UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
December 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission File Number:
001-33355
BigBand Networks,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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04-3444278
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification Number)
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475 Broadway Street
Redwood City, California 94063
(Address of principal executive
offices and zip code)
(650) 995-5000
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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The NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the 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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
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 the registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant, based upon the price at which
the registrants common stock was last sold on
June 30, 2010 (the last business day of the
registrants second quarter of fiscal 2010) was
approximately $119 million. Shares of common stock held by
each officer and director and by each person who owns 5% or more
of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination
for other purposes. The number of shares outstanding of the
registrants common stock as of March 1, 2011 was
70,044,303.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement relating to
its 2011 Annual Stockholders Meeting are incorporated by
reference in Part III of this Annual Report on
Form 10-K.
BigBand
Networks, Inc.
Form 10-K
for the fiscal year ended December 31, 2010
TABLE OF CONTENTS
2
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
(Form 10-K)
includes forward looking statements. All statements other than
statements of historical facts contained in this
Form 10-K,
including statements regarding our future results of operations
and financial position, business strategy and plans and our
objectives for future operations, are forward-looking
statements. The words believe, may,
will, estimate, continue,
anticipate, project, intend,
expect and similar expressions are intended to
identify forward looking statements. We have based these forward
looking statements largely on our current expectations and
projections about future events and financial trends that we
believe may affect our financial condition, results of
operations, business strategy, long-term business operations and
objectives, and financial needs. These forward looking
statements are subject to a number of risks, uncertainties and
assumptions, including those described in Risk
Factors in Item 1A of this
Form 10-K.
In light of these risks, uncertainties and assumptions, the
forward looking events and circumstances discussed in this
Form 10-K
may not occur and actual results could differ materially and
adversely from those anticipated or implied in the forward
looking statements.
Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time to time. It is not
possible for our management to predict all risks, nor can we
assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements we may make. Before investing in our
common stock, investors should be aware that the occurrence of
the risks, uncertainties and events described in the section
entitled Risk Factors and elsewhere in this
Form 10-K
could have a material adverse effect on our business, results of
operations and financial condition.
You should not rely upon our forward-looking statements as
predictions of future events. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee that our future results, levels
of activity, performance or events and circumstances reflected
in the forward-looking statements will be achieved or occur.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking
statements. We undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this
Form 10-K
to conform these statements to actual results or to changes in
our expectations.
You should read this
Form 10-K
and the documents that we reference in this
Form 10-K
and have filed with the Securities and Exchange Commission (SEC)
with the understanding that our actual future results, levels of
activity, performance and events and circumstances may be
materially different from what we currently expect.
3
PART I
Overview
We develop, market and sell network-based platforms that enable
cable multiple system operators (MSOs) and telecommunications
companies (collectively, service providers) to offer video
services over coaxial, fiber and copper networks. We were
incorporated in Delaware in December 1998. Since that time, we
have developed significant expertise in rich media processing,
communications networking and bandwidth management technologies.
Our customers are using our platforms to expand their
high-definition television (HDTV) services as well as to enable
delivery of high-quality video advertising programming to
subscribers. Our Broadcast Video, TelcoTV, Switched Digital
Video and IPTV (Personalized Video) solutions are comprised of a
combination of software and programmable hardware platforms. We
have sold our solutions to more than 200 customers globally. We
sell our products and services to customers in North America
through our direct sales force. Domestically, our customers
include Bright House, Cablevision, Charter, Comcast, Cox, Time
Warner Cable and Verizon, which are seven of the ten largest
service providers in the U.S. We sell to customers
internationally through a combination of direct sales and
resellers. Our international resellers include BUPT Goan,
Guangdong Tongke, Sugys and Ssangyong who sell to end users such
as Jiangsu Cable and LG Uplus.
Industry
Background
Service providers derive most of their revenues from consumer
subscriptions for video, voice or data services and from
advertising. To attract and retain subscribers, service
providers often bundle video, voice and data services, and are
offering richer and more personalized services. The competitive
environment for video subscriptions has been increasingly
competitive over time, with competition from satellite video
providers, and recently from companies such as Hulu, Netflix and
Apple offering video programming directly to consumers through
the Internet. Service providers often are competing on the
volume of programs available, the quality of viewing experience
and the personalization that they can offer to subscribers and
advertisers.
Delivering high-quality, personalized video services and
relevant video-based advertising has strained service
providers existing network infrastructures, even as they
have upgraded with new technologies like
DOCSIS®
3.0 and
fiber-to-the-home.
For a robust delivery of these services, service providers must
overcome the following challenges:
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Bandwidth Usage Driven by Video. Service
providers fixed-bandwidth networks often are not fully
equipped for the volume and richness of content being demanded
by subscribers. For example, a typical HDTV video stream
requires 19.4 megabits per second (Mbps) of continuous
bandwidth, which is many times the bandwidth required by a
standard definition video stream. To meet the demand for more
and richer content, service providers must either undertake a
costly capital expansion of their network infrastructures or use
their existing infrastructures more efficiently.
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Difficulty of Delivering a High-Quality Video
Experience. Service provider networks are
inherently prone to packet loss, error and delay. This problem
is exacerbated as the richness and volume of the content being
delivered across the network increases. Importantly, HDTV is
more sensitive to packet loss, error and delay than voice and
data services. To ensure a consistent high-quality subscriber
viewing experience, service providers must find solutions that
maintain the integrity of the video streams as these streams are
delivered across their networks.
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Lack of Customized Video Programming. Existing
networks lack the intelligence to allow service providers to
understand and react to subscriber television viewing behavior.
As a result, service providers lack the ability to deliver video
programming packages tailored to the interests of specific
subscribers or groups of subscribers. To do so, service
providers require networks that will enable them to understand
subscriber viewing behavior and, based on that understanding,
allow them to deliver new video channels and programming to
specific subscribers or groups of subscribers.
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Requirement for More Relevant Video
Advertising. Advertisers are demanding that their
advertisements be addressed to a relevant audience. To satisfy
this demand, service providers need the capability to deliver
video advertising to particular geographic segments and
demographic groups, and increasingly, to tailor advertising to
specific subscribers. In most broadcast implementations, service
providers lack the capability to distinguish one subscriber from
another and the capacity to insert tailored advertising into a
video stream without degrading service quality. Service
providers are seeking solutions that will enable the seamless
insertion of relevant advertisements into video streams.
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High Cost of Infrastructure
Investment. Service providers have invested
heavily to establish their existing network infrastructures,
including the deployment of a significant number of cable
set-top boxes. Service providers must either make significant
investments to upgrade or replace their existing infrastructure,
or find ways to extend the useful life of their installed
equipment. Service providers generally prefer network-based
capital investments since these costs can be allocated across
many subscribers without costly replacement of existing customer
premises equipment.
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Need to Rapidly Deliver Advanced
Services. Historically, service providers have
needed large capital expenditures to purchase replacement
network equipment to support next-generation services. With the
increasing pace of change, service providers require platforms
with the flexibility to rapidly deploy advanced video services
while minimizing lengthy and capital-intensive network upgrades.
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Service providers face common challenges how to
rapidly and economically offer an increasing amount of video
content, deliver a more compelling user experience and deliver
more relevant programming and advertising to their subscribers.
The technical and bandwidth challenges associated with
delivering video services create a need for platforms designed
for reliable and cost-effective video delivery.
The
BigBand Offering
We develop, market and sell network-based platforms that enable
service providers to offer video services over coaxial, fiber
and copper networks. Our hardware and software solutions are
used to offer video services commercially to tens of millions of
subscribers, 24 hours a day, seven days a week and have
been successfully deployed by leading service providers
worldwide, including seven of the ten largest service providers
in the U.S.
We combine rich media processing, modular software and
high-speed switching and routing with carrier-class hardware
designed to address specific service provider needs with our
solutions. Our solutions enable service providers to deliver
high-quality video services and offer more effective video
advertising. We offer our customers Broadcast Video, TelcoTV,
Switched Digital Video and IPTV (Personalized Video) solutions.
Our solutions offer the following key benefits:
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Intelligent Bandwidth Management. Using our
solutions, service providers can address their increasing
bandwidth needs. For example, we offer what we believe to be the
most widely deployed switched digital video solution
commercially available today. Our Switched Digital Video
solution (SDV) only transmits channels to subscribers when the
subscribers in a service group are in the process of watching
those channels, instead of broadcasting all channels to all
subscribers all the time. This enables service providers to
achieve 50% or greater savings in bandwidth usage for digital
subscribers, allowing service providers to offer additional
services (such as HDTV channels) without altering the subscriber
viewing experience.
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High-Quality Video Experience. Our solutions
allow service providers to minimize the likelihood of video
quality errors by detecting potential video quality degradation
in real-time and correcting such degradation before the video
stream is delivered to subscribers. Our Broadcast Video solution
is designed to increase the volume and quality of video
delivered across a fixed-bandwidth network by optimizing the
delivery of video streams.
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Enhanced Video Personalization. Using our
solutions, service providers have the ability to understand the
viewing habits of their customers and, as a result, can more
accurately tailor programming packages to the interests of their
subscribers. For example, our SDV solution enables service
providers to satisfy consumer demand for increasingly
personalized content by expanding the number of channels that
can be offered
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because selected channels are only delivered when the channel is
requested by a subscriber in the service group. Using this
solution, one of our customers was able to offer additional
channel packages tailored to demographic groups.
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Ability to Deliver Relevant Video
Advertising. Our solutions allow service
providers to insert advertising tailored to specific subscriber
groups. For example, using our IPTV solution, service providers
can simultaneously insert different ads into multiple copies of
the same program and forward them to specific geographic zones.
This allows service providers to attract advertisers interested
in reaching niche markets.
