================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
COMMISSION FILE NUMBER 0-13150
CONCURRENT COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2735766
(State of Incorporation) (I.R.S. Employer
Identification Number)
4375 RIVER GREEN PARKWAY, DULUTH, GEORGIA, 30096 (678) 258-4000
(Address and telephone number of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock (par value $0.01 per share)
Preferred Stock Purchase Rights
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 4, 2001, there were 60,780,770 shares of Common Stock
outstanding. The aggregate market value of shares of such Common Stock (based
upon the last sale price of $10.60 per share as reported for September 4, 2001
on the Nasdaq National Market) held by non-affiliates was approximately
$628,323,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement to be used in connection
with Registrant's 2001 Annual Meeting of Stockholders scheduled to be held on
October 25, 2001 are incorporated by reference in Part III hereof.
================================================================================
PART I
ITEM 1. BUSINESS
OVERVIEW
Concurrent Computer Corporation ("Concurrent") is a leading provider of
computer systems for both the emerging video-on-demand, or VOD, market through
its Xstreme division and real-time applications through its Real-Time division.
Concurrent provides VOD servers and related software, its VOD systems, primarily
to residential cable television operators that have upgraded their networks to
support interactive, digital services. Concurrent's real-time business provides
high-performance, real-time computer systems used for simulations, data
acquisition and industrial process control applications. Concurrent markets its
real-time computer systems to U.S. government prime contractors, agencies of the
U.S. government and commercial markets where the immediate capture and delivery
of information is critical. Although almost all of Concurrent's revenues prior
to fiscal 2000 were derived from its Real-Time division, Concurrent expects that
substantially all of its future revenue growth will come from its Xstreme
division, which began commercial sales in 1999.
Concurrent's VOD systems consist of digital video servers and related
software that enable cable systems that have two-way capability to deliver VOD
to subscribers served through digital set-top boxes. Concurrent has been
selected to supply its VOD system for 18 domestic commercial launches and trials
of VOD systems publicly announced by multiple system operators, or MSOs,
including the first and largest system-wide commercial deployments at AOL Time
Warner's Oceanic regional division in Oahu, Hawaii and its Tampa Bay regional
division in Florida. All of the seven largest MSOs have begun deploying VOD
services in one or more residential markets. Concurrent believes it is well
positioned to be a provider of choice to these MSOs.
Initially, Concurrent focused its VOD business on the development of VOD
systems designed to be compatible with Scientific-Atlanta, Inc. digital cable
equipment. In October 1999, Concurrent acquired Vivid Technology, Inc. and
obtained certain server technology compatible with Motorola, Inc. digital cable
equipment. During the second half of calendar 2000, Concurrent introduced its
MediaHawk Model 2000 VOD system, which is compatible with both
Scientific-Atlanta and Motorola equipment.
Concurrent's primary VOD focus is on digitally equipped domestic cable
system operators. Concurrent also intends to focus on VOD opportunities in the
international cable, internet protocol (IP) and digital subscriber line, or DSL,
markets and in both the domestic and international educational markets.
Although delivery of VOD to the home over DSL and IP currently is not practical
in the United States, Concurrent has several of these deployments in the
international market.
A real-time computer system or software is one specially designed to
acquire, process, store, and display large amounts of rapidly changing
information in real-time - that is, with microsecond response as changes occur.
Concurrent has over thirty years of experience in real-time systems, including
specific expertise in systems, applications software, productivity tools, and
networking. Its systems provide real-time applications for simulation, engine
test, air traffic control, weather analysis, and mission critical data services
such as financial market information.
Concurrent was incorporated in Delaware in 1981 under the name
Massachusetts Computer Company.
Financial information about Concurrent's industry segments is included in
Note 13 to the consolidated financial statements included herein.
1
THE VOD MARKET
VOD technology primarily addresses the home video entertainment
market. Concurrent believes that emerging VOD technology will enable cable
providers to generate incremental revenue from the large home entertainment
markets, such as home video rentals, and traditional pay-per-view or near
video-on-demand (NVOD), and personal video recorder technology by combining many
of their best features and addressing their primary limitations.
- Home video rentals have the greatest number of title selections but
are the most inconvenient home video entertainment option. Limitations
of home video rental include frequently out-of-stock popular titles,
lack of convenience due to rental pickup and return requirements and
late fee penalties.
- Pay-per-view and NVOD are more convenient options than store rentals
but have limited titles and viewing times and no interactive
capabilities. Pay-per-view, or PPV, allows the user to order specific
programs at fixed times. NVOD is basically PPV available at successive
shorter intervals. Limitations of PPV and NVOD include a limited
selection of titles available for viewing, restrictions on viewing
times and no VCR functionality, such as play, rewind, fast-forward and
pause.
- PPV/NVOD coupled with a personal video recorder has limited content
and currently requires a significant up-front investment by the user.
A personal video recorder is an additional set-top device that enables
a user to have simultaneous program recording, content searching, and
VCR functionality. Even when coupled with an NVOD or PPV service, a
personal video recorder does not overcome certain limitations of PPV
or NVOD, such as limited content availability. In addition, users
currently are required to make a significant up-front expenditure to
purchase the personal video recorder box.
Ongoing technological developments have laid the groundwork for
digitally upgraded, two-way capable, cable television operators to deliver VOD
services to their digitally enabled subscribers.
- Cable system digital upgrades. MSOs have been upgrading their networks
to enable the delivery of digital content on an interactive basis.
MSOs are upgrading traditional, one-way, low bandwidth, coaxial
systems into two-way, high bandwidth, hybrid-fiber coaxial
transmission systems. These new systems include additional fiber optic
bandwidth capability and digital equipment at the system's headend and
other locations in the network. These digitally upgraded systems are
capable of carrying a larger quantity of signals at a faster rate. The
two-way upgrade allows for the introduction of new services, including
VOD.
- Digital set-top boxes. A variety of companies, including Motorola,
Scientific-Atlanta, Pioneer and Sony, are introducing a new generation
of digital television set-top boxes with processing power similar to a
personal computer. These digital set-top boxes allow the cable
provider to offer a greater selection of digital services, such as
VOD, advanced program guides, and interactive electronic commerce to
homes with access to two-way capable cable services.
- Content digitization. Digitization is the process by which
entertainment content is converted from analog to digital format.
Digital content is a sequence of tiny digital pieces, or "bits," which
can be stored on disks and transmitted in the form of electronic
signals. With the benefit of the latest digital compression
technologies, digital content now requires even less storage space and
more content can be simultaneously transmitted over the cable system,
thus reducing the storage and transmission costs of delivering content
to consumers. Many major movie studios, major television networks,
premium channel providers, and other program and content creators are
converting their most popular titles into a digital format.
In the near term, Concurrent expects domestic MSOs will comprise the
majority of its VOD system customer base. Concurrent believes that VOD is one of
the key strategic competitive initiatives for MSOs as it provides an opportunity
to leverage recent investments in their digitally upgraded infrastructure.
Concurrent believes the VOD product provides MSOs with the ability to
differentiate their service offering in an effort to reduce subscriber turnover
and gain access to new revenue generating opportunities from subscribers,
advertisers and electronic commerce initiatives.
2
THE REAL-TIME BUSINESS
Concurrent is a leading supplier of real-time computer systems that
concurrently acquire, analyze, store, display, and control data to provide
critical information within a predictable time as real world events occur.
Compared to general purpose computer systems, these unique real-time
capabilities are applicable to a wide range of application requirements,
including higher performance processing, higher data throughput, predictable and
repeatable response times, reliably meeting required deadlines, consistently
handling peak loads, and better balancing of system resources.
Concurrent has over thirty years of real-time systems experience, including
specific design, development, and manufacturing expertise in system
architectures, system software, application software, productivity tools, and
networking. Concurrent's real-time systems and software are currently used in
host, client server, and distributed computing solutions, including
software-controlled configurations to provide fault tolerance. Concurrent sells
its systems worldwide through its direct sales offices, resellers, system
integrators, and other global partners. End uses of Concurrent's systems
include product design and testing, simulation and training systems, engine
testing, range and telemetry systems, weather satellite data acquisition and
forecasting, and intelligence data acquisition and analysis.
Concurrent designs, manufactures, sells and supports real-time
standards-based open computer systems and proprietary computer systems. It
offers worldwide hardware and software maintenance and support services
("Customer Service Plans") for its products and for the products of other
computer and peripheral suppliers. The services are provided at no additional
charge during the warranty period. Concurrent routinely offers and delivers
long-term service and support of its products for as long as fifteen to twenty
years under maintenance contracts for additional fees. Concurrent also has a
long and successful history of customizing systems with both specialized
hardware and software to meet unique customer requirements. Frequently in
demand, these special support services ("Custom Engineering and Integration")
have included system integration, performance and capacity analysis, and
application migration.
BUSINESS STRATEGY
VOD BUSINESS
Concurrent's business objective is to become the leading provider of high
quality VOD systems to domestic cable and international cable and DSL providers.
Concurrent's VOD strategy is comprised of the following primary initiatives:
Gain Valuable Supplier Positions to Top Domestic MSOs. The market for
providing VOD solutions to MSOs is rapidly evolving. By the end of calendar
year 2001, Concurrent believes that each of the seven largest domestic MSOs will
begin commercial distribution of residential VOD services. Concurrent has been
selected to supply VOD systems for 18 of the publicly-announced commercial
launches and trials of VOD systems, including the industry's first and largest
system-wide commercial deployments located at AOL Time Warner's Oceanic regional
division in Oahu, Hawaii and its Tampa Bay regional division in Florida.
Concurrent's VOD sales team will continue to directly target these large MSOs.
Concurrent believes that establishing strong relationships with these MSOs
during the early stages of VOD service deployment will be important in
developing and maintaining its share of the VOD market. Because of the rapid
pace at which Concurrent expects MSOs to deploy VOD services and the difficulty
in switching providers once a provider's offering has been integrated into an
MSO's systems, Concurrent believes that the initial selection by an MSO is
critical to establishing market share.
Expand Operations Internationally. The rollout of residential VOD service
internationally is expected to occur first over cable television systems and
over DSL-based systems. Concurrent currently is focusing on building its
relationships with companies seeking to provide VOD services over cable or DSL
networks in Europe, Asia and Australia. Concurrent's international sales
strategy is to focus on three key customer segments: cable companies; telephone
companies; and alternative IP-based streaming media applications like
hospitality, distance learning, education, and corporate training.
3
Maintain Technological Leadership Position in VOD Server Systems.
Concurrent has developed its VOD technology through internal research and
development, acquisitions and relationships with third-party technology
providers. Concurrent intends to continue to focus on the development of future
VOD technologies in order to maintain Concurrent's leadership position by
creating higher stream density, new encryption techniques, personal video
channel applications and product enhancements for international markets.
Identify and Pursue New Market Opportunities. Concurrent believes that its
VOD technology can provide benefits to industries other than cable system
providers. For instance, Concurrent believes the growth in intranet and
distance learning provides a significant opportunity for deployment of VOD
systems. Generally, Concurrent expects to address these additional markets
through relationships with market-specific value added resellers, or VARs.
REAL-TIME BUSINESS
As the real-time computer market shifted in end-user demand to open
systems, Concurrent developed a strategy to adjust its real-time service
offerings to those more appropriate for open systems, while maintaining support
for its proprietary systems. Concurrent's strategy also strikes a balance
between appropriate upgrades for proprietary system offerings while
predominantly investing in its real-time operating system and integrated
computer system solutions. Concurrent introduced its PowerWorks Linux
development environment (PLDE) based on the popular Linux open operating system
at the RTS 2001 conference in Paris, France in March of 2001. The PLDE allows
users on a Linux PC or workstation to develop applications for any Concurrent
PowerPC-based real-time computer system. The PLDE offers a convenient and
economical way to utilize the extensive features of Concurrent compilers and
real-time GUI tools. Application programs are compiled, linked, debugged,
scheduled, and analyzed on a Linux PC while the user application executes on any
system running Concurrent's PowerMAX OS(TM) real-time UNIX(R) -based operating
system.
With the new PLDE, users now have the choice of developing their PowerMAX
OS real-time applications on a Concurrent system or on a Linux PC. Recent
acceptance of Linux as an alternative to the UNIX and Windows NT(R) operating
systems were dominant factors in Concurrent's decision to introduce PLDE.
COMMERCIAL LAUNCHES AND TRIALS
Concurrent has been selected by AOL Time Warner, Cox Communications and
Comcast Cable, three of the seven largest MSOs, for commercial VOD system
deployments. Each of these operators has deployed Concurrent's VOD systems for
use with digital set-top boxes manufactured by Scientific-Atlanta and Motorola.
Concurrent also has been selected by Cogeco Cable Inc., a Canadian cable
operator, for two VOD deployments.
We believe we are a leading provider of video-on-demand systems based on
the number of commercial deployments (18) using our systems and our
relationships with three of the seven largest domestic cable operators. We also
believe that the number of our video-on-demand servers currently in commercial
use (approximately 205 servers) and the number of cable subscribers served by
our systems make us a leader in the industry.
AOL TIME WARNER
Oahu, Hawaii. In June 1999, Concurrent began a trial of its VOD system for
Oceanic Cable, a unit of AOL Time Warner based in Hawaii. This trial led to a
full commercial launch of Concurrent's VOD system in February 2000 over
Oceanic's system in Oahu. The VOD system purchased by Oceanic consists of 15
MediaHawk video servers, which currently support approximately 3,500 independent
video streams reaching approximately 85,000 digital subscribers. Concurrent
believes the Oceanic VOD system represents one of the first VOD commercial
deployment in the world.
Tampa Bay Region of Florida. In September 1999, AOL Time Warner selected
Concurrent's VOD system for a commercial launch in its Hillsborough County
system in the Tampa Bay area and in March 2000, they also selected Concurrent's
system for commercial launch in the Pinellas County system in the Tampa Bay
area. The Tampa market for AOL Time Warner consists of an aggregate of
4
approximately 925,000 basic cable subscribers and approximately 250,000 digital
subscribers. The VOD system deployed in Tampa Bay includes 51 MediaHawk video
servers. The Tampa Bay commercial deployment currently represents the
industry's largest VOD deployment.
South Carolina. In September 2000, AOL Time Warner selected Concurrent's
VOD system for a commercial launch in its South Carolina systems consisting of 3
separate headends. These systems serve an aggregate of approximately 300,000
basic subscribers and 90,000 digital subscribers using 29 Concurrent MediaHawk
video servers. AOL Time Warner recently became the first MSO to deploy
subscription VOD (SVOD) with its SVOD trial in the Columbia, South Carolina
system.
COX COMMUNICATIONS
In April 2000, Concurrent was selected by Cox for a commercial launch of
Concurrent's VOD system in Cox's San Diego, California market. This market
consists of approximately 355,000 basic subscribers, with approximately 73,000
digital subscribers. Cox began launching commercial service to approximately
2,000 subscribers in May 2001.
In June 2000, Concurrent was also selected by Cox to provide MediaHawk
video servers for the commercial launch of VOD service in the Phoenix, Arizona
market, the single largest division of Cox. This market consists of
approximately 605,000 subscribers, with approximately 115,000 digital
subscribers. Concurrent currently expects the commercial launch to occur near
the end of 2001 or early 2002.
In April 2001, Concurrent was selected by Cox to provide MediaHawk video
servers for the commercial launch of VOD service in Hampton Roads, Virginia,
which has more than 400,000 basic subscribers and more than 50,000 digital
subscribers. Concurrent understands that Cox currently expects to launch
commercial service in this market near the end of 2001 or early 2002.
COMCAST CABLE CORPORATION
In March 2001, Concurrent signed a multi-year strategic purchase agreement
with Comcast which resulted in purchase orders for its VOD system to be deployed
in 8 system-wide launches of VOD on both Scientific-Atlanta and Motorola
equipment. The initial order was for approximately 80 MediaHawk video servers.
Concurrent began shipment of these systems in the quarter ended March 31, 2001.
In August of 2001, Concurrent was also selected by Comcast for another
system-wide deployment and has shipped 14 servers for this initial deployment
during the first quarter of fiscal 2002.
COGECO CABLE INC.
In May 2001, Concurrent entered into an arrangement with Cogeco to provide
VOD systems for its Ontario and Quebec cable systems. Cogeco serves
approximately 1,000,000 basic subscribers and 105,000 digital subscribers.
Cogeco and Concurrent are in the process of determining the appropriate
configuration and the necessary number of servers and streams and expect the
commercial launch of VOD to begin in late 2001 or early 2002.
VOD SOLUTION
Concurrent's VOD system allows MSOs to deliver VOD services over their high
bandwidth two-way hybrid fiber coax cable infrastructure. Concurrent's VOD
system is capable of being distributed over certain portions of this
infrastructure, including the headend, hub or hubs, and digital set-top boxes in
subscribers' homes.
- Headend. The headend is a cable system's main network operations
center where the cable company receives incoming programming for
distribution over its network. The components of Concurrent's VOD
system typically located at the digitally-upgraded system operator's
headend include a network manager, one or more video servers,
back-office software suite and system management and maintenance
software. In centralized applications, Concurrent's video servers are
all located at the system headend.
5
- Hub. The hub typically is a smaller facility serving a limited number
of homes, containing the system operator's network transmission
equipment for video delivery and control. The components of
Concurrent's VOD system typically located at the system operator's
hubs include one or more additional video servers.
- Digital set-top box. The digital set-top box is located in the
subscriber's home and is designed to receive transmissions from, and
transmit data to, the system operator's network. Concurrent's client
software is run by the digital set-top box.
When a subscriber selects a movie, a video stream is established between
Concurrent's video server and the digital set-top box in the subscriber's home
via the network manager. The selected movie is accessed from the video server
where it is stored at either a headend or a hub. The purchase is recorded by
Concurrent's back-office software creating a billing and royalty record for the
cable provider.
