x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended December 31, 2009 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from ______ to ______ |
Large accelerated filer o | Accelerated filer x | Non-accelerated filer o | Smaller reporting company o |
Page | ||
Number | ||
PART I—FINANCIAL INFORMATION | ||
Item 1. | Financial Statements: | |
Condensed Consolidated Statements of Operations | 1 | |
Condensed Consolidated Balance Sheets | 2 | |
Condensed Consolidated Statements of Cash Flows | 3 | |
Notes to Condensed Consolidated Financial Statements | 4 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 33 |
Item 4. | Controls and Procedures | 34 |
PART II—OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 35 |
Item 1A. | Risk Factors | 35 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 46 |
Item 3. | Defaults Upon Senior Securities | 46 |
Item 4. | Submission of Matters to a Vote of Security Holders | 46 |
Item 5. | Other Information | 46 |
Item 6. | Exhibits | 46 |
SIGNATURE | 47 | |
EXHIBIT INDEX | 48 |
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, 2009 | December 31, 2008 | December 31, 2009 | December 31, 2008 | |||||||||||||
Product revenue | $ | 124,580 | $ | 143,882 | $ | 348,131 | $ | 444,658 | ||||||||
Service revenue | 38,991 | 40,757 | 117,650 | 124,593 | ||||||||||||
Royalty revenue | 18,139 | 19,029 | 51,195 | 71,598 | ||||||||||||
Total revenue | 181,710 | 203,668 | 516,976 | 640,849 | ||||||||||||
Cost of product revenue | 82,509 | 88,949 | 227,672 | 303,583 | ||||||||||||
Cost of service revenue | 24,485 | 28,933 | 76,316 | 93,766 | ||||||||||||
Total cost of revenue | 106,994 | 117,882 | 303,988 | 397,349 | ||||||||||||
Gross margin | 74,716 | 85,786 | 212,988 | 243,500 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 18,155 | 16,053 | 51,594 | 53,809 | ||||||||||||
Sales and marketing | 29,029 | 32,821 | 84,202 | 111,006 | ||||||||||||
General and administrative | 16,289 | 17,015 | 46,012 | 58,860 | ||||||||||||
Restructuring charges (benefits) | (22 | ) | 4,062 | 4,784 | 4,469 | |||||||||||
Goodwill impairment | — | 339,000 | — | 339,000 | ||||||||||||
63,451 | 408,951 | 186,592 | 567,144 | |||||||||||||
Income (loss) from operations | 11,265 | (323,165 | ) | 26,396 | (323,644 | ) | ||||||||||
Interest income and other, net | 526 | (594 | ) | 1,795 | 503 | |||||||||||
Interest expense | (6,813 | ) | (7,276 | ) | (19,399 | ) | (23,561 | ) | ||||||||
Gain on debt extinguishment, net of costs | — | — | 12,859 | — | ||||||||||||
Income (loss) before income taxes | 4,978 | (331,035 | ) | 21,651 | (346,702 | ) | ||||||||||
Income tax provision (benefit) | 342 | (2,259 | ) | 652 | (324 | ) | ||||||||||
Net income (loss) | $ | 4,636 | $ | (328,776 | ) | $ | 20,999 | $ | (346,378 | ) | ||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.02 | $ | (1.58 | ) | $ | 0.10 | $ | (1.66 | ) | ||||||
Diluted | 0.02 | (1.58 | ) | 0.04 | (1.66 | ) | ||||||||||
Income (loss) for purposes of
computing net
income (loss)
per share:
|
||||||||||||||||
Basic | $ | 4,636 | $ | (328,776 | ) | 20,999 | $ | (346,378 | ) | |||||||
Diluted | 4,636 | (328,776 | ) | 9,389 | (346,378 | ) | ||||||||||
Weighted average common and common equivalent shares: | ||||||||||||||||
Basic | 213,525 | 210,086 | 212,092 | 208,665 | ||||||||||||
Diluted | 220,710 | 210,086 | 223,143 | 208,665 |
December 31,
2009 |
March 31,
2009 |
|||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 100,700 | $ | 87,305 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,400 and $1,999, respectively | 116,553 | 107,851 | ||||||
Manufacturing inventories, net | 49,829 | 61,237 | ||||||
Service parts inventories, net | 54,688 | 63,029 | ||||||
