for through adjustments to
capital in excess of par value.
The valuation allowance for deferred tax assets as of June 30, 1998 and
1997 was approximately $59 million and $67 million, respectively. The net
change in the total valuation allowance for the year ended June 30, 1998 was a
decrease of approximately $8 million. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. As such, the deferred tax assets have been reduced by the
valuation allowance since management considers more likely than not that these
deferred tax assets will not be realized.
35
12. CONCENTRATION OF RISK
A summary of the Company's financial data by geographic area follows:
YEARS ENDED JUNE 30,
------------------------------
1998 1997 1996
-------- --------- ---------
(DOLLARS IN THOUSANDS)
Net sales:
United States $49,708 $ 60,039 $ 43,119
Intercompany 6,164 11,031 10,065
-------- --------- ---------
55,872 71,070 53,184
-------- --------- ---------
Europe 18,383 28,119 27,668
Intercompany 1,161 1,759 141
-------- --------- ---------
19,544 29,878 27,809
-------- --------- ---------
Asia/Pacific 7,285 11,078 12,554
Japan 5,082 5,999 10,410
Other 1,783 3,132 2,049
-------- --------- ---------
89,566 121,157 106,006
Eliminations (7,351) (12,790) (10,206)
-------- --------- ---------
Total $82,215 $108,367 $ 95,800
======== ========= =========
Operating income (loss):
United States $ 394 $ 4,881 $(17,110)
Europe 1,163 985 (18,583)
Asia/Pacific 1,701 2,857 3,457
Japan (352) (1,055) (388)
Other 390 565 441
Eliminations 15 1,006 (687)
-------- --------- ---------
Total $ 3,311 $ 9,239 $(32,870)
======== ========= =========
JUNE 30,
--------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
Identifiable assets:
United States $ 55,778 $ 64,752
Europe 18,048 27,346
Asia/Pacific 10,224 12,707
Japan 4,596 4,962
Other 1,394 2,079
Eliminations (43,805) (48,318)
--------- ---------
Total $ 46,235 $ 63,528
========= =========
36
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
$34,877,000, $49,534,000 and $54,236,000 for the years ended June 30, 1998, 1997
and 1996, respectively, which amounts represented 42%, 46% and 57% of total
sales for the respective fiscal years.
Sales to the U.S. Government and its agencies amounted to approximately
$22,203,000, $27,737,000 and $21,750,000 for the years ended June 30, 1998, 1997
and 1996, respectively, which amounts represented 27%, 26% and 23% of total
sales for the respective fiscal years. There were no other customers during
1998 representing more than 10% of total revenues.
13. 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.
For the years ended June 30, 1998 and 1997, the Company matched 100% of the
employees' Plan contributions up to 6%. In fiscal year 1996, 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:
1998 1997 1996
------ ------ ----
(DOLLARS IN THOUSANDS)
Annual contribution in common stock $ - $ - $326
Matching contribution 1,140 1,439 147
------ ------ ----
Total $1,140 $1,439 $473
====== ====== ====
Certain foreign subsidiaries of the Company maintain pension plans for
their employees which conform to the common practice in their respective
countries. The pension (benefit) expense related to these plans amounted to
$(83,000), $109,000 and $263,000 for the years ended June 30, 1998, 1997 and
1996, respectively.
The funded status of the Company's international pension plans at June 30,
1998 and 1997 was as follows:
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation $ 9,793 $ 7,786
Accumulated benefit obligation 9,875 7,883
Projected benefit obligation 10,677 9,304
Plan assets at fair value 13,454 11,606
-------- --------
Plan assets in excess of projected
Benefit obligation 2,777 2,302
Unrecognized net asset at transition (271) (1,071)
Unrecognized net gain (3,292) (2,640)
-------- --------
Accrued pension liability $ (786) $(1,409)
======== ========
37
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, 1998, 1997 and 1996:
1998 1997 1996
------------ ------------ ------------
Discount rate 6.5% to 8.5% 6.5% to 9.0% 6.5% to 9.0%
Rate of increase in future compensation levels 3.5% to 7.0% 3.5% to 7.0% 3.5% to 7.0%
Expected long-term rate of return 7.0% to 8.5% 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.