PRODUCTS AND TECHNOLOGY
XSTREME DIVISION
Product. Concurrent's VOD systems integrate its core VOD technology,
real-time and back-office software and readily-available commercial hardware
platforms to provide interactive, VOD capabilities. Concurrent generally
markets its VOD products to MSOs as an end-to-end VOD solution. Concurrent also
markets the individual components of its VOD systems to VARs and systems
integrators for inclusion in their VOD solutions. Concurrent's VOD systems
include the MediaHawk video server, network manager, MediaHawk Broadband VOD
BackOffice Business Management System, system management and maintenance
software and client software. The components of Concurrent's system are
described below:
- MediaHawk Model 2000 video server. Concurrent's MediaHawk video
servers are high-performance computer systems designed for the
demanding requirements of interactive video-on-demand applications.
The MediaHawk video server includes multiple content storage devices,
stream processors and input/output interfaces.
- Network manager. Concurrent's network manager or resource manager
establishes the network connection that allows the video to be
streamed to the home. The network manager is designed to route video
streams in the most efficient manner available at any given time.
- MediaHawk Broadband VOD Back Office Business Management System.
Concurrent's business management system is an industry standard
rational database supporting subscriber and provider data management.
Concurrent's back-office applications include customer access
management, content distribution management, order management, royalty
management, billing interfaces and marketing analysis.
- Client. Concurrent's client allows the subscriber to select the movie
on demand and maintain complete interactive control. Therefore, the
subscriber can pause, fast forward, rewind or stop the movie having
the same control as if they were using a VCR.
- System management and maintenance software. Concurrent's system
management and maintenance software is designed to detect failed
components and re-route video streams bypassing the failed component.
The monitoring software is also capable of providing system level
status that notifies the cable operator that a maintenance activity is
required.
6
Product Discriminators. Concurrent believes its key VOD system
discriminators include:
- Multiple integration options. Concurrent's VOD systems have been
designed to be compatible with a wide range of equipment and software
employed by cable operators to deliver digital television service,
including:
- Various digital set-top boxes. Concurrent's VOD systems are
compatible with digital set-top boxes manufactured by each of the
major domestic digital set-top box producers, including
Scientific-Atlanta, Motorola, Pioneer and Sony. This
compatibility allows Concurrent's customers to purchase
Concurrent's systems without concern about their current or
future selection of set-top box producers. Furthermore,
Concurrent's system is capable of accommodating multiple
headends, source content, navigators and workstation platforms.
- Existing and next-generation equipment. Although newer
generations of digital set-top boxes have memory capability
allowing subscribers to interact with and access VOD services,
older digital set-top boxes may lack this capability.
Concurrent's VOD technology allows Concurrent to handle this
capability in the server rather than in the actual digital
set-top box which overcomes the major obstacle in providing VOD
capability through older generation digital set-top boxes. Thus,
deployment of Concurrent's VOD system is not necessarily
contingent on the upgrading of currently deployed digital set-top
boxes.
- Transport Topologies. Concurrent's VOD systems are compatible
with numerous transport topologies supporting delivery of VOD
services over Ethernet, asynchronous transfer mode ("ATM"), and
64 and 256 QAM.
- Billing systems. Both the existing and the emerging billing
systems currently employed by MSOs can be used with Concurrent's
VOD systems.
- Support for both distributed and centralized architectures.
Concurrent's systems are designed to function equally well with
distributed networks that minimize fiber optic bandwidth usage or
centralized networks that support high-density populations that
minimize facility requirements.
- Highly scalable systems. Concurrent's systems are modular and
therefore easily scalable. Utilizing Concurrent's dual chassis,
multiple cabinet designs, Concurrent's customers can scale both video
storage and stream capacity in various increments to allow for
significant flexibility.
- MediaHawk Broadband VOD Back Office Business Management System. In
addition to content management, order management, provider account
management, customer access management, marketing analysis and billing
functions, Concurrent's back-office business management system also
supports e-commerce applications and subscriber data collection which
enhances the revenue-generation capabilities of the VOD service
provider.
- Subscription VOD Technology. Concurrent's VOD systems are designed
with subscription Video-On-Demand services, which are currently in the
process of being trialed in four major markets with three different
cable operators. These trials are on both Scientific-Atlanta and
Motorola digital set-top systems and involve multiple SVOD programming
providers. SVOD is a strong complementary service to VOD, enabling
impulse viewing of premium network programming with VCR-like
functionality including fast forward, pause, and rewind, and with
simple flat fees. In addition to these advantages, SVOD also provides
an opportunity for subscription programming providers, such as
Starz-Encore, HBO, and Showtime, to build additional market share with
this new value-added service. SVOD is not a service that can be
offered by direct broadcast satellite and will provide the cable
operators a strategic competitive advantage and build greater
subscriber satisfaction and retention.
7
- Specialized video engine. Concurrent's video engine was designed
specifically for the requirements of providing VOD services. As such,
Concurrent's video engine is capable of creating high stream density
accommodating increasing levels of demand, simultaneous usage and
expanding library content.
- Fault tolerant system designs. Concurrent's VOD systems are designed
with multiple layers of redundancy including fully redundant storage,
power and cooling systems to provide seamless end-user viewing. Thus,
system repairs can be made during delivery without any interruption to
the end-user.
- Variable bit-rate technology. Concurrent's variable bit-rate
technology minimizes storage and bandwidth while maximizing video
fidelity. Concurrent believes that this technology will become a key
technology discriminator as higher-fidelity requirements such as
high-definition television emerge.
MediaHawk Model 2000 Product. Concurrent began shipments of its MediaHawk
Model 2000 video server in September 2000. Through Concurrent's internal
research and development efforts, the acquisition of Vivid Technology and its
technological strategic relationships, Concurrent has integrated new
technologies that Concurrent believes will further enhance the attractiveness of
its VOD solution into Concurrent's new MediaHawk video server. Concurrent's
MediaHawk Model 2000 VOD servers and software are designed to allow a single
product to work in conjunction with cable equipment and digital set-top boxes
produced by both Scientific-Atlanta and Motorola.
Customer Service Plans and Support. The basic customer service plans and
support options offered to Concurrent's VOD customers include software patches
to correct problems in existing software, 24-hour parts replacement, product
service training classes, limited onsite services and preventative maintenance
services. These services are provided at no additional charge during the
warranty period and are available for additional fees under maintenance
agreements after the warranty period. In addition to these basic service and
support options, Concurrent also offers, for additional fees, software upgrades
and onsite hardware maintenance services. To date, customer service and support
revenues from Concurrent's VOD business have not been material.
REAL-TIME DIVISION
Concurrent's real-time systems are applicable to a wide range of
application requirements, including high performance processing, high data
throughput, predictable and repeatable response times, reliably meeting required
deadlines, consistently handling peak loads, and better balancing of system
resources. End uses of Concurrent's real-time systems include product design
and testing, simulation and training systems, engine testing, range and
telemetry systems, weather satellite data acquisition and forecasting, and
intelligence data acquisition and analysis.
Products. Concurrent's Real-Time division designs, develops and
manufactures real-time computer systems and services for mission-critical
applications. The real-time computer systems are specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real-time with microsecond or millisecond response time. Concurrent's real-time
products facilitate symmetric multiprocessing for a wide range of real-time
applications including simulation, data acquisition and industrial process
control systems.
- Simulation. Concurrent is a recognized leader in developing real-time
systems for simulation applications. Primary applications include
trainers/simulators for operators in commercial and military aviation,
vehicle operation and power plants, mission planning and rehearsal and
engineering design simulation for avionics and automotive labs. An
additional segment of this market for Concurrent is
Hardware-In-The-Loop applications in which accurate simulations are
constructed to verify hardware designs, thereby minimizing or
eliminating entirely the need for expensive prototypes. Concurrent
offers software applications that provide a real-time advantage to its
customers and integrates these applications to provide complete
solutions.
- Data Acquisition. Concurrent is a leading supplier of systems for
radar control, data fusion and weather analysis applications, all of
which require the ability to gather, analyze, and display continuous
flows of information from simultaneous sources. Primary applications
include environmental analysis and display, range and telemetry and
command and control.
8
- Industrial Process Control Systems. Concurrent manufactures systems to
collect, control, analyze, and distribute test data from multiple
high-speed sources for industrial automation systems, product test
systems (particularly engine tests), supervisory control and data
acquisition systems and instrumentation systems. Concurrent's strategy
to serve this market involves the employment of third-party software
applications to provide a unique solution for its customers.
Each of Concurrent's real-time products described below utilizes
Concurrent's PowerMAX operating system which is designed to run real-time
applications over a full range of systems. With the new PLDE, users now have
the choice of developing their PowerMAX OS real-time applications on a
Concurrent system or on a Linux PC. The three principal products sold by
Concurrent's Real-Time division are:
- Power Hawk 700. Power Hawk 700 is Concurrent's highly scalable,
advanced technology system capable of supporting data acquisition,
simulation and industrial process control applications in environments
ranging from entry level to highly complex. The Power Hawk 700 line is
designed around the 7400 PowerPC processor, and is available in
single, dual and quad CPU versions.
- Power Hawk 600. Power Hawk 600 is the predecessor to the Power Hawk
700 line and supports similar applications. The Power Hawk 600 series
is designed around the PowerPC 604e processor, is available in single
and dual board applications, and is most commonly purchased by
customers expanding existing Power Hawk 600 installations.
- PowerMAXION. The PowerMAXION is Concurrent's mid-level system
specifically targeted to the real-time data acquisition market, such
as radar and weapons control in the military market. The PowerMAXION
series is designed around the PowerPC 604e processor, and is available
in one-to-eight board configurations.
- TurboHawk. The TurboHawk is Concurrent's highest performance system
targeted to the real-time simulation and data acquisition markets.
Customer Service and Support Plans. Concurrent offers a variety of service
and support programs to meet the customer's maintenance needs for both its
hardware and software products. Concurrent also offers contract service for
selected third party equipment. The service and support programs offered by
Concurrent include rental exchanges, diagnostic and repair service, on-call and
time and materials service, and preventive maintenance. Concurrent offers
long-term service and support of its products for, in some cases, as long as
fifteen to twenty years.
Custom Engineering and Integration Services. Throughout Concurrent's
history, it has supported its customers through custom engineering and
integration services. Concurrent provides custom engineering and integration
services in the design of special hardware and software to help its customers
with their specific applications. This may include custom modifications to
Concurrent's products or integration of third party interfaces or devices into
Concurrent's systems. Many customers use these services to migrate existing
applications from earlier generations of Concurrent's or competitors' systems to
Concurrent's state-of-the-art systems. These services also include classroom
and on-site training, system and site performance analysis, and multiple vendor
support planning. Although the total revenues associated with any single
service may be small in comparison to total revenues, increased customer
satisfaction is an integral part of Concurrent's business plan.
STRATEGIC RELATIONSHIPS
Scientific-Atlanta. In August 1998, Concurrent entered into an agreement
with Scientific-Atlanta to jointly develop and market a VOD system. Under this
agreement, Concurrent was able to receive early development releases from
Scientific-Atlanta. In addition, the companies have jointly developed a system
architecture that is compliant with the AOL Time Warner VOD architecture
requirements ("Pegasus"). In exchange for Scientific-Atlanta's technical and
marketing contributions, Concurrent issued Scientific-Atlanta warrants to
purchase 2,000,000 shares of Concurrent's Common Stock, exercisable at $5 per
share over a four-year term. In addition, Scientific-Atlanta may in certain
circumstances have the right to receive additional warrants to purchase up to a
maximum of 8,000,000 additional shares of Concurrent's Common Stock. The
granting of these additional warrants will be based upon performance goals
measured by the revenue Concurrent receives from sales of equipment to systems
employing Scientific-Atlanta's equipment. To date, no additional warrants have
been granted under this agreement.
9
The agreement with Scientific-Atlanta provides that each party will own the
intellectual property that is created solely by its own employees as a part of
the development process. Intellectual property that is developed by employees
of both Scientific-Atlanta and Concurrent will be owned by Concurrent if the
intellectual property represents an improvement upon Concurrent's products or
will be owned by Scientific-Atlanta if the intellectual property represents an
improvement upon Scientific-Atlanta's products.
Motorola. Concurrent and Motorola jointly developed a specific return path
protocol that allowed VOD services to be provided via Motorola older-generation
digital set-top boxes currently deployed by several MSOs. As a result of this
relationship, Concurrent can offer a complete end-to-end VOD system compatible
with the currently-deployed Motorola digital set-top boxes.
Prasara Technologies. Under a joint development agreement with Prasara
Technologies, a software company specializing in delivery of on-demand
information, Concurrent and Prasara jointly developed interactive and
back-office VOD software specifically designed to meet the needs of MSOs. This
software is integrated with Concurrent's MediaHawk video servers using cable
equipment provided by Scientific-Atlanta or equipment compatible with
Scientific-Atlanta. The joint development agreement with Prasara provides for
Concurrent to have exclusive ownership of most of the software modules that make
up the back-office software suite that accompanies the MediaHawk VOD server.
Prasara has joint ownership with Concurrent of certain of the modules that make
up the back-office software suite. Each of Concurrent and Prasara must pay
royalties to the other for their respective sales of products containing any of
these jointly-owned software modules.
Intertainer. Concurrent has worked with Intertainer, a VOD content
provider seeking to market an end-to-end VOD solution, in integrating
Concurrent's VOD server into Intertainer's turnkey solution.
Cisco Systems, Inc. Concurrent is a partner in the Cisco Service Provider
Solutions Ecosystem Program which is designed to provide a vehicle for
systematically bringing new technologies to the Service Provider Marketplace.
The Cisco Service Provider Solutions Ecosystem brings together qualified
developers of hardware and software applications that interoperate with Cisco
product, vendors of complementary network enabling technologies, and deployment
partners in order to best serve the mutual service providers. Some of the key
benefits the Cisco Service Provider Solutions Ecosystem Program is intended to
provide to partners include: long-term business level relationship with Cisco;
increased Cisco commitment; enhanced market credibility based on Cisco
relationship; marketing and sales development opportunities; improved operations
efficiency; and new service/technology creation.
Liberate. On April 11, 2001, Concurrent announced a strategic alliance
with Liberate Technologies, a leading provider of software for the delivery of
interactive television, under which Concurrent combined its technologies into an
integrated interactive TV and VOD offering for the growing digital video market.
The strategic agreement was reached under the Liberate(R) PopTV(TM) Program, in
which Concurrent is a "preferred infrastructure partner," and has the highest
level of preference as a VOD supplier.
SALES
Concurrent sells its systems in key markets worldwide through its direct
field sales and support offices, as well as through VARs and systems
integrators. As of June 30, 2001, Concurrent had 85 employees in its sales and
marketing force.
VOD
Concurrent's VOD sales strategy primarily focuses on developing
relationships with domestic MSOs and international cable and DSL providers.
Concurrent's domestic sales force has significant experience as either employees
of, or service providers to, the largest domestic MSOs. Concurrent believes
10
that it has been successful in leveraging the strength of that experience, as
well as the strength of Concurrent's MediaHawk video server, into opportunities
for initial commercial launches of Concurrent's VOD systems.
In Concurrent's non-broadband markets on both the domestic and
international fronts, Concurrent also intends to continue working with VARs and
systems integrators who are seeking to integrate Concurrent's VOD products into
end-to-end or turnkey solutions sold into their target markets.
As of June 30, 2001, Concurrent employed 42 people worldwide as part of its
Xstreme sales and marketing team.
REAL-TIME
Concurrent sells its real-time systems in key markets worldwide through
direct field sales and support offices, as well as through VARs and systems
integrators. As of June 30, 2001, Concurrent employed 43 people worldwide as
part of its real-time sales and marketing team.
CUSTOMERS
VOD
A significant portion of Concurrent's VOD revenue has come from, and is
expected to continue to come from, sales to the large MSOs. For the year ended
June 30, 2001, three customers, Comcast, AOL Time Warner and Cox, accounted for
38%, 34% and 12% of total VOD revenue, respectively. Many MSOs are currently
evaluating providers of VOD systems and making purchase decisions. Concurrent
believes that the relationships forged between VOD system suppliers and MSOs
over the next 12 to 18 months will be critical in determining the relative
market shares of VOD system providers. If Concurrent is unsuccessful in
establishing and maintaining these key relationships with MSOs, the VOD business
will be adversely affected. Further, if Concurrent experiences problems in any
of its VOD system trials or initial commercial launches, its ability to attract
new MSO customers and sell additional products to existing customers will be
materially adversely affected.
REAL-TIME
Concurrent currently derives a significant portion of its real-time revenue
from a limited number of customers. As a result, the loss of, or reduced demand
for products or related services from, any of Concurrent's major customers could
adversely affect its business, financial condition and results of operations.
In the fiscal year ended June 30, 2001, one customer, Hamilton-Sundstrand, a
United Technologies company, accounted for approximately 12% of the total
real-time revenue. No other customer accounted for more than 10% of real-time
revenue for the period.
Concurrent derives a significant portion of its revenues from the supply of
integrated computer systems to U.S. Government prime contractors and agencies of
the U.S. Government. The supplied systems include configurations from the
PowerMAXION, PowerHAWK, TurboHAWK and NightHAWK product lines, with certain
systems incorporating custom enhancements requested by the customer. Examples
of prime contractors to whom we sell these integrated computer systems include
Boeing, Lockheed-Martin, and Raytheon. For example, Raytheon purchased
integrated computer systems from Concurrent to be used by the Federal Aviation
Administration for wind shear detection. Concurrent also supplies spare parts,
upgrades, and engineering consulting services and both hardware and software
maintenance. For the fiscal year ended June 30, 2001, Concurrent recorded $16.1
million in revenues to U.S. Government prime contractors and agencies of the
U.S. Government, representing 22% of total sales for the period. Government
business is subject to many risks, such as delays in funding, audits, reduction
or modification of contracts or subcontracts, failure to exercise options,
changes in government policies and the imposition of budgetary constraints. A
loss of government contract revenues could have a material adverse effect on
Concurrent's business, results of operations and financial condition.
