SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)
For the fiscal year ended June 30, 1995
_________ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange act of 1934
(No Fee Required)
For the Transition Period From _________ to __________
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)
2 Crescent Place, Oceanport, NJ 07757, (908) 870-4500
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $0.01 per share)
(Title of class)
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
As of September 22, 1995, there were 30,562,613 shares
of Common Stock outstanding. The aggregate market value of
shares of such Common Stock (based upon the last sale price
of $2.0625 of a share as reported for such date on the Nasdaq
National Market System) held by non-affiliates (i.e., shares
held by other than entities identified as beneficial owners of more than
5% of the Common Stock and, without determining such status, including
shares held by directors and executive officers of the Company) was
approximately $56,503,579.
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. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement dated
October 1, 1995 in connection with Registrant's 1995 Annual
Meeting of Stockholders scheduled to be held on November 1,
1995 are incorporated by reference in Part III hereof.
PART I
Item 1. BUSINESS
(a) General Development of Business
Concurrent Computer Corporation ("Concurrent" or the "Company") is the
world's leading provider of high-performance real-time computer systems
and services, based on 1994 net sales of companies focused on providing
real-time systems. A "real-time" system must be able to meet guaranteed
rapid response times, acquire, process, store and display large amounts of
rapidly changing data as the changes occur, and have high system
reliability. Concurrent has nearly 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, air traffic control, weather
analysis, multimedia and mission critical data services such as financial
market information.
(b) Financial Information About Industry Segments
The Company considers its products to be one class of products which
accounted for 51.4%, 56.0% and 60.3% of total revenues in the 1995, 1994
and 1993 fiscal years, respectively. Service and other operating revenues
(including maintenance, support and training) accounted for 48.6%, 44.0%
and 39.7% of total revenues in the 1995, 1994 and 1993 fiscal years,
respectively.
Financial information about the Company's foreign operations is
included in Note 12 to the financial statements included herein. The
Company's Tokyo-based subsidiary, a joint venture with Nippon Steel
Corporation, provides for marketing and sales in the Japanese market and
accounted for approximately $7.8 million in net sales (5.6%) for the 1995
fiscal year. The Company and Nippon Steel Corporation consider the
renewal of the joint venture agreement on an annual basis, which was
recently renewed through the end of fiscal year 1996.
(c) Narrative Description of Business
Concurrent's vision is to remain the premier supplier of high-
technology real-time computer systems and services through customer focus,
total quality and the rapid development of standard and custom products
with the objective of strong, profitable growth. Real-time systems
concurrently acquire, analyze, store, display and control data to provide
critical information within a predictable time as real world events occur.
Compared to general purpose computer systems, these unique real-time
capabilities are applicable to a wide range of application requirements,
including higher performance processing, higher data throughput,
predictable and repeatable response times, reliably meeting required
deadlines, consistently handling peak loads, and better balancing of
system resources. These benefits are useful for an ever increasing range
of existing and emerging markets.
Concurrent decentralized and restructured its operations in January
1994. The restructured organization focuses on the customer to achieve
its vision and objective of strong, profitable growth. To directly focus
on the customer, the Field Operations organization combines all sales and
services functions. Corporate Operations, composed of all other functions
(manufacturing, development and engineering, marketing, business
development, finance, law, human resources, quality and program
management), supports Field Operations in fulfilling the needs of the
customer. Both operations are enhanced through successful strategic
alliances, which are instrumental in achieving the objective of strong,
profitable growth. The restructuring has resulted in greater customer
focus, process improvement and more efficient allocation of resources. It
has also created an environment encouraging constant improvement
consistent with the Company's Basic Beliefs (a credo for a worldwide
organization operating to the highest standards of ethics, quality and
teamwork to generate profits and the long-term viability of the business).
Concurrent has nearly 30 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 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 to end-users as well as to system
integrators, independent software vendors and value-added resellers. End
uses of the Company's systems include product design and testing;
simulation and training systems; telemetry and range systems; servers for
multimedia applications; power plant control and simulation; airline
reservation systems and cockpit communications; weather satellite data
acquisition and forecasting; intelligence data acquisition and analysis;
financial trading and services; lotteries and gaming; and automated mass
transit control.
The Company designs, manufactures, sells, and supports real-time
proprietary systems and standards-based open systems. It offers
worldwide hardware and software maintenance and support services
("Traditional Services"), for its products and for the products
of other computer and peripheral suppliers. The Company routinely offers
and successfully delivers long term service and support of its products
for up to fifteen years. The Company also has a long and successful
history of customizing systems with both specialized hardware and software
to meet unique customer requirements. Frequently in demand, these special
support services ("Professional Services") have included system
integration, performance and capacity analysis, and application migration.
As the computer market continues its shift in end-user demand from
proprietary to open systems, the Company has developed a strategy to
adjust service offerings to those more appropriate for open systems, while
maintaining support for proprietary systems. The Company's strategy also
strikes a balance between appropriate upgrades for proprietary system
offerings while predominantly investing in the open-system computing
platforms. The Company is also leveraging its investment in research and
development and enhancing market penetration through strategic alliances.
In October 1993, the Company introduced its new MAXION Systems.
Incorporating industry standards throughout its design, these
multiprocessor systems were based on the new MIPS R4400 reduced
nstruction set computer (RISC) microprocessor. These new systems
supported Concurrent's real-time enhanced UNIX operating system. Based
upon the UNIX SVR4.2 MP multiprocessor operating system and working in
partnership with the Novell UNIX Systems Group, this operating system
provides superior resource utilization and real-time extensions for a
variety of applications while supporting and complying with all major
operating system standards. Demonstrating its continued commitment to its
proprietary system customers, the Company also introduced in October 1993,
a new proprietary high-end Series 3200 multiprocessing system, the Model
3200-850. This new system is an upgrade to Concurrent's Model 3280 MPS
and MicroFive MPS systems. Full-scale production shipments of the new
MAXION system and the new Model 3200-850 system began on schedule during
the quarter ended March 31, 1994.
Markets
The Company focuses its business on its installed base of proprietary
systems and strategic target markets for its open systems. Although its
installed base of proprietary systems is currently its largest market,
accounting for approximately 65% of total systems sales for fiscal year
1995, the growth of the business and the long-term financial performance
of the Company will depend largely on its ability to continue to develop
and market industry-leading real-time open systems such as its MAXION
multiprocessor system. The Company believes the MAXION system has
strengthened its competitive position. The Company is focusing on the
target markets because of their growth potential for real-time open
systems and because of Concurrent's experience in meeting customer
requirements.
Concurrent's strategic target markets include its proprietary systems
installed base, simulation, weather, wagering and gaming, measurement and
control, command, control, communications and intelligence (C3I) and
multimedia. Summaries of these markets follows:
Series 3200 Systems Installed Base. Concurrent's reputation in the
industry is largely attributable to its proprietary real-time computing
systems. Now in their fifth generation, these proprietary systems meet
customers' needs in extremely demanding real-time environments. Many of
the applications using the Series 3200 systems, including the U.S.
Department of Commerce's Next Generation Radar (NEXRAD) program, are
unique with long life cycles and "mission critical" demands and are the
result of a significant investment in application software by the
customer. The Company's goal is to work with these customers so that they
can maximize their return on investment and to assure them a competitive
total cost of ownership through Professional Services and products that
provide compatible upgrade paths. The Company considers its Series 3200
customer base a critical market and is committed to meeting the needs of
this installed base regardless of whether the customer's application is
related to the target niche markets listed below.
Simulation. Concurrent is a recognized leader in real-time systems
for simulation. Primary applications include trainers/simulators for
operators in commercial and military aviation, vehicle operation and power
plants, scenario trainers for battle management, mission planning and
rehearsal, engineering design simulation for avionics and automotive labs
and modeling systems for wargaming and synthetic environments. The
Company's MAXION system architecture is uniquely positioned to satisfy the
trend in the simulation and training industry towards a networked and
interactive environment in which training simulators are networked with
other training simulators to represent a distributed interactive
environment. MAXION systems are being used today by customers to create
this networked and interactive simulation and training environment.
Weather. Weather analysis and forecasting require the ability to
gather, analyze and display continuous flows of information from
simultaneous sources and distribute them electronically. Primary
applications include environmental analysis and display, doppler weather
radar, and numerical weather prediction. This market demands real-time
computing solutions because there is little or no margin for error where
lives and property are at risk. The Company provides the computer systems
which power the computing requirements for the Department of Commerce's
Next Generation Radar (NEXRAD) weather program. The
Company's success in this market has led to significant sales with the
U.S. Navy and the U.S. Air Force.
Wagering and Gaming. Concurrent is a leading provider of systems for
the wagering and gaming industry. Concurrent has provided the processing
systems for the wagering and gaming industry's largest provider of public
lottery systems, the majority of tabulator (off-track betting)
systems in Australia and Asia/Pacific and for large scale casino systems
such as Keno. In these applications, the number of simultaneous users is
measured in thousands with data analysis required in real-time. High
system availability is assured using Concurrent's Fault Tolerant Network
Computing remote network-based and redundant system architecture.
Measurement and Control. Concurrent is a leading supplier of systems
to users requiring simultaneous multi-channel acquisition, processing,
display and archiving of analog and digital signals at throughput rates in
excess of 1 million samples per second, in stand-alone or networked
environments. Engineers and scientists use the systems to collect,
control, analyze and distribute test data from multiple high speed data
sources. Concurrent, together with its value-added resellers, provides
both programming development tools and complete solutions for applications
such as wind tunnel engine and turbine testing, vibration control, range
and telemetry, missile design, vehicle design, seismic exploration and
underwater acoustics. The Company's balanced system performance combined
with graphics and data acquisition provide the ideal solution for these
applications.
Command, Control, Communications and Intelligence (C3I). Concurrent
is a leading supplier to a broad range of C3I applications requiring the
ability to ingest data, analyze the data for assistance in decision making
and dissemination of commands for response. Primary applications include
command and control, mission planning, signal intelligence and analysis,
air traffic control, air defense and message processing. Examples of
Concurrent's success in this market include systems used by the German and
Spanish Governments for air traffic control, and systems used by the U.S.
National Security Agency for Signal Intelligence and Analysis.
Multimedia. Concurrent has identified the network server resident in
multimedia interactive applications as an emerging market where its MAXION
multiprocessor systems offer unique advantages. Concurrent's strategy is
to position itself as a supplier of server technology for these
interactive, time critical video/image on demand applications. This
horizontal strategy focuses primarily on business applications such as
distance learning, entertainment and services systems for hotels and
airlines, and telemedicine. These applications require reliable delivery
of multiple streams of high quality video and simultaneous servicing of
interactive requests from multiple users. For these requirements, the
MAXION system technology offers unique advantages over competing systems.
Products and Services
The Company considers its products and services a total package to
provide complete value-added real-time solutions. The Company offers two
types of systems, proprietary and open, as well as Traditional Services
and Professional Services.
Series 3200 Real-Time Proprietary Systems. The Company has a large
installed base of its Series 3200 real-time proprietary systems. A
central feature of the Company's strategic plan is to work closely with
these existing proprietary system users to meet their needs for
improvements and upgrades and, should they decide to switch to a real-time
open system, to be their vendor of choice for the migration. The Series
3200 system product line uses the Company's proprietary OS/32 operating
system and processor technology. Below is a list of the Company's current
proprietary systems product offerings. Performance currently ranges from
3.9 to 70 MIPS (million instructions per second) and price ranges from
$55,000 to approximately $1.3 million. The Company's 3200-850 system was
introduced in October 1993 with the first production units shipped on
schedule in the quarter ended March 31, 1994.
Series 3200 Product Line
Performance Typical Price
Model (MIPS)* Range
3200-400/A 3.9 $55,000
3200-400 3.9 $65,000
3200-600 6.8 to 35.6 $160,000 to $585,000
3280 6.4 to 35.6 $300,000 to $900,000
3200-650 13.6 to 35.6 $230,000 to $570,000
3280E 6.4 to 70 $360,000 to $1,350,000
3200-850** 13.6 to 35.6 $330,000 to $810,000
*MIPS - Million Instructions Per Second
**MIPS rate is the same but delivered performance increases dramatically
over 3200-650
UNIX-Based Real-Time Open Systems. The emergence of industry-standard operating
systems, high-performance microprocessors and networking technology has
dramatically lowered the cost of providing real-time open
systems to the marketplace, thus greatly expanding the universe of
potential real-time systems purchasers. The Company plans to capitalize
on this trend by focusing on its target markets as well as through
strategic alliances with third parties to bring to market new solutions
and software applications for new and existing customers. The current
product line uses the Company's real-time UNIX (RTU) operating system
with the processor technology identified below. Performance currently
ranges from 3 to 460 SPECmarks with typical price ranging from $22,000 to
approximately $170,000. The MAXION multiprocessor system, the first model
of the Company's new next-generation open systems using the MIPS R4400
microprocessor, was introduced in October 1993.
Open Systems Product Line
Performance Typical Price Processor
Model (SPECMarks)* Range Technology
7150 11 to 21 $24,725 to $ 68,725 MC68040
7250 11 to 21 $36,495 to $ 75,505 MC68040
7550 11 to 21 $44,295 to $143,305 MC68040
7552 11 to 21 $52,495 to $151,505 MC68040
MAXION 9150 115 to 345 $27,495 to $68,495 MIPS R4400
MAXION 9250 115 to 460 $48,795 to $108,295 MIPS R4400
MAXION 9552 230 to 460 $117,000 to $170,000 MIPS R4400
* SPECMarks - Independently developed industry standard benchmark.
Traditional Services. One of the largest benefits to the Company of
its extensive installed customer base is the large and generally
predictable revenue stream generated from Traditional Services. While
Traditional Services revenue has declined and is expected to further
decline as a result of the industry shift to open systems, the Company
expects this business to be a significant source of revenues and cash flow
for the foreseeable future. The Company offers a variety of service and
support programs to meet the customer's maintenance needs for both its
hardware and software products. The Company also offers contract service
for selected third party equipment. The service and support programs
offered by Concurrent include rentals and exchanges; diagnostic and repair
service; resident service; and preventive maintenance. The Company
routinely offers long-term service and support of its products for up to
fifteen years.