14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
On July 1, 1993, the Company adopted the provisions of SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions". In
connection with the adoption of this standard, the Company recorded a non-cash
charge of $3.0 million in fiscal year 1994, which represented the immediate
recognition of the accumulated postretirement benefit obligation at the date of
adoption.
The plan was subject to amendment at the Company's discretion, and as a
result of the Acquisition, a decision was made to terminate the plan. The
Company recognized a $2.5 million gain from curtailment of the plan during the
year ended June 30, 1997.
15. EMPLOYEE STOCK PLANS
The Company has a Stock Option Plan providing for the grant of incentive
stock options to employees and non-qualified stock options (NSO's) to employees,
non-employee directors and consultants. The Stock Option Plan is administered
by the Stock Award Committee comprised of members of the Compensation Committee
of the Board of Directors or the Board of Directors, as the case may be. Under
the plan, the Stock Award Committee may award, in addition to stock options,
shares of Common Stock on a restricted basis. The plan also specifically
provides for stock appreciation rights and authorizes the Stock Award Committee
to provide, either at the time of the grant of an option or otherwise, that the
option may be cashed out upon terms and conditions to be determined by the
Committee or the Board. No stock appreciation rights have been granted during
the years ended June 30, 1998, 1997 and 1996. The plan terminates on January
31, 2002. Stockholders have approved the purchase of up to 9,000,000 shares
under the plan.
38
Changes in options outstanding under the plan during the years ended June
30, 1998, 1997 and 1996 are as follows:
1998 1997 1996
----------------------- -------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ---------- ------------ ------ ---------- ------
Outstanding at beginning of year 6,016,229 $ 2.15 5,483,527 $ 1.91 3,167,075 $ 1.59
Granted 630,800 $ 1.86 1,711,000 $ 2.26 3,085,675 $ 2.09
Exercised (666,443) $ 1.45 (1,066,362) $ 1.12 (322,614) $ 1.42
Forfeited (127,792) $ 5.06 (111,936) $ 1.92 (446,609) $ 1.22
Outstanding at year-end 5,852,794 $ 2.13 6,016,229 $ 2.15 5,483,527 $ 1.91
=========== ============ ===========
Options exercisable at year end 3,076,730 2,493,536 2,553,501
Weighted average fair value of
Options granted during the year $ 0.42 $ 0.66 $ 0.61
Options with respect to 3,076,730 shares of common stock, with an
average exercise price of $2.13, were exercisable at June 30, 1998. The
weighted-average fair value of the stock options granted during 1998, 1997 and
1996 was $263,415, $1,130,324 and $1,883,583, respectively, on the date of grant
using the Black Scholes option-pricing model. The weighted-average assumptions
used were: expected dividend yield 0%, risk-free interest rate 5.0%, expected
life of 4.01 years and an expected volatility of 35%.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 1998:
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES LIFE AT JUNE 30, 1998 PRICE AT JUNE 30, 1998 PRICE
- -------------- ----------- ---------------- --------- ---------------- ---------
0.88 - $0.99 6.84 81,001 $ 0.88 81,001 $ 0.88
1.00 - $1.99 7.73 775,278 1.47 394,272 1.44
2.00 - $2.99 8.05 4,788,181 2.17 2,420,632 2.12
3.00 - $3.01 8.73 29,000 3.12 6,500 3.34
4.00 - $4.99 3.19 177,452 4.39 172,443 4.39
5.00 - $5.99 2.99 1,500 5.08 1,500 5.08
6.00 - $47.50 2.61 382 14.58 382 14.58
----------- ---------------- --------- ---------------- ---------
7.85 5,852,794 $ 2.13 3,076,730 $ 2.13
39
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income (loss) applicable to common shareholders and net income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
YEARS ENDED JUNE 30,
1998 1997 1996
------ ------ ---------
(DOLLARS IN THOUSANDS)
Net income (loss) applicable to common shareholders
As reported $3,396 $3,750 $(41,309)
Pro forma $3,133 $2,620 $(43,193)
Net income (loss) per share (basic and diluted)
As reported $ 0.07 $ 0.08 $ (1.35)
Pro forma $ 0.07 $ 0.06 $ (1.41)
16. ISSUANCE OF NON-CASH WARRANTS
On May 20, 1998, the Company entered into a Letter of Intent ("LOI")
with Scientific-Atlanta, Inc. ("SAI") providing for the joint development and
marketing of a video-on-demand system to cable network operators. A definitive
agreement was signed on August 17, 1998. In exchange for SAI's technical and
marketing contributions, the Company issued warrants for 2 million shares of its
common stock, exercisable at $5 per share over a four-year term.