Concurrent does not have written continuing purchase agreements with any of
its customers and does not have written agreements that require customers to
purchase fixed minimum quantities of Concurrent's products. Sales to specific
11
customers tend to, and are expected to continue to, vary from year-to-year,
depending on such customers' budgets for capital expenditures and new product
introductions.
NEW PRODUCT DEVELOPMENT
VOD
Concurrent's research and development strategies with respect to its VOD
solutions will focus on higher stream density, encryption techniques, personal
video channel technology and product enhancements for international markets.
Increased Stream Density. Concurrent believes it is one of only two
providers of VOD systems currently employing fibre channel technology. Fibre
channel provides the highest bandwidth/connectivity technology that is
commercially available. Concurrent intends to continue leveraging techniques
that allow this technology to create higher stream density and superior
connectivity. Concurrent expects this will result in even more efficient
distributed and centralized VOD system implementations.
Encryption Techniques. Encryption techniques will need to become integral
to Concurrent's VOD system to maintain a high level of security designed to
discourage content piracy and encourage content providers, such as movie
studios, to provide market windows that will gradually become more consistent
with the movie rental distribution channel. Concurrent plans to develop an open
encryption system to support various encryption methodologies.
Personal Video Channel. Concurrent plans to add personal video channel
(pVC(TM)), capability to its current residential cable VOD system. The personal
video channel will allow the subscriber to record, pause and rewind live
broadcasts effectively providing "TV on demand." Concurrent expects this server
capability will have advantages over traditional personal home video recorders
by providing more storage capacity and the ability to record multiple channels
simultaneously.
International Markets. Concurrent's strategy is to leverage its domestic
success and add capability to the existing VOD system that will enable it to
market its VOD system to international cable and DSL providers. Enhancements
will include network equipment integration, billing system integration,
conditional access integration and set-top box integration. Specific
integration tasks and partnerships will be opportunity driven as the
international market develops.
REAL-TIME
Concurrent's real-time product development strategies with respect to its
computer systems solutions will focus on higher-performance and cost-effective
scalable architectures to allow for a greater degree of flexibility to the
customer. New product development in real-time includes new hardware, software
and integration services that will add new features and enhancements to the
Power Hawk line of computers and the NightStar software development tools.
Higher performance Computer Systems. Concurrent has upgraded the Power
Hawk computer line with the new Series 700 computer system. The Series 700's
PowerPC utilizes Motorola's MPC7400 (G4) processor, the first microprocessor
that can deliver sustained performance of over one billion floating point
operations per second. The G4 can process data in 128-bit segments rather than
the 32-bit or 64-bit segments of traditional processors. The G4's AltiVec
vector instruction set performs 16 calculations in a single cycle providing IEEE
floating point performance four times faster than non-vector processors.
Cost effective scalable cluster architectures. The dual and quad-CPU
Series 700 processor boards are true symmetric multiprocessors that run a single
copy of Concurrent's PowerMAX OS real-time operating system. All CPUs on a
board are linked by a high-speed PowerPC processor bus and have direct,
cache-coherent access to all of on-board main memory. Two or more Power Hawk
Series 700 processor boards can be combined through the high speed P0/PCI bus to
create closely-coupled multiprocessor configurations of up to 32 CPUs.
12
PowerWorks Linux Development Environment (PLDE). The PLDE allows users to
develop applications for any Concurrent PowerPC-based real-time computer system
on an Intel PC running the open source Linux operating system. Application
programs are compiled and debugged directly on a Linux PC while targeted to a
system running Concurrent's PowerMAX operating system, freeing production
systems from the need to be involved in the development process. As
Concurrent's real-time customers recognize the growing importance of Linux as a
real-time solution resource, Concurrent plans to continue to enhance its
operating system and tool set offerings to take full advantage of this
development.
Power Hawk Series 700 software development tools supporting Linux open
system solutions. Concurrent plans to provide its customers the opportunity to
develop and debug complex multiprocessing applications utilizing Concurrent's
integrated software environment while taking advantage of the Intel based Linux
open source operating system. Users will have the option of developing their
real-time applications under PowerMAX OS or Linux using the same comprehensive
suite of NightStar GUI development tools. As our real-time customers recognize
the growing importance of Linux as a key real-time operating system, Concurrent
expects that there will be a large demand for Linux-ready applications that can
meet the workload demands of today's real-time environment. As the Linux open
source solution market demand develops, Concurrent plans to continue enhancing
its software operating system and development environment to take full advantage
of the broad range of software, hardware and integration opportunities available
in the Linux marketplace.
COMPETITION
Both Concurrent's Xstreme and Real-Time divisions operate in
highly-competitive environments, driven by rapid technological innovation. Due
in part to the range of performance and applications capabilities of
Concurrent's products, Concurrent competes in various markets against a number
of companies.
The market for VOD systems is relatively new, highly competitive and
rapidly evolving. Since there have been limited commercial deployments of VOD
systems to date, the respective market shares of companies competing in the VOD
market are uncertain. In the VOD market, Concurrent's major competitors
currently include the following:
- in the domestic cable and international cable and DSL market:
SeaChange International Inc., nCUBE and Diva Communications; and
- in the education market: Silicon Graphics, Inc., Cisco Systems, Inc.
and International Business Machines Corp., as well as local systems
integrators.
Concurrent also competes with a number of companies in its real-time
business. Concurrent's major competitors can be categorized as follows:
- major computer companies that participate in the real-time business by
layering specialized hardware and software on top of, or as an
extension of, their general purpose product platforms, including
Compaq Computer Corporation and Hewlett-Packard Corporation;
- other computer companies that provide solutions for applications that
address specific characteristics of real-time, such as fault tolerance
or high performance graphics, including Silicon Graphics, Inc. and
Compaq Computer Corporation;
- general purpose computing companies that provide a platform on which
third-party vendors add real-time capabilities, including
International Business Machines Corp. and Sun Microsystems, Inc.; and
- single board computer companies that provide board-level processors
that are typically integrated into a customer's computer system,
including Force Computers, Inc. and Motorola, Inc.
13
Due to the rapidly evolving markets in which Concurrent competes,
additional competitors with significant market presence and financial resources,
including computer hardware and software companies, content providers and
television equipment manufacturers, including digital set-top box manufacturers,
may enter those markets, thereby further intensifying competition. Concurrent's
future competitors also may include one or more of the parties with which it
currently has a strategic relationship. Although Concurrent has proprietary
rights with respect to much of the technology incorporated in Concurrent's VOD
and real-time systems, Concurrent's strategic partners have not agreed to
refrain from competing against Concurrent. Many of Concurrent's current and
potential future competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than Concurrent, and
greater brand name recognition. In addition, many of Concurrent's competitors
have well-established relationships with Concurrent's current and potential
customers and have extensive knowledge of Concurrent's industries.
INTELLECTUAL PROPERTY
Concurrent relies on a combination of contracts and copyright, trademark
and trade secret laws to establish and protect its proprietary rights in its
technology. Concurrent distributes its products under software license
agreements which grant customers perpetual licenses to Concurrent's products and
which contain various provisions protecting its ownership and confidentiality of
the licensed technology. The source code of Concurrent's products is protected
as a trade secret and as an unpublished copyright work. In addition, in limited
instances, Concurrent licenses its products under licenses that give licensees
limited access to the source code of certain of Concurrent's products,
particularly in connection with its strategic alliances.
Despite precautions taken by Concurrent, however, there can be no assurance
that Concurrent'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. Concurrent believes that, due to the rapid pace of innovation within
its industry, factors such as the technological and creative skills of
Concurrent's personnel are more important to establishing and maintaining a
technology leadership position within the industry than are the various legal
protections for Concurrent's technology. Concurrent does not own any material
patents and does not hold any copyrights or trademarks that are material to its
business.
Concurrent has entered into licensing agreements with several third-party
software developers and suppliers. Generally, such agreements grant Concurrent
non-exclusive, worldwide licenses with respect to certain software provided as
part of computers and systems marketed by Concurrent and terminate on varying
dates.
GOVERNMENTAL REGULATION
Concurrent is subject to various international, U.S. federal, state and
local laws affecting its business. Any finding that Concurrent has been or is in
noncompliance with such laws could result in, among other things, governmental
penalties. Further, changes in existing laws or new laws may adversely affect
Concurrent's business.
The television industry is subject to extensive regulation in the United
States and other countries. Concurrent's VOD business is dependent upon the
continued growth of the digital television industry in the United States and
internationally. Television operators are subject to extensive government
regulation by the Federal Communications Commission and other federal and state
regulatory agencies. These regulations could have the effect of limiting
capital expenditures by television operators and thus could have a material
adverse effect on Concurrent's business, financial condition and results of
operations. The enactment by federal, state or international governments of new
laws or regulations could adversely affect Concurrent's cable operator
customers, and thereby materially adversely affect Concurrent's business,
financial condition and results of operations.
ENVIRONMENTAL MATTERS
Concurrent purchases, uses, and arranges for certified disposal of
chemicals used in the manufacturing process at its Pompano Beach facility. As a
result, Concurrent is subject to federal and state environmental protection and
community right-to-know laws. Violations of such laws, in certain
circumstances, can result in the imposition of substantial remediation costs and
penalties. Concurrent believes it is in compliance with all material
environmental laws and regulations.
14
EMPLOYEES
As of June 30, 2001, Concurrent had 412 employees worldwide. Approximately
313 of these employees were in the United States. Concurrent had 112 employees
in its Xstreme division and 206 employees in its Real-Time division. The
remaining employees include administrative, marketing and communications, and
manufacturing personnel that are shared between the two divisions. Concurrent's
employees are not unionized.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
A summary of net sales (consolidated net sales reflects sales to
unaffiliated customers) attributable to Concurrent's foreign and domestic
operations for the fiscal years ended June 30, 2001, 2000 and 1999,
respectively, is presented at Note 18 to the consolidated financial statements
included herein. Financial information about Concurrent's foreign operations is
included in Note 18 to the consolidated financial statements included herein.
ITEM 2. PROPERTIES
Concurrent's principal facilities as of June 30, 2001, are listed below.
All of the principal facilities are leased. Management considers all facilities
listed below to be suitable for the purpose(s) for which they are used,
including manufacturing, research and development, sales, marketing, service,
and administration.
EXPIRATION APPROX.
LOCATION PRINCIPAL USE DATE OF LEASE FLOOR AREA
-------- ------------- ------------- ----------
(SQ. FEET)
4375 River Green Parkway Corporate Headquarters, August 2006 33,000
Duluth, Georgia Administration, Research &
Development, Sales and Marketing
2800 Gateway Drive Manufacturing and Service December 2004 40,000
Pompano Beach, Florida
2881 Gateway Drive Administrative and Sales and December 2004 30,000
Pompano Beach, Florida Marketing
2 Crescent Place Repair and Service Depot May 2002 28,000
Oceanport, New Jersey
Concurrent House Sales, Service and Research & February 2003 10,000
Railway Terrace Development
Slough, Berkshire, England
100 Highpoint Drive Research & Development July 2003 8,000
Chalfont, PA 18914
Except for the Chalfont, Pennsylvania facility, which is used exclusively
for the Xstreme division, Concurrent's facilities are used for both divisions.
In addition to the facilities listed above, Concurrent also leases space in
various domestic and international industrial centers for use as sales and
service offices and warehousing.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Concurrent may be involved in litigation relating to
claims arising out of its ordinary course of business. Concurrent is not
presently involved in any material litigation.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM X. OFFICERS OF THE REGISTRANT
Officers of Concurrent are elected by the Board of Directors to hold office
until their successors have been chosen and qualified or until earlier
resignation or removal. Set forth below are the names, positions, and ages of
Concurrent's executive officers as of September 4, 2001:
NAME POSITION AGE
---- -------- ---
Jack A. Bryant President and Chief Executive Officer 43
Paul C. Meyer President, Real-Time Division 54
Steven R. Norton Executive Vice President, Chief Financial Officer and Secretary 40
Fred Allegrezza Chief Technology Officer, Xstreme Division 43
Robert E. Chism Vice President, Development, Xstreme Division 48
Robert T. Menzel Vice President, Sales & Marketing, Real-Time Division 48
David Nicholas Vice President, Worldwide Sales, Xstreme Division 47
Jack A. Bryant, President and Chief Executive Officer. Mr. Bryant has
served as the President and Chief Executive Officer since October 2000. Mr.
Bryant served as President of the Xstreme division from July 2000 to October
2000. Prior to joining Concurrent, he held a number of positions at Antec
Corporation, a communications technology company that specializes in
hybrid-fiber-coax-based networks, from 1991 to June 2000. The positions
included, from March 1998 to June 2000, President of the Network Technologies
Group, from January 1996 to March 1998, President of the Digital Systems
Division, and from January 1995 to January 1996, Vice President of Marketing.
Before joining Antec, Mr. Bryant held various product marketing and sales
positions at General Instrument and Scientific-Atlanta.
Paul C. Meyer, President, Real-Time Division. Mr. Meyer has served as
President of the Real-Time division since December 2000. Immediately prior to
joining Concurrent, he was the President of ASM Associates, Inc., a consulting
firm that provides interim senior management services. From 1994 to 1996, he
served as the Executive Vice President and General Manager of Viacom New Media.
From 1988 to 1994, he served as President of his own consulting firm, Paul C.
Meyer & Associates, Ltd., leading a small team of professionals in consulting
assignments involving turnaround, restructuring, and crisis management. Before
forming his own firm, he served in various positions with Coleco Industries,
Inc.
Steven R. Norton, Executive Vice President, Chief Financial Officer and
Secretary. Mr. Norton has served as the Executive Vice President and Chief
Financial Officer since October 1999. From March 1996 to April 1999, Mr. Norton
was Vice President of Finance and Administration for LHS Group, Inc., a publicly
held provider of services to communications services providers and Chief
Financial Officer for one of its subsidiaries, LHS Communications Systems, Inc.
Prior to his employment with LHS, he was an Audit Senior Manager for Ernst
&Young and KPMG LLP.
Fred Allegrezza, Chief Technology Officer. Mr. Allegrezza served as the
Vice President, Business Development from October 1999 to July 2001 when he was
promoted to Chief Technology Officer for the Xstreme Division. Prior to joining
Concurrent, from September 1996 to October 1999, Mr. Allegrezza was the
President and CEO of Vivid Technology, Inc., a company that he founded in
September 1996. Prior to founding Vivid Technology, Inc., from April 1995 to
September 1996, Mr. Allegrezza worked with General Instrument as Engineering
Program Manager and Systems Engineering Manager in the first digital interactive
cable systems deployments. Prior to his work at General Instrument, from June
1990 to April 1995, Mr. Allegrezza worked as the Manager of Systems development
and was responsible for development engineering and product marketing for Moore
Products Company.
16
Robert E. Chism, Vice President, Development, Xstreme Division. Mr. Chism
has served as Vice President, Development of the Xstreme division since April
1999. From June 1996 to April 1999, he served as the Vice President,
Development. From October 1994 through June 1996, he served as Vice President,
Technical and Production Operations of Harris Computer Systems Corporation. In
June 1993, he joined the Harris Computer Systems Division of Harris Corporation
as Director, Simulation Business Area. Before joining the Harris Computer
Systems Division, he held diverse engineering, program management and marketing
assignments in computer and related industries with General Electric Company, a
diversified industrial corporation, and from May 1978 to June 1993 he was
Subsection Manager of Satellite Command and Data Handling.
Robert T. Menzel, Vice President, Sales & Marketing, Real-Time Division.
Mr. Menzel has served as Vice President, Sales & Marketing of the Real-Time
division since April 1999. He served as the Vice President, real-time systems
from June 1997 to March 1999, and the Vice President, North American Sales, from
June 1996 to February 1997. From June 1996 to June 1997, he was the Vice
President, Interactive Video-on-Demand. Mr. Menzel was Vice President, General
Manager of the Trusted Systems Division of Harris Computer Systems Corporation
from April 1995 to June 1996, and he served as Vice President, National Sales of
Harris Computer Systems Corporation from October 1994 to April 1995.
David M. Nicholas, Vice President, Worldwide Sales, Xstreme Division. Mr.
Nicholas has served as Vice President, Sales, of the Xstreme division since
March 1999. From September 1995 to February 1999, he served as Executive Vice
President of Pioneer New Media Technologies, Inc., a provider of audio video
products. From August 1993 to August 1995, he served as Vice President and
General Manager of Texscan Network Systems, a privately held provider of
advertising insertion solutions. Prior to that time, he served in various
positions at Pioneer Communications of America, Panasonic Industrial, and
Magnavox.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is currently traded under the symbol "CCUR" on The Nasdaq
National Market. The following table sets forth the high and low sale
information for the Common Stock for the periods indicated, as reported by The
Nasdaq National Market.
FISCAL YEAR 2001
QUARTER ENDED: HIGH LOW
---- ---
September 30, 2000 $21.75 $10.19
December 31, 2000 $20.38 $ 3.88
March 31, 2001 $ 8.38 $ 3.88
June 30, 2001 $ 9.13 $ 4.77
FISCAL YEAR 2000
QUARTER ENDED:
September 30, 1999 $ 8.53 $ 5.38
December 31, 1999 $19.44 $ 6.31
March 31, 2000 $27.25 $12.00
June 30, 2000 $13.25 $ 5.50
As of September 4, 2001, there were 60,780,770 shares of Common Stock
outstanding, held of record by approximately 1,500 stockholders.
Concurrent has never declared or paid any cash dividends on its capital
stock. Concurrent's present policy is to retain all available funds and any
future earnings to finance the operation and expansion of its business, and no
change in the policy is currently anticipated. In addition, the terms of
Concurrent's credit facility prohibits the payment of cash dividends.
