-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N4sJ2UUyFllBaYc8XNOKmEkhRFGZ1/gBjruxP+cG87xBxqE7SD2Wd4lVteaul5td sS2QW+Q0bi6bZhnewCKF/Q== 0001015402-98-000338.txt : 19980924 0001015402-98-000338.hdr.sgml : 19980924 ACCESSION NUMBER: 0001015402-98-000338 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980923 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCURRENT COMPUTER CORP/DE CENTRAL INDEX KEY: 0000749038 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 042735766 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13150 FILM NUMBER: 98713176 BUSINESS ADDRESS: STREET 1: 2101 WEST CYPRESS CREEK ROAD CITY: FT LAUDERDALE STATE: FL ZIP: 33309 BUSINESS PHONE: 9549741700 MAIL ADDRESS: STREET 1: CONCURRENT COMPUTER CORP STREET 2: 2101 WEST CYPRESS CREEK RD CITY: FT LAUDERDALE STATE: FL ZIP: 33309 FORMER COMPANY: FORMER CONFORMED NAME: MASSACHUSETTS COMPUTER CORP DATE OF NAME CHANGE: 19881018 10-K 1 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 EX-4.4 2 EXHIBIT 4.4 THIS WARRANT AND THE SECURITIES TO BE ACQUIRED UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS. August 17,1998 No. 001 ----- WARRANT TO PURCHASE SHARES OF COMMON STOCK OF CONCURRENT COMPUTER CORPORATION This certifies that Scientific-Atlanta, Inc. and its registered successors and assigns (the "Holder"), for value received, is entitled to purchase from ------ Concurrent Computer Corporation, a Delaware corporation (the "Company"), having ------- a place of business at 1025 West Cypress Creek Road, Fort Lauderdale, Florida 33309, for cash at the price of $5.00 per share (the "Stock Purchase Price") at -------------------- any time or from time to time after the date (the "Commencement Date") on which ----------------- the Development Agreement (as hereinafter defined) is executed up to and including 5:00 p.m. (Eastern time) on the date of the fourth anniversary of the Commencement Date (the "Expiration Date"), two million (2,000,000) fully paid --------------- and nonassessable shares of the Company's Common Stock, $0.01 par value per share (the "Common Stock"), upon surrender to the Company at its principal ------------- office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof; provided however, this Warrant shall be automatically terminated and declared null and void upon written notice by the Holder to the Company that the Holder does not intend to enter into the Development Agreement with the Company. "Development Agreement" shall mean the written agreement between the Holder and the Company which sets forth the terms and conditions upon which the parties to such agreement intend to jointly develop and deploy video-on-demand systems to cable network operators. 54 This Warrant is subject to the following terms and conditions. 10 EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 1.1 GENERAL. This Warrant is exercisable at the option of the Holder, at any time or from time to time after the Commencement Date up to and including the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, together with the completed, executed Form of Subscription, and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares of Common Stock which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares of Common Stock purchasable under the Warrant surrendered to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be required by the Holder hereof and shall be registered in the name of such Holder. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock when and as required to provide for the exercise in full of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock is listed; provided, however, that the Company shall not be required to effect a registration under federal or state securities laws with respect to such exercise. If at any time the total number of shares of Common Stock issuable pursuant hereto, together with the maximum number of shares of Common Stock issuable upon conversion, exchange or exercise of (i) all then-outstanding securities (whether debt or equity) of the Company convertible or exchangeable for Common Stock and (ii) all then-outstanding warrants and options to purchase Common Stock, would exceed the total number of shares of Common Stock then authorized by the Company's articles of incorporation but unissued, the Company shall promptly amend its articles of incorporation to increase the number of authorized shares of Common Stock such that there shall be a sufficient number of authorized and unissued shares of Common Stock available at all times to effect the exercise hereof. 55 3. ANTIDILUTION ADJUSTMENTS. The Stock Purchase Price or shares issuable hereunder shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. 3.1 ADJUSTMENT FOR STOCK SPLITS, COMBINATIONS, DIVIDENDS AND DISTRIBUTIONS. (a) Adjustment for Stock Splits. If the Company shall, at any time ---------------------------- or from time to time, effect a subdivision of the outstanding shares of Common Stock, the Stock Purchase Price payable upon exercise of this Warrant in effect immediately prior to such subdivision shall be proportionately decreased by multiplying (i) such Stock Purchase Price, by (ii) a fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to such subdivision; and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately after such subdivision. (b) Adjustment for Stock Combination. If the Company shall, at any --------------------------------- time or from time to time, effect any combination of the outstanding shares of Common Stock, the Stock Purchase Price payable upon exercise of this Warrant in effect immediately prior to such combination shall be proportionately increased by multiplying (i) such Stock Purchase Price, by (ii) a fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to such combination; and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately after such combination. (c) Date Adjustment Effective. Any adjustment under paragraph (a) --------------------------- or (b) of this Section 3.1 shall become effective at the close of business on the date on which such subdivision or combination becomes effective. (d) Adjustment for Stock Dividend or Distribution. In the event the --------------------------------------------- Company shall, at any time or from time to time, make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then, and in each such event, the Stock Purchase Price payable upon exercise of this Warrant then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of the business on such record date, by multiplying (i) the Stock Purchase Price payable upon exercise of this Warrant then in effect, by (ii) a fraction: 56 (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and (B) the denominator of which shall be the sum of (1) the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, plus (2) the total number of shares of Common Stock issuable in payment of such dividend or distribution; provided however, that if such a record date shall have been fixed and such dividend is not fully paid, or such distribution is not fully made, on the date fixed therefor, then the Stock Purchase Price shall be recomputed accordingly as of the close of business on such record date. In the event that the Holder elects to exercise such Warrant after any record date for determining holders of Common Stock entitled to receive any dividend or other distribution payable in shares of Common Stock but prior to the date on which such dividend is paid, the Company may defer, until such dividend is paid, the issue to the Holder of all of the additional shares of Common Stock issuable to the Holder upon the exercise of this Warrant solely by reason of the adjustment made to the Stock Purchase Price pursuant to paragraph (d) of this Section 3.1 on the record date for such dividend; provided however, that the Company shall, promptly upon the request of the Holder, issue to the Holder a written certificate or other instrument evidencing the Holder's right to receive such additional shares of Common Stock 3.2 DIVIDENDS IN OTHER STOCK AND PROPERTY; RECLASSIFICATION. If at any time or from time to time the holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement (other than an event for which adjustment is otherwise made pursuant to Section 3.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (other than cash paid or payable as a cash dividend) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such other shares of stock and other securities and property. 57 3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reorganization described above, appropriate provisions shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the number of shares of Common Stock purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 NOTICE OF ADJUSTMENT. Upon any adjustment pursuant to this Section 3, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company, and, in case of a Holder with an address of record outside of the United States, by facsimile, and confirmed in writing by first class air mail. The notice shall be signed by the Company's chief financial officer and shall state the nature of such adjustment, setting forth in reasonable detail the method of effecting the adjustment and the facts upon which such adjustment is based. If at any time in addition to any of the adjustments set forth in this Section 3, an increase in the number of authorized and unissued shares of Common Stock is required pursuant to Section 2 hereof, the Company shall promptly provide to the Holder a certificate of the Secretary of the Company certifying that the requisite number of shares of Common Stock have been authorized to permit the exercise of the Warrant. 58 3.5 OTHER NOTICES. If at any time: (1) the Company shall declare any cash dividend upon its Common Stock; (2) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock; (3) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (5) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least twenty (20) days' prior written notice (by the method set forth in Section 3.4 above) of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, at least twenty (20) days' prior written notice of the date when the same shall take place. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or conversion, as the case may be. 59 3.6 CERTAIN EVENTS. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not, in the reasonable opinion of the Company, fairly protect the purchase rights of the Holder of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares purchasable upon exercise of this Warrant or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 4. ISSUE TAX. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATIONS OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until and only to the extent that this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. REGISTRATION RIGHTS. The Holder hereof shall have the following rights: 7.1 DEMAND REGISTRATION. The Holder hereof shall have the right to request, on one (1) occasion, that the Company prepare and promptly file a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering the shares of Common Stock then issuable upon exercise hereof (but not less than 500,000 shares) and the Company shall use its best efforts to cause such registration statement to become effective as expeditiously as possible. Upon the receipt of such written request, the Company shall give prompt written notice to all the Holders that it shall use its best efforts to effect such registration; provided, however, that the -------- ------- Company shall not be required to effect any registration pursuant to this Section 7.1: (A) unless