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Improved Return on Existing Infrastructure
Investment. Our network-based solutions allow
service providers to manage service quality from the network,
rather than deploying costly personnel and equipment at the
customer premises. As our solutions are deployed at the network
level, service providers can leverage their infrastructure
investment across many subscribers and avoid the hardware and
service costs associated with an upgrade of equipment in the
homes of subscribers.
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High Availability. Todays service
providers demand carrier class platforms that are available
99.999% of the time, which means the system can be down for only
approximately five minutes over a one-year period. Our solutions
are built utilizing carrier class hardware that provides our
customers with improved uptime for the video services they
deliver to consumers. The high availability of our platforms
also is designed to reduce the cost of maintenance of these
platforms, and as a result reduce the total cost of ownership.
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Platform Flexibility. Our solutions feature a
fully programmable hardware and modular software architecture.
Our
field-upgradable
hardware is designed to meet service provider platform
flexibility requirements and to minimize the need to replace
existing hardware.
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Strategy
Our objective is to be the leading provider of network-based
products that enable the delivery of high-bandwidth,
high-quality video services and more effective video
advertising. Key elements of our strategy include the following:
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Enhance Technology Leadership Position. Our
core strength is our media processing and video systems design
expertise. We use this expertise to deliver what we believe to
be the most-widely deployed switched digital video product
commercially available today. We will continue leveraging our
expertise to deliver solutions that focus on optimizing network
infrastructure and enabling delivery of a high-quality user
experience.
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Leverage Modular Architecture to Accelerate New Product
Introduction. We have created a series of media
processing software modules that, when combined with our
programmable hardware and switching fabric, serve as the
foundation for a range of network-based solutions. We believe
our software modules can serve as the foundation for rapidly
delivering solutions that address our customers bandwidth
and service delivery needs.
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Expand Footprint Within Existing Customer
Base. We have customer relationships with a
number of service providers both in the U.S. and
internationally, including seven of the ten largest service
providers in the U.S. We believe these customer
relationships give us a strong advantage in understanding our
customers network challenges, which enables us to deliver
timely solutions. We will continue to work closely with our
customers on the designs of their network architectures and
emerging services, expand our relationships with these customers
to deploy more of our existing applications and develop and
deliver new applications to address their network challenges.
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Expand Customer Base. Service providers deploy
video services across networks based on coaxial, fiber and
copper. We have successfully deployed our solutions across these
access technologies. We are currently providing Verizon with a
solution that allows digital transmission of video over
fiber-optic lines. Others use our solutions to carry services
over coaxial cable. We intend to leverage our media processing
expertise to penetrate new customers, regardless of the type of
access networks they use.
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Broaden Advanced Advertising Capabilities. We
currently enable service providers to insert video
advertisements targeted to subscribers in specific geographic
zones. We continue to collaborate with our customers to develop
and deploy next-generation advertising solutions.
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Solutions
We are a category leader in digital video networking. We deliver
proven network-based platforms to empower service providers to
transition from traditional broadcast to delivery of
personalized video services. Our product solutions are a
combination of advanced networking and video processing hardware
platforms with software modules that optimize existing
infrastructure and bandwidth to deliver application-specific
functions. We believe our approach of combining carrier-grade,
purpose-built platforms with modular software delivers a faster
return on investment and a lower total cost of ownership
compared to platforms offered by our competitors. We deliver the
following product solutions:
Switched Digital Video. We believe we were the
first company to develop and commercially deploy a switched
digital video solution. Traditionally, service providers
broadcast all channels to all subscribers at all times. Our
Switched Digital Video solution enables service providers to
transmit video channels to subscribers only when the subscribers
in a smaller subset of subscribers within a network, called a
service group, are in the process of watching those channels.
Depending on the number of subscribers and the amount of
duplicate channels within a service group, our Switched Digital
Video solution typically allows service providers to achieve up
to 50% bandwidth savings in the delivery of digital video
content and use the reclaimed bandwidth to offer additional
content. This reclaimed bandwidth can be used to deliver niche
video packages, more HDTV channels, high-speed data service
and/or voice
service. The diagram below illustrates how bandwidth can be
reclaimed using our Switched Digital Video solution, which
broadcasts only those channels that are being watched within a
service group.
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In addition, our Switched Digital Video solution gives our
service providers real-time access to the actual viewing habits
of their subscriber groups, information that is increasingly
valuable as they and their advertisers seek to tailor
advertising or personalized channel services to specific
subscriber groups and individual subscribers. We deliver our
Switched Digital Video solution by combining our core media
processing modules with our Broadband Multimedia-Service Router
hardware platform, which we refer to as our BMR, BigBand Server
and Management Suite, and Broadband Edge QAM.
Broadcast Video. Historically, video content
was broadcast only in analog form. Analog video presents a
number of limitations to service providers, including
deterioration of video quality, higher cost to insert relevant
advertising in the video stream, and the cost of converting
analog to digital for certain digital devices in the home, such
as digital video recorders. Our Broadcast Video solutions enable
advanced digital media processing and transport technologies for
service providers. For example, we were first to implement what
we believe has become the industrys de facto network
architecture for digital simulcast.
Our digital simulcast product application enables service
providers to create a digital version of analog inputs and
deliver both analog and digital video streams to subscribers.
This gives service providers a cost-effective way of migrating
subscribers from analog to digital video, which uses lower cost
all-digital set-top boxes, while still supporting a large
installed base of analog set-top boxes and televisions. In
addition, our digital simulcast product application allows
service providers to insert advertisements into the digital
video stream and deliver those advertisements either in digital
or analog form to subscribers. This offers our customers
incremental revenue opportunities through the ability to insert
advertisements into the digital stream targeted to specific
geographic zones. We deliver our Broadcast Video solution by
combining our BMR with our core media processing modules with
advanced splicing capability.
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TelcoTV. Telecommunications companies can use
our BMR to provide a very high-quality viewing experience to
their subscribers, while still benefiting from the use of
digital video transport throughout their networks. We enable
telecommunications companies to leverage their existing
Synchronous Optical Network, or SONET, infrastructure, which was
originally designed for voice communications, to transport video
content throughout the network. This provides significant cost
savings as telecommunications companies are not required to
build a dedicated video transport network. They deploy our
solution in network locations called video serving offices, or
VSOs, that provide service directly to consumers. Our TelcoTV
solution integrates our core media processing modules, our BMR
radio frequency, or RF, modulation, and local content insertion.
IPTV (Personalized Video). We now offer
service providers our Media Services Platform (MSP), a
carrier-grade, network-based platform designed to enable service
providers to offer a range of personalized video applications
such as linear, zoned, and ultimately addressable advertising.
This enables service providers to offer high quality,
differentiated video services in conjunction with new revenues,
for example increasing ad revenues via more targeting.
IPTV over DOCSIS. We offer an alternative
solution to deliver IP video services to home computers, IP set
top boxes and other IP consumer devices via standard DOCSIS 3.0
cable modems, which we market under the name vIP PASS. vIP PASS
leverages our leading control plane (Converged Video Exchange
(CVEx)) and our universal edge QAMs to offload video transport
from the cable modem termination system. It is designed to
provide cable MSOs an economical alternative for delivery of
managed IP services, compared to an investment in additional
cable modem termination system downstream channel capacity.
Platforms
and Technologies
Our intelligent, network-based applications are built on an
architecture that combines modular software with extensible and
scalable hardware platforms. Our chassis-based hardware
platforms offer
field-upgradeable
hardware, high-speed switching and routing with general-purpose
processing capabilities. On top of this hardware, we layer
software that provides rich media processing capabilities to
support more services and more subscribers. Our hardware
platforms have been engineered to comply with the Level-3
Network Equipment Building System standard, or NEBS, which is a
set of telecommunications industry safety and environmental
design guidelines for equipment in central offices. Our
platforms consist of the following:
BigBand Broadband Multimedia-Service Router
(BMR). Our Broadband Multimedia-Service Router is
a platform that is designed for the real-time processing and
switching of video. The BMR platform is a protocol-neutral
architecture that processes and switches MPEG, IP and Ethernet
packets. We accelerate our software media processing
functionality through digital signal processors (DSPs) and field
programmable gate arrays (FPGAs), which also allow the BMR to be
upgraded or reconfigured over time from remote locations. The
BMR is a chassis-based design that provides carrier-class
reliability and the flexibility to expand functionality and
capacity as network requirements evolve by adding new network
cards. The BMR also supports the transmission of digital and
analog signals using radio frequency, or RF, interfaces to the
physical cable network through QAM, quadrature phase shift
keying and analog RF.
BigBand Broadband Edge QAM (BEQ). Our
Broadband Edge QAM platforms are used to convert digital video
and data streams into quadrature amplitude modulated (QAM) RF
streams that transport video and data across cable networks to
subscriber set top boxes and cable modems. The services that are
transported can include Switched Digital Video, Video on Demand,
Broadcast Video and DOCSIS High Speed Data. Our QAM platforms
are modular and employ digital signal processors, FPGAs and our
own proprietary RF technology and algorithms. They are noted for
their high signal quality and thermal efficiency.
BigBand Media Services Platform (MSP1200, 2000,
2800). Our Media Services Platform is designed to
manage large numbers of IP video streams combined with rich
media processing to enable a range of personalized video
applications such as linear, zoned, and addressable advertising.
Our MSP chassis-based platforms are designed to provide
carrier-class reliability, scale and flexibility, including the
ability to grow subscriber services and new applications over
time with the addition of new hardware line cards. The BigBand
MSP platforms are based on industry standards, open interfaces
and established network protocols to simplify the platform
integration into existing service provider networks.
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In October 2010, we announced our new applications for the MSP
platform within the cable market. The MSP-based QAM is the
industry leading platform designed to enable service providers
to cost-effectively scale and optimize the edge with dynamic
bandwidth agility on the entire 50MHz to 1GHz RF spectrum.