Deferred income taxes | 9,970 | 9,935 | ||||||
Other current assets | 17,292 | 24,745 | ||||||
Total current assets | 349,032 | 354,102 | ||||||
Long-term assets: | ||||||||
Property and equipment, less accumulated depreciation | 25,128 | 28,553 | ||||||
Purchased technology, less accumulated amortization | 32,326 | 49,148 | ||||||
Other intangible assets, less accumulated amortization | 49,832 | 60,088 | ||||||
Goodwill | 46,770 | 46,770 | ||||||
Other long-term assets | 10,518 | 10,708 | ||||||
Total long-term assets | 164,574 | 195,267 | ||||||
$ | 513,606 | $ | 549,369 | |||||
Liabilities and Stockholders’ Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 56,571 | $ | 45,182 | ||||
Accrued warranty | 6,428 | 11,152 | ||||||
Deferred revenue, current | 100,580 | 84,079 | ||||||
Current portion of long-term debt | 1,884 | 4,000 | ||||||
Current portion of convertible subordinated debt | 22,099 | — | ||||||
Accrued restructuring charges | 4,522 | 4,681 | ||||||
Accrued compensation | 28,925 | 27,334 | ||||||
Income taxes payable | 2,674 | 4,752 | ||||||
Other accrued liabilities | 26,209 | 34,550 | ||||||
Total current liabilities | 249,892 | 215,730 | ||||||
Long-term liabilities: | ||||||||
Deferred revenue, long-term | 29,445 | 32,082 | ||||||
Deferred income taxes | 10,815 | 11,190 | ||||||
Long-term debt | 306,370 | 244,000 | ||||||
Convertible subordinated debt | — | 160,000 | ||||||
Other long-term liabilities | 7,026 | 6,326 | ||||||
Total long-term liabilities | 353,656 | 453,598 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Common stock, $0.01 par value; 1,000,000 shares authorized; 214,160 and 210,231 shares | ||||||||
issued and outstanding at December 31, 2009 and March 31, 2009, respectively | 2,142 | 2,102 | ||||||
Capital in excess of par value | 357,766 | 349,850 | ||||||
Accumulated deficit | (456,764 | ) | (477,763 | ) | ||||
Accumulated other comprehensive income | 6,914 | 5,852 | ||||||
Stockholders’ deficit | (89,942 | ) | (119,959 | ) | ||||
$ | 513,606 | $ | 549,369 | |||||
Nine Months Ended | ||||||||
December 31, 2009 | December 31, 2008 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 20,999 | $ | (346,378 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation | 9,111 | 12,054 | ||||||
Amortization | 28,987 | 32,804 | ||||||
Service parts lower of cost or market adjustment | 8,092 | 13,832 | ||||||
Gain on debt extinguishment | (15,613 | ) | — | |||||
Goodwill impairment | — | 339,000 | ||||||
Deferred income taxes | (410 | ) | 141 | |||||
Share-based compensation | 7,155 | 8,092 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable, net | (8,702 | ) | 37,790 | |||||
Manufacturing inventories, net | 8,387 | 2,265 | ||||||
Service parts inventories, net | 3,270 | 223 | ||||||
Accounts payable | 11,389 | (38,949 | ) | |||||
Accrued warranty | (4,724 | ) | (7,261 | ) | ||||
Deferred revenue | 13,864 | 11,012 | ||||||
Accrued restructuring charges | (159 | ) | 2,248 | |||||
Accrued compensation | 1,591 | (5,385 | ) | |||||
Income taxes payable | (2,078 | ) | 93 | |||||
Other assets and liabilities | 706 | (11,704 | ) | |||||
Net cash provided by operating activities | 81,865 | 49,877 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (5,728 | ) | (4,289 | ) | ||||
Return of principal from other investments | 166 | 1,038 | ||||||
Net cash used in investing activities | (5,562 | ) | (3,251 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings of long-term debt, net | 120,042 | — | ||||||
Repayments of long-term debt | (61,463 | ) | (91,000 | ) | ||||
Repayments of convertible subordinated debt | (122,288 | ) | — | |||||
Payment of taxes due upon vesting of restricted stock | (960 | ) | (768 | ) | ||||