On July 31, 1992, the Board of Directors of Concurrent declared a dividend
distribution of one Right for each outstanding share of Common Stock and then
outstanding Convertible Preferred Stock of Concurrent to stockholders of record
at the close of business on August 14, 1992. Each Right entitles the registered
holder to purchase from Concurrent one one-hundredth of a share of Series A
Participating Cumulative Preferred Stock, par value $.01 per share, at a cash
purchase price of $30.00 per Right, subject to adjustment. The Rights become
exercisable upon the occurrence of certain events (see Note 16 to the
Consolidated Financial Statements.)
On July 19, 2001, Concurrent closed the sale of 5,400,000 shares of Common
Stock to private investors at a price of $4.80 per share. Net proceeds to
Concurrent, after fees and expenses, were approximately $24 million. Raymond
James & Associates, Inc. acted as placement agent in the sale. The sale was a
privately negotiated sale to selected institutional investors and other
accredited investors. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Rule 506 of
Regulation D promulgated thereunder. Concurrent intends to use the proceeds for
working capital, sales and marketing activities, product development and
support, potential acquisitions and investments, capital expenditures and
general corporate purposes. Concurrent subsequently registered the resale of
all of the shares on a Form S-3 registration statement (no. 333-61172), filed on
May 17, 2001 and declared effective on July 19, 2001.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data which has been derived from Concurrent's audited consolidated financial
statements. The information set forth below is not necessarily indicative of
the results of future operations and should be read in conjunction with, and is
qualified by reference to, Concurrent's financial statements and related notes
thereto included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
18
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
------------------------------------------------------
INCOME STATEMENT DATA 2001 2000 1999 1998 1997
--------------------- -------- ------------ ---------- -------- --------
Net sales $72,821 $ 68,090 $ 69,963 $82,215 $108,367
Gross margin 33,020 31,743 35,337 40,390 51,211
Operating income (loss) (5,591) (23,987)(1) (1,289) 3,311 9,239
Net income (loss) (6,189) (23,715)(1) (1,665) 3,414 4,061
Net income (loss) per share - basic
and diluted $ (0.11) $ (0.46)(1) $ (0.03) $ 0.07 $ 0.08
AT JUNE 30,
------------------------------------------------------
BALANCE SHEET DATA 2001 2000 1999 1998 1997
---------------------- -------- ------------ ---------- -------- --------
Cash, cash equivalents and
short-term investments $ 9,460 $ 10,082 $ 6,872 $ 5,733 $ 4,024
Working capital 14,824 15,383 14,694 13,652 4,694
Total assets 57,052 57,078 40,569 46,235 63,528
Long-term debt - - - - 4,493
Redeemable preferred stock - - - - 1,243
Stockholders' equity 33,283 38,271 26,011 25,510 18,120
Book value per share $ 0.60 $ 0.71 $ 0.54 $ 0.54 $ 0.39
<FN>
(1) In October 1999, Concurrent acquired Vivid Technology. In connection with
the acquisition, management placed a value of $14.0 million on in-process
research and development based on valuation methods it deemed appropriate.
This entire amount was written off as required by the purchase accounting
rules.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto which appear elsewhere herein. The following
discussion contains forward-looking statements that reflect Concurrent's plans,
estimates and beliefs. Concurrent's actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below, elsewhere herein and in other filings made with the Securities and
Exchange Commission.
OVERVIEW
In 1996, Concurrent acquired the real-time computer division of Harris
Computer Systems Corporation, creating one of the largest real-time computer
systems companies in the country. Over the past several years, the real-time
computer processing industry has seen a significant shift in demand from
high-priced, proprietary real-time systems to lower-priced, open server systems.
High performance processing in the past required a large, expensive computer
system with significant proprietary and customized software. Today these
requirements are often met by much smaller and less expensive computers with
off-the-shelf computer hardware and software. As a result, Concurrent's
revenues from both real-time products and services have been declining.
Real-time revenues consist of real-time computer system sales to domestic and
foreign government agencies and commercial corporations and fees for maintenance
and other services provided to Concurrent's real-time customers.
Concurrent now operates the business as two distinct divisions, the Xstreme
division and the Real-Time division. Concurrent created the Xstreme division to
capitalize on the increasing opportunities in the emerging digital television
19
services market and focus on the development and sale of digital VOD systems to
cable providers that are upgrading their networks to support digital services.
Concurrent believes that its future growth will come from the Xstreme division.
VOD revenues result from the sale of VOD systems and related services primarily
to cable television providers in North America. To date, revenues in the
Xstreme division have been concentrated in a very limited number of MSOs and
internationally in the non-residential market. Concurrent expects its revenues
from the Xstreme division to increase as digital set-top boxes are increasingly
deployed by cable operators in the United States and by cable and DSL providers
in other countries. Concurrent has incurred, and expects to continue to incur,
losses in the VOD business due to the ramp up of sales and marketing efforts and
the initial investments in the VOD business.
In October 1999, Concurrent acquired one of its competitors, Vivid
Technology, for 2,233,699 shares of Common Stock and options to purchase 378,983
shares of Common Stock. The acquisition resulted in a $14.0 million non-cash
one-time charge for the write-off of in-process research and development related
to acquired computer software technology. The acquisition was treated as a
purchase for accounting purposes, and accordingly, the assets and liabilities
acquired were recorded based on their fair values at the date of acquisition.
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition. Concurrent recognizes revenue from
video-on-demand and real-time systems when persuasive evidence of an arrangement
exists, the system has been shipped, the fee is fixed or determinable and
collectibility of the fee is probable. Under multiple element arrangements,
Concurrent allocates revenue to the various elements based on vendor-specific
objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is
determined based on the price charged when the same element is sold separately.
In certain instances, Concurrent's customers require significant
customization of both the software and hardware products and, therefore, the
revenues are recognized as long term contracts in conformity with Accounting
Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts",
Statement of Position ("SOP") 81-1 "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software
Revenue Recognition". For long-term contracts, revenue is recognized using the
percentage-of-completion method of accounting based on costs incurred on the
project compared to the total costs expected to be incurred through completion.
Concurrent recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
Custom engineering and integration services performed by the Real-Time
Division are typically completed within 90 days from receipt of an order.
Revenues from these services are recognized upon completion and delivery of the
software solution to the customer.
Cost of sales consists of the cost of the computer systems sold, including
labor, material, overhead and third party product costs. Cost of sales also
includes the salaries, benefits and other costs of the maintenance, service and
help desk personnel associated with product installation and support activities.
Sales and marketing expenses consist primarily of the salaries, benefits
and travel expenses of Concurrent employees responsible for acquiring new
business and maintaining existing customer relationships, as well as marketing
expenses related to trade publications, advertisements and trade shows.
Management expects these expenses to increase as Concurrent continues to expand
its VOD business and attract new customers.
Research and development expenses are comprised of salaries and benefits of
Concurrent employees involved in hardware and software product and enhancement
development. All development costs are expensed as incurred. Management
expects to increase the development staff to investigate and develop follow-on
VOD offerings, including next generation products, as well as new software
applications.
General and administrative expenses consist primarily of salaries and
benefits of management and administrative personnel, general office
administration expenses such as rent and occupancy costs, telephone expenses and
fees for legal, accounting and other professional services. Management
anticipates that administrative costs will increase as Concurrent expands its
VOD business.
20
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
Concurrent 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
Concurrent's consolidated statements of operations for the periods indicated.
YEAR ENDED JUNE 30,
-----------------------
2001 2000 1999
------ ------- ------
Revenues:
Product sales
Real-time systems 35.3% 39.8% 43.4%
Video-on-demand systems 32.7 17.6 1.7
------ ------- ------
Total product sales 68.0 57.4 45.1
Service and other 32.0 42.6 54.9
------ ------- ------
Total net sales 100.0 100.0 100.0
Cost of sales (% of respective sales category)
Real-time and video-on-demand systems 54.9 51.5 47.5
Service and other 54.2 56.0 51.2
------ ------- ------
Total cost of sales 54.7 53.4 49.5
------ ------- ------
Gross margin 45.3 46.6 50.5
Operating expenses:
Sales and marketing 22.1 29.8 27.5
Research and development 15.9 14.4 14.4
General and administrative 15.0 13.6 9.8
Cost of purchased in-process research and
development - 20.6 -
Relocation and restructuring - 3.5 -
Loss on facility held for sale - - 0.6
------ ------- ------
Total operating expenses 53.0 81.8 52.3
------ ------- ------
Operating loss (7.7) (35.2) (1.8)
Interest expense (0.3) (0.2) (0.4)
Interest income 0.4 0.5 0.4
Other non-recurring items - 1.1 (0.1)
Other income (expense) - net (0.1) (0.1) 0.1
------ ------- ------
Loss before provision for income taxes (7.7) (33.9) (1.8)
Provision for income taxes 0.8 0.9 0.6
------ ------- ------
Net loss (8.5)% (34.8)% (2.4)%
====== ======= ======
21
RESULTS OF OPERATIONS
FISCAL YEAR 2001 IN COMPARISON TO FISCAL YEAR 2000
Product Sales. Total product sales for fiscal year 2001 were $49.6 million,
an increase of $10.5 million or 26.8% from fiscal year 2000. The increase is the
result of the increase in sales of VOD systems to $23.8 million in fiscal year
2001 from $12.0 million in fiscal year 2000, primarily due to sales of VOD
systems in fiscal year 2001 to domestic cable operators including Comcast Cable,
AOL Time Warner and Cox Communications. Partially offsetting the increase is the
continued decline in sales of real-time computer systems.
Service and Other Sales. Service revenues decreased 19.8% to $23.3 million
in fiscal year 2001 from $29.0 million in fiscal year 2000. The decline
resulted from customers switching from proprietary real-time systems to
Concurrent's open systems which are less expensive to maintain, and the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service.
Gross Margin. Gross margin increased by $1.3 million to $33.0 million in
fiscal year 2001 as compared to $31.7 million in fiscal year 2000. The gross
margin as a percentage of sales decreased to 45.3% in fiscal year 2001 from
46.6% in fiscal year 2000 due primarily to the lower margin realized from a
large real-time customer contract which required integration of third-party
equipment and service and support resources at lower gross margins to capture
the business.
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of total sales to 22.1% in fiscal year 2001 from 29.8% in fiscal year
2000. These expenses decreased 20.7% to $16.1 million in fiscal year 2001 from
$20.3 million in fiscal year 2000. The decrease is primarily the result of
deliberate, worldwide cost reduction efforts in the Real-Time division of $3.9
million.
Research and Development. Research and development expenses increased as a
percentage of sales to 15.9% in fiscal year 2001 from 14.4% in fiscal year 2000.
These expenses increased 18.5% to $11.6 million in fiscal year 2001 from $9.8
million in fiscal year 2000. The change is primarily due to increased personnel
costs of $2.2 million related to an increase in research and development
personnel in the Xstreme division focusing on video server hardware and software
development. This increase is offset by $0.7 million of deliberate, worldwide
cost reduction efforts in the Real-Time division.
General and Administrative. General and administrative expenses increased
to 15.0% of sales in fiscal year 2001 from 13.6% in fiscal year 2000. These
expenses increased $1.6 million or 17.7% primarily due to a $1.2 million
severance charge, $0.7 million of additional costs from the growth of Xstreme
division management and other corporate executive and administrative personnel,
$0.4 million increase in goodwill amortization and $0.3 million of additional
bad debt expense. This increase is offset by $1.1 million of deliberate,
worldwide cost reduction efforts in the Real-Time division.
Other. Included in operating expenses in fiscal year 2000 is a $14.0
million non-cash charge for the write-off of in-process research and development
in connection with the acquisition of Vivid Technology and a $2.4 million
restructuring and relocation provision for personnel reduction costs in the
Real-Time division and the relocation of the corporate headquarters and Xstreme
division offices to Atlanta, Georgia.
Included in other non-recurring items in fiscal year 2000 is a $0.8 million
gain related to the sale of the stock of Concurrent Vibrations, one of
Concurrent's French subsidiaries, to Data Physics, Inc.
Income Taxes. Income tax expense of $0.6 million was recorded in fiscal
year 2001 on a pre-tax loss of $5.6 million due to the inability to recognize
the tax benefit of the current period net operating loss and the non-deductible
amortization of goodwill and other assets received in the acquisition of Vivid
Technology.
Net Loss. The net loss for fiscal year 2001 was $6.2 million or $0.11 per
share compared to a net loss of $23.7 million or $0.46 per share in fiscal year
2000.
22
FISCAL YEAR 2000 IN COMPARISON TO FISCAL YEAR 1999
Product Sales. Total product sales for fiscal year 2000 were $39.1 million,
an increase of $7.5 million or 23.7% from fiscal year 1999. The increase was the
result of the increase in sales of VOD systems to $12.0 million in fiscal year
2000 from $1.2 million in fiscal year 1999, primarily due to sales of VOD
systems in fiscal year 2000 to domestic cable operators including AOL Time
Warner and Cox Communications. Partially offsetting the increase was the
continued decline in sales of real-time computer systems.
Service and Other Sales. Service revenues decreased to $29.0 million in
fiscal year 2000 or 24.5% from $38.4 million in fiscal year 1999. The decline
resulted from customers switching from proprietary systems to Concurrent's open
systems which are less expensive to maintain, and the cancellation of other
proprietary computer maintenance contracts as the machines are removed from
service.
Gross Margin. Gross margin decreased by $3.6 million to $31.7 million in
fiscal year 2000 as compared to $35.3 million in fiscal year 1999. The gross
margin as a percentage of sales decreased to 46.6% in fiscal year 2000 from
50.5% in fiscal year 1999 due to the lower margin realized in the early stages
of the VOD business and a decrease in the gross margin on real-time service
revenue to 44.0% in fiscal year 2000 from 48.8% in fiscal year 1999. The
decrease in the gross margin on service revenue was the result of the decrease
in sales and the loss of economies of scale.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of total sales to 29.8% in fiscal year 2000 from 27.5% in fiscal year
1999. These expenses increased 5.4% to $20.3 million in fiscal year 2000 from
$19.3 million in fiscal year 1999. The increase was principally the result of
an increase of $1.9 million in worldwide sales and marketing personnel costs in
the Xstreme division and increased costs of $0.1 million from participation in
trade show and other marketing activities. This increase was partially offset
by $0.7 million of deliberate reduction of Real-Time division sales and
marketing personnel costs.
Research and Development. Research and development expenses as a
percentage of sales remained stable at 14.4% in fiscal year 2000 and 1999.
These expenses decreased 2.7% to $9.8 million in fiscal year 2000 from $10.0
million in fiscal year 1999 primarily due to deliberate cost reduction efforts
in the Real-Time division. This decrease was partially offset by the build-up
of research and development personnel in the Xstreme division focusing on the
video server hardware and software development, as well as the addition of
personnel as part of the acquisition of Vivid Technology in October 1999.
General and Administrative. General and administrative expenses increased
to 13.6% of sales in fiscal year 2000 from 9.8% in fiscal year 1999. These
expenses increased $2.4 million or 34.8% primarily due to a $0.7 million
severance charge, $0.2 million of additional costs from the growth of Xstreme
division management and other corporate executive and administrative personnel,
$0.9 million of goodwill amortization and $0.6 million from the move of the
corporate headquarters and Xstreme division offices to Atlanta, Georgia.
Other. Included in operating expenses in fiscal year 2000 was a $14.0
million non-cash charge for the write-off of in-process research and development
in connection with the acquisition of Vivid Technology and a $2.4 million
restructuring and relocation provision for personnel reduction costs in the
Real-Time division and the relocation of the corporate headquarters and Xstreme
division offices to Atlanta, Georgia. Included in operating expenses in fiscal
year 1999 was a $0.4 million write-down of Concurrent's French facility to fair
market value due to Concurrent's decision to sell Concurrent Vibrations, a
wholly-owned subsidiary of one of Concurrent's French subsidiaries.
Included in other non-recurring items in fiscal year 2000 was a $0.8
million gain related to the sale of the stock of Concurrent Vibrations, one of
Concurrent's French subsidiaries, to Data Physics, Inc.
Income Taxes. Income tax expense of $0.6 million was recorded in fiscal
year 2000 on a pre-tax loss of $23.1 million due to the inability to recognize
the tax benefit of the current period net operating loss and the non-deductible
write-off of acquired in-process research and development and amortization of
other assets received in the acquisition of Vivid Technology.
23
Net Loss. The net loss for fiscal year 2000 was $23.7 million or $0.46 per
share compared to a net loss of $1.7 million or $.03 per share in fiscal year
1999.
ACQUISITION OF VIVID TECHNOLOGY, INC.
On October 28, 1999, Concurrent acquired Vivid Technology, a former
competitor in the VOD industry. Vivid Technology's interactive stand-alone
video-on-demand system ("the Vivid VOD system") was specifically being designed
to integrate with the most popular digital set-top boxes manufactured by
Motorola. The Vivid VOD system was also expected to be compatible with the
digital set-top boxes manufactured by other leading cable operators such as
Philips, Panasonic and Sony. The Vivid VOD system was based on a cluster of
Microsoft Windows NT computers with proprietary hardware and software added to
provide high video streaming capacity and fault tolerance. The Vivid VOD system
was also being designed to eventually provide VOD service including pause,
rewind, and fast forward VCR-like functions. The Vivid VOD system would also
provide necessary back-office support software for video content management,
video selection graphical user interface, subscriber management, purchase
management, billing interfaces, content provider account settlement and consumer
marketing feedback. In addition, the Vivid VOD system was being designed to
support other interactive applications such as on-line banking, home shopping,
merchandising and on-demand/addressable advertising.
The in-process research and development acquired was estimated to be 80%
complete at the date of acquisition and was estimated to cost an additional
$650,000 to complete the VOD system technology project in December of 2000. A
variety of tasks were yet to be completed which would be required in order for
the Vivid Technology VOD system to be deployed on a commercial basis:
- The Content Manager, which is used to load movies from content
providers, did not have the functionality necessary to create a
royalty payment affidavit which is required for the cable operators to
pay the required royalties to the content providers. Also, the Content
Manager, which has been implemented using a SQL data base, needed to
be ported to other relational data bases such as Oracle to support
high end data base applications.