Converged Video Exchange (CVEx). Our CVEx
platform is a control plane solution designed to manage large
numbers of video sessions while optimizing network bandwidth
utilization. The CVEx platform is a fundamental component of our
Switched Digital Video deployments and offers Edge Resource
Manager (ERM) functionality to share QAM capacity across
different network services. In addition, CVEx serves as the
control plane for our vIP PASS solution to deliver managed IP
video services with high performance and cost effectively across
video QAMs.
Customers
We sell our products to cable MSOs and telecommunications
companies worldwide, both directly and through resellers. In the
U.S., our products are deployed by seven of the ten largest
service providers. Our significant customers for 2010 were as
follows:
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Bright House Networks
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Comcast
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Sugys
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Cable ONE
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Cox Communications
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Time Warner Cable
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Charter Communications
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Ssangyong
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Verizon
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A substantial majority of our sales have been to a limited
number of large customers. However, our large customers have
changed over time. Sales to our five largest customers
represented 74%, 78% and 81%, respectively, of our net revenues
for the years ended December 31, 2010, 2009 and 2008. In
2010, Cox Communications, Time Warner Cable and Verizon each
represented 10% or more of our net revenues. In 2009, Charter
Communications, Time Warner Cable and Verizon each represented
10% or more of our net revenues. In 2008, Cox Communications,
Time Warner Cable and Verizon each represented 10% or more of
our net revenues. Although we are attempting to broaden our
customer base by penetrating new markets and expanding
internationally, we expect that for the foreseeable future, a
limited number of large customers will continue to comprise a
large percentage of our revenues. International sales
represented 9%, 11% and 9%, respectively, of our net revenues
for the years ended December 31, 2010, 2009 and 2008.
We sell our solutions to a number of our large customers
pursuant to master purchase agreements. For example, we sell our
TelcoTV and Management Software solutions, as well as customer
support and training services, to Verizon pursuant to a master
purchase agreement that is effective through March 31,
2011. Among other things, this agreement provides that our
TelcoTV solution will be the exclusive edge modulation solution
for Verizon, subject to performance against certain
previously-negotiated service metrics. In addition, the
agreement provides for pricing (including previously-negotiated
annual price reductions), the terms of a five-year hardware and
software warranty and the terms of the five-year service
commitment. Likewise, we sell our SDV and Broadcast Video
solutions to Time Warner Cable and Charter Communications in
conformance with master purchase agreements between the parties.
While the agreements with Time Warner Cable and Charter
Communications have lapsed, the parties have continued to
operate in conformance with such master purchase agreements.
Among other things, these agreements provide for pricing, a
one-year hardware and software warranty, and service terms. In
general, our master purchase agreements do not guarantee amounts
of purchases by customers. Thus, our business is more dependent
on the ordering patterns of our customers, rather than the terms
of the master purchase agreements with these customers.
Backlog
We schedule production of our products based upon our backlog,
open contracts, informal commitments from customers and sales
projections. Our backlog consists of firm purchase orders by
customers for delivery within the next six months. As of
December 31, 2010, our backlog was $4.2 million,
compared to $6.7 million as of December 31, 2009.
Anticipated orders from customers may fail to materialize and
delivery schedules may be deferred or cancelled for a number of
reasons, including reductions in capital spending by service
providers or changes in specific customer requirements. Because
of the complexity of our customer acceptance and revenue
recognition criteria, in addition to backlog, we have
significant deferred revenues. As a result, our backlog alone is
not necessarily indicative of revenues for any future periods.
9
Sales and
Marketing
We sell our products in the U.S. primarily through our
direct sales force and internationally through a combination of
direct sales to service providers and sales through independent
resellers. Our direct sales force, distributors and resellers
are supported by our highly trained technical staff, which
includes application engineers who work closely with service
providers to develop technical proposals and design systems to
optimize performance and economic benefits to our existing and
potential customers. Our sales offices outside of the
U.S. are located in China and Korea. International
resellers are generally responsible for importing our products
and providing certain installation, technical support and other
services to customers in their territory.
Our marketing organization develops strategies for product lines
and market segments, and, in conjunction with our sales force,
identifies the evolving technical and application needs of
customers so that our product development resources can be
deployed to meet anticipated product requirements. Our marketing
organization is also responsible for setting price levels,
forecasting demand and generally supporting the sales force,
particularly at major accounts. We have programs in place to
heighten industry awareness of BigBand Networks and our
products, including participation in technical conferences,
industry initiatives, publication of articles in industry
journals and exhibitions at trade-shows.
Customer
Service and Technical Support
We offer our customers a range of support offerings, including
program management, training, installation and post-sales
technical support. As a part of our pre-sales effort, our
engineers design the implementation of our products in our
customers environments to meet their performance and
interoperability requirements. We also offer training classes to
assist them in the management of our solutions.
Our technical support organization, offers support worldwide
24 hours a day, seven days a week. For our direct
customers, we offer tiered customer support programs depending
upon the service needs of our customers deployments. Using
our standard support package, our customers receive telephone
support and access to online technical information. Under our
enhanced support package, in addition to the standard support
offerings, our customers are entitled to software maintenance
releases, advanced return materials authorization and
on-site
support, if necessary. Support contracts typically have a
one-year term. For end customers purchasing through resellers,
primary product support is provided by our resellers, with
escalation support provided by us.
Research
and Development
We focus our research and development efforts on developing new
products and systems, and adding new features to existing
products and systems. Our development strategy is to identify
features, products and systems for both software and hardware
that are, or are expected to be, needed by our customers. Our
success in designing, developing, manufacturing and selling new
or enhanced products depends on a variety of factors, including
the identification of market demand for new products, product
selection, timely implementation of product design and
development, product performance, effective manufacturing and
assembly processes and effective sales and marketing. Because
our research and development efforts are complex, we may not be
able to successfully develop new products, and any new products
we develop may not achieve market acceptance.
Research and development expense was $50.9 million,
$46.4 million and $54.0 million for the years ended
December 31, 2010, 2009 and 2008, respectively. The
increase in research and development expense is related to the
development of new product offerings, including our new MSP
platforms.
Intellectual
Property
As of December 31, 2010, we held 35 issued
U.S. patents and had numerous U.S. patent applications
pending. Our issued patents will expire between 2019 and 2028.
Although we attempt to protect our intellectual property rights
through patents, copyrights, trademarks, trade secrets,
licensing arrangements and other measures, there is a risk that
any patent, trademark, copyright or other intellectual property
right owned by us may be invalidated, circumvented or
challenged; that these intellectual property rights may not
provide competitive advantages to us; and that any of our
pending or future patent applications may not be issued with the
scope of the claims sought by us,
10
if at all. Others may develop technologies that are similar or
superior to our technology, duplicate our technology or design
around the patents that we own. In addition, effective patent,
copyright, trademark, trade secret and other intellectual
property protection may be unavailable or limited in certain
foreign countries in which we do business currently or may do
business in the future.
We generally enter into confidentiality or license agreements
with our employees, consultants, vendors and customers, and
generally limit access to and distribution of our confidential
and proprietary information. Nevertheless, we cannot assure you
that the steps taken by us will prevent misappropriation of our
technology. In addition, from time to time, legal action by us
may be necessary to enforce our patents and other intellectual
property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. For
example, on June 5, 2007, we filed a lawsuit in federal
court against Imagine Communications, Inc., alleging patent
infringement. Any such litigation could result in substantial
costs and diversion of resources and could negatively affect our
business, operating results and financial condition.
From time to time, it may be necessary for us to enter into
technology development or licensing agreements with third
parties. Although many companies are often willing to enter into
such technology development or licensing agreements, we may not
be able to negotiate these agreements on terms acceptable to us,
or at all. Our failure to enter into technology development or
licensing agreements, when necessary, could limit our ability to
develop and market new products and could cause our business to
suffer.
Our industry is characterized by the existence of a large number
of patents and frequent claims and related litigation regarding
patent and other intellectual property rights. In particular,
leading companies in the networking industry have extensive
patent portfolios. From time to time, third parties, including
certain of these leading companies, have asserted and may assert
exclusive patent, copyright, trademark and other intellectual
property rights against us or our customers. Although these
third parties may offer a license to their technology, the terms
of any offered license may not be acceptable and the failure to
obtain a license or the costs associated with any license could
cause our business, operating results or financial condition to
be materially adversely affected.
Manufacturing
and Suppliers
We outsource the manufacturing of our products. Flextronics
Corporation and Benchmark Electronics, Inc. each serves as a
sole contract manufacturer for particular lines of our video
products. Once our products are manufactured, they are sent to
our warehouse facility in Southborough, Massachusetts. We
believe that outsourced manufacturing enables us to conserve
capital, better adjust manufacturing volumes to meet changes in
demand and more quickly deliver products.
We submit purchase orders to our contract manufacturers that
describe the type and quantities of our products to be
manufactured, the delivery date and other delivery terms.
Neither Benchmark nor Flextronics has a written contractual
obligation to accept any purchase order that we submit.
We and our contract manufacturers purchase many of our
components from a sole supplier or a limited group of suppliers.
We do not have a written agreement with many of these component
suppliers, and we do not require our contract manufacturers to
have written agreements with these component manufacturers. As a
result, we may not be able to obtain an adequate supply of
components on a timely basis. Our reliance on sole or limited
suppliers involves several risks, including a potential
inability to obtain an adequate supply of required components
and reduced control over pricing, quality and timely delivery of
components. We monitor the supply of the component parts and the
availability of alternative sources. If our supply of any key
component is disrupted, we may be unable to deliver our products
to our customers on a timely basis, which could result in lost
or delayed revenues, injury to our reputation, increased
manufacturing costs and exposure to claims by our customers.