The LOI between Concurrent and SAI is broken into three phases:
Phase I Technical/Commercial Evaluation and Definitive Agreement
Phase II Initial Development and Video-on-Demand Field Demonstration System
Phase III Commercial Deployment
During Phase I, either party could terminate the negotiations at any time. In
June 1998, the parties moved to Phase II and pursuant to the provisions of SFAS
No. 123, Concurrent recorded a charge of $1.6 million representing the fair
value of the underlying stock using the Black-Scholes option-pricing model for
the warrants to purchase 2 million shares of the Company's stock.
The LOI further stipulates that Concurrent is required to issue additional
warrants to SAI upon achievement of pre-determined revenue targets. These
warrants are to be issued with a strike price of a 15% discount to the then
current market price.
17. 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.
40
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.
18. BASIC AND DILUTED INCOME (LOSS) PER SHARE COMPUTATION
The following table presents a reconciliation of the numerators and
denominators of basic and diluted income (loss) per share for the periods
indicated:
YEARS ENDED JUNE 30,
1998 1997 1996
------- ------- ---------
(DOLLARS AND SHARE DATA IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Basic EPS calculation:
Net income $ 3,414 $ 4,061 $(41,309)
Less: Preferred stock dividends and accretion 18 311 -
------- ------- ---------
Net income (loss) available to common shareholders $ 3,396 $ 3,750 $(41,309)
Weighted average number of shares outstanding 47,002 44,603 30,568
------- ------- ---------
Basic EPS $ 0.07 $ 0.08 $ (1.35)
======= ======= =========
Diluted EPS calculation:
Net income $ 3,414 $ 4,061 $(41,309)
Less: Preferred stock dividends and accretion 18 311 -
------- ------- ---------
Net income (loss) available to common shareholders $ 3,396 $ 3,750 $(41,309)
Weighted average number of shares outstanding 47,002 44,603 30,568
Incremental shares from assumed conversion of stock options 625 509 -
------- ------- ---------
47,627 45,112 30,568
Diluted EPS $ 0.07 $ 0.08 $ (1.35)
======= ======= =========
19. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results for the years
ended June 30, 1998 and 1997:
THREE MONTHS ENDED
--------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1998 1998
-------------- ------------- ------------------- ----------
1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 20,605 $ 21,016 $ 20,394 $ 20,200
Gross margin $ 9,883 $ 10,763 $ 9,601 $ 10,143
Operating income (loss) (a) $ 1,646 $ 2,199 $ 1,017 $ (1,551)
Net income (loss) (a) $ 1,300 $ 1,423 $ 1,005 $ (314)
Net income (loss) per share $ 0.03 $ 0.03 $ 0.02 $ (0.01)
(a) Operating loss and net loss for the three months ended June 30, 1998 reflect a $1.6
million non-cash charge relating to the issuance of warrants for the purchase of 2,000,000
shares of the Company's common stock to Scientific-Atlanta, Inc. (see Note 16).