Proceeds from issuance of common stock | 1,761 | 2,738 | ||||||
Net cash used in financing activities | (62,908 | ) | (89,030 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 13,395 | (42,404 | ) | |||||
Cash and cash equivalents at beginning of period | 87,305 | 93,643 | ||||||
Cash and cash equivalents at end of period | $ | 100,700 | $ | 51,239 | ||||
As of December 31, 2009 | As of March 31, 2009 | |||||
Assets: | ||||||
Money market funds | $ | 92,500 | $ | 75,350 | ||
Deferred compensation investments | 1,282 | 910 | ||||
Liabilities: | ||||||
Deferred compensation liabilities | 1,282 | 910 | ||||
Derivatives | — | 1,175 |
Fair Value Measurements Using Input Levels | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Money market funds | $ | — | $ | 92,500 | $ | — | $ | 92,500 | ||||
Deferred compensation investments | — | 1,282 | — | 1,282 | ||||||||
Liabilities: | ||||||||||||
Deferred compensation liabilities | — | 1,282 | — | 1,282 |
As of December 31, 2009 | As of March 31, 2009 | |||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||
Credit Suisse term loan (1) | $ | 186,537 | $ | 173,013 | $ | 248,000 | $ | 155,000 | ||||
EMC term loans (2) | 121,717 | 133,984 | — | — | ||||||||
Convertible subordinated debt (3) | 22,099 | 20,994 | 160,000 | 108,051 |
(1) | Fair value based on non-binding broker quotes using current market information. | |
(2) | Fair value is based on publicly traded debt with comparable terms. | |
(3) | Fair value at December 31, 2009 based on pricing from a private transaction on June 26, 2009. Fair value based on quoted market prices for March 31, 2009. |
December 31, 2009 | March 31, 2009 | |||||
Manufacturing inventories, net: | ||||||
Finished goods | $ | 21,904 | $ | 27,629 | ||
Work in process | 2,973 | 3,669 | ||||
Raw materials and purchased parts | 24,952 | 29,939 | ||||
$ | 49,829 | $ | 61,237 | |||
Service parts inventories, net: | ||||||
Finished goods | $ | 31,160 | $ | 36,422 | ||
Component parts | 23,528 | 26,607 | ||||
$ | 54,688 | $ | 63,029 | |||
December 31, 2009 | March 31, 2009 | |||||||||||||||||||
Gross
Amount |
Accumulated
Amortization |
Net
Amount |
Gross
Amount |
Accumulated
Amortization |
Net
Amount |
|||||||||||||||
Purchased technology | $ | 188,167 | $ | (155,841 | ) | $ | 32,326 | $ | 188,167 | $ | (139,019 | ) | $ | 49,148 | ||||||
Trademarks | 27,260 | (25,303 | ) | 1,957 | 27,260 | (24,696 | ) | 2,564 | ||||||||||||
Non-compete agreements | 500 | (343 | ) | 157 | 500 | (268 | ) | 232 | ||||||||||||
Customer lists | 108,219 | (60,501 | ) | 47,718 | 108,219 | (50,927 | ) | 57,292 | ||||||||||||
$ | 324,146 | $ | (241,988 | ) | $ | 82,158 | $ | 324,146 | $ | (214,910 | ) | $ | 109,236 | |||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31,
2009 |
December 31,
2008 |
December 31,
2009 |
December 31,
2008 |
|||||||||||||
Beginning balance | $ | 7,100 | $ | 15,240 | $ | 11,152 | $ | 19,862 | ||||||||
Additional warranties issued | 2,322 | 3,476 | 6,560 | 11,629 | ||||||||||||
Adjustments for warranties issued in prior fiscal years | (402 | ) | (1,733 | ) | (2,675 | ) | (2,605 | ) | ||||||||
Settlements | (2,592 | ) | (4,382 | ) | (8,609 | ) | (16,285 | ) | ||||||||
Ending balance | $ | 6,428 | $ | 12,601 | $ | 6,428 | $ | 12,601 | ||||||||
December 31, 2009 | March 31, 2009 | |||||
Convertible subordinated debt | $ | 22,099 | $ | 160,000 | ||
Credit Suisse term loan | 186,537 | 248,000 | ||||
EMC term loans | 121,717 | — | ||||
$ | 330,353 | $ | 408,000 | |||
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31,
2009 |
December 31,
2008 |
December
31,
2009 |
December 31,
2008 |
|||||||||||||
By expense (benefit) type | ||||||||||||||||
Severance and benefits | $ | (94 | ) | $ | 4,218 | $ | 64 | $ | 5,421 | |||||||
