-----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, IHH+JkJDMOua4zU/EL9XEw4z9Dgo4WmTfRcKPlLf9wfOuWUTxf01J5M/N4+1X18+ 8ro2SLreUxaw9zofMMueQg== 0001015402-99-001063.txt : 19991227 0001015402-99-001063.hdr.sgml : 19991227 ACCESSION NUMBER: 0001015402-99-001063 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 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: 99718429 BUSINESS ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 BUSINESS PHONE: 6782584000 MAIL ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 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, 1999 COMMISSION FILE NUMBER 0-13150 CONCURRENT COMPUTER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 04-2735766 (State of Incorporation) (I.R.S. Employer Identification Number) 4375 RIVERGREEN PARKWAY, DULUTH, GEORGIA, 30096 (678) 258-4000 (Address and telephone number of principal executive offices) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock (par value $0.01 per share) Preferred Stock Purchase Rights Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of September 17, 1999, there were 49,209,673 shares of Common Stock outstanding. The aggregate market value of shares of such Common Stock (based upon the last sale price of $7.44 of a share as reported for September 17, 1999 on the NASDAQ National Market System) held by non-affiliates was approximately $362,777,019. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of Registrant's Proxy Statement to be dated October 1, 1999 in connection with Registrant's 1999 Annual Meeting of Stockholders scheduled to be held on October 28, 1999 are incorporated by reference in Part III hereof. ================================================================================ PART I ITEM 1. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS Concurrent Computer Corporation ("Concurrent" or the "Company") is a leading supplier of high-performance computer systems, software, and services. In August 1999, the Company's emerging Video-On-Demand ("VOD") Division opened its own facilities separate from the Real-Time Division in order to maximize the focus of each of these businesses. The VOD Division will target the markets utilizing the Company's interactive video-on-demand technology. To date, the Company has only $1.2 million in revenues from the VOD Division, but believes the division will be an operating segment for fiscal year 2000. Concurrent is a leading supplier of digital video server systems to a wide range of industries, and its VOD Division serves a variety of markets, including the broadband/cable, hospitality, intranet/distance learning, and other related markets. Based on a scalable, real-time software architecture, Concurrent's VOD hardware and software are integrated to deliver fault-tolerant, deterministic streaming video to a broad spectrum of VOD applications. Concurrent is also a leading provider of high-performance, real-time computer systems, solutions, and software for commercial and government markets. The company's Real-Time Division focuses on strategic market areas that include hardware-in-the-loop and man-in-the-loop simulation, data acquisition, industrial systems, and software and embedded applications. A "real-time" system or software is one specially designed to acquire, process, store, and display large amounts of rapidly changing information in real time - that is, with microsecond response as changes occur. Concurrent has nearly thirty years of experience in real-time systems, including specific expertise in systems, applications software, productivity tools, and networking. Its systems provide real-time applications for gaming, simulation, engine test, air traffic control, weather analysis, and mission critical data services such as financial market information. The Company was incorporated in Delaware in 1981 under the name Massachusetts Computer Company. (b) Financial Information About Industry Segments For fiscal year 1999, the Company considers its products to be one class and its operations are entirely within one segment. Product revenue accounted for 45.2%, 46.1%, and 51.4%, of total revenues in the 1999, 1998, and 1997 fiscal years, respectively. Service and other operating revenues (including maintenance, support, and training) accounted for 54.8%, 53.9%, and 48.6% of total revenues in the 1999, 1998, and 1997 fiscal years, respectively. However, the Company is establishing facilities, personnel and reporting procedures to separate its VOD and Real-Time Divisions for fiscal 2000. Financial information about the Company's foreign operations is included in Note 18 to the consolidated financial statements included herein. The Company recently took control of its Japanese-based company as a wholly-owned subsidiary. Previously, the Company operated the Japanese operation as a joint venture with Nippon Steel Corporation. 1 (C) NARRATIVE DESCRIPTION OF BUSINESS VOD DIVISION Concurrent is one of the major digital video server suppliers whose VOD Division is competing in this emerging, yet explosive, marketplace. Concurrent has established itself early on as a leader, gaining recognition for its superior technology, its customer support, and its integration with leading software and hardware from other well-established technology vendors. REAL-TIME DIVISION Concurrent's vision is to remain the premier supplier of high-technology real-time computer systems, software, and services through customer focus, total quality, and the rapid development of standard and custom products with the objective of profitable growth. Real-time systems concurrently acquire, analyze, store, display, and control data to provide critical information within a predictable time as real world events occur. Compared to general purpose computer systems, these unique real-time capabilities are applicable to a wide range of application requirements, including higher performance processing, higher data throughput, predictable and repeatable response times, reliably meeting required deadlines, consistently handling peak loads, and better balancing of system resources. Concurrent has over thirty years of real-time systems experience, including specific design, development, and manufacturing expertise in system architectures, system software, application software, productivity tools, and networking. Concurrent's real-time systems and software are currently used in host, client server, and distributed computing solutions, including software-controlled configurations to provide fault tolerance. The Company sells its systems worldwide through its direct sales offices, resellers, system integrators, and other global partners. End uses of the Company's systems include product design and testing, simulation and training systems, engine testing, range and telemetry systems, weather satellite data acquisition and forecasting, and intelligence data acquisition and analysis. Concurrent designs, manufactures, sells, and supports real-time standards-based open computer systems and proprietary computer systems. It offers worldwide hardware and software maintenance and support services ("Traditional Support Services") for its products and for the products of other computer and peripheral suppliers. The Company routinely offers and successfully delivers long-term service and support of its products for as long as fifteen to twenty years. The Company also has a long and successful history of customizing systems with both specialized hardware and software to meet unique customer requirements. Frequently in demand, these special support services ("Professional Services") have included system integration, performance and capacity analysis, and application migration. As the computer market shifted in end-user demand to open systems, the Company developed a strategy to adjust service offerings to those more appropriate for open systems, while maintaining support for its proprietary systems. The Company's strategy also strikes a balance between appropriate upgrades for proprietary system offerings while predominantly investing in its real-time operating system and integrated computer system solutions. Markets VOD The VOD market is in its infancy. Concurrent has no significant VOD revenues to date. However, Concurrent has positioned itself to be one of the leading providers of digital video servers for this emerging growth market. The Company's MediaHawk(TM) video server offers interactive, time critical video-on-demand capabilities that give the Company a competitive advantage. 2 This advantage was created by integrating the core technology and real-time software into the VOD software and combining that with commercial hardware, creating the best price/performance in the marketplace. The Company introduced its MediaHawk Video Server in fiscal year 1997. This system utilizes readily-available commercial hardware platforms and, combined with the Company's market-leading software, provides the leading price/performance system in the market. Concurrent's strategy is to supply servers and server technology for interactive VOD applications that require "true" VOD and reliable delivery of multiple interactive systems of high quality video. Concurrent intends to continue to develop this product line to provide additional software functionality that is tailored to customer requirements in its targeted market segments. Concurrent focuses its VOD business on the following strategic target markets: broadband/cable, hospitality, intranet/distance learning, and other related markets. Summaries of these markets follow. Broadband and Cable. Concurrent is a recognized leader in VOD systems for the broadband and cable markets. Primary applications include VOD systems for cable operators who are deploying new interactive digital services such as VOD. A key segment of this market for the Company is the top Multiple Service Operators ("MSOs") in the United States. Concurrent is addressing this segment by working with technology partners such as Scientific-Atlanta, General Instruments, Viewer's Choice, and other key partners to provide total end-to-end systems that offer the most flexible, scalable, cost-effective solutions available to customers. Furthermore, Concurrent's pre-sales, sales, post-sales, custom engineering, and service departments are committed to fulfilling each customer's unique network and operational requirements from start to finish. A customer typical of this market is Time Warner Cable. Hospitality. Concurrent's VOD system brings the capabilities of interactive VOD to the hospitality industry. Concurrent's hospitality VOD systems are integrated industry solutions designed to satisfy the specific requirements of a hospitality entertainment system. Concurrent's systems provide the highest quality video outputs using the latest in digital technology and are compatible with the existing cable systems found in most properties. The system scalability allows hotels of all sizes to select a server that achieves the optimum price performance. For example, systems that develop four independent streams of interactive video from a common content storage system can be configured as easily as systems that develop 24 or more streams. VCR-like controls (stop, pause, fast forward, and rewind) are available for each stream. A customer typical of this market is DOMINTEL CONCEP, S.L, a Spanish company that specializes in the worldwide distribution of complete interactive video systems to private hospitals, hotels, airports, and colleges. Intranet/Distance Learning. Concurrent has been one of the first companies to offer a true VOD system for Intranet and distance learning applications. Primary applications include VOD systems for universities that are deploying new interactive digital services through their existing networks to bring video to the desktop. Customers typical of this market include Wake Forest University and the University of Central Florida. Other primary applications include VOD systems for corporations and public institutions that want to deploy distance learning or other training through their existing networks. Concurrent is addressing these market segments by working with Value Added Resellers ("VARs"). Customers typical of this market include Safari and Campus Televideo. Other Related VOD Markets. Concurrent's high-performance VOD system features a flexible architecture that is suitable to deliver VOD to a wide range of other markets. Examples of other target applications include broadcast video-editing systems, presentation system and kiosk systems, debriefing systems, etc. Customers typical of this market include OLYMPUS Optical Company Europa, who is using Concurrent's VOD system in its surgical endoscopy systems, and DMF, who is using Concurrent's products in its presentation systems. 3 Real-Time Concurrent focuses its real-time business on the following strategic target markets: simulation, data acquisition, and industrial systems. Summaries of these markets follow. Simulation. Concurrent is a recognized leader in real-time systems for simulation. Primary applications include trainers/simulators for operators in commercial and military aviation, vehicle operation and power plants, mission planning and rehearsal, engineering design simulation for avionics and automotive labs. A key segment of this market for the Company is Hardware-In-The-Loop (HITL), in which accurate simulations are constructed to verify hardware designs, thereby minimizing or eliminating entirely the need for expensive prototypes. Concurrent is addressing this segment by selecting software applications that provide a unique real-time advantage to its customers and integrating these applications to provide unique solutions. Customers typical of this market includes The Boeing Company, Lockheed Martin Corporation, Flight Safety International, DaimlerChrysler, CAE Electronics Ltd., and Dassault Electronique. Data Acquisition. Concurrent is a leading supplier of systems for radar control, data fusion applications, and weather analysis, all of which require the ability to gather, analyze, and display continuous flows of information from simultaneous sources. Primary applications include environmental analysis and display, range and telemetry, and command and control. Customers typical of this market include Lockheed Martin Corporation, TRW Inc., Logicon Inc., Aerospatiale Aeronautique, Dassault Electronique, and Mitsubishi Precision Co., Ltd. Industrial Systems. Concurrent also manufactures systems to collect, control, analyze, and distribute test data from multiple high-speed sources for industrial automation systems, product test systems (particularly engine test), Supervisory Control and Data Acquisition (SCADA) systems, and instrumentation systems. Concurrent's strategy to serve this market involves the employment of third-party software applications to provide a unique solution for its customers. Customers typical of this market include United Technologies, Inc., BFGoodrich, Ford Motor Company, General Motors Corporation, debis Systemhaus, Lucas Aerospace, and Nissin (Japan). Products and Service The Company considers its products and services a total package to provide complete value-added solutions for the VOD and Real-Time markets. The Company offers two types of systems: open and proprietary. The Company also offers a full range of maintenance, custom engineering, and integration services. VOD MediaHawk Video Servers are highly scalable, high-performance, open multiprocessor systems optimized for the unique and demanding requirements of interactive VOD applications. MediaHawk Video Servers can be easily configured to support centralized and distributed broadband topologies, achieving industry leading price/performance. The MediaHawk Video Servers have now been fully integrated into residential cable architectures featuring a full BackOffice Software Suite for subscriber and provider management, and Digital Navigator enabling not only VOD movie applications, but e-commerce as well. The server architecture is extremely flexible, fault-tolerant, highly scalable, and has achieved industry-leading price/performance. The server technology is also well suited for Intranet and training applications due to the wide variety network protocols, industry standards, and interfaces that are supported. 4 Real-Time PowerWorks(TM), the Company's real-time technology package, includes an industry standard UNIX operating system that is enhanced for real-time performance, a set of tools that allows developers to quickly bring new real-time applications to market, and a set of compilers that are designed to obtain maximum real-time performance. PowerWorks is Concurrent's integrated real-time software development and operational environment. It was designed to facilitate the development and execution of real-time applications for a full range of systems from single processor to symmetric multiprocessing. The PowerWorks environment includes Concurrent's real-time operating system, PowerMAX OS; NightGraphics(TM) support software; optimized compilers for C, C++, Ada, and FORTRAN as well as applicable run-time libraries; and Concurrent's NightStar(TM) Tool Set - a GUI-based, real-time development tool set. In addition, PowerWorks supports a host of utility software and device drivers.