41
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
Operating income $ 1,312 $ 1,697 $ 3,420 $ 2,810
Net income (loss) (b) $ (4,062) $ 2,695 $ 2,280 $ 3,148
Net income (loss) per share $ (0.10) $ 0.06 $ 0.05 $ 0.07
(b) Net loss for the quarter ended September 30, 1996 reflects a curtailment gain of
$1.0 million and realized and unrealized losses on trading securities 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 trading securities 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 trading securities of $0.1 million. Net income for
quarter ended June 30, 1997 reflects realized and unrealized gains on trading securities
of $0.3 million.
20. COMMITMENTS AND CONTINGENCIES
The Company leases certain sales and service offices, warehousing, and
equipment. The leases expire at various dates through 2005 and generally
provide for the payment of taxes, insurance and maintenance costs.
Additionally, certain leases contain escalation clauses which provide for
increased rents resulting from the pass through of increases in operating costs,
property taxes and consumer price indexes.
At June 30, 1998, future minimum payments under non-cancelable operating
leases for the years ending June 30 are as follows:
(DOLLARS IN THOUSANDS)
1999 $ 3,663
2000 2,514
2001 1,545
2002 936
2003 and thereafter 554
-----------------------
$ 9,212
=======================
Rent expense amounted to $4,761,000, $3,776,000, and $4,871,000 for the
years ended June 30, 1998, 1997 and 1996, respectively.
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. In December 1997, a
complaint against the Company was filed. The Company believes that its pricing
practices are in compliance with applicable regulations and intends to
vigorously defend against this claim.
The Company is also involved in arbitration with Computran Systems Corp.
("Computran"), a former customer. Computran, who has sued for damages, alleges
that various defendants, including the Company, caused the termination of
Computran's project with the District of Columbia Traffic Control System in
1987. The Company intends to vigorously defend against this claim.
Although there can be no assurance, the Company expects that any resolution
of these matters will not have a material adverse affect on the Company's
financial condition or liquidity.
42
The Company, from time to time, is involved in litigation incidental to the
conduct of its business. The Company and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations or financial condition.
The Company has entered into employment agreements with its executive
officers. In the event an executive officer is terminated directly by the
Company without cause or in certain circumstances constructively by the Company,
the terminated officer will be paid severance compensation for a one-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, 1998, the maximum contingent liability
under these agreements is approximately $2 million. The Company's employment
agreements with its executive officers contain certain offset provisions, as
defined in their respective agreements.
21. PRIOR PERIOD ADJUSTMENT
The Company 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
----------------------------------------
AS REPORTED AS RESTATED
------------------------- -------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
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
22. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997 the 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 displaying 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.
43
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. The fair value of an elements must
be based on evidence which is specific to the vendor. The revenue allocated to
hardware and software products is generally recognized upon installation and
substantial fulfillment of all obligations under the sales contract. The
revenue allocated to postcontract customer support generally is recognized
ratably over the term of the support and revenue allocated to service elements
generally is recognized as the services are performed. The revenue recognition
process of the Company's future sales of its video-on-demand software will be
influenced by the provisions of SOP 97-2.
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued SOP
98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires that
costs incurred during start-up activities, including organization costs, be
expensed as incurred. Companies that previously capitalized such costs are
required to write-off the unamortized portion of such costs as the cumulative
effect of a change of accounting principle. The Company does not incur any
start up costs, therefore adoption of this SOP will not have a significant
impact on the Company's financial reporting.
44
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 newly issued
shares of HCSC 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.
45
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
The Company considers its computer systems and service business (including
maintenance, support and training) to be one class of products which accounted
for the percentages of net sales set forth below. The following table sets
forth selected operating data as a percentage of net sales for certain items in
the Company's consolidated statements of operations for the periods indicated.