Even if alternate suppliers are available, we may have
difficulty identifying them in a timely manner, we may incur
significant additional expense in changing suppliers, and we may
experience difficulties or delays in the manufacturing of our
products.
Our manufacturing operations consist primarily of supply chain
managers, new product introduction and test engineering
personnel. Our manufacturing organization designs, develops and
implements complex test processes to help ensure the quality and
reliability of our products. The manufacturing of our products
is a complex process,
11
and we may experience production problems or manufacturing
delays in the future. Any difficulties we experience in managing
relationships with our contract manufacturers, or any
interruption in our own or our contract manufacturers
operations, could impede our ability to meet our customers
requirements and harm our business, operating results and
financial condition.
Competition
The markets for our products are extremely competitive and are
characterized by rapid technological change. The principal
competitive factors in our markets include the following:
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product performance, features, interoperability and reliability;
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technological expertise;
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relationships with service providers;
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price of products and services and cost of ownership;
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sales and distribution capabilities;
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customer service and support;
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compliance with industry standards and certifications;
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size and financial stability of operations;
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breadth of product line;
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intellectual property portfolio;
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ability to scale manufacturing; and
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ability to interoperate with other vendors.
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We believe we compete principally on the performance, features,
interoperability and reliability of our products and our
technological expertise. Several companies, including companies
that are significantly larger and more established, such as
Cisco Systems and Motorola, also compete in the markets we
target. Many of these larger competitors have substantially
broader product offerings and bundle their products or
incorporate functionality into existing products in a manner
that discourages users from purchasing our products or that may
require us to add incremental features and functionality to
differentiate our products or lower our prices. Furthermore,
many of our competitors have greater financial, technical,
marketing, distribution, customer support and other resources,
as well as better name recognition and access to customers than
we do. Our main competitors include ARRIS Group, Cisco systems,
Harmonic, Motorola and a number of smaller companies.
Conditions in our markets could change rapidly and significantly
as a result of technological advancements or continuing market
consolidation. The development and market acceptance of
alternative technologies could decrease the demand for our
products or render them obsolete. Our competitors may introduce
products that are less costly, provide superior performance or
achieve greater market acceptance than our products. In
addition, these larger competitors often have broader product
lines and market focus, are in a better position to withstand
any significant reduction in capital spending by customers in
these markets, and will therefore not be as susceptible to
downturns in a particular market. These competitive pressures
are likely to continue to adversely impact our business. We may
not be able to compete successfully in the future, and
competition may harm our business.
We believe standards bodies may commoditize the markets in which
we compete and would require that we add incremental features
and functions to differentiate our products. If the product
design or technology of our competitors were to become an
industry standard, our business could be seriously harmed.
12
Employees
As of December 31, 2010, we had employees as follows:
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By function:
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Servicing and manufacturing
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72
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Research and development
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279
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Sales and marketing
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58
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General and administrative
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56
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Total employees
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465
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By location:
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United States
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204
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Israel
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166
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Rest of world
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95
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Total employees
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465
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We also engage a number of temporary personnel and consultants.
None of our employees are represented by a labor union with
respect to his or her employment with us. We have not
experienced any work stoppages, and we consider our relations
with our employees to be good. Our future success will depend
upon our ability to attract and retain qualified personnel.
Competition for qualified personnel is strong, and we may not be
successful in retaining our key employees or attracting skilled
personnel. As more fully described in Note 14 to the
consolidated financial statements , in January 2011 we initiated
a reduction in force that decreased our headcount by
approximately 9%.
Financial
Information About Segments and Geographic Areas
For information about our revenues and long-lived assets by
geographical region, see Notes to Consolidated Financial
Statements, Note 9 Segment Reporting
included in Part II, Item 8 of this Annual Report on
Form 10-K.
We report as a single reporting segment.
Additional
Information
We file registration statements, periodic and current reports,
proxy statements, and other materials with the SEC. You may read
and copy any materials we file with the SEC at the SECs
Office of Public Reference at 100 F Street, NE,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a web site at
http://www.sec.gov
that contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC, including our filings.
Our Internet address is
http://www.bigbandnet.com.
We make available, free of charge, through the Investor
Relations section of our website, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and any amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after they
are electronically filed with, or furnished to, the SEC. The
contents of our website are not incorporated into, or otherwise
to be regarded as part of this
Form 10-K.
13
An investment in our equity securities involves significant
risks. Any of these risks, as well as other risks not currently
known to us or that we currently consider immaterial, could have
a material adverse effect on our business, prospects, financial
condition or operating results. The trading price of our common
stock could decline due to any of these risks, and you may lose
all or part of your investment. In assessing the risks described
below, you should also refer to the other information contained
in this
Form 10-K,
including our consolidated financial statements and the related
notes, before deciding to purchase any shares of our common
stock.
We
depend on cable multiple system operators (MSOs) and
telecommunications companies adopting advanced technologies for
substantially all of our net revenues, and any decrease or delay
in capital spending for these advanced technologies would harm
our operating results, financial condition and cash
flows.
Almost all of our sales depend on cable MSOs and
telecommunications companies adopting advanced video
technologies, and we expect these sales to continue to
constitute a significant majority of our revenues for the
foreseeable future. Demand for our products will depend on the
magnitude and timing of capital spending by service providers on
advanced technologies for constructing and upgrading their
network infrastructure, and a reduction or delay in this
spending could have a material adverse effect on our business.
The capital spending patterns of our existing and potential
customers are dependent on a variety of factors, including:
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annual budget cycles;
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overall consumer demand for video services and the acceptance of
newly introduced services;
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technology adoption cycles and network architectures of service
providers, and evolving industry standards that may impact them;
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competitive pressures, including pricing pressures;
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changes in general economic conditions;
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the impact of industry consolidation;
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the strategic focus of our customers and potential customers;
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the status of federal, local and foreign government regulation
of telecommunications and television broadcasting, and
regulatory approvals that our customers need to obtain;
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discretionary customer spending patterns;
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bankruptcies and financial restructurings within the
industry; and
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work stoppages or other labor- or labor market-related issues
that may impact the timing of orders and revenues from our
customers.
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Since 2009, we have seen reduced capital spending by our
customers for our key products. Any continued slowdown or delay
in the capital spending by service providers for our products as
a result of any of the above factors would likely have a
significant adverse impact on our quarterly revenues and net
losses.
Our
operating results are likely to fluctuate significantly and may
fail to meet or exceed the expectations of securities analysts
or investors or our guidance, causing our stock price to
decline.
Our operating results have fluctuated in the past and are likely
to continue to fluctuate, on an annual and a quarterly basis, as
a result of a number of factors, many of which are outside our
control. These factors include:
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market acceptance of new or existing products offered by us or
our customers;
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the level and timing of capital spending by our customers;
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14
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the timing, mix and amount of orders, especially from
significant customers;
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the level of our deferred revenue balances;
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changes in market demand for our products;
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our mix of products sold;
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the mix of software and hardware products sold;
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our unpredictable and lengthy sales cycles, which typically
range from six to 18 months;
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the timing of revenue recognition on sales arrangements, which
may include multiple deliverables and result in delays in
recognizing revenue;
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our ability to design, install and receive customer acceptance
of our products;
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materially different acceptance criteria in key customers
agreements, which can result in large amounts of revenue being
recognized, or deferred, as the different acceptance criteria
are applied to large orders;
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new product introductions by our competitors;
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market acceptance of new or existing products offered by us or
our customers;
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competitive market conditions, including pricing actions by our
competitors;
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our ability to complete complex development of our software and
hardware on a timely basis;
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unexpected changes in our operating expenses;
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the impact of new accounting, income tax and disclosure rules;
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the cost and availability of components used in our products;
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the potential loss of key manufacturer and supplier
relationships; and
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changes in domestic and international regulatory environments.
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In particular, we expect that our 2011 financial performance
will be significantly affected by our ability to deliver our
next-generation QAM in a timely fashion with acceptable quality,
and achieving market acceptance of this new patform. We
establish our expenditure levels for product development and
other operating expenses based on projected sales levels, and
our expenses are relatively fixed in the short term.
Accordingly, variations in the timing of our sales can cause
significant fluctuations in our operating results. In addition,
as a result of the factors described above, our operating
results in one or more future periods may fail to meet or exceed
the expectations of securities analysts or investors or our
guidance, which would likely cause the trading price of our
common stock to decline substantially.
Our
customer base is highly concentrated, and there are a limited
number of potential customers for our products. The loss of any
of our key customers would likely reduce our revenues
significantly.
Historically, a large portion of our sales have been to a
limited number of large customers. Our five largest customers
accounted for approximately 74% of our net revenues for the year
ended December 31, 2010, compared to 78% for the year ended
December 31, 2009. Cox Communications, Time Warner Cable
and Verizon each represented 10% or more of our net revenues for
the year ended December 31, 2010. Charter Communications,
Time Warner Cable and Verizon each represented 10% or more of
our net revenues for the year ended December 31, 2009.
We believe that for the foreseeable future our net revenues will
be concentrated in a limited number of large customers, and we
do not have contracts or other agreements that guarantee
continued sales to these or any other customers. Consequently,
reduced capital expenditures by any one of our larger customers
(whether caused by adverse financial conditions, more cautious
spending patterns due to economic uncertainty or other factors)
is likely to have a material negative impact on our operating
results. For example, Verizon slowed the rollout of its FiOS
system in 2009, which has had continuing negative impact on our
business. In addition, as the consolidation of ownership of
cable MSOs and telecommunications companies continues, we may
lose existing customers and have
15
access to a shrinking pool of potential customers. We expect to
see continuing industry consolidation due to the significant
capital costs of constructing video, voice and data networks and
for other reasons. This will likely result in our customers
gaining increased purchasing leverage over us. This may reduce
the selling prices of our products and services and as a result
may harm our business and financial results. Many of our
customers desire to have two sources for the products we sell to
them. As a result, our future revenue opportunities could be
limited, and our profitability could be adversely impacted. The
loss of, or reduction in orders from, any of our key customers
would significantly reduce our revenues and have a material
adverse impact on our business, operating results and financial
condition.
