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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
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 RIVER GREEN 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 August 16, 2000, there were 53,952,115 shares of Common Stock
outstanding. The aggregate market value of shares of such Common Stock (based
upon the last sale price of $12.8125 per share as reported for August 16, 2000
on The NASDAQ National Market) held by non-affiliates was approximately
$691,261,473.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement to be used in connection
with Registrant's 2000 Annual Meeting of Stockholders scheduled to be held on
October 26, 2000 are incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Concurrent Computer Corporation ("Concurrent" or the "Company") is a
leading provider of computer systems for both the emerging video-on-demand, or
VOD, market through its Xstreme division and real-time applications through its
Real-Time division. Concurrent provides VOD servers and related software, its
VOD systems, primarily to residential cable television operators that have
upgraded their networks to support interactive, digital services. Concurrent's
real-time business provides high-performance, real-time computer systems used
for simulations, data acquisition and industrial process applications.
Concurrent markets its real-time computer systems to government agencies,
government suppliers and commercial markets where the immediate capture and
delivery of information is critical. Although almost all of Concurrent's
historical revenues were derived from its Real-Time division, Concurrent expects
that substantially all of its future revenue growth will come from its Xstreme
division, which began commercial sales in 1999.
Concurrent's VOD systems consist of digital video servers and related
software that enable digitally-upgraded cable operators to deliver VOD to their
subscribers with digital set-top boxes. The Company has been selected to supply
its VOD system for 16 domestic commercial launches and trials of VOD systems
publicly announced by multiple system operators, or MSOs, including the two
largest system-wide commercial deployments at Time Warner Cable's Oceanic
regional division in Oahu, Hawaii and its Tampa Bay regional division in
Florida. Concurrent expects that all seven of the largest MSOs will begin
deploying VOD services in one or more residential markets by mid-2001. The
Company believes it is well-positioned to be a provider of choice to these MSOs.
Initially, Concurrent focused its VOD business on the development of VOD
systems designed to be compatible with Scientific-Atlanta, Inc. digital cable
equipment. In October 1999, the Company acquired Vivid Technology, Inc. and
obtained certain server technology compatible with General Instrument digital
cable equipment. Concurrent recently introduced its MediaHawk Model 2000 VOD
system, which is compatible with both Scientific-Atlanta and Motorola equipment.
As a result, Concurrent believes it is one of the few VOD system providers
currently able to offer technology compatible with both Scientific-Atlanta and
General Instrument digital cable equipment, the two largest providers of digital
headend equipment and digital set-top boxes used in the United States.
Concurrent's initial VOD focus is on digitally-equipped domestic cable
system operators. The Company also intends to focus on VOD opportunities in the
international cable and digital subscriber line, or DSL, markets and in both the
domestic and international educational markets. Although delivery of VOD over
DSL currently is not practical in the United States, the Company will look for
opportunities in the international DSL market.
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
over 30 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.
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Financial information about Concurrent's industry segments is included in
Note 15 to the consolidated financial statements included herein.
THE VOD MARKET OPPORTUNITY
VOD technology primarily addresses the home video entertainment market.
The Company believes that emerging VOD technology will enable cable providers to
generate revenue from large and stable home entertainment markets, such as home
video rentals, and smaller and developing markets, such as pay-per-view, near
VOD, or NVOD, and personal video recorders by combining many of their best
features and addressing their primary limitations.
- Home video rentals have the greatest number of title selections but
are the most inconvenient home video entertainment option. Limitations
of home video rental include frequently out-of-stock popular titles,
lack of convenience due to rental pickup and return requirements and
late fee penalties.
- Pay-per-view and NVOD are more convenient options than store rentals
but have limited titles and viewing times and no interactive
capabilities. Pay-per-view, or PPV, allows the user to order specific
programs at fixed times. NVOD is basically PPV available at successive
shorter intervals. Limitations of PPV and NVOD include a limited
selection of titles available for viewing, restrictions on viewing
times and no VCR functionality, such as play, rewind, fast-forward and
pause.
- PPV/NVOD coupled with a personal video recorder has limited content
and currently requires a significant up-front investment by the user.
A personal video recorder is an additional set-top box that enables a
user to have simultaneous program recording, content searching, and
VCR functionality. Even when coupled with an NVOD or PPV service, a
personal video recorder does not overcome certain limitations of PPV
or NVOD, such as limited content availability. In addition, users
currently are required to make a significant up-front expenditure to
purchase the personal video recorder box.
Ongoing technological developments have laid the groundwork for
digitally-upgraded cable television operators to deliver VOD services to their
digitally-enabled subscribers.
- Cable system digital upgrades. MSOs are upgrading their networks to
enable the delivery of digital content on an interactive basis. MSOs
are upgrading traditional, one-way, low bandwidth, coaxial systems
into two-way, high bandwidth, hybrid-fiber coaxial transmission
systems. These new systems include additional fiber transmission lines
and digital equipment at the system's headend and other locations in
the network. These digitally-upgraded systems are capable of carrying
a larger quantity of signals at a faster rate. The two-way upgrade
allows for the introduction of new services, including VOD.
- Digital set-top boxes. A variety of companies, including General
Instrument (a division of Motorola), Scientific-Atlanta, Pioneer and
Sony, are introducing a new generation of digital television set-top
boxes with processing power similar to a personal computer. These
digital set-top boxes allow the cable provider to offer a greater
selection of digital services, such as VOD, advanced program guides,
and interactive electronic commerce to homes with access to two-way
capable cable services.
- Content digitization. Digitization is the process by which
entertainment content is converted from analog to digital format.
Digital content is a sequence of tiny digital pieces, or "bits," which
can be stored on disks and transmitted in the form of electronic
signals. With the benefit of the latest digital compression
technologies, digital content now requires even less storage space and
more content can be simultaneously transmitted over the cable system,
thus reducing the storage and transmission costs of delivering content
to consumers. Many major movie studios, major television networks,
premium channel providers, and other program and content creators are
converting their most popular titles into a digital format.
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In the near term, Concurrent expects domestic MSOs will comprise the
majority of its VOD system customer base. The Company believes that VOD is one
of the key strategic competitive initiatives for MSOs as it provides an
opportunity to leverage recent investments in their digitally-upgraded
infrastructure. The Company believes the VOD product provides MSOs with the
ability to differentiate their service offering in an effort to reduce
subscriber turnover and gain access to new revenue generating opportunities from
subscribers, advertisers and electronic commerce initiatives.
THE REAL-TIME BUSINESS
Concurrent is a leading supplier of high-technology real-time computer
systems that 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
("Customer Service Plans") for its products and for the products of other
computer and peripheral suppliers. The services are provided at no additional
charge during the warranty period. The Company routinely offers and
successfully delivers long-term service and support of its products for as long
as fifteen to twenty years under maintenance contracts for additional fees. 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 ("Custom Engineering and
Integration") 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.
BUSINESS STRATEGY
Concurrent's business objective is to become the leading provider of high
quality VOD systems to domestic cable and international cable and DSL providers.
Concurrent's strategy is comprised of the following primary initiatives:
Gain Valuable Supplier Positions to Top Domestic MSOs. The market for
providing VOD solutions to MSOs is rapidly evolving. By the end of calendar
year 2001, Concurrent believes that each of the seven largest domestic MSOs will
begin commercial distribution of residential VOD services. Concurrent has been
selected to supply VOD systems for 16 of the publicly-announced commercial
launches and trials of VOD systems, including the industry's two largest
system-wide commercial deployments located at Time Warner Cable's Oceanic
regional division in Oahu, Hawaii and its Tampa Bay regional division in
Florida. Concurrent's VOD sales team will continue to directly target these
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large MSOs. Concurrent believes that establishing strong relationships with
these MSOs during the early stages of VOD service deployment will be important
in developing and maintaining its share of the VOD market. Because of the rapid
pace at which the Company expects MSOs to deploy VOD services and the difficulty
in switching providers once a provider's offering has been integrated into an
MSO's systems, the Company believes that the initial selection by an MSO is
critical to establishing market share.
Expand Operations Internationally. The rollout of residential VOD service
internationally is expected to occur first over cable television systems and
then over DSL-based systems. Concurrent currently is focusing on building its
relationships with companies seeking to provide VOD services over cable or DSL
networks in Europe, Asia and Australia. The Company's international sales
strategy is to focus on three key customer segments: cable companies; telephone
companies; and educational institutions, including K-12 schools, universities
and corporate training departments.
Maintain Technological Leadership Position in VOD Server Systems.
Concurrent has developed its VOD technology through internal research and
development, acquisitions and relationships with third-party technology
providers. The Company intends to continue to focus on the development of
future VOD technologies in order to maintain the Company's leadership position
by creating higher stream density, new encryption techniques, personal video
channel technologies and product enhancements for international markets.
Identify and Pursue New Market Opportunities. Concurrent believes that its
VOD technology can provide benefits to industries other than cable system
providers. For instance, Concurrent believes the growth in intranet and
distance learning provides a significant opportunity for deployment of VOD
systems. Generally, the Company expects to address these additional markets
through relationships with market-specific value added resellers, or VARs.
COMMERCIAL LAUNCHES AND TRIALS
Concurrent has been selected by Time Warner Cable, Cox Communications and
Comcast Cable, three of the seven largest MSOs, for VOD system deployments.
Each of these operators has deployed the Company's VOD systems for use with
digital set-top boxes manufactured by Scientific-Atlanta and Motorola.
Concurrent also has been selected by Cogeco Cable Inc., a Canadian cable
operator, for two video-on-demand deployments.
TIME WARNER CABLE
Oahu, Hawaii. In June 1999, the Company began a trial of its VOD system
for Oceanic Cable, a unit of Time Warner Cable based in Hawaii. This trial led
to a full commercial launch of Concurrent's VOD system in February 2000 over
Oceanic's system in Oahu. The VOD system purchased by Oceanic consists of 15
MediaHawk video servers, which currently support approximately 3,500 independent
video streams reaching approximately 40,000 digital subscribers. The Company
believes the Oceanic VOD system represents one of the two largest system-wide
VOD commercial deployments in the world, the other being the Tampa Bay region of
Florida.
Tampa Bay Region of Florida. In September 1999, Time Warner Cable selected
the Company's VOD system for a commercial launch in its Hillsborough County
system in the Tampa Bay area and subsequently in March 2000, they also selected
the Company's system for commercial launch in the Pinellas County system in the
Tampa Bay area. The Tampa market for Time Warner consists of an aggregate of
approximately 925,000 basic cable subscribers and approximately 200,000 digital
subscribers. The video-on-demand system deployed in Tampa Bay includes 51
MediaHawk video servers. The Tampa Bay commercial deployment currently
represents the industry's largest video-on-demand deployment.
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COX COMMUNICATIONS
In April 2000, Concurrent was selected by Cox for a commercial launch of
the Company's VOD system in Cox's San Diego, California market. This market
consists of approximately 355,000 subscribers, with approximately 73,000 digital
subscribers. Cox began launching commercial service to approximately 2,000
subscribers in May 2001.
In June 2000, Concurrent was also selected by Cox to provide MediaHawk
video servers for the commercial launch of VOD service in the Phoenix, Arizona
market, the single largest division of Cox. This market consists of
approximately 605,000 subscribers, with approximately 115,000 digital
subscribers. The Company currently expects the commercial launch to occur in
the second half of 2001.
In April 2001, Concurrent was selected by Cox to provide MediaHawk video
servers for the commercial launch of video-on-demand service in Hampton Roads,
Virginia, which has more than 400,000 basic subscribers and more than 50,000
digital subscribers. Concurrent understands that Cox currently expects to
launch commercial service in this market in the second half of 2001.
COMCAST CABLE CORPORATION
In March 2001, Concurrent signed a multi-year strategic purchase agreement
with Comcast which resulted in purchase orders for its video-on-demand system to
be deployed in 8 system-wide launches of video-on-demand on both
Scientific-Atlanta and Motorola equipment. The initial order was for
approximately 80 MediaHawk video servers. Concurrent began shipment of these
systems in the quarter ended March 31, 2001.
COGECO CABLE INC.
In May 2001, Concurrent entered into an arrangement with Cogeco to provide
video-on-demand systems for its Ontario and Quebec cable systems. These systems
serve approximately one million basic subscribers and 105,000 digital
subscribers. Concurrent has not yet finalized configuration requirements and
the necessary number of servers.
VOD SOLUTION
The Company's VOD system allows MSOs to deliver VOD services over their
digitally-upgraded cable infrastructure. The Company's VOD system is
distributed over certain portions of this infrastructure, including the headend,
hub or hubs, nodes and digital set-top boxes in subscribers' homes.
- Headend. The headend is a cable system's main network operations center
where the cable company receives incoming programming for distribution over
its network. The components of the Company's VOD system typically located
at the digitally-upgraded system operator's headend include a network
manager, one or more video servers, back-office software suite and system
management and maintenance software.
- Hub. The hub typically is a smaller facility serving a limited number of
homes, containing the system operator's network transmission equipment for
video delivery and control. The components of the Company's VOD system
typically located at the system operator's hubs include one or more
additional video servers.
- Nodes. A node is an optical recorder, where optical signals are converted
to RF signals, and is one of the last points of distribution before the
digital set-top box in the user's home.
- Digital set-top box. The digital set-top box is located in the subscriber's
home and is designed to receive transmissions from, and transmit data to,
the system operator's network. The Company's digital navigator is run by
the digital set-top box.
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When a subscriber selects a movie, a video stream is established between
the Company's video server and the digital set-top box in the subscriber's home
via the network manager. The selected movie is accessed from the video server
where it is stored at either a headend or a hub. The purchase is recorded by
the Company's back-office software creating a billing and royalty record for the
cable provider.
PRODUCTS AND TECHNOLOGY
XSTREME DIVISION
Product. The Company's VOD systems integrate its core VOD technology,
real-time and back-office software and readily-available commercial hardware
platforms to provide interactive, time critical, VOD capabilities. The Company
generally markets its VOD products to MSOs as an end-to-end VOD solution. The
Company also markets the individual components of its VOD systems to VARs and
systems integrators for inclusion in their VOD solutions. The Company's VOD
systems include the MediaHawk video server, network manager, back-office
software, system management and maintenance software and digital navigator. The
components of the Company's system are described below:
- MediaHawk video server. The Company's MediaHawk video servers are highly
scalable, high-performance, open multiprocessor systems designed for the
demanding requirements of interactive VOD applications. The MediaHawk video
server consists of a configuration of multiple content storage disks,
stream processors and input/output interfaces. The Company can package its
systems in customized configurations supporting various stream volumes,
content storage options and centralized or distributed network
configurations. Currently, each of the Company's servers can support up to
384 video streams encoded at 3 Mbps, and the servers are deployed on
independent rack systems capable of holding three servers. Multiple server
racks can be located adjacent to each other.