Facilities | 72 | (177 | ) | 4,919 | (973 | ) | ||||||||||
Other | — | 21 | (199 | ) | 21 | |||||||||||
Total | $ | (22 | ) | $ | 4,062 | $ | 4,784 | $ | 4,469 | |||||||
By cost reduction action | ||||||||||||||||
Consolidate operations supporting our business | $ | (22 | ) | $ | 4,062 | $ | 4,784 | $ | 4,056 | |||||||
Partner with third party on certain research and development | ||||||||||||||||
efforts | — | — | — | 413 | ||||||||||||
Total | $ | (22 | ) | $ | 4,062 | $ | 4,784 | $ | 4,469 | |||||||
Accrued Restructuring | ||||||||||||||||
Three Months Ended
December 31, 2009 |
||||||||||||||||
Severance
and Benefits |
Facilities | Other | Total | |||||||||||||
Balance as of September 30, 2009 | $ | 562 | $ | 4,430 | $ | 400 | $ | 5,392 | ||||||||
Restructuring charges | 51 | 72 | — | 123 | ||||||||||||
Reversals | (145 | ) | — | — | (145 | ) | ||||||||||
Cash payments | (369 | ) | (483 | ) | — | (852 | ) | |||||||||
Other | (1 | ) | 5 | — | 4 | |||||||||||
Balance as of December 31, 2009 | $ | 98 | $ | 4,024 | $ | 400 | $ | 4,522 | ||||||||
Nine Months Ended
December 31, 2009 |
||||||||||||||||
Severance
and Benefits |
Facilities | Other | Total | |||||||||||||
Balance as of March 31, 2009 | $ | 3,454 | $ | 628 | $ | 599 | $ | 4,681 | ||||||||
Restructuring charges | 549 | 4,919 | — | 5,468 | ||||||||||||
Reversals | (485 | ) | — | (199 | ) | (684 | ) | |||||||||
Cash payments | (3,455 | ) | (1,528 | ) | — | (4,983 | ) | |||||||||
Other | 35 | 5 | — | 40 | ||||||||||||
Balance as of December 31, 2009 | $ | 98 | $ | 4,024 | $ | 400 | $ | 4,522 | ||||||||
Severance
and
Benefits |
Facilities | Other | Total | |||||||||||||
Estimated timing of future payouts: | ||||||||||||||||
Fiscal 2010 | $ | 98 | $ | 454 | $ | 400 | $ | 952 | ||||||||
Fiscal 2011 to 2013 | — | 3,570 | — | 3,570 | ||||||||||||
$ | 98 | $ | 4,024 | $ | 400 | $ | 4,522 | |||||||||
Three Months Ended | Nine Months Ended | |||||||||||
December 31,
2009 |
December 31,
2008 |
December
31,
2009 |
December 31,
2008 |
|||||||||
Share-based compensation | ||||||||||||
Cost of revenue | $ | 333 | $ | 141 | $ | 952 | $ | 1,099 | ||||
Research and development | 513 | 601 | 1,733 | 2,173 | ||||||||
Sales and marketing | 619 | 276 | 1,837 | 1,989 | ||||||||
General and administrative | 877 | 1,314 | 2,633 | 2,831 | ||||||||
$ | 2,342 | $ | 2,332 | $ | 7,155 | $ | 8,092 | |||||
Share-based compensation (by type of award) | ||||||||||||
Stock options | $ | 1,045 | $ | 933 | $ | 2,555 | $ | 2,729 | ||||
Restricted stock | 1,297 | 1,709 | 4,600 | 4,668 | ||||||||
Stock purchase plan | — | (310 | ) | — | 695 | |||||||
$ | 2,342 | $ | 2,332 | $ | 7,155 | $ | 8,092 | |||||
Three Months Ended | Nine Months Ended | ||||||||||||||
December 31,
2009 |
December 31,
2008 |
December 31,
2009 |
December 31,
2008 |
||||||||||||
Option life (in years) | 3.9 | 4.0 | 3.9 | 4.0 | |||||||||||
Risk-free interest rate | 1.82 | % | 2.27 | % | 2.06 | % | 2.72 | % | |||||||
Stock price volatility | 109.12 | % | 74.45 | % | 107.66 | % | 50.58 | % | |||||||
Dividend yield | — | — | — | — | |||||||||||
Weighted-average grant date fair value | $ | 1.01 | $ | 0.42 | $ | 0.73 | $ | 0.73 |
Nine Months Ended | |||||
December 31,
2009 |
December 31,
2008 |
||||
Option life (in years) | N/A | 0.5 | |||
Risk-free interest rate | N/A | 1.98 | % | ||
Stock price volatility | N/A | 61.57 | % | ||
Dividend yield | — | — | |||
Weighted-average grant date fair value | N/A | $ | 0.51 |
Options |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||
Outstanding as of March 31, 2009 | 25,626 | $ | 3.02 | |||||||
Granted | 9,607 | 1.00 | ||||||||
Exercised | (1,161 | ) | 1.52 | |||||||
Forfeited | (1,675 | ) | 3.38 | |||||||