If
revenues forecasted for a particular period are not realized in
such period due to the lengthy, complex and unpredictable sales
cycles of our products, our operating results for that or
subsequent periods will be harmed.
The sales cycles of our products are typically lengthy, complex
and unpredictable and usually involve:
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a significant technical evaluation period;
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a significant commitment of capital and other resources by
service providers;
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substantial time required to engineer the deployment of new
technologies for new video services;
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substantial testing and acceptance of new technologies that
affect key operations; and
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substantial test marketing of new services with subscribers.
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For these and other reasons, our sales cycles are generally
between six and eighteen months, but can last longer. If orders
forecasted for a specific customer for a particular quarter do
not occur in that quarter, our operating results for that
quarter or subsequent quarters could be substantially lower than
anticipated. Our quarterly and annual results may fluctuate
significantly due to revenue recognition rules and the timing of
the receipt of customer orders.
Additionally, we derive a large portion of our net revenues from
sales that include the network design, installation and
integration of equipment, including equipment acquired from
third parties to be integrated with our products to the
specifications of our customers. We base our revenue forecasts
on the estimated timing to complete the network design,
installation and integration of our customer projects and
customer acceptance of those products. The systems of our
customers are both diverse and complex, and our ability to
configure, test and integrate our systems with other elements of
our customers networks depends on technologies provided to
our customers by third parties. As a result, the timing of our
revenue related to the implementation of our solutions in these
complex networks is difficult to predict and could result in
lower than expected revenue in any particular quarter.
Similarly, our ability to deploy our equipment in a timely
fashion can be subject to a number of other risks, including the
availability of skilled engineering and technical personnel, the
availability of equipment produced by third parties and our
customers need to obtain regulatory approvals.
Lower
deferred revenue balances will make future period results less
predictable.
Historically, we have had relatively high deferred revenue
balances at quarter end, which has provided us with some measure
of predictability for future periods. However, our deferred
revenue balance as of December 31, 2010 was approximately
$18.4 million lower than it was as of December 31,
2009. This lower deferred revenue balance makes our quarterly
revenue more dependent on orders both received and shipped
within the same quarter, and therefore less predictable. This
lack of deferred revenues could cause additional revenue
volatility, which could in turn harm our stock price.
16
The
markets in which we operate are intensely competitive, many of
our competitors are larger, more established and better
capitalized than we are, and some of our competitors have
integrated products performing functions similar to our products
into their existing network infrastructure offerings, and
consequently our existing and potential customers may decide
against using our products in their networks, which would harm
our business.
The markets for selling network-based hardware and software
products to service providers are extremely competitive and have
been characterized by rapid technological change. We compete
broadly with system suppliers including ARRIS Group, Cisco
Systems, Harmonic, Motorola and a number of smaller companies.
Many of our competitors are substantially larger and have
greater financial, technical, marketing and other resources than
we have. Given their capital resources, long-standing
relationships with service providers worldwide, and broader
product lines, many of these large organizations are in a better
position to withstand any significant reduction in capital
spending by customers in these markets. If we are unable to
overcome these resource advantages, our competitive position
would suffer.
In addition, other providers of network-based hardware and
software products offer functionality aimed at solving similar
problems addressed by our products. For example, several vendors
have announced products designed to compete with our Switched
Digital Video solution. The inclusion of functionality perceived
to be similar to our product offerings in our competitors
products that already have been accepted as necessary components
of network architecture may have an adverse effect on our
ability to market and sell our products. In addition, our
customers other vendors that can provide a broader product
offering may be able to offer pricing or other concessions that
we are not able to match because we currently offer a more
modest suite of products and have fewer resources. If our
existing or potential customers are reluctant to add network
infrastructure from new vendors or otherwise decide to work with
their other existing vendors, our business, operating results
and financial condition will be adversely affected.
Over the years, we have seen consolidation among our
competitors. We expect this trend to continue as companies
attempt to strengthen or maintain their market positions in the
evolving industry for video by increasing the amount of
commercial and technical integration of their video products.
Due to our comparatively small size and comparatively narrow
product offerings, our ability to compete will depend on our
ability to partner with companies to offer a more complete
overall solution. If we fail to do so, our competitive position
will be harmed and our sales will likely suffer. These combined
companies may offer more compelling product offerings and may be
able to offer greater pricing flexibility, making it more
difficult for us to compete while sustaining acceptable gross
margins. Finally, continued industry consolidation may impact
customers perceptions of the viability of smaller
companies, which may affect their willingness to purchase
products from us. These competitive pressures could harm our
business, operating results and financial condition.
We
have been unable to achieve sustained profitability, which could
harm the price of our stock.
Historically, we have experienced significant operating losses,
and we were not profitable in both the years ended
December 31, 2009 and 2010. If we fail to achieve or
sustain profitability in the future, it will harm our long-term
business, and we may not meet the expectations of the investment
community, which would have a material adverse impact on our
stock price.
We may
not accurately anticipate the timing of the market needs for our
products and develop such products at the appropriate times at
significant research and development expense, or we may not gain
market acceptance of our emerging video solutions and/or
adoption of new network architectures and technologies, any of
which could harm our operating results and financial
condition.
Accurately forecasting and meeting our customers
requirements is critical to the success of our business.
Forecasting to meet customers needs is particularly
difficult for newer products and products under development. Our
ability to meet customer demand depends on our ability to
configure our solutions to the complex architectures that our
customers have developed, the availability of components and
other materials and the ability of our contract manufacturers to
scale their production of our products. Our ability to meet
customer requirements depends on our ability to obtain
sufficient volumes of required components and materials in a
timely fashion. If we fail to meet
17
customers supply expectations, our net revenues will be
adversely affected, and we will likely lose business. In
addition, our priorities for future product development are
based on how we expect the market for video services to develop
in the U.S. and in international markets.
Future demand for our products will depend significantly on the
growing market acceptance of several emerging video services
including HDTV, addressable advertising, video delivered over
telecommunications company networks and video delivered over
Internet Protocol by cable MSOs. The effective delivery of these
services will depend on service providers developing and
building new network architectures to deliver them. If the
introduction or adoption of these services or the deployment of
these networks is not as widespread or as rapid as we or our
customers expect, our revenue opportunities will be limited.
Our product development efforts require substantial research and
development expense, as we develop new technology, including
next generation MSP and technology primarily related to the
delivery of video over IP networks. In addition, as many of our
products are new solutions, there is a risk of delays in
delivery of these solutions. Our research and development
expense increased from $46.4 million in 2009 to
$50.9 million in 2010 without a corresponding increase in
revenues, and there can be no assurance that we will achieve an
acceptable return on our research and development efforts, and
no assurance that we will be able to deliver our solutions in
time to achieve market acceptance.
Our
ability to grow will depend significantly on our delivery of
products that help enable telecommunications companies to
provide video services. If the demand for video services from
telecommunications companies does not materialize or if these
service providers find alternative methods of delivering video
services, future sales of our video products will
suffer.
We have generated significant revenues from a single
telecommunications company. Our ability to grow will depend on
our selling video products to additional telecommunications
companies. Although a number of our existing products are being
deployed in telecom networks, we will need to devote
considerable resources to obtain orders, qualify our products
and hire knowledgeable personnel to address telecommunications
company customers, each of which will require significant time
and financial commitment. These efforts may not be successful in
the near future, or at all. If technological advancements allow
telecommunications companies to provide video services without
upgrading their current system infrastructure or provide them a
more cost-effective method of delivering video services than our
products, projected sales of our video products will suffer.
Even if these providers choose our video solutions, they may not
be successful in marketing video services to their customers, in
which case additional sales of our products would likely be
limited.
Selling successfully to additional telecommunication companies
will be a significant challenge for us. Several of our largest
competitors have mature customer relationships with many of the
largest telecommunications companies, while we have limited
experience with sales and marketing efforts designed to reach
these potential customers. In addition, telecommunications
companies face specific network architecture and legacy
technology issues that we have only limited expertise in
addressing. If we fail to penetrate the telecommunications
market successfully, our growth in revenues and our operating
results would likely be adversely impacted.
We
anticipate that our gross margins will fluctuate with changes in
our product mix and our fixed cost absorption. We expect
decreases in the average selling prices of our hardware and
software products to further adversely impact our operating
results.
Our product gross margins decreased in 2010 compared to our
product gross margins in 2009. Our industry has historically
experienced a decrease in average selling prices. We anticipate
that the average selling prices of our products will continue to
decrease in the future in response to competitive pricing
pressures, increased sales discounts and new product
introductions by our competitors. We may experience substantial
decreases in future operating results due to a decrease of our
average selling prices. Additionally, our failure to develop and
introduce new products on a timely basis or to effectively
absorb our fixed costs would likely contribute to a decline in
our gross margins, which could have a material adverse effect on
our operating results and cause the price of our common stock to
decline. We also anticipate that our gross margins will
fluctuate from period to period as a result of
18
the mix of products we sell in any given period. If our sales of
lower margin products significantly expand in future quarterly
periods, our overall gross margin levels and operating results
would be adversely impacted.
If we
do not accurately anticipate the correct mix of our products
that will be sold, we may be required to record charges related
to excess inventories.