- Network manager. The Company's network manager or resource manager
establishes the network connection that allows the video to be streamed to
the home. The network manager is designed to route video streams in the
most efficient manner available at any given time.
- Residential back-office software suite. The Company's back-office software
suite is an industry standard rational database supporting subscriber and
provider data management. The Company's back-office applications include
customer access management, content distribution management, order
management, royalty management, billing interfaces and marketing analysis.
- Digital navigator. The Company's digital navigator allows the subscriber to
select the movie on demand and maintain complete interactive control.
Therefore, the subscriber can pause, fast forward, rewind or stop the movie
having the same control as if they were using a VCR.
- System management and maintenance software. The Company's system management
and maintenance software is designed to detect failed components and
re-route video streams bypassing the failed component. The monitoring
software is also capable of providing system level status that notifies the
cable operator that a maintenance activity is required.
Product Discriminators. The Company believes its key VOD system
discriminators include:
- Multiple integration options. The Company's VOD systems have been designed
to be compatible with a wide range of equipment and software employed by
cable operators to deliver digital television service, including:
- Various digital set-top boxes. The Company's VOD systems are
compatible with digital set-top boxes manufactured by each of the
major domestic digital set-top box producers, including
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Scientific-Atlanta, General Instrument, Pioneer and Sony. This
compatibility allows the Company's customers to purchase the Company's
systems without concern about their current or future selection of
set-top box producers. Furthermore, the Company's system is capable of
accommodating multiple headends, source content, navigators and
workstation platforms.
- Existing and next-generation equipment. Although newer generations of
digital set-top boxes are capable of housing software used for
interacting with users accessing VOD services, older digital set-top
boxes may lack this capacity. The Company's VOD technology allows the
Company to maintain this software remotely rather than in the actual
digital set-top box which overcomes the major obstacle in transmitting
VOD services through older generation digital set-top boxes. Thus,
deployment of the Company's VOD system is not necessarily contingent
on the upgrading of currently deployed digital set-top boxes.
- Access devices. The Company's VOD systems are compatible with multiple
access devices based on numerous technologies supporting delivery of
VOD services, such as ethernet and asynchronous transfer mode ("ATM").
- Billing systems. Both the existing and the emerging billing systems
currently employed by MSOs can be used with the Company's VOD systems.
- Support for both distributed and centralized architectures. The Company's
systems are designed to function equally well with distributed networks
that minimize fiber optic bandwidth usage or centralized networks that
support high-density populations that minimize facility requirements.
- Highly scalable systems. The Company's systems are modular and therefore
easily scalable. Utilizing the Company's dual chassis, multiple cabinet
designs, the Company's customers can scale both video storage and stream
capacity in various increments to allow for significant flexibility.
- Comprehensive back-office software suite. In addition to content
management, order management, provider account management, customer access
management, marketing analysis and billing functions, the Company's
back-office software suite also supports e-commerce applications and
subscriber data collection which enhances the revenue-generation
capabilities of the VOD service provider.
- Specialized video engine. The Company's video engine was designed
specifically for the requirements of providing VOD services. As such, the
Company's video engine is capable of creating high stream density
accommodating increasing levels of demand, simultaneous usage and expanding
library content.
- Fault tolerant system designs. The Company's VOD systems are designed with
multiple layers of redundancy including fully redundant storage, power and
cooling systems to provide seamless end-user viewing. Thus, system repairs
can be made during delivery without any interruption to the end-user.
- Variable bit-rate technology. The Company's variable bit-rate technology
minimizes storage and bandwidth while maximizing video fidelity. The
Company believes that this technology will become a key technology
discriminator as higher-fidelity requirements such as high-definition
television emerge.
MediaHawk Model 2000 Product. The Company began shipments of its MediaHawk
Model 2000 video server in late calendar 2000. Through the Company's internal
research and development efforts, the acquisition of Vivid Technology and its
technological strategic relationships, the Company has integrated new
technologies that the Company believes will further enhance the attractiveness
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of its VOD solution into the Company's new MediaHawk video server. The
Company's MediaHawk Model 2000 VOD servers and software are designed to allow a
single product to work in conjunction with cable equipment and digital set-top
boxes produced by both Scientific-Atlanta and General Instrument.
Customer Service Plans and Support. The basic customer service plans and
support options offered to the Company's VOD customers include software patches
to correct problems in existing software, 24-hour parts replacement, product
service training classes, limited onsite services and preventative maintenance
services. These services are provided at no additional charge during the
warranty period and are available for additional fees under Maintenance
Agreements after the warranty period. In addition to these basic service and
support options, the Company also offers, for additional fees, software upgrades
and onsite hardware maintenance services. To date, customer service and support
revenues from Concurrent's VOD business have not been material.
REAL-TIME DIVISION
The Company's real-time systems are applicable to a wide range of
application requirements, including high performance processing, high data
throughput, predictable and repeatable response times, reliably meeting required
deadlines, consistently handling peak loads, and better balancing of system
resources. End uses of the Company's real-time 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.
Products. The Company's Real-Time division designs, develops and
manufactures real-time computer systems and services for mission-critical
applications. The real-time computer systems are specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real time with microsecond response. The Company's real-time products
facilitate symmetric multiprocessing for a wide range of real-time applications
including simulation, data acquisition and industrial systems.
- Simulation. The Company is a recognized leader in developing real-time
systems for simulation application. Primary applications include
trainers/simulators for operators in commercial and military aviation,
vehicle operation and power plants, mission planning and rehearsal and
engineering design simulation for avionics and automotive labs. A key
segment of this market for the Company is Hardware-In-The-Loop
applications in which accurate simulations are constructed to verify
hardware designs, thereby minimizing or eliminating entirely the need
for expensive prototypes. The Company offers software applications
that provide a real-time advantage to its customers and integrating
these applications to provide complete solutions.
- Data Acquisition. The Company is a leading supplier of systems for
radar control, data fusion and weather analysis applications, 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.
- Industrial Systems. The Company manufactures systems to collect,
control, analyze, and distribute test data from multiple high-speed
sources for industrial automation systems, product test systems
(particularly engine tests), supervisory control and data acquisition
systems and instrumentation systems. The Company's strategy to serve
this market involves the employment of third-party software
applications to provide a unique solution for its customers.
Each of the Company's real-time products described below utilizes the
Company's PowerWorks operating system which is designed to run real-time
applications over a full range of systems. The three principal products sold by
the Company's Real-Time division are:
- Power Hawk. Power Hawk is the Company's entry-level real-time computer
system capable of running data acquisition, simulation and industrial
systems applications.
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- PowerMAXION. The PowerMAXION is the Company's mid-level system
specifically targeted to the real-time data acquisition market.
- TurboHawk. The TurboHawk is the Company's highest performance system
targeted to the real-time simulation and data acquisition markets.
Customer Service Plans. One of the largest benefits to the Company of its
extensive installed customer base is the large and generally predictable revenue
stream generated from customer service plans. While revenue from customer
service plans 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 exchanges, diagnostic and
repair service, on-call and time 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.
Custom Engineering and Integration Services. Throughout the Company's
history, it has supported its customers through custom engineering and
integration services. The Company provides custom engineering and integration
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 these services to migrate existing
applications from earlier generations of the Company's or competitors' systems
to the company's state-of-the-art systems. These 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 service may be small in comparison to total revenues, increased
customer satisfaction is an integral part of the Company's business plan.
STRATEGIC RELATIONSHIPS
Scientific-Atlanta. In August 1998, the Company entered into an agreement
with Scientific-Atlanta to jointly develop and market a VOD system. Under this
agreement, the Company was able to receive early development releases from
Scientific-Atlanta. In addition, the companies have jointly developed a system
architecture that is compliant with the Time Warner VOD architecture
requirements ("Pegasus"). In exchange for Scientific-Atlanta's technical and
marketing contributions, the Company issued Scientific-Atlanta warrants to
purchase 2,000,000 shares of the Company's common stock, exercisable at $5 per
share over a four-year term. In addition, Scientific-Atlanta may in certain
circumstances have the right to receive additional warrants to purchase up to a
maximum of 8,000,000 additional shares of the Company's common stock. The
granting of these additional warrants will be based upon performance goals
measured by the revenue the Company receives from sales of equipment to systems
employing Scientific-Atlanta's equipment.
The agreement with Scientific-Atlanta provides that each party will own the
intellectual property that is created solely by its own employees as a part of
the development process. Intellectual property that is developed by employees
of both Scientific-Atlanta and Concurrent will be owned by Concurrent if the
intellectual property represents an improvement upon Concurrent's products or
will be owned by Scientific-Atlanta if the intellectual property represents an
improvement upon Scientific-Atlanta's products.
General Instrument. The Company and General Instrument jointly developed a
specific return path protocol that allowed VOD services to be provided via
General Instrument older-generation digital set-top boxes currently deployed by
several MSOs. As a result of this relationship, the Company is one of only a
few suppliers that can offer a complete end-to-end VOD system compatible with
the currently-deployed General Instrument digital set-top boxes.
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Prasara Technologies. Under a joint development agreement with Prasara
Technologies, a software company specializing in delivery of on-demand
information, the Company and Prasara jointly developed interactive and
back-office VOD software specifically designed to meet the needs of MSOs. This
software is currently integrated with all of the Company's MediaHawk video
servers using cable equipment provided by Scientific-Atlanta or equipment
compatible with Scientific-Atlanta. The joint development agreement with Prasara
provides for Concurrent to have exclusive ownership of most of the software
modules that make up the back-office software suite that accompanies the
MediaHawk VOD server. Prasara has joint ownership with Concurrent of certain of
the modules that make up the back-office software suite. Each of Concurrent and
Prasara must pay royalties to the other for their respective sales of products
containing any of these jointly-owned software modules.
Intertainer. The Company has worked with Intertainer, a VOD content
provider seeking to market an end-to-end VOD solution, in integrating the
Company's VOD server into Intertainer's turnkey solution.
Liberate. On April 11, 2001, Concurrent announced a strategic alliance
with Liberate Technologies, a leading provider of software for the delivery of
interactive television, under which Concurrent combined its technologies into an
integrated interactive TV and video-on-demand offering for the growing digital
video market. The strategic agreement was reached under the Liberate(R)
PopTV(TM) Program, in which Concurrent is a "preferred infrastructure partner,"
and has the highest level of preference as a video-on-demand supplier.
SALES
The Company sells its systems in key markets worldwide through its direct
field sales and support offices, as well as through VARs and systems
integrators. As of June 30, 2000, the Company had 96 employees in its sales and
marketing force.
VOD
The Company's VOD sales strategy primarily focuses on developing
relationships with domestic MSOs and international cable and DSL providers. The
Company's domestic sales force has significant experience as either employees
of, or service providers to, the largest domestic MSOs. The Company believes
that it has been successful in leveraging the strength of that experience, as
well as the strength of the Company's MediaHawk video server, into opportunities
for initial commercial launches of the Company's VOD systems.
The Company has reorganized its international VOD sales force into separate
cable and telecommunications units and has hired an international business
development manager to work with the Company's strategic overseas partners.
In the Company's non-broadband markets on both the domestic and
international fronts, the Company also intends to continue working with VARs and
systems integrators who are seeking to integrate the Company's VOD products into
end-to-end or turnkey solutions sold into their target markets.
As of June 30, 2000, the Company employed 36 people worldwide as part of
its Xstreme sales and marketing team.
REAL-TIME
The Company sells its real-time systems in key markets worldwide through
direct field sales and support offices, as well as through VARs and systems
integrators. As of June 30, 2000, the Company employed 49 people worldwide as
part of its real-time sales and marketing team.
10
CUSTOMERS
VOD
A significant portion of the Company's VOD revenue has come from, and is
expected to continue to come from, sales to the large MSOs. For the year ended
June 30, 2000, three customers accounted for more than 54% of the total VOD
revenue, including Time Warner Cable, which accounted for 47% of such revenue.
Many MSOs are currently evaluating providers of VOD systems and making purchase
decisions. The Company believes that the relationships forged between VOD
system suppliers and MSOs over the next 12 to 18 months will be critical in
determining the relative market shares of VOD system providers. If the Company
is unsuccessful in establishing and maintaining these key relationships with
MSOs, the VOD business will be adversely affected. Further, if the Company
experiences problems in any of its VOD system trials or initial commercial
launches, its ability to attract new MSO customers and sell additional products
to existing customers will be materially adversely affected.
REAL-TIME
The Company currently derives a significant portion of its real-time
revenue from a limited number of customers. As a result, the loss of, or
reduced demand for products or related services from, any of the Company's major
customers could adversely affect its business, financial condition and results
of operations. In the fiscal year ended June 30, 2000, five customers accounted
for more than 34% of the total real-time revenue, including Lockheed Martin,
which accounted for 14% of such revenue. No other customer accounted for more
than 10% of real-time revenue for the period.
The Company derives a significant portion of its revenues from the supply
of integrated computer systems to U.S. Government prime contractors and agencies
of the U.S. Government. The supplied systems include configurations from the
PowerMAXION, PowerHAWK, TurboHAWK and NightHAWK product lines, with certain
systems incorporating custom enhancements requested by the customer. Examples
of prime contractors to whom we sell these integrated computer systems include
Boeing, Lockheed-Martin, and Raytheon. For example, Raytheon purchased
integrated computer systems from Concurrent to be used by the Federal Aviation
Administration for wind shear detection. The Company also supplies spare parts,
upgrades, and engineering consulting services and both hardware and software
maintenance. For the fiscal year ended June 30, 2000, the Company recorded
$18.5 million in sales to U.S. Government prime contractors and agencies of the
U.S. Government, representing 27% of total sales for the period. Government
business is subject to many risks, such as delays in funding, audits, reduction
or modification of contracts or subcontracts, failure to exercise options,
changes in government policies and the imposition of budgetary constraints. A
loss of government contract revenues could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company does not have written continuing purchase agreements with any
of its customers and does not have written agreements that require customers to
purchase fixed minimum quantities of the Company's products. Sales to specific
customers tend to, and are expected to continue to, vary from year-to-year,
depending on such customers' budgets for capital expenditures and new product
introductions.
NEW PRODUCT DEVELOPMENT
VOD
The Company's research and development strategies with respect to its VOD
solutions will focus on higher stream density, encryption techniques, personal
video channel technology and product enhancements for international markets.
Increased Stream Density. The Company believes it is the only provider of
VOD systems currently employing fiber channel technology. Fiber channel
provides the highest bandwidth/connectivity technology that is commercially
11
available. The Company intends to continue leveraging techniques that allow
this technology to create higher stream density and superior connectivity. The
Company expects this will result in even more efficient distributed and
centralized VOD system architectures.