Professional Services and Custom Engineering. Throughout the
Company's history, it has supported its customers through Professional
Services and Custom Engineering support efforts. This remains true today
as customers transition to open systems and manage their costs through the
increased use of outsourcing. This is especially true for the time
constrained, cost sensitive or mission critical requirements of real-time
applications. Custom Engineering frequently assists customers in
designing their application systems. In many cases, the Company also
provides custom and integration engineering services to implement the
design. This may include custom modifications to the Company's products
or integration of third party interfaces or devices into the Company's
systems. Many customers use Professional Services to migrate existing
applications from earlier generations of the Company's or competitor's
systems to the Company's state-of-the-art systems. Professional Services
also include classroom and on-site training, system and site performance
analysis, and multiple vendor support planning. Although the total
revenues associated with any single Professional Services or Customer
Engineering effort may be small in comparison to total revenues, the
positive effect on overall revenue production and increased customer
satisfaction is an integral part of the business plan of the Company.
Systems and Technology
Concurrent has made a considerable investment in developing its
product lines and today offers computer systems satisfying a broad range
of high-performance requirements for real-time applications. While
maintaining a competitive capability and continued enhancement of the
Company's proprietary product line for a still significant installed base,
the primary investments have been in the evolution of the open systems
product line. The Company has delivered a unique balance of supporting
industry standards while providing innovative superiority in key
architectural issues. Below is a summary of some of the features of
Concurrent's real-time systems and technology.
Hardware Architecture. For almost three decades, Concurrent has
demonstrated its ability to develop and deliver state-of-the-art system
architectures to meet the increasing demands of real-time applications.
Concurrent has evolved both proprietary and open system architectures,
delivering pioneering work in symmetrical multiprocessing architectures.
Over the past several years, all computer companies have been challenged
to use a wide range of evolving industry-standard components and
technologies to continuously achieve exceptional price/performance to
remain competitive. As today's microprocessor components deliver
unparalleled increases in performance, the traditional bus multiprocessor
architecture (used previously by Concurrent and still used by most
computer vendors) is having increasing difficulties avoiding bottlenecks
and resource contentions that rob applications of performance. The
Company's MAXION Systems use an innovative architecture to achieve not
only high performance but also the industry's most predictable and
scaleable systems on the market. The first generation of MAXION Systems
(which started production shipments in 1994 and were subsequently upgraded
to use faster clock rates in 1995) are already used in a wide range of
demanding applications. The second generation of MAXION Systems is
scheduled for introduction during 1996.
System Software. The Company is recognized for its continuous
development and evolution of real-time operating systems and other system
software for almost three decades. An active participant in the
development of industry standards for real-time computing, the Company
also supports features well advanced beyond system software available on
general purpose systems on the market. User's of the Company's systems
automatically benefit from these capabilities while developing programs in
industry-standard software development environments and using third-party
software tools and products. Special system tools are also provided to
allow applications to be tuned to fully utilized the maximum performance
from each system.
I/O Subsystems. As microprocessor chips performance ratings increase
dramatically, the demands on the I/O subsystem to supply the program loads
and data for applications to take advantage of these higher performance
chips increases proportionally. Although the emergence of industry-
standard I/O buses has dramatically increased the number of interfaces and
peripherals available while decreasing the cost, these same standards
dictate the maximum performance any single bus can deliver. The MAXION
Systems are designed to allow the user to select the number of I/O buses
required. This flexibility was further increased by doubling the number
of possible I/O buses as the result of a new extension for the MAXION
Systems released in 1995.
Distributed Computing & Networking. Concurrent's computer systems
have been used as server systems in heterogeneous networks (i.e., with
Concurrent and non-Concurrent computers) for decades. To support this
capability, Concurrent systems continue to support the most widely
demanded networking protocols and features. These include the Company's
Fault-Tolerant Networked Computing (FTNC) support, which allows user's to
use and manage resources on a network to design a solution that is
scaleable to the level of fault tolerance required for a specific
application. Distributed computing and networking support continue to be
expanded as communications requirements evolve, including such
additions as Asynchronous Transfer Mode (ATM) support in 1995. The unique
demands of real-time applications also push Concurrent to support special
capabilities, such as the Distributed Interactive Simulation (DIS) network
for military distributed simulation and training.
Data Acquisition. The Company continues its heritage of integrated
data acquisition systems. Demonstrated to be superior to other systems at
acquiring, analyzing and displaying high volumes of complex data, these
capabilities continue to support applications such as wind tunnel
analysis, engine test facilities, satellite data acquisition, range
telemetry, and intelligence gathering and analysis.
Graphics. Powerful graphics are essential in many real-time
applications. The Company supports integrated graphics processors and
industry-standard graphics software, such as X-Windows, MOTIF, and OpenGL.
Many third party graphics tools and applications are also supported on the
systems. In many applications, however, the demands for graphics become
so great that the Company has helped design and implement graphics
topologies using real-time processing servers coupled with high-
performance graphics servers to meet even the most demanding needs of
real-time applications without encountering the system bottlenecks
prevalent on implementations using only multiprocessing graphics servers
of competitors.
Productivity Tools. During 1995, the Company has implemented a
powerful software development environment that has addressed a weaker
product offering in this area. Using Hewlett Packard's SoftBench as a
software infrastructure, a robust set of tools has been assembled and
fully integrated with a graphics user interface to provide outstanding
support for C, C++, FORTRAN and Ada. Additional tools to facilitate
debugging and performance tuning across multiple processors are also a
part of the development environment. Specialized tools for specific
market requirements, such as the Simulation Workbench (which simplifies
the design, development, testing and production of simulations through a
powerful graphical interface), round out the software development
environment focused on unparalleled productivity and preservation of
software investments across multiple generations of computer systems.
Management
Executive officers of Concurrent are elected by the Board of Directors
to hold office until their successors have been chosen and qualified or
until earlier resignation or removal. Set forth below are the names,
positions and ages of the Company's executive officers as of the September
28, 1995 Form 10-K filing date:
Director or
Executive
NAME POSITION AGE Officer
John T. Stihl Chairman of the Board, 62 1991
President,Chief Executive
Officer
George E. Chapman Vice President, 61 1994
International Field
Operations
David S. Cowie Vice President,
Development and Engineering 48 1993
Kevin J. Dell Vice President, General 39 1993
Counsel and Secretary
Robert S. Kovarcik Vice President, 47 1994
Manufacturing & Logistics
Roger J. Mason Vice President, Finance and 46 1994
Treasurer, Chief Financial
Officer
Charles R. Maule Vice President, Marketing 44 1994
and Strategy
C. Dennis McWatters Vice President, North 49 1994
American Field Operations
David L. Vienneau Vice President, Human 41 1994
Resources
John T. Stihl, Chairman of the Board, President and Chief Executive
Officer. Mr. Stihl has served as Chairman of the Board, President and
Chief Executive Officer since August 1993. He joined the Company in May
1991 as Executive Vice President and was promoted to President and Chief
Operating Officer less than one year later in April 1992. He joined the
Company from G&H Technology, Inc., a division of Penn Central Corporation,
which designs, develops, manufactures and markets electromechanical
components for the defense and aerospace industries where he served as
President and Chief Executive Officer from 1988 after retiring as a Major
General from the United States Air Force. His experience includes over 20
years in high level executive positions with the United States Air Force
managing large scale telecommunications, computer and air traffic control
operations, including from 1986 to 1988, commander (CEO) of the 58,000
persons worldwide, Air Force Communications Command, headquartered at
Scott Air Force Base, Illinois. Prior to his retirement, he had been an
officer in the United States Air Force since 1955.
George E. Chapman, Vice President, International Field Operations. Mr.
Chapman was elected to this position in November 1994. He previously
served as Vice President, Marketing since January 1994. He joined
Concurrent in 1992 as Director, Business Development for Weather and
Airspace Management. In 1988, after retiring as a Brigadier General from
the United States Air Force, he joined Lockheed Corporation's Austin
Division as Senior Staff Engineer working toward the worldwide commercial
application of high technology systems developed for the U.S. Government.
In December 1989, he received an appointment as Executive Director to the
newly legislated Texas Workers Compensation Commission. His career with
the U.S. Air Force spanned 36 years, with the last six years devoted to
leadership of a 5,000 person organization responsible for the long-range
technology, investment and training requirements for the nation's weather
prediction and warning capability supporting U.S. forces throughout the
world.
David S. Cowie, Vice President, Development and Engineering. Mr.
Cowie was elected to this position in August 1993. He joined the Company
in 1982 as Senior Manager, Commercial Systems Software Development and
advanced to Director, European Software Development in 1983. In 1991, Mr.
Cowie was promoted to the position of Senior Director, Systems
Engineering. Prior to joining the Company, he held systems development,
project management, and systems consultancy positions with ICL Systems,
Gemini Computer Systems, and ICL Dataskil.
Kevin J. Dell, Vice President, General Counsel and Secretary. Mr.
Dell was elected to the position of Vice President, General Counsel and
Assistant Secretary in August 1993 and advanced to the position of
Secretary in November 1994. As Concurrent's chief legal officer, he is
responsible for the Company's legal and contractual requirements
worldwide. Mr. Dell joined the Company in 1987 as Senior Corporate
Attorney and advanced to Assistant General Counsel in 1988. Prior to
joining the Company, he was an associate at the law firm of Finley,
Kumble, Wagner, Underberg, Manley, Myerson & Casey in New York.
Robert S. Kovarcik, Vice President, Manufacturing and Logistics. Mr.
Kovarcik was elected to this position in June 1994. He joined Concurrent
in 1991 as Director, Program Management. Prior to joining Concurrent, he
served for 12 years in management positions with several high technology
companies including Vice President/General Manager of the Cubic Division
of Cubic Corporation, a public manufacturer of electro-optical equipment;
Vice President/General Manager of New Brunswick Scientific, Inc., a public
manufacturer of bio-technology processing equipment; and Program Director
of ITT, a public diversified electronics company.
Roger J. Mason, Vice President, Finance and Treasurer, Chief Financial
Officer. Mr. Mason joined the Company in this position in October 1994.
Prior to joining the Company, he served as Chief Financial Officer and
Treasurer at Integral Peripherals Inc. a disk drive manufacturer. From
1981 to 1991, he held senior executive positions at Maxtor Corporation, a
publicly held disk drive manufacturer, MiniScribe Corporation, a publicly
held disk drive manufacturer whose assets were acquired by Maxtor
Corporation and Ironstone Group, Inc., a publicly held holding company.
His experience also includes public accounting with Coopers & Lybrand and
Honey, Perriam & Company.
Charles R. (Rick) Maule, Vice President, Marketing and Strategy. Mr.
Maule was elected to this position in November 1994 after joining the
Company in October 1994 as Vice President, Strategy and Business
Development. Prior to joining the Company he served for two years as
Director, Business Development and Director, Commercial Programs at
Lockheed Missiles and Space Company. Prior to that he spent 14 years with
Harris Corporation, Computer Systems Division in a number of senior
positions, including Vice President, Simulation and Training, and Vice
President, Development and Engineering.
C. Dennis McWatters, Vice President, North American Field Operations.
Mr. McWatters was elected to this position in November 1994. He joined
the Company in November 1993 as Director of OEM and Major Account Sales.
Prior to joining the Company he served as Vice President, Data Acquisition
of the Harris Corporation, Computer Systems Division. Mr. McWatters has
also held senior positions at Encore and Gould Computer Systems, Jim
Lemick & Associates and Digital Equipment Corporation. He also served as
a pilot in the United States Marine Corps.
David L. Vienneau, Vice President, Human Resources. Mr. Vienneau was
elected to this position in May 1994. He is also President and founder of
Performance Based Solutions, a human resources consulting services
company. Prior to forming Performance Based Solutions, Mr. Vienneau was
Director, Human Resources at Akzo America, Inc., a diversified
manufacturer of chemical products, and Director, Compensation and Benefits
at Penn Central Corporation, which designs, develops, manufactures and
markets electromechanical components for the defense and aerospace
industries.
Sales and Service
The Company sells its systems in key markets worldwide through direct
field sales and services offices as well as through a network of software
suppliers, distributors and system integrators. The Company does not
believe the loss of any particular distributor or system integrator would
have a material impact on the Company's operating results. The Company's
principal customers are original equipment manufacturers (OEMs), systems
integrators, independent software vendors (ISVs) and value-added resellers
(VARs) who combine the Company's products with other equipment or with
additional application software for resale to end-users. Collectively,
these customers account for approximately 60-70% of sales, with sales to
end-users accounting for the remaining 30-40%. Several major customer
accounts historically have provided a stable and generally predictable
contribution to revenues.
Servicing the Company's large installed base, particularly its
proprietary systems, is an important element in Concurrent's business
strategy and generates significant revenue and cash flow to the Company.
Total service revenues in fiscal year 1995 were approximately $68 million
(48.6% of total revenues). Approximately 86% of Traditional Services
revenues are generated from maintenance and support contracts which
generally run from one to three years with annual renewal provisions. The
Company's existing installed base of proprietary systems also represents
an opportunity for incremental sales of both systems and Traditional and
Professional Services.
No customer, other than the U.S. Government, has accounted for 10% or
more of Concurrent's net sales in the three fiscal years ended June 30,
1995. For the 1995 fiscal year, approximately $39.2 million of the
Company's revenues were attributable directly or indirectly to entities
related to branches of the U.S. Government. This amount represented
approximately 28% of the Company's worldwide revenues, compared to 31% and
29% for the 1994 and 1993 fiscal years, respectively. Sales to Unisys Corp.,
as prime contractor, under the NEXRAD program are considered sales to the U.S.