YEARS ENDED JUNE 30,
------ ------ -------
1998 1997 1996 (1)
------ ------ -------
Net sales:
Computer systems 46.1% 51.4% 44.3%
Service and other 53.9 48.6 55.7
------ ------ -------
Total net sales 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Computer systems 49.0 49.7 64.8
Service and other 52.5 53.9 61.9
------ ------ -------
Total cost of sales 50.9 52.7 63.2
Gross margin 49.1 47.3 36.8
Operating expenses:
Selling, general and administrative 30.6 26.4 31.1
Research and development 13.3 12.5 14.4
Restructuring expense (0.7) - 25.6
Transition - 2.1 -
Retirement plan reversal - (2.3) -
Non-cash development expenses 2.0 - -
------ ------ -------
Total operating expenses 45.1 38.7 71.1
------ ------ -------
Operating income (loss) 4.0 8.5 (34.3)
Interest expense (1.0) (1.9) (2.4)
Interest income 0.2 0.2 0.2
Other non-recurring items 1.7 (1.5) (3.4)
Other income (expense) - net 0.3 (0.3) (1.6)
------ ------ -------
Income (loss) before provision for income taxes 5.3 5.0 (41.5)
Provision for income taxes 1.2 1.3 1.6
------ ------ -------
Net income (loss) 4.2% 3.7% (43.1)%
====== ====== =======
(1) Restated to reflect a $1.6 million prior period adjustment (see Note 21
to the consolidated financial statements).
46
RESULTS OF OPERATIONS
FISCAL YEAR 1998 IN COMPARISON TO FISCAL YEAR 1997
Net Sales
Net sales for fiscal year 1998 were $82.2 million, a decrease of $26.2
million from fiscal year 1997. The sales decline was comprised of a $17.8
million decrease in computer system sales and a $8.4 million decrease in service
and other revenues. The decline in computer systems sales was a result of
continued decline in proprietary systems and the transition to a more
software-oriented business for open systems. An increasing number of customers
purchasing the Company's software at only $5,000 to $10,000 or the Company's
software integrated with Motorola boards which have an average price of $40,000
to $60,000 per system, rather than the Company's open systems, which average
around $125,000 to $150,000 per system. Maintenance and service sales decreased
to $44.3 million. This decrease is expected to continue in the future and to
approximate the decline experienced in the past by the Company before the
Acquisition. That decline resulted from customers switching from proprietary
systems to the Company's open systems which are less expensive to maintain, and
the cancellation of other proprietary computer maintenance contracts as the
machines are removed from service.
Gross Margin
Gross margin decreased by $10.8 million to $40.4 million for fiscal year
1998 compared to fiscal year 1997. However, gross margin percent increased by
1.8% to 49.1% compared to fiscal year 1997. Product gross margin decreased $8.7
million to $19.3 million compared to fiscal year 1997 and the gross margin
percent increased 0.7% to 51.0%. This decline in margin is a result of
decreased sales partially offset by a higher gross margin percent on the sale of
the newer products. Service and other gross margin decreased by $3.2 million as
a result of lower sales. This was offset partially by increased efficiency and
cost management which increased the gross margin percent by 1.4% to 47.5%. The
gross margin for fiscal year 1997 also included a $1.1 million charge for
expenses resulting from the transition of the manufacturing operations from
Oceanport, New Jersey to Fort Lauderdale, Florida.
Operating Income
Operating income for fiscal year 1998 was $3.3 million compared to $9.2
million for fiscal year 1997. The decrease in income was the result of the
decrease in gross margin, offset by a decrease in operating expenses of $4.9
million. Included in fiscal year 1998 operating income is $.6 million income
from the sale of the Oceanport, New Jersey facility and a $1.6 million non-cash
charge for the issuance to Scientific-Atlanta, Inc. of warrants to purchase up
to two million shares of the Company's common stock at a price of $5.00 per
share. The warrants were issued in connection with the establishment of an
agreement with Scientific-Atlanta, Inc. The decrease in expenses is a result of
deliberate effort to reduce expenses commensurate with projected revenue.
Research and development expenses decreased by $2.6 million to $10.9 million.
The fiscal year 1997 numbers included expenses required to align the product
lines of the two companies following the Acquisition. During fiscal year 1998,
these expenses were not required. Selling, general and administrative expenses
decreased by $3.5 million, as expenses were reduced in accordance with the
anticipated decrease in revenue.