OPEN SYSTEMS PRODUCT LINE POWERWORKS - POWERPC(TM) 604 MAX. NO. MODEL OF CPUS PRICE RANGE - -------------------- -------- ------------ TurboHawk(TM) 8 $40K - $500K Night Hawk 6800 8 $40K - $500K PowerMAXION(TM) 8 $40K - $400K Power Hawk(TM) 15 $15K - $400K MediaHawk 15 $20K - $800K PowerStack(TM) 1 $ 15K Power Works Software N/A $ 1K - $12K
LEGACY SYSTEMS MAX. NO. MODEL OF CPUS CPU PRICE RANGE - --------------- -------- ----------- -------------- Night Hawk 5800 8 MC88110 $ 35K - $350K Night Hawk 4800 8 MC88100 $ 20K - $250K MAXION(TM) 4 MIPS $ 27K - $170K 7000 Series 3 MC68040 $ 24K - $150K 3200 Series 6 Proprietary $55K - $1,350K
Traditional Services. One of the largest benefits to the Company of its extensive installed customer base is the large and generally predictable revenue stream generated from Traditional Services. While Traditional Services revenue has declined and is expected to further decline as a result of the industry shift to open systems, the Company expects this business to be a significant source of revenue and cash flow for the foreseeable future. The Company offers a variety of service and support programs to meet the customer's maintenance needs for both its hardware and software products. The Company also offers contract service for selected third party equipment. The service and support programs offered by Concurrent include rentals and exchanges, diagnostic and repair service, on-call and time and materials service, and preventive maintenance. The Company routinely offers long-term service and support of its products for as long as fifteen to twenty years. 5 Professional Services. Throughout the Company's history, it has supported its customers through Professional Services and custom engineering efforts. The Company provides custom and integration engineering services in the design of special hardware and software to help its customers with their specific applications. This may include custom modifications to the Company's products or integration of third party interfaces or devices into the Company's systems. Many customers use Professional Services to migrate existing applications from earlier generations of the Company's or competitors' systems to the Company's state-of-the-art systems. Professional Services also include classroom and on-site training, system and site performance analysis, and multiple vendor support planning. Although the total revenues associated with any single Professional Services or custom engineering effort may be small in comparison to total revenues, increased customer satisfaction is an integral part of the Company's business plan. Systems and Technology Concurrent has made a considerable investment in developing its product lines and today offers computer systems satisfying a broad range of high-performance requirements for real-time applications. While maintaining a competitive capability and continued enhancement of the Company's proprietary product line for a still significant installed base, the primary investments have been in the evolution of the open systems product line. The Company is currently developing enhancements, both in real-time hardware and software, to closely couple single-board computers and to add symmetrical multi-processing capabilities to multiple single-board computers. The Company has delivered a unique balance of supporting industry standards while providing innovative superiority in key architectural issues. By utilizing core competencies that have been developed by the Real-Time business area for over thirty years, VOD has leveraged commercially-available hardware platforms to achieve industry-leading price/performance. Technology efforts currently are focused on adding the necessary application functionality to the base architecture enabling the pursuit of targeted VOD markets. Sales and Service The Company sells its systems in key markets worldwide through direct field sales and support offices, as well as through VARs and systems integrators. The Company does not believe the loss of any particular VAR or systems integrator would have a material impact on the Company's operating results. The Company's principal customers are original equipment manufacturers (OEMs), systems integrators, and VARs who combine the Company's products with other equipment or with additional application software for resale to end-users. Servicing the Company's large installed base is an important element of Concurrent's business strategy and generates significant revenue and cash flow to the Company. Total service revenues in fiscal year 1999 were approximately $38.4 million (54.8%) of total revenues. Substantially all of Traditional Services revenues are generated from maintenance and support contracts which generally run from one to three years with annual renewal provisions. The Company's existing installed base of proprietary systems also represents an opportunity for incremental sales of both computer systems and Traditional and Professional Services. The Company has experienced a decline in service revenues as customers have moved from proprietary to open systems and expects this trend to continue. No customer, other than the U.S. Government and a commercial customer, accounted for 10% or more of Concurrent's net sales in any of the years in the three-year period ended June 30, 1999. For the year ended June 30, 1999, approximately $23.1 million of the Company's revenues were attributable directly or indirectly to entities related to branches of the U.S. Government. This amount represented approximately 33% of the Company's worldwide revenues, compared to 27% and 26% for the 1998 and 1997 fiscal years, respectively. The Company's revenues related to sales to the U.S. Government are derived from various Federal agencies, no one of which accounted for more than 5% of total revenues. U.S. 6 Government contracts and subcontracts generally contain provision for cancellation at the convenience of the Government. Substantially all of the Company's U.S. Government related orders are subcontracts and most are for standard catalog equipment, which would be available for sale to others in the event of cancellation. To date, there have been no cancellations that have had a material impact on the Company's business or results of operations. Research and Development The Company's continued success depends heavily on the implementation and utilization of the latest hardware and software computer technology. Concurrent invested $10.0 million in fiscal year 1999; $10.9 million in fiscal year 1998; and $13.6 million in fiscal year 1997 in research and development. Research and development investment focused on key technologies within real-time and VOD product development. The real-time product development emphasized high-performance and cost-effective scalable architectures allowing the end user unsurpassed flexibility. New product development in real-time included new hardware and software to add symmetrical multiprocessing capabilities to the Power Hawk line of computers. The VOD product development emphasized advancements in the software architectural design that has enabled the use of off-the-shelf commodity hardware, resulting in industry-leading price/performance in the broadband/cable, hospitality, and Intranet training markets. Although total research and development has declined over the past years, in terms of absolute dollar amounts, the Company expects a greater return on its total research and development investment in the future for the following two reasons. First, the real-time product development has successfully transitioned to a base, commercially-available platform and VOD has completed its software architectural design and core elements have been successfully deployed. Second, the Company's product strategy continually focuses on markets that rely primarily on a system software solution that utilizes core technology that has been developed over many years. The Company will continue to develop technology internally in those areas in which it exercises market leadership and will acquire commercially-available technology where it cannot demonstrate market leadership. No software development costs were capitalized in fiscal year 1999. The costs incurred by the Company between technological feasibility and the point at which the products were ready for market were negligible. Manufacturing Operations The Company's manufacturing operation occupies approximately 40,000 square feet of its Pompano Beach, Florida facility. The Company also operates a repair center for its 3200 Series systems in approximately 25,000 square feet at its former Oceanport, New Jersey facility under a three-year lease. The Company leases its Pompano Beach facility from Calvary Chapel pursuant to a lease that expires December 2000. The Company has entered into a lease for a 30,000 square feet facility across the street from its Pompano Beach manufacturing facility. The Company plans to move its Real-Time Division to this new location in November 1999. Management believes that the manufacturing capacity available at its current facility could be significantly increased (with minimal capital spending) to meet increased manufacturing requirements either by raising the yield rate or by adding personnel on its first and second shift or by adding a third shift. The Company outsources several subassembly operations, including some of its printed circuit board subassemblies, with continued substantial cost savings. The Company's manufacturing operation is focused on systems assembly, systems integration and systems test. Extensive testing and burn-in conditioning is performed at the board and subassembly levels and at final system integration. Because of the wide range of product configurations, final assembly and final acceptance test occurs when a specific customer order is being prepared for shipment. Sources of Supply Concurrent has multiple commercial sources of supply throughout the world for most of the materials and components it uses to produce its products. In some cases, the Company is purchasing components from a single source to obtain the required technology. The Company depends on the availability of various key components, such as processors, memory, and ASICS, in the support of its 3200 Series, MAXION, Night Hawk and PowerMAXION series computers. For its current 7 and next generation Power Hawk computer systems, the Company will depend on the availability of the PowerPC boards. Although the Company has not experienced any materially adverse impact on its operating results as a result of a delay in supplier performance, any delay in delivery of components may cause a delay in shipments by the Company of certain products. The Company estimates that a lead time of up to 16-24 weeks may be necessary to switch to an alternate supplier of custom application specific integrated circuits and printed circuit assemblies. A change in the supplier of these boards without the appropriate lead time would result in a delay in shipments of certain products. Since revenue is recognized upon shipment, any delay may result in a delay of revenue recognition for any given accounting period. The Company works closely with its suppliers and regularly monitors their ability to meet its requirements in a timely manner. Management believes it has good relationships with its suppliers and expects that adequate sources of supply for components and peripheral equipment will continue to be available. Competition The Company operates in a highly competitive environment, driven by rapid technological innovation. The shift from proprietary systems to standards-based open systems has resulted in increased competition, making product differentiation a more important factor. Due in part to the range of performance and applications capabilities of its products; the Company competes in various markets against a number of companies, many of which have greater financial and operating resources than the Company. VOD In the VOD market, the Company competes with the following corporations: (1) in the broadband/cable and hospitality markets - principally, SeaChange International, Inc., nCUBE, and Diva Communications; and (2) in the intranet/distance learning markets - principally, companies such as Compaq Computer Corporation, Sun Microsystems, Inc., and International Business Machines Corp. Real-Time Competition in the high performance real-time computing systems and applications market comes from four sources: (1) major computer companies that participate in the real-time marketplace by layering specialized hardware and software on top of or as an extension of their general purpose product platforms - - these are principally Compaq Computer Corporation and Hewlett-Packard Corporation; (2) other computer companies that provide solutions for applications that address a specific characteristic of real-time, such as fault tolerance or high-performance graphics - these computer companies include Silicon Graphics Inc., Inc., and Compaq Computer Corporation; (3) general purpose computing companies that provide a platform on which third party vendors add real-time capabilities - these computer companies include International Business Machines Corp. and Sun Microsystems, Inc.; and (4) single board computer companies that provide board-level processors that are typically integrated into a customer's computer system - these computer companies include Force Computers, Inc. and Motorola, Inc. Intellectual Property The Company relies on a combination of contracts and copyright, trademark, and trade secret laws to establish and protect its proprietary rights in its technology. The Company distributes its products under software license agreements which grant customers perpetual licenses to the Company's products and which contain various provisions protecting the Company's ownership and confidentiality of the licensed technology. The source code of the Company's products is protected as a trade secret and as an unpublished copyright work. In addition, in limited instances, the Company licenses its products under licenses that give licensees limited access to the source code of certain of the Company's products, particularly in connection with its strategic alliances. 8 Despite precautions taken by the Company, however, there can be no assurance that the Company's products or technology will not be copied or otherwise obtained and used without authorization. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. The Company believes that, due to the rapid pace of innovation within its industry, factors such as the technological and creative skills of its personnel are more important to establishing and maintaining a technology leadership position within the industry than are the various legal protections of its technology. Concurrent has entered into licensing agreements with several third-party software developers and suppliers. Generally, such agreements grant to the Company non-exclusive, worldwide licenses with respect to certain software provided as part of computers and systems marketed by the Company and terminate on varying dates. For example, Concurrent is licensed by Santa Cruz Operation (SCO) to use and sublicense SCO's operating system in the Company's computer systems. The Company has entered into licensing agreements with SCO for internal use of source code version of the UNIX operating system and for the sublicensing of binary version of the UNIX operating system. Both licenses are perpetual unless terminated in accordance with the notice provisions and address versions of the UNIX operating system through and including System V, Release 4.0 (SVR4). The Company pays a royalty to SCO for each computer system shipped using the UNIX operating system equal to approximately 2% of the list price of the basic (minimum) configuration of the system. Employees As of June 30, 1999, the Company employed approximately 490 employees worldwide, of whom approximately 330 were employed in the United States, compared to approximately 530 and 580 employees worldwide at June 30, 1998 and 1997, respectively. The Company's employees are not unionized. Backlog Generally, the Company records in "backlog" computer orders which it anticipates shipping during the subsequent six months or, where special engineering is required, in the subsequent twelve months. While the Company anticipates shipping the majority of backlog during subsequent periods, the number of orders in backlog is not necessarily a meaningful indicator of business trends for the Company. This is because orders may be canceled before shipment or rescheduled for a subsequent period, which may affect the amount of backlog that may be realized in revenue in any succeeding period. In addition, with the increasing emphasis on open systems, more customers are placing orders within the quarter where delivery is expected; thus backlog is a less meaningful measurement of anticipated revenue. Environmental Matters The Company purchases, uses, and arranges for certified disposal of chemicals used in the manufacturing process at its Pompano Beach facility. As a result, the Company is subject to federal and state environmental protection and community right-to-know laws. Violations of such laws, in certain circumstances, can result in the imposition of substantial remediation costs and penalties. The Company believes it is in compliance with all material environmental laws and regulations. (d) Financial Information About Foreign And Domestic Operations And Export Sales A summary of net sales (consolidated net sales reflects sales to unaffiliated customers), attributable to Concurrent's foreign and domestic operations for the fiscal years ended June 30, 1999, 1998 and 1997, respectively, is presented at Note 18 to the financial statements of the Registrant included herein. 9 ITEM 2. PROPERTIES Listed below are Concurrent's principal facilities as of June 30, 1999. Management considers all facilities listed below to be suitable for the purpose(s) for which they are used, including manufacturing, research and development, sales, marketing, service, and administration. Management believes that its Pompano Beach, Florida manufacturing facility has more than sufficient capacity to meet the Company's projected manufacturing requirements.