Government. However, the Company's revenues related to sales
to the U.S. Government are derived from various Federal agencies, no one
of which accounted for more than 5% of total revenues. The NEXRAD program
contributed approximately $17.5, $23 and $35 million in revenues in fiscal
years 1995, 1994 and 1993, respectively. In an effort to reduce total
program costs, sales of spare parts by Concurrent under the program are
now being made directly to the Government. The program is largely
completed and no significant revenue is planned for future periods. U.S.
Government contracts and subcontracts generally contain provision for
cancellation at the convenience of the Government. Substantially all of
the Company's U.S. Government related orders are subcontracts and most are
for standard catalog equipment which would be available for sale to others
in the event of cancellation. To date, there have been no cancellations
that have had a material impact on the Company's business or results of
operations.
Research and Development
During the three fiscal years ended June 30, 1995, Concurrent invested
a total of over $70 million in research and development which, as a
percentage of sales, represented 13.9%, 13.3% and 12.2% in fiscal years
1995, 1994 and 1993, respectively. Research and development investment was
made across all of Concurrent's key technology areas for both proprietary
systems and open systems. New networking products, graphics, data
acquisition sub-systems, enhancements to the proprietary OS/32 and UNIX-
based operating systems, and three new proprietary Series 3200 systems
(32-400, 32-600 and 32-850 Series) and the Series 7000 and MAXION open
computer systems and other products resulted from this investment.
Although in terms of absolute dollar amounts total research and
development investment has declined over the past several years, the
Company expects a greater return on its total research and development
investment for two reasons. First, research and development investment is
focused solely on products and applications for its target markets.
Second, the Company's increasing use of joint research and development and
technology sharing arrangements is expected to leverage the Company's
investment in research and development. The Company's strategy is to
acquire or co-develop technology when the market requires parity with
competitive technology and to develop technology internally when market
leadership is possible. This strategy is expected to give the Company
greater flexibility in meeting the technology requirements of its
customers and to allow it to provide increasingly higher performance
products by focusing its research and development resources where it can
add the most value.
Manufacturing Operations
The Company's manufacturing operation is located at its Oceanport, New
Jersey facility. The Oceanport facility has approximately 285,000 square
feet of space of which approximately 85,000 square feet is used for
manufacturing. Utilization of manufacturing capacity was approximately 70%
based on a two shift operation in fiscal year 1995. Management believes
that the manufacturing capacity available at the Oceanport facility could
be significantly increased (with minimal capital spending) to meet
increased manufacturing requirements either by raising the utilization
rate or by adding assembly personnel on its first and second shift or by
adding a third shift. The Company outsources several subassembly
operations, including all printed circuit board subassemblies, which has
resulted in significant cost savings. The Company's manufacturing
operations are now limited to systems assembly, systems integration and
systems test. Extensive testing and burn-in conditioning is performed at
the board and subassembly levels and at final system integration. Because
of the wide range of product configurations, final assembly and test
usually occur when a specific customer order is being prepared for
shipment. As a result of the successful outsourcing activities and
significant reductions in manufacturing inventories, the Oceanport
manufacturing operations have been consolidated into a focused factory
layout which includes assembly cells and a focused warehouse to minimize
non-value-added material movement, improve manufacturing quality, and
reduce assembly cycle times.
Sources of Supply
Concurrent has multiple commercial sources of supply throughout the
world for most of the materials and components it uses to produce its
products. In some cases, components are being purchased by the Company
from a single supplier to obtain the required technology and the most
favorable price and delivery terms. Although the Company has not
experienced any materially adverse impact on its operating results as a
result of a delay in supplier performance, any delay in delivery of
components may cause a delay in shipments by the Company of certain
products. The Company estimates that a lead time of up to 16-24 weeks may
be necessary to switch to an alternate supplier of certain custom
application specific integrated circuits and printed circuit assemblies. A
change in the supplier of these circuits without the appropriate lead time
would result in a delay in shipments by the Company of certain products.
Since revenue is recognized typically upon shipment, any delay in shipment
may also result in a delay in revenue recognition, possibly outside the
fiscal period originally planned, and, as a result, may adversely affect
the Company's financial results for that particular period. A transition
from one single supplier to another could have a similar impact. The
Company carefully monitors the ability of any single supplier to timely
meet the Company's requirements, including the supplier's financial
condition. Management believes it has good relationships with its
suppliers, including alternative suppliers, and expects that adequate
sources of supply for components and peripheral equipment will continue to
be available.
Competition
The shift from proprietary systems to standards-based open systems is
expected both to expand market demand for systems with performance
characteristics previously only found in proprietary real-time computing
systems and to increase competition, making product differentiation a more
important factor. Due in part to the range of performance and applications
capabilities of its products, the Company competes in various markets
against a number of companies, many of which have greater financial and
operating resources than the Company. Competition in the high performance
real-time computing systems and applications market comes from five
sources: (1) major computer companies that participate in the real-time
marketplace by layering specialized hardware and software on top of or as
an extension of their general purpose product platforms--these are
principally Digital Equipment Corporation and Hewlett-Packard Corporation;
(2) companies like Concurrent that target the high performance, real-time
market with specialized systems designed uniquely for real-time
application--Harris Computer Systems Corporation is a competitor in
certain markets in this category; (3) other computer companies that
provide solutions for applications that address a specific characteristic
of real-time, such as fault tolerance or high-performance graphics--these
computer companies include Silicon Graphics Inc., Stratus Computer, Inc.,
and Tandem Computers, Inc.; (4) general purpose computing companies that
provide a platform on which third party vendors add real-time
capabilities--these computer companies include International Business
Machines Corp. and Sun Microsystems, Inc.; and (5) single board computer
companies that provide board-level processors that are typically
integrated into a customer's computer system--these computer companies
include Force, MIZAR and Motorola, Inc.
Intellectual Property
The Company relies on a combination of contracts and copyright,
trademark and trade secret laws to establish and protect its proprietary
rights in its technology. The Company distributes its products under
software license agreements which grant customers perpetual licenses to
the Company's products and which contain various provisions protecting the
Company's ownership and confidentiality of the licensed technology. The
source code of the Company's products is protected as a trade secret and
as an unpublished copyright work. In addition, in limited instances the
Company licenses its products under licenses that give licensees limited
access to the source code of certain of the Company's products,
particularly in connection with its strategic alliances. Despite
precautions taken by the Company, however, there can be no assurance that
the Company's products or technology will not be copied or otherwise
obtained and used without authorization. In addition, effective copyright
and trade secret protection may be unavailable or limited in certain
foreign countries. The Company believes that, due to the rapid pace of
innovation within its industry, factors such as the technological and
creative skills of its personnel are more important to establishing and
maintaining a technology leadership position within the industry than are
the various legal protections of its technology.
Concurrent has entered into licensing agreements with several third-
party software developers and suppliers. Generally, such agreements grant
to the Company non-exclusive, worldwide licenses with respect to certain
software provided as part of computers and systems marketed by the Company
and terminate on varying dates. For example, Concurrent is licensed by
Novell, Inc. to use and sublicense Novell's UNIX operating system in the
Company's computer systems. The Company has entered into licensing
agreements with Novell for internal use of source code version of the UNIX
operating system and for the sublicensing of binary version of the UNIX
operating system. Both licenses are perpetual unless terminated in
accordance with the notice provisions and address versions of the UNIX
operating system through and including System V, Release 4.0 (SVR4). The
Company pays a royalty to Novell for each computer system shipped using
the UNIX operating system equal to approximately 2% of the list price of
the basic (minimum) configuration of the system.
Employees
As of June 30, 1995, the Company employs approximately 825 employees
worldwide of whom approximately 500 were employed in the United States,
compared to approximately 1,250 and 1,600 employees worldwide at June 30,
1994 and 1993, respectively. The Company's employees are not unionized.
Backlog
Generally, the Company records in "backlog" computer orders which it
is anticipated will be shipped during the subsequent six months or, where
special engineering is required, in the subsequent 12 months. The backlog
of unfilled computer systems orders was approximately $9.8 million on
June 30, 1995 compared to approximately $21.9 million a year earlier.
While the Company anticipates shipping the majority of backlog during
subsequent periods, the amount of orders in backlog is not necessarily a
meaningful indicator of business trends for the Company because orders may
be canceled before shipment or rescheduled for a subsequent period which
may affect the amount of backlog that may be realized in revenue in any
succeeding period. In addition, with the increasing emphasis on open
systems, more customers are placing orders within the quarter where
delivery is expected thus backlog is a less meaningfull measurement of
anticipated revenue.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
A summary of net sales (consolidated net sales reflects sales to
unaffiliated customers), attributable to Concurrent's foreign and domestic
operations for the fiscal years ended June 30, 1995, 1994 and 1993,
respectively, is presented at Note 12 to the financial statements of the
Registrant included herein.
Item 2. PROPERTIES
Listed below are Concurrent's principal facilities as of June 30, 1995.
Management considers all facilities listed below to be suitable for the
purpose(s) for which they are used, including manufacturing, research and
development, sales, marketing, service and administration. Management
believes that its Oceanport, New Jersey manufacturing facility has
sufficient capacity to meet the Company's projected manufacturing
requirements.
Approximate
Owned or Expiration Floor Area
Location Principal Use Leased Date of Lease(square ft)
2 Crescent Place Manufacturing/ Owned (1) - (1) 285,000
Oceanport, NJ Service/Marketing
Corporate Headquarters
106 Apple Street Held for disposition Owned - 132,000
Tinton Falls, NJ
One Technology Way Research & Leased 1998 88,500
Westford, MA Development/Marketing
227 Bath Rd., Sales/Research & Leased 1996 (2) 36,000
Berkshire Development
Slough, England
(1) The Company has entered into a contract for the sale and
leaseback of its Oceanport, New Jersey facility expected to be
completed in the quarter ending December 31, 1995.
(2) Renewable at the Company's option through March 1998.
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 and also engages in certain
research and development activities at a Florida facility. The Company has
placed the Tinton Falls facility for sale.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company
or any of its subsidiaries is a party or to which any of the Company's or
any of its subsidiaries' property is subject. To Concurrent's knowledge
there are no material legal proceedings to which any director, officer or
affiliate of Concurrent, or any owner of record or beneficially of more
than five percent of Common Stock, or any associate of any of the
foregoing, is a party adverse to Concurrent or any of its subsidiaries.
No material legal proceedings were terminated during the fourth quarter of
the fiscal year ended June 30, 1995.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Common Stock is currently authorized for quotation under the
symbol "CCUR" on the NASDAQ National Market System. The following table
sets forth the high and low closing bid prices for the Common Stock for
the periods indicated, as reported in published financial journals or
otherwise available from NASDAQ. The price quotations below reflect
interdealer prices, without retail mark-up, mark-down or commission and
may not necessarily reflect actual transactions.
High Low
Fiscal Year 1994:
First Quarter 3 9/16 2 1/2
Second Quarter 3 1/4 1 1/2
Third Quarter 2 5/16 1
Fourth Quarter 2 3/8 1 3/8
Fiscal Year 1995:
First Quarter 2 7/16 1 15/16
Second Quarter 1 15/16 1 1/4
Third Quarter 1 5/8 25/32
Fourth Quarter 2 1/2 3/4
Fiscal Year 1996:
First Quarter
(through September 22, 1995) 2 21/32 1 1/2
As of September 22, 1995, there were 30,562,613 shares of Common
Stock outstanding, held of record by approximately 2,500 stockholders.
The Company has never declared or paid any cash dividends on its
capital stock. The Company's present policy is to retain earnings to
finance expansion and growth, and no change in the policy is anticipated.
In addition, the terms of the Company's loan agreement with its lender
prohibit the Company from payment of cash dividends on its capital stock.
As a result, it is not anticipated that cash dividends will be paid in the
foreseeable future.
On July 31, 1992, the Board of Directors of the Company declared a
dividend distribution of one Right for each outstanding share of Common
Stock and then outstanding Convertible Preferred Stock of the Company to
stockholders of record at the close of business on August 14, 1992. Each
Right entitles the registered holder to purchase from the Company one one-
hundredth of a share of Series A Participating Cumulative Preferred Stock,
par value $.01 per share, at a cash purchase price of $30.00 per Right,
subject to adjustment, which become exercisable upon the occurrence of
certain events. (See Note 16 of Notes to Consolidated Financial
Statements.)
Item 6. SELECTED FINANCIAL DATA
This information is set forth in the Selected Financial Data section of
the Consolidated Financial Statements in Item 8.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
This information is set forth in the Management's Discussion and
Analysis of Financial Conditions and Results of Operations section
of the Consolidated Financial Statements in Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data for
Concurrent are attached and incorporated into Item 8.
Report of Independent Accountants
Consolidated Statements of Operations for the years ended June 30, 1995,
1994 and 1993
Consolidated Balance Sheets as of June 30, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity (deficiency) for the years
ended June 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Selected Financial Data
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Registrant hereby incorporates by reference in this Form 10-K
certain information contained under the caption "Election of Directors" in
Registrant's Proxy Statement to be dated October 1, 1995 in connection
with its Annual Meeting of Stockholders to be held on November 1, 1995
("Registrant's 1995 Proxy Statement").
(b) Identification of Executive Officers
The information called for hereunder is included in Part I of this
Form 10-K under the caption "Executive Officers of Registrant".
(c) Identification of Certain Significant Employees
Not applicable.
(d) Family Relationships
There is no family relationship between any director and/or executive
officer of the Company.
(e) Business Experience
The Registrant hereby incorporates by reference in this Form 10-K
certain information contained under the caption "Election of Directors" in
Registrant's 1995 Proxy Statement with respect to the business experience
of Registrant's directors. The information called for by this Item 10
with respect to executive officers of Registrant is included in Part I of
this Form 10-K under the caption "Management".
(f) Involvement in Certain Legal Proceedings
The Registrant hereby incorporates by reference in this Form 10-K
certain information contained under the caption "Election of Directors" in
Registrant's 1995 Proxy Statement.
(g) Compliance with Section 16(a) of the Exchange Act
The Registrant hereby incorporates by reference in this Form 10-K
certain information contained under the caption "Election of Directors" in
Registrant's 1995 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 1995 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
The Registrant hereby incorporates by reference in this Form 10-K
certain information contained under the caption "Principal Stockholders"
in Registrant's 1995 Proxy Statement.