Net Income
Net income after tax and dividends for preferred stockholders decreased by
$.4 million to $3.4 million. Interest expense decreased $1.2 million as the
Company paid down its debt from $14.7 million at June 30, 1997 to $1.5 million
at June 30, 1998. There were two non-recurring items from fiscal year 1998:
(i) the Company sold the remaining shares of its common stock received in
connection with the Acquisition and recorded a $.4 million gain; and (ii) the
Company received $1.2 million from Nippon Steel Corporation (NSC) in connection
with the termination of the joint venture in Concurrent Nippon Corporation
(CNC), the Company's Japanese subsidiary, to reimburse the Company for losses
realized by CNC which exceeded NSC's minority investment.
47
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 common stock received
in connection with the Acquisition. The Company still retained 305,178 shares
of stock at the end of the fiscal year.
48
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 received $2.7 million for sale of the trading securities
received in connection with the Acquisition. Further, the Company and NSC
terminated the joint venture in Concurrent Nippon Corporation, in connection
with which NSC paid the Company $1.2 million and the Company paid off debt owing
to certain Japanese banks on behalf of CNC. 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 1999 operations, through
its operating results and existing financing facilities.
On March 1, 1998, the Company entered into a new agreement providing for an
$8 million revolving credit facility through August 1, 2000.
At June 30, 1998, the outstanding balance under the revolving credit
facility was $1.1 million. The entire outstanding balance of the revolving
credit facility has been classified as a current liability at June 30, 1998.
The revolving credit facility bears interest at the prime rate plus 1.25%. The
interest rate decreased to the prime rate plus .75% in fiscal year 1999 due to
the Company achieving certain earnings requirements. The revolving credit
facility may be repaid and reborrowed, subject to certain collateral
requirements, at any time prior to its maturity. The Company has pledged
substantially all of its domestic assets as collateral for the revolving credit
facility. Certain early termination fees apply if the Company terminates the
facility in its entirety prior to June 30, 1999. The Company had debt to
outside financial institutions of $1.4 million for fiscal year 1998 compared to
$14.7 million for fiscal year 1997.
As of June 30, 1998, the Company had a current ratio of 1.7 to 1, an
inventory turnover ratio of 2.5 times (based on computer systems cost of sales),
83.2 days sales outstanding and net working capital of $13.7 million compared to
$4.7 million for fiscal year 1997. At June 30, 1998, cash and cash equivalents
amounted to $5.7 million and net accounts receivable amounted to $19.0 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.
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. For the year
ended June 30, 1998, cash expenditures to this reserve were $2.2 million.
49
The Company plans to continue to evaluate and manage its resources to
anticipated revenue levels to achieve improved profitability. The Company
believes that it will be able to meet its obligations when due through its
operating results and its existing financing facility.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
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 October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, Software Revenue Recognition ("SOP
97-2"). SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be
based on evidence which is specific to the vendor. The revenue allocated to
hardware and software products is generally recognized upon installation and
substantial fulfillment of all obligations under the sales contract. The
revenue allocated to postcontract customer support generally is recognized
ratably over the term of the support and revenue allocated to service elements
generally is recognized as the services are performed. The revenue recognition
process of the Company's future sales of its video-on-demand software will be
influenced by the provisions of SOP 97-2.
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
SOP 98-5, "Reporting on the Costs of Start-up Activities". This SOP requires
that costs incurred during start-up activites, including organization costs, be
expensed as incurred. Companies that previously capitalized such costs are
required to write-off the unamortized portion of such costs as the cumulative
effect of a change of accounting principle. The Company does not incur any
start up costs, therefore adoption of this SOP will not have a significant
impact on the Company's financial reporting.
YEAR 2000
The Company has been aggressively addressing Year 2000 issues related to
the processing of date-sensitive data. A cross-functional team was assembled,
and a determination was made as to which systems were Year-2000 non-compliant.
The Company believes that all of the Company's critical financial,
manufacturing, R&D and other systems are fully compliant.
Concurrent has reviewed customer and supplier relationships, and has a Year
2000 software product available which many of our customers have implemented.