- The Resource Manager had been alpha tested; however, an advanced beta
test had not been completed which would validate its ability to scale
up to the required number of subscribers or connections in an actual
commercial deployment.
- The Subscriber Manager, which had been implemented using a SQL data
base, needed to be ported to other relational data bases such as
Oracle to support high end data base applications.
- The Set Top VOD Application needed to be tested under advanced beta
test conditions to ensure that the back channel key stroke system
performance can fulfill operational requirements.
- The Hub Server, or video pump, needed to be tested under full load in
an operational environment to ensure stability over an extended period
of time. The random conditions resulting from the in home use of tens
of thousands of subscribers can only be simulated in an advanced beta
test which has yet to be performed.
The method used to allocate the purchase consideration to in-process
research and development ("IPR&D") was the modified income approach. Under the
income approach, fair value reflects the present value of the projected free
cash flows that will be generated by the IPR&D project and that is attributable
to the acquired technology, if successfully completed. The modified income
approach takes the income approach, modified to include the following factors:
- Analysis of the stage of completion of each project;
- Exclusion of value related to research and development yet-to-be
completed as part of the on-going IPR&D projects; and
- The contribution of existing products/technologies.
24
The projected revenues used in the income approach were based upon the
incremental revenues likely to be generated upon completion of the project and
the beginning of commercial sales of the Vivid VOD system, as estimated by
management to begin in the quarter ending December 31, 2000. The projections
assumed that the Vivid VOD system would be successful and the products'
development and commercialization were as set forth by management. The discount
rate used in this analysis was an after-tax rate of 28%.
Subsequent to the acquisition date, Concurrent decided to merge the Vivid
VOD system and the Concurrent VOD system into one standard VOD platform.
Concurrent began shipping the new hardware platform at the end of the quarter
ended September 30, 2000. Initially, the new hardware platform has two software
alternatives, one which is compatible with digital set-top boxes manufactured by
Motorola, using core software technology developed by and purchased from Vivid,
and one which is compatible with digital set-top boxes manufactured by
Scientific-Atlanta, Inc. The merger of these two software solutions into one
standard solution is expected to be complete near the end of the calendar year
2001.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of Concurrent is dependent on many factors, including sales
volume, operating profit, debt service and the efficiency of asset use and
turnover. The future liquidity of Concurrent will be affected by, among other
things:
- The actual versus anticipated decline in sales of real-time
proprietary systems and service maintenance revenue;
- Revenue growth from VOD systems;
- Ongoing cost control actions and expenses, including for example,
research and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- Timing of product shipments which occur primarily during the last
month of the quarter;
- The percentage of sales derived from outside the United States where
there are generally longer accounts receivable collection cycles and
which receivables are not included in the borrowing base of the
revolving credit facility; and
- The number of countries in which Concurrent operates, which may
require maintenance of minimum cash levels in each country and, in
certain cases, may restrict the repatriation of cash, such as cash
held on deposit to secure office leases.
Concurrent used cash of $0.2 million from operating activities in fiscal
year 2001 compared to using cash of $0.5 million in fiscal year 2000, primarily
due to the smaller loss generated by the VOD business during fiscal year 2001.
Concurrent also has available a $5 million revolving credit facility with
Wachovia Bank which expires December 31, 2002. Borrowings under the facility are
limited to 85% of eligible accounts receivable and bear interest at between
prime plus .75% or between LIBOR plus 2.25% and LIBOR plus 3.00% depending on
Concurrent's ratio of Consolidated Funded Debt (as defined in the credit
facility) to EBITDA. Concurrent has pledged substantially all of its assets as
collateral for the facility. No borrowings were outstanding at June 30, 2001
under the credit facility. At June 30, 2001, the Company was in violation of its
EBITDA covenant for the VOD division. On September 14, 2001, the Company amended
its revolving credit facility and received a waiver of the covenant violation.
See Note 10 to the Consolidated Financial Statements for additional details to
the amendment.
Concurrent invested $3.8 million in property, plant and equipment during
fiscal year 2001 compared to $4.4 million during fiscal year 2000. Current year
capital expenditures relate primarily to computer equipment, development and
loaner equipment for the Xstreme division and leasehold improvements for the
Duluth, Georgia facility.
Concurrent received $1.2 million in fiscal year 2000 from the sale of its
building in France and an additional $0.5 million from the sale of its
subsidiary, Concurrent Vibrations.
Concurrent received $3.9 million in proceeds from the issuance of Common
Stock to employees and directors who exercised stock options during fiscal year
2001 compared to $6.9 million in fiscal year 2000.
25
At June 30, 2001, Concurrent had working capital of $14.8 million and had
no material commitments for capital expenditures. On July 19, 2001, Concurrent
completed a private placement of 5.4 million shares of Concurrent's Common Stock
resulting in additional net cash proceeds of approximately $24 million.
Management of Concurrent believes that the existing cash balances including the
proceeds from the private placement, available credit facility and funds
generated by operations will be sufficient to meet the anticipated working
capital and capital expenditure requirements for the next 12 months.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 2001, the Financial Accounting Standards Board issued Statements
No. 141, Business Combinations, and No. 142 ("FAS 142"), Goodwill and other
Intangible Assets. Under FAS 142, goodwill and intangible assets with indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives. FAS 142 is effective for fiscal years beginning after December 15, 2001.
As permitted, Concurrent will early-adopt the statement as of July 1, 2001, the
beginning of its fiscal year. Application of the new amortization provisions of
FAS 142 is expected to increase Concurrent's net income by approximately $1.3
million ($0.02 per share) in years subsequent to fiscal year 2001. At June 30,
2001, goodwill amounted to $10.7 million and goodwill amortization expense was
$1,281,000 in fiscal 2001, $854,000 in fiscal 2000 and $0 in fiscal 1999. During
fiscal 2002, Concurrent will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of July 1, 2001. Until
those tests are performed and other transitional issues are finalized,
Concurrent cannot estimate what the effect of the initial adoption of the
statements will have on its earnings and financial position.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Concurrent, may constitute "forward-looking
statements" within the meaning of the federal securities laws. When used in
this report, the words "believes," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. Statements
regarding future events and developments and Concurrent's future performance, as
well as its expectations, beliefs, plans, estimates or projections relating to
the future, are forward-looking statements within the meaning of these laws.
All forward-looking statements are subject to certain risks and uncertainties
that could cause actual events to differ materially from those projected. The
risks and uncertainties which could affect Concurrent's performance or results
include, without limitation:
- availability of VOD content;
- delays or cancellations of customer orders;
- changes in product demand;
- economic conditions;
- various inventory risks due to changes in market conditions;
- uncertainties relating to the development and ownership of
intellectual property;
- uncertainties relating to the ability of Concurrent and other
companies to enforce their intellectual property rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of the VOD segment;
- the concentration of Concurrent's customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- the highly competitive environment in which Concurrent operates; and
- the entry of new well-capitalized competitors into Concurrent's
markets and other risks and uncertainties.
These statements are based on current expectations and speak only as of the
date of such statements. Concurrent undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of future events,
new information or otherwise.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Concurrent is exposed to market risk from changes in interest rates and
foreign currency exchange rates. Concurrent is exposed to the impact of interest
rate changes on its short-term cash investments, which are backed by U.S.
government obligations, and other investments in respect of institutions with
the highest credit ratings, all of which have maturities of 3 months or less.
These short-term investments carry a degree of interest rate risk. Concurrent
believes that the impact of a 10% increase or decline in interest rates would
not be material to its investment income. Concurrent conducts business in the
United States and around the world. The most significant foreign currency
transaction exposures relate to the United Kingdom, those Western European
countries that use the Euro as a common currency, Australia and Japan.
Concurrent does not hedge against fluctuations in exchange rates and believes
that a hypothetical 10% upward or downward fluctuation in foreign currency
exchange rates relative to the United States dollar would not have a material
impact on future earnings, fair values, or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data for
Concurrent are included herein.
PAGE
----
Independent Auditors' Reports 32
Consolidated Balance Sheets as of June 30, 2001 and 2000 34
Consolidated Statements of Operations for each of the years
in the three-year period ended June 30, 2001 35
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for each of the years in the three-year period ended June 30, 2001 36
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended June 30, 2001 37
Notes to Consolidated Financial Statements 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 18, 1999, the accounting firm of Deloitte & Touche LLP was
selected as the independent accountants for the Company for the fiscal year
ended June 30, 2000. Deloitte & Touche replaced the accounting firm of KPMG
LLP. KPMG LLP was notified of this decision on August 19, 1999. The decision
to change auditors was approved by the Board of Directors upon recommendation of
the Audit Committee.
During fiscal year 1999, KPMG's report did not contain an adverse opinion
or a disclaimer opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles. In addition, during fiscal year 1999 and
any subsequent period, there were no disagreements between the Company and KPMG
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
27
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 used in connection with its Annual Meeting of Stockholders
to be held on October 25, 2001 ("Registrant's 2001 Proxy Statement").
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in Registrant's 2001 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
2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Common Stock Ownership of Management
and Certain Beneficial Owners" in Registrant's 2001 Proxy Statement.
The Registrant knows of no contractual arrangements, including any pledge
by any person of securities of the Registrant, the operation of which may at a
subsequent date result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the captions "Common Stock Ownership of Management
and Certain Beneficial Owners," "Election of Directors" and "Executive
Compensation" in Registrant's 2001 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements Filed As Part Of This Report:
Independent Auditors' Reports
Consolidated Balance Sheets as of June 30, 2001 and 2000
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 2001
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for each of the years in the three-year period ended June 30, 2001
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 2001
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other financial statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the Notes thereto, or is not applicable, material or required.
28
(3) Exhibits
EXHIBIT DESCRIPTION OF DOCUMENT
2.2 -- Agreement and Plan of Merger dated as of October 28, 1999 between
the Registrant and Vivid Technology, Inc. (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1999).
2.3 -- Registration Rights Agreement, dated as of October 28, 1999 by
and among Fred Allegrezza, Gary Lauder, Robert Clasen and the
Registrant. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999).
3.1 -- Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-2 (No. 33-62440)).
3.2 -- Amended and Restated Bylaws of the Registrant. (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 28, 1996).
4.1 -- Form of Common Stock Certificate. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992).
4.2 -- Rights Agreement dated as of July 31, 1992 between the Registrant
and First National Bank of Boston, as rights agent. (Incorporated
by reference to the Registrant's Current Report on Form 8-K dated
August 20, 1992).
4.3 -- Warrant to purchase shares of Common Stock of the Registrant
dated August 17, 1998 issued to Scientific-Atlanta, Inc.
(Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998).
10.1 -- 1991 Restated Stock Option Plan (as amended as of October 30,
1997). (Incorporated by reference the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31,
1997).
10.2 -- Form of Employment Agreement between the Registrant and its
executive officers. (Incorporated by reference to of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1991).
10.3 -- Employment Agreement dated as of March 25, 1996 between the
Registrant and E. Courtney Siegel. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996).
10.4 -- Amendment to Employment Agreement dated as of January 1, 1999
between the Registrant and E. Courtney Siegel. (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1999).
10.5 -- Amended and Restated Employment Agreement dated as of December 6,
1999 between the Registrant and Daniel S. Dunleavy. (Incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 31, 1999).
10.6 -- Amended and Restated Employment Agreement dated as of November
15, 1999 between the Registrant and Steve G. Nussrallah.
(Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended December 31, 1999).
29
10.7 -- Employment Agreement dated as of October 28, 1999 between the
Registrant and Steven R. Norton. (Incorporated by reference to
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1999).
10.8 -- Employment Agreement dated as of July 10, 2000 between the
Registrant and Jack A. Bryant. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended June 30, 2000).
10.9* -- Employment Agreement dated as of December 13, 2000 between the
Registrant and Paul C. Meyer.
10.10 -- Form of Incentive Stock Option Agreement between the Registrant
and its executive officers. (Incorporated by reference to the
Registrant's Registration Statement on Form S-1. (No. 33-45871)).
10.11 -- Form of Non-Qualified Stock Option Agreement between the
Registrant and its executive officers. (Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997).
10.12 -- Sublicensing Agreement between the Registrant and AT&T
Information Systems. (Incorporated by reference to the
Registrant's Registration Statement on Form S-2 (No. 33-62440)).
10.13 -- Amended and Restated Loan and Security Agreement dated March 1,
1998 between the Registrant and Foothill Capital Corporation.
(Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1998).
10.14 -- Loan and Security Agreement between Concurrent Computer
Corporation and Wachovia Bank, N.A., dated November 3, 2000.
(Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 2000).
10.15* -- Amendment No. 1 to Loan and Security Agreement between Concurrent
Computer Corporation and Wachovia Bank, N.A., dated March 28,
2001.
10.16* -- Amendment No. 2 to Loan and Security Agreement between Concurrent
Computer Corporation and Wachovia Bank, N.A., dated September 14,
2001.
10.17 -- Video-On-Demand Purchase Agreement, dated March 29, 2001, by and
between Concurrent Computer Corporation and Comcast Cable
Communications of Pennsylvania, Inc. (portions of the exhibit
have been omitted pursuant to a request for confidential
treatment) (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2001).
16.1 -- Letter regarding change in certifying accountant. (Incorporated
by reference to the Registrant's Current Report on Form 8-K dated
November 4, 1999).
21.1* -- List of Subsidiaries.
23.1* -- Consent of Deloitte & Touche LLP.
23.2* -- Consent of KPMG LLP
* Included herewith.
(b) Reports On Form 8-K.
30
The following reports on Form 8-K were filed during the period covered by this
report:
- Current Report on Form 8-K filed on May 17, 2001 relating to the
private placement of Common Stock.
31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Concurrent Computer Corporation:
We have audited the accompanying consolidated balance sheets of Concurrent
Computer Corporation and subsidiaries as of June 30, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for the years then ended. Our audits also
included the consolidated financial statement schedule for the years ended June
30, 2001 and 2000 listed in the Index at Item 14(a)(2). These consolidated
financial statements and consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and consolidated financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Concurrent Computer
Corporation and subsidiaries as of June 30, 2001 and 2000, and the results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such consolidated financial statement schedule for the
years ended June 30, 2001 and 2000, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
August 3, 2001 (September 14, 2001 as to paragraph 2 of Note 10)
32
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Concurrent Computer Corporation
We have audited the accompanying consolidated statements of operations,
redeemable preferred stock, stockholders' equity and comprehensive income, and
cash flows of Concurrent Computer Corporation and subsidiaries for the year
ended June 30, 1999. In connection with our audit of the consolidated financial
statements, we also audited the financial statement schedule for the year ended
June 30, 1999, as listed in Item 14 (a)(2) of the Company's 2001 Annual Report
on Form 10-K. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the results of operations and cash
flows of Concurrent Computer Corporation and subsidiaries for the year ended
June 30, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule for the year
ended June 30, 1999, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects
the information set forth therein.
/s/ KPMG LLP
Atlanta, Georgia
July 31, 1999
33
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30,
---------------------
2001 2000
---------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 9,460 $ 10,082
Accounts receivable, less allowance for doubtful accounts
of $860 at June 30, 2001 and $484 at June 30, 2000 14,348 12,907
Inventories 7,187 5,621
Prepaid expenses and other current assets 1,058 2,381
---------- ---------
Total current assets 32,053 30,991
Property, plant and equipment - net 10,484 11,314
Purchased developed computer software - net 1,583 1,773
Goodwill - net 10,744 11,981
Other long-term assets - net 2,188 1,019
---------- ---------
Total assets $ 57,052 $ 57,078
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,929 $ 13,297
Deferred revenue 3,300 2,311
---------- ---------
Total current liabilities 17,229 15,608
Long-term liabilities:
Deferred revenue 1,193 297
Other 5,347 2,902
---------- ---------
Total liabilities 23,769 18,807
Stockholders' equity:
Shares of series preferred stock, par value $.01; 25,000,000 authorized; none issued - -
Shares of class A preferred stock, par value $100; 20,000 authorized; none issued - -
Shares of common stock, par value $.01; 100,000,000 authorized;
55,061,838 and 53,910,918 issued at June 30, 2001 and 2000, respectively 551 538
Capital in excess of par value 140,352 135,394
Accumulated deficit after eliminating accumulated deficit
of $81,826 at December 31, 1991, date of quasi-reorganization (102,760) (96,571)
Treasury stock, at cost; 840 shares (58) (58)
Accumulated other comprehensive loss (4,802) (1,032)
---------- ---------
Total stockholders' equity 33,283 38,271
---------- ---------
Total liabilities and stockholders' equity $ 57,052 $ 57,078
========== =========
The accompanying notes are an integral part of the consolidated financial statements.
34
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30,
-----------------------------
2001 2000 1999
-------- --------- --------
Revenues:
Product sales
Real-time systems $25,740 $ 27,122 $30,389
Video-on-demand systems 23,814 11,952 1,208
-------- --------- --------
Total product sales 49,554 39,074 31,597
Service and other 23,267 29,016 38,366
-------- --------- --------
Total 72,821 68,090 69,963
Cost of sales:
Real-time and video-on-demand systems 27,193 20,111 15,001
Service and other 12,608 16,236 19,625
-------- --------- --------
Total 39,801 36,347 34,626
-------- --------- --------
Gross margin 33,020 31,743 35,337
Operating expenses:
Sales and marketing 16,112 20,311 19,274
Research and development 11,579 9,775 10,046
General and administrative 10,920 9,277 6,883
Cost of purchased in-process research and
development - 14,000 -
Relocation and restructuring - 2,367 -
Loss on facility held for sale - - 423
-------- --------- --------
Total operating expenses 38,611 55,730 36,626
-------- --------- --------
Operating loss (5,591) (23,987) (1,289)
Interest expense (214) (127) (261)
Interest income 302 316 295
Other non-recurring items 0 761 (88)
Other income (expense) - net (86) (78) 41
-------- --------- --------
Loss before provision for income taxes (5,589) (23,115) (1,302)
Provision for income taxes 600 600 363
-------- --------- --------
Net loss $(6,189) $(23,715) $(1,665)
======== ========= ========
Basic and diluted net loss per share $ (0.11) $ (0.46) $ (0.03)
======== ========= ========
The accompanying notes are an integral part of the consolidated financial statements.