(b) Security Ownership of Management.
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Election of Directors" in Registrant's
1995 Proxy Statement.
(c) Changes in Control
The Registrant knows of no contractual arrangements, including any
pledge by any person of securities of the Registrant, the operation of
which may at a subsequent date result in a change in control of the
Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant hereby incorporates by reference in this Form 10-K
certain information contained under the captions "Security Ownership of
Certain Beneficial Owners and Management," "Election of Directors" and
"Executive Compensation" in Registrant's 1995 Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements filed as part of this report:
Report of Independent Accountants
Consolidated Statements of Operations for the years ended June 30, 1995,
1994 and 1993
Consolidated Balance Sheets as of June 30, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity (deficiency) for the years
ended June 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Selected Financial Data
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other financial statements and schedules not listed have been
omitted since the required information is included in the Consolidated
Financial Statements or the Notes thereto, or is not applicable, material
or required.
(3) Exhibits
Exhibit No. Description
4.1 Restated Certificate of Incorporation of the Company. (a)
4.2 Form of Warrant and Registration Rights Agreement to be dated
as of the closing of the Offering attached as an Annex to the "lock-up"
agreements with the holders of Convertible Preferred Stock that have
entered into lock-up agreements.(a)
4.3 Rights Agreement dated as of July 31, 1992 between the Company
and The First National Bank of Boston, as rights agent.(b)
10.1(a) 1991 Restated Stock Option Plan.(c)
10.1(b) Amendment No. 1 to 1991 Restated Stock Option Plan.(c)
10.2(a) Employee Stock Purchase Plan.(c)
10.2(b) Amendment No. 1 to Employee Stock Purchase Plan.(d)
10.3 Retirement Savings Plan (f/k/a Profit Sharing and Savings
Plan) of former Concurrent dated August 1, 1985, as restated.(e)
10.4 Form of Severance Agreement between the Company and its
executive officers. All agreements contain substantially the same terms
other than annual base salary and annual target bonus percentage.(f)
10.5 Form of Incentive Stock Option Agreement between the Company and
its executive officers. All agreements contain the same terms
with the exception of the number or shares subject to the option and the
vesting schedules.(g)
10.6(a) Amended and Restated Credit Agreement dated October 11,
1991 among the Company and the banks named therein, as amended by
Amendment No. 1 dated November 14, 1991.(h)
10.6(b) Amendment No. 2 dated as of January 13, 1992 to Amended and
Restated Credit Agreement. (g)
10.6(c) Amendment No. 3 dated as of March 1, 1993 to Amended and
Restated Credit Agreement. (f)
10.7(a) Second Amended and Restated Credit Agreement.(i)
10.7(b) Amendment No. 1 dated September 28, 1993 to Second Amended
and Restated Credit Agreement. (i)
10.7(c) Amendment No. 2 dated November 10, 1993 to Second Amended
and Restated Credit Agreement. (j)
10.7(d) Amendment No. 3 dated November 18, 1993 to Second Amended
and Restated Credit Agreement. (j)
10.7(e) Amendment No. 4 dated February 18, 1994 to Second Amended
and Restated Credit Agreement. (j)
10.7(f) Amendment No. 5 dated August 19, 1994 to Second Amended and
Restated Credit Agreement. (j)
10.7(g) Amendment No. 6 dated February 28, 1995 to Second Amended
and Restated Credit Agreement.
10.7(h) Amendment No. 7 dated March 31, 1995 to Second Amended and
Restated Credit Agreement.
10.7(i) Third Amended and Restated Credit Agreement dated June 29,
1995
10.8 (a) Slough, England real property lease.(k)
10.8 (b) Form of renewal agreement of Slough, England real property
lease.(i)
10.9 Lease dated June 30, 1992 between WRC Properties, Inc. (Lessor) and
the Company (Lessee) in connection with Westford, Massachusetts office space.
(i)
10.10 AT&T Information Systems Sublicensing Agreement.(a)
10.11 Loan and Security Agreement dated June 29, 1995 between the
Company and the lender named therein.
11.0 Statement re computation of per share earnings.
22.0 Subsidiaries of Registrant.
24.1 Consent of Coopers & Lybrand L.L.P.
__________
(a) Incorporated herein by reference to the Exhibits to the Company's
Amendment No. 3 to Registration Statement on Form S-2 dated July 14, 1993
(No. 33-62440).
(b) Incorporated herein by reference to the Company's Current Report on
Form 8-K dated August 20, 1992 (File No.0-13150).
(c) Incorporated herein by reference to Notice of 1991 Annual Meeting of
Stockholders and Proxy Statement, dated January 10, 1992. (File No. 0-
13150.)
(d) Incorporated by reference to Notice of 1992 Annual Meeting of
Stockholders and Proxy Statement, dated October 2, 1992. (File No. 0-13150.)
(e) Incorporated herein by reference to Exhibit Number 10 of Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended July 2,
1988.
(f) Incorporated herein by reference to Exhibit Number 10 of Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1991. (File No. 0-13150.)
(g) Incorporated herein by reference to the Exhibits to the Company's
Amendment No. 1 to Registration Statement on Form S-1 dated April 20,
1992. (No. 33-45871).
(h) Incorporated hereby by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1991.
(i) Incorporated herein by reference to Exhibit Number 10 of Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1993. (File No. 0-13150).
(j) Incorporated herein by reference to Exhibit Number 10 of Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1994. (File No. 0-13150).
(k) Incorporated herein by reference to Exhibit Number 10 of Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1989. (File No. 0-13150.)
(l) Incorporated herein by reference to Exhibit Number 10 of Item 14 of
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1992. (File No. 0-13150).
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
Date: September 27, 1995 By: /s/ Kevin J. Dell
Kevin J. Dell
Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of
Registrant and in the capacities and on the date indicated.
Name Capacity
/s/ John T. Stihl Chairman of the Board,
John T. Stihl President and Chief
Executive Officer
/s/ Roger J. Mason Vice President, Finance
Roger J. Mason and Treasurer
Chief Financial
Officer
/s/ Michael A. Brunner Director
Michael A. Brunner
/s/ Kevin N. Clowe Director
Kevin N. Clowe
/s/ C. Forbes Dewey, Jr. Director
C. Forbes Dewey, Jr.
/s/ Morton E. Handel Director
Morton E. Handel
/s/ Richard P. Rifenburgh Director
Richard P. Rifenburgh
/s/ Robert R. Sparacino Director
Robert R. Sparacino
Date: September 27, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors
of Concurrent Computer Corporation
We have audited the accompanying consolidated balance sheets of
Concurrent Computer Corporation as of June 30, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity
(deficiency) and cash flows for each of the three years in the period
ended June 30, 1995, and the financial statement schedules listed in Item
14(a) of the Company's 1995 Annual Report on Form 10-K. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Concurrent Computer Corporation as of June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles. In addition, in our opinion,
the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
therein.
As discussed in Notes 11 and 14 to the consolidated financial
statements, in 1994 the Company changed its method of accounting for
income taxes and changed its method of accounting for postretirement
benefits other than pensions.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
August 15, 1995,
except for Note 19, as to which
the date is September 26, 1995
CONCURRENT COMPUTER CORPORATION
FINANCIAL STATEMENTS
Concurrent Computer Corporation
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Year Ended June 30,
1995 1994* 1993*
Net sales:
Computer systems $72,074 $100,293 $132,883
Service and other 68,070 78,738 87,581
Total 140,144 179,031 220,464
Cost of sales:
Computer systems 38,639 54,517 59,961
Service and other 40,838 48,473 55,662
Total 79,477 102,990 115,623
Gross margin 60,667 76,041 104,841
Operating expenses:
Research and development 19,464 23,823 26,824
Selling, general and administrative 36,921 48,651 59,279
Provision for restructuring 3,200 12,000 -
Sales and use tax credit (1,000) (1,440) -
Total operating expenses 58,585 83,034 86,103
Operating income (loss) 2,082 (6,993) 18,738
Interest expense (2,638) (3,486) 13,553)
Interest income 513 634 1,167
Other non-recurring charge (1,000) - -
Other income (expense) - net 737 (486) (183)
Income (loss) before provision for income taxes,
extraordinary loss and cumulative effect of change
in accounting principles (306) (10,331) 6,169
Provision for income taxes 1,700 1,300 2,300
Income (loss) before extraordinary loss and
cumulative effect of change in accounting
principles (2,006) (11,631) 3,869
Extraordinary loss on early extinguishment
of debt - (23,193) -
Cumulative effect of change in accounting
principles for income taxes and
postretirement benefits - (5,000) -
Net income (loss) ($2,006) ($39,824) $3,869
Income (loss) per share:
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principles ($0.07) ($0.41) $0.40
Extraordinary loss on early
extinguishment of debt - (0.83) -
Cumulative effect of change in
accounting principles for income taxes
and postretirement benefits - (0.18) -
Net income (loss) ($0.07) ($1.42) $0.40
* Reclassified to conform to current year presentation.
The accompanying notes are an integral part of the consolidated financial
statements.
Concurrent Computer Corporation
Consolidated Balance Sheets
(Dollars in thousands)
June 30, June 30,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $5,728 $9,374
Accounts receivable, less allowance
for doubtful accounts of
$1,434-1995; $3,405-1994 25,456 34,519
Inventories 14,510 17,829
Prepaid expenses and other
current assets 4,303 5,334
Total current assets 49,997 67,056
Property, plant and equipment - net 38,567 42,742
Other long-term assets 9,795 13,372
Total assets $98,359 $123,170
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $6,716 $5,749
Current portion of long-term debt 1,529 11,000
Revolving credit facility 5,761 -
Accounts payable and accrued expenses 29,285 44,687
Deferred revenue 4,841 6,236
Total current liabilities 48,132 67,672
Long-term debt 9,536 13,240
Other long-term liabilities 5,521 7,210
Commitments and contingencies - -
Stockholders' equity
Shares of preferred stock,
par value $0.01; authorized
25,000,000 - -
Shares of common stock,
par value $0.01; authorized
100,000,000; issued
30,208,276-1995 and 29,585,388-1994 302 296
Capital in excess of par value 73,112 71,547
Accumulated deficit after
eliminating accumulated deficit of
$81,826 at December 31, 1991, date
of quasi-reorganization (37,028) (35,022)
Shares of treasury stock, at cost;
840 shares (58) (58)
Cumulative translation adjustment (1,158) (1,715)
Total stockholders' equity 35,170 35,048
Total liabilities and stockholders'
equity $98,359 $123,170
The accompanying notes are an integral part of the consolidated financial
statements.
Concurrent Computer Corporation
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years Ended June 30,
1995 1994* 1993*
Cash flows provided by (used by) operating
activities:
Net income/(loss) ($2,006) ($39,824) $3,869
Adjustments to reconcile net income/(loss)
to net cash provided by (used by)
operating activities:
Depreciation, amortization and other 12,284 12,527 13,503
Provision for inventory reserves 5,037 4,461 1,840
Non-cash taxes related to the utilization
of net operating loss carryforwards
which originated prior to the Company's
quasi-reorganization, effected on
December 31, 1991 300 - 572
Non-cash interest and amortization of
financing costs 450 1,061 9,265
Extraordinary loss on early extinguishment
of debt - 23,193 -
Cumulative effect of change in accounting
principles - 5,000 -
Provision for restructuring 3,200 12,000 -
Other non-recurring charge 1,000 - -
Sales and use tax credit (1,000) (1,440) -
Decrease (increase) in current assets:
Accounts receivable 10,431 3,690 4,782
Inventories (2,044) (319) (3,881)
Prepaid expenses and other current
assets 998 1,238 1,698
Decrease in current liabilities, other
than debt obligations (18,017) (14,797) (2,361)
Decrease (increase) in other long-term
assets 599 (1,790) 391
(Decrease) increase in other long-term
liabilities (1,983) 193 (264)
Total adjustments to net income/(loss) 11,255 45,017 25,545
Net cash provided by operating activities 9,249 5,193 29,414
Cash flows used by investing activities:
Additions to property, plant and equipment (5,140) (7,584) (10,569)
Cash flows provided by (used by) financing
activities:
Net proceeds (payments) of notes payable (100) 2,511 588
Repayment of long-term debt (23,395) (76,602) (8,460)
Issuance of long-term debt 15,761 708 -
Net proceeds from sale and issuance of
common stock 150 55,001 291
Net cash used by financing activities (7,584) (18,382) (7,581)
Effect of exchange rate changes on cash
and cash equivalents (171) (275) (1,453)
Increase (decrease) in cash and cash
equivalents ($3,646) ($21,048) $9,811
Cash and cash equivalents - Beginning of year $9,374 $30,422 $20,611
Cash and cash equivalents - End of year $5,728 $9,374 $30,422
Cash paid during the period for:
Interest $2,256 $2,731 $4,282
Income taxes (net of refunds) $727 $659 $1,510
* Reclassified to conform to current year presentation.
The accompanying notes are an integral part of the consolidated financial
statements.