While the Company is taking all reasonable efforts, including direct mailings
and internet web site, to make information on the Year 2000 readiness of its
products available to its customers, this information may not reach all
customers, particularly third-party customers. Although the Company believes it
has addressed Year 2000 readiness issues related to its products, there may be
disruptions and/or product failures that are unforeseen.
50
The Company is requesting assurances from its major suppliers that
they are addressing these issues and that products procured by the Company will
function properly in the Year 2000. It is expected that certain critical
suppliers may be unwilling or unable to provide such assurances. As a result,
it is difficult for the Company to assess the impact on its business of such
entities' failure to be Year 2000 compliant.
Although Concurrent will incur additional time and effort in Year-2000
compliance, these costs are not expected to be material.
51
CONCURRENT COMPUTER CORPORATION
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED JUNE 30,
--------------------------------------------------
INCOME STATEMENT DATA 1998 1997 1996 (1) 1995 1994
- ------------------------------------- ------- -------- --------- --------- ---------
Net sales $82,215 $108,367 $ 95,800 $140,144 $179,031
Gross margin 40,390 51,211 35,265 60,667 76,041
Operating income (loss) 3,311 9,239 (32,870) 2,082 (6,993)
Income (loss) before extraordinary
gain (loss) and cumulative effect
of change in accounting principles 3,414 4,061 (41,309) (2,006) (11,631)
Net income (loss) $ 3,414 $ 4,061 $(41,309) $ (2,006) $(39,824)
Income (loss) per share:
Income (loss) before extraordinary
gain (loss) and cumulative effect
of change in accounting principles 0.07 0.08 (1.35) (0.07) (0.41)
Net income (loss) $ 0.07 $ 0.08 $ (1.35) $ (0.07) $ (1.42)
YEARS ENDED JUNE 30,
--------------------------------------------------
BALANCE SHEET DATA 1998 1997 1996 (1) 1995 1994
- ------------------------------------- ------- -------- --------- --------- ---------
Cash and short-term investments $ 5,733 $ 4,024 $ 3,562 $ 5,728 $ 9,374
Working capital 13,652 4,694 (966) 1,865 (616)
Total assets 46,235 63,528 80,073 98,359 123,170
Long-term debt - 4,493 6,603 9,536 13,240
Redeemable preferred stock - 1,243 5,610 - -
Stockholders' equity 25,510 18,120 6,927 35,170 35,048
Book value per share $ 0.54 $ 0.39 $ 0.17 $ 1.16 $ 1.18
(1) Restated to reflect a $1.6 million prior period adjustment (see Note 21 to the
consolidated financial statements).
52
SCHEDULE II
CONCURRENT COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS OTHER AT END
DESCRIPTION OF YEAR EXPENSES (A) (B) OF YEAR
- ---------------------------------- ----------- ------------ ------------ ----------- --------
Reserves and allowances deducted
From asset accounts:
1998
- ----------------------------------
Reserve for inventory obsolescence
and shrinkage $ 4,793 - $ (193) - $ 4,600
Allowance for doubtful accounts 913 (140)(c) (258) (12) 503
1997
- ----------------------------------
Reserve for inventory obsolescence
and shrinkage $ 10,677 - $ (1,641) $(4,243)(d) $ 4,793
Allowance for doubtful accounts 1,143 320 (550) - 913
1996
- ----------------------------------
Reserve for inventory obsolescence
and shrinkage $ 8,544 $ 4,904 $ (2,597) $ (174) $ 10,677
Allowance for doubtful accounts 1,434 135 (155) - 1,143
(a) Charges and adjustments to the reserve accounts for write offs and credits issued during
the year.
(b) Includes adjustments to the reserve account and allowance for doubtful accounts for
foreign currency translation.
(c) Includes reversal of excess reserve due to improved collections.
(d) Decrease in the reserve due to transfer of spares and goods-on-loan inventory and the
related reserves to property, plant and equipment and accumulated depreciation,
respectively, due to a change in accounting policy.
53