35
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 2001
COMMON STOCK ACCUMULATED
---------------------- CAPITAL IN OTHER TREASURY STOCK
PAR EXCESS OF ACCUMULATED COMPREHENSIVE --------------
SHARES VALUE PAR VALUE DEFICIT INCOME (LOSS) SHARES COST TOTAL
----------- --------- ---------- ---------- -------------- ------- ------ -------
Balance at June 30, 1998 47,632,309 $ 476 $ 97,136 $ (71,191) $ (853) (840) $ (58) $25,510
Sale of common stock under stock plans 884,218 9 1,780 1,789
Comprehensive loss:
Net loss (1,665) (1,665)
Foreign currency translation adjustment 377 377
-------
Total comprehensive loss (1,288)
----------- --------- ---------- ---------- -------------- ------- ------ -------
Balance at June 30, 1999 48,516,527 485 98,916 (72,856) (476) (840) (58) 26,011
Sale of common stock under stock plans 3,160,692 31 7,277 7,308
Issuance of common stock related to
acquisition of Vivid Technology 2,233,699 22 28,879 28,901
Performance warrants 322 322
Comprehensive loss:
Net loss (23,715) (23,715)
Foreign currency translation adjustment (556) (556)
-------
Total comprehensive loss (24,271)
----------- --------- ---------- ---------- -------------- ------- ------ -------
Balance at June 30, 2000 53,910,918 538 135,394 (96,571) (1,032) (840) (58) 38,271
Sale of common stock under stock plans 1,150,920 13 3,903 3,916
Performance warrants 1,055 1,055
Comprehensive loss:
Net loss (6,189) (6,189)
Foreign currency translation adjustment (967) (967)
Minimum pension liability adjustment (2,803) (2,803)
-------
Total comprehensive loss (9,959)
----------- --------- ---------- ---------- -------------- ------- ------ -------
Balance at June 30, 2001 55,061,838 $ 551 $ 140,352 $(102,760) $ (4,802) (840) $ (58) $33,283
=========== ========= ========== ========== ============== ======= ====== =======
The accompanying notes are an integral part of the consolidated financial statements.
36
CONCURRENT COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JUNE 30,
-----------------------------
2001 2000 1999
-------- --------- --------
Cash flows provided by (used in) operating activities:
Net loss $(6,189) $(23,715) $(1,665)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Write-off of in-process research and development - 14,000 -
Gain on sale of subsidiary - (761) -
Accrual of non-cash warrants 1,055 322 -
Loss on impairment of facility held for sale - - 423
Loss on dissolution of subsidiary - - 429
Depreciation and amortization 5,995 6,145 4,959
Provision for inventory reserves 1,712 550 1,087
Stock compensation - 368 -
Other non-cash expenses 597 289 19
Decrease (increase) in assets, net of effect of
acquisitions and dispositions:
Accounts receivable (2,031) 1,574 4,098
Inventories (3,278) (1,530) 535
Prepaid expenses and other current assets 1,047 (1,959) (384)
Other long-term assets (1,146) 216 318
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 632 4,028 (4,348)
Short-term deferred revenue 989 (1,170) (240)
Long-term liabilities 404 1,128 (91)
-------- --------- --------
Net cash provided by (used in) operating activities (213) (515) 5,140
Cash flows used in investing activities:
Net additions to property, plant and equipment (3,761) (4,361) (4,194)
Net proceeds from sale of subsidiary 276 496 -
Proceeds from sale of facility - 1,223 -
Other - 76 -
-------- --------- --------
Net cash used in investing activities (3,485) (2,566) (4,194)
Cash flows provided by financing activities:
Net payments of notes payable - - (425)
Net repayment of debt (71) (33) (1,123)
Proceeds from sale and issuance of common stock 3,916 6,940 1,789
-------- --------- --------
Net cash provided by financing activities 3,845 6,907 241
Effect of exchange rates on cash and cash equivalents (769) (616) (48)
-------- --------- --------
Increase in cash and cash equivalents (622) 3,210 1,139
Cash and cash equivalents - beginning of year 10,082 6,872 5,733
-------- --------- --------
Cash and cash equivalents - end of year $ 9,460 $ 10,082 $ 6,872
======== ========= ========
Cash paid during the period for:
Interest $ 277 $ 242 $ 258
======== ========= ========
Income taxes (net of refunds) $ 621 $ 257 $ 1,041
======== ========= ========
Non-cash investing/financing activities:
Non-cash consideration for acquisition $ - $ 28,900 $ -
======== ========= ========
The accompanying notes are an integral part of the consolidated financial statements.
37
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW OF THE BUSINESS
Concurrent Computer Corporation ("Concurrent") is a leading supplier of
high-performance computer systems, software, and services. In August 1999,
Concurrent's emerging Video-On-Demand ("VOD") division opened its own facilities
separate from its Real-Time division in order to maximize the focus in each of
these businesses.
Concurrent is a leading supplier of digital video server systems to a wide
range of industries and its VOD division serves a variety of markets including
the broadband/cable, hospitality, intranet/distance learning, and other related
markets. Based on a scalable, real-time software architecture, Concurrent's VOD
hardware and software are integrated to deliver fault-tolerant, deterministic
streaming video to a broad spectrum of VOD applications.
Concurrent is also a leading provider of high-performance, real-time
computer systems, solutions, and software for commercial and government markets.
Concurrent's Real-Time division focuses on strategic market areas that include
hardware-in-the-loop and man-in-the-loop simulation, data acquisition,
industrial systems, and software and embedded applications.
A "real-time" system or software is one specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real-time - that is, with microsecond response as changes occur. Concurrent has
over thirty years of experience in real-time systems, including specific
expertise in systems, applications software, productivity tools, and networking.
Its systems provide real-time applications for gaming, simulation, engine test,
air traffic control, weather analysis, and mission critical data services such
as financial market information.
In August, 1999, Concurrent's Corporate Headquarters and VOD division's
offices were relocated to Duluth, Georgia from Fort Lauderdale, Florida. Its
Real-Time division's offices and manufacturing facility remain in Fort
Lauderdale and Pompano Beach, Florida.
Concurrent provides sales and support from offices and subsidiaries
throughout North America, South America, Europe, Asia, and Australia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all
wholly-owned domestic and foreign subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Foreign Currency
The functional currency of substantially all of Concurrent'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 $1,000, $(3,000), and
$132,000 for the years ended June 30, 2001, 2000, and 1999, respectively, are
included in other income (expense) - net.
38
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Cash Equivalents
Short-term investments with maturities of ninety days or less at the date
of purchase are considered cash equivalents. Cash equivalents are stated at
cost plus accrued interest, which approximates market, and represents cash
invested in U.S. Government securities, bank certificates of deposit, or
commercial paper.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out basis. Concurrent establishes excess and obsolete
inventory reserves based upon historical and anticipated usage.
Property, Plant and Equipment
Property, plant and equipment are stated at acquired cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the
estimated useful lives of assets ranging from three to forty years. Leasehold
improvements are amortized over the shorter of the useful lives of the
improvements or the terms of the related lease. Gains and losses resulting from
the disposition of property, plant and equipment are included in other income
(expense) - net. Expenditures for repairs and maintenance are charged to
operations as incurred and expenditures for major renewals and betterments are
capitalized.
Revenue Recognition and Related Matters
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition. Concurrent recognizes revenue from
video-on-demand and real-time systems when persuasive evidence of an arrangement
exists, the system has been shipped, the fee is fixed or determinable and
collectibility of the fee is probable. Under multiple element arrangements,
Concurrent allocates revenue to the various elements based on vendor-specific
objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is
determined based on the price charged when the same element is sold separately.
In certain instances, Concurrent's customers require significant
customization of both the software and hardware products and, therefore, the
revenues are recognized as long term contracts in conformity with Accounting
Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts",
Statement of Position ("SOP") 81-1 "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software
Revenue Recognition". For long-term contracts, revenue is recognized using the
percentage-of-completion method of accounting based on costs incurred on the
project compared to the total costs expected to be incurred through completion.
Concurrent recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
Custom engineering and integration services performed by the Real-Time
division are typically completed within 90 days from receipt of an order.
Revenues from these services are recognized upon completion and delivery of the
software solution to the customer.
Capitalized Software
Concurrent accounts for software development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" ("SFAS No. 86"). Under SFAS No. 86, the costs associated
with software development are required to be capitalized after technological
feasibility has been established. Concurrent ceases capitalization upon the
achievement of customer availability. Costs incurred by Concurrent between
technological feasibility and the point at which the products are ready for
market are insignificant and as a result Concurrent has no internal software
development costs capitalized at June 30, 2001 and 2000.
39
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Concurrent has not incurred costs related to the development or purchase of
internal use software.
Research and Development
Research and development expenditures are expensed as incurred.
Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each year.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares including common share eqivalents. Under
the treasury stock method, incremental shares representing the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued are included in the computation. Common
share equivalents of 3,930,000, 4,548,000 and 2,600,000 for the years ended June
30, 2001, 2000 and 1999, respectively, were excluded from the calculation as
their effect was antidilutive.
Impairment of Long-Lived Assets
Concurrent follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of."
This statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. Concurrent reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
inventories, prepaid expenses, accounts payable and short term debt approximate
fair value because of the short maturity of these instruments.
Fair value estimates are made at a specific point in time, based on the
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision.
Changes in assumption could significantly affect the estimates.
Income Taxes
Concurrent and its domestic subsidiaries file a consolidated federal income
tax return. All foreign subsidiaries file individual tax returns pursuant to
local tax laws. Concurrent follows the asset and liability method of accounting
for income taxes. Under the asset and liability method, a deferred tax asset or
liability is recognized for temporary differences between financial reporting
and income tax bases of assets and liabilities, tax credit carryforwards and
operating loss carryforwards. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that such deferred tax assets
will not be realized. Utilization of net operating loss carryforwards and tax
credits, which originated prior to Concurrent's quasi-reorganization effected on
December 31, 1991, are recorded as adjustments to capital in excess of par
value.
Pensions and Postretirement Benefits
In February 1998, SFAS No. 132, "Employer's Disclosures About Pensions and
Other Postretirement Benefits," ("SFAS 132") was issued. SFAS 132 requires
40
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
additional disclosures concerning changes in Concurrent's pension and other
postretirement benefit obligations and assets and eliminates certain disclosures
no longer considered useful. Concurrent has adopted the provisions of this
standard in fiscal year 1999. The adoption of this statement did not impact
Concurrent's consolidated financial position, results of operations, or cash
flows, and any effects are limited to the form and content of its disclosures.
Stock-Based Compensation
Concurrent accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25"), and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net (loss) income and pro forma (loss) income per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied.
Concurrent has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
Segment Information
Concurrent operated in one segment for management reporting purposes until
July 1, 1999 when Concurrent separated the facilities personnel and reporting
for the VOD division from the Real-Time division. Concurrent has separately
reported the fiscal year 2001 and 2000 operating results for both the VOD
division and the Real-Time division.
Comprehensive (Loss) Income
Effective July 1, 1998, Concurrent adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. Comprehensive income is defined as
a change in equity during the financial reporting period of a business
enterprise resulting from non-owner sources.
Accumulated other comprehensive income (loss) consists of the following
components:
FOREIGN ACCUMULATED
CURRENCY MINIMUM OTHER
TRANSLATION PENSION COMPREHENSIVE
ADJUSTMENTS LIABILITY INCOME (LOSS)
------------- ------------- ---------------
Balance at June 30, 1998 $ (853) $ - $ (853)
Other comprehensive income 377 - 377
------------- ------------- ---------------
Balance at June 30, 1999 (476) - (476)
Other comprehensive loss (556) - (556)
------------- ------------- ---------------
Balance at June 30, 2000 (1,032) - (1,032)
Other comprehensive loss (967) (2,803) (3,770)
------------- ------------- ---------------
Balance at June 30, 2001 $ (1,999) $ (2,803) $ (4,802)
============= ============= ===============
41
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Use of Estimates
Management of Concurrent has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet dates and the reporting
of revenues and expenses during the reporting periods, to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Reclassifications
Certain prior years' amounts have been reclassified to conform with the
current year's presentation.
3. ACQUISITION
On October 28, 1999, Concurrent acquired Vivid Technology, Inc. ("Vivid")
for total consideration of $29.4 million, consisting of 2,233,699 shares of
Common Stock valued at $24.7 million, $0.5 million of acquisition costs, and
378,983 shares reserved for future issuance upon exercise of stock options with
a value of $4.2 million. The acquisition was treated as a purchase for
accounting purposes, and, accordingly, the assets and liabilities were recorded
based on their fair values at the date of the acquisition. The purchase price
allocation and the respective useful lives of the intangible assets are as
follows:
ALLOCATION LIFE
----------- ------
Working capital $ 72
Fixed assets 257
Other long-term assets 13
Developed completed computer software technology 1,900 10 yrs
Employee workforce 400 3 yrs
Goodwill 12,808 10 yrs
In-process research and development 14,000
Amortization of intangible assets is on a straight-line basis over the assets'
estimated useful life. Vivid's operations are included in the condensed
consolidated statements of operations from the date of acquisition.
At the acquisition date, Vivid had one product under development that had
not demonstrated technological or commercial feasibility. This product was the
Vivid interactive video-on-demand integrated system. The in-process technology
has no alternative use in the event that the proposed product does not prove to
be feasible. This development effort falls within the definition of In-Process
Research and Development ("IPR&D") contained in Statement of Financial
Accounting Standards ("SFAS") No. 2 and was expensed in the quarter ended
December 31, 1999 as a one-time charge.
Consistent with Concurrent's policy for internally developed software,
Concurrent determined the amounts to be allocated to IPR&D based on whether
technological feasibility had been achieved and whether there was any
alternative future use for the technology. As of the date of the acquisition,
Concurrent concluded that the IPR&D had no alternative future use after taking
into consideration the potential for usage of the software in different
products, resale of the software and internal usage.
42
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following unaudited pro forma information presents the results of
operations of Concurrent as if the acquisition had taken place on July 1, 1998
and includes the one-time charge related to the write-off of the purchased IPR&D
of $14 million for the fiscal year ended June 30, 2000:
YEAR ENDED JUNE 30,
-------------------
2000 1999
--------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Revenues $ 68,444 $70,603
========= ========
Net loss $(24,717) $(4,419)
========= ========
Basic and diluted net loss per share $ (0.47) $ (0.09)
========= ========
4. RESTRUCTURING AND RELOCATION
In August 1999, Concurrent relocated its Corporate Headquarters and its VOD
division to Duluth, Georgia. In connection with this move, Concurrent incurred
employee relocation costs of $769,000, which is recorded as an operating expense
in the consolidated statement of operations for the year ended June 30, 2000.
As of June 30, 2001 and 2000, all costs had been paid and there were no
remaining accrued costs.
In addition to the VOD division relocation discussed above, management
decided in the first quarter of fiscal year 2000 to "right-size" the Real-Time
division to bring its expenses in line with its anticipated revenues. In
connection with these events, Concurrent recorded a $1.6 million operating
expense in the consolidated statement of operations for the year ended June 30,
2000. This expense represents workforce reductions of approximately 38
employees in all areas of Concurrent. As of June 30, 2000, all costs had been
paid and there were no remaining accrued costs.
In connection with the acquisition of the Harris Computer Systems
Corporation ("HCSC") Real-Time division, Concurrent recorded a $23.2 million
restructuring provision as of June 30, 1996. Such charge, based on formal
approved plans, included the estimated costs related to the rationalization of
facilities, workforce reductions, asset writedowns and other costs which
represented approximately 44%, 28%, 26%, and 2%, respectively. The
rationalization of facilities included the planned disposition of Concurrent's
Oceanport, New Jersey facility, as well as the closing or downsizing of certain
offices located throughout the world. The workforce reductions included the
termination of approximately 200 employees worldwide, encompassing substantially
all of Concurrent's employee groups. The asset writedowns were primarily
related to the disposition of duplicative machinery and equipment. Cash
expenditures related to this restructuring were $117,000 and $600,000 for the
years ended June 30, 2000 and 1999, respectively. As of June 30, 2000, all
costs had been paid and there were no remaining accrued costs.
On May 5, 1992, Concurrent had entered into an agreement with the
Industrial Development Authority (the "IDA") to maintain a presence in Ireland
through April 30, 1998. In connection with the acquisition of the HCSC Real-Time
division, Concurrent closed its Ireland operations in December 1996 and was
required to repay grants to the IDA of approximately $484,000 (360,000 Irish
pounds). During fiscal year 1999, $394,000 was paid to the IDA and the remaining
amount of $90,000 was paid in fiscal 2000. As of June 30, 2000, all costs had
been paid and there were no remaining accrued costs.
5. DISSOLUTION OF SUBSIDIARY
During the year ended June 30, 1999, Concurrent dissolved its subsidiary
Concurrent Computer Corporation France (the "French Branch"). However, the
French Branch should not be confused with Concurrent Computer Corporation S.A.,
43
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Concurrent's continuing French subsidiary. In connection with the dissolution,
all assets and liabilities of the French Branch were assumed by Concurrent. As
a result, a loss of $429,000, representing the write off of the French Branch's
cumulative translation adjustment, was recorded as other non-recurring items in
the consolidated statement of operations for the year ended June 30, 1999.