Concurrent Computer Corporation
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
Preferred Stock Common Stock Capital in Accumulated Cumulative
Par Par Excess of Earnings Translation Treasury Stock
Shares Value Shares Value Par Value (Deficit) Adjustment Shares Cost Total
Balance
June 30, 1992 6,983,284 $70 2,171,883 $22 $14,237 $933 ($465) (840) ($58) $14,739
Sale of common stock
under stock plans 67,021 1 284 285
Issuance of common
stock under retirement
savings plan 336,404 3 527 530
Conversion of preferred
stock (1,578) 1,578 -
Other 2,140 6 6
Net income 3,869 3,869
Foreign currency trans-
lation adjustment (1,498) (1,498)
Quasi-reorganization
related adjustments:
Utilization of net
operating loss
carryforwards 572 572
Balance June 30,
1993 6,981,706 70 2,579,026 26 15,626 4,802 (1,963) (840) (58) 18,503
Issuance of common
stock under retirement
savings plan 324,377 3 1,057 1,060
Issuance of common
stock 19,700,000 197 54,803 55,000
Conversion of preferred
stock (6,981,706) (70) 6,981,706 70 -
Other 279 61 61
Net loss (39,824) (39,824)
Foreign currency trans-
lation adjustment 248 248
Balance June 30,
1994 - - 29,585,388 296 71,547 (35,022) (1,715) (840) (58) 35,048
Sale of common stock
under stock plans 85,358 1 149 150
Issuance of common
stock under retirement
savings plan 368,823 3 762 765
Issuance of common
stock under bonus plan 168,707 2 324 326
Other 30 30
Net loss (2,006) (2,006)
Foreign currency trans-
lation adjustment 557 557
Quasi-reorganization
related adjustments:
Utilization of net
operating loss
carryforwards 300 300
Balance June 30,
1995, - - 30,208,276 $302 $73,112 ($37,028) ($1,158) (840) ($58) $35,170
The accompanying notes are an integral part of the consolidated financial statements.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
During fiscal year 1995, the Company continued to experience a decline
in net sales. Despite the decline, operating income improved by
approximately $9.1 million and net cash from operations improved by
approximately $4.1 million as a result of the Company's productivity
improvements, restructuring and ongoing cost reduction initiatives.
The Company continues to manage its resources and to focus its revenue
generating activities with the objectives to achieve growth and
improve profitability. In addition, the Company recently completed a
refinancing of its bank term loan providing the Company with reduced
debt service payments and less stringent financial covenant compliance
requirements (see Note 3). The Company continues to pursue various
additional financing alternatives, including a sale/leaseback of its
Oceanport, New Jersey facility (see Note 19), to further improve its
financial flexibility. The Company believes that it will be able to
meet its obligations when due through its operating and financing
efforts.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all
majority-owned domestic and foreign subsidiary companies. All
intercompany transactions and balances have been eliminated.
Foreign Currency
The functional currency of substantially all of the Company's foreign
subsidiaries is the applicable local currency. The translation of the
applicable foreign currencies into U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the
balance sheet date and for revenue and expense accounts using average
rates of exchange prevailing during the fiscal year. Adjustments
resulting from the translation of foreign currency financial
statements are accumulated in a separate component of stockholders'
equity until the entity is sold or substantially liquidated. Gains or
losses resulting from foreign currency transactions are included in
the results of operations, except for those relating to intercompany
transactions of a long-term investment nature which are accumulated in
a separate component of stockholders' equity.
Gains (losses) on foreign currency transactions of $175,000,
($360,000) and $606,000 for the fiscal years ended June 30, 1995, 1994
and 1993, respectively, are included in Other income (expense) - net.
2. Summary of Significant Accounting Policies, Continued
Cash and Cash Equivalents
For financial statement purposes, short-term investments with original
maturities of ninety days or less from 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. Such
short-term investments amounted to $480,000 and $2,591,000 at June 30,
1995 and 1994, respectively.
At June 30, 1995, the Company had $684,000 of restricted cash
primarily supporting building rental deposits.
Inventories
Inventories are stated at the lower of cost or market, with cost determined on
the first-in, first-out basis.
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
Computer systems sales (hardware and software, including bundled
software) are recorded when the earnings process is complete,
typically upon shipment to customers.
Service contract revenue related to hardware and software is recognized
separately and as earned over the respective maintenance period in
accordance with the terms of the applicable contract.
Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal
income tax return. Certain items of revenue and expense are reported
for Federal income tax purposes in different periods than for
financial reporting purposes and are accounted for under the asset and
liability method as required by the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS No. 109").
2. Summary of Significant Accounting Policies, Continued
Income Taxes, Continued
On July 1, 1993, the Company adopted the provisions of FAS No. 109.
This standard requires a change from the deferred method to 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. Prior
years' financial statements have not been restated.
The cumulative effect of adopting this standard resulted in the
Company recording a $2.0 million non-cash charge reducing its deferred
tax assets as of the date of adoption.
Capitalized Software
The Company, in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed", commences capitalization of
software production costs upon the achievement of technological
feasibility and ceases capitalization upon the achievement of customer
availability. Such costs are amortized over the greater of the ratio
of the product's current to total revenue stream or the straight-line
method over its estimated useful life. Such amortization period
generally does not exceed three years. For the years ended June 30,
1995, 1994 and 1993, amortization expense relating to software
production costs which is included as a component of cost of sales
amounted to $1,160,000, $445,000 and $436,000, respectively.
Accumulated amortization amounted to $1,325,000 and $165,000,
respectively, at June 30, 1995 and 1994. Capitalized software (net)
amounted to $965,000 and $1,985,000 at June 30, 1995 and 1994,
respectively.
Research and Development
Research and development expenditures, other than capitalized
software, are expensed when incurred.
Income (Loss) per Share
Primary earnings per share (including convertible participating
preferred stock, dilutive stock options and common stock purchase
warrants) is computed on the basis of the weighted average number of
common shares outstanding during each year and includes shares assumed
issued upon the exercise of all dilutive stock options and common
stock purchase warrants and the purchase of treasury stock with the
proceeds at the average market price for the period.
2. Summary of Significant Accounting Policies, Continued
Income (Loss) per Share, Continued
Fully diluted earnings per share assumes the exercise of all dilutive
stock options and common stock purchase warrants and the purchase of
treasury stock at the higher of the market price at the end of the
year or the average market price during the year. For fiscal year
1993, the computation of fully diluted earnings per share did not have
a dilutive effect on earnings per share.
The number of shares used in computing income (loss) per share was
30,095,000, 28,054,000 and 9,765,000 for the years ended June 30,
1995, 1994 and 1993, respectively.
Supplemental income per share for the year ended June 30, 1993 was
calculated assuming the Company's comprehensive refinancing (as
described in Note 4) took place on July 1, 1992. The Company's
supplemental net income per share for the year ended June 30, 1993 was
$0.32.
Postretirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS No. 106"). This
standard requires companies to accrue postretirement benefits
throughout the employees' active service periods until they attain
full eligibility for those benefits. The transition obligation (the
accumulated postretirement benefit obligation at the date of adoption)
may be recognized either immediately or by amortization over the
longer of the average remaining service period for active employees or
20 years.
In connection with the adoption of this standard, the Company recorded
a non-cash charge of $3.0 million representing the immediate
recognition of the accumulated postretirement benefit obligation at
the date of adoption.
3. Debt and Lines of Credit
On June 29, 1995, the Company completed a refinancing of its then
outstanding $15.4 million existing bank term loan (the "Existing
Term Loan"), excluding up to $3.0 million in standby letters of
credit in connection with overseas lines of credit which remain in
place. In connection with this refinancing, the Company has entered
into a new agreement providing for a $18.0 million credit facility.
The facility includes a $10.0 million term loan (the "Term Loan")
and a $8.0 million revolving credit facility (the "Revolver").
3. Debt and Lines of Credit, Continued
At June 30, 1995, the outstanding balances under the Term Loan and
the Revolver were $10.0 and $5.8 million, respectively. The
outstanding balance of the Revolver has been classified as a current
liability at June 30, 1995. Both the Term Loan and the Revolver
bear interest at the prime rate plus 2.0%. The Term Loan is payable
in 36 equal monthly installments of $139,000 each, commencing August
1, 1995, with a final payment of approximately $5.0 million payable
August 1, 1998. The Revolver may be repaid and reborrowed, subject
to certain collateral requirements, at any time during the term
ending August 1, 1998. The Company has pledged substantially all of
its domestic assets as collateral for the Term Loan and the
Revolver. The Company may repay the Term Loan at any time without
penalty. In the event of a sale or sale/leaseback of its Oceanport
and Tinton Falls facilities, the Company is required to make a
prepayment of the Term Loan up to an amount equal to 75% of the net
sale proceeds. Certain early termination fees apply if the Company
terminates the facility in its entirety prior to August 1, 1998.
The new agreement 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 on a periodic basis, the most
restrictive of which relate to the maintenance of collateral
coverage and debt coverage all as defined in the agreement. In
addition, the new agreement contains a subjective provision
entitling the lender to accelerate payments under the Term Loan and
Revolver.
At June 30, 1994, the outstanding balance under the Existing Term
Loan, which resulted from modifications of a previous term loan in
connection the 1993 Refinancing (defined in Note 4), was $23.0
million and bore interest, at the Company's option, at an annual
rate equal to either the prime rate plus 1.0%, or the London
Interbank Offered Rate (LIBOR) plus 3.0%. The Existing Term Loan
was payable in 24 equal monthly installments of $687,500 each,
commencing July 30, 1993, with a final payment of $12.0 million
(reduced from $15 million) payable October 1, 1995. The Company had
pledged substantially all of its domestic assets as collateral for
the Existing Term Loan. The Company was able to prepay the Existing
Term Loan at any time without penalty.
Since the 1993 Refinancing, the Existing Term Loan was amended from
time to time to provide the Company with greater financial flexibility.
The various amendments provided for amendments to and
waivers of certain financial covenants, deferrals of certain
scheduled debt payments, extension of the maturity date from June
30, 1995 to October 1, 1995, up to $3.0 million in standby letters
of credit in connection with overseas lines of credit and the
issuance of 600,000 stock purchase warrants to the banks with an
exercise price per share of $1.50 which was equal to the then fair
market value. The warrants expired unexercised on September 30,
1994.
3. Debt and Lines of Credit, Continued
Although the Company's original term loan agreement was terminated
as part of the recapitalization of the Company in November 1991, the
terms of an interest rate swap agreement remained in effect until it
was bought-out in connection with the 1993 Refinancing. The fixed
rate under the swap agreement resulted in additional interest
expense of $822,000 for the year ended June 30, 1993.
The net proceeds of the 1993 Refinancing ($55.0 million) together
with $11.9 million of Company cash were used to redeem in full the
Subordinated Debt. The Subordinated Debt of $55 million in
principal amount issued on November 22, 1991 bore interest at an
annual rate of 12.08%, payable semi-annually on March 15 and
September 15 and payable in additional Subordinated Debentures in
lieu of cash for up to the first three years, but not less than the
first two years.
The principal amount of the Subordinated Debt, including notes
issued in lieu of payment of cash interest, was payable in a lump
sum at maturity on December 31, 1997. Subordinated Debt issued and
accrued in lieu of cash interest amounted to approximately $0.6
million and $7.4 million for the years ended June 30, 1994 and 1993,
respectively.
The Company's foreign subsidiaries have certain bank borrowing
arrangements in local currencies which provide for borrowings of up
to $8,861,000 at prevailing rates of interest ranging from 2.375% to
9.4% at June 30, 1995. At June 30, 1995, $6,716,000 of demand notes
were outstanding under such arrangements of which $3,375,000 is
guaranteed by the minority shareholder in the Company's Japanese
subsidiary and $2,749,000 is guaranteed by the Company. Foreign
unused lines of credit can be withdrawn at any time at the option of
either the Company or the lending institutions.
Annual maturities of all the Company's debt for the fiscal years
ended June 30, 1996 through 2000, and thereafter, are as follows:
(Dollars in thousands)
Annual
Maturities
1996 $14,006
1997 2,048
1998 2,108
1999 5,380
2000 -
Thereafter -
Total $23,542
4. Refinancing
On July 21, 1993, the Company completed a comprehensive refinancing
(the "1993 Refinancing"). The 1993 Refinancing consisted of the
following: a) the sale and issuance of 19,700,000 shares of common
stock, with a par value of $0.01, at a price of $3.00 per share for
$59.1 million less issuance costs of approximately $4.1 million (the
"Offering"); b) the modification of the Company's then existing bank
term loan to, among other things, extend the maturity date and reduce
the interest rate; and c) the conversion of all of the 6,981,706
outstanding shares of the Company's convertible participating
preferred stock (the "Convertible Preferred Stock") into shares of
common stock at a ratio of one to one.
The net proceeds of the Offering ($55.0 million) together with $11.9
million of Company cash were used to redeem in full the Company's
outstanding 12.08% Senior Subordinated Notes due 1997 (the
"Subordinated Debt") at face amount, plus accrued interest, as of July
21, 1993. The Subordinated Debt was originally recorded with an
original issue discount resulting in an effective yield-to-maturity of
25%. The redemption of the Subordinated Debt resulted in an
extraordinary charge reducing net income by $23.2 million during the
first quarter of fiscal year 1994 based on an aggregate cash
redemption price of $66.9 million and a book value of $43.7 million.
The 1993 Refinancing, including the effect of the redemption of the
Subordinated Debt and related $23.2 million extraordinary charge,
resulted in a $31.8 million increase to stockholders' equity as of the
date the transactions were completed.
The extraordinary loss on the early extinguishment of debt is
determined as follows:
(Dollars in thousands)
Face amount of Subordinated Debt $64,206
Accrued interest on Subordinated Debt 2,715
Sub-total 66,921
Book value of Subordinated Debt (43,728)
Extraordinary loss $23,193
The extraordinary loss on the early extinguishment of debt did not
result in the recognition of a tax benefit due to a difference in the
financial reporting and tax bases of the underlying subordinated
debt.
5. Provision for Restructuring
In January 1995 and April 1995, the Company's senior management
approved plans to restructure its operations. The restructuring
plans provided for a reduction of approximately 175 worldwide
employees and the downsizing or closing of office locations. In
connection with the restructurings, the Company recorded a $2.7
million and a $0.5 million provision for restructuring during the
quarters ended March 31, 1995 and June 30, 1995, respectively. The
provision during the quarter ended March 31, 1995 is net of a $0.5
million release of an excess restructuring reserve previously
recorded during the three months ended September 30, 1993. The
provision includes employee terminations in positions ranging from
the staff level to the middle management level, office closings or
downsizings and other related costs which represented approximately
60%, 30% and 10% of the provision, respectively. During the year
ended June 30, 1995, the actual cash payments related to the 1995
restructurings amounted to approximately $2.4 million and were
primarily related to employee termination costs.