Expired | (140 | ) | 13.57 | |||||||
Outstanding as of December 31, 2009 | 32,257 | $ | 2.41 | 4.29 | $ | 30,968 | ||||
Vested and expected to vest at December 31, 2009 | 30,412 | $ | 2.49 | 4.16 | $ | 27,528 | ||||
Exercisable as of December 31, 2009 | 20,482 | $ | 3.04 | 3.24 | $ | 11,593 | ||||
Shares |
Weighted-
Average Grant Date Fair Value |
||||
Nonvested at March 31, 2009 | 6,258 | $ | 1.78 | ||
Granted | 1,972 | 1.10 | |||
Vested | (2,747 | ) | 1.99 | ||
Forfeited | (769 | ) | 0.81 | ||
Nonvested at December 31, 2009 | 4,714 | $ | 1.53 | ||
Three Months Ended | Nine Months Ended | |||||||||||||
December 31,
2009 |
December 31,
2008 |
December 31,
2009 |
December 31,
2008 |
|||||||||||
Net income (loss) | $ | 4,636 | $ | (328,776 | ) | $ | 20,999 | $ | (346,378 | ) | ||||
Interest on dilutive notes | — | — | 1,249 | — | ||||||||||
Gain on debt extinguishment, net of costs | — | — | (12,859 | ) | — | |||||||||
Net income (loss) for purposes of computing net | ||||||||||||||
income (loss) per diluted share | $ | 4,636 | $ | (328,776 | ) | $ | 9,389 | $ | (346,378 | ) | ||||
Weighted average shares and common share equivalents (“CSE”): | ||||||||||||||
Basic | 213,525 | 210,086 | 212,092 | 208,665 | ||||||||||
Dilutive CSE from stock plans | 7,185 | — | 2,340 | — | ||||||||||
Dilutive CSE from convertible notes | — | — | 8,711 | — | ||||||||||
Diluted | 220,710 | 210,086 | 223,143 | 208,665 |
Three Months Ended | Nine Months Ended | ||||||||||||||
December 31,
2009 |
December 31,
2008 |
December 31,
2009 |
December 31,
2008 |
||||||||||||
Net income (loss) | $ | 4,636 | $ | (328,776 | ) | $ | 20,999 | $ | (346,378 | ) | |||||
Net unrealized gains (losses) on revaluation of long- | |||||||||||||||
term intercompany balance, net of tax | 58 | 101 | (152 | ) | 547 | ||||||||||
Foreign currency translation adjustment, net of tax | (149 | ) | (1,375 | ) | 1,214 | (2,379 | ) | ||||||||
Total comprehensive income (loss) | $ | 4,545 | $ | (330,050 | ) | $ | 22,061 | $ | (348,210 | ) | |||||
Three Months Ended | ||||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
Product revenue | $ | 124,580 | 68.6 | % | $ | 143,882 | 70.6 | % | $ | (19,302 | ) | (13.4 | )% | |||||
Service revenue | 38,991 | 21.5 | % | 40,757 | 20.0 | % | (1,766 | ) | (4.3 | )% | ||||||||
Royalty revenue | 18,139 | 10.0 | % | 19,029 | 9.3 | % | (890 | ) | (4.7 | )% | ||||||||
Total revenue | $ | 181,710 | 100.0 | % | $ | 203,668 | 100.0 | % | $ | (21,958 | ) | (10.8 | )% | |||||
Nine Months Ended | ||||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||||
Product revenue | $ | 348,131 | 67.3 | % | $ | 444,658 | 69.4 | % | $ | (96,527 | ) | (21.7 | )% | |||||
Service revenue | 117,650 | 22.8 | % | 124,593 | 19.4 | % | (6,943 | ) | (5.6 | )% | ||||||||
Royalty revenue | 51,195 | 9.9 | % | 71,598 | 11.2 | % | (20,403 | ) | (28.5 | )% | ||||||||
Total revenue | $ | 516,976 | 100.0 | % | $ | 640,849 | 100.0 | % | $ | (123,873 | ) | (19.3 | )% | |||||
Percentage columns may not add due to rounding. |
Three Months Ended | ||||||||||||||||||
(in
thousands)
|
December 31,
2009 |
Gross
margin% |
December 31,
2008 |
Gross
margin% |
Change | % Change | ||||||||||||
Product gross margin | $ | 42,071 | 33.8 | % | $ | 54,933 | 38.2 | % | $ | (12,862 | ) | (23.4 | )% | |||||
Service gross margin | 14,506 | 37.2 | % | 11,824 | 29.0 | % | 2,682 | 22.7 | % | |||||||||
Royalty gross margin | 18,139 | 100.0 | % | 19,029 | 100.0 | % | (890 | ) | (4.7 | )% | ||||||||
Gross margin | $ | 74,716 | 41.1 | % | $ | 85,786 | 42.1 | % | $ | (11,070 | ) | (12.9 | )% | |||||
Nine Months Ended | ||||||||||||||||||
December 31,
2009 |
Gross
margin% |
December 31,
2008 |
Gross
margin% |