6. SALE OF SUBSIDIARY
On September 8, 1999, Concurrent entered into an agreement to sell the
stock of Concurrent Vibrations, a wholly owned subsidiary of Concurrent Computer
Corporation S.A., to Data Physics, Inc. The transaction, which had an effective
date of August 31, 1999, resulted in a gain of $761,000. This gain is recorded
as other non-recurring items in the consolidated statement of operations for the
year ended June 30, 2000.
7. INVENTORIES
Inventories consist of the following:
JUNE 30,
--------------------------
2001 2000
------------ ------------
(DOLLARS IN THOUSANDS)
Raw Materials $ 5,709 $ 4,333
Work-in-process 1,178 947
Finished Goods 300 341
------------ ------------
$ 7,187 $ 5,621
============ ============
At June 30, 2001 and 2000, some portion of Concurrent's inventory was in
excess of the current requirements based upon the planned level of sales for
future years. Accordingly, Concurrent recorded an accrual for inventory
reserves of $3.5 million and $4.0 million to reduce the value of the inventory
to its estimated net realizable value at June 30, 2001 and 2000, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
JUNE 30,
--------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Buildings and leasehold improvements $ 2,217 $ 2,131
Machinery, equipment and customer support spares 31,170 31,346
--------- ---------
33,387 33,477
Less: Accumulated depreciation (22,903) (22,163)
--------- ---------
$ 10,484 $ 11,314
========= =========
For the years ended June 30, 2001, 2000 and 1999, depreciation and
amortization expense for property, plant and equipment amounted to $4,386,000,
$4,148,000 and $4,087,000, respectively.
In fiscal year 1999, Concurrent entered into an agreement to sell its
France facility. In connection with this transaction, which was finalized in
the first quarter of fiscal year 2000, the facility was written down by $0.4
million to its estimated fair market value of $1.2 million, based upon a
valuation by the acquiring company, and classified as a facility held for sale
44
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
in the consolidated balance sheet. The loss on facility held for sale is
reflected as an operating expense in the consolidated statement of operations
for fiscal year 1999.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
JUNE 30,
--------------------------
2001 2000
------------ ------------
(DOLLARS IN THOUSANDS)
Accounts payable, trade $ 4,277 $ 4,484
Accrued payroll, vacation and
other employee expenses 6,090 6,292
Warranty accrual 977 668
Other accrued expenses 2,585 1,853
------------ ------------
$ 13,929 $ 13,297
============ ============
10. REVOLVING CREDIT FACILITY
Concurrent has a revolving credit facility with a bank that expires on June
30, 2002 and which provides for borrowings of up to $15 million at an interest
rate at between prime (6.75% at June 30, 2001) plus 0.75% or LIBOR plus 2.25%
and LIBOR plus 3.00% depending on Concurrent's ratio of Consolidated Funded Debt
(as defined in the credit facility) to EBITDA. Concurrent has pledged
substantially all of its assets as collateral for the facility. No borrowings
were outstanding at June 30, 2001 under the credit facility.
At June 30, 2001, the Company was in violation of its EBITDA covenant for
the VOD division. On September 14, 2001, the Company amended its revolving
credit facility and received a waiver of the covenant violation. Among the items
amended include the reduction of the maximum borrowings to $5 million, changes
to the minimum EBITDA covenants, and an extension of the expiration date of the
revolving credit facility from June 30, 2002 to December 31, 2002. In
consideration for the amendments to the revolving credit facility and the waiver
of the covenant violation, the Company paid certain fees and expenses
aggregating approximately $40,000.
11. INCOME TAXES
The domestic and foreign components of income (loss) before provision for
income taxes are
YEAR ENDED JUNE 30,
-------------------------------------------
2001 2000 1999
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
United States $ (5,222) $ (22,952) $ (1,420)
Foreign (367) (163) 118
------------- ------------- -------------
$ (5,589) $ (23,115) $ (1,302)
============= ============= =============
45
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The components of the provision for income taxes are as follows:
YEAR ENDED JUNE 30,
-----------------------------------------
2001 2000 1999
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
Current:
Federal $ - $ - $ -
Foreign 600 201 1,056
------------ ------------ -------------
Total 600 201 1,056
------------ ------------ -------------
Deferred:
Federal - - -
Foreign (benefit) - 399 (693)
------------ ------------ -------------
Total - 399 (693)
------------ ------------ -------------
Total $ 600 $ 600 $ 363
============ ============ =============
A reconciliation of the income tax (benefit) expense computed using the
Federal statutory income tax rate to Concurrent's provision for income taxes is
as follows:
YEAR ENDED JUNE 30,
-----------------------------
2001 2000 1999
-------- --------- --------
(DOLLARS IN THOUSANDS)
Loss before provision for
income taxes $(5,589) $(23,115) $(1,302)
-------- --------- --------
Tax (benefit) at Federal statutory rate (1,899) (7,859) (443)
Change in valuation allowance (2,264) 2,749 (1,442)
Non-deductible in-process research and
development charge - 4,760 -
Other permenant differences, net 4,763 950 2,248
-------- --------- --------
Provision for income taxes $ 600 $ 600 $ 363
======== ========= ========
46
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of June 30, 2001 and 2000, Concurrent's deferred tax assets and
liabilities were comprised of the following:
JUNE 30,
--------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Gross deferred tax assets related to:
U.S. and foreign net operating loss carryforwards $ 69,761 $ 66,755
Book and tax basis differences for reporting purposes 169 206
Other reserves 5,794 3,789
Accrued compensation 458 718
Other 810 2,434
--------- ---------
Total gross deferred tax assets 76,992 73,902
Valuation allowance (74,779) (71,956)
--------- ---------
Total deferred tax asset 2,213 1,946
Gross deferred tax liabilities related to
property and equipment/other 1,552 1,652
--------- ---------
Total gross deferred tax liability 1,552 1,652
--------- ---------
Deferred income taxes $ 661 $ 294
========= =========
Any future benefits attributable to the U.S. Federal net operating loss
carryforwards which originated prior to Concurrent's quasi-reorganization are
accounted for through adjustments to capital in excess of par value. Under
Section 382 of the Internal Revenue Code, future benefits attributable to the
net operating loss carryforwards and tax credits which originated prior to
Concurrent's quasi-reorganization and those which originated subsequent to
Concurrent's quasi-reorganization through the date of Concurrent's 1993
comprehensive refinancing ("1993 Refinancing") are limited to approximately $0.3
million per year. Concurrent's U.S. Federal net operating loss carryforwards
begin to expire in 2004. As of June 30, 2001, Concurrent has remaining
utilizable U.S. Federal tax net operating loss carryforwards of approximately
$172 million for income tax purposes. Approximately $62 million of these net
operating loss carryforwards originated prior to Concurrent's 1993 Refinancing
and are limited to $300,000 per year.
The tax benefits associated with nonqualified stock options and
disqualifying dispositions of incentive stock options increased the operating
loss carryforward by approximately $5.1 million for the year ended June 30,
2001. Such benefits will be recorded as an increase to additional paid-in
capital when realized.
Deferred income taxes have not been provided for undistributed earnings of
foreign subsidiaries, which originated subsequent to Concurrent's
quasi-reorganization, primarily due to Concurrent's required investment in
certain subsidiaries.
Additionally, deferred income taxes have not been provided on undistributed
earnings of foreign subsidiaries which originated prior to Concurrent'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.
47
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The valuation allowance for deferred tax assets as of June 30, 2001 and
2000 was approximately $75 million and $72 million, respectively. The net change
in the total valuation allowance for the year ended June 30, 2001 was an
increase of approximately $2.8 million. The net increase in the total valuation
allowance for the year ended June 30, 2000 was approximately $14.6 million and
the net decrease in the total valuation allowance for the year ended June 30,
1999 was approximately $1.4 million. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. As such, the deferred tax assets have been reduced by the valuation
allowance since management considers more likely than not that these deferred
tax assets will not be realized.
12. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Concurrent maintains a retirement savings plan (the "Plan") available to
U.S. employees which qualifies as a defined contribution plan under Section
401(k) of the Internal Revenue Code. Concurrent may make a discretionary
matching contribution equal to 100% of the first 6% of employees' contributions.
For the years ended June 30, 2001, 2000 and 1999, Concurrent matched 100% of the
employees' Plan contributions up to 6%.
Concurrent's matching contributions under the Plan are as follows:
2001 2000 1999
---------- ----------- -----------
(DOLLARS IN THOUSANDS)
Matching contribution $ 1,120 $ 1,378 $ 1,040
48
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Certain foreign subsidiaries of Concurrent maintain pension plans for their
employees which conform to the common practice in their respective countries.
The related changes in benefit obligation and plan assets and the amounts
recognized in the consolidated balance sheets are presented in the following
tables:
Reconciliation of Funded Status
----------------------------------
JUNE 30,
--------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year $ 15,431 $ 14,230
Service cost 281 313
Interest cost 837 923
Plan participants' contributions 52 67
Actuarial loss 1,268 10
Foreign currency exchange rate change (1,920) (60)
Benefits paid (588) (52)
--------- ---------
Benefit obligation at end of year $ 15,361 $ 15,431
========= =========
Change in plan assets:
Fair value of plan assets at beginning of year $ 15,322 $ 14,081
Actual return on plan assets (793) 1,049
Employer contributions 114 158
Plan participants' contributions 52 67
Benefits paid (559) (33)
Foreign currency exchange rate change (1,710) -
--------- ---------
Fair value of plan assets at end of year $ 12,426 $ 15,322
========= =========
Funded status $ (2,935) $ (109)
Unrecognized actuarial loss (income) 2,720 (121)
Unrecognized prior service cost 205 243
Unrecognized net transition asset (85) (151)
--------- ---------
Net amount recognized $ (95) $ (138)
========= =========
Amounts Recognized in the Consolidated Balance Sheet
----------------------------------------------------
JUNE 30,
--------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Accrued pension cost, net $ (3,106) $ (138)
Intangible asset 208 -
Accumulated other comprehensive loss 2,803 -
--------- ---------
Net amount recognized in balance sheet $ (95) $ (138)
========= =========
49
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $15.4 million, $14.9 million and $12.4 million,
respectively, as of June 30, 2001, and $2.7 million, $2.7 million and $1.6
million, respectively, as of June 30, 2000.
Plan assets are comprised primarily of investments in managed funds
consisting of common stock, money market and real estate investments.
The assumptions used to measure the present value of benefit obligations
and net periodic benefit cost are shown in the following table:
Significant Assumptions
-----------------------
JUNE 30,
-------------------------------------------
2001 2000 1999
------------- ------------- -------------
Discount rate 6.0% to 6.25% 6.0% to 6.25% 6.0% to 6.25%
Expected return on plan assets 5.75% to 6.0% 6.0% 6.0%
Compensation increase rate 3.5% to 4.5% 3.5% to 4.5% 3.5% to 4.5%
Components of Net Periodic Benefit Cost
--------------------------------------------
YEAR ENDED JUNE 30,
----------------------
2001 2000 1999
------ ------ ------
Service cost $ 281 $ 313 $ 336
Interest cost 837 923 886
Expected return on plan assets (839) (918) (873)
Amortization of unrecognized net transition obligation (63) (69) (69)
Amortization of unrecognized prior service benefit 22 24 25
Recognized actuarial loss (30) (27) (51)
------ ------ ------
Net periodic benefit cost $ 208 $ 246 $ 254
====== ====== ======
13. SEGMENT INFORMATION
For the years ended June 30, 2001 and 2000, Concurrent operated its
business in two divisions: Real-Time and VOD. Its Real-Time division is a
leading provider of high-performance, real-time computer systems, solutions and
software for commercial and government markets focusing on strategic market
areas that include hardware-in-the-loop and man-in-the-loop simulation, data
acquisition, industrial systems, and software and embedded applications. Its
VOD division is a leading supplier of digital video server systems to a wide
range of industries serving a variety of markets, including the broadband/cable,
hospitality, intranet/distance learning, and other related markets. Customer
service and support revenues derived from VOD sales arrangements are included in
Product Sales and are not material. Shared expenses are primarily allocated
based on either revenues or headcount. There were no material intersegment
sales or transfers. For the year ended June 30, 2001, one customer accounted
for approximately 12% of the total Real-Time revenue and three customers
accounted for approximately 84% of the total VOD revenue. There were no other
customers that accounted for more than 10% of revenue for either division. The
following summarizes the operating income (loss) by segment for the years ended
June 30, 2001 and 2000, respectively. Corporate costs include costs related to
the offices of the Chief Executive Officer, Chief Financial Officer, Investor
50
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Relations and other administrative costs including annual audit and tax fees,
board of director fees and similar costs.
YEAR ENDED JUNE 30, 2001
-------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
Revenues:
Product sales $ 25,740 $23,814 $ - $49,554
Service and other 23,267 - - 23,267
---------- -------- ----------- --------
Total 49,007 23,814 - 72,821
Cost of sales:
Systems 14,102 13,091 - 27,193
Service and other 12,608 - - 12,608
---------- -------- ----------- --------
Total 26,710 13,091 - 39,801
---------- -------- ----------- --------
Gross margin 22,297 10,723 - 33,020
Operating expenses
Sales and marketing 7,548 8,007 557 16,112
Research and development 3,493 8,086 - 11,579
General and administrative 1,748 2,635 6,537 10,920
---------- -------- ----------- --------
Total operating expenses 12,789 18,728 7,094 38,611
---------- -------- ----------- --------
Operating income (loss) $ 9,508 $(8,005) $ (7,094) $(5,591)
========== ======== =========== ========
51
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED JUNE 30, 2000
---------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
Revenues:
Product sales $ 27,122 $ 11,952 $ - $ 39,074
Service and other 29,016 - - 29,016
---------- --------- ----------- ---------
Total 56,138 11,952 - 68,090
Cost of sales:
Systems 12,345 7,766 - 20,111
Service and other 16,236 - - 16,236
---------- --------- ----------- ---------
Total 28,581 7,766 - 36,347
---------- --------- ----------- ---------
Gross margin 27,557 4,186 - 31,743
Operating expenses
Sales and marketing 11,942 8,040 329 20,311
Research and development 4,173 5,602 - 9,775
General and administrative 1,879 1,861 5,537 9,277
Cost of purchased in-process research and development - 14,000 - 14,000
Relocation and restructuring 1,208 1,159 - 2,367
---------- --------- ----------- ---------
Total operating expenses 19,202 30,662 5,866 55,730
---------- --------- ----------- ---------
Operating income (loss) $ 8,355 $(26,476) $ (5,866) $(23,987)
========== ========= =========== =========
Summarized financial information for fiscal year 2001 and 2000, respectively, is
as follows:
AS OF AND FOR THE YEAR ENDED JUNE 30, 2001
---------- --------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
Net sales $ 49,007 $23,814 $ - $72,821
Operating income (loss) $ 9,508 $(8,005) $ (7,094) $(5,591)
Identifiable assets $ 19,179 $31,880 $ 5,993 $57,052
Depreciation and amortization $ 2,631 $ 2,746 $ 618 $ 5,995
Capital expenditures $ 978 $ 2,536 $ 247 $ 3,761
52
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AS OF AND FOR THE YEAR ENDED JUNE 30, 2000
---------- --------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
Net sales $ 56,138 $ 11,952 $ - $ 68,090
Operating income (loss) $ 8,355 $(26,476) $ (5,866) $(23,987)
Identifiable assets $ 22,610 $ 28,909 $ 5,559 $ 57,078
Depreciation and amortization $ 3,071 $ 2,259 $ 815 $ 6,145
Capital expenditures $ 1,252 $ 2,286 $ 823 $ 4,361
The VOD division became a reportable segment during fiscal 2000. Revenues
generated from VOD sales were $1.2 million for the year ended June 30, 1999. It
is impracticable to attain operating income (loss), identifiable assets,
depreciation and amortization and capital expenditures for the VOD division as
of and for the year ended June 30, 1999 as Concurrent operated as one segment
for that period.
14. EMPLOYEE STOCK PLANS
Concurrent has a Stock Option Plan providing for the grant of incentive
stock options to employees and non-qualified stock options to employees,
non-employee directors and consultants. The Stock Option Plan is administered
by the Stock Award Committee comprised of members of the Compensation Committee
of the Board of Directors or the Board of Directors, as the case may be. Under
the plan, the Stock Award Committee may award, in addition to stock options,
shares of Common Stock on a restricted basis. The plan also specifically
provides for stock appreciation rights and authorizes the Stock Award Committee
to provide, either at the time of the grant of an option or otherwise, that the
option may be cashed out upon terms and conditions to be determined by the
Committee or the Board. No stock appreciation rights have been granted during
the years ended June 30, 2001, 2000, and 1999. Options issued under the Stock
Option Plan generally vest over four years and are exercisable for ten years
from the grant date. The plan terminates on January 31, 2002. Stockholders
have approved the purchase of up to 13,500,000 shares under the plan.
Changes in options outstanding under the plan during the years ended June
30, 2001, 2000, and 1999 are as follows:
2001 2000 1999
------------------------ --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ---------- ------------ ------- ---------- ----------
Outstanding at beginning of year 5,681,521 $ 4.28 7,190,969 $ 2.56 5,852,794 $ 2.13
Granted 1,049,600 $ 12.03 1,763,419 $ 7.60 2,453,500 $ 3.51
Exercised (1,140,333) $ 3.17 (3,127,306) $ 2.23 (884,283) $ 2.02
Forfeited (202,627) $ 4.96 (145,561) $ 3.91 (231,042) $ 2.17
------------ ------------ ----------
Outstanding at year end 5,388,161 $ 6.00 5,681,521 $ 4.28 7,190,969 $ 2.56
============ ============ ==========
Options exercisable at year end 2,638,708 2,600,401 3,498,533
============ ============ ==========
Weighted average fair value of
options granted during the year $ 11.91 $ 5.62 $ 1.56
============ ============ ==========
53
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Options with respect to 2,638,708 shares of Common Stock, with an average
exercise price of $3.79 were exercisable at June 30, 2001. The weighted-average
fair value of the stock options granted during 2001, 2000 and 1999 was
$8,357,026, $4,715,526, and $1,870,148, respectively, on the date of grant using
the Black Scholes option-pricing model. The weighted-average assumptions used
were: expected dividend yield 0%, risk-free interest rate 5%, expected life of 6
years and an expected volatility of 206%, 106%, and 70% for the years ended June
30, 2001, 2000 and 1999, respectively.