During the three months ended September 30, 1993, the Company
recorded a provision for restructuring of $12.0 million in connection
with its operational restructuring to reduce its worldwide cost
structure. The provision included employee terminations, office
closings or downsizings and other related costs which represented
approximately 65%, 25% and 10% of the provision, respectively.
6. Change in Accounting Estimate
During the three months ended December 31, 1994 and 1993, the Company
recorded a sales and use tax credit of $1.0 million, or $0.03 per
share, and $1.4 million, or $0.05 per share, respectively, related to
a change in the estimate of state sales and use tax reserves based on
a final state audit determination.
7. Concentration of Credit Risk
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.
8. Inventories
Inventories consist of:
(Dollars in thousands)
1995 1994
Raw Materials $ 7,111 $ 9,270
Work-in-process 753 2,872
Finished goods 6,646 5,687
$14,510 $17,829
9. Property, Plant and Equipment and Other Long-Term Assets
Property, plant and equipment consists of:
(Dollars in thousands)
1995 1994
Land $ 5,346 $ 5,275
Buildings 17,158 16,530
Machinery and equipment 53,636 47,581
76,140 69,386
Less: Accumulated depreciation (37,573) (26,644)
$38,567 $42,742
For the years ended June 30, 1995, 1994 and 1993, depreciation and
amortization expense for property plant and equipment amounted to
$10,641,000, $11,685,000 and $12,668,000 respectively.
10. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of:
(Dollars in thousands)
1995 1994
Accounts payable - trade $11,023 $13,327
Accrued payroll, vacation and other
employee expenses 8,510 12,775
Restructuring costs 2,568 6,274
Other accrued expenses 7,184 12,311
$29,285 $44,687
11. Income Taxes
On July 1, 1993, the Company adopted the provisions of FAS No. 109.
The cumulative effect of adopting this standard resulted in the
Company recording a $2.0 million non-cash charge reducing its
deferred tax assets as of the date of adoption. Prior years'
financial statements have not been restated.
The domestic and foreign components of income (loss) before
provision for income taxes, extraordinary gain (loss) on early
extinguishment of debt, and the cumulative effect of change in
accounting principles are as follows:
(Dollars in thousands)
1995 1994 1993
United States $ (4,705) $ (5,758) $ 5,797
Foreign 4,399 (4,573) 372
$ (306) $(10,331) $ 6,169
The components of the provision for income taxes are as follows:
(Dollars in thousands)
1995 1994 1993
Current:
Federal $ - $ - $ 300
Foreign 1,700 1,300 1,692
State - - 72
Total $ 1,700 $ 1,300 $2,064
Deferred:
Federal $ - $ - $ -
Foreign - - 236
State - - -
Total $ - $ - $ 236
Total $1,700 $ 1,300 $2,300
11. Income Taxes, Continued
For the fiscal years ended June 30, 1995 and 1993, the current
provision for income taxes includes an equivalent charge of $300,000
and $572,000, respectively, which was fully offset in capital in
excess of par value due to the utilization of tax loss carryforwards
which originated prior to the Company's quasi-reorganization,
effected on December 31, 1991.
A reconciliation of the Federal statutory tax provision to the
Company's provision for income taxes is as follows:
(Dollars in thousands)
1995 1994 1993
Income (loss) before provision for
income taxes, extraordinary gain
(loss) and cumulative effect of
change in accounting principles $ (306) $(10,331) $ 6,169
Tax at Federal statutory rate (104) (3,513) 2,097
U.S. Federal and non U.S. net
operating losses for which no
tax benefit was recorded 2,890 4,466 1,472
Difference between U.S. and non
U.S. income tax rates (1,146) 10 329
Tax benefit related to permanent
differences - - (1,496)
State income tax - - 54
Other 60 337 (156)
Provision for income taxes 1,700 $ 1,300 $ 2,300
As of June 30, 1995 and 1994, the Company's deferred tax assets were
comprised of the following:
(Dollars in thousands)
June 30, June 30,
1995 1994
Gross deferred tax assets related to:
Net operating loss carryforwards $37,740 $34,170
Accumulated depreciation 3,737 5,042
Restructuring reserves 3,253 4,276
Inventory reserves 3,300 3,557
Accrued compensation 931 1,544
Post-retirement benefits 928 1,010
Other 2,426 3,009
Total Gross deferred tax assets 52,315 52,608
Valuation Allowance (52,315) (52,608)
Net deferred tax assets $ 0 $ 0
11. Income Taxes, Continued
During fiscal year 1994, the deferred tax liability related to the
Company's Subordinated Debt was reversed upon the early extinguishment
of such debt. In connection with this reversal, the Company recorded
a corresponding increase to its deferred tax asset valuation
allowance.
As of June 30, 1995, the Company has remaining net operating loss
carryforwards of approximately $104 million for income tax purposes.
Approximately $61 million of these net operating loss carryforwards
originated prior to the Company's quasi-reorganization, effected on
December 31, 1991. In addition, approximately $9 million of these net
operating loss carryforwards originated subsequent to the Company's
quasi-reorganization through the date of the 1993 Refinancing.
Any future benefits attributable to the net operating loss
carryforwards which originated prior to the Company's quasi-
reorganization are accounted for through adjustments to capital in
excess of par value. Under the changes in ownership provisions of
Section 382 of the Internal Revenue Code,
future benefits attributable to the net operating loss carryforwards
and tax credits which originated prior to the quasi-reorganization
are limited to approximately $1.3 million per year and those which
originated subsequent to the Company's quasi-reorganization through
the date of the 1993 Refinancing are limited to approximately $0.3
million per year. The Company's net operating loss carryforwards
begin to expire in 2004. As of June 30, 1995, after giving effect to
the aforementioned Internal Revenue Code limitation, the Company has
remaining utilizable net operating loss carryforwards of approximately
$66 million for income tax purposes.
Deferred income taxes have not been provided on approximately $10
million of undistributed earnings of foreign subsidiaries, which
originated subsequent to the Company's quasi-reorganization, primarily
due to either the Company's required investment in certain
subsidiaries or foreign tax rates which exceed the U.S. tax rate.
Additionally, deferred income taxes have not been provided on
approximately $3 million of undistributed earnings of foreign
subsidiaries which originated prior to the Company's quasi-
reorganization. The impact of both the subsequent repatriation of
such earnings and the resulting offset, in full, from the utilization
of net operating loss carryforwards will be accounted for through
adjustments to capital in excess of par value. The Company has
sufficient net operating loss carryforwards remaining to offset such
subsequent repatriation.
12. Geographic Information
Below is a summary of the Company's 1995, 1994 and 1993 financial data
by geographic area.
Dollars in thousands)
1995 1994 1993
Net Sales:
United States $ 75,362 $106,256 $141,355
Intercompany 15,265 17,241 20,938
90,627 123,497 162,293
Europe 39,431 43,807 47,031
Intercompany 127 38 19
39,558 43,845 47,050
Asia/Pacific 14,100 14,380 16,051
Japan 7,818 11,759 12,299
Other 3,433 2,829 3,728
25,351 28,968 32,078
155,536 196,310 241,421
Eliminations (15,392) (17,279) (20,957)
Total $140,144 $179,031 $220,464
Operating income (loss):
United States $ (2,398) $ (3,836) $ 18,440
Europe 4,602 (2,432) (493)
Asia/Pacific 3,809 2,010 2,237
Japan (1,792) (103) 493
Other 863 853 1,050
General corporate expenses (2,741) (2,976) (3,179)
Eliminations (261) (509) 190
Total $ 2,082 $ (6,993) $ 18,738
1995 1994
Identifiable assets:
United States $106,510 $128,147
Europe 24,493 26,748
Asia/Pacific 7,441 6,115
Japan 11,559 12,113
Other 1,807 1,815
Corporate 5,489 8,285
Eliminations (58,940) (60,053)
Total $ 98,359 $123,170
12. Geographic Information, 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 $66,913,000, $73,893,000 and
$83,134,000 for the years ended June 30, 1995, 1994 and 1993,
respectively, which amounts represented 48%, 41%, and 38% of total
sales for the respective years.
Sales to the U.S. Government and its agencies amounted to
$39,207,000, $54,757,000 and $64,340,000, respectively, for the years
ended June 30, 1995, 1994 and 1993, which amounts represented 28%,
31% and 29% of total sales for the respective years. The Company's
revenues are derived from various customer sources including Unisys
Corp., the prime contractor under the U.S. Department of Commerce's
Next Generation Radar (NEXRAD) program and the U.S. Department of
Commerce under the NEXRAD program. Sales to Unisys Corp. amounted to
$7,473,000, $22,245,000 and $35,723,000, respectively, for the years
ended June 30, 1995, 1994 and 1993, which amounts represented 5%, 12%
and 16%, respectively, of total revenues. Sales directly to U.S.
Department of Commerce amounted to $10,022,000 for the year ended
June 30, 1995 which amount represented 7% of total revenues.
13. Retirement Benefits
The Company has 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. Annual Company
contributions currently are determined based upon the achievement of
certain return on equity objectives with the minimum contribution
being 2% of employees' eligible earnings, as defined by the Plan.
The Company also matches a portion of employees' before-tax savings.
The Company's annual and matching contributions under this plan are
as follows:
(Dollars in thousands)
1995 1994 1993
Annual contribution in common stock $ 518 $ 767 $ 1,100
Matching contribution 251 333 359
Total $ 769 $ 1,100 $ 1,459
The Company's annual contribution under this Plan for the year ended
June 30, 1995 was funded in common stock of the Company during the
quarter ending September 30, 1995.
Certain foreign subsidiaries of the Company maintain pension plans
for their employees which conform to the common practice in their
respective countries. The pension expense related to these plans
amounted to $381,000, $213,000 and $286,000 for the years ended June
30, 1995, 1994 and 1993, respectively.
13. Retirement Benefits, Continued
The Company's net pension expense (income) for the years ended June
30, 1995, 1994 and 1993 consists of the following components:
(Dollars in thousands)
1995 1994 1993
Service cost $ 645 $ 522 $ 509
Interest cost 653 546 539
Return on plan assets (661) (707) (1,324)
Net amortization and deferral (256) (148) 562
$ 381 $ 213 $ 286
The funded status of the Company's international pension plans at
June 30, 1995 and 1994 was as follows:
(Dollars in thousands)
1995 1994
Actuarial present value of benefit obligations:
Vested benefit obligation $7,624 $6,048
Accumulated benefit obligation 7,783 6,207
Projected benefit obligation 9,288 7,486
Plan assets at fair value 9,531 8,718
Plan assets in excess of projected
benefit obligation 243 1,232
Unrecognized net asset at transition (418) (479)
Unrecognized net gain (806) (1,499)
Accrued pension liability $ (981) $ (746)
In determining the present value of benefit obligations and the
expected return on plan assets for the Company's foreign pension
plans, the following assumptions were used for the years ended June
30, 1995, 1994 and 1993:
(Dollars in Thousands)
1995 1994 1993
Discount rate 6.0% to 9.0% 6.0% to 9.0% 7.5% to 9.0%
Rate of increase in future
compensation levels 4.0% to 7.0% 4.0% to 6.0% 5.5% to 6.0%
Expected long-term
rate of return 7.0% to 9.0% 7.0% to 10.0% 7.5% to 10.0%
Plan assets are comprised primarily of investments in managed funds
consisting of common stock, money market and real estate investments.
14. Postretirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted the provisions of FAS No. 106.
In connection with the adoption of this standard, the Company
recorded a non-cash charge of $3.0 million representing the immediate
recognition of the accumulated postretirement benefit obligation at
the date of adoption.
The Company has a plan for retiree medical and life insurance
benefits for its U.S. employees but does not have any significant
foreign plans. Based on the terms of the U.S. plan, participants
must be age 55 with at least 10 years of service to be eligible for
medical benefits. If the retiree is age 55 and has a minimum of five
years of service, but less than 10 years of service, coverage of
certain medical benefits can be purchased through the Company.
The comprehensive plan, which may be amended at the Company's
discretion, provides lifetime coverage for retirees and coverage for
spouses until one year after the death of the retiree. The plan
provides that the Company's costs will be capped at the 1993 level.
Eligibility for life insurance is restricted to employees who retired
prior to January 1993.
The unfunded status of the plan at June 30, 1995 and 1994 was as
follows:
Accumulated Postretirement Benefit Obligation:
(Dollars in thousands)
June 30, June 30,
1995 1994
Active Ineligible Plan Participants $ 790 $ 1,115
Active Eligible Plan Participants 521 516
Retirees and Dependents 1,275 1,356
Total accumulated postretirement
benefit obligation 2,586 2,987
Unrecognized net gain 144 -
Accrued postretirement benefit
obligation $ 2,730 $ 2,987
The Company's net periodic postretirement benefit expense (income)
for the years ended June 30, 1995 and 1994 consist of the following
components:
(Dollars in thousands)
1995 1994
Service cost $116 $188
Interest cost 209 238
Return on plan assets - -
Curtailment gain (422) (300)
($ 97) $126
14. Postretirement Benefits Other Than Pensions, Continued
For the year ended June 30, 1993, the Company recognized
postretirement benefit costs as incurred, thus the amounts recognized
as expense in prior years are not comparable.
During the years ended June 30, 1995 and 1994, the Company recorded a
curtailment gain of $422,000 and $300,000, respectively as a result
of the reduction in work force in connection with several
restructuring initiatives undertaken by the Company.
In determining the accumulated postretirement benefit obligation for
the years ended June 30, 1995 and 1994, the assumed weighted average
discount rate was 7.5% and the assumed rate of increase in
compensation was 5.0%.
Assumed health care cost increases, estimated to be 9% for the fiscal
year 1996, decline at a rate of approximately 0.5% to 1.0% per year
to the ultimate trend rate of 5.0% in the year 2001. Notwithstanding
the above, a 1% increase in the health care cost trend rate would not
have an effect on the accumulated postretirement benefit obligation
since the plan provides that the Company's future costs will be capped at
the 1993 level.