Encryption Techniques. Encryption techniques will need to become integral
to the Company's VOD system to maintain a high level of security designed to
discourage content piracy and encourage content providers, such as movie
studios, to provide market windows that will be consistent with the movie rental
distribution channel. In addition, the Company plans to develop an open
encryption system to support various encryption methodologies.
Personal Video Channel. The Company plans to add personal video channel
capability to its current residential cable VOD system. The personal video
channel will allow the subscriber to record, pause and rewind live broadcasts
effectively providing "TV on demand." The Company expects this server
capability will have advantages over personal home video recorders by providing
more storage capacity and the ability to record multiple channels
simultaneously.
International Markets. The Company's strategy is to leverage its domestic
success and add capability to the existing VOD system that will enable it to
market its VOD system to international cable and DSL providers. Enhancements
will include network equipment integration, legacy billing system integration
and set-top box integration. Specific integration tasks and partnerships will
be opportunity driven as the international market develops.
REAL-TIME
The Company's real-time product development strategies with respect to its
computer systems solutions will focus on higher-performance and cost-effective
scalable architectures to allow for a greater degree of flexibility to the
customer. New product development in real-time includes new hardware, software
and integration services that will add new features and enhancements to the
Power Hawk line of computers and the NightStar software development tools.
Higher performance Computer Systems. The Company plans to upgrade the
Power Hawk computer line with the new Series 700 computer system. The Series
700's PowerPC utilizes Motorola's MPC7400 (G4) processor, the first
microprocessor that can deliver sustained performance of over one billion
floating point operations per second. The G4 can process data in 128-bit
segments rather than the 32-bit or 64-bit segments of traditional processors.
The G4's AltiVec vector instruction set performs 16 calculations in a single
cycle providing IEEE floating point performance four times faster than
non-vector processors.
Cost effective scalable cluster architectures. The dual and quad-CPU
Series 700 processor boards are true symmetric multiprocessors that run a single
copy of Concurrent's PowerMAX OS real-time operating system. All CPUs on a
board are linked by a high-speed PowerPC processor bus and have direct,
cache-coherent access to all of on-board main memory. Two or more Power Hawk
Series 700 processor boards can be combined through the high speed P0/PCI bus to
create closely-coupled multiprocessor configurations of up to 32 CPUs.
Power Hawk Series 700 software development tools supporting Linux open
system solutions. The company plans to provide Concurrent customers the
opportunity to develop and debug complex multiprocessing applications utilizing
Concurrent's integrated software environment while taking advantage of the Intel
based Linux open source operating system. Users will have the option of
developing their real-time applications under PowerMAX OS or Linux -- using the
same comprehensive suite of NightStar GUI development tools. As our real-time
customers recognize the growing importance of Linux as a key real-time operating
system, there will be a tremendous demand for Linux-ready applications that can
meet the workload demands of today's real-time environment. As the Linux open
source solution market demand develops, Concurrent plans to continue enhancing
its software operating system and development environment to take full advantage
of the broad range of software, hardware and integration opportunities available
in the Linux marketplace.
12
COMPETITION
Both the Company's Xstreme and Real-Time divisions operate in
highly-competitive environments, driven by rapid technological innovation. Due
in part to the range of performance and applications capabilities of the
Company's products, the Company competes in various markets against a number of
companies.
The market for VOD systems is relatively new, highly competitive and
rapidly evolving. Since there have been limited commercial deployments of VOD
systems to date, the respective market shares of companies competing in the VOD
market are uncertain. In the VOD market, the Company's major competitors
currently include the following:
- in the domestic cable and international cable and DSL market:
SeaChange International Inc., nCUBE and Diva Communications; and
- in the education market: Silicon Graphics, Inc., Cisco Systems, Inc.
and International Business Machines Corp., as well as local systems
integrators.
The Company also competes with a number of companies in its real-time
business. The Company's major competitors can be categorized as follows:
- major computer companies that participate in the real-time business by
layering specialized hardware and software on top of, or as an
extension of, their general purpose product platforms, including
Compaq Computer Corporation and Hewlett-Packard Corporation;
- other computer companies that provide solutions for applications that
address specific characteristics of real-time, such as fault tolerance
or high performance graphics, including Silicon Graphics, Inc. and
Compaq Computer Corporation;
- general purpose computing companies that provide a platform on which
third-party vendors add real-time capabilities, including
International Business Machines Corp. and Sun Microsystems, Inc.; and
- single board computer companies that provide board-level processors
that are typically integrated into a customer's computer system,
including Force Computers, Inc. and Motorola, Inc.
Due to the rapidly evolving markets in which the Company competes,
additional competitors with significant market presence and financial resources,
including computer hardware and software companies, content providers and
television equipment manufacturers, including digital set-top box manufacturers,
may enter those markets, thereby further intensifying competition. The
Company's future competitors also may include one or more of the parties with
which it currently has a strategic relationship. Although the Company has
proprietary rights with respect to much of the technology incorporated in the
Company's VOD and real-time systems, the Company's strategic partners have not
agreed to refrain from competing against the Company. Many of the Company's
current and potential future competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources than
the Company, and greater brand name recognition. In addition, many of the
Company's competitors have well-established relationships with the Company's
current and potential customers and have extensive knowledge of the Company's
industries.
13
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 its ownership and
confidentiality of the licensed technology. The source code of the Company's
products is protected as a trade secret and as an unpublished copyright work. In
addition, in limited instances, the Company licenses its products under licenses
that give licensees limited access to the source code of certain of the
Company's products, particularly in connection with its strategic alliances.
Despite precautions taken by the Company, however, there can be no
assurance that the Company's products or technology will not be copied or
otherwise obtained and used without authorization. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries. The Company believes that, due to the rapid pace of
innovation within its industry, factors such as the technological and creative
skills of the Company's personnel are more important to establishing and
maintaining a technology leadership position within the industry than are the
various legal protections for the Company's technology. The Company does not
own any material patents and does not hold any copyrights or trademarks that are
material to its business.
The Company has entered into licensing agreements with several third-party
software developers and suppliers. Generally, such agreements grant 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.
GOVERNMENTAL REGULATION
The Company is subject to various international, U.S. federal, state and
local laws affecting its business. Any finding that the Company has been or is
in noncompliance with such laws could result in, among other things,
governmental penalties. Further, changes in existing laws or new laws may
adversely affect the Company's business.
The television industry is subject to extensive regulation in the United
States and other countries. The Company's VOD business is dependent upon the
continued growth of the digital television industry in the United States and
internationally. Television operators are subject to extensive government
regulation by the Federal Communications Commission and other federal and state
regulatory agencies. These regulations could have the effect of limiting
capital expenditures by television operators and thus could have a material
adverse effect on the Company's business, financial condition and results of
operations. The enactment by federal, state or international governments of new
laws or regulations could adversely affect the Company's cable operator
customers, and thereby materially adversely affect the Company's business,
financial condition and results of operations.
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.
14
EMPLOYEES
As of June 30, 2000, the Company employed 407 employees worldwide.
Approximately 298 of these employees were employed in the United States. The
Company employed 83 employees in its Xstreme division and 277 employees in its
Real-Time division. The Company's employees are not unionized.
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, 2000, 1999 and 1998,
respectively, is presented at Note 20 to the consolidated financial statements
included herein. Financial information about the Company's foreign operations
is included in Note 20 to the consolidated financial statements included herein.
15
ITEM 2. PROPERTIES
Concurrent's principal facilities as of June 30, 2000, are listed below.
All of the principal facilities are leased. 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.
EXPIRATION APPROX.
LOCATION PRINCIPAL USE DATE OF LEASE FLOOR AREA
-------------------------- -------------------------------- ------------- -----------
(SQ. FEET)
4375 River Green Parkway Corporate Headquarters, August 2006 26,000
Duluth, Georgia Administration, Research &
Development, Sales and Marketing
2800 Gateway Drive Manufacturing and Service December 2001 40,000
Pompano Beach, Florida
2881 Gateway Drive Administrative and Sales and December 2004 30,000
Pompano Beach, Florida Marketing
2 Crescent Place Repair and Service Depot May 2001 25,000
Oceanport, New Jersey
Concurrent House Sales, Service and Research & February 2003 10,000
Railway Terrace Development
Slough, Berkshire, England
100 Highpoint Drive Research & Development November 2001 5,000
Chalfont, PA 18914
Except for the Chalfont, Pennsylvania facility, which is used exclusively
for the Xstreme division, the Company's facilities are used for both divisions.
In addition to the facilities listed above, Concurrent also leases space in
various domestic and international industrial centers for use as sales and
service offices and warehousing.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its ordinary course of business. The Company is not
presently involved in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
16
ITEM X. 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 executive officers as of August 16, 2000:
NAME POSITION AGE
--------------------- ------------------------------------------------------------------- ---
Steve G. Nussrallah * President and Chief Executive Officer 50
Jack A. Bryant * President, Xstreme Division 42
Daniel S. Dunleavy * President, Real-Time Division 47
Steven R. Norton * Executive Vice President, Chief Financial Officer and Secretary 39
Fred Allegrezza Vice President, Business Development 42
Robert E. Chism Vice President, Development, Xstreme Division 47
Robert T. Menzel Vice President, Sales, Real-Time Division 47
David S. Morales Vice President, International Sales and Marketing, Xstreme Division 39
David Nicholas Vice President, North American Cable Sales, Xstreme Division 46
* Denotes Executive Officers of the Company
Steve G. Nussrallah, President and Chief Executive Officer. Mr. Nussrallah
has served as the Company's President and Chief Executive Officer since January
2000. From January 1999 to December 1999, Mr. Nussrallah was the President of
the Company's Xstreme division. From March 1996 to March 1998, he served as
President and Chief Operating Officer of Syntellect Inc., a publicly-held
supplier of call center solutions to the cable television industry. From January
1990 to March 1996, Mr. Nussrallah served as President and Chief Operating
Officer of Telecorp Systems Inc., a privately held supplier of call center
solutions, which was acquired by Syntellect Inc. in March 1996. From 1984 to
1990, Mr. Nussrallah was employed by Scientific-Atlanta, a publicly held
provider of digital communications equipment. He initially served as vice
president of engineering for Scientific-Atlanta's cable television operation and
later served in positions of increasing responsibility, including Vice President
and General Manager of its Subscriber Business Unit.
Jack A. Bryant, President, Xstreme Division. Mr. Bryant has served as
President of the Company's Xstreme division since July 10, 2000. Prior to
joining Concurrent, he held a number of positions at Antec Corporation from 1991
to June 2000. The positions included, from March 1998 to June 2000, President
of the Network Technologies Group, from January 1996 to March 1998, President of
the Digital Systems Division, and from January 1995 to January 1996, Vice
President of Marketing. Before joining Antec, Mr. Bryant held various product
marketing and sales positions at General Instrument and Scientific-Atlanta.
Daniel S. Dunleavy, President, Real-Time Division. Mr. Dunleavy has served
as President of the Company's Real-Time division since April 1999. From October
1997 to April 1999, Mr. Dunleavy was the Company's Chief Operating Officer and
from June 1997 to April 1999, he served as the Company's Executive Vice
President. From June 1996 to June 1997, he was the Company's Executive Vice
President, Chief Financial Officer and Chief Administrative Officer. From
October 1994 to June 1996, Mr. Dunleavy served as the Company's Vice President,
Chief Financial Officer and Chief Administrative Officer. From February 1991 to
October 1994, he was Vice President, Strategic Alliances and International
Operations of the Harris Computer Systems Division of Harris Corporation, a
computer systems provider specializing in real-time applications. 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.
Steven R. Norton, Executive Vice President, Chief Financial Officer and
Secretary. Mr. Norton has served as the Company's Executive Vice President and
Chief Financial Officer since October 1999. From March 1996 to April 1999, Mr.
Norton was Vice President of Finance and Administration for LHS Group, Inc., a
17
publicly held provider of services to communications services providers and
Chief Financial Officer for one of its subsidiaries, LHS Communications Systems,
Inc. Prior to his employment with LHS, he was an Audit Senior Manager for Ernst
&Young and KPMG LLP.
Fred Allegrezza, Vice President, Business Development. Mr. Allegrezza has
served as Vice President, Business Development of the Company since October 28,
1999. Prior to joining the Company, from September 1996 to October 1999, Mr.
Allegrezza was the President and CEO of Vivid Technology, a Company that he
founded in September 1996. Prior to founding Vivid Technology, from April 1995
to September 1996, Mr. Allegrezza worked with General Instrument as Engineering
Program Manager and Systems Engineering Manager in the first digital interactive
cable systems deployments. Prior to his work at General Instrument, from June
1990 to April 1995, Mr. Allegrezza worked as the Manager of Systems development
and was responsible for development engineering and product marketing for Moore
Products Company.
Robert E. Chism, Vice President, Development, Xstreme Division. Mr. Chism
has served as Vice President, Development, of the Company's Xstreme division
since April 1999. From June 1996 to April 1999, he served as the Company's Vice
President, Development. From October 1994 through June 1996, he served as Vice
President, Technical and Production Operations of Harris Computer Systems
Corporation. In June 1993, he joined the Harris Computer Systems Division of
Harris Corporation as Director, Simulation Business Area. Before joining the
Harris Computer Systems Division, he held diverse engineering, program
management and marketing assignments in computer and related industries with
General Electric Company, a diversified industrial corporation, and from May
1978 to June 1993 he was Subsection Manager of Satellite Command and Data
Handling.
Robert T. Menzel, Vice President, Sales, Real-Time Division. Mr. Menzel
has served as Vice President, Sales, of the Company's Real-Time division since
April 1999. He served as the Company's Vice President, real-time systems from
June 1997 to March 1999, and the Company's Vice President, North American Sales,
from June 1996 to February 1997. From June 1996 to June 1997, he was the
Company's Vice President, Interactive Video-on-Demand. Mr. Menzel was Vice
President, General Manager of the Trusted Systems Division of Harris Computer
Systems Corporation from April 1995 to June 1996, and he served as Vice
President, National Sales of Harris Computer Systems Corporation from October
1994 to April 1995.
David S. Morales, Vice President, International Sales and Marketing,
Xstreme Division. Mr. Morales has served as Vice President, International Sales
and Marketing, of the Company's Xstreme division since August 1999. From April
1996 to May 1999, he was Corporate Vice President, International of Syntellect.
From June 1989 to April 1996 he was employed at Scientific-Atlanta, serving in
positions of increasing responsibility, including President, Latin America and
Chief Executive Officer of one of Scientific-Atlanta's joint venture companies.