Due to the unpredictable nature of the demand for our products,
we are required to place non-cancellable orders with our
suppliers for components, finished products and services in
advance of actual customer commitments to purchase these
products. Significant unanticipated fluctuations in demand could
result in costly excess production or inventories. Our inventory
balance was approximately $6.2 million higher as of
December 31, 2010 compared to December 31, 2009. In
order to reduce the negative financial impact of excess
production, we may be required to significantly reduce the sales
prices of our products in an attempt to increase demand, which
in turn could result in a reduction in the value of the original
inventory. If we were to determine that we could not utilize or
sell this inventory, we may be required to write down its value.
Writing down inventory or reducing product prices could
adversely impact our gross margins and financial condition.
Any
further economic downturn will likely adversely affect our
financial condition and results of operations and make our
future business more difficult to forecast and
manage.
Our business is sensitive to changes in general economic
conditions, both in the U.S. and globally. Due to the
continued tight credit markets and concerns regarding the
availability of credit, our current or potential customers may
delay or reduce purchases of our products, which would adversely
affect our revenues and therefore harm our business and results
of operations.
We expect our business to be adversely impacted by any future
downturn in the U.S. or global economies as our
customers capital spending is expected to be reduced
during in response to such conditions. Any uncertainty in the
U.S. and global economies would likely make it more
difficult for us to forecast and manage our business.
Our
efforts to develop additional channels to market and sell our
products internationally may take longer to be successful than
we anticipate, if they succeed at all.
Our video solutions traditionally have been sold directly to
large cable MSOs, and a limited number of telecommunications
companies. To date, we have not focused on smaller service
providers and have had only limited access to service providers
in certain international markets, including Asia and Europe.
Although we intend to establish strategic relationships with
leading distributors worldwide in an attempt to reach new
customers, we may not succeed in establishing these
relationships. Even if we do establish these relationships, the
distributors may not succeed in marketing our products to their
customers. Some of our competitors have established
long-standing relationships with cable MSOs and
telecommunications companies that may limit our and our
distributors ability to sell our products to those
customers. Even if we were to sell our products to those
customers, it would likely not be based on long-term
commitments, and those customers would be able to terminate
their relationships with us at any time without significant
penalties.
International sales represented 9.5% of our net revenues for
2010 compared to 11.2% for 2009. Our international sales depend
on our development of indirect sales channels in Europe and Asia
through distributor and reseller arrangements with third
parties. However, our recent efforts at international expansion
have not resulted in increased revenues from these markets, and
there can be no assurance that our current efforts will
substantially diversify our product revenue. We may not be able
to successfully enter into additional reseller
and/or
distribution agreements
and/or may
not be able to successfully manage our product sales channels.
In addition, many of our resellers also sell products from other
vendors that compete with our products and may choose to focus
on products of those vendors. Additionally, our ability to
utilize an indirect sales model in these international markets
will depend on our ability to qualify and train those resellers
to perform product installations and to provide customer
support. If we fail to develop and cultivate relationships with
significant resellers, or if these resellers do not succeed in
their sales efforts (whether because they are unable to provide
support or otherwise), we may be unable to grow or sustain our
revenue in international markets.
19
Our
expansion of international development operations may take
longer to be successful than we anticipate, if they succeed at
all.
As of December 31, 2010, approximately 81% of our research
and development headcount was located outside the U.S.,
primarily in Israel and increasingly in China. Managing research
and development operations in numerous locations requires
substantial management oversight. If we are unable to expand our
international operations successfully and in a timely manner,
our business, operating results and financial condition may be
harmed. Such expansion may be more difficult or could take
longer than we anticipate.
Our international operations, and the international operations
of our contract manufacturers and our outsourced development
contractors, are subject to a number of risks, any or all of
which could reduce our future revenues or increase our costs
from our international operations.
We are
exposed to fluctuations in currency exchange rates, which could
negatively affect our financial results and cash
flows.
Because a substantial portion of our employee base is located in
Israel, we are exposed to fluctuations in currency exchange
rates between the U.S. dollar and the Israeli New Shekel.
These fluctuations could have a material adverse impact on our
financial results and cash flows. A decrease in the value of the
U.S. dollar relative to foreign currencies could increase
our operating expenses and the cost of raw materials to the
extent that we must purchase components or pay employees in
foreign currencies.
Currently, we hedge a portion of our anticipated future expenses
and certain assets and liabilities denominated in the Israeli
New Shekel. The hedging activities we undertake are intended to
partially offset the impact of currency fluctuations. As our
hedging program is relatively short-term in nature, a material
long-term change in the value of the U.S. dollar versus the
Israeli New Shekel could increase our operating expenses in the
future.
Our
products must interoperate with many software applications and
hardware found in our customers networks. If we are unable
to ensure that our products interoperate properly, our business
would be harmed.
Our products must interoperate with our customers existing
networks, which often have varied and complex specifications,
utilize multiple protocol standards, software applications and
products from multiple vendors, and contain multiple generations
of products that have been added over time. As a result, we must
continually ensure that our products interoperate properly with
these existing networks. To meet these requirements, we must
undertake development efforts that require substantial capital
investment and employee resources. We may not accomplish these
development efforts quickly or cost-effectively, if at all. For
example, our products currently interoperate with equipment from
several vendors such as ARRIS Group, Cisco Systems, Microsoft
and Motorola. If we fail to maintain compatibility with these
vendors (some of whom are our competitors), we may face
substantially reduced demand for, or delay in the implementation
of, our products, either or both of which would adversely affect
our business, operating results and financial condition.
We have entered into interoperability arrangements with a number
of equipment and software vendors for the use or integration of
their technology with our products. In these cases, the
arrangements give us access to and enable interoperability with
various products in the digital video market that we do not
otherwise offer. If these relationships fail, we will have to
devote substantially more resources to the development of
alternative products and the support of our products, and our
efforts may not be as effective as the combined solutions with
our current partners. In many cases, these parties are either
companies with which we compete directly in other areas, such as
Motorola, or companies that have extensive relationships with
our existing and potential customers and may have influence over
the purchasing decisions of these customers. A number of our
competitors have stronger relationships with some of our
existing and potential partners and, as a result, our ability to
successfully partner with these companies may be harmed. Our
failure to establish or maintain key relationships with third
party equipment and software vendors may harm our ability to
successfully sell and market our products. We are currently
investing significant resources to develop these relationships.
Our operating results could be adversely affected if these
efforts do not generate the revenues necessary to offset this
investment.
20
In addition, if we find errors in the existing software or
defects in the hardware used in our customers networks or
problematic network configurations or settings, as we have in
the past, we may have to modify our software or hardware so that
our products will interoperate with our customers
networks. This could cause longer installation times for our
products and could cause order cancellations, either of which
would adversely affect our business, operating results and
financial condition.
Our
ability to sell our products is highly dependent on the quality
of our support and services offerings, and our failure to offer
high-quality support and services would have a material adverse
effect on our sales and results of operations.
Once our products are deployed within our customers
networks, our customers depend on our support organization to
resolve any issues relating to our products. If we or our
channel partners do not effectively assist our customers in
deploying our products, or succeed in helping our customers
quickly resolve post-deployment issues and provide effective
ongoing support, our ability to sell our products to existing
customers would be adversely affected and our reputation with
potential customers could be harmed. In addition, to the extent
we expand our operations internationally, our support
organization will face additional challenges including those
associated with delivering support, training and documentation
in languages other than English. Our failure to maintain
high-quality support and services would have a material adverse
effect on our business, operating results and financial
condition.
If we
fail to comply with new laws and regulations, or changing
interpretations of existing laws or regulations, our future
revenues could be adversely affected.
Our products are subject to various legal and regulatory
requirements and changes. For example, effective June 12,
2009, federal law required that television broadcast stations
stop broadcasting in analog format and broadcast only in digital
format. We believe that this change accelerated the timing of
sales of our digital products, and consequently the revenue
associated with our broadcast solutions decreased after
June 30, 2009. These and other implementations of laws and
interpretations of existing regulations could cause our
customers to forgo or change the timing of spending on new
technology rollouts, such as switched digital video, which could
make our results more difficult to predict, or harm our revenues.
Additionally, governments in the U.S. and other countries
have adopted laws and regulations regarding privacy and
advertising that could impact important aspects of our business.
In particular, governments are considering new limits or
requirements with respect to our customers collection,
use, storage and disclosure of personal information for
marketing purposes. Any legislation enacted or regulation issued
could dampen the growth and acceptance of addressable
advertising which is enabled by our products. If the use of our
products to increase advertising revenue is limited or becomes
unlawful, our business, results of operations and financial
condition would be harmed.
We
must manage our business effectively even if our infrastructure,
management and resources might be strained due to our continued
expense reduction efforts.
In the past several years, including this year, we have
undertaken a number of reductions in force, experienced a number
of changes in our executive management and implemented other
cost reduction measures. In addition, we currently have a
vacancy on our audit committee. Effectively managing our
business with reduced headcount and expenses in some areas, and
board vacancies, will likely place increased strain on our
existing resources.
In addition, we may need to expand and otherwise improve our
internal systems, including our management information systems,
customer relationship and support systems, and operating,
administrative and financial systems and controls. These efforts
may require us to make significant capital expenditures or incur
significant expenses, and divert the attention of management,
sales, support and finance personnel from our core business
operations, which may adversely affect our financial performance
in future periods. Moreover, to the extent we grow in the
future, such growth will result in increased responsibilities
for our management personnel. Managing any future growth will
require substantial resources that we may not have or otherwise
be able to obtain.
21
Our
business is subject to the risks of warranty returns, product
liability and product defects.