APPROX. OWNED EXPIRATION FLOOR AREA LOCATION PRINCIPAL USE OR LEASED DATE OF LEASE (SQ. FEET) - ---------------------------- ------------------------- --------- ------------- ----------- 2101 West Cypress Creek Road Corporate Headquarters, Leased December 1999 50,000 Fort Lauderdale, Florida * Sales, Marketing, and Administration 2800 Gateway Drive Manufacturing and Service Leased December 2000 40,000 Pompano Beach, Florida 2 Crescent Place Repair and Service Depot Leased May 2001 25,000 Oceanport, New Jersey Concurrent House Sales/Service/Research & Leased 2003 10,000 Railway Terrace Development Slough, Berks, England
In addition to the facilities listed above, Concurrent also leases space in various domestic and international industrial centers for use as sales and service offices and warehousing. * In August 1999, the Company relocated its Corporate Headquarters and the Video-On-Demand Division's offices to 4375 River Green Parkway, Duluth, Georgia. The Company has entered into a lease for 26,000 square feet with a term expiring at the end of August 2006. The Company plans to relocate its Real-Time Division offices in the late fall of 1999 to 2881 Gateway Drive, Pompano Beach, Florida. The Company has entered into a lease for 30,000 square feet with a term expiring at the end of December 2004. ITEM 3. LEGAL PROCEEDINGS From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted and litigation commenced against the Company arising from or related to product liability; patents; trademarks, or trade secrets; breach of warranty; antitrust; distribution; or contractual relations. Claimed amounts may be substantial, but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court awards. In the opinion of management, final judgments, if any, which might be rendered against the Company in such litigation are reserved against or would not have a material adverse effect on the financial position or the business of the Company as a whole. The Company may from time to time be, either individually or in conjunction with other major U.S. manufacturers or defense contractors, the subject of U.S. government investigations for alleged criminal or civil violations of procurement or other federal laws. No criminal charges are presently known to be filed against the Company and the Company is unable to predict the outcome of such investigations or to estimate the amounts of claims or other actions that 10 could be instituted against it, its officers or employees as a result of such investigations. Under present government procurement regulations, indictment could result in a government contractor, such as the Company, being suspended or debarred from eligibility for awards of new government contracts for up to three years. In addition, the Company's foreign export control licenses could be suspended or revoked. To Concurrent's knowledge there are no material legal proceedings to which any director, officer, or affiliate of Concurrent, or any owner of record or beneficially of more than five percent of Common Stock, or any associate of any of the foregoing, is a party adverse to Concurrent or any of its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 10. OFFICERS OF THE REGISTRANT Officers of Concurrent are elected by the Board of Directors to hold office until their successors have been chosen and qualified or until earlier resignation or removal. Set forth below are the names, positions, and ages of the Company's officers as of September 15, 1999:
NAME POSITION AGE - --------------------- ----------------------------------------------------------------- --- E. Courtney Siegel * Chairman of the Board, President, and Chief Executive 49 Officer Daniel S. Dunleavy * President, Real-Time Division, and Acting Chief Financial Officer 46 Steve Nussrallah * President, Video-On-Demand Division 49 Robert E. Chism Vice President, Development, Video-On-Demand 46 Division Robert T. Menzel Vice President, Sales, Real-Time Division 46 David S. Morales Vice President, Sales and Marketing, Video-On-Demand 38 Division David Nicholas Vice President - Sales, Video-On-Demand Division 45 Michael N. Smith Vice President - Marketing, Video-On-Demand 46 Division * Denotes Executive Officers of the Company
E. COURTNEY SIEGEL. CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF EXECUTIVE OFFICER. Mr. Siegel was elected Chairman of the Board in November 1997. He has served as President and Chief Executive Officer since June 1996. He served as Chairman, President, and Chief Executive Officer of Harris Computer Systems Corporation from October 1994 through June 1996. Prior to that time, and since 1990, Mr. Siegel served as a Vice President, General Manager of the Harris Computer Systems Division of Harris Corporation. Mr. Siegel's twenty year career in the computer technology field includes serving as Vice President of standoff weapons at Rockwell International Corporation, a producer of electronics, aerospace, automotive, and graphics equipment, and as Vice President of Harris Government Support Systems Division's Orlando Operation. 11 DANIEL S. DUNLEAVY. PRESIDENT, REAL-TIME DIVISION AND ACTING CHIEF FINANCIAL OFFICER. Mr. Dunleavy was elected to this position in April 1999. Mr. Dunleavy served as Chief Operating Officer from October 1997 to April 1999 and as Executive Vice President from June 1997 to April 1999. He served as Vice President, Chief Financial Officer and Chief Administrative Officer from June 1996 to October 1997. He previously served in the same position with Harris Computer Systems Corporation since October 1994. Mr. Dunleavy served as Vice President, Strategic Alliances and International Operations of the Harris Computer Systems Division of Harris Corporation from February 1991 through October 1994. After joining Harris Corporation in 1978, Mr. Dunleavy served in various positions of increasing responsibility including Controller of the Harris Computer Systems Division from 1988 until 1991. STEVE G. NUSSRALLAH. PRESIDENT, VIDEO-ON-DEMAND DIVISION. Mr. Nussrallah was elected President, Video-On-Demand Division effective January 1999. From March 1996 to March 1998, he served as President and Chief Operating Officer of Syntellect Inc., a leading supplier of call center solutions to the Cable TV (CATV) industry. Prior to that time, and since January 1990, Mr. Nussrallah served in the same position at Telecorp Systems Inc., which was acquired by Syntellect Inc. in March 1996. From 1984 to 1990, Mr. Nussrallah was employed by Scientific-Atlanta, Inc., which he joined as vice president of engineering for its CATV operation. He served in positions of increasing responsibility at Scientific-Atlanta, including Vice President and General Manager of its Subscriber Business Unit. ROBERT E. CHISM. VICE PRESIDENT, DEVELOPMENT, VIDEO-ON-DEMAND DIVISION. Mr. Chism was elected to this position in April 1999. He served as Vice President, Development from June 1996 to April 1999. He served as Vice President, Technical and Production Operations of Harris Computer Systems Corporation from October 1994 through June 1996. He joined the Harris Computer Systems Division of Harris Corporation in June 1993 as Director, Simulation Business Area. Before joining the Division, he held diverse engineering, program management and marketing assignments in computer and related industries with General Electric Company from May 1978 through June 1993, where he was Subsection Manager of Satellite Command and Data Handling at the time he left to join the Harris Computer Systems Division. ROBERT T. MENZEL. VICE PRESIDENT, WORLDWIDE SALES AND MARKETING, REAL-TIME DIVISION. Mr. Menzel was elected to this position in April 1999. He served as Vice President, Real-Time Systems from June 1997. Mr. Menzel served as Vice President, North American Sales from June 1996 to February 1997, and from that time to June 1997 as Vice President, Interactive Video-On-Demand. From April 1995 to June 1996, he served as Vice President, General Manager of the Trusted Systems Division of Harris Computer Systems Corporation. From October 1994 to April 1995, he served as Vice President, National Sales of Harris Computer Systems Corporation. He joined the Harris Computer Systems Division of Harris Corporation in 1992 as Manager, Secure Systems Marketing, later assumed responsibility for the entire Secure Business Area and ultimately became Vice President, National Sales. Prior to joining the Harris Computer Systems Division, he held positions of increasing responsibility over a twelve year period at the Aerospace Division of General Electric Company within the Business Development and Marketing Group, serving as Manager, Army Business Development at the time he joined the Harris Computer Systems Division. DAVID S. MORALES. VICE PRESIDENT, SALES AND MARKETING, VIDEO-ON-DEMAND DIVISION. Mr. Morales was elected to this position in August 1999. From April 1996 to May 1999, he served as Corporate Vice President, International of Syntellect, Inc. From June 1989 to April 1996 he was employed at Scientific-Atlanta, Inc., serving in positions of increased responsibility, including President, Latin America and CEO of one of Scientific-Atlanta's joint venture companies. DAVID M. NICHOLAS. VICE PRESIDENT, SALES, VIDEO-ON-DEMAND DIVISION. Mr. Nicholas was elected to this position in March 1999. From September 1995 to February 1999, he served as Executive Vice President of Pioneer New Media Technologies, Inc. From August 1993 to August 1995, he served as Vice President and General Manager of Texscan Network Systems. Prior to that time, he served in various positions at Pioneer Communications of America, Panasonic Industrial, and Magnavox. 12 MICHAEL N. SMITH. VICE PRESIDENT, MARKETING, VIDEO-ON-DEMAND. Mr. Smith was elected to this position in June 1998. Prior to that time, he served as Vice President, Marketing since June 1996. From April 1995 to June 1996, he served as Vice President, General Manager of the Real-Time Division of Harris Computer Systems Corporation. From October 1994 to April 1995, Mr. Smith served as Vice President, Marketing of Harris Computer Systems Corporation. He joined the Harris Computer Systems Division of Harris Corporation in March 1992 as Director, Secure Systems Business and later became Vice President, Marketing, a position he served in from January 1993 to October 1994. Prior to that time, he served in positions of increasing responsibility over a fifteen year period at the Aerospace Division of General Electric Company, serving as Program Manager, Armor Training at the time he joined the Harris Computer Systems Division. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is currently traded under the symbol "CCUR" on the NASDAQ National Market System. The following table sets forth the high and low sale information for the Common Stock for the periods indicated, as reported by NASDAQ.
HIGH LOW ----- --- Fiscal Year 1999 Quarter Ended: September 30, 1998 4.063 1.688 December 31, 1998 3.75 1.75 March 31, 1999 5.125 3.25 June 30, 1999 7.50 3.00 Fiscal Year 1998 Quarter Ended: September 30, 1997 2.813 1.250 December 31, 1997 3.500 1.781 March 31, 1998 3.375 1.688 June 30, 1998 5.00 2.906
As of September 17, 1999, there were 49,209,673 shares of Common Stock outstanding, held of record by approximately 2,005 stockholders. The Company has never declared or paid any cash dividends on its capital stock. The Company's present policy is to retain earnings to finance expansion and growth, and no change in the policy is anticipated. In addition, the terms of the Company's loan agreement with its lender prohibit the Company from payment of cash dividends on its capital stock. As a result, it is not anticipated that cash dividends will be paid in the foreseeable future. On July 31, 1992, the Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of Common Stock and then outstanding Convertible Preferred Stock of the Company to stockholders of record at the close of business on August 14, 1992. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock, par value $.01 per share, at a cash purchase price of $30.00 per Right, subject to adjustment, which become exercisable upon the occurrence of certain events (see Note 16 to the Consolidated Financial Statements.) 13 ITEM 6. SELECTED FINANCIAL DATA This information is set forth in the Selected Financial Data section of the Consolidated Financial Statements in Item 8. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS This information is set forth in the Management's Discussion and Analysis of Financial Conditions and Results of Operations section of the Consolidated Financial Statements in Item 8. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company, in the normal course of doing business, is exposed to the risks associated with foreign currency exchange rates. The Company does not hold any market risk sensitive instruments, and minimizes its exposure through judicious management of its international assets and liabilities. The Company minimizes its foreign inventory levels, and enters into foreign currency transactions only in those countries where it has foreign operations, and is therefore able to offset resultant assets with local liabilities. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements and supplementary data for Concurrent are included herein. PAGE ---- Independent Auditors' Report 21 Consolidated Balance Sheets as of June 30, 1999 and 1998 22 Consolidated Statements of Operations for each of the years in the three-year period ended June 30, 1999 23 Consolidated Statements of Redeemable Preferred Stock, Stockholders' Equity and Comprehensive Income for each of the years in the three-year period ended June 30, 1999 24 Consolidated Statements of Cash Flows for each of the years in the three-year period ended June 30, 1999 25 Notes to Consolidated Financial Statements 26 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE A change in independent accountants has previously been reported. See the Company's Current Report on Form 8-K filed on September 13, 1999. There have been no disagreements with the independent accountants on accounting and financial disclosure matters. 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) IDENTIFICATION OF DIRECTORS Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors" in Registrant's Proxy Statement to be dated October 1, 1999 in connection with its Annual Meeting of Stockholders to be held on October 29, 1999 ("Registrant's 1999 Proxy Statement"). (b) IDENTIFICATION OF EXECUTIVE OFFICERS The information called for hereunder is included in Part I of this Form 10-K under the caption "Executive Officers of the Registrant". (c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES Not applicable. (d) FAMILY RELATIONSHIPS There is no family relationship between any director and/or executive officer of the Company. (e) BUSINESS EXPERIENCE The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors" in Registrant's 1999 Proxy Statement with respect to the business experience of Registrant's directors. The information called for by this Item 10 with respect to executive officers of Registrant is included in Part I of this Form 10-K under the caption "Executive Officers of the Registrant". (f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors" in Registrant's 1999 Proxy Statement. (g) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in Registrant's 1999 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Executive Compensation" in Registrant's 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in Registrant's 1999 Proxy Statement. 15 (b) SECURITY OWNERSHIP OF MANAGEMENT The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in Registrant's 1999 Proxy Statement. (c) CHANGES IN CONTROL The Registrant knows of no contractual arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the captions "Security Ownership of Certain Beneficial Owners and Management," "Election of Directors" and "Executive Compensation" in Registrant's 1999 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT: Independent Auditors' Report Consolidated Balance Sheets as of June 30, 1999 and 1998 Consolidated Statements of Operations for each of the years in the three-year period ended June 30, 1999 Consolidated Statements of Redeemable Preferred Stock, Stockholders' Equity and Comprehensive Income for each of the years in the three-year period ended June 30, 1999 Consolidated Statements of Cash Flows for each of the years in the three-year period ended June 30, 1999 Notes to Consolidated Financial Statements (2) FINANCIAL STATEMENT SCHEDULES Schedule II Valuation and Qualifying Accounts All other financial statements and schedules not listed have been omitted since the required information is included in the Consolidated Financial Statements or the Notes thereto, or is not applicable, material or required. 16 (3) EXHIBITS
EXHIBIT NO. DESCRIPTION - ------------ ----------------------------------------------------------------------------------------- 2 Purchase and Sale Agreement dated March 26, 1996 as amended and restated on May 23, 1996, between Concurrent Computer Corporation (the "Company") and Harris Computer Systems Corporation ("HCSC"). (a) 3.1 Restated Certificate of Incorporation of the Company. (b) 3.2 Amended and Restated By-laws of the Company (November 1996) (c) 3.3 Certificate of Designation, Preferences and Rights of Class B Convertible Preferred Stock. (d) 4.1 Form of Share Holding Agreement dated June 27, 1996 between the Company and HCSC. (d) 4.2 Form of Common Stock Certificate. (e) 4.3 Rights Agreement dated as of July 31, 1992 between the Company and The First National Bank of Boston, as rights agent. (f) 4.4 Warrant to Purchase Shares of Common Stock of the Company dated August 17, 1998 issued to Scientific-Atlanta, Inc. (g) *10.1(a) 1991 Restated Stock Option Plan (As amended as of October 30, 1997). (h) *10.2(a) Form of Employment Agreement between the Company and its officers. All agreements, other than Messrs. Siegel's and Nussrallah's, contain substantially the same terms other than annual base salary and annual target bonus percentage. (i) *10.2(b) Employment Agreement dated as of March 25, 1996 between the Company and E. Courtney Siegel. (j) *10.2(c) Amendment to Employment Agreement dated as of January 1, 1999 between the Company and E. Courtney Siegel. (k) *10.2(d) Employment Agreement dated as of November 17, 1998 between the Company and Steve G. Nussrallah. (k) *10.3(a) Form of Incentive Stock Option Agreement between the Company and its executive officers. All agreements contain the same terms with the exception of the number of shares subject of the option and the vesting schedules. (l) *10.3(b) Form of Non-Qualified Stock Option Agreement between the Company and its executive officers. All agreements contain the same terms with the exception of the number of shares subject of the option and the vesting schedules. (m) 10.5 AT&T Information Systems Sublicensing Agreement. (b) 17 10.6(a) Amended and Restated Loan and Security Agreement dated March 1, 1998 between the Company and the lender named therein. (n) 21 Subsidiaries of Registrant. 23 Consent of KPMG LLP. 27 Financial Data Schedule. - ------------------------------------------------------------------------------------------------------ * Management contract or compensatory plan or arrangement. (a) Incorporated herein by reference to the Exhibits to the Company's proxy materials dated May 23, 1996. (b) Incorporated herein by reference to the Exhibits to the Company's Registration Statement on Form S-2 (No. 33-62440). (c) Incorporated herein by reference to the Exhibits to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 1996. (d) Incorporated herein by reference to the Exhibits to the Company's Current Report on Form 8-K, dated April 19, 1996. (e) Incorporated herein by reference to Exhibit Number 4.4 of Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992. (f) Incorporated herein by reference to the Company's Current Report on Form 8-K dated August 20, 1992. (g) Incorporated herein by reference to Exhibit Number 4.4 to Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998. (h) Incorporated herein by reference to Exhibit Number 10 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1997. (i) Incorporated herein by reference to Exhibit Number 10 of Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991. (j) Incorporated herein by reference to Exhibit 10 of Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996. (k) Incorporated herein by reference to Exhibit Number 10 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999. (l) Incorporated herein by reference to the Exhibits to the Company's Amendment No. 1 to Registration Statement on Form S-1 dated April 20, 1992. (No. 33-45871). (m) Incorporated herein by reference to Exhibit Number 10 of Item 14 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997. (n) Incorporated herein by reference to Exhibit Number 10 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998.