David M. Nicholas, Vice President, North American Cable Sales, Xstreme
Division. Mr. Nicholas has served as Vice President, North America Cable Sales,
of the Company's Xstreme division since March 1999. From September 1995 to
February 1999, he served as Executive Vice President of Pioneer New Media
Technologies, Inc. a provider of audio video products. From August 1993 to
August 1995, he served as Vice President and General Manager of Texscan Network
Systems, a privately held provider of advertising insertion solutions. Prior to
that time, he served in various positions at Pioneer Communications of America,
Panasonic Industrial, and Magnavox.
18
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. The following table sets forth the high and low sale
information for the Common Stock for the periods indicated, as reported by The
Nasdaq National Market.
FISCAL YEAR 2000
QUARTER ENDED:
HIGH LOW
------ ------
September 30, 1999 $ 8.53 $ 5.38
December 31, 1999 $19.44 $ 6.31
March 31, 2000 $27.25 $12.00
June 30, 2000 $13.25 $ 5.50
FISCAL YEAR 1999
QUARTER ENDED:
September 30, 1998 $ 4.06 $ 1.69
December 31, 1998 $ 3.75 $ 1.75
March 31, 1999 $ 5.13 $ 3.25
June 30, 1999 $ 7.50 $ 3.00
As of August 16, 2000, there were 53,952,115 shares of Common Stock
outstanding, held of record by approximately 1,838 stockholders.
The Company has never declared or paid any cash dividends on its capital
stock. The Company's present policy is to retain all available funds and any
future earnings to finance the operation and expansion of its business, and no
change in the policy is currently anticipated. In addition, the terms of the
Company's credit facility prohibits the payment of cash dividends.
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. The Rights become
exercisable upon the occurrence of certain events (see Note 18 to the
Consolidated Financial Statements.)
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data which has been derived from Concurrent's audited consolidated financial
statements. The information set forth below is not necessarily indicative of
the results of future operations and should be read in conjunction with, and is
qualified by reference to, Concurrent's financial statement and related notes
thereto included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
19
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
-------------------------------------------------------
INCOME STATEMENT DATA 2000 (3) 1999 1998 1997 1996
------------------------------------ ------------ -------- ------- -------- ------------
Net sales $ 68,090 $69,963 $82,215 $108,367 $ 95,800
Gross margin 31,743 35,377 40,390 51,211 35,265
Operating income (loss) (23,987)(1) (1,289) 3,311 9,239 (32,870)(2)
Net income (loss) (23,715)(1) (1,665) 3,414 4,061 (41,309)(2)
Net income (loss) per share - basic
and diluted $ (0.46)(1) $ (0.03) $ 0.07 $ 0.08 $ (1.35)(2)
AT JUNE 30,
-------------------------------------------------------
BALANCE SHEET DATA 2000 (3) 1999 1998 1997 1996
------------------------------------ ------------ -------- ------- -------- ------------
Cash, cash equivalents and
Short-term investments $ 10,082 $ 6,872 $ 5,733 $ 4,024 $ 3,562
Working capital 15,086 14,694 13,652 4,694 (966)
Total assets 57,078 40,569 46,235 63,528 80,073
Long-term debt - - - 4,493 6,603
Redeemable preferred stock - - - 1,243 5,610
Stockholders' equity 38,271 26,011 25,510 18,120 6,927
Book value per share $ 0.71 $ 0.54 $ 0.54 $ 0.39 $ 0.17
(1) In October 1999, the Company acquired Vivid Technology. In connection with
the acquisition, management placed a value of $14.0 million on in-process
research and development based on valuation methods it deemed appropriate.
This entire amount was written off as required by the purchase accounting
rules.
(2) During fiscal 1996, the Company restructured its operations which included
workforce reductions, rationalization of facilities, asset write-downs and
other costs which resulted in a $24.5 million charge.
(3) As discussed in Note 24 to the Concurrent Computer Corporation financial
statements, the financial statements as of and for the year ended June 30,
2000 have been restated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion gives effect to the restatement of the Company's
financial statements for the year ended June 30, 2000 (see Note 24 to the
financial statements) and should be read in conjunction with the financial
statements and the notes thereto which appear elsewhere herein. The following
discussion contains forward-looking statements that reflect Concurrent's plans,
estimates and beliefs. The Company's actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below, elsewhere herein and in other filings made with the Securities and
Exchange Commission.
OVERVIEW
In 1996, Concurrent acquired the real-time computer division of Harris
Computer Systems Corporation, creating one of the largest real-time computer
systems companies in the country. Over the past several years, the real-time
computer processing industry has seen a significant shift in demand from
high-priced, proprietary real-time systems to lower-priced, open server systems.
High performance processing in the past required a large, expensive computer
system with significant proprietary and customized software. Today these
requirements are often met by much smaller and less expensive computers with
off-the-shelf computer hardware and software. As a result, the Company's
20
revenues from both real-time products and services have been declining.
Real-time revenues consist of real-time computer system sales to domestic and
foreign government agencies and commercial corporations and fees for maintenance
and other services provided to the Company's real-time customers.
Concurrent now operates the business as two distinct divisions, the Xstreme
division and the Real-Time division. The Company created the Xstreme division
to capitalize on the increasing opportunities in the emerging digital television
services market and focus on the development and sale of digital VOD systems to
cable providers that are upgrading their networks to support digital services.
Concurrent believes that its future growth will come from the Xstreme division.
VOD revenues result from the sale of VOD systems and related services primarily
to cable television providers in North America. To date, revenues in the
Xstreme division have been concentrated in a very limited number of MSOs and
internationally in the non-residential market. The Company expects its revenues
from the Xstreme division to increase as digital set-top boxes are increasingly
deployed by cable operators in the United States and by cable and DSL providers
in other countries. The VOD margin has been lower than ultimately expected
because of the early stage nature of the VOD business. Management expects the
VOD gross margins to increase as the volume of VOD systems sold increases. The
Company has incurred, and expects to continue to incur, losses in the VOD
business due to the ramp up of sales and marketing efforts and the initial
investments in the VOD business.
In October 1999, the Company acquired one of its competitors, Vivid
Technology, for 2,233,699 shares of common stock and options to purchase 378,983
shares of common stock. The acquisition resulted in a $14.0 million non-cash
one-time charge for the write-off of in-process research and development related
to acquired computer software technology. The acquisition was treated as a
purchase for accounting purposes, and accordingly, the assets and liabilities
acquired were recorded based on their fair values at the date of acquisition.
Product revenues are recognized based on the guidance in American Institute
of Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition. The Company recognizes revenue from sales of its VOD and real-time
systems when persuasive evidence of an arrangement exists, the system has been
shipped, the fee is fixed or determinable and collectibility of the fee is
probable. Under multiple element arrangements, the Company allocates revenue to
the various elements based on vendor-specific objective evidence of fair value.
The Company's products do not require significant customization subsequent to
the delivery to the customer.
The Company recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
Cost of sales consists of the cost of the computer systems sold, including
labor, material, overhead and third party product costs. Cost of sales also
includes the salaries, benefits and other costs of the maintenance, service and
help desk personnel associated with product installation and support activities.
Sales and marketing expenses consist primarily of the salaries, benefits
and travel expenses of Concurrent employees responsible for acquiring new
business and maintaining existing customer relationships, as well as marketing
expenses related to trade publications, advertisements and trade shows.
Management expects these expenses to increase as the Company continues to expand
its VOD business and attract new customers.
Research and development expenses are comprised of salaries and benefits of
Concurrent employees involved in hardware and software product and enhancement
development. All development costs are expensed as incurred. Management
expects to increase the development staff to investigate and develop follow-on
VOD offerings, including next generation products, as well as new software
applications.
General and administrative expenses consist primarily of salaries and
benefits of management and administrative personnel, general office
administration expenses such as rent and occupancy costs, telephone expenses and
fees for legal, accounting and other professional services. Management
anticipates that administrative costs will increase as the Company expands its
VOD business.
21
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,
-----------------------
2000 1999 1998
------- ------ ------
Revenues:
Product Sales:
Real-Time systems 39.8% 43.4% 46.1%
Video-on-demand systems 17.6 1.7 -
------- ------ ------
Total product sales 57.4 45.1 46.1
Service and other 42.6 54.9 53.9
------- ------ ------
Total net sales 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems 51.5 47.5 49.0
Service and other 56.0 51.2 52.5
------- ------ ------
Total cost of sales 53.4 49.5 50.9
------- ------ ------
Gross margin 46.6 50.5 49.1
------- ------ ------
Operating expenses:
Sales and marketing 29.8 27.5 22.5
Research and development 14.4 14.4 13.3
General and administrative 13.6 9.8 8.0
Cost of purchased in-process research and
development 20.6 - -
Relocation and restructuring 3.5 - (0.7)
Non-cash development expenses - - 2.0
Loss on facility held for sale - 0.6 -
------- ------ ------
Total operating expenses 81.8 52.3 45.1
------- ------ ------
Operating income (loss) (35.2) (1.8) 4.0
Interest expense (0.2) (0.4) (1.0)
Interest income .5 0.4 0.2
Other non-recurring items 1.1 (0.1) 1.8
Other income (expense) - net (0.1) 0.1 0.3
------- ------ ------
Income (loss) before provision for income taxes (33.9) (1.8) 5.3
Provision for income taxes 0.9 0.6 1.1
------- ------ ------
Net income (loss) (34.8)% (2.4)% 4.2%
======= ====== ======
RESULTS OF OPERATIONS
FISCAL YEAR 2000 IN COMPARISON TO FISCAL YEAR 1999
Product Sales. Total product sales for fiscal year 2000 were $39.1 million,
an increase of $7.5 million or 23.7% from fiscal year 1999. The increase is the
result of the increase in sales of VOD systems to $12.0 million in fiscal year
2000 from $1.2 million in fiscal year 1999, primarily due to sales of VOD
22
systems in fiscal year 2000 to domestic cable operators including Time Warner
and Cox Communications. Partially offsetting the increase is the continued
decline in sales of real-time computer systems.
Service and Other Sales. Service revenues decreased to $29.0 million in
fiscal year 2000 or 24.5% from $38.4 million in fiscal year 1999. The decline
resulted from customers switching from proprietary systems to Concurrent'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 $3.6 million to $31.7 million in
fiscal year 2000 as compared to $35.3 million in fiscal year 1999. The gross
margin as a percentage of sales decreased to 46.6% in fiscal year 2000 from
50.5% in fiscal year 1999 due to the lower margin realized in the early stages
of the VOD business and a decrease in the gross margin on real-time service
revenue to 44.0% in fiscal year 2000 from 48.8% in fiscal year 1999. The
decrease in the gross margin on service revenue is the result of the decrease in
sales and the loss of economies of scale.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of total sales to 29.8% in fiscal year 2000 from 27.5% in fiscal year
1999. These expenses increased 5.4% to $20.3 million in fiscal year 2000 from
$19.3 million in fiscal year 1999. The increase is principally the result of an
increase in the number of worldwide sales and marketing personnel in the Xstreme
division and increased participation in trade show and other marketing
activities.
Research and Development. Research and development expenses as a
percentage of sales remained stable at 14.4% in fiscal year 2000 and 1999.
These expenses decreased 2.7% to $9.8 million in fiscal year 2000 from $10.0
million in fiscal year 1999 primarily due to deliberate cost reduction efforts
in the Real-Time division. This decrease was partially offset by the build-up
of research and development personnel in the Xstreme division focusing on the
video server hardware and software development, as well as the addition of
personnel as part of the acquisition of Vivid Technology in October 1999.
General and Administrative. General and administrative expenses increased
to 13.6% of sales in fiscal year 2000 from 9.8% in fiscal year 1999. These
expenses increased $2.4 million or 34.8% primarily due to a $0.7 million
severance charge, the growth of Xstreme division management and other corporate
executive and administrative personnel, the Vivid goodwill amortization, and the
move of the corporate headquarters and Xstreme division offices to Atlanta,
Georgia.
Other. Included in operating expenses in fiscal year 2000 is a $14.0
million non-cash charge for the write-off of in-process research and development
in connection with the acquisition of Vivid Technology and a $2.4 million
restructuring and relocation provision for personnel reduction costs in the
Real-Time division and the relocation of the corporate headquarters and Xstreme
division offices to Atlanta, Georgia. Included in operating expenses in fiscal
year 1999 is a $0.4 million write-down of the Company's French facility to fair
market value due to the Company's decision to sell Concurrent Vibrations, a
wholly-owned subsidiary of one of Concurrent's French subsidiaries.
Included in other non-recurring items in fiscal year 2000 is a $0.8 million
gain related to the sale of the stock of Concurrent Vibrations, one of
Concurrent's French subsidiaries, to Data Physics, Inc.
Income Taxes. Income tax expense of $0.6 million was recorded in fiscal
year 2000 on a pre-tax loss of $23.1 million due to the inability to recognize
the tax benefit of the current period net operating loss and the non-deductible
write-off of acquired in-process research and development and amortization of
other assets received in the acquisition of Vivid Technology.
Net Income (Loss). The net loss for fiscal year 2000 was $23.7 million or
$0.46 per share compared to a net loss of $1.7 million or $.03 per share in
fiscal year 1999.
23
FISCAL YEAR 1999 IN COMPARISON TO FISCAL YEAR 1998
Product Sales. Product sales for fiscal year 1999 were $31.6 million, a
decrease of $6.3 million or 16.6% from fiscal year 1998. The decline was a
result of continued decline in sales of proprietary systems and the transition
to a more software-oriented business for open systems. Partially offsetting the
decline was $1.2 million of VOD systems sales. These sales were the result of
increased sales and marketing efforts and significant improvements in the VOD
technology during the year.
Service and Other Sales. Maintenance and service sales decreased to $38.4
million in fiscal year 1999 or 13.4% from $44.3 million in fiscal year 1998.
The decline resulted from customers switching from proprietary systems to open
systems developed by Concurrent which are less expensive to maintain, and the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service.
Gross Margin. Overall gross margin percentage increased to 50.5% in fiscal
year 1999 from 49.1% in fiscal year 1998 due to the increase in the margin on
product sales to 52.5% from 51.0% resulting from sales of new real-time products
with higher margins. The overall margin in both years was affected slightly by
the lower margin on early sales of VOD systems. The gross margin on service and
other revenue as a percentage of revenue increased to 48.8% from 47.5% in the
prior year due to increased efficiency and cost management.
Sales and Marketing. Sales and marketing expenses increased as a percentage
of total sales to 27.5% in fiscal year 1999 from 22.5% in fiscal year 1998.
These expenses increased 4.1% to $19.3 million in fiscal year 1999 from $18.5
million in fiscal year 1998. The increase was principally due to growth in the
number of worldwide sales and marketing personnel responsible for developing
business for the Xstreme division and increased participation in trade shows and
other marketing activities by division personnel. This increase was partially
offset by a decrease in the number of worldwide sales personnel in the Real-Time
division in accordance with the decrease in real-time revenues.