it shall have received written assurance that the Warrant will be exercised no later than the closing of the sale of the Common Stock to be sold pursuant to the related registration statement; or 60 (B) at any time prior to the expiration of a period of such number of days following the date on which any previous distribution attempted in respect of a registration requested pursuant to this Section 7.1 shall have been terminated without being consummated as shall be determined by the lead managing underwriter of any such underwritten offering (or, in the event no underwriter shall have participated in such terminated distribution, by an investment banking firm of recognized national standing selected by the Holder) to be reasonably necessary and appropriate to effect the successful distribution of securities in a subsequent registration requested pursuant to this Section 7.1, but in any event not more than 90 days after any such registration shall have been terminated or not consummated; or (C) at any time, as the Board of Directors of the Company shall have reasonably determined that (1) such registration would have a material adverse effect on any plan by the Company to engage in any acquisition of material assets or any merger, consolidation, tender offer, or similar transaction, (2) such registration would require the Company to file a registration statement which includes audited financial statements as of any date other than the date as of which the Company regularly prepares audited financial statements and if the preparation thereof would entail material out-of-pocket expense on the part of the Company, (3) such registration would have a material adverse effect on the distribution of a registered primary offering of equity securities by the Company pursuant to a registration statement filed no more than four months before the date of such demand in connection with which the Holder was offered the opportunity to participate pursuant to Section 7.2 hereof, or (4) the Company has received a written opinion of independent counsel, a copy of which will be provided to the Holder, that the securities requested to be registered are freely tradable without registration pursuant to Rule 144(k) (or any successor thereto) under the Securities Act and applicable state securities laws; in any of the events described in clauses (C) (1), (C) (2), (C) (3) or (C) (4), the Company may delay commencement of its efforts to effect the registration pursuant to this Section 7.1 until the earlier to occur of (x) the expiration of the 90-day period following the date on which such registration was requested or (y) such time as the circumstances requiring such a delay in registration cease to exist, provided, however, that the Company shall not be entitled to delay any such - -------- ------- registration for more than one such 90-day period; and provided, further, -------- ------- however, that in any of the events described in clauses (C) (1), (C) (2), (C) - ------- (3), or (C) (4), the Holder shall be entitled to withdraw such request and, notwithstanding anything else provided herein, such demand shall not count as the permitted demand registration as described in this Section 7.1. 61 7.2 PIGGYBACK RIGHTS. In addition, each time the Company shall determine to file a registration statement under the Securities Act, (excluding a registration on Form S-4 or S-8 or a registration statement on Form S-1 covering solely an employee benefit plan) in connection with the proposed offer and sale for money of any of its securities either for its own account or on behalf of any other security holder, the Company shall give prompt written notice of such determination to the Holder hereof. The Holder hereof shall provide a written request to the Company if it desires to participate in such registration (the "Holder Notice"), accompanied by this Warrant, duly endorsed, together with a Form of Subscription attached hereto, duly filled in and signed, and the prompt payment in cash or by check of the aggregate Stock Purchase Price for the shares for which this Warrant is being exercised in accordance with Section 1 hereof, stating the number of shares of Common Stock to be registered, which Holder Notice must be given within twenty (20) days after the receipt by the Holder of the Company's notice. Upon receipt of the Holder Notice, the Company shall cause all shares of Common Stock issuable upon exercise of this Warrant with respect to which the Holder hereof has requested registration to be included in such registration statement and registered under the Securities Act, all to the extent requisite to permit the sale or other disposition by the prospective seller or sellers of the Common Stock issuable upon exercise hereof to be so registered. If the registration of which the Company gives written notice pursuant to this Section 7.2 is for a public offering involving an underwriting, the Company shall so advise the Holder as a part of its written notice. In such event, the right of the Holder hereof to registration pursuant to this Section 7.2 shall be conditioned upon the Holder's participation in such underwriting and the inclusion of such Holder's shares of Common Stock in the underwriting to the extent provided herein. If, at any time after giving written notice of its intention to register any of its securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company will give written notice of such determination to the Holder, and, upon giving such notice, the Company shall be relieved of its obligation to register any Common Stock acquired upon exercise of the Warrant in connection with such registration (but not from its obligation to pay the registration expenses in connection therewith), without prejudice, however, to the rights of the Holder to