REPORTS ON FORM 8-K. None. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONCURRENT COMPUTER CORPORATION By: /s/ DANIEL S. DUNLEAVY --------------------------- Daniel S. Dunleavy President, Real-Time Division and Acting Chief Financial Officer Date: September 24, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Registrant and in the capacities and on the date indicated.
NAME CAPACITY ---- -------- /s/ E. COURTNEY SIEGEL Chairman of the Board, President and -| - ---------------------------- | E. Courtney Siegel Chief Executive Officer | (Principal Executive Officer) | | /s/ DANIEL S. DUNLEAVY President, Real-Time Division | - ---------------------------- | Daniel S. Dunleavy and Acting Chief Financial Officer | (Principal Financial and Accounting Officer) | | /s/ MICHAEL A. BRUNNER Director | - ---------------------------- | Michael A. Brunner |- September 24, 1999 | /s/ MORTON E. HANDEL Director | - ---------------------------- | Morton E. Handel | | /s/ C. SHELTON JAMES Director | - ---------------------------- | C. Shelton James | | /s/ RICHARD P. RIFENBURGH Director | - ---------------------------- | Richard P. Rifenburgh -|
19 CONCURRENT COMPUTER CORPORATION ANNUAL REPORT ON FORM 10-K ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA YEAR ENDED JUNE 30, 1999 20 INDEPENDENT AUDITORS' REPORT The Board of Directors Concurrent Computer Corporation: We have audited the accompanying consolidated balance sheets of Concurrent Computer Corporation and subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of operations, redeemable preferred stock, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30, 1999. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule for each of the years in the three-year period ended June 30, 1999, as listed in Item 14(a)(2) of the Company's 1999 Annual Report on Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Concurrent Computer Corporation and subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for each of the years in the three-year period ended June 30, 1999, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Atlanta, Georgia July 31, 1999 21
CONCURRENT COMPUTER CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) JUNE 30, -------------------- 1999 1998 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 6,872 $ 5,733 Accounts receivable, less allowance for doubtful accounts of $418 at June 30, 1999 and $503 at June 30, 1998 14,879 18,996 Inventories 4,641 6,263 Prepaid expenses and other current assets 1,053 1,487 --------- --------- Total current assets 27,445 32,479 Property, plant and equipment - net 10,936 12,419 Facilities held for sale 1,223 - Other long-term assets 965 1,337 --------- --------- Total assets $ 40,569 $ 46,235 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ - $ 365 Revolving credit facility - 1,123 Accounts payable and accrued expenses 8,973 13,321 Deferred revenue 3,778 4,018 --------- --------- Total current liabilities 12,751 18,827 Long-term liabilities 1,807 1,898 --------- --------- Total liabilities 14,558 20,725 --------- --------- Stockholders' equity: Shares of preferred stock, par value $.01; 25,000,000 authorized; none issued - - Shares of common stock, par value $.01; 100,000,000 authorized; 48,516,527 and 47,632,309 issued at June 30, 1999 and 1998, respectively 485 476 Capital in excess of par value 98,916 97,136 Accumulated deficit after eliminating accumulated deficit of $81,826 at December 31, 1991, date of quasi-reorganization (72,856) (71,191) Treasury stock, at cost; 840 shares (58) (58) Accumulated other comprehensive income (476) (853) --------- --------- Total stockholders' equity 26,011 25,510 --------- --------- Total liabilities and stockholders' equity $ 40,569 $ 46,235 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 22
CONCURRENT COMPUTER CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED JUNE 30, ----------------------------- 1999 1998 1997 -------- -------- --------- Net sales Computer systems $31,597 $37,868 $ 55,664 Service and other 38,366 44,347 52,703 -------- -------- --------- Total 69,963 82,215 108,367 Cost of sales Computer systems 15,001 18,556 27,662 Service and other 19,625 23,269 28,426 Transition - - 1,068 -------- -------- --------- Total 34,626 41,825 57,156 -------- -------- --------- Gross margin 35,337 40,390 51,211 Operating expenses: Selling, general and administrative 26,157 25,134 28,604 Research and development 10,046 10,947 13,577 Restructuring and transition - (607) 2,292 Curtailment gain on postretirement benefit obligation - - (2,501) Non-cash development expenses - 1,605 - Loss on facility held for sale 423 - - -------- -------- --------- Total operating expenses 36,626 37,079 41,972 -------- -------- --------- Operating (loss) income (1,289) 3,311 9,239 Interest expense (261) (833) (2,034) Interest income 295 185 164 Other non-recurring items (88) 1,434 (1,577) Other income (expense) - net 41 277 (350) -------- -------- --------- (Loss) income before provision for income taxes (1,302) 4,374 5,442 Provision for income taxes 363 960 1,381 -------- -------- --------- Net (loss) income (1,665) 3,414 4,061 Preferred stock dividends and accretion of Mandatory redeemable preferred shares - (18) (311) -------- -------- --------- Net (loss) income available to common shareholders $(1,665) $ 3,396 $ 3,750 ======== ======== ========= Basic and diluted net (loss) income per share ($0.03) $ 0.07 $ 0.08 ======== ======== =========
The accompanying notes are an integral part of the consolidated financial statements. 23
CONCURRENT COMPUTER CORPORATION CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK, STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS) FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1999 ACCUMULATED COMMON STOCK OTHER REDEEMABLE ----------------- CAPITAL IN COMPRE- TREASURY STOCK PREFERRED PAR EXCESS OF ACCUMULATED HENSIVE --------------- STOCK SHARES VALUE PAR VALUE DEFICIT INCOME SHARES COST TOTAL -------- ---------- ------ ---------- --------- -------- ------- ------ -------- Balance at June 30, 1996 $ 5,610 41,223,610 $ 412 $ 84,252 $(78,337) $ 658 (840) $ (58) $ 6,927 Sale of common stock under stock plans 1,064,981 11 1,252 1,263 Issuance of common stock under retirement savings plan 629,847 6 1,271 1,277 Issuance of common stock for severance 1,234,434 12 1,508 1,520 Conversion of cumulative, convertible redeemable exchangeable preferred stock (4,387) 1,950,000 20 4,367 4,387 Dividends on and accretion of preferred stock 20 (311) (311) Comprehensive income: Net income 4,061 4,061 Foreign currency translation adjustment (1,004) (1,004) -------- Total comprehensive income 3,057 -------- ---------- ------ ---------- --------- -------- ------- ------ -------- Balance at June 30, 1997 1,243 46,102,872 461 92,650 (74,587) (346) (840) (58) 18,120 Sale of common stock under stock plans 678,213 6 961 967 Issuance of common stock under retirement savings plan 296,224 3 581 584 Conversion of cumulative, convertible redeemable exchangeable preferred stock (1,245) 555,000 6 1,239 1,245 Issuance of warrants 1,605 1,605 Dividends on and accretion of preferred stock 2 (18) (18) Quasi-reorganization related adjustment 100 100 Comprehensive income: Net income 3,414 3,414 Foreign currency translation adjustment (507) (507) -------- Total comprehensive income 2,907 -------- ---------- ------ ---------- --------- -------- ------- ------ -------- Balance at June 30, 1998 - 47,632,309 476 97,136 (71,191) (853) (840) (58) 25,510 Sale of common stock under stock plans 884,218 9 1,780 1,789 Comprehensive income: Net loss (1,665) (1,665) Foreign currency translation adjustment 377 377 -------- Total comprehensive loss (1,288) -------- ---------- ------ ---------- --------- -------- ------- ------ -------- Balance at June 30, 1999 $ - 48,516,527 $ 485 $ 98,916 $(72,856) $ (476) (840) $ (58) $26,011 ======== ========== ====== ========== ========= ======== ======= ====== ========
The accompanying notes are an integral part of the consolidated financial statements. 24
CONCURRENT COMPUTER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) YEAR ENDED JUNE 30, ------------------------------ 1999 1998 1997 -------- --------- --------- Cash flows provided by operating activities: Net (loss) income $(1,665) $ 3,414 $ 4,061 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Unrealized loss on trading securities - - 2,334 Realized gain on trading securities - (420) (757) Gain on sale of facility - (706) - Issuance of non-cash warrants - 1,605 - Loss on impairment of facility held for sale 423 - - Loss on dissolution of subsidiary 429 - - Depreciation and amortization 4,959 5,656 5,177 Provision for inventory reserves 1,087 - - Stock compensation - 1,054 1,277 Other non-cash expenses 19 (40) 127 Decrease (increase) in assets: Accounts receivable 4,098 6,864 2,087 Inventories 535 1,915 3,917 Prepaid expenses and other current assets (384) (309) (29) Other long-term assets 318 83 1,879 Increase (decrease) in liabilities: Accounts payable and accrued expenses (4,588) (10,945) (16,714) Other long-term liabilities (91) 679 (3,235) -------- --------- --------- Net cash provided by operating activities 5,140 8,850 124 -------- --------- --------- Cash flows (used in) provided by investing activities: Net additions to property, plant and equipment (4,194) (2,949) (2,510) Proceeds from sale of facility - 5,406 - Proceeds from sale of trading securities - 2,668 5,782 -------- --------- --------- Net cash (used in) provided by investing activities (4,194) 5,125 3,272 -------- --------- --------- Cash flows provided by (used in) financing activities: Net (payments) proceeds of notes payable (425) (4,173) 386 Net repayment of debt (1,123) (8,156) (3,579) Proceeds from sale and issuance of common stock 1,789 967 1,263 -------- --------- --------- Net cash provided by (used in) financing activities 241 (11,362) (1,930) -------- --------- --------- Effect of exchange rates on cash and cash equivalents (48) (904) (1,004) -------- --------- --------- Increase in cash and cash equivalents 1,139 1,709 462 Cash and cash equivalents - beginning of year 5,733 4,024 3,562 -------- --------- --------- Cash and cash equivalents - end of year $ 6,872 $ 5,733 $ 4,024 ======== ========= ========= Cash paid during the period for: Interest $ 258 $ 568 $ 2,255 ======== ========= ========= Income taxes (net of refunds) $ 1,041 $ 1,434 $ 1,685 ======== ========= ========= Non-cash investing/financing activities Conversion of preferred stock - 1,245 4,387 -------- --------- --------- Dividends on preferred stock - 18 311 -------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 25 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. OVERVIEW OF THE BUSINESS Concurrent Computer Corporation ("Concurrent" or the "Company") is a leading supplier of high-performance computer systems, software, and services. In August 1999, the Company's emerging Video-On-Demand ("VOD") Division opened its own facilities separate from its Real-Time Division in order to maximize the focus of each of these businesses. The VOD Division will target the markets utilizing the Company's interactive video-on-demand technology. To date, the Company has only $1.2 million in revenues from the VOD Division. Concurrent is a leading supplier of digital video server systems to a wide range of industries and its VOD Division serves a variety of markets including the broadband/cable, hospitality, intranet/distance learning, and other related markets. Based on a scalable, real-time software architecture, Concurrent's VOD hardware and software are integrated to deliver fault-tolerant, deterministic streaming video to a broad spectrum of VOD applications. Concurrent is also a leading provider of high-performance, real-time computer systems, solutions, and software for commercial and government markets. The Company's Real-Time Division focuses on strategic market areas that include hardware-in-the-loop and man-in-the-loop simulation, data acquisition, industrial systems, and software and embedded applications. A "real-time" system or software is one specially designed to acquire, process, store, and display large amounts of rapidly changing information in real time - that is, with microsecond response as changes occur. Concurrent has nearly thirty years of experience in real-time systems, including specific expertise in systems, applications software, productivity tools, and networking. Its systems provide real-time applications for gaming, simulation, engine test, air traffic control, weather analysis, and mission critical data services such as financial market information. In August, 1999, the Company's Corporate Headquarters and VOD Division's offices were relocated to Duluth, Georgia from Fort Lauderdale, Florida. Its Real-Time Division's offices and manufacturing facility remain in Fort Lauderdale and Pompano Beach, Florida. The Company operates in 28 countries worldwide. It provides sales and support from offices and subsidiaries throughout North America, South America, Europe, Asia, and Australia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of all wholly-owned domestic and foreign subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Foreign Currency The functional currency of substantially all of the Company's foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using average rates of exchange prevailing 26 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) during the fiscal year. Adjustments resulting from the translation of foreign currency financial statements are accumulated in a separate component of stockholders' equity until the entity is sold or substantially liquidated. Gains or losses resulting from foreign currency transactions are included in the results of operations, except for those relating to intercompany transactions of a long-term investment nature which are accumulated in a separate component of stockholders' equity. Gains on foreign currency transactions of $132,000, $82,000, and $138,000 for the years ended June 30, 1999, 1998, and 1997, respectively, are included in other income (expense) - net. Cash Equivalents Short-term investments with original maturities of ninety days or less at the date of purchase are considered cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market, and represents cash invested in U.S. Government securities, bank certificates of deposit, or commercial paper. Trading Securities At June 30, 1997, the Company held investments considered to be trading securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Pursuant to the provisions of SFAS No. 115, all realized gains and losses and unrealized holding gains and losses were included as a component of other non-recurring charges in the consolidated statements of operations for the years ended June 30, 1998 and 1997. Market values of the securities were determined by the most recently traded price of the security at the balance sheet date. Inventories Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out basis. The Company establishes excess and obsolete inventory reserves based upon historical and anticipated usage. Property, Plant and Equipment Property, plant and equipment are stated at acquired cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of assets ranging from three to forty years. Leasehold improvements are amortized over the shorter of the useful lives of the improvements or the terms of the related lease. Gains and losses resulting from the disposition of property, plant and equipment are included in other income (expense) - net. Expenditures for repairs and maintenance are charged to operations as incurred and expenditures for major renewals and betterments are capitalized. Revenue Recognition and Related Matters Computer systems sales are recorded when the earnings process is complete, typically upon shipment to customers. Service contract revenue is recognized separately and as earned, on a straight line basis, over the respective maintenance period in accordance with the terms of the applicable contract. 