Research and Development. Research and development expenses increased as a
percentage of sales to 14.4% in fiscal year 1999 from 13.3% in fiscal year 1998.
These expenses decreased 8.2% to $10.0 million in fiscal year 1999 from $10.9
million in fiscal year 1998 primarily due to cost reduction efforts in the
Real-Time division. This decrease was partially offset by the increased hardware
and software development by the Xstreme division.
General and Administrative. General and administrative expenses increased
to 9.8% of sales in fiscal year 1999 from 8.0% in fiscal year 1998. These
expenses increased 4.1% to $6.9 million in fiscal year 1999 from $6.6 million in
fiscal year 1998. This increase is primarily attributable to increased legal
expenses relating to subsequently resolved lawsuits combined with the growth of
the Xstreme division management and administrative personnel. The increase was
partially offset by worldwide cost reduction efforts in the Real-Time division.
Other. Included in operating expenses in fiscal year 1999 is a $0.4 million
write-down of the Company's French facility to fair market value based upon a
valuation by an external appraisal firm due to the Company's decision to sell
Concurrent Vibrations, a wholly-owned subsidiary of one of Concurrent's French
subsidiaries. Included in fiscal year 1998 operating income is $0.6 million 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 2 million shares of the Company's common stock at a price of $5.00 per share.
Included in other non-recurring items in fiscal year 1999 is a $0.4 million
write-off of foreign currency translation due to the dissolution of one of
Concurrent's French subsidiaries which was offset by $0.3 million of foreign
currency transaction gains. Included in other non-recurring items in fiscal year
1998 is the receipt of $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.
24
Interest. Interest expense decreased by $0.6 million in fiscal year 1999 as
the Company paid off its outstanding debt during fiscal year 1999.
Income Taxes. The Company recorded income tax expense of $0.4 million in
fiscal year 1999 on an operating loss of $1.3 million due to the inability to
recognize the tax benefit of the current year net operating loss or the prior
year net operating loss carryover and taxable profits in the current year in
certain foreign subsidiaries where tax net operating loss carryovers are not
available.
Net Income (loss). The Company recorded a net loss of $1.7 million or $0.03
per share in fiscal year 1999 compared to net income of $3.4 million or $0.07
per share in fiscal year 1998.
ACQUISITION OF VIVID TECHNOLOGY, INC.
On October 28, 1999, the Company acquired Vivid Technology, a former
competitor in the VOD industry. Vivid Technology's interactive stand-alone VOD
system was specifically being designed to integrate with the most popular
digital set-top boxes manufactured by General Instrument. The Vivid Technology
VOD system was also expected to be compatible with the digital set-top boxes
manufactured by other leading cable operators such as Philips, Panasonic and
Sony. The Vivid Technology VOD system was based on a cluster of Microsoft
Windows NT computers with proprietary hardware and software added to provide
high video streaming capacity and fault tolerance. The Vivid Technology VOD
system was also being designed to eventually provide VOD service including
pause, rewind, and fast forward VCR-like functions. The Vivid Technology VOD
system would also provide necessary back-office support software for video
content management, video selection graphical user interface, subscriber
management, purchase management, billing interfaces, content provider account
settlement and consumer marketing feedback. In addition, the Vivid Technology
VOD system was being designed to support other interactive applications such as
on-line banking, home shopping, merchandising and on-demand/addressable
advertising.
The in-process research and development acquired was estimated to be 80%
complete at the date of acquisition and was estimated to cost an additional
$650,000 to complete the VOD system technology project in December of 2000. A
variety of tasks were yet to be completed which would be required in order for
the Vivid Technology VOD system to be deployed on a commercial basis:
- The Content Manager, which is used to load movies from content providers,
did not have the functionality necessary to create a royalty payment
affidavit which is required for the cable operators to pay the required
royalties to the content providers. Also, the Content Manager, which has
been implemented using a SQL data base, needed to be ported to other
relational data bases such as Oracle to support high end data base
applications.
- The Resource Manager had been alpha tested; however, an advanced beta test
had not been completed which would validate its ability to scale up to the
required number of subscribers or connections in an actual commercial
deployment.
- The Subscriber Manager, which had been implemented using a SQL data base,
needed to be ported to other relational data bases such as Oracle to
support high end data base applications.
- The Set Top VOD Application needed to be tested under advanced beta test
conditions to ensure that the back channel key stroke system performance
can fulfill operational requirements.
- The Hub Server, or video pump, needed to be tested under full load in an
operational environment to ensure stability over an extended period of
time. The random conditions resulting from the in home use of tens of
thousands of subscribers can only be simulated in an advanced beta test
which has yet to be performed.
25
The method used to allocate the purchase consideration to in-process
research and development ("IPR&D") was the modified income approach. Under the
income approach, fair value reflects the present value of the projected free
cash flows that will be generated by the IPR&D project and that is attributable
to the acquired technology, if successfully completed. The modified income
approach takes the income approach, modified to include the following factors:
- Analysis of the stage of completion of each project;
- Exclusion of value related to research and development yet-to-be completed
as part of the on-going IPR&D projects; and
- The contribution of existing products/technologies.
The projected revenues used in the income approach were based upon the
incremental revenues likely to be generated upon completion of the project and
the beginning of commercial sales of the Vivid VOD system, as estimated by
management to begin in the quarter ending December 31, 2000. The projections
assumed that the Vivid VOD system would be successful and the products'
development and commercialization were as set forth by management. The discount
rate used in this analysis was an after-tax rate of 28%.
Subsequent to the acquisition date, the Company decided to merge the Vivid
Technology VOD system and the Concurrent VOD system into one standard VOD
platform. The Company expects to begin shipping the new hardware platform
before December 31, 2000. Initially, the new hardware platform will have two
software alternatives, one which will be compatible with digital set-top boxes
manufactured by General Instrument, using core software technology developed by
and purchased from Vivid Technology, and the other will be compatible with
digital set-top boxes manufactured by Scientific-Atlanta. Certain of the above
tasks are still required to be completed prior to commercial sale of the new
server. At June 30, 2000, the Vivid related technology was estimated to be 94%
complete and estimated to cost an additional $175,000 to complete the project in
December of 2000. Beginning in the first half of calendar 2001, the Company
expects to also merge the software solutions into one standard solution which
will be compatible with either General Instrument or Scientific-Atlanta set-top
boxes.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of the Company is dependent on many factors, including sales
volume, operating profit, debt service and the efficiency of asset use and
turnover. The future liquidity of the Company will be affected by, among other
things:
- The actual versus anticipated decline in sales of real-time
proprietary systems and service maintenance revenue;
- Revenue growth from VOD systems;
- Ongoing cost control actions and expenses, including for example,
research and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- Timing of product shipments which occur primarily during the last
month of the quarter;
- 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 the borrowing base of the
revolving credit facility; and
- The number of countries in which the Company operates, 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 used cash of $0.5 million in operating activities in fiscal
year 2000 compared to generating cash of $5.1 million in fiscal year 1999
26
primarily due to the loss generated by the VOD business during fiscal year 2000.
The Company has an agreement providing for an $8.0 million revolving credit
facility that expires October 31, 2000. The Company intends to renew the credit
facility upon its expiration. During fiscal year 2000 and at June 30, 2000, no
amounts were outstanding under the facility. Borrowings under the facility bear
interest at the prime rate plus .75% and are secured by substantially all of the
Company's domestic assets.
The Company invested $4.2 million in property, plant and equipment during
both fiscal years 2000 and 1999. Current year capital expenditures relate
primarily to computer equipment, development and loaner equipment for the
Xstreme division and leasehold improvements for the Duluth, Georgia facility and
the Real-Time division's new administrative offices in Pompano Beach, Florida.
The Company received $1.2 million in fiscal year 2000 from the sale of its
building in France and an additional $0.5 million from the sale of its
subsidiary, Concurrent Vibrations.
The Company received $6.9 million in proceeds from the issuance of common
stock to employees and directors who exercised stock options during fiscal year
2000 compared to $1.8 million in fiscal year 1999.
At June 30, 2000, the Company had working capital of $15.1 million and had
no material commitments for capital expenditures. Management of the Company
believes that the existing cash balances, available credit facility and funds
generated by operations will be sufficient to meet the anticipated working
capital and capital expenditure requirements for the next 12 months.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Upon adoption, all
derivative instruments will be recognized in the balance sheet at fair value,
and changes in the fair values of such instruments must be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 will be
effective for the Company on July 1, 2000. As the Company does not have any
hedging and derivative positions, adoption of these pronouncements did not have
a material effect on the Company's financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101, as amended, provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. The Company will adopt SAB 101 as
required in the fourth fiscal quarter of 2001. The Company is currently
evaluating the effect that such adoption might have on its financial position
and results of operations.
In March 2000, the FASB issued Interpretation No. 44 "Accounting of Certain
Transactions involving Stock Compensation - an Interpretation of APB No. 25"
("FIN 44"). FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The Company adopted FIN 44 on
July 1, 2000, and the adoption did not have a material effect on the financial
position or operations of the Company.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Concurrent, may constitute "forward-looking
statements" within the meaning of the federal securities laws. When used in
this report, the words "believes," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. Statements
regarding future events and developments and Concurrent's future performance, as
well as its expectations, beliefs, plans, estimates or projections relating to
27
the future, are forward-looking statements within the meaning of these laws.
All forward-looking statements are subject to certain risks and uncertainties
that could cause actual events to differ materially from those projected. The
risks and uncertainties which could affect the Company's performance or results
include, without limitation:
- changes in product demand;
- economic conditions;
- various inventory risks due to changes in market conditions;
- uncertainties relating to the development and ownership of
intellectual property;
- uncertainties relating to the ability of the Company and other
companies to enforce their intellectual property rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of the VOD segment;
- the concentration of the Company's customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- the highly competitive environment in which the Company operates;
- the entry of new well-capitalized competitors into the Company's
markets and other risks and uncertainties.
These statements are based on current expectations and speak only as of the
date of such statements. Concurrent undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of future events,
new information or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates. The Company is exposed to the impact of
interest rate changes on its short-term cash investments, which are backed by
U.S. government obligations, and other investments in respect of institutions
with the highest credit ratings, all of which have maturities of 3 months or
less. These short-term investments carry a degree of interest rate risk. The
Company believes that the impact of a 10% increase or decline in interest rates
would not be material to its investment income. The Company conducts business
in the United States and around the world. The most significant foreign
currency transaction exposures relate to the United Kingdom, those Western
European countries that use the Euro as a common currency, Australia and Japan.
The Company does not hedge against fluctuations in exchange rates and believes
that a hypothetical 10% upward or downward fluctuation in foreign currency
exchange rates relative to the United States dollar would not have a material
impact on future earnings, fair values, or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data for
Concurrent are included herein.
PAGE
----
Independent Auditors' Reports 32
Consolidated Balance Sheets as of June 30, 2000 and 1999 34
Consolidated Statements of Operations for each of the years
in the three-year period ended June 30, 2000 35
28
Consolidated Statements of Redeemable Preferred Stock, Stockholders'
Equity and Comprehensive Income for each of the years in the
three-year period ended June 30, 2000 36
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 2000 37
Notes to Consolidated Financial Statements 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 18, 1999, the accounting firm of Deloitte & Touche LLP was
selected as the independent accountants for the Company for the fiscal year
ended June 30, 2000. Deloitte & Touche replaced the accounting firm of KPMG
LLP. KPMG LLP was notified of this decision on August 19, 1999. The decision
to change auditors was approved by the Board of Directors upon recommendation of
the Audit Committee.
During fiscal years 1999 and 1998, KPMG's report did not contain an adverse
opinion or a disclaimer opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles. In addition, during fiscal
years 1999 and 1998 and any subsequent period, there were no disagreements
between the Company and KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the captions "Election of Directors" in
Registrant's Proxy Statement to be used in connection with its Annual Meeting of
Stockholders to be held on October 26, 2000 ("Registrant's 2000 Proxy
Statement").
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 2000 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
2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Common Stock Ownership of Management
and Certain Beneficial Owners" in Registrant's 2000 Proxy Statement.
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 "Common Stock Ownership of Management
and Certain Beneficial Owners," "Election of Directors" and "Executive
Compensation" in Registrant's 2000 Proxy Statement.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements Filed As Part Of This Report:
Independent Auditors' Reports
Consolidated Balance Sheets as of June 30, 2000 and 1999
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 2000
Consolidated Statements of Redeemable Preferred Stock, Stockholders'
Equity and Comprehensive Income for each of the years in the
three-year period ended June 30, 2000
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 2000
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other financial statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the Notes thereto, or is not applicable, material or required.
(3) Exhibits
EXHIBIT DESCRIPTION OF DOCUMENT
2.2 -- Agreement and Plan of Merger dated as of October 28, 1999 between
the Registrant and Vivid Technology, Inc. (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1999).
2.3 -- Registration Rights Agreement, dated as of October 28, 1999 by
and among Fred Allegrezza, Gary Lauder, Robert Clasen and the
Registrant. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999).
3.1 -- Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-2 (No. 33-62440)).
3.2 -- Amended and Restated Bylaws of the Registrant. (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 28, 1996).
4.1 -- Form of Common Stock Certificate. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992).
4.2 -- Rights Agreement dated as of July 31, 1992 between the Registrant
and First National Bank of Boston, as rights agent. (Incorporated
by reference to the Registrant's Current Report on Form 8-K dated
August 20, 1992).
31
4.3 -- Warrant to purchase shares of common stock of the Registrant
dated August 17, 1998 issued to Scientific-Atlanta, Inc.
(Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998).
10.1 -- 1991 Restated Stock Option Plan (as amended as of October 30,
1997). (Incorporated by reference the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31,
1997).
10.2 -- Form of Employment Agreement between the Registrant and its
executive officers. (Incorporated by reference to of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1991).
10.3 -- Employment Agreement dated as of March 25, 1996 between the
Registrant and E. Courtney Siegel. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996).
10.4 -- Amendment to Employment Agreement dated as of January 1, 1999
between the Registrant and E. Courtney Siegel. (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1999).
10.5 -- Amended and Restated Employment Agreement dated as of December
6, 1999 between the Registrant and Daniel S. Dunleavy.
(Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended December 31, 1999).
10.6 -- Amended and Restated Employment Agreement dated as of November
15, 1999 between the Registrant and Steve G. Nussrallah.
(Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended December 31, 1999).
10.7 -- Employment Agreement dated as of October 28, 1999 between the
Registrant and Steven R. Norton. (Incorporated by reference to
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1999).
10.8* -- Employment Agreement dated as of July 10, 2000 between the
Registrant and Jack A. Bryant.
10.9 -- Form of Incentive Stock Option Agreement between the Registrant
and its executive officers. (Incorporated by reference to the
Registrant's Registration Statement on Form S-1. (No. 33-
45871)).