Change | % Change | |||||||||||||
Product gross margin | $ | 120,459 | 34.6 | % | $ | 141,075 | 31.7 | % | $ | (20,616 | ) | (14.6 | )% | |||||
Service gross margin | 41,334 | 35.1 | % | 30,827 | 24.7 | % | 10,507 | 34.1 | % | |||||||||
Royalty gross margin | 51,195 | 100.0 | % | 71,598 | 100.0 | % | (20,403 | ) | (28.5 | )% | ||||||||
Gross margin | $ | 212,988 | 41.2 | % | $ | 243,500 | 38.0 | % | $ | (30,512 | ) | (12.5 | )% | |||||
Three Months Ended | ||||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
Research and development | $ | 18,155 | 10.0 | % | $ | 16,053 | 7.9 | % | $ | 2,102 | 13.1 | % | ||||||
Nine Months Ended | ||||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||||
Research and development | $ | 51,594 | 10.0 | % | $ | 53,809 | 8.4 | % | $ | (2,215 | ) | (4.1 | )% |
Three Months Ended | ||||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
Sales and marketing | $ | 29,029 | 16.0 | % | $ | 32,821 | 16.1 | % | $ | (3,792 | ) | (11.6 | )% | |||||
Nine Months Ended | ||||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||||
Sales and marketing | $ | 84,202 | 16.3 | % | $ | 111,006 | 17.3 | % | $ | (26,804 | ) | (24.1 | )% |
Three Months Ended | ||||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
General and administrative | $ | 16,289 | 9.0 | % | $ | 17,015 | 8.4 | % | $ | (726 | ) | (4.3 | )% | |||||
Nine Months Ended | ||||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||||
General and administrative | $ | 46,012 | 8.9 | % | $ | 58,860 | 9.2 | % | $ | (12,848 | ) | (21.8 | )% |
Three Months Ended | |||||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||||
Restructuring charges (benefits) | $ | (22 | ) | — | % | $ | 4,062 | 2.0 | % | $ | (4,084 | ) | n/m | ||||||
Nine Months Ended | |||||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||||
Restructuring charges | $ | 4,784 | 0.9 | % | $ | 4,469 | 0.7 | % | $ | 315 | 7.0 | % |
Three Months Ended | |||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||
Goodwill impairment | — | — | % | $ | 339,000 | 166.4 | % | $ | (339,000 | ) | n/m | ||||||
Nine Months Ended | |||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
Goodwill impairment | — | — | % | $ | 339,000 | 52.9 | % | $ | (339,000 | ) | n/m |
Three Months Ended | |||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||
Interest income and other, net | $ | 526 | 0.3 | % | $ | (594 | ) | (0.3 | )% | $ | 1,120 | n/m | |||||
Nine Months Ended | |||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
Interest income and other, net | $ | 1,795 | 0.3 | % | $ | 503 | 0.1 | % | $ | 1,292 | n/m |
Three Months Ended | ||||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
Interest expense | $ | 6,813 | 3.7 | % | $ | 7,276 | 3.6 | % | $ | (463 | ) | (6.4 | )% | |||||
Nine Months Ended | ||||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||||
Interest expense | $ | 19,399 | 3.8 | % | $ | 23,561 | 3.7 | % | $ | (4,162 | ) | (17.7 | )% |
Three Months Ended | |||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | |||||||||||
Gain on debt extinguishment, net of costs | — | — | % | — | — | % | — | — | % | ||||||||
Nine Months Ended | |||||||||||||||||
December 31,
2009 |
% of
revenue |
December 31,
2008 |
% of
revenue |
Change | % Change | ||||||||||||
Gain on debt extinguishment, net of costs | $ | 12,859 | 2.5 | % | — | — | % | $ | 12,859 | n/m |
Three Months Ended | |||||||||||||||||
(in
thousands)
|
December 31,
2009 |
% of pre-tax
income |
December 31,
2008 |
% of pre-tax
loss |
Change | % Change | |||||||||||
Income tax provision (benefit) | $ | 342 | 6.9 | % | $ | (2,259 | ) | 0.7 | % | $ | 2,601 | n/m | |||||
Nine Months Ended | |||||||||||||||||
December 31,
2009 |
% of pre-tax
income |