27 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) In October 1997, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on vendor specific objective evidence ("VSOE") of the relative fair values of the elements. VSOE is determined by the price charged when the element is sold separately. The revenue allocated to hardware and software products is generally recognized upon installation and substantial fulfillment of all obligations under the sales contract. Capitalized Software The Company accounts for software development costs in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" ("SFAS No. 86"). Under SFAS No. 86, the costs associated with software development are required to be capitalized after technological feasibility has been established and ceases capitalization upon the achievement of customer availability. Costs incurred by the Company between technological feasibility and the point at which the products are ready for market are insignificant and as a result the Company has no capitalized software at June 30, 1999 and 1998. The Company does not incur costs related to the development or purchase of internal use software. Research and Development Research and development expenditures are expensed as incurred. Basic and Diluted (Loss) Income per Share In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify EPS computations included (i) eliminating the presentation of primary EPS and replacing it with basic EPS, (ii) eliminating the modified treasury stock method and the three percent materiality provision and (iii) revising the contingent share provisions and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure requirements. SFAS No. 128 is effective for financial statements issued for period ending after December 15, 1997. The adoption of this statement during fiscal year 1998 did not have a significant impact on the Company's previously reported EPS. Basic (loss) income per share is computed by dividing (loss) income after deduction of preferred stock dividends by the weighted average number of common shares outstanding during each year. In fiscal years 1998 and 1997, diluted income per share is computed using the treasury stock method by dividing income after deduction of preferred stock dividends by the weighted average number of shares including common share equivalents and incremental shares representing the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In fiscal year 1999, diluted loss per share has not been adjusted due to the effect of the incremental shares being antidilutive. 28 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Impairment of Long-Lived Assets The Company follows the provisions of SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Facilities held for sale at June 30, 1999 are reported at the lower of the carrying amount or fair value on the consolidated balance sheet. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, inventories, prepaid expenses, accounts payable and short term debt approximate fair value because of the short maturity of these instruments. Fair value estimates are made at a specific point in time, based on the relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumption could significantly affect the estimates. Income Taxes The Company and its domestic subsidiaries file a consolidated Federal income tax return. All foreign subsidiaries file individual tax returns pursuant to local tax laws. The Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, a deferred tax asset or liability is recognized for temporary differences between financial reporting and income tax bases of assets and liabilities, tax credit carryforwards and operating loss carryforwards. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that such deferred tax assets will not be realized. Utilization of net operating loss carryforwards and tax credits, which originated prior to the Company's quasi-reorganization effected on December 31, 1991, are recorded as adjustments to capital in excess of par value. Pensions and Postretirement Benefits In February 1998, SFAS No. 132, "Employer's Disclosures About Pensions and Other Postretirement Benefits," ("SFAS 132") was issued. SFAS 132 requires additional disclosures concerning changes in the Company's pension and other postretirement benefit obligations and assets and eliminates certain disclosures no longer considered useful. The Company has adopted the provisions of this standard for 1999 annual reporting purposes. Adoption of these statements did not impact the Corporation's consolidated financial position, results of operations, or cash flows, and any effects are limited to the form and content of its disclosures. Stock-Based Compensation The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the 29 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net (loss) income and pro forma (loss) income per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Segment Information In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. The Company operates in one segment for management reporting purposes at June 30, 1999. However, the Company is establishing facilities, personnel and reporting procedures to separate its VOD and Real-Time Divisions for fiscal 2000. Comprehensive (Loss) Income Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Comprehensive income is defined as a change in equity during the financial reporting period of a business enterprise resulting from non-owner sources. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates and the reporting of revenues and expenses during the reporting periods, to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Reclassifications Certain amounts in the 1998 and 1997 consolidated financial statements have been reclassified to conform with the 1999 presentation. 3. ACQUISITION On June 27, 1996 Concurrent acquired the assets of the Real-Time Division of Harris Computer Systems Corporation ("HCSC") and 683,178 newly-issued shares of HCSC, in exchange for 10,000,000 shares of common stock of Concurrent (with a fair value of $9.7 million); 1,000,000 shares of convertible exchangeable preferred stock of Concurrent with a 9% cumulative annual dividend payable quarterly in arrears, mandatorially redeemable at $6,263,000 (with an estimated 30 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) fair value of $5.6 million) (see Note 4); and the assumption of certain liabilities relating to the HCSC Real-Time Division (the "Acquisition"). The aggregate purchase price of the Acquisition was approximately $18.7 million, including $3.4 million in transaction expenses (principally financial advisor, legal and other professional fees). The Acquisition was accounted for as a purchase effective June 30, 1996. The Acquisition resulted in excess of acquired net assets over cost (negative goodwill) amounting to approximately $8.7 million which has been allocated to reduce proportionately the values assigned to non-current assets. The 683,173 shares of HCSC common stock acquired by the Company in connection with the Acquisition were classified as trading securities in the consolidated balance sheet and valued at their market price of $14.75 per share or $10.1 million. During fiscal year 1997, the Company sold 377,995 shares resulting in a realized gain of $757,000. At June 30, 1997, the value of the remaining shares was $8.91 per share, resulting in an unrealized loss of $2.3 million for the year then ended. During the year ended June 30, 1998, 259,352 shares of stock were sold, resulting in a realized gain for the period of $358,000, and 45,826 shares valued at $10.25 per share were issued as bonuses to Company employees resulting in a realized gain of $62,000 and non-cash compensation expense of $470,000. The gains and losses are included as other non-recurring charges in the consolidated statements of operations and as non-cash items in the consolidated statements of cash flows. Transition expenses for the year ended June 30, 1997 include charges for costs associated with the combination of Concurrent and the HCSC Real-Time Division. 4. REDEEMABLE CONVERTIBLE PREFERRED STOCK In connection with the Acquisition, Concurrent issued 1,000,000 shares of newly issued Class B 9% Cumulative Convertible Redeemable Exchangeable Preferred Stock ("Preferred Stock"). Each share of Preferred Stock was convertible into one or more shares of fully paid non-assessable shares of common stock of the Company at a conversion price of $2.50. The Preferred Stock was recorded at fair value when issued. During fiscal years 1998 and 1997 respectively, 220,000 and 780,000 shares of Concurrent Preferred Stock were converted into outstanding common stock. As of June 30, 1999 and 1998, there was no outstanding Preferred Stock. 5. PROVISION FOR RESTRUCTURING In connection with the Acquisition, the Company recorded a $23.2 million restructuring provision as of June 30, 1996. Such charge, based on formal approved plans, included the estimated costs related to the rationalization of facilities, workforce reductions, asset writedowns and other costs which represented approximately 44%, 28%, 26%, and 2%, respectively. The rationalization of facilities included the planned disposition of the Company's Oceanport, New Jersey facility, as well as the closing or downsizing of certain offices located throughout the world. The workforce reductions included the termination of approximately 200 employees worldwide, encompassing substantially all of the Company's employee groups. The asset writedowns were primarily related to the disposition of duplicative machinery and equipment. Cash expenditures related to this reserve were $600,000, $2.2 million, and $9.6 million for the years ended June 30, 1999, 1998, and 1997, respectively. As of June 30, 1999, the restructuring reserve was $90,000, which represents payments owed to the Industrial Development Authority (the "IDA"). On May 5, 1992 the Company had entered into an agreement with the IDA to maintain a 31 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) presence in Ireland through April 30, 1998. In connection with the Acquisition, the Company closed its Ireland operations in December 1996 and was required to repay grants to the IDA of approximately $484,000 (360,000 Irish pounds). During fiscal year 1999, $394,000 was paid to the IDA and the remainder will be paid in the first quarter of fiscal year 2000. 6. DISSOLUTION OF JOINT VENTURE In June 1998, the Company entered into a Share Transfer and Termination of Shareholders Agreement (the "Termination Agreement") whereby it acquired the 40 percent interest held by the minority shareholders in the Company's Japanese subsidiary, Concurrent Nippon Corporation ("CNC"). Pursuant to the provisions of the Termination Agreement, the minority shareholders relinquished their interest in CNC by transferring 1,200 shares of CNC to the Company and paying $1.2 million to the Company. Per the original joint venture agreement, Concurrent and the minority shareholders shared the income of CNC on a 60-40 basis, respectively. However, for losses, minority shareholders only assumed its share of the losses until it reached the 40 percent investment. Subsequent to that point Concurrent had assumed 100 percent of the losses. The minority shareholders stopped assuming its share of CNC's losses at the end of fiscal year 1996. As part of the Termination Agreement, the minority shareholders agreed to assume its share of CNC losses subsequent to fiscal year 1996 amounting to $1.2 million. The Company accounted for this payment from the minority shareholders in the consolidated statement of operations as other non-recurring items in 1998. 7. DISSOLUTION OF SUBSIDIARY During the year ended June 30, 1999, the Company dissolved its subsidiary Concurrent Computer Corporation France (the "French Branch"). However, the French Branch should not be confused with Concurrent Computer Corporation S.A., the Company's continuing French subsidiary. In connection with the dissolution, all assets and liabilities of the French Branch were assumed by the Company. As a result, a loss of $429,000, representing the write off of the French Branch's cumulative translation adjustment, was recorded in other non-recurring charges in the consolidated statement of operations for the year ended June 30, 1999. 8. INVENTORIES Inventories consist of the following:
JUNE 30, -------------- 1999 1998 ------ ------ (DOLLARS IN THOUSANDS) Raw materials $3,103 $4,780 Work-in-process 1,175 959 Finished goods 363 524 ------ ------ $4,641 $6,263 ====== ======
At June 30, 1999 and 1998, some portion of the Company's inventory was in excess of the current requirements based upon the planned level of sales for future years. Accordingly, the Company recorded an accrual for inventory reserves of $4.6 million to reduce the value of the inventory to its estimated net realizable value at June 30, 1999 and 1998. 32 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 9. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-TERM ASSETS Property, plant and equipment consists of the following:
JUNE 30, -------------------- 1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Land $ 0 $ 513 Buildings and leasehold improvements 1,302 1,409 Machinery, equipment and customer support spares 34,647 28,343 --------- --------- 35,949 30,265 Less: Accumulated depreciation (25,013) (17,846) --------- --------- $ 10,936 $ 12,419 ========= =========
For the years ended June 30, 1999, 1998, and 1997, depreciation and amortization expense for property plant and equipment amounted to $4,087,000, $4,494,000, and $5,123,000, respectively. In fiscal year 1999, the Company entered into an agreement to sell its France facility. In connection with this transaction, which will be finalized in the first quarter of fiscal year 2000, the facility was written down by $0.4 million to its estimated fair market value of $1.2 million, based upon a valuation by the acquiring company, and classified as a facility held for sale in the consolidated balance sheet. The loss on facility held for sale is reflected as an operating expense in the consolidated statement of operations for fiscal year 1999. During fiscal year 1996, in connection with the Acquisition and the resulting planned disposition of the Company's Oceanport, New Jersey facility, the book value of land and building related to this facility was written down by $6.8 million to its estimated fair value of $4.7 million, based upon a valuation by independent appraisers, and classified as a facility held for sale. The sale was finalized during the first quarter of fiscal year 1998 and resulted in net proceeds of approximately $5.4 million which was used to pay the Company's long term debt. The Company realized a gain of $0.7 million in the consolidated statement of operations for the year ended June 30, 1998. 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
JUNE 30, --------------- 1999 1998 ------ ------- (DOLLARS IN THOUSANDS) Accounts payable, trade $2,941 $ 4,946 Accrued payroll, vacation and other employee expenses 4,314 4,695 Restructuring reserve 90 661 Other accrued expenses 1,628 3,019 ------ ------- $8,973 $13,321 ====== =======
33 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 11. DEBT AND LINES OF CREDIT On March 1, 1998, the Company entered into a new credit agreement providing for an $8 million revolving credit facility maturing on August 1, 2000 (the "Revolver"). During fiscal year 1998, the Company repaid the outstanding term loan and revolver from its prior credit agreement, and the Company's Japanese subsidiary repaid its bank loans for which the Company was a guarantor. At June 30, 1999, the outstanding balance of the Revolver was $0. The Company may reborrow and repay the Revolver, subject to certain collateral requirements, at any time prior to the maturity date. The interest rate of the Revolver is prime plus 0.75% (8.5% at June 30, 1999). The Company has pledged substantially all of its domestic assets as collateral for the Revolver. During 1999, the outstanding balance on the June 1998 revolver was paid in full in the amount of $1.1 million. The Revolver contains various covenants and restrictions, which among other things, (1) place certain limits on corporate acts of the Company such as fundamental changes in the corporate structure of the Company, investments in other entities, incurrence of additional indebtedness, creation of liens or certain distributions or dispositions of assets, including cash dividends, and (2) require the Company to meet financial tests of a period basis, the most restrictive of which relate to the maintenance of collateral coverage and debt coverage all as defined in the agreement. At June 30, 1999, the Company was in compliance with such covenants and restrictions or obtained waiver for noncompliance. 12. INCOME TAXES The domestic and foreign components of (loss) income before provision for income taxes are as follows:
YEARS ENDED JUNE 30, ------------------------- 1999 1998 1997 -------- ------ ------- (DOLLARS IN THOUSANDS) United States $(1,420) $2,143 $ (489) Foreign 118 2,231 5,931 -------- ------ ------- $(1,302) $4,374 $5,442 ======== ====== =======
The components of the provision for income taxes are as follows:
YEARS ENDED JUNE 30, ---------------------- 1999 1998 1997 ------- ----- ------ (DOLLARS IN THOUSANDS) Current: Federal $ - $ - $ - Foreign 1,056 496 1,347 ------- ----- ------ Total $1,056 $ 496 $1,347 ------- ----- ------ Deferred: Federal $ - $ 98 $ - Foreign (693) 366 34 ------- ----- ------ Total $ (693) $ 464 $ 34 ------- ----- ------ Total $ 363 $ 960 $1,381 ======= ===== ======
34 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) A reconciliation of the income tax (benefit) expense computed using the Federal statutory income tax rate to the Company's provision for income taxes is as follows:
YEARS ENDED JUNE 30, -------------------------- 1999 1998 1997 -------- ------- ------- (DOLLARS IN THOUSANDS) (Loss) income before provision for income taxes $(1,302) $4,374 $5,442 -------- ------- ------- Tax (benefit) at Federal statutory rate (443) 1,487 1,850 Other, net 806 (572) (469) -------- ------- ------- Provision for income taxes $ 363 $ 960 $1,381 ======== ======= =======
As of June 30, 1999 and 1998, the Company's deferred tax assets and liabilities were comprised of the following:
JUNE 30, -------------------- 1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Gross deferred tax assets related to: U.S. and foreign net operating loss carryforwards $ 46,809 $ 46,891 Book and tax basis differences for reporting purposes 10,530 10,956 Other reserves 607 569 Accrued compensation 883 1,156 Other 785 1,042 --------- --------- Total gross deferred tax assets 59,614 60,614 Valuation allowance (57,372) (58,814) --------- --------- Total deferred tax asset 2,242 1,800 Gross deferred tax liabilities primarily related to property and equipment 1,549 1,800 --------- --------- Total gross deferred tax liability 1,549 1,800 --------- --------- Deferred income tax assets $ 693 $ - ========= =========
Any future benefits attributable to the U.S. Federal net operating loss carryforwards which originated prior to the Company's quasi-reorganization are accounted for through adjustments to capital in excess of par value. Under Section 382 of the Internal Revenue Code, future benefits attributable to the net operating loss carryforwards and tax credits which originated prior to the Company's quasi-reorganization and those which originated subsequent to the Company's quasi-reorganization through the date of the Company's 1993 comprehensive refinancing ("1993 Refinancing") are limited to approximately $300,000 per year. The Company's U.S. Federal net operating loss carryforwards begin to expire in 2004. As of June 30, 1999, the Company has remaining utilizable U.S. Federal tax net operating loss carryforwards of approximately $103 million for income tax purposes. Approximately $55 million of these net operating 35 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) loss carryforwards originated prior to the Company's 1993 Refinancing and are limited to $300,000 per year. The remaining $48 million of net operating loss carryforwards may be limited in accordance with IRC Section 382. Deferred income taxes have not been provided for undistributed earnings of foreign subsidiaries, which originated subsequent to the Company's quasi-reorganization, primarily due to the Company's required investment in certain subsidiaries. Additionally, deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries which originated prior to the Company's quasi-reorganization. The impact of both the subsequent repatriation of such earnings and the resulting offset, in full, from the utilization of net operating loss carryforwards will be accounted for through adjustments to capital in excess of par value. The valuation allowance for deferred tax assets as of June 30, 1999 and 1998 was approximately $57 million and $59 million, respectively. The net change in the total valuation allowance for the year ended June 30, 1999 was a decrease of approximately $1.4 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As such, the deferred tax assets have been reduced by the valuation allowance since management considers more likely than not that these deferred tax assets will not be realized. 13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS The Company maintains a retirement savings plan (the "Plan") available to U.S. employees which qualifies as a defined contribution plan under Section 401(k) of the Internal Revenue Code. The Company may make a discretionary matching contribution equal to 100% of the first 6% of employees' contributions. For the years ended June 30, 1999, 1998 and 1997, the Company matched 100% of the employees' Plan contributions up to 6%. The Company's matching contributions under the Plan are as follows:
1999 1998 1997 ------- ------ ------ (DOLLARS IN THOUSANDS) Matching contribution $1,040 $1,140 $1,439
36 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Certain foreign subsidiaries of the Company maintain pension plans for their employees which conform to the common practice in their respective countries. The related changes in benefit obligation and plan assets and the amounts recognized in the consolidated balance sheets are presented in the following tables:
Reconciliation of Funded Status - ---------------------------------- JUNE 30, ------------------ 1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year $10,777 $ 9,304 Service cost 336 360 Interest cost 886 858 Plan participants' contributions 71 100 Actuarial loss 2,803 (27) Foreign currency exchange rate change (586) 249 Benefits paid (57) (67) -------- -------- Benefit obligation at end of year $14,230 $10,777 ======== ======== Change in plan assets: Fair value of plan assets at beginning of year $13,603 $11,606 Actual return on plan assets 957 1,539 Employer contributions 170 205 Plan participants' contributions 71 100 Benefits paid (20) (28) Foreign currency exchange rate change (700) 181 -------- -------- Fair value of plan assets at end of year $14,081 $13,603 ======== ======== Funded status $ (149) $ 2,826 Unrecognized actuarial loss (3) (3,243) Unrecognized prior service benefit 277 317 Unrecognized net transition obligation (211) (298) -------- -------- Net amount recognized $ (86) $ (398) ======== ========
Amounts Recognized in the Consolidated Balance Sheet - ---------------------------------------------------- JUNE 30, ------------------ 1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Prepaid benefit cost $ 1,255 $ 1,071 Accrued benefit liability (1,341) (1,469) -------- -------- Net amount recognized $ (86) $ (398) ======== ========
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $2.4 million, $2.4 million and $1.5 million, respectively, as of June 30, 1999, and $2.3 million, $2.2 million and $1.4 million, respectively, as of June 30, 1998. 37 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Plan assets are comprised primarily of investments in managed funds consisting of common stock, money market and real estate investments. The assumptions used to measure the present value of benefit obligations and net periodic benefit cost are shown in the following table:
Significant Assumptions - ------------------------ JUNE 30, ------------------------------------------ 1999 1998 1997 ------------- ------------ ------------- Discount rate 6.0% to 6.25% 6.5% to 8.5% 6.5% to 9.0% Expected return on plan assets 6.0% 7.0% to 8.5% 7.0% to 9.0% Compensation increase rate 3.5% to 4.5% 3.5% to 7.0% 3.5% to 7.0%
Components of Net Periodic Benefit Cost - -------------------------------------------- YEAR ENDED JUNE 30, -------------------------- 1999 1998 1997 ------ -------- -------- (DOLLARS IN THOUSANDS) Service cost $ 336 $ 360 $ 286 Interest cost 886 858 782 Expected return on plan assets (873) (1,130) (1,024) Amortization of unrecognized net transition obligation (69) (71) (70) Amortization of unrecognized prior service benefit 25 25 - Recognized actuarial loss (51) (125) (77) ------ -------- -------- Net periodic benefit cost $ 254 $ (83) $ (103) ====== ======== ========
On July 1, 1993, the Company adopted the provisions of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions". In connection with the adoption of this standard, the Company recorded a non-cash charge of $3.0 million in fiscal year 1994, which represented the immediate recognition of the accumulated postretirement benefit obligation at the date of adoption. The plan was subject to amendment at the Company's discretion, and as a result of the Acquisition, a decision was made to terminate the plan. The Company recognized a $2.5 million gain from curtailment of the plan during the year ended June 30, 1997. 14. EMPLOYEE STOCK PLANS The Company has a Stock Option Plan providing for the grant of incentive stock options to employees and non-qualified stock options (NSO's) to employees, non-employee directors and consultants. The Stock Option Plan is administered by the Stock Award Committee comprised of members of the Compensation Committee of the Board of Directors or the Board of Directors, as the case may be. Under the plan, the Stock Award Committee may award, in addition to stock options, shares of Common Stock on a restricted basis. The plan also specifically provides for stock appreciation rights and authorizes the Stock Award Committee to provide, either at the time of the grant of an option or otherwise, that the option may be cashed out upon terms and conditions to be determined by the Committee or the Board. No stock appreciation rights have been granted during the years ended June 30, 1999, 1998 and 1997. The plan terminates on January 31, 2002. Stockholders have approved the purchase of up to 9,000,000 shares under the plan. 38 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Changes in options outstanding under the plan during the years ended June 30, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ---------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ----------- ---------- ----------- ------ ----------- ------ Outstanding at beginning of year 5,852,794 $ 2.13 6,016,229 $ 2.15 5,483,527 $ 1.91 Granted 1,648,500 $ 2.77 630,800 $ 1.86 1,711,000 $ 2.26 Exercised (884,283) $ 2.02 (666,443) $ 1.45 (1,066,362) $ 1.12 Forfeited (231,042) $ 2.17 (127,792) $ 5.06 (111,936) $ 1.92 ----------- ----------- ----------- Outstanding at year-end 6,385,969 $ 2.31 5,852,794 $ 2.13 6,016,229 $ 2.15 Options exercisable at year end 3,498,533 3,076,730 2,493,536 Weighted average fair value of options granted during the year $ 1.56 $ 0.42 $ 0.66