10.10 -- Form of Non-Qualified Stock Option Agreement between the
Registrant and its executive officers. (Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997).
10.11 -- Sublicensing Agreement between the Registrant and AT&T
Information Systems. (Incorporated by reference to the
Registrant's Registration Statement on Form S-2 (No. 33-62440)).
10.12 -- Amended and Restated Loan and Security Agreement dated March 1,
1998 between the Registrant and Foothill Capital Corporation.
(Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1998).
16.1 -- Letter regarding change in certifying accountant. (Incorporated
by reference to the Registrant's Current Report on Form 8-K dated
November 4, 1999).
32
21.1* -- List of Subsidiaries.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of KPMG LLP
* Previously filed.
(b) Reports On Form 8-K.
The following reports on Form 8-K were filed during the period covered by
this report:
- Current Report on Form 8-K/A filed November 4, 1999 relating to
the change in the Company's certifying accountant.
- Current Report on Form 8-K filed on November 12, 1999, as amended
by the Current Report on Form 8-K/A filed on January 11, 2000,
relating to the acquisition of Vivid Technologies, Inc., and the
appointment of Steven R. Norton as Chief Financial Officer.
- Current Report on Form 8-K filed on January 4, 2000 relating to
the promotion of Steve Nussrallah to President and Chief
Executive Officer.
33
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
Concurrent Computer Corporation:
We have audited the accompanying consolidated balance sheet of Concurrent
Computer Corporation and subsidiaries as of June 30, 2000, and the related
consolidated statements of operations, redeemable preferred stock, stockholders'
equity, and comprehensive income and cash flows for the year then ended. Our
audit also included the consolidated financial statement schedule for the year
ended June 30, 2000 listed in the Index at Item 14(a)(2). These consolidated
financial statements and the consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and consolidated financial
statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Concurrent Computer Corporation
and subsidiaries as of June 30, 2000, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such consolidated financial statement schedule for the year ended June
30, 2000, 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.
As discussed in Note 24, the financial statements as of and for the year
ended June 30, 2000 have been restated.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
August 4, 2000 (July 11, 2001 as to Note 24)
34
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Concurrent Computer Corporation:
We have audited the accompanying consolidated balance sheet of Concurrent
Computer Corporation and subsidiaries as of June 30, 1999, 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
two-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 two-year period ended June 30, 1999, as
listed in Item 14(a)(2) of the Company's 2000 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 the results of
their operations and their cash flows for each of the years in the two-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 two-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
35
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30,
--------------------
2000 1999
--------- ---------
ASSETS As Restated
(See Note 24)
Current assets:
Cash and cash equivalents $ 10,082 $ 6,872
Accounts receivable, less allowance for doubtful accounts
of $484 at June 30, 2000 and $418 at June 30, 1999 12,907 14,879
Inventories 5,621 4,641
Prepaid expenses and other current assets 2,381 1,053
--------- ---------
Total current assets 30,991 27,445
Property, plant and equipment - net 11,314 10,936
Facilities held for sale - 1,223
Purchased developed computer software - net 1,773 -
Goodwill - net 11,981 -
Other long-term assets - net 1,019 965
--------- ---------
Total assets $ 57,078 $ 40,569
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,297 $ 8,973
Deferred revenue 2,608 3,778
--------- ---------
Total current liabilities 15,905 12,751
Long-term liabilities 2,902 1,807
--------- ---------
Total liabilities 18,807 14,558
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;
53,910,918 and 48,516,527 issued at June 30, 2000 and 1999, respectively 538 485
Capital in excess of par value 135,394 98,916
Accumulated deficit after eliminating accumulated deficit
of $81,826 at December 31, 1991, date of quasi-reorganization (96,571) (72,856)
Treasury stock, at cost; 840 shares (58) (58)
Accumulated other comprehensive loss (1,032) (476)
--------- ---------
Total stockholders' equity 38,271 26,011
--------- ---------
Total liabilities and stockholders' equity $ 57,078 $ 40,569
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
36
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
------------------------------
2000 1999 1998
---------- -------- --------
As Restated
(See Note 24)
Revenues:
Product sales
Real-time systems $ 27,122 $30,389 $37,868
Video-on-demand systems 11,952 1,208 -
---------- -------- --------
Total product sales 39,074 31,597 37,868
Service and other 29,016 38,366 44,347
---------- -------- --------
Total 68,090 69,963 82,215
Cost of sales
Real-time and video-on-demand systems 20,111 15,001 18,556
Service and other 16,236 19,625 23,269
---------- -------- --------
Total 36,347 34,626 41,825
---------- -------- --------
Gross margin 31,743 35,337 40,390
Operating expenses:
Sales and marketing 20,311 19,274 18,523
Research and development 9,775 10,046 10,947
General and administrative 9,277 6,883 6,611
Cost of purchased in-process research and
development 14,000 - -
Relocation and restructuring 2,367 - (607)
Non-cash development expenses - - 1,605
Loss on facility held for sale - 423 -
---------- -------- --------
Total operating expenses 55,730 36,626 37,079
---------- -------- --------
Operating income (loss) (23,987) (1,289) 3,311
Interest expense (127) (261) (833)
Interest income 316 295 185
Other non-recurring items 761 (88) 1,434
Other income (expense) - net (78) 41 277
---------- -------- --------
Income (loss) before provision for income taxes (23,115) (1,302) 4,374
Provision for income taxes 600 363 960
---------- -------- --------
Net income (loss) (23,715) (1,665) 3,414
Preferred stock dividends and accretion of
mandatory redeemable preferred shares - - (18)
---------- -------- --------
Net income (loss) available to common shareholders $(23,715) $(1,665) $ 3,396
========== ======== ========
Basic and diluted net income (loss) per share $ (0.46) $ (0.03) $ 0.07
========== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
37
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share amounts)
For each of the years in the three-year period ended June 30, 2000
Common Stock Other
Redeemable ------------------- Capital in Comprehen Treasury
Preferred Par Excess of Accumulated -sive Stock
Stock Shares Value Par Value -Deficit Income Shares
-------- ----------- ------ ----------- ---------- -------- -------
Balance at June 30, 1997 $ 1,243 46,102,872 $ 461 $ 92,650 $ (74,587) $ (346) (840)
Sale of common stock under stock plans 678,213 6 961
Issuance of common stock under
retirement savings plan 296,224 3 581
Conversion of cumulative, convertible
redeemable exchangeable preferred stock (1,245) 555,000 6 1,239
Issuance of warrants 1,605
Dividends on and accretion of preferred stock 2 (18)
Quasi-reorganization related adjustment 100
Comprehensive income:
Net income 3,414
Foreign currency translation adjustment (507)
Total comprehensive income
-------- ----------- ------ ----------- ---------- -------- -------
Balance at June 30, 1998 - 47,632,309 476 97,136 (71,191) (853) (840)
Sale of common stock under stock plans 8 84,218 9 1,780
Comprehensive loss:
Net loss (1,665)
Foreign currency translation adjustment 377
Total comprehensive loss
-------- ----------- ------ ----------- ---------- -------- -------
Balance at June 30, 1999 - 48,516,527 485 98,916 (72,856) (476) (840)
Sale of common stock under stock plans 3,160,692 31 7,277
Issuance of common stock related to acquisition
of Vivid Technology (as restated -
See Note 24) 2,233,699 22 28,879
Performance warrants 322
Comprehensive loss
Net loss (as restated - See Note 24) (23,715)
Foreign currency translation adjustment (556)
Total comprehensive loss
-------- ----------- ------ ----------- ---------- -------- -------
Balance at June 30, 2000
(as restated - See Note 24) $ - 53,910,918 538 $ $135,394 $ (96,571) $(1,032) (840)
Treasury
Stock
Cost Total
------ ---------
Balance at June 30, 1997 $ (58) $ 18,120
Sale of common stock under stock plans 967
Issuance of common stock under
retirement savings plan 584
Conversion of cumulative, convertible
redeemable exchangeable preferred stock 1,245
Issuance of warrants 1,605
Dividends on and accretion of preferred stock (18)
Quasi-reorganization related adjustment 100
Comprehensive income:
Net income 3,414
Foreign currency translation adjustment (507)
---------
Total comprehensive income 2,907
------ ---------
Balance at June 30, 1998 (58) 25,510
Sale of common stock under stock plans 1,789
Comprehensive loss:
Net loss (1,665)
Foreign currency translation adjustment 377
---------
Total comprehensive loss (1,288)
------ ---------
Balance at June 30, 1999 (58) 26,011
Sale of common stock under stock plans 7,308
Issuance of common stock related to acquisition
of Vivid Technology (as restated - 28,901
See Note 24)
Performance warrants 322
Comprehensive loss
Net loss (as restated - (23,715)
See Note 24)
Foreign currency translation adjustment (556)
---------
Total comprehensive loss (24,271)
------ ---------
Balance at June 30, 2000 (as restated - $ (58) $ 38,271
See Note 24) ====== =========
The accompanying notes are an integral part of the consolidated financial
statements.
38
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JUNE 30,
------------------------------
2000 1999 1998
--------- -------- ---------
AS RESTATED
(See
Note 24)
Cash flows provided by (used in) operating activities:
Net income (loss) $(23,715) $(1,665) $ 3,414
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Write-off of in-process research and development 14,000 - -
Gain on sale of subsidiary (761) - -
Realized gain on trading securities - - (420)
Gain on sale of facility - - (706)
Issuance and accrual of non-cash warrants 322 - 1,605
Loss on impairment of facility held for sale - 423 -
Loss on dissolution of subsidiary - 429 -
Depreciation and amortization 6,145 4,959 5,656
Provision for inventory reserves 550 1,087 -
Stock compensation 368 - 1,054
Other non-cash expenses 289 19 (40)
Decrease (increase) in assets, net of effect of
Acquisitions and dispositions
Accounts receivable 1,574 4,098 6,864
Inventories (1,530) 535 1,915
Prepaid expenses and other current assets (1,959) (384) (309)
Other long-term assets 216 318 83
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 4,028 (4,348) (10,561)
Deferred revenue (1,170) (240) (384)
Other long-term liabilities 1,128 (91) 679
--------- -------- ---------
Net cash provided by (used in) operating activities (515) 5,140 8,850
--------- -------- ---------
Cash flows provided by (used in) investing activities:
Net additions to property, plant and equipment (4,361) (4,194) (2,949)
Net proceeds from sale of subsidiary 496 - -
Proceeds from sale of facility 1,223 - 5,406
Proceeds from sale of trading securities - - 2,668
Other 76 - -
--------- -------- ---------
Net cash provided by (used in) investing activities (2,566) (4,194) 5,125
--------- -------- ---------
Cash flows provided by (used in) financing activities:
Net payments of notes payable - (425) (4,173)
Net repayment of debt (33) (1,123) (8,156)
Proceeds from sale and issuance of common stock 6,940 1,789 967
--------- -------- ---------
Net cash provided by (used in) financing activities 6,907 241 (11,362)
--------- -------- ---------
Effect of exchange rates on cash and cash equivalents (616) (48) (904)
--------- -------- ---------
Increase in cash and cash equivalents 3,210 1,139 1,709
Cash and cash equivalents - beginning of year 6,872 5,733 4,024
--------- -------- ---------
Cash and cash equivalents - end of year $ 10,082 $ 6,872 $ 5,733
========= ======== =========
Cash paid during the period for:
Interest $ 242 $ 258 $ 568
========= ======== =========
Income taxes (net of refunds) $ 257 $ 1,041 $ 1,434
========= ======== =========
Non-cash investing/financing activities:
Conversion of preferred stock $ - $ - $ 1,245
========= ======== =========
Dividends on preferred stock $ - $ - $ 18
========= ======== =========
Non-cash consideration for acquisition $ 28,900 $ - $ -
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
39
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 in each of these businesses.
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 provides sales and support from offices and subsidiaries throughout
North America, South America, Europe, Asia, and Australia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all
wholly-owned domestic and foreign subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Foreign Currency
The functional currency of substantially all of the Company's foreign
subsidiaries is the applicable local currency. The translation of the applicable
foreign currencies into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using average rates of exchange prevailing during the
fiscal year. Adjustments resulting from the translation of foreign currency
financial statements are accumulated in a separate component of stockholders'
equity until the entity is sold or substantially liquidated. Gains or losses
resulting from foreign currency transactions are included in the results of
operations, except for those relating to intercompany transactions of a
long-term investment nature which are accumulated in a separate component of
stockholders' equity.
40
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Gains (losses) on foreign currency transactions of $(3,000), $132,000, and
$82,000 for the years ended June 30, 2000, 1999, and 1998, respectively, are
included in other income (expense) - net.
Cash Equivalents
Short-term investments with 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 year ended June 30, 1998. The Company had no investments at
June 30, 2000 and 1999.
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
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition. The Company recognizes revenue
from video-on-demand and real-time systems when persuasive evidence of an
arrangement exists, the system has been shipped, the fee is fixed or
determinable and collectibility of the fee is probable. Under multiple element
arrangements, the Company allocates revenue to the various elements based on
vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of
fair value is determined based on the price charged when the same element is
sold separately.
In certain instances, the Company's customers require significant
customization of both the software and hardware products and, therefore, the
revenues are recognized as long term contracts in conformity with Accounting
Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts",
Statement of Position ("SOP") 81-1 "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software
Revenue Recognition". For long-term contracts, revenue is recognized using the
percentage-of-completion method of accounting based on costs incurred on the
project compared to the total costs expected to be incurred through completion.
The Company recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
41
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Custom engineering and integration services performed by the Real-Time Division
are typically completed within 90 days from receipt of an order. Revenues from
these services are recognized upon completion and delivery of the software
solution to the customer.
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 internal software development
costs capitalized at June 30, 2000 and 1999.
The Company has not incurred costs related to the development or purchase
of internal use software.
Research and Development
Research and development expenditures are expensed as incurred.
Basic and Diluted Income (Loss) per Share
Basic income (loss) per share is computed by dividing income (loss) after
deduction of preferred stock dividends by the weighted average number of common
shares outstanding during each year. In fiscal year 1998 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. Potential common shares
issuable of 4,548,000 and 2,600,000 for the years ended June 30, 2000 and 1999,
respectively, were excluded from the calculation as their effect was
antidilutive.
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.
42
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 in fiscal year 1999. The adoption of this statement did not impact the
Company'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
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
The Company operated in one segment for management reporting purposes until
July 1, 1999 when the Company separated the facilities personnel and reporting
for the VOD division from the Real-Time division. The Company has separately
reported the fiscal year 2000 operating results for both the VOD division and
the Real-Time division.
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
43
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 prior years' amounts have been reclassified to conform with the
current year's presentation.