December 31,
2008 |
% of pre-tax
loss |
Change | % Change | ||||||||||||
Income tax provision (benefit) | $ | 652 | 3.0 | % | $ | (324 | ) | 0.1 | % | $ | 976 | n/m |
Three Months Ended | |||||||||
December 31, 2009 | December 31, 2008 | Change | |||||||
Cost of revenue | $ | 5,548 | $ | 5,510 | $ | 38 | |||
Research and development | 100 | 100 | — | ||||||
Sales and marketing | 3,393 | 3,394 | (1 | ) | |||||
General and administrative | 25 | 25 | — | ||||||
$ | 9,066 | $ | 9,029 | $ | 37 | ||||
Nine Months Ended | |||||||||
December 31, 2009 | December 31, 2008 | Change | |||||||
Cost of revenue | $ | 16,522 | $ | 19,158 | $ | (2,636 | ) | ||
Research and development | 300 | 300 | — | ||||||
Sales and marketing | 10,181 | 11,642 | (1,461 | ) | |||||
General and administrative | 75 | 75 | — | ||||||
$ | 27,078 | $ | 31,175 | $ | (4,097 | ) | |||
Three Months Ended | |||||||||
December 31, 2009 | December 31, 2008 | Change | |||||||
Cost of revenue | $ | 333 | $ | 141 | $ | 192 | |||
Research and development | 513 | 601 | (88 | ) | |||||
Sales and marketing | 619 | 276 | 343 | ||||||
General and administrative | 877 | 1,314 | (437 | ) | |||||
$ | 2,342 | $ | 2,332 | $ | 10 | ||||
Nine Months Ended | |||||||||
December 31, 2009 | December 31, 2008 | Change | |||||||
Cost of revenue | $ | 952 | $ | 1,099 | $ | (147 | ) | ||
Research and development | 1,733 | 2,173 | (440 | ) | |||||
Sales and marketing | 1,837 | 1,989 | (152 | ) | |||||
General and administrative | 2,633 | 2,831 | (198 | ) | |||||
$ | 7,155 | $ | 8,092 | $ | (937 | ) | |||
Nine Months Ended | |||||||
December 31,
2009 |
December 31,
2008 |
||||||
Net income (loss) | $ | 20,999 | $ | (346,378 | ) | ||
Net cash provided by operating activities | $ | 81,865 | $ | 49,877 | |||
Net cash used in investing activities | $ | (5,562 | ) | $ | (3,251 | ) | |
Net cash used in financing activities | $ | (62,908 | ) | $ | (89,030 | ) |
(i) | Restrictions on our ability to manage or fund our existing operations, which could result in a material and adverse effect on our future results of operations and financial condition. | |
(ii) | Unwillingness on the part of one or more of our lenders that provide our credit facilities to do any of the following: | |
|
||
Any lack of renewal, waiver, or amendment, if needed, could result in the revolving credit line and term loans becoming unavailable to us and any amounts outstanding becoming immediately due and payable. In the case of our borrowings at December 31, 2009, this would mean $308.3 million could become immediately payable. | ||
(iii) | Further impairment of our financial flexibility, which could require us to raise additional funding in the capital markets sooner than we otherwise would, and on terms less favorable to us, if available at all. |
Nine months ended December 31, 2009 | ||||||||
Hypothetical 100 basis point
increase in interest rates |
Hypothetical 100 basis point
decrease in interest rates |
|||||||
Interest expense increase (decrease) on CS term debt | $ | 1,488 | $ | (1,488 | ) | |||
Interest expense increase (decrease) from collar | (774 | ) | 450 | |||||
Net interest expense increase (decrease) | $ | 714 | $ | (1,038 | ) | |||
(a) | Evaluation of disclosure controls and procedures . Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. | |
(b) | Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. | |
QUANTUM CORPORATION |
/s/ JON W. GACEK |
Jon W. Gacek
Executive Vice President, Chief Financial Officer and Chief Operating Officer |
Incorporated by Reference | ||||||||||
Exhibit Number |
Exhibit
Description
|
Form | File No. | Exhibit(s) | Filing Date | |||||
3.1
|
Amended and
Restated Certificate of Incorporation of Registrant.