15. Employee Stock Plans
The Company has a Stock Option Plan providing for the grant of
incentive stock options to employees with an exercise price not less than fair
market value and non-qualified stock options
(NSOs) to employees, non-employee directors and consultants with an
exercise price not less than 50% of fair market value. The
Stock Option Plan is administered by the Stock Award Committee
comprised of members of the Compensation Committee of the Board of
Directors or the Board of Directors, as the case may be. Under the
plan, the Stock Award Committee may award, in addition to stock
options, shares of Common Stock on a restricted basis. The plan also
specifically provides for stock appreciation rights and authorizes
the Stock Award Committee to provide, either at the time of the grant
of an option or otherwise, that the option may be cashed out upon
terms and conditions to be determined by the Committee or the Board.
Only stock options, which for the most part contain limited stock
appreciation rights in connection with a change of control followed
by certain subsequent events, have been granted under the plan. The
plan terminates on January 31, 2002. Stockholders have approved the
purchase of up to 3,929,841 shares under the plan.
15. Employees Stock Plans, Continued
Changes in options outstanding under the plan during the years ended
June 30, 1993, 1994 and 1995 are as follows:
Number of
Options Price Per Option
Outstanding at June 30, 1992 987,316 $ .10 - $58.75
Granted 759,663 $ 2.13 - $ 6.50
Exercised (2,140) $ 1.88 - $ 4.38
Canceled (41,648) $ 1.88 - $53.75
Outstanding at June 30, 1993 1,703,191 $ .10 - $58.75
Granted 1,787,596 $ 1.63 - $ 3.31
Exercised (283) $ 1.88 - $ 2.13
Canceled (697,663) $ 1.88 - $58.75
Outstanding at June 30, 1994 2,792,841 $ .10 - $56.25
Granted 3,128,942 $ .875 - $ 2.12
Exercised - -
Canceled (2,685,080) $ 1.63 - $45.00
Outstanding at June 30, 1995 3,236,703 $ .10 - $56.25
Included in the 3,128,942 options granted in fiscal year 1995 are
1,917,493 options granted in a stock option repricing program. The
stock option repricing program was effected on March 1, 1995 and
provided for the repricing of stock options held by current employees
and members of the Board of Directors to an exercise price equal
to the net asset book value per share at December 31, 1994 (the latest balance
sheet date prior to the grant) and the cancellation of
a like number of previously granted stock options without restarting
the vesting schedule associated with the canceled options or
extending the term.
Included in the 1,787,596 options granted in fiscal year 1994 are
777,850 options granted in consideration of the eight-month deferral
of worldwide annual merit salary increases and 117,728 options
granted in consideration of the cancellation of a like number of
previously granted stock options and the restarting of the vesting
schedule associated with the canceled options.
Options with respect to 1,413,937 shares of common stock, with an
average exercise price of $2.20, were exercisable at June 30, 1995.
The Company has an Employee Stock Purchase Plan (the "Purchase Plan")
pursuant to which the Company is authorized to grant rights to
employees to purchase up to an aggregate of 1,000,000 shares of
common stock in a series of offerings, each of which generally lasts
six to twelve months. Unless extended by the stockholders, the
Purchase Plan expires December 31, 1997. Substantially all employees
are eligible to participate in the Purchase Plan. The purchase price
of shares of common stock is limited to the lesser of 85% of the fair
market value of the common stock on the commencement of the offering
and the last day of the offering. As of June 30, 1995, the Company
had issued 390,522 shares and had 609,478 shares of common stock
available for issuance pursuant to the Purchase Plan.
16. Rights Plan
On July 31, 1992, the Board of Directors of the Company declared a
dividend distribution of one Series A Participating Cumulative
Preferred Right for each share of the Company's common stock and
Convertible Preferred Stock. The dividend was made to stockholders
of record on August 14, 1992. Under the rights plan, each Right
becomes exercisable unless redeemed (1) after a third party owns 20%
or more of the outstanding shares of the Company's voting stock 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.
The adoption of the plan reinstated a similar rights plan put in
place in July 1989, which was terminated in connection with the
recapitalization of the Company in November 1991 to avoid its
inadvertent trigger.
17. Quarterly Consolidated Financial Information (Unaudited)
The following is a summary of quarterly financial results for the years
ended June 30, 1995 and 1994:
(Dollars in thousands, except per share amounts)
1995
Three Months Ended
September December March June
30, 1994 31, 1994 31, 1995 30, 1995
Net sales $41,508 $37,786 $30,344 $30,506
Gross margin $18,777 $17,286 $11,384 $13,220
Net income (loss) (a) $1,674 $1,040 $(4,985) $265
Net income (loss) per share $0.06 $0.03 $(0.17) $0.01
17. Quarterly Consolidated Financial Information (Unaudited), Continued
(a) Net income/(loss) for the three months ended March 31, and June
30, 1995 reflect a provision for restructuring of $2.7 and $0.5
million, respectively. Net income for the three months ended December
31, 1994 reflects a sales and use tax credit of $1,000,000. Net
income for the three months ended June 30, 1995 reflects an adjustment
to inventory reserves of $0.9 million.
1994
Three Months Ended
September December March June
30, 1993 31, 1993 31, 1994 30, 1994
Net sales $49,360 $40,688 $44,059 $44,924
Gross margin $22,852 $15,783 $17,531 $19,875
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting
principles $(11,015) $(3,492) $579 $2,297
Net income (loss) (a) $(39,208) $(3,492) $579 $2,297
Income (loss) per share: (b)
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting
principles $(0.47) $(0.12) $0.02 $0.08
Net income (loss) $(1.67) $(0.12) $0.02 $0.08
(a) Net loss for the three months ended September 30, 1993 reflects an
extraordinary loss on early extinguishment of debt of $23,193,000
($0.99 per share), a cumulative effect of change in accounting
principles of $5.0 million ($0.21 per share) and a provision for
restructuring of $12.0 million. Net loss for the three months ended
December 31, 1993 reflects a sales and use tax credit of $1,440,000.
Net income for the three months ended June 30, 1994 reflects an
adjustment to inventory reserves of $1.5 million.
17. Quarterly Consolidated Financial Information (Unaudited), Continued
(b) Net income (loss) per share when added does not equal the reported
fiscal year amount primarily due to the effect on average shares
outstanding from the issuance of 324,377 shares of common stock during
the three months ended September 30, 1993 in connection with the
annual contribution to the Company's retirement savings plan for
fiscal year 1993 and the issuance of 19,700,000 shares of common stock
and the conversion of 6,981,706 shares of Convertible Preferred Stock
to common stock during the three months ended September 30, 1993 in
connection with the 1993 Refinancing (see Note 4).
18. Commitments and Contingencies
The Company leases certain sales and service offices, warehousing, and
equipment. The leases expire at various dates through 2005 and
generally provide for the payment of taxes, insurance and maintenance
costs. Additionally, certain leases contain escalation clauses which
provide for increased rents resulting from the pass through of
increases in operating costs, property taxes and consumer price
indexes.
At June 30, 1995, future minimum payments under noncancelable operating
leases for the fiscal years ending June 30 of each year are as follows:
(Dollars in thousands)
1996 $ 4,551
1997 3,127
1998 1,753
1999 146
2000 90
2001 and thereafter 182
$ 9,849
Rent expense amounted to $6,686,000, $8,369,000, and $9,731,000 for the
years ended June 30, 1995, 1994 and 1993, respectively.
The Company, from time to time, is involved in litigation incidental
to the conduct of its business. The Company and its counsel believe
that such pending litigation will not have a material adverse effect
on the Company's results of operations or financial condition.
Additionally, the U.S. government has asserted that the Company's
prices for shipments of spare parts prior to 1994 under the U.S.
Department of Commerce's Next Generation Weather Radar (NEXRAD)
program were too high. No claim or action has been filed against the
Company. The Company believes that its pricing practices are in
compliance with applicable regulations and intends to vigorously
defend against any claim. Although there can be no assurance, the
Company expects that any resolution of the matter will not have a
material adverse affect on the Company's financial condition or
liquidity.
18. Commitments and Contingencies, Continued
The Company has entered into employment agreements with its executive
officers. In the event an executive officer is terminated directly by
the Company without cause or in certain circumstances constructively by
the Company, the terminated officer will be paid severance compensation
for a one-year period (a two-year period in the case of the Chief
Executive Officer) in an annualized amount equal to the respective
officer's annual salary then in effect plus an amount equal to the then
most recent annual bonus paid or, if determined, payable, to such
officer. At June 30, 1995, the maximum contingent liability under
these agreements is approximately $1.9 million. The Company's
employment agreements with its executive officers contain certain
offset provisions, as defined in their respective agreements.
On May 5, 1992, the Company completed the sale of its Cork, Ireland
facility to the Industrial Development Authority (the "IDA"). Under
the terms of this agreement, the Company is required to maintain its
European service/repair center in Ireland through April 30, 1998 and
maintain minimum employment levels. In the event the Company does not
meet these requirements, the IDA may require payment of up to
approximately $590,000 (360,000 Irish pounds). The Company's
contingent obligation to the IDA is collateralized by the machinery and
equipment of the Company's Ireland subsidiary.
19. Subsequent Event
On September 26, 1995, the Company entered into a contract providing
for the sale/leaseback of its Oceanport, New Jersey facility. The
transaction is expected to close during the quarter ending December 31,
1995. The $15 million sales price will be reduced by estimated selling
costs of approximately $1.0 million. A portion of the net proceeds will
be applied
to the remaining outstanding balance of the Term Loan (approximately
$9.3 million). The remainder of the net proceeds will be then
available for working capital purposes. However, there can be no
assurance that the transaction will be completed as contemplated.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
During fiscal year 1995, the Company continued to experience a decline
in net sales. Sales cycles in many of the Company's markets tend to be
protracted thus delaying certain orders and revenues. In addition,
intense competition, rapid advances in technology, government spending
levels and general economic conditions impact the Company's business.
Despite the decline, operating income improved by approximately $9.1
million and net cash from operations improved by approximately $4.1
million as a result of the Company's productivity improvements,
restructuring and ongoing cost reduction initiatives. The Company
continues to manage its resources and to focus its revenue generating
activities with the objectives to achieve growth and improve
profitability. In addition, the Company continues to pursue various
additional financing alternatives, including a sale/leaseback of its
Oceanport, New Jersey facility, to improve its financial flexibility. The
Company believes that it will be able to meet its obligations when due
through its operating and financing efforts.
During the second half of fiscal year 1995, revenues from international
markets exceeded those of North America. International sales and business
opportunities for the Company's standards based, POSIX compliant MAXION
multiprocessor system appear to be gaining momentum. The decline in North
America business is due to the anticipated decline in sales of proprietary
systems, reduced shipments under the U.S. Department of Commerce's Next
Generation Weather Radar (NEXRAD) program and less than anticipated open
systems business. The Company is pursuing a number of major program
opportunities for its MAXION systems. Prospects are promising but
uncertain. Given the long (6-18 months) selling cycle for such programs,
the benefits from such programs may not be realized for more than six
months.
The Company's objective is to increase revenues by providing real-time
computer systems and services to its installed base of proprietary systems
and to its open systems target markets. The achievement of these
objectives requires that the Company continue to enhance its proprietary
hardware and operating system platforms, while investing in the
development of its real-time open system hardware and operating systems
and providing industry standard product enhancements, such as networking,
graphics and data acquisition. The future growth of the Company's
business and its future financial performance will depend, to a
significant extent, upon its ability to continue to develop and market
competitive open systems which meet the real-time computing needs of its
targeted customers.
One of the goals of the Company's strategy is to minimize the effect of
the anticipated decline in sales of the Company's proprietary systems and
traditional maintenance and support services, while increasing sales of
its open systems and associated services. Since the average selling price
of an open system is considerably less than the average selling price of a
proprietary system, the number of total systems sold must increase to
maintain and grow revenues. A shift in sales from proprietary systems,
however, is likely to result in lower gross margins as the gross margins
on open systems are currently lower than gross margins on proprietary
systems. The Company's operating income would be adversely affected by
such a shift unless total net sales increase, the gross margins on its
open systems improve and/or total operating expenses are further reduced.
Although there can be no assurance that this will be the case, the Company
believes gross margins on its open systems will improve as the shift to
customer purchases of larger multiprocessor and server-class systems
increases.
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.
1995 1994* 1993*
Net sales:
Computer systems 51.4% 56.0% 60.3%
Service and other 48.6 44.0 39.7
Total net sales 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Computer systems 53.6 54.3 45.1
Service and other 60.0 61.6 63.5
Total cost of sales 56.7 57.5 52.4
Gross margin 43.3 42.5 47.6
Operating expenses:
Research and development 13.9 13.3 12.2
Selling, general and administrative 26.3 27.2 26.9
Provision for restructuring 2.3 6.7 -
Sales and use tax credit (0.7) (0.8) -
Total operating expenses 41.8 46.4 39.1
Operating income (loss) 1.5 (3.9) 8.5
Interest expense (1.9) (1.9) (6.1)
Interest income 0.4 0.3 0.5
Other non-recurring charge (0.7) - -
Other income (expense) - net 0.5 (0.3) (0.1)
Income (loss) before provision for income
taxes, extraordinary loss and cumulative
effect of change in accounting principles (0.2) (5.8) 2.8
Provision for income taxes 1.2 0.7 1.0
Income (loss) before extraordinary loss and
cumulative effect of change in accounting
principles (a) (1.4)% (6.5)% 1.8%
* Reclassified to conform to current year presentation.
(a) The percentage for the year ended June 30, 1994 excludes a $23.2
million extraordinary loss on early extinguishment of debt and a $5.0
million non-cash charge for the cumulative effect of change in accounting
principles.