3. ACQUISITIONS
On October 28, 1999, the Company acquired Vivid Technology ("Vivid") for
total consideration of $29.4 million, consisting of 2,233,699 shares of common
stock valued at $24.7 million, $0.5 million of acquisition costs, and 378,983
shares reserved for future issuance upon exercise of stock options with a value
of $4.2 million. The acquisition was treated as a purchase for accounting
purposes, and, accordingly, the assets and liabilities were recorded based on
their fair values at the date of the acquisition. The purchase price allocation
and the respective useful lives of the intangible assets are as follows:
ALLOCATION LIFE
----------- ------
Working capital $ 72
Fixed assets 257
Other long-term assets 13
Developed completed computer software technology 1,900 10 yrs
Employee workforce 400 3 yrs
Goodwill 12,808 10 yrs
In-process research and development 14,000
Amortization of intangible assets is on a straight-line basis over the assets'
estimated useful life. Vivid's operations are included in the condensed
consolidated statements of operations from the date of acquisition.
At the acquisition date, Vivid had one product under development that had
not demonstrated technological or commercial feasibility. This product was the
Vivid interactive video-on-demand integrated system. The in-process technology
has no alternative use in the event that the proposed product does not prove to
be feasible. This development effort falls within the definition of In-Process
Research and Development ("IPR&D") contained in Statement of Financial
Accounting Standards ("SFAS") No. 2 and was expensed in the quarter ended
December 31, 1999 as a one-time charge.
Consistent with the Company's policy for internally developed software, the
Company determined the amounts to be allocated to IPR&D based on whether
technological feasibility had been achieved and whether there was any
alternative future use for the technology. As of the date of the acquisition,
the Company concluded that the IPR&D had no alternative future use after taking
into consideration the potential for usage of the software in different
products, resale of the software and internal usage.
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition had taken place on July 1, 1998
and includes the one-time charge related to the write-off of the purchased IPR&D
of $14 million for the fiscal year ended June 30, 2000:
44
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED JUNE 30,
-------------------
2000 1999
---------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
-------------------------
Revenues $ 68,444 $70,603
========= ========
Net loss $(24,717) $(4,419)
========= ========
Basic and diluted net loss per share $ (0.47) $ (0.09)
========= ========
On June 27, 1996 Concurrent acquired the assets of the Real-Time division
of Harris Computer Systems Corporation ("HCSC") and 683,178 newly-issued shares
of HCSC, in exchange for 10,000,000 shares of common stock of Concurrent (with a
fair value of $9.7 million); 1,000,000 shares of convertible exchangeable
preferred stock of Concurrent with a 9% cumulative annual dividend payable
quarterly in arrears, mandatorially redeemable at $6,263,000 (with an estimated
fair value of $5.6 million) (see Note 4); and the assumption of certain
liabilities relating to the HCSC Real-Time division. 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 the year ended June 30, 1998, 259,352 shares of stock
were sold, resulting in a realized gain for the period of $358,000, and 45,826
shares valued at $10.25 per share were issued as bonuses to Company employees
resulting in a realized gain of $62,000 and non-cash compensation expense of
$470,000. The gains are included as other non-recurring items in the
consolidated statements of operations and as non-cash items in the consolidated
statements of cash flows.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the acquisition of the HCSC Real-Time division,
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 shares and 780,000 shares of
Concurrent Preferred Stock were converted into outstanding common stock. As of
June 30, 2000 and 1999, there was no outstanding Preferred Stock.
5. RESTRUCTURING AND RELOCATION
In August 1999, the Company relocated its Corporate Headquarters and its
VOD division to Duluth, Georgia. In connection with this move, the Company
incurred employee relocation costs of $769,000, which is recorded as an
operating expense in the consolidated statement of operations for the year ended
June 30, 2000. As of June 30, 2000, all costs had been paid and there was no
remaining accrued costs.
In addition to the VOD division relocation discussed above, management
decided in the first quarter of fiscal year 2000 to "right-size" the Real-Time
division to bring its expenses in line with its anticipated revenues. In
connection with these events, the Company recorded a $1.6 million operating
expense in the consolidated statement of operations for the year ended June 30,
2000. This expense represents workforce reductions of approximately 38
employees in all areas of the Company. As of June 30, 2000, all costs had been
paid and there was no remaining accrued costs.
In connection with the acquisition of the HCSC Real-Time division, 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
45
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 restructuring were
$117,000, $600,000 and $2.2 million for the years ended June 30, 2000, 1999 and
1998, respectively. As of June 30, 2000, all costs had been paid and there was
no remaining accrued costs.
On May 5, 1992, the Company had entered into an agreement with the
Industrial Development Authority (the "IDA") to maintain a presence in Ireland
through April 30, 1998. In connection with the acquisition of the HCSC
Real-Time division, 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
remaining amount of $90,000 was paid in fiscal 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 their 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 as other non-recurring items in
the consolidated statement of operations for the year ended June 30, 1999.
8. SALE OF SUBSIDIARY
On September 8, 1999, the Company entered into an agreement to sell the
stock of Concurrent Vibrations, a wholly owned subsidiary of Concurrent Computer
Corporation S.A., to Data Physics, Inc. The transaction, which had an effective
date of August 31, 1999, resulted in a gain of $761,000. This gain is recorded
as other non-recurring items in the consolidated statement of operations for the
year ended June 30, 2000.
46
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INVENTORIES
Inventories consist of the following:
JUNE 30,
------ -------
(DOLLARS IN THOUSANDS)
2000 1999
------ -------
Raw Materials $4,333 $3,103
Work-in-process 947 1,175
Finished Goods 341 363
------ ------
$5,621 $4,641
====== =======
At June 30, 2000 and 1999, 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 $4.0 million and $4.6 million to reduce the value of the inventory
to its estimated net realizable value at June 30, 2000 and 1999, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
JUNE 30,
--------- ---------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
Buildings and leasehold improvements $ 2,131 $ 1,302
Machinery, equipment and customer support spares 31,346 34,647
33,477 35,949
Less: Accumulated depreciation (22,163) (25,013)
--------- ---------
$ 11,314 $ 10,936
========= =========
For the years ended June 30, 2000, 1999 and 1998, depreciation and
amortization expense for property plant and equipment amounted to $4,148,000,
$4,087,000 and $4,494,000, respectively.
In fiscal year 1999, the Company entered into an agreement to sell its
France facility. In connection with this transaction, which was 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 of the HCSC
Real-Time division 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 that is reflected as an operating expense in the consolidated
statement of operations for the year ended June 30, 1998.
47
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
JUNE 30,
---------------
2000 1999
------- ------
(DOLLARS IN THOUSANDS)
Accounts payable, trade $ 4,484 $2,941
Accrued payroll, vacation and
other employee expenses 6,292 4,314
Restructuring reserve - 90
Other accrued expenses 2,521 1,628
------- ------
$13,297 $8,973
======= ======
12. DEBT AND LINES OF CREDIT
The Company has a revolving credit facility with a bank that expires on
October 31, 2000 and which provides for borrowings of up to $8 million at an
interest rate of prime (9.5% at June 30, 2000) plus 0.75%. The Company is
currently working with the bank to renew the facility. At June 30, 2000 and
1999, there were no borrowings outstanding under the facility. The Company has
pledged substantially all of its domestic assets as collateral for the facility.
The facility 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, 2000, the Company was in
violation of the EBITDA covenant for which a waiver was obtained.
13. INCOME TAXES
The domestic and foreign components of income (loss) before provision for
income taxes are as follows:
YEAR ENDED JUNE 30,
---------------------------
2000 1999 1998
--------- -------- ------
(DOLLARS IN THOUSANDS)
United States $(22,952) $(1,420) $2,143
Foreign (163) 118 2,231
--------- -------- ------
$(23,115) $(1,302) $4,374
========= ======== ======
48
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of the provision for income taxes are as follows:
YEAR ENDED JUNE 30,
---------------------
2000 1999 1998
----- ------- -----
(DOLLARS IN THOUSANDS)
Current:
Federal $ - $ - $ -
Foreign 201 1,056 496
----- ------- -----
Total 201 1,056 496
----- ------- -----
Deferred:
Federal - - 98
Foreign (benefit) 399 (693) 366
----- ------- -----
Total 399 (693) 464
----- ------- -----
$ 600 $ 363 $ 960
===== ======= =====
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:
YEAR ENDED JUNE 30,
----------------------------
2000 1999 1998
--------- -------- -------
(DOLLARS IN THOUSANDS)
Income (loss) before provision for
income taxes $(23,115) $(1,302) $4,374
--------- -------- -------
Tax (benefit) at Federal statutory rate (7,859) (443) 1,487
Change in valuation allowance 2,749 (1,442) -
Non-deductible in-process research and
development charge 4,760 - -
Other permanent differences, net 950 2,248 (527)
--------- -------- -------
Provision for income taxes $ 600 $ 363 $ 960
========= ======== =======
As of June 30, 2000 and 1999, the Company's deferred tax assets and
liabilities were comprised of the following:
JUNE 30,
--------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
Gross deferred tax assets related to:
U.S. and foreign net operating loss carryforwards $ 71,903 $ 46,809
Book and tax basis differences for reporting purposes 206 10,530
Other reserves 3,789 607
Accrued compensation 718 883
Other 2,434 785
--------- ---------
49
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
--------- ---------
Total gross deferred tax assets 79,050 59,614
Valuation allowance (77,104) (57,372)
--------- ---------
Total deferred tax asset 1,946 2,242
Gross deferred tax liabilities related to
property and equipment/other 1,652 1,549
--------- ---------
Total gross deferred tax liability 1,652 1,549
--------- ---------
Deferred income taxes $ 294 $ 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 $0.3
million per year. The Company's U.S. Federal net operating loss carryforwards
begin to expire in 2004. As of June 30, 2000, the Company has remaining
utilizable U.S. Federal tax net operating loss carryforwards of approximately
$173 million for income tax purposes. Approximately $62 million of these net
operating loss carryforwards originated prior to the Company's 1993 Refinancing
and are limited to $300,000 per year.
The tax benefits associated with nonqualified stock options and
disqualifying dispositions of incentive stock options increased the operating
loss carryforward by approximately $10.0 million for the year ended June 30,
2000. Such benefits will be recorded as an increase to additional paid-in
capital when realized.
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, 2000 and
1999 was approximately $77 million and $57 million, respectively. The net change
in the total valuation allowance for the year ended June 30, 2000 was an
increase of approximately $19.7 million. The net decrease in the total valuation
allowance for the years ended June 30, 1999 and 1998 was approximately $1.4
million and $8.2 million, respectively. 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.
14. 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
50
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
matching contribution equal to 100% of the first 6% of employees' contributions.
For the years ended June 30, 2000, 1999 and 1998, the Company matched 100% of
the employees' Plan contributions up to 6%.
The Company's matching contributions under the Plan are as follows:
2000 1999 1998
------ ------ ------
(DOLLARS IN THOUSANDS)
Matching contribution $1,378 $1,040 $1,140
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,
2000 1999
-------- --------
(DOLLARS IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year $14,230 $10,777
Service cost 313 336
Interest cost 923 886
Plan participants' contributions 67 71
Actuarial loss 10 2,803
Foreign currency exchange rate change (60) (586)
Benefits paid (52) (57)
-------- --------
Benefit obligation at end of year $15,431 $14,230
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $14,081 $13,603
Actual return on plan assets 1,049 957
Employer contributions 158 170
Plan participants' contributions 67 71
Benefits paid (33) (20)
Foreign currency exchange rate change - (700)
-------- --------
Fair value of plan assets at end of year $15,322 $14,081
======== ========
Funded status $ (109) $ (149)
Unrecognized actuarial loss (121) (3)
Unrecognized prior service benefit 243 277
Unrecognized net transition obligation (151) (211)
-------- --------
Net amount recognized $ (138) $ (86)
======== ========
51
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Amounts Recognized in the Consolidated Balance Sheet
----------------------------------------------------------
JUNE 30,
2000 1999
---------- -----------
(DOLLARS IN THOUSANDS)
Prepaid benefit cost $ 1,131 $ 1,255
Accrued benefit liability (1,269) (1,341)
---------- -----------
Net amount recognized $ (138) $ (86)
========== ===========
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 $2.7 million, $2.7 million and $1.6 million,
respectively, as of June 30, 2000, and $2.4 million, $2.4 million and $1.5
million, respectively, as of June 30, 1999.
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,
-----------------------------------------
2000 1999 1998
------------- ------------ ------------
Discount rate 6.0% to 6.25% 6.0% to 6.25% 6.5% to 8.5%
Expected return on plan assets 6.0% 6.0% 7.0% to 8.5%
Compensation increase rate 3.5% to 4.5% 3.5% to 4.5% 3.5% to 7.0%
Components of Net Periodic Benefit Cost
--------------------------------------------
YEAR ENDED JUNE 30,
------------------------
2000 1999 1998
------ ------ --------
(DOLLARS IN THOUSANDS)
Service cost $ 313 $ 336 $ 360
Interest cost 923 886 858
Expected return on plan assets (918) (873) (1,130)
Amortization of unrecognized net transition obligation (69) (69) (71)
Amortization of unrecognized prior service benefit 24 25 25
Recognized actuarial loss (27) (51) (125)
------ ------ --------
Net periodic benefit cost $ 246 $ 254 $ (83)
====== ====== ========
15. SEGMENT INFORMATION
For the year ended June 30, 2000, the Company operates its business in two
divisions: Real-Time and VOD. Its Real-Time division is a leading provider of
high-performance, real-time computer systems, solutions and software for
52
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
commercial and government markets focusing 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. Its VOD division is
a leading supplier of digital video server systems to a wide range of industries
serving a variety of markets, including the broadband/cable, hospitality,
intranet/distance learning, and other related markets. Customer service and
support revenues derived from VOD sales arrangements are included in Product
Sales and are not material. Shared expenses are primarily allocated based on
either revenues or headcount. There were no material intersegment sales or
transfers. For the year ended June 30, 2000, one customer accounted for 14% of
the total Real-Time revenue and one customer accounted for 47% of the total VOD
revenue. There were no other customers that accounted for more than 10% of
revenue for either division. The following summarizes the operating income
(loss) by segment for the year ended June 30, 2000. Corporate costs include
costs related to the offices of the Chief Executive Officer, Chief Financial
Officer, Investor Relations and other administrative costs including annual
audit and tax fees, board of director fees and similar costs.