|
8-K | 001-13449 | 3.1 | August 16, 2007 | |||||
3.2
|
Amended and
Restated By-laws of Registrant, as amended.
|
10-K | 001-13449 | 3.2 | June 28, 2000 | |||||
3.3
|
Certificate of
Designation of Rights, Preferences and Privileges of Series B Junior
Participating Preferred Stock.
|
S-3 | 333-109587 | 4.7 | October 9, 2003 | |||||
3.4
|
Certificate of
Amendment of Amended and Restated By-laws of Registrant, effective August
23, 2007
|
8-K | 001-13449 | 3.1 | August 29, 2007 | |||||
4.1
|
Stockholder
Agreement, dated as of October 28, 2002, by and between Registrant and
Private Capital Management.
|
10-Q | 001-13449 | 4.2 | November 13, 2002 | |||||
4.2
|
Indenture, dated
as of July 30, 2003, between Registrant and U.S. Bank National
Association, related to the Registrant’s convertible debt
securities.
|
S-3 | 333-109587 | 4.1 | October 9, 2003 | |||||
10.1
|
Amended and
Restated Employee Stock Purchase Plan, dated January 1, 2010.
|
8-K | 001-13449 | 10.1 | January 6, 2010 | |||||
10.2‡
|
Amendment to
Employment Offer Letter between Registrant and Richard E.
Belluzzo.*
|
|||||||||
10.3‡
|
Amendment to
Employment Offer Letter between Registrant and William C.
Britts.*
|
|||||||||
10.4‡
|
Amendment to
Employment Offer Letter between Registrant and Jon W.
Gacek.*
|
|||||||||
31.1‡
|
Certification of
the Chairman and Chief Executive Officer pursuant to Section 302(a) of the
Sarbanes-
Oxley Act of 2002.
|
|||||||||
31.2‡
|
Certification of
the Executive Vice President, Chief Financial Officer and Chief Operating
Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of
2002.
|
|||||||||
32.1†
|
Certification of
the Chairman and Chief Executive Officer pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of
2002.
|
|||||||||
32.2†
|
Certification of
the Executive Vice President, Chief Financial Officer and Chief Operating
Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley act of 2002.
|
* | Indicates management contract or compensatory plan, contract or arrangement. | ||
‡ | Filed herewith. | ||
† | Furnished herewith. |
RICHARD
BELLUZZO
|
QUANTUM
CORPORATION
|
|
/s/ Richard Belluzzo | /s/ Shawn Hall | |
Signature | Signature | |
Richard Belluzzo | Shawn Hall | |
Print Name | Print Name | |
Senior Vice President, General Counsel | ||
Print Title |
WILLIAM
BRITTS
|
QUANTUM CORPORATION | |
/s/ William Britts | /s/ Shawn Hall | |
Signature | Signature | |
William Britts | Shawn Hall | |
Print Name | Print Name | |
Senior Vice President, General Counsel | ||
Print Title |
JON GACEK | QUANTUM CORPORATION | |
/s/ Jon Gacek | /s/ Shawn Hall | |
Signature | Signature | |
Jon Gacek | Shawn Hall | |
Print Name | Print Name | |
Senior Vice President, General Counsel | ||
Print Title |
1) | I have reviewed this quarterly report on Form 10-Q of Quantum Corporation; | ||||
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4) | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||||
5) | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||||
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ RICHARD E. BELLUZZO |
Richard E. Belluzzo
Chairman and Chief Executive Officer |
1) | I have reviewed this quarterly report on Form 10-Q of Quantum Corporation; | ||||
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4) | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||||
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||||
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||||
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||||
5) | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | ||||
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ JON W. GACEK |
Jon
W. Gacek
Executive Vice President, Chief Financial Officer and Chief Operating Officer |
QUANTUM CORPORATION |
/s/ RICHARD E. BELLUZZO |
Richard E. Belluzzo
Chairman and Chief Executive Officer |
QUANTUM CORPORATION |
/s/ JON W. GACEK |
Jon
W. Gacek
Executive Vice President, Chief Financial Officer and Chief Operating Officer |