Products like ours are very complex and can frequently contain
undetected errors or failures, especially when first introduced
or when new versions are released. Despite testing, errors may
occur. Product errors could affect the performance of our
products, delay the development or release of new products or
new versions of products, adversely affect our reputation and
our customers willingness to buy products from us and
adversely affect market acceptance or perception of our
products. Any such errors or delays in releasing new products or
new versions of products or allegations of unsatisfactory
performance could cause us to lose revenue or market share,
increase our service costs, cause us to incur substantial costs
in redesigning the products, subject us to liability for damages
and divert our resources from other tasks, any one of which
could materially adversely affect our business, results of
operations and financial condition.
Although we have limitation of liability provisions in our
standard terms and conditions of sale, they may not fully or
effectively protect us from claims as a result of federal, state
or local laws or ordinances or unfavorable judicial decisions in
the U.S. or other countries. The sale and support of our
products also entails the risk of product liability claims. We
maintain insurance to protect against certain claims associated
with the use of our products, but our insurance coverage may not
adequately cover any claim asserted against us. In addition,
even claims that ultimately are unsuccessful could result in our
expenditure of funds in litigation and divert managements
time and other resources.
Regional
instability in Israel may adversely affect business conditions,
including the operations of our contract manufacturers, and may
disrupt our operations and negatively affect our operating
results.
A substantial portion of our research and development operations
and our contract manufacturing occurs in Israel. As of
December 31, 2010, we had 166 full-time employees
located in Israel. We also have customer service, marketing and
general and administrative employees at this facility.
Accordingly, we are directly influenced by the political,
economic and military conditions affecting Israel, and any major
hostilities involving Israel or the interruption or curtailment
of trade between Israel and its trading partners could
significantly harm our business. In addition, in the past,
Israel and companies doing business with Israel have been the
subject of an economic boycott. Israel has also been and is
subject to civil unrest and terrorist activity, with varying
levels of severity, for the last decade. Security and political
conditions may have an adverse impact on our business in the
future. Hostilities involving Israel or the interruption or
curtailment of trade between Israel and its trading partners
could adversely affect our operations and make it more difficult
for us to retain or recruit qualified personnel in Israel.
In addition, most of our employees in Israel are obligated to
perform annual reserve duty in the Israeli Defense Forces and
several have been called for active military duty in connection
with intermittent hostilities over the years. Should hostilities
in the region escalate again, some of our employees would likely
be called to active military duty, possibly resulting in
interruptions in our sales and development efforts and other
impacts on our business and operations, which we cannot
currently assess.
We
depend on a limited number of third parties to provide key
components of, and to provide manufacturing and assembly
services with respect to, our products.
We and our contract manufacturers obtain many components
necessary for the manufacture or integration of our products
from a sole supplier or a limited group of suppliers. We or our
contract manufacturers do not typically have long-term
agreements in place with such suppliers. As an example, we do
not have a long-term purchase agreement in place with PowerOne,
the sole supplier of power supplies for our products. Our direct
and indirect reliance on sole or limited suppliers involves
several risks, including the inability to obtain an adequate
supply of required components, and reduced control over pricing,
quality and timely delivery of components. Our ability to
deliver our products on a timely basis to our customers would be
materially adversely impacted if we or our contract
manufacturers needed to find alternative replacements for (as
examples) the chassis, chipsets, central processing units or
power supplies that we use in our products. Significant time and
effort would be required to locate new vendors for these
alternative components, if alternatives are even available.
Moreover, the lead times required by the suppliers of some
components are lengthy and preclude rapid changes in quantity
requirements and delivery schedules. Even as we increase our use
of standardized components, we may experience supply chain
issues,
22
particularly as a result of market volatility. Such volatility
could lead suppliers to decrease inventory, which in turn would
lead to increased manufacturing lead times for us. In addition,
increased demand by third parties for the components we use in
our products (for example, Field Programmable Gate Arrays or
other semiconductor technology) may lead to decreased
availability and higher prices for those components from our
suppliers, since we generally carry little inventory of our
product components. As a result, we may not be able to secure
enough components at reasonable prices or of acceptable quality
to build products in a timely manner, which would impact our
ability to deliver products to our customers, and our business,
operating results and financial condition would be adversely
affected.
For manufacturing and assembly, we currently rely exclusively on
Flextronics or Benchmark, depending on the product, to assemble
our products, manage our supply chain and negotiate component
costs for our solutions. Our reliance on these contract
manufacturers reduces our control over the assembly process,
exposing us to risks, including reduced control over quality
assurance, production costs and product supply. If we fail to
manage our relationships with these contract manufacturers
effectively, or if these contract manufacturers experience
delays (including delays in their ability to purchase
components, as noted above), disruptions, capacity constraints
or quality control problems in their operations, our ability to
ship products to our customers could be impaired and our
competitive position and reputation could be harmed. If these
contract manufacturers are unable to negotiate with their
suppliers for reduced component costs, our operating results
would be harmed. Qualifying a new contract manufacturer and
commencing volume production is expensive and time-consuming. If
we are required to change contract manufacturers, we may lose
net revenues, incur increased costs and damage our customer
relationships.
Our
failure to adequately protect our intellectual property and
proprietary rights, or to secure such rights on reasonable
terms, may adversely affect us.
We hold numerous issued U.S. patents and have a number of
patent applications pending in the U.S. and foreign
jurisdictions. Although we attempt to protect our intellectual
property rights through patents, copyrights, trademarks,
licensing arrangements, maintaining certain technology as trade
secrets and other measures, we cannot be sure that any patent,
trademark, copyright or other intellectual property rights owned
by us will not be invalidated, circumvented or challenged, that
such intellectual property rights will provide competitive
advantages to us or that any of our pending or future patent
applications will be issued with the scope of the claims sought
by us, if at all. Despite our efforts, other competitors may be
able to develop technologies that are similar or superior to our
technology, duplicate our technology to the extent it is not
protected, or design around the patents that we own. In
addition, effective patent, copyright, trademark and trade
secret protection may be unavailable or limited in certain
foreign countries in which we do business or may do business in
the future.
The steps that we have taken may not prevent misappropriation of
our technology. In addition, to prevent misappropriation we may
need to take legal action to enforce our patents and other
intellectual property rights, protect our trade secrets,
determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or
invalidity. For example, on June 5, 2007, we filed a
lawsuit in federal court against Imagine Communications, Inc.,
alleging patent infringement. This and other potential
intellectual property litigation could result in substantial
costs and diversion of resources and could negatively affect our
business, operating results and financial condition.
In order to successfully develop and market certain of our
planned products, we may be required to enter into technology
development or licensing agreements with third parties whether
to avoid infringement or because we believe a specific
functionality is necessary for a successful product launch.
These third parties may be willing to enter into technology
development or licensing agreements only on a costly royalty
basis or on terms unacceptable to us, or not at all. Our failure
to enter into technology development or licensing agreements on
reasonable terms, when necessary, could limit our ability to
develop and market new products and could cause our business to
suffer. For example, we could face delays in product releases
until alternative technology can be identified, licensed or
developed, and integrated into our current products. These
delays, if they occur, could adversely affect our business,
operating results and financial condition.
23
We may
face intellectual property infringement claims from third
parties.
Our industry is characterized by the existence of an extensive
number of patents and frequent claims and related litigation
regarding patent and other intellectual property rights. From
time to time, third parties have asserted and may assert patent,
copyright, trademark and other intellectual property rights
against us or our customers. Our suppliers and customers may
have similar claims asserted against them. We have agreed to
indemnify some of our suppliers and customers for alleged patent
infringement. The scope of this indemnity varies, but, in some
instances, includes indemnification for damages and expenses
including reasonable attorneys fees. Any future
litigation, regardless of its outcome, could result in
substantial expense and significant diversion of the efforts of
our management and technical personnel. An adverse determination
in any such proceeding could subject us to significant
liabilities, temporary or permanent injunctions or require us to
seek licenses from third parties or pay royalties that may be
substantial. Furthermore, necessary licenses may not be
available on satisfactory terms, or at all.
Our
use of open source and third-party software could impose
limitations on our ability to commercialize our
products.
We incorporate open source software into our products, including
certain open source code which is governed by the GNU General
Public License, Lesser GNU General Public License and Common
Development and Distribution License. The terms of many open
source licenses have not been interpreted by U.S. courts,
and there is a risk that these licenses could be construed in a
manner that could impose unanticipated conditions or
restrictions on our ability to commercialize our products. In
such event, we could be required to seek licenses from third
parties in order to continue offering our products, make
generally available, in source code form, proprietary code that
links to certain open source modules, re-engineer our products,
discontinue the sale of our products if re-engineering could not
be accomplished on a cost-effective and timely basis, or become
subject to other consequences, any of which could adversely
affect our business, operating results and financial condition.
We may
engage in future acquisitions that dilute the ownership
interests of our stockholders, cause us to use a significant
portion of our cash, incur debt or assume contingent
liabilities.
As part of our business strategy, from time to time, we review
potential acquisitions of other businesses, and we may acquire
businesses, products, or technologies in the future. In the
event of any future acquisitions, we could:
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issue equity securities which would dilute our current
stockholders percentage ownership;
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incur substantial debt;
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assume contingent liabilities; or
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spend significant cash.
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These actions could harm our business, operating results and
financial condition, or the price of our common stock. Moreover,
even if we do obtain benefits from acquisitions in the form of
increased sales and earnings, there may be a delay between the
time when the expenses associated with an acquisition are
incurred and the time when we recognize such benefits. This is
particularly relevant in cases where it is necessary to
integrate new types of technology into our existing portfolio
and where new types of products may be targeted for potential
customers with which we do not have pre-existing relationships.
Acquisitions and investment activities also entail numerous
risks, including:
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difficulties in the assimilation of acquired operations,
technologies
and/or
products;
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unanticipated acquisition transaction costs;
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the diversion of managements attention from other business;
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adverse effects on existing business relationships with
suppliers and customers;
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risks associated with entering markets in which we have no or
limited prior experience;
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the potential loss of key employees of acquired businesses;
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24
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difficulties in the assimilation of different corporate cultures
and practices; and
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substantial charges for the amortization of certain purchased
intangible assets, deferred stock compensation or similar items.