YEAR ENDED JUNE 30, 2000
---------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
Revenues:
Product Sales $ 27,122 $ 11,952 $ - $ 39,074
Service and other 29,016 - - 29,016
---------- --------- ----------- ---------
Total 56,138 11,952 - 68,090
Cost of sales
Systems 12,345 7,766 - 20,111
Service and other 16,236 - - 16,236
---------- --------- ----------- ---------
Total 28,581 7,766 - 36,347
---------- --------- ----------- ---------
Gross margin 27,557 4,186 - 31,743
Operating expenses
Sales & marketing 11,942 8,040 329 20,311
Research and development 4,173 5,602 - 9,775
General and administrative 1,879 1,861 5,537 9,277
Cost of purchased in-process research and development - 14,000 - 14,000
Relocation and restructuring 1,208 1,159 - 2,367
---------- --------- ----------- ---------
Total operating expenses 19,202 30,662 5,866 55,730
---------- --------- ----------- ---------
Operating income (loss) $ 8,355 $(26,476) $ (5,866) $(23,987)
========== ========= =========== =========
53
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Summarized financial information for fiscal year 2000 is as follows:
AS OF AND FOR THE YEAR ENDED JUNE 30, 2000
---------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
Net sales $ 56,138 $ 11,952 $ - $ 68,090
Operating income (loss) $ 8,355 $(26,476) $ (5,866) $(23,987)
Identifiable assets $ 22,610 $ 28,909 $ 5,559 $ 57,078
Depreciation and amortization $ 3,071 $ 2,259 $ 815 $ 6,145
Capital expenditures $ 1,252 $ 2,286 $ 823 $ 4,361
The VOD division became a reportable segment during fiscal 2000. Revenues
generated from VOD sales were $1.2 million for the year ended June 30, 1999. It
is impracticable to attain operating income (loss), identifiable assets,
depreciation and amortization and capital expenditures for the VOD division as
of and for the year ended June 30, 1999 as the Company operated as one segment
for that period.
16. 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, 2000, 1999, and 1998. Options issued under the Stock
Option Plan generally vest over three years and are exercisable for ten years
from the grant date. The plan terminates on January 31, 2002. Stockholders
have approved the purchase of up to 12,000,000 shares under the plan.
Changes in options outstanding under the plan during the years ended June
30, 2000, 1999, and 1998 are as follows:
2000 1999 1998
------------------------ -------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ---------- ----------- ------- ---------- ----------
Outstanding at beginning of year 7,190,969 $ 2.56 5,852,794 $ 2.13 6,016,229 $2.15
Granted 1,763,419 $ 7.60 2,453,500 $ 3.51 630,800 $1.86
Exercised (3,127,306) $ 2.23 (884,283) $ 2.02 (666,443) $1.45
Forfeited (145,561) $ 3.91 (231,042) $ 2.17 (127,792) $5.06
------------ ----------- ----------
Outstanding at year-end 5,681,521 $ 4.28 7,190,969 $ 2.56 5,852,794 $2.13
============ =========== ==========
Options exercisable at year end 2,600,401 3,498,533 3,076,730
============ =========== ==========
Weighted average fair value of
Options granted during the year $ 5.62 $ 1.56 $ 0.65
============ =========== ==========
54
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Options with respect to 2,600,401 shares of common stock, with an average
exercise price of $2.57 were exercisable at June 30, 2000. The weighted-average
fair value of the stock options granted during 2000, 1999 and 1998 was
$4,715,526, $1,870,148 and $1,343,074, 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 106%, 70%, and 35% for the years
ended June 30, 2000, 1999 and 1998, respectively.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 2000:
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES LIFE AT JUNE 30, 2000 PRICE AT JUNE 30, 2000 PRICE
---------------------------------------------------------------------------------------------
0.37 - $0.99 6.92 352,659 $ 0.43 352,659 $ 0.43
1.00 - $1.99 5.93 258,812 1.47 156,012 1.43
2.00 - $2.99 7.04 2,864,706 2.44 1,688,221 2.24
3.00 - $3.99 8.13 36,566 3.17 33,233 3.19
4.00 - $4.99 7.81 478,445 4.40 170,438 4.39
5.00 - $5.99 8.57 336,400 5.03 109,737 5.03
6.00 - $6.99 9.10 345,000 6.70 5,001 6.73
7.00 - $7.99 9.07 5,100 7.46 100 7.19
8.00 - $8.99 9.13 279,333 8.00 - -
10.00 - $10.99 9.37 544,500 10.12 - -
11.00 - $11.99 9.50 65,000 11.09 65,000 11.09
13.00 - $13.99 9.65 20,000 13.75 - -
18.00 - $18.99 9.61 85,000 18.56 20,000 18.56
19.00 - $19.99 9.71 10,000 19.63 - -
--------------- -----------------
7.68 5,681,521 $ 4.28 2,600,401 $ 2.57
=============== =================
The Company applies APB Opinion No. 25 in accounting for its Plan. 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 (loss) income
applicable to common shareholders and net (loss) income per share would have
been reduced to the pro forma amounts indicated below:
YEAR ENDED JUNE 30,
---------------------------
2000 1999 1998
--------- -------- ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss) applicable to common shareholders
As reported $(23,715) $(1,665) $3,396
Pro forma $(28,431) $(3,535) $2,053
Net income (loss) per share - basic and diluted
As reported $ (0.46) $ (0.03) $ 0.07
Pro forma $ (0.55) $ (0.07) $ 0.04
55
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. 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 weighted
assumptions used were: expected dividend yield 0%, risk-free interest rate of
5.0%, expected life of 4.0 years and an expected volatility of 35%.
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. The maximum number of additional warrants that could be
issued under this agreement is 8 million upon achieving the revenue targets. The
Company has recognized a charge of $322,000 in the consolidated statements of
operations for the year ended June 30, 2000 representing the fair market value
of the warrants earned during the year.
18. RIGHTS PLAN
On July 31, 1992, the Board of Directors of the Company declared a dividend
distribution of one Series A Participating Cumulative Preferred Right for each
share of the Company's common stock and Convertible Preferred Stock. The
dividend was made to stockholders of record on August 14, 1992. Under the
rights plan, each Right becomes exercisable unless redeemed (1) after a third
party owns 20% or more of the outstanding shares of the Company's voting stock
and engages in one or more specified self-dealing transactions, (2) after a
third party owns 30% or more of the outstanding voting stock or (3) following
the announcement of a tender or exchange offer that would result in a third
party owning 30% or more of the Company's voting stock. Any of these events
would trigger the rights plan and entitle each right holder to purchase from the
Company one one-hundredth of a share of Series A Participating Cumulative
Preferred Stock at a cash price of $30 per right.
Under certain circumstances following satisfaction of third party ownership
tests of the Company's voting stock, upon exercise each holder of a right would
be able to receive common stock of the Company or its equivalent, or common
stock of the acquiring entity, in each case having a value of two times the
exercise price of the right. The rights will expire on August 14, 2002 unless
earlier exercised or redeemed, or earlier termination of the plan.
56
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. BASIC AND DILUTED (LOSS) INCOME PER SHARE COMPUTATION
The following table presents a reconciliation of the numerators and
denominators of basic and diluted income (loss) per share for the periods
indicated:
YEAR ENDED JUNE 30,
----------------------------
2000 1999 1998
--------- -------- -------
(DOLLARS AND SHARE DATA IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Basic EPS calculation:
Net income (loss) $(23,715) $(1,665) $ 3,414
Less: Preferred stock dividends and accretion - - 18
--------- -------- -------
Net income (loss) available to common shareholders $(23,715) $(1,665) $ 3,396
Weighted average number of shares outstanding 51,959 47,967 47,002
--------- -------- -------
Basic EPS $ (0.46) $ (0.03) $ 0.07
========= ======== =======
Diluted EPS calculation:
Net income (loss) $(23,715) $(1,665) $ 3,414
Less: Preferred stock dividends and accretion - - 18
--------- -------- -------
Net income (loss) available to common shareholders $(23,715) $(1,665) $ 3,396
Weighted average number of shares outstanding 51,959 47,967 47,002
Incremental shares from assumed conversion of stock options - - 625
--------- -------- -------
51,959 47,967 47,627
--------- -------- -------
Diluted EPS $ (0.46) $ (0.03) $ 0.07
========= ======== =======
57
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
20. CONCENTRATION OF RISK
A summary of the Company's financial data by geographic area follows:
YEAR ENDED JUNE 30,
-----------------------------
2000 1999 1998
--------- -------- --------
(DOLLARS IN THOUSANDS)
Net sales:
United States $ 44,049 $41,726 $49,708
Intercompany 4,828 5,843 6,164
--------- -------- --------
48,877 47,569 55,872
--------- -------- --------
Europe 12,545 17,453 18,383
Intercompany 34 344 1,161
--------- -------- --------
12,579 17,797 19,544
--------- -------- --------
Asia/Pacific 10,399 9,519 12,341
Intercompany 21 53 26
--------- -------- --------
10,420 9,572 12,367
--------- -------- --------
Other 1,097 1,265 1,783
--------- -------- --------
72,973 76,203 89,566
Eliminations (4,883) (6,240) (7,351)
--------- -------- --------
Total $ 68,090 $69,963 $82,215
========= ======== ========
Operating income (loss):
United States $(23,278) $(2,146) $ 394
Europe (1,084) 72 1,163
Asia/Pacific 47 560 1,349
Other 308 149 390
Eliminations 20 76 15
--------- -------- --------
Total $(23,987) $(1,289) $ 3,311
========= ======== ========
JUNE 30,
--------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
Identifiable assets:
United States $ 74,949 $ 54,794
Europe 11,450 14,601
Asia/Pacific 15,039 13,551
Other 831 543
Eliminations (45,191) (42,920)
--------- ---------
Total $ 57,078 $ 40,569
========= =========
58
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
$24,585,000, $29,058,000 and $34,877,000 for the years ended June 30, 2000, 1999
and 1998, respectively, which amounts represented 36%, 42% and 42% of total
sales for the respective fiscal years.
Sales to the U.S. Government and its agencies amounted to approximately
$18,455,000, $23,053,000 and $22,203,000 for the years ended June 30, 2000, 1999
and 1998, respectively, which amounts represented 27%, 33% and 27% of total
sales for the respective fiscal years. Sales to one commercial customer
amounted to approximately $7,934,000 or 12% of total sales for the year ended
June 30, 2000. There were no other customers during 2000 representing more than
10% of total revenues.
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.
21. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results for the years
ended June 30, 2000 and 1999:
THREE MONTHS ENDED
--------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1999 1999 2000 2000
--------------- -------------- ----------- ----------
2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 15,684 $ 16,922 $ 17,020 $ 18,464
Gross margin $ 7,640 $ 7,753 $ 7,790 $ 8,560
Operating income (loss) (a) $ (3,105) $ (16,660) $ (2,330) $ (1,892)
Net income (loss) (a) $ (2,551) $ (16,775) $ (2,446) $ (1,943)
Net income (loss) per share $ (0.05) $ ( 0.33) $ (0.05) $ (0.04)
(a) Operating loss and net loss for the three months ended December 31, 1999
include a $14.0 million write-off of in-process research and development
related to the acquisition of Vivid Technology (see Note 3).
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) (b) $ 212 $ 539 $ 562 $ (2,602)
Net income (loss) (b) $ (426) $ 915 $ 294 $ (2,448)
Net income (loss) per share $ (0.01) $ 0.02 $ 0.01 $ (0.05)
59
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(b) Net loss for the three months 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 three months 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 10).
22. COMMITMENTS AND CONTINGENCIES
The Company leases certain sales and service offices, warehousing, and
equipment under various operating leases. The leases expire at various dates
through 2006 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. Furniture and
equipment with a cost of $409,000 at June 30, 2000 was acquired under a capital
lease arrangement.
At June 30, 2000, future minimum lease payments for the years ending June
30 are as follows:
(DOLLARS IN THOUSANDS)
CAPITAL LEASES OPERATING LEASES TOTAL
---------------- ----------------- ------
2001 $ 101 $ 3,070 $3,171
2002 101 2,550 2,651
2003 101 1,739 1,840
2004 101 1,014 1,115
2005 and thereafter 51 12 63
---------------- ----------------- ------
455 $ 8,385 $8,840
Amount representing interest (79) ================= ======
----------------
Present value of minimum $ 376
lease payments ================
Rent expense under all operating leases amounted to $3,906,000, $3,937,000
and $4,761,000 for the years ended June 30, 2000, 1999 and 1998, respectively.
The Company, from time to time, is involved in litigation incidental to the
conduct of its business. The Company and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations or financial condition.
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 in an annualized amount equal to the
respective officer's annual salary then in effect plus an amount equal to the
then most recent annual bonus paid or target bonus paid or, if determined,
payable, to such officer. At June 30, 2000, the maximum contingent liability
under these agreements is approximately $2.2 million. The Company's employment
agreements with certain of its officers contain certain offset provisions, as
defined in their respective agreements.
23. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which
60
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Upon adoption, all
derivative instruments will be recognized in the balance sheet at fair value,
and changes in the fair values of such instruments must be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 will
be effective for the Company on July 1, 2000. As the Company does not have any
hedging and derivative positions, adoption of these pronouncements did not have
a material effect on the Company's financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on
applying generally accepted accounting principles to revenue recognition issues
in financial statements. We will adopt SAB 101 as required in the fourth fiscal
quarter of 2001. We are currently evaluating the effect that such adoption might
have on our financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44 "Accounting of Certain
Transactions involving Stock Compensation - an Interpretation of APB No. 25"
("FIN 44"). FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. We adopted FIN 44 on July 1,
2000, and the adoption did not have a material effect on the financial position
or operations of the Company.
24. RESTATEMENT
Subsequent to the issuance of the Company's 2000 financial statements,
management changed the measurement date used to value the shares issued in
conjunction with the Company's acquisition of Vivid Technology in accordance
with APB 16: Business Combinations. As a result, the financial statements as
of and for the year ended June 30, 2000 have been restated from the amounts
previously reported.
AS PREVIOUSLY REPORTED AS RESTATED
------------------------ -------------
At June 30, 2000:
Goodwill, net $ 2,943 $ 11,981
Capital in excess of par 125,740 135,394
Accumulated deficit (95,955) (96,571)
For the year ended June 30, 2000:
General and administrative expenses$ 8,661 $ 9,277
Operating loss (23,371) (23,987)
Loss before income taxes (22,499) (23,115)
Net loss (23,099) (23,715)
Net loss per share:
Basic and Diluted $ (0.44) $ (0.46)
61
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SCHEDULE II
CONCURRENT COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
(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:
2000
----
Reserve for inventory obsolescence
and shrinkage $ 4,568 $ 550 $ (1,084) $ - $ 4,034
Allowance for doubtful accounts 418 289 (223) - 484
Warranty accrual - 668 - - 668
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
(a) Charges and adjustments to the reserve accounts for write-offs and credits issued
during the year.
(b) Includes adjustments to the account for doubtful accounts for foreign currency
translation.
(c) Includes reversal of excess reserve due to improved collections.
62
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/ Jack A. Bryant
----------------------------------
Jack A. Bryant
President and Chief Executive Officer
Date: July 16, 2001
63