The following table summarizes information about stock options outstanding
and exercisable at June 30, 2001:
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
------------------------------------------ ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES LIFE AT JUNE 30, 2001 PRICE AT JUNE 30, 2001 PRICE
-------------------------------------------------------------------------------------------
$ 0.37 - $0.99 6.03 271,935 $ 0.42 271,935 $ 0.42
$ 1.00 - $1.99 5.28 149,365 1.50 149,365 1.50
$ 2.00 - $2.99 6.21 2,173,442 2.50 1,514,449 2.39
$ 3.00 - $3.99 6.17 5,233 3.19 5,233 3.19
$ 4.00 - $4.99 7.63 299,173 4.41 113,173 4.41
$ 5.00 - $5.99 7.71 288,100 5.06 173,937 5.03
$ 6.00 - $6.99 8.11 277,383 6.69 33,219 6.65
$ 7.00 - $7.99 9.52 149,700 7.02 21,767 7.04
$ 8.00 - $8.99 8.13 227,330 8.00 67,119 8.00
$ 10.00 - $10.99 8.37 544,500 10.12 173,174 10.12
$ 11.00 - $11.99 8.33 17,000 11.06 17,000 11.06
$ 12.00 - $12.99 9.20 787,500 12.40 - -
$ 13.00 - $13.99 8.65 20,000 13.75 6,667 13.75
$ 17.00 - $17.99 9.18 35,000 17.84 - -
$ 18.00 - $18.99 8.91 127,500 18.53 88,336 18.53
$ 19.00 - $19.99 8.88 15,000 19.48 3,334 19.63
----------------- -----------------
7.37 5,388,161 $ 6.00 2,638,708 $ 3.79
================= =================
Concurrent applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had Concurrent determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123,
Concurrent's net loss and net loss per share would have been increased to the
pro forma amounts indicated below:
54
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED JUNE 30,
-------------------------------
2001 2000 1999
--------- --------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net loss
As reported $ (6,189) $(23,715) $ (1,665)
Pro forma $(14,546) $(28,431) $ (3,535)
Net loss per share - basic and diluted
As reported $ (0.11) $ (0.46) $ (0.03)
Pro forma $ (0.27) $ (0.55) $ (0.07)
15. ISSUANCE AND ACCRUAL OF NON-CASH WARRANTS
On March 29, 2001, Concurrent entered into a definitive purchase agreement
with Comcast Cable, providing for the purchase of VOD equipment. As part of that
agreement Concurrent agreed to issue three different types of warrants.
Concurrent issued warrants to purchase 50,000 shares of its Common Stock on
March 29, 2001, exercisable at $5.196 per share over a four year term. These
warrants are referred to as the "Initial Warrants". Concurrent has recognized
$224,000 in the consolidated statements of operations for the year ended June
30, 2001 as a reduction to revenue for the value of these warrants.
Concurrent is also generally obligated to issue new warrants to purchase
shares of its Common Stock to Comcast at the end of each quarter through March
31, 2004, based upon specified performance goals which are measured by the
number of Comcast basic cable subscribers that have the ability to utilize the
VOD service. The incremental number of subscribers that have access to VOD at
each quarter end as compared to the prior quarter end multiplied by a specified
percentage is the number of additional warrants that were earned during the
quarter. These warrants are referred to as the "Performance Warrants".
Concurrent will also issue additional warrants to purchase shares of its
Common Stock, if at the end of any quarter the then total number of Comcast
basic cable subscribers with the ability to utilize the VOD system exceeds
specified threshold levels. These warrants are referred to as the "Cliff
Warrants".
Concurrent is recognizing the value of the Performance Warrants and the
Cliff Warrants over the term of the agreement as Comcast purchases additional
VOD servers from Concurrent and makes the service available to its customers.
Concurrent has recognized $433,000 in the consolidated statements of operations
for the year ended June 30, 2001 as a reduction to revenue for the value of the
Performance Warrants and Cliff Warrants that have been earned but not yet
issued.
The value of the warrants is determined using the Black-Scholes
option-pricing model. The weighted assumptions used were: expected dividend
yield 0%, risk-free interest rate of 5.0%, expected life of 4 years and and an
expected volatility of 138%. Concurrent will adjust the value of the earned but
unissued warrants on a quarterly basis using the Black-Scholes option-pricing
model until the warrants are actually issued. The value of the new warrants
earned and any adjustments in value for warrants previously earned will be
determined using the Black-Scholes option-pricing model and recognized as part
of revenue on a quarterly basis.
The exercise price of the warrants is subject to adjustment for stock
splits, combinations, stock dividends, mergers, and other similar
recapitalization events. The exercise price is also subject to adjustment for
55
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
issuance of additional equity securities at a purchase price less than the then
current fair market value of Concurrent's Common Stock. Based on the
information that is currently available, Concurrent does not expect the
warrants to be issued to Comcast to exceed 1% of its outstanding shares of
Common Stock over the term of the agreement. The exercise price of the
warrants to be issued to Comcast will equal the average closing price of
Concurrent's Common Stock for the 30 trading days prior to the applicable
warrant issuance date and will be exercisable over a four-year term.
On May 20, 1998, Concurrent entered into a Letter of Intent ("LOI") with
Scientific-Atlanta, Inc. ("SAI") providing for the joint development and
marketing of a video-on-demand system to cable network operators. A definitive
agreement was signed on August 17, 1998. In exchange for SAI's technical and
marketing contributions, Concurrent issued warrants for 2 million shares of its
Common Stock, exercisable at $5 per share over a four-year term.
The LOI between Concurrent and SAI is broken into three phases:
Phase I Technical/Commercial Evaluation and Definitive Agreement
Phase II Initial Development and Video-on-Demand Field Demonstration System
Phase III Commercial Deployment
During Phase I, either party could terminate the negotiations at any time.
In June 1998, the parties moved to Phase II and pursuant to the provisions of
SFAS No. 123, Concurrent recorded a charge of $1.6 million representing the fair
value of the underlying stock using the Black-Scholes option-pricing model for
the warrants to purchase 2 million shares of Concurrent's stock. The weighted
assumptions used were: expected dividend yield 0%, risk-free interest rate of
5.0%, expected life of 4.01years and an expected volatility of 35%.
The LOI further stipulates that Concurrent is required to issue additional
warrants to SAI upon achievement of pre-determined revenue targets. These
warrants are to be issued with a strike price of a 15% discount to the then
current market price. The maximum number of additional warrants that could be
issued under this agreement is 8 million upon achieving the revenue targets.
Concurrent has recognized a charge of $398,000 and $322,000 in the consolidated
statements of operations for the years ended June 30, 2001 and 2000,
respectively, representing the fair market value of the warrants earned during
each year.
16. RIGHTS PLAN
On July 31, 1992, the Board of Directors of Concurrent declared a dividend
distribution of one Series A Participating Cumulative Preferred Right for each
share of Concurrent'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 Concurrent'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 Concurrent's voting stock. Any of these events
would trigger the rights plan and entitle each right holder to purchase from
Concurrent 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 Concurrent's voting stock, upon exercise each holder of a right would
be able to receive Common Stock of Concurrent or its equivalent, or Common Stock
of the acquiring entity, in each case having a value of two times the exercise
price of the right. The rights will expire on August 14, 2002 unless earlier
exercised or redeemed, or earlier termination of the plan.
56
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. BASIC AND DILUTED LOSS PER SHARE COMPUTATION
The following table presents a reconciliation of the numerators and
denominators of basic and diluted loss per share for the periods indicated:
YEAR ENDED JUNE 30,
-----------------------------
2001 2000 1999
-------- --------- --------
(DOLLARS AND SHARE DATA IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Basic EPS calculation:
Net loss $(6,189) $(23,715) $(1,665)
Weighted average number of shares outstanding 54,683 51,959 47,967
-------- --------- --------
Basic EPS $ (0.11) $ (0.46) $ (0.03)
======== ========= ========
Diluted EPS calculation:
Net loss $(6,189) $(23,715) $(1,665)
Weighted average number of shares outstanding 54,683 51,959 47,967
Incremental shares from assumed conversion of stock options - - -
-------- --------- --------
54,683 51,959 47,967
-------- --------- --------
Diluted EPS $ (0.11) $ (0.46) $ (0.03)
======== ========= ========
57
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. CONCENTRATION OF RISK
A summary of Concurrent's financial data by geographic area follows:
YEAR ENDED JUNE 30,
-----------------------------
2001 2000 1999
-------- --------- --------
(DOLLARS IN THOUSANDS)
Net sales:
United States $55,400 $ 44,049 $41,726
Intercompany 3,310 4,828 5,843
-------- --------- --------
58,710 48,877 47,569
-------- --------- --------
Europe 7,572 12,545 17,453
Intercompany - 34 344
-------- --------- --------
7,572 12,579 17,797
-------- --------- --------
Asia/Pacific 9,128 10,399 9,519
Intercompany - 21 53
-------- --------- --------
9,128 10,420 9,572
-------- --------- --------
Other 721 1,097 1,265
-------- --------- --------
76,131 72,973 76,203
Eliminations (3,310) (4,883) (6,240)
-------- --------- --------
Total $72,821 $ 68,090 $69,963
======== ========= ========
Operating income (loss):
United States $(5,608) $ 23,278) $(2,146)
Europe (448) (1,084) 72
Asia/Pacific 155 47 560
Other 174 308 149
Eliminations 136 20 76
-------- --------- --------
Total $(5,591) $(23,987) $(1,289)
======== ========= ========
JUNE 30,
---------------------
2001 2000
---------- ---------
(DOLLARS IN THOUSANDS)
Identifiable assets:
United States $ 82,702 $ 74,949
Europe 10,138 11,450
Asia/Pacific 12,919 15,039
Other 474 831
Eliminations (49,181) (45,191)
---------- ---------
Total $ 57,052 $ 57,078
========== =========
58
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Intercompany transfers between geographic areas are accounted for at prices
similar to those available to comparable unaffiliated customers. Sales to
unaffiliated customers outside the U.S., including U.S. export sales, were
$18,354,000, $24,585,000, and $29,058,000 for the years ended June 30, 2001,
2000 and 1999, respectively, which amounts represented 25%, 36%, and 42% of
total sales for the respective fiscal years.
Sales to the U.S. Government and its agencies amounted to approximately
$16,063,000, $18,455,000 and $23,053,000 for the years ended June 30, 2001, 2000
and 1999, respectively, which amounts represented 22%, 27% and 33% of total
sales for the respective fiscal years. Sales to two commercial customers
amounted to approximately $8,962,000 or 12% of total sales and $8,072,000 or 11%
of total sales, respectively, for the year ended June 30, 2001. Sales to one
commercial customer amounted to $7,934,000 or 12% of total sales for the year
ended June 30, 2000. There were no other customers during fiscal years 2001 or
2000 representing more than 10% of total revenues.
Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers comprising Concurrent's customer base.
Ongoing credit evaluations of customers' financial condition are performed and
collateral is generally not required.
19. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly financial results for the years
ended June 30, 2001 and 2000:
THREE MONTHS ENDED
--------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
2000 2000 2001 2001
--------------- -------------- ----------- ----------
2001 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 16,312 $ 14,533 $ 22,081 $ 19,895
Gross margin $ 7,591 $ 6,662 $ 10,210 $ 8,557
Operating income (loss) $ (1,580) $ (3,997) $ 675 $ (689)
Net income (loss) $ (1,794) $ (4,158) $ 571 $ (808)
Net income (loss) per share $ (0.03) $ ( 0.08) $ 0.01 $ (0.01)
THREE MONTHS ENDED
--------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1999 1999 2000 2000
--------------- -------------- ----------- ----------
2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 15,684 $ 16,922 $ 17,020 $ 18,464
Gross margin $ 7,640 $ 7,753 $ 7,790 $ 8,560
Operating loss (a) $ (3,105) $ (16,660) $ (2,330) $ (1,892)
Net loss (a) $ (2,551) $ (16,775) $ (2,446) $ (1,943)
Net loss per share $ (0.05) $ ( 0.33) $ (0.05) $ (0.04)
<FN>
(a) Operating loss and net loss for the three months ended December 31, 1999
include a $14.0 million write-off of in-process research and development
related to the acquisition of Vivid Technology (see Note 3).
59
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
20. COMMITMENTS AND CONTINGENCIES
Concurrent leases certain sales and service offices, warehousing, and
equipment under various operating leases. The leases expire at various dates
through 2006 and generally provide for the payment of taxes, insurance and
maintenance costs. Additionally, certain leases contain escalation clauses
which provide for increased rents resulting from the pass through of increases
in operating costs, property taxes and consumer price indexes. Furniture and
equipment with a cost of $409,000 at June 30, 2001 was acquired under a capital
lease arrangement.
At June 30, 2001, future minimum lease payments for the years ending June
30 are as follows:
CAPITAL
LEASES OPERATING LEASES TOTAL
--------- ----------------- ------
(DOLLARS IN THOUSANDS)
2002 $ 101 $ 2,654 $2,755
2003 101 2,174 2,275
2004 101 1,474 1,575
2005 51 898 949
2006 and thereafter - 707 707
--------- ----------------- ------
354 $ 7,907 $8,261
Amount representing interest (50) ================= ======
---------
Present value of minimum
capital lease payments $ 304
=========
Rent expense under all operating leases amounted to $3,166,000, $3,906,000
and $3,937,000 for the years ended June 30, 2001, 2000 and 1999, respectively.
Concurrent, from time to time, is involved in litigation incidental to the
conduct of its business. Concurrent and its counsel believe that such pending
litigation will not have a material adverse effect on Concurrent's results of
operations or financial condition.
Concurrent has entered into employment agreements with its executive
officers. In the event an executive officer is terminated directly by
Concurrent without cause or in certain circumstances constructively by
Concurrent, the terminated officer will be paid severance compensation in an
annualized amount equal to the respective officer's annual salary then in effect
plus an amount equal to the then most recent annual bonus paid or target bonus
paid or, if determined, payable, to such officer. At June 30, 2001, the maximum
contingent liability under these agreements is approximately $1.5 million.
Concurrent's employment agreements with certain of its officers contain certain
offset provisions, as defined in their respective agreements.
21. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements
No. 141, Business Combinations, and No. 142 ("FAS 142"), Goodwill and other
Intangible Assets. Under FAS 142, goodwill and intangible assets with indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives. FAS 142 is effective for fiscal years beginning after December 15, 2001.
As permitted, Concurrent will early-adopt the statement as of July 1, 2001, the
beginning of its fiscal year. Application of the new amortization provisions of
FAS 142 is expected to increase Concurrent's net income by approximately $1.3
million ($0.02 per share) in years subsequent to fiscal year 2001. At June 30,
2001, goodwill amounted to $10.7 million and goodwill amortization expense was
60
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$1,281,000 in fiscal 2001, $854,000 in fiscal 2000 and $0 in fiscal 1999. During
fiscal 2002, Concurrent will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of July 1, 2001. Until
those tests are performed and other transitional issues are finalized,
Concurrent cannot estimate what the effect of the initial adoption of the
statements will have on its earnings and financial position.
22. SUBSEQUENT EVENT
In July 2001, Concurrent issued 5,400,000 shares of Common Stock in a
private placement. The net proceeds from the private placement were
approximately $24.0 million. The resale of the shares was registered under a
resale registration statement filed with the Securities and Exchange Commission
and declared effective on July 19, 2001.
61
SCHEDULE II
CONCURRENT COMPUTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2001, 2000, AND 1999
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES (A) OTHER OF YEAR
---------------------------------- ----------- ----------- ------------ ------- --------
Reserves and allowances deducted
from asset accounts:
2001
----
Reserve for inventory obsolescence
and shrinkage $ 4,034 $ 1,712 $ (2,265) $ - $ 3,481
Allowance for doubtful accounts 484 590 (214) - 860
Warranty accrual 668 780 (471) - 977
2000
----
Reserve for inventory obsolescence
and shrinkage $ 4,568 $ 550 $ (1,084) $ - $ 4,034
Allowance for doubtful accounts 418 289 (223) - 484
Warranty accrual - 668 - - 668
1999
----
Reserve for inventory obsolescence
and shrinkage $ 4,600 $ 1,087 $ (1,119) $ - $ 4,568
Allowance for doubtful accounts 503 19 (104) - 418
<FN>
(a) Charges and adjustments to the reserve accounts for write-offs and credits
issued during the year.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONCURRENT COMPUTER CORPORATION
By: /s/ Jack A. Bryant
-----------------------------------
Jack A. Bryant
President and Chief Executive Officer
Date: September 4, 2001
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 indicated on September 4, 2001.
NAME TITLE
---- -----
/s/ Steve G. Nussrallah Chairman of the Board and Director
------------------------------
Steve G. Nussrallah
/s/ Jack A. Bryant President, Chief Executive Officer and Director
------------------------------ (Principal Executive Officer)
Jack A. Bryant
/s/ Steven R. Norton Executive Vice President, Chief Financial
------------------------------ Officer and Secretary
Steven R. Norton (Principal Financial and Accounting Officer)
/s/ Alex B. Best Director
------------------------------
Alex B. Best
/s/ Michael A. Brunner Director
------------------------------
Michael A. Brunner
/s/ Morton E. Handel Director
------------------------------
Morton E. Handel
/s/ Bruce N. Hawthorne Director
------------------------------
Bruce N. Hawthorne
/s/ C. Shelton James Director
------------------------------
C. Shelton James
/s/ Richard P. Rifenburgh Director
------------------------------
Richard P. Rifenburgh
63