Options with respect to 3,498,533 shares of common stock, with an average exercise price of $2.31, were exercisable at June 30, 1999. The weighted-average fair value of the stock options granted during 1999, 1998 and 1997 was $2,571,431, $263,415, and $1,130,324, respectively, on the date of grant using the Black Scholes option-pricing model. The weighted-average assumptions used were: expected dividend yield 0%, risk-free interest rate 5.0%, expected life of 4.01 years and an expected volatility of 70%, 35%, and 35% respectively. The following table summarizes information about stock options outstanding and exercisable at June 30, 1999:
OUTSTANDING OPTIONS OPTIONS EXERCISABLE ------------------------------------------ ------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICES LIFE AT JUNE 30, 1999 PRICE AT JUNE 30, 1999 PRICE - --------------- ----------- ----------------- ---------- ----------------- ------ 0.88 - $0.99 5.84 52,901 $ 0.88 52,901 $ 0.88 1.00 - $1.99 7.01 554,246 1.50 318,604 1.49 2.00 - $2.99 7.71 5,578,337 2.34 2,943,209 2.11 3.00 - $3.99 9.11 59,166 3.15 45,834 3.19 4.00 - $4.99 2.22 139,452 4.39 136,118 4.39 5.00 - $5.99 1.98 1,500 5.08 1,500 5.08 6.00 - $6.99 2.06 100 6.88 100 6.88 7.00 - $7.99 2.04 200 7.19 200 7.19 25.63 - $47.50 0.14 67 41.30 67 41.30 ----------- ----------------- ---------- ----------------- ------ 7.47 6,385,969 $ 2.31 3,498,533 $2.13
39 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) applicable to common shareholders and net income (loss) per share would have been reduced to the pro forma amounts indicated below:
YEARS ENDED JUNE 30, 1999 1998 1997 -------- ------ ------ (DOLLARS IN THOUSANDS) Net income (loss) applicable to common shareholders As reported ($1,665) $3,396 $3,750 Pro forma ($2,147) $3,133 $2,620 Net income (loss) per share (basic and diluted) As reported ($0.03) $ 0.07 $ 0.08 Pro forma ($0.04) $ 0.07 $ 0.06
15. ISSUANCE OF NON-CASH WARRANTS On May 20, 1998, the Company entered into a Letter of Intent ("LOI") with Scientific-Atlanta, Inc. ("SAI") providing for the joint development and marketing of a video-on-demand system to cable network operators. A definitive agreement was signed on August 17, 1998. In exchange for SAI's technical and marketing contributions, the Company issued warrants for 2 million shares of its common stock, exercisable at $5 per share over a four-year term. The LOI between Concurrent and SAI is broken into three phases: Phase I Technical/Commercial Evaluation and Definitive Agreement Phase II Initial Development and Video-on-Demand Field Demonstration System Phase III Commercial Deployment During Phase I, either party could terminate the negotiations at any time. In June 1998, the parties moved to Phase II and pursuant to the provisions of SFAS No. 123, Concurrent recorded a charge of $1.6 million representing the fair value of the underlying stock using the Black-Scholes option-pricing model for the warrants to purchase 2 million shares of the Company's stock. The LOI further stipulates that Concurrent is required to issue additional warrants to SAI upon achievement of pre-determined revenue targets. These warrants are to be issued with a strike price of a 15% discount to the then current market price. To date no such targets have been met. 16. RIGHTS PLAN On July 31, 1992, the Board of Directors of the Company declared a dividend distribution of one Series A Participating Cumulative Preferred Right for each share of the Company's Common Stock and Convertible Preferred Stock. The dividend was made to stockholders of record on August 14, 1992. Under the rights plan, each Right becomes exercisable unless redeemed (1) after a third party owns 20% or more of the outstanding shares of the Company's voting stock 40 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) and engages in one or more specified self-dealing transactions, (2) after a third party owns 30% or more of the outstanding voting stock or (3) following the announcement of a tender or exchange offer that would result in a third party owning 30% or more of the Company's voting stock. Any of these events would trigger the rights plan and entitle each right holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock at a cash price of $30 per right. Under certain circumstances following satisfaction of third party ownership tests of the Company's voting stock, upon exercise each holder of a right would be able to receive common stock of the Company or its equivalent, or common stock of the acquiring entity, in each case having a value of two times the exercise price of the right. The rights will expire on August 14, 2002 unless earlier exercised or redeemed, or earlier termination of the plan. 17. BASIC AND DILUTED (LOSS) INCOME PER SHARE COMPUTATION The following table presents a reconciliation of the numerators and denominators of basic and diluted (loss) income per share for the periods indicated:
YEAR ENDED JUNE 30, -------------------------- 1999 1998 1997 -------- ------- ------- (DOLLARS AND SHARE DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Basic EPS calculation: Net (loss) income $(1,665) $ 3,414 $ 4,061 Less: Preferred stock dividends and accretion - 18 311 -------- ------- ------- Net (loss) income available to common shareholders $(1,665) $ 3,396 $ 3,750 Weighted average number of shares outstanding 47,967 47,002 44,603 -------- ------- ------- Basic EPS $ (0.03) $ 0.07 $ 0.08 ======== ======= ======= Diluted EPS calculation: Net (loss) income $(1,665) $ 3,414 $ 4,061 Less: Preferred stock dividends and accretion - 18 311 -------- ------- ------- Net (loss) income available to common shareholders $(1,665) $ 3,396 $ 3,750 Weighted average number of shares outstanding 47,967 47,002 44,603 Incremental shares from assumed conversion of stock options - 625 509 -------- ------- ------- 47,967 47,627 45,112 -------- ------- ------- Diluted EPS $ (0.03) $ 0.07 $ 0.08 ======== ======= =======
41 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 18. CONCENTRATION OF RISK A summary of the Company's financial data by geographic area follows:
YEAR ENDED JUNE 30, ----------------------------- 1999 1998 1997 -------- -------- --------- (DOLLARS IN THOUSANDS) Net sales: United States $41,726 $49,708 $ 60,039 Intercompany 5,843 6,164 11,031 -------- -------- --------- 47,569 55,872 71,070 -------- -------- --------- Europe 17,453 18,383 28,119 Intercompany 344 1,161 1,759 -------- -------- --------- 17,797 19,544 29,878 -------- -------- --------- Asia/Pacific 9,519 12,341 17,077 Intercompany 53 26 50 -------- -------- --------- 9,572 12,367 17,127 -------- -------- --------- Other 1,265 1,783 3,132 -------- -------- --------- 76,203 89,566 121,207 Eliminations (6,240) (7,351) (12,840) -------- -------- --------- Total $69,963 $82,215 $108,367 ======== ======== ========= Operating (loss) income: United States $(2,146) $ 394 $ 4,881 Europe 72 1,163 985 Asia/Pacific 560 1,349 1,802 Other 149 390 565 Eliminations 76 15 1,006 -------- -------- --------- Total $(1,289) $ 3,311 $ 9,239 ======== ======== =========
JUNE 30, -------------------- 1999 1998 --------- --------- (DOLLARS IN THOUSANDS) Identifiable assets: United States $ 54,794 $ 55,778 Europe 14,601 18,048 Asia/Pacific 13,551 14,820 Other 543 1,394 Eliminations (42,920) (43,805) --------- --------- Total $ 40,569 $ 46,235 ========= =========
Intercompany transfers between geographic areas are accounted for at prices similar to those available to comparable unaffiliated customers. Sales to unaffiliated customers outside the U.S., including U.S. export sales, were $29,058,000, $34,877,000, and $49,534,000 for the years ended June 30, 1999, 1998 and 1997, respectively, which amounts represented 42%, 42%, and 46% of total sales for the respective fiscal years. 42 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Sales to the U.S. Government and its agencies amounted to approximately $23,053,000, $22,203,000 and $27,737,000 for the years ended June 30, 1999, 1998 and 1997, respectively, which amounts represented 33%, 27% and 26% of total sales for the respective fiscal years. Sales to the Company's largest commercial customer amounted to approximately $8,228,000 or 12% of total sales for the year ended June 30, 1999. In the three-year period ended June 30, 1999, there were no other customers representing more than 10% of total revenues in any given year. Concentration of credit risk with respect to trade receivables is limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed and collateral is generally not required. 19. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) The following is a summary of quarterly financial results for the years ended June 30, 1999 and 1998:
THREE MONTHS ENDED ------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 1998 1998 1999 1999 --------------- ------------- ---------- ---------- 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales $ 16,874 $ 19,181 $ 17,676 $ 16,232 Gross margin $ 8,749 $ 9,834 $ 9,257 $ 7,497 Operating income (loss) (a) $ 212 $ 539 $ 562 $ (2,602) Net income (loss) (a) $ (426) $ 915 $ 294 $ (2,448) Net income (loss) per share $ (0.01) $ 0.02 $ 0.01 $ (0.05) (a) Net loss for the quarter ended September 30, 1998 reflects a loss of $0.4 million resulting from the Company's dissolution of its subsidiary Concurrent Computer Corporation France (see Note 7). Net income for the quarter ended December 31, 1998 reflects an $0.3 million exchange gain resulting from the settlement of a subsidiary's short term loan to the Company. Operating loss and net loss for the three months ended June 30, 1999 reflect a $0.4 million loss on impairment of the Company's France facility (see Note 9).
THREE MONTHS ENDED -------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 1997 1997 1998 1998 ------------------- ------------- ---------- ---------- 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales $ 20,605 $ 21,016 $ 20,394 $ 20,200 Gross margin $ 9,883 $ 10,763 $ 9,601 $ 10,143 Operating income (loss) (b) $ 1,646 $ 2,199 $ 1,017 $ (1,551) Net income (loss) (b) $ 1,300 $ 1,423 $ 1,005 $ (314) Net income (loss) per share $ 0.03 $ 0.03 $ 0.02 $ (0.01) (b) Operating loss and net loss for the three months ended June 30, 1998 reflect a $1.6 million non-cash charge relating to the issuance of warrants for the purchase of 2,000,000 shares of the Company's common stock to Scientific-Atlanta, Inc. (see Note 15).
43 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) 20. COMMITMENTS AND CONTINGENCIES The Company leases certain sales and service offices, warehousing, and equipment. The leases expire at various dates through 2005 and generally provide for the payment of taxes, insurance and maintenance costs. Additionally, certain leases contain escalation clauses which provide for increased rents resulting from the pass through of increases in operating costs, property taxes and consumer price indexes. At June 30, 1999, future minimum payments under non-cancelable operating leases for the years ending June 30 are as follows:
(DOLLARS IN THOUSANDS) 2000 $ 2,760 2001 1,624 2002 836 2003 491 2004 and thereafter 274 ------------- 5,985 =============
Rent expense amounted to $3,937,000, 4,761,000, and $3,776,000 for the years ended June 30, 1999, 1998 and 1997, respectively. In August 1999, the Company entered into a five-year lease commencing on January 1, 2000 for a 30,000 square foot facility in Pompano Beach, Florida, directly across the street from its manufacturing facility. The new facility will house the Real-Time Division's offices. Costs incurred to move from the Fort Lauderdale facility to the new facility are not expected to be material. The Company, from time to time, is involved in litigation incidental to the conduct of its business. The Company and its counsel believe that such pending litigation will not have a material adverse effect on the Company's results of operations or financial condition. The Company has entered into employment agreements with its executive officers. In the event an executive officer is terminated directly by the Company without cause or in certain circumstances constructively by the Company, the terminated officer will be paid severance compensation for a one or two-year period (depending on the executive) in an annualized amount equal to the respective officer's annual salary then in effect plus an amount equal to the then most recent annual bonus or target bonus paid or, if determined, payable, to such officer. At June 30, 1999, the maximum contingent liability under these agreements is approximately $2.7 million. The Company's employment agreements with certain of its officers contain certain offset provisions, as defined in their respective agreements. 21. NEW ACCOUNTING PRONOUNCEMENTS On April 3, 1998, the AICPA Accounting Standards Executive Committee issued SOP 98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. Companies that previously capitalized such costs are required to write-off the unamortized portion of such costs as the cumulative effect of a change of accounting principle. The Company does not incur any start up costs, therefore adoption of this SOP will not have a significant impact on the Company's financial reporting. 44 CONCURRENT COMPUTER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) On March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the costs of software developed or obtained for internal use" ("SOP 98-1"). This standard requires companies to capitalize qualifying computer software costs, which are incurred during the application development stage, and amortize them over the software's estimated useful life. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company expects no impact on its financial statements related to SOP 98-1. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Gains and losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 137 amended the effective date for implementation of SFAS No. 133 until fiscal years beginning after June 15, 2000. The Company does not engage in hedging activities, therefore this SFAS will not have a significant impact on the Company's financial statements. 45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES The Company considers its computer systems and service business (including maintenance, support and training) to be one class of products which accounted for the percentages of net sales set forth below. The following table sets forth selected operating data as a percentage of net sales for certain items in the Company's consolidated statements of operations for the periods indicated.