Results Of Operations
Fiscal Year 1995 in Comparison to Fiscal Year 1994
Net Sales
Net sales for fiscal year 1995 were $140.1 million, a decrease of $38.9
million from fiscal year 1994. This decrease was due to a decrease of
$28.2 million, or 28.1%, in computer systems sales and a decrease of $10.7
million, or 13.5%, in service and other revenues. The decrease in computer
system sales was primarily due to the anticipated decline in sales of
proprietary systems and reduced shipments under the U.S. Department of
Commerce's Next Generation Weather Radar (NEXRAD) program. Although sales
of open systems remained constant, sales of the Company's MAXION open
systems increased while sales of other open systems declined. The decrease
in service and other revenues was primarily due to the decline in computer
system sales experienced in prior periods which resulted in fewer
maintenance contracts and a decline in renewal rates on maturing contracts
partially offset by approximately $3.3 million related to the impact of
favorable foreign exchange rates.
Gross Margin
Gross Margin, as measured in dollars and as a percentage of net sales,
was $60.6 million and 43.3%, respectively, for fiscal year 1995 compared
to $76.0 million and 42.5%, respectively, for fiscal year 1994. The
decrease in gross margin dollars was primarily due to the aforementioned
decline in net sales partially offset by cost savings resulting from the
operational restructurings implemented during fiscal year 1994 and fiscal
year 1995. The increase in gross margin as a percentage of net sales was
primarily due to cost savings resulting from the operational
restructurings implemented during fiscal year 1994 and fiscal year 1995
partially offset by the decline in net sales.
Operating Income
Operating income for fiscal year 1995 was $2.1 million compared to
operating loss of $7.0 million for fiscal year 1994. The $9.1 million
increase in operating income was due to a $16.1 million reduction in
operating expenses and a net reduction of $8.8 million in the provision
for restructuring (a $3.2 million provision for restructuring in the
current year offset by a $12.0 million provision for restructuring in the
prior year) partially offset by the $15.4 million decrease in gross margin
and a $0.4 million reduction in the sales and use tax credit as compared
to a similar credit in the prior year. The sales and use tax credit in
both periods relates to a change in the estimate of state sales and use
tax reserves based on a final state audit determination.
The $16.1 million decrease in operating expenses was primarily due to a
$11.7 million decrease in selling, general and administrative expenses and
a $4.4 million decrease in net research and development expenses. The
$4.4 million decrease in net research and development expenses reflects a
$5.8 million decrease in gross research and development expenses partially
offset by a $1.4 million decrease in the amount of software production
costs which were capitalized during the period. The decrease in selling,
general and administrative and gross research and development expenses is
primarily due to cost savings resulting from the operational
restructurings implemented during fiscal year 1994 and fiscal year 1995.
Income (Loss) Before Extraordinary Gain (Loss) and Cumulative Effect of
Change in Accounting Principles
Loss before extraordinary loss and cumulative effect of change in
accounting principles was $2.0 million for fiscal year 1995 compared to a
loss of $11.6 million for fiscal year 1994. The $9.6 million change
results from the $9.1 million increase in operating income and a $0.5
million net decrease in non-operating expenses. The decrease in non-
operating expenses was primarily due to a $0.8 million decrease in
interest expense resulting from the reduction of the Company's
indebtedness, a $0.6 million increase in income related to minority
interest and a $0.5 million decrease in foreign exchange losses partially
offset by a $1.0 million other non-recurring charge incurred in the
current year period and a $0.4 million increase in the provision for
income taxes. The $1.0 million other non-recurring charge incurred in the
current year was a result of an adjustment of the carrying value of the
Company's Tinton Falls, New Jersey facility to its net realizable value
based on current market conditions. The increase in the provision for
income taxes relates primarily to international operations.
Fiscal Year 1994 in Comparison to Fiscal Year 1993
Net Sales
Net sales for fiscal year 1994 were $179.0 million, a decrease of $41.4
million from fiscal year 1993. This decrease was due to a decrease of
$32.6 million, or 24.5%, in computer systems sales and a decrease of $8.8
million, or 10.1%, in service and other revenues. The decrease in
computer system sales was primarily due to a decline in worldwide business
resulting from declines and delays in certain government spending around
the world, including shipments of spare parts under the U.S. Department of
Commerce's Next Generation Weather Radar (NEXRAD) program, and the highly
competitive nature of the real-time computer industry. The decrease in
service and other revenues was primarily due to the decline in computer
system sales experienced in prior periods which resulted in fewer
maintenance contracts, a decline in renewal rates on maturing contracts
and approximately $0.7 million related to the impact of unfavorable
foreign exchange rates.
Gross Margin
Gross margin, as measured in dollars and as a percentage of net sales,
was $76.0 million and 42.5%, respectively, for fiscal year 1994 compared
to $104.8 million and 47.6%, respectively, for fiscal year 1993. The
decrease in gross margin dollars and percentage was primarily due to the
aforementioned decline in net sales, unfavorable discounting of older
products, unfavorable product mix and manufacturing expenses associated
with the ramp-up of full-scale production of the MAXION multiprocessor
system partially offset by cost savings resulting from the operational
restructuring during fiscal year 1994.
Operating Income
Operating loss for fiscal year 1994 was $7.0 million compared to
operating income of $18.7 million for fiscal year 1993. The $25.7 million
decrease in operating income was due to the aforementioned $28.8 million
decrease in gross margin and a $12.0 million provision for restructuring
partially offset by a sales and use tax credit of $1.4 million related to
a change in the estimate of state sales and use tax reserves and a $13.7
million reduction in operating expenses.
The $13.7 million decrease in operating expenses was primarily due to a
$10.6 million decrease in selling, general and administrative expenses, a
$1.5 million decrease in gross research and development expenses and a
$1.5 million increase in capitalized software production costs. The
decrease in selling, general and administrative and gross research and
development expenses is primarily due to cost savings resulting from the
operational restructuring during fiscal year 1994 and the completion of
extensive development effort on the MAXION multiprocessor system.
Income (Loss) Before Extraordinary Gain (Loss) and Cumulative Effect of
Change in Accounting Principles
Loss before extraordinary gain (loss) and cumulative effect of change
in accounting principles was $11.6 million for fiscal year 1994 compared
to income of $3.9 million for fiscal year 1993. The $15.5 million change
results from the aforementioned $25.7 million decrease in operating income
partially offset by a $10.2 million net decrease in non-operating
expenses. The decrease in non-operating expenses was primarily due to a
$10.1 million decrease in interest expense resulting from the reduction of
the Company's indebtedness and a decrease in the provision for income
taxes partially offset by an increase in foreign exchange losses.
Financial Resources and Liquidity
The liquidity of the business is dependent on many factors, including
sales volume, operating profit ratio, debt service and the efficiency of
asset utilization and turnover. The future liquidity of the Company's
business will depend to a significant extent on: 1) the actual versus
anticipated decline in sales of proprietary systems and traditional
services; 2) its ongoing cost control efforts; 3) its ability to
generate significant revenue growth from its open systems; and 4) access
to additional sources of financing and/or equity, if necessary.
The liquidity of the business is also affected by: 1) the timing of
shipments which predominantly occur during the last month of the quarter;
2) the increasing percentage of sales derived from outside of the United
States where there is generally longer accounts receivable collection
patterns; 3) the sales level in the United States where related accounts
receivable are included in the borrowing base of the Company's revolving
credit facility; 4) the number of countries in which the Company operates
resulting in the requirement to maintain minimum cash levels in each
country; and 5) restrictions in some countries where the Company operates
which limit its ability to repatriate cash.
As of June 30, 1995, the Company had a current ratio of 1.04 to 1,
an inventory turnover ratio of 4.9 times and net working capital of $1.9
million. At June 30, 1995, cash and cash equivalents amounted to $5.7
million and accounts receivable amounted to $25.5 million.
On June 29, 1995, the Company completed a refinancing of its then
outstanding $15.4 million existing bank term loan (the "Existing Term
Loan"), excluding up to $3.0 million in standby letters of credit in
connection with overseas lines of credit which remain in place. In
connection with this refinancing, the Company has entered into a new
agreement providing for a $18.0 million credit facility. The facility
includes a $10.0 million term loan (the "Term Loan") and a $8.0 million
revolving credit facility (the "Revolver"). The completion of the
refinancing of the bank term loan provides the Company with greater
financial flexibility with respect to its debt service payments and
financial covenant compliance requirements. The terms of the Existing
Term Loan would have required the Company to make a final payment of $12.0
million at maturity on October 1, 1995.
At June 30, 1995, the outstanding balances under the Term Loan and
the Revolver were $10.0 and $5.8 million, respectively. The
outstanding balance of the Revolver has been classified as a current
liability at June 30, 1995. Both the Term Loan and the Revolver bear
interest at the prime rate plus 2.0%. The Term Loan is payable in 36
equal monthly installments of $139,000 each, commencing August 1, 1995,
with a final payment of approximately $5.0 million payable August 1,
1998. The Revolver may be repaid and reborrowed, subject to certain
collateral requirements, at any time during the term ending August 1,
1998. The Company has pledged substantially all of its domestic assets
as collateral for the Term Loan and the Revolver. The Company may repay
the Term Loan at any time without penalty. In the event of a sale or
sale/leaseback of its Oceanport and Tinton Falls facilities, the Company
is required to make a prepayment of the Term Loan up to an amount equal
to 75% of the net sale proceeds. Certain early termination
fees apply if the Company terminates the facility in its entirety prior
to August 1, 1998.
In connection with the restructuring of its operations, the Company
recorded a provision for restructuring of $2.7 million and $0.5 million
during the quarters ended March 31, 1995 and June 30, 1995, respectively.
The restructuring provision includes employee terminations of
approximately 175 worldwide employees in positions ranging from the staff
level to the middle management level, office closings or downsizings and
other related costs which represented approximately 60%, 30% and 10% of
the provision, respectively. The Company estimates that the cost savings
related to the restructuring of its operations will be approximately $2.7
million per quarter when fully realized. Such savings began during the
third quarter of fiscal year 1995 and will be fully realized during the
first quarter of fiscal year 1996. Total cash savings began during the
quarter ending June 30, 1995 and will not be substantially realized until
the quarter thereafter primarily due to employee termination costs.
During the year ended June 30, 1995, the actual cash payments related to
the 1995 restructurings amounted to approximately $2.4 million and were
primarily related to employee termination costs. The Company believes
that it will be able to fund the cash outlays through cash flow from
operations and effective cash management.
Although management believes that improvements in cash flow will result
from the refinancing of the bank term loan, restructuring of operations
and other actions which will enhance the Company's ability to manage its
cash requirements, the short term prospects for the Company's liquidity
are dependent to a significant degree upon the level and stability of
revenue from sales and service of its computer systems and the Company's
ongoing cost control actions. The Company plans to continue to evaluate
and manage its resources to anticipated revenue levels to achieve improved
profitability and quarter to quarter revenue growth during fiscal year
1996. The Company is also pursuing various additional financing
alternatives including a sale or sale/leaseback of its facilities. On
September 67, 1995, the Company entered into a
contract providing for the sale/leaseback of its Oceanport, New Jersey
facility. The transaction is expected to close during the quarter ending
December 31, 1995. The $15 million sales price will be reduced by
estimated selling costs of approximately $1.0 million. A portion of the
net proceeds.
Accordingly, the net proceeds will be applied to the remaining outstanding
balance of the Term Loan (approximately $9.3 million). The remainder of
the net proceeds will be then available for working capital purposes. The
Company believes that it will be able to meet its obligations when due
through its operating and financing efforts. However, there can be no
assurance that the Company's operating and financing efforts will be
achieved.
CONCURRENT COMPUTER CORPORATION
SELECTED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share amounts)
Years Ended June 30,
Income Statement Data 1995 1994 1993 1992 1991
Net sales $140,144 $179,031 $220,464 $221,572 $254,945
Gross margin 60,667 76,041 104,841 104,711 93,659
Operating income (loss) 2,082 (6,993) 18,738 16,783 (33,922)
Income (loss) before
extraordinary gain (loss)
and cumulative effect
of change in accounting
principles (2,006) (11,631) 3,869 (955) (66,834)
Net income (loss) ($2,006) ($39,824) $3,869 $60,147 ($66,834)
Income (loss) per share:
Income (loss) before
extraordinary gain (loss)
and cumulative effect
of change in accounting
principles ($0.07) ($0.41) $0.40 ($0.13) ($35.46)
Net income (loss) ($0.07) ($1.42) $0.40 $8.00 ($35.46)
At June 30,
Balance Sheet Data 1995 1994 1993 1992 1991
Cash and short-term
investments $5,728 $9,374 $30,422 $20,611 $23,439
Working capital 1,865 (616) 36,673 22,742 (146,937)
Total assets 98,359 123,170 157,086 158,136 213,351
Long-term debt 9,536 13,240 67,938 61,613 2,131
Redeemable preferred stock - - - - 900
Stockholders' equity
(deficiency) 35,170 35,048 18,503 14,739 (69,195)
Book value per share $1.16 $1.18 $1.94 $1.61 ($36.15)
Schedule II
Concurrent Computer Corporation
Valuation and Qualifying Accounts
For the Years Ended June 30, 1995 1994 and 1993
(Dollars in thousands)
Balance at Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Deductions (a) of Year
Reserves and allowances
deducted from asset
accounts:
1995
Reserve for inventory
obsolescence and
shrinkage $ 6,138 $ 5,037 $(2,712)(b) $ 81 $ 8,544
Allowance for
doubtful accounts 3,405 130 (2,117)(c) 16 1,434
1994
Reserve for inventory
obsolescence and
shrinkage $ 3,167 $ 4,461 $(1,753)(b) $ 263 $ 6,138
Allowance for
doubtful accounts 2,173 2,114 (882)(c) - 3,405
1993
Reserve for inventory
obsolescence and
shrinkage $ 1,662 $ 1,840 $ (335)(b) $ - $ 3,167
Allowance for
doubtful accounts 2,121 52 - - 2,173
(a) Includes adjustments to the reserve account and allowance for
doubtful accounts for foreign currency translation.
(b) Charges and adjustments to the reserve account primarily for
inventory write-offs.
(c) Charges to the reserve account for uncollectible amounts written off
and credits issued during the year.