request that such registration be effected as a registration under Section 7.1. If, in connection with a registration pursuant to this Section 7.2, the lead managing underwriter advises the Company in writing that, in its opinion, the total number of securities requested to be included in such registration exceeds the number which can be sold in such offering without materially and adversely affecting the offering price of such securities by such underwriters (such opinion to state the reasons therefor), the Company will promptly furnish the Holder with a copy of such opinion and will include the Common Stock to be acquired upon exercise of the Warrant in such registration to the extent of the number which the Company is so advised can be sold in such offering, determined as follows: (i) if such registration as proposed by the Company involves a primary registration of its securities, (x) first, the securities the Company ----- proposes to sell, and (y) second, securities of the Company (including without ------- limitation securities issuable upon conversion, exercise or exchange of other securities of the Company, and including the Common Stock to be acquired upon exercise of the Warrant) pursuant to contractual rights, pro rata among the --- ---- holders thereof (or, where appropriate, of the securities convertible into or exercisable or exchangeable for the securities to be registered) on the basis of the number of shares of such securities requested to be included by such holders, and 62 (ii) if such registration as proposed by the Company was requested by holders of securities of the Company other than the Holder, (x) first, such securities held by the holders initiating such registration, and (y) - ----- second, securities of the Company (including without limitation securities - ------ issuable upon conversion, exercise or exchange of other securities of the Company, and including the Common Stock to be acquired upon exercise of the Warrant) requested to be included in such registration pursuant to contractual rights, pro rata among the holders thereof (or, where appropriate, of the - ------ --- ---- securities convertible into or exercisable or exchangeable for the securities to be registered) on the basis of the number of shares of such securities requested to be included by such holders. 7.3 PROCEDURE. If and whenever the Company is required by the provisions of this Section 7 to effect the registration of shares of Common Stock issuable upon the exercise hereof under the Securities Act, the Company, at its expense and as expeditiously as possible shall, in accordance with the Securities Act and all applicable rules and regulations, prepare and file with the Securities and Exchange Commission (the "Commission") a registration ---------- statement with respect to such securities and shall use its best efforts to cause such registration statement to become and remain effective until the securities covered by such registration statement have been sold, and prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus contained therein as may be necessary to keep such registration statement effective and such registration statement and prospectus accurate and complete until the securities covered by such registration statement have been sold. The Company shall furnish to the Holder participating in such registration and to the underwriters of securities being registered such number of copies of the registration statement and each amendment and supplement thereto, preliminary prospectus, final prospectus and such other documents as such underwriters and holders may reasonably request in order to facilitate the public offering of such securities. In addition, the Company shall otherwise take such other actions as are necessary and appropriate to effect any such registration in compliance with all provisions of the Securities Act and all applicable state securities laws, including, without limitation, using its best efforts to register or qualify the securities covered by such registration statement under such state securities or Blue Sky laws of such jurisdictions as reasonably necessary to effect the sale thereof and such other actions as the Holder shall reasonably request. 8. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 9. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other and shall be sent to any such holder located outside of the United States by facsimile confirmed in writing by first class air mail. 10. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 63 11. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Florida. 12. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 64 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 17th day of August, 1998. CONCURRENT COMPUTER CORPORATION a Delaware corporation By: /s/ E. Courtney Siegel ------------------------- E. Courtney Siegel Title: Chairman, President and Chief -------------------------------- Executive Officer ------------------ ATTEST: /s/ Karen G. Fink - -------------------- Karen G. Fink Secretary 65 EXHIBIT A SUBSCRIPTION FORM Date: Gentlemen: The undersigned hereby elects to exercise the warrant issued to it by Concurrent Computer Corporation (the "Company") and dated , 1998, (the ------- ----------------- "Warrant") and initially to purchase thereunder shares of the ------- --------------- Common Stock of the Company (the "Shares"), subject to adjustment and increase, ------ at a purchase price of Dollars ($ ) ----------------------------------- --------- per share or an aggregate purchase price of Dollars ($ ) (the "Purchase ---------- -------- Price"). - ----- Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, By: --------------------------------- Title: --------------------------------- 66 EXHIBIT B THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO CONCURRENT COMPUTER CORPORATION, ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT CERTIFICATE DATED , 1998 WILL BE ISSUED. ____________________________ Concurrent Computer Corporation Attention: President The undersigned, ("Purchaser"), intends to acquire up ------------------- --------- to shares of the Common Stock (the "Common ----------------------------- ------ Stock") of Concurrent Computer Corporation (the "Company") from the Company - ----- ------- pursuant to the exercise or conversion of a certain Warrant to purchase Common Stock held by Purchaser. The Common Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act") -------------- and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Common Stock in violation of the Securities Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. --- Purchaser has been advised that the Common Stock has not been registered for initial issuance under the Securities Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the Securities Act and applicable state securities laws, the Common Stock must be held indefinitely unless it is subsequently registered under the Securities Act and applicable state securities laws or unless an exemption from such registration is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. 67 Purchaser also understands and agrees that there will be placed on the certificate(s) for the Common Stock, or any substitutions therefor, a legend stating in substance: The securities evidenced by this certificate have not been registered under the securities act of 1933, as amended, or under any applicable state securities laws. The securities may not be sold or transferred in the absence of such registration or an exemption therefrom under such act and under any applicable state securities laws. Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Common Stock with Purchaser's counsel. Very truly yours, (Purchaser) By: --------------------------------- Title: --------------------------------- 68 EX-11 3 EXHIBIT 11
CONCURRENT COMPUTER CORPORATION BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEARS ENDED JUNE 30, ----------------------------- 1998 1997 1996 -------- -------- --------- Net income (loss) $ 3,414 $ 4,061 $(41,309) Preferred stock dividends (18) (311) - -------- -------- --------- Net income (loss) available to common shareholders $ 3,396 $ 3,750 $(41,309) ======== ======== ========= Weighted average number of common shares 47,002 44,603 30,568 Increase in weighted average number of common shares Upon assumed exercise of stock options 625 509 - -------- -------- --------- Total 47,627 45,112 30,568 ======== ======== ========= Basic and diluted net income (loss) per share $ 0.07 $ 0.08 $ (1.35) ======== ======== =========
69 EX-21 4 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Each of the below listed subsidiaries is 100% directly or indirectly owned by Concurrent Computer Corporation except as otherwise indicated, and all are included in the consolidated financial statements.
STATE OR OTHER JURISDICTION OF NAME OF SUBSIDIARY INCORPORATION/ORGANIZATION - ----------------------------------------------------- -------------------------- Concurrent Computer Asia Corp Delaware Concurrent Computer Belgium B.V./S.A. Belgium Concurrent Computer Canada, Inc. Canada Concurrent Computer Corp. (France) Delaware Concurrent Computer Corp. Pty. Ltd. Australia Concurrent Computer Corporation, Ltd. United Kingdom Concurrent Computer Far East Pte. Ltd. Singapore Concurrent Computer France S.A. France Concurrent Computer GmbH Germany Concurrent Computer Hispania, S.A. Spain Concurrent Computer Holding Co. Ltd. United Kingdom Concurrent Computer Hong Kong Limited Hong Kong Concurrent Computer New Zealand New Zealand Concurrent Holding Corporation Delaware Concurrent Nippon Corporation Japan Concurrent Securities Corp. Massachusetts Harris Computer Systems Corporation Technology, Inc. Florida
70 EX-23.1 5 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors Concurrent Computer Corporation and subsidiaries: We consent to the incorporation by reference in the registration statement of Concurrent Computer Corporation on Form S-8 of our report dated July 31, 1998, relating to the consolidated balance sheets of Concurrent Computer Corporation and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of operations, redeemable preferred stock and shareholders' equity, and cash flows for the years then ended, and the related schedule, which report appears in the June 30, 1998 annual report on Form 10-K of Concurrent Computer Corporation. /s/ KPMG PEAT MARWICK LLP ----------------------------- Fort Lauderdale, Florida September 22, 1998 71 EX-23.2 6 EXHIBT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Concurrent Computer Corporation (the "Company") on Form S-8 of our report dated August 12, 1996, on our audits of the consolidated statements of operations, shareholders' equity and cash flows of Concurrent Computer Corporation for the year ended June 30, 1996 (not presented within the Company's Annual Report on Form 10K), and the financial statement schedule for the year ended June 30, 1996, which report is included in the Company's Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP -------------------------------- Parsippany, New Jersey September 22, 1998 72 EX-27 7
5 This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet at June 30, 1998 and Consolidated Statement of Operations for the twelve months ended June 30, 1998, and is qualified in its entirety by reference to such financial statements. 1000 YEAR JUN-30-1998 JUL-01-1997 JUN-30-1998 5733 0 19499 503 6263 32479 30265 17846 46235 18827 0 476 0 0 25034 46235 37868 82215 18556 41825 0 (140) 833 4374 960 3414 0 0 0 3414 .07 .07
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