YEARS ENDED JUNE 30, ---------------------- 1999 1998 1997 ------ ------ ------ Net sales: Computer systems 45.2% 46.1% 51.4% Service and other 54.8 53.9 48.6 ------ ------ ------ Total net sales 100.0 100.0 100.0 Cost of sales (% of respective sales category): Computer systems 47.5 49.0 49.7 Service and other 51.2 52.5 53.9 ------ ------ ------ Total cost of sales 49.5 50.9 52.7 Gross margin 50.5 49.1 47.3 Operating expenses: Selling, general and administrative 37.4 30.6 26.4 Research and development 14.4 13.3 12.5 Restructuring and transition - (0.7) 2.1 Curtailment gain on postretirement benefit obligation - - (2.3) Non-cash development expenses - 2.0 - Loss on facility held for sale 0.6 - - ------ ------ ------ Total operating expenses 52.4 45.1 38.7 ------ ------ ------ Operating (loss) income (1.8) 4.0 8.5 Interest expense (0.4) (1.0) (1.9) Interest income 0.4 0.2 0.2 Other non-recurring items (0.1) 1.7 (1.5) Other income (expense) - net 0.1 0.3 (0.3) ------ ------ ------ (Loss) Income before provision for income taxes (1.9) 5.3 5.0 Provision for income taxes 0.5 1.2 1.3 ------ ------ ------ Net (loss) income (2.4)% 4.2% 3.7% ====== ====== ======
46 RESULTS OF OPERATIONS FISCAL YEAR 1999 IN COMPARISON TO FISCAL YEAR 1998 Net Sales Net sales for fiscal year 1999 were $70.0 million, a decrease of $12.3 million from fiscal year 1998. The sales decline was comprised of a $6.3 million decrease in computer systems sales and a $6.0 million decrease in service and other revenues. The decline in computer systems sales was a result of continued decline in proprietary systems and the transition to a more software-oriented business for open systems. An increasing number of customers purchase the Company's software only at $5,000 to $10,000 or the Company's software integrated with Motorola boards, which has an average price $40,000 to $60,000 per system, rather than the Company's open systems, which average $125,000 to $150,000 per system. Maintenance and service sales decreased to $38.4 million. This decrease is expected to continue in the future and to approximate the decline experienced in the past by the Company before the Acquisition. That decline resulted from customers switching from proprietary systems to the Company's open systems which are less expensive to maintain, and the cancellation of other proprietary computer maintenance contracts as the machines are removed from service. During fiscal year 1999, the Company entered into three significant transactions. In March, the Company sold $1.3 million of goods to a customer in a bill and hold arrangement and the customer paid for the equipment in April. Also in March, the Company recorded $1.6 million related to products for the completion of a contract. Although the products were shipped in March 1999, the payment terms do not require payment until April, 2000. The third significant transaction was a contract to provide products for the Longbow Helicopter. The contract is for a total of $2.6 million and will be recorded over approximately 15 months using a percentage of completion basis. Approximately $284,000 was recorded as income in the fourth quarter of fiscal year 1999. Gross Margin Gross margin decreased by $5.1 million to $35.3 million for fiscal year 1999 compared to fiscal year 1998. However, gross margin percent increased by 1.4% to 50.5% compared to fiscal year 1998. Product gross margin decreased by $2.7 million to $16.6 million compared to fiscal year 1998 and the gross margin percent increased 1.5% to 52.5%. This decline in margin is a result of decreased sales partially offset by a higher gross margin percent on the sale of the newer products. Included in the current year gross margin is a fourth quarter $1.1 million non-cash charge taken for excess and obsolete inventory. Service and other gross margin decreased by $2.3 million to $18.7 million as a result of lower sales. This was offset partially by increased efficiency and cost management which increased the gross margin percent by 1.3% to 48.8%. Operating (Loss) Income Operating (loss) income for fiscal year 1999 was a loss of $1.3 million compared to an income of $3.3 million for fiscal year 1998. This decrease was primarily due to the decrease in gross margin discussed above. Selling, general and administrative expenses increased by $1.0 million primarily due to increased legal expenses in the current year relating to subsequently resolved lawsuits. Research and development expenses decreased by $0.9 million due to cost reduction efforts. Included in the fiscal year 1999 operating loss is a $0.4 million loss on the impairment of the Company's building in France. 47 Net (Loss) Income Net (loss) income after tax and dividends for preferred stockholders decreased by $5.1 million to a loss of $1.7 million. Interest expense decreased $0.6 million as the company paid off its debt during fiscal year 1999. Included in other non-recurring items is a $0.4 million write-off of foreign currency translation due to dissolution of the French branch offset by $0.3 million of foreign currency transaction gains. FISCAL YEAR 1998 IN COMPARISON TO FISCAL YEAR 1997 Net Sales Net sales for fiscal year 1998 were $82.2 million, a decrease of $26.2 million from fiscal year 1997. The sales decline was comprised of a $17.8 million decrease in computer system sales and a $8.4 million decrease in service and other revenues. The decline in computer systems sales was a result of continued decline in proprietary systems and the transition to a more software-oriented business for open systems. An increasing number of customers purchasing the Company's software at only $5,000 to $10,000 or the Company's software integrated with Motorola boards which have an average price of $40,000 to $60,000 per system, rather than the Company's open systems, which average around $125,000 to $150,000 per system. Maintenance and service sales decreased to $44.3 million. This decrease is expected to continue in the future and to approximate the decline experienced in the past by the Company before the Acquisition. That decline resulted from customers switching from proprietary systems to the Company's open systems which are less expensive to maintain, and the cancellation of other proprietary computer maintenance contracts as the machines are removed from service. Gross Margin Gross margin decreased by $10.8 million to $40.4 million for fiscal year 1998 compared to fiscal year 1997. However, gross margin percent increased by 1.8% to 49.1% compared to fiscal year 1997. Product gross margin decreased $8.7 million to $19.3 million compared to fiscal year 1997 and the gross margin percent increased 0.7% to 51.0%. This decline in margin is a result of decreased sales partially offset by a higher gross margin percent on the sale of the newer products. Service and other gross margin decreased by $3.2 million as a result of lower sales. This was offset partially by increased efficiency and cost management which increased the gross margin percent by 1.4% to 47.5%. The gross margin for fiscal year 1997 also included a $1.1 million charge for expenses resulting from the transition of the manufacturing operations from Oceanport, New Jersey to Fort Lauderdale, Florida. Operating Income Operating income for fiscal year 1998 was $3.3 million compared to $9.2 million for fiscal year 1997. The decrease in income was the result of the decrease in gross margin, offset by a decrease in operating expenses of $4.9 million. Included in fiscal year 1998 operating income is $.6 million income from the sale of the Oceanport, New Jersey facility and a $1.6 million non-cash charge for the issuance to Scientific-Atlanta, Inc. of warrants to purchase up to two million shares of the Company's common stock at a price of $5.00 per share. The warrants were issued in connection with the establishment of an agreement with Scientific-Atlanta, Inc. The decrease in expenses is a result of deliberate effort to reduce expenses commensurate with projected revenue. Research and development expenses decreased by $2.6 million to $10.9 million. The fiscal year 1997 numbers included expenses required to align the product lines of the two companies following the Acquisition. During fiscal year 1998, these expenses were not required. Selling, general and administrative expenses decreased by $3.5 million, as expenses were reduced in accordance with the anticipated decrease in revenue. 48 Net Income Net income after tax and dividends for preferred stockholders decreased by $0.4 million to $3.4 million. Interest expense decreased $1.2 million as the Company paid down its debt from $14.7 million at June 30, 1997 to $1.5 million at June 30, 1998. There were two non-recurring items from fiscal year 1998: (i) the Company sold the remaining shares of its common stock received in connection with the Acquisition and recorded a $0.4 million gain; and (ii) the Company received $1.2 million from Nippon Steel Corporation ("NSC") in connection with the termination of the joint venture in Concurrent Nippon Corporation (CNC), the Company's Japanese subsidiary, to reimburse the Company for losses realized by CNC which exceeded NSC's minority investment. FINANCIAL RESOURCES AND LIQUIDITY The Company had positive cash flows in the current year of $1.1 million and paid off all its external debt. This was funded primarily from operations of the Company (although the Company had a loss of $1.6 million, $2.0 million was due to non-cash charges other than depreciation which approximated capital expenditures), improved accounts receivable collections and proceeds from the sale and issuance of common stock. Concurrent's liquidity is dependent on many factors, including sales volume, operating profit ratio, debt service and the efficiency of asset use and turnover. The future liquidity of Concurrent depends to a significant extent on (i) the actual versus anticipated decline in sales of proprietary systems and service maintenance revenue; (ii) revenue growth from open systems; (iii) revenue growth from its VOD division; and (iv) ongoing cost control actions. Liquidity will also be affected by: (i) timing of shipments which predominately occur during the last month of the quarter; (ii) the percentage of sales derived from outside the United States where there are generally longer accounts receivable collection cycles and which receivables are not included in Concurrent's borrowing base under its revolving credit facility; (iii) the sales level in the United States where related accounts receivable are included in the borrowing base of Concurrent's revolving credit facility; (iv) the number of countries in which Concurrent will operate, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, such as cash held on deposit to secure office leases. The Company believes that it will be able to fund fiscal 2000 operations, through its operating results and existing financing facilities. On March 1, 1998, the Company entered into a new agreement providing for an $8 million revolving credit facility (the "Revolver") through August 1, 2000 which bears interest at the prime rate plus 0.75% (8.5% at 6/30/99). At June 30, 1999, the outstanding balance of the Revolver was $0. The revolver may be reborrowed and repaid, subject to certain collateral requirements, at any time prior to its maturity. The Company has pledged substantially all of its domestic assets as collateral for the Revolver. The Company had debt to outside financial institutions of $0 as of June 30, 1999 as compared to $1.4 million as of June 30, 1998. As of June 30, 1999, the Company had a current ratio of 2.2 to 1, an inventory turnover ratio of 2.8 times (based on computer systems cost of sales), 76.6 days sales outstanding and net working capital of $14.7 million compared to $13.7 million for fiscal year 1998. At June 30, 1999, cash and cash equivalents amounted to $6.9 million and net accounts receivable amounted to $14.9 million. In June 1996, in connection with the Acquisition, the Company recorded a $23.2 million restructuring provision. Such charge, based on formal approved plans, included the estimated costs related to the rationalization of facilities, workforce reductions, asset writedowns and other costs which represent approximately 44%, 28%, 26% and 2%, respectively. The rationalization of facilities included the planned disposition of the Company's Oceanport, New Jersey facility, as well as the closing or downsizing of certain offices located throughout the world. The workforce reductions included the termination of 49 approximately 200 employees worldwide, encompassing substantially all of the Company's employee groups. The asset writedowns are primarily related to the planned disposition of duplicative machinery and equipment. During the years ended June 30, 1999, 1998, and 1997, respectively, expenditures related to this provision were $0.6 million, $2.2 million, and $9.6 million. The Company plans to continue to evaluate and manage its resources to anticipated revenue levels to achieve improved profitability. The Company believes that it will be able to meet its obligations when due through its operating results and its existing financing facility. NEW ACCOUNTING STANDARDS NOT YET ADOPTED On April 3, 1998, the AICPA Accounting Standards Executive Committee issued SOP 98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. Companies that previously capitalized such costs are required to write-off the unamortized portion of such costs as the cumulative effect of a change of accounting principle. The Company does not incur any start up costs, therefore adoption of this SOP will not have a significant impact on the Company's financial reporting. On March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the costs of software developed or obtained for internal use" ("SOP 98-1"). This standard requires companies to capitalize qualifying computer software costs, which are incurred during the application development stage, and amortize them over the software's estimated useful life. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company expects no impact on its financial statements related to SOP 98-1. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Gains and losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 137 amended the effective date for implementation of SFAS No. 133 until fiscal years beginning after June 15, 2000. The Company does not engage in hedging activities, therefore this SFAS will not have a significant impact on the Company's financial statements. YEAR 2000 The Company has been aggressively addressing Year 2000 issues related to the processing of date-sensitive data. A cross-functional team was assembled, and a determination was made as to which systems were Year 2000 non-compliant. The Company believes that all of the Company's critical financial, manufacturing, R&D and other systems are fully compliant. Concurrent has reviewed customer and supplier relationships, and has a Year 2000 software product available which many of our customers have implemented. While the Company is taking all reasonable efforts, including direct mailings and internet web site, to make information on the Year 2000 readiness of its products available to its customers, this information may not reach all customers, particularly third-party customers. Although the Company believes it has addressed Year 2000 readiness issues related to its products, there may be disruptions and/or product failures that are unforeseen. The Company is requesting assurances from its major suppliers that they are addressing these issues and that products procured by the Company will function properly in the Year 2000. It is expected that certain critical suppliers may be unwilling or unable to provide such assurances. As a result, it is difficult for the Company to assess the impact on its business of such entities' failure to be Year 2000 compliant. Although Concurrent will incur additional time and effort in Year 2000 compliance, these costs are not expected to be material. 50
CONCURRENT COMPUTER CORPORATION SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED JUNE 30, ------------------------------------------------- INCOME STATEMENT DATA 1999 1998 1997 1996 (1) 1995 - ------------------------------------ -------- ------- -------- --------- --------- Net sales $69,963 $82,215 $108,367 $ 95,800 $140,144 Gross margin 35,337 40,390 51,211 35,265 60,667 Operating (loss) income (1,289) 3,311 9,239 (32,870) 2,082 (Loss) income before extraordinary Gain (loss) and cumulative effect of change in accounting principles (1,665) 3,414 4,061 (41,309) (2,006) Net (loss) income $(1,665) $ 3,414 $ 4,061 $(41,309) $ (2,006) (Loss) income per share: (Loss) income before extraordinary Gain (loss) and cumulative effect of change in accounting principles (0.03) 0.07 0.08 (1.35) (0.07) Net (loss) income $ (0.03) $ 0.07 $ 0.08 $ (1.35) $ (0.07) JUNE 30, ------------------------------------------------- BALANCE SHEET DATA 1999 1998 1997 1996 (1) 1995 - ------------------------------------ -------- ------- -------- --------- --------- Cash and short-term investments $ 6,872 $ 5,733 $ 4,024 $ 3,562 $ 5,728 Working capital 14,694 13,652 4,694 (966) 1,865 Total assets 40,569 46,235 63,528 80,073 98,359 Long-term debt - - 4,493 6,603 9,536 Redeemable preferred stock - - 1,243 5,610 - Stockholders' equity 26,011 25,510 18,120 6,927 35,170 Book value per share $ 0.54 $ 0.54 $ 0.39 $ 0.17 $ 1.16 (1) Restated to reflect a $1.6 million prior period adjustment.
51
SCHEDULE II CONCURRENT COMPUTER CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS) BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND DEDUCTIONS AT END DESCRIPTION OF YEAR EXPENSES (a) OTHER OF YEAR - ---------------------------------- ----------- ------------ ------------ ----------- -------- Reserves and allowances deducted From asset accounts: 1999 - ----------- Reserve for inventory obsolescence and shrinkage $4,600 $1,087 $(1,119) - $4,568 Allowance for doubtful accounts 503 19 (104) - 418 1998 - ----------- Reserve for inventory obsolescence and shrinkage $4,793 - $(193) - $4,600 Allowance for doubtful accounts 913 (140)(c) (258) (12)(b) 503 1997 - ----------- Reserve for inventory obsolescence and shrinkage $10,677 - $(1,641) $(4,243)(d) $4,793 Allowance for doubtful accounts 1,143 320 (550) - 913 (a) Charges and adjustments to the reserve accounts for write-offs and credits issued during the year. (b) Includes adjustments to the reserve account and allowance for doubtful accounts for foreign currency translation. (c) Includes reversal of excess reserve due to improved collections. Decrease in the reserve due to transfer of spares and goods-on-loan inventory and the related reserves to property, plant and equipment and accumulated depreciation, respectively, due to a change in (d) accounting policy.
52 EX-21 2
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
53 EX-23 3 EXHIBIT 23 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, 1999, relating to the consolidated balance sheets of Concurrent Computer Corporation and subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of operations, redeemable preferred stock, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30, 1999, and the related schedule, which report appears in the June 30, 1999 annual report on Form 10-K of Concurrent Computer Corporation. /s/ KPMG LLP Atlanta, Georgia September 24, 1999 54 EX-27 4
5 This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet at June 30, 1999 and Consolidated Statement of Operations for the twelve months ended June 30, 1999, and is qualified in its entirety by reference to such financial statements. 1000 12-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 6872 0 15297 418 4641 27445 35949 25013 40569 12751 0 0 0 485 25526 40569 31597 69963 15001 34626 0 19 261 (1302) 363 (1665) 0 0 0 (1665) (.03) (.03)
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