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We may not be able to successfully integrate any businesses,
products, technologies or personnel that we might acquire in the
future, and our failure to do so could have a material adverse
effect on our business, operating results and financial
condition.
Negative
conditions in the global credit markets may impair the value or
reduce the liquidity of a portion of our investment
portfolio.
As of December 31, 2010, we had $143.5 million in
cash, cash equivalents and investments in marketable securities.
Historically, we have invested these amounts primarily in
government agency debt securities, corporate debt securities,
commercial paper, auction rate securities, money market funds
and taxable municipal debt securities meeting certain criteria.
We currently hold no mortgaged-backed or auction rate
securities. However, our investments are subject to general
credit, liquidity, market and interest rate risks, which may be
exacerbated by any uncertainty in the U.S. and global
credit markets such as the conditions in late 2008 and 2009 that
affected various sectors of the financial markets and caused
global credit and liquidity issues. In the future, market risks
associated with our investment portfolio may harm the results of
our operations, liquidity and financial condition.
Although we believe we have chosen a lower risk portfolio
designed to preserve our existing cash position, it may not
adequately protect the value of our investments. Furthermore,
this lower risk portfolio is unlikely to provide us with any
significant interest income in the near term.
While
we believe that we currently have proper and effective internal
control over financial reporting, we must continue to comply
with laws requiring us to evaluate those internal
controls.
We are required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002. The provisions of the act require,
among other things, that we evaluate the effectiveness of our
internal control over financial reporting and disclosure
controls and procedures. Ensuring that we have adequate internal
financial and accounting controls and procedures in place to
help produce accurate financial statements on a timely basis is
a costly and time-consuming effort. For example, our accounting
for income taxes requires considerable, specific knowledge of
various tax acts, both foreign and domestic, and also involves
several subjective judgments that could lead to fluctuations in
our results of operations should some or all events not occur as
anticipated. We incur significant costs and demands upon
management as a result of complying with these laws and
regulations affecting us as a public company. If we fail to
maintain proper and effective internal controls in future
periods, it could adversely affect our ability to run our
business effectively and could cause investors to lose
confidence in our financial reporting.
We are
subject to import/export controls that could subject us to
liability or impair our ability to compete in international
markets.
Our products are subject to U.S. export controls and may be
exported outside the U.S. only with the required level of
export license or through an export license exception, in most
cases because we incorporate encryption technology into our
products. In addition, various countries regulate the import of
certain encryption technology and have enacted laws that could
limit our ability to distribute our products or could limit our
customers ability to implement our products in those
countries. Changes in our products or changes in export and
import regulations may create delays in the introduction of our
products in international markets, prevent our customers with
international operations from deploying our products throughout
their global systems or, in some cases, prevent the export or
import of our products to certain countries altogether. Any
change in export or import regulations or related legislation,
shift in approach to the enforcement or scope of existing
regulations, or change in the countries, persons or technologies
targeted by such regulations, could result in decreased use of
our products by, or in our decreased ability to export or sell
our products to, existing or potential customers internationally.
In addition, we may be subject to customs duties and export
quotas, which could have a significant impact on our revenue and
profitability. While we have not yet encountered significant
regulatory difficulties in connection
25
with the sales of our products in international markets, the
future imposition of significant customs duties or export quotas
could have a material adverse effect on our business.
Our
business is subject to the risks of earthquakes, fire, floods
and other natural catastrophic events, and to interruption by
manmade problems such as computer viruses or
terrorism.
Our corporate headquarters is located in the San Francisco
Bay area, a region known for seismic activity. A significant
natural disaster, such as an earthquake, fire or a flood, could
have a material adverse impact on our business, operating
results and financial condition. In addition, our computer
servers are vulnerable to computer viruses, break-ins and
similar disruptions from unauthorized tampering with our
computer systems. In addition, acts of terrorism or war or
public health outbreaks could cause disruptions in our or our
customers business or the economy as a whole. To the
extent that such disruptions result in delays or cancellations
of customer orders, or the deployment of our products, our
business, operating results and financial condition would be
adversely affected.
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Item 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
Our corporate headquarters are located at 475 Broadway Street,
Redwood City, California. We lease 27,646 square feet of
office space and the lease expires in December 2011.
In addition to our corporate headquarters, we lease
87,319 square feet of office space in Westborough,
Massachusetts under a lease that expires in March 2012. We do
not utilize approximately 32,000 square feet of this space
and we have sublet 10,826 square feet of this unutilized
space. We also lease 70,826 square feet of office space in
Tel Aviv, Israel under a lease that expires in February 2013,
and we have sublet approximately 32,900 square feet. We
also lease approximately 22,100 square feet of office space
in Shenzhen, China. Additionally, we lease sales and support
offices in Hong Kong, Shanghai and Beijing, China; Seoul, Korea;
and a warehouse space in Southborough, Massachusetts.
We believe that our existing properties are in good condition
and are sufficient and suitable for the conduct of our business.
As our existing leases expire, we believe that suitable space
will be available on commercially reasonable terms.
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
A review of our current litigation is disclosed in the notes to
our consolidated financial statements. See Notes to
Consolidated Financial Statements, Note 7
Commitments and Contingencies Legal
Proceedings in Part II, Item 8 of this Annual
Report on
Form 10-K.
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information for Common Stock
Our common stock has been quoted on the Nasdaq Global Market
under the symbol BBND since our IPO on
March 20, 2007. Prior to that time, there was no public
market for our common stock.
26
For the indicated periods, the high and low sales prices of our
common stock as reported by the Nasdaq Global Market were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
High
|
|
Low
|
|
First quarter
|
|
$
|
3.61
|
|
|
$
|
2.70
|
|
Second quarter
|
|
$
|
3.64
|
|
|
$
|
2.76
|
|
Third quarter
|
|
$
|
3.25
|
|
|
$
|
2.60
|
|
Fourth quarter
|
|
$
|
3.28
|
|
|
$
|
2.54
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
High
|
|
Low
|
|
First quarter
|
|
$
|
7.10
|
|
|
$
|
4.13
|
|
Second quarter
|
|
$
|
7.18
|
|
|
$
|
4.68
|
|
Third quarter
|
|
$
|
5.90
|
|
|
$
|
3.63
|
|
Fourth quarter
|
|
$
|
4.45
|
|
|
$
|
3.20
|
|
Dividend
Policy
We have never paid any cash dividends on our common stock. Our
Board of Directors currently intends to retain any future
earnings to support our operations and to finance the growth and
development of our business and does not intend to pay cash
dividends on our common stock for the foreseeable future. Any
future determination related to our dividend policy will be made
at the discretion of our board.
Stockholders
As of March 1, 2011, there were 63 stockholders of record
of our common stock. Because many of our shares of common stock
are held by brokers and other institutions on behalf of
stockholders, we are unable to provide an exact total number of
stockholders represented by these record holders; however we
believe there are currently approximately 4,000 beneficial
owners of our common stock.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
None.
27
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
You should read the following selected consolidated financial
data in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operation
and our consolidated financial statements and the related notes
appearing elsewhere in this Annual Report on
Form 10-K.
Selected financial data was as follows (in thousands except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
73,606
|
|
|
$
|
93,662
|
|
|
$
|
148,417
|
|
|
$
|
144,715
|
|
|
$
|
154,013
|
|
Services
|
|
|
38,109
|
|
|
|
45,852
|
|
|
|
36,876
|
|
|
|
31,795
|
|
|
|
22,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
111,715
|
|
|
|
139,514
|
|
|
|
185,293
|
|
|
|
176,510
|
|
|
|
176,624
|
|
Cost of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
42,705
|
|
|
|
45,961
|
|
|
|
60,207
|
|
|
|
76,260
|
|
|
|
74,152
|
|
Services
|
|
|
11,850
|
|
|
|
12,384
|
|
|
|
12,755
|
|
|
|
13,414
|
|
|
|
9,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of net revenues
|
|
|
54,555
|
|
|
|
58,345
|
|
|
|
72,962
|
|
|
|
89,674
|
|
|
|
83,397
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
30,901
|
|
|
|
47,701
|
|
|
|
88,210
|
|
|
|
68,455
|
|
|
|
79,861
|
|
Services
|
|
|
26,259
|
|
|
|
33,468
|
|
|
|
24,121
|
|
|
|
18,381
|
|
|
|
13,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
57,160
|
|
|
|
81,169
|
|
|
|
112,331
|
|
|
|
86,836
|
|
|
|
93,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
50,923
|
|
|
|
46,431
|
|
|
|
54,043
|
|
|
|
51,862
|
|
|
|
37,194
|
|
Sales and marketing
|
|
|
20,939
|
|
|
|
24,201
|
|
|
|
28,935
|
|
|
|
39,868
|
|
|
|
29,523
|
|
General and administrative
|
|
|
16,492
|
|
|
|
18,862
|
|
|
|
20,884
|
|
|
|
16,286
|
|
|
|
13,176
|
|
Restructuring charges
|
|
|
900
|
|
|
|
1,356
|
|
|
|
2,055
|
|
|
|
2,998
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
733
|
|
|
|
572
|
|
|
|
572
|
|
Gain on sale of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(1,800
|
)
|
|
|
|
|
|
|
|
|
Class action litigation charges
|
|
|
|
|
|
|
477
|
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
89,254
|
|
|
|
91,327
|
|
|
|
106,354
|
|
|
|
111,586
|
|
|
|
80,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(32,094
|
)
|
|
|
(10,158
|
)
|
|
|
5,977
|
|
|
|
(24,750
|
)
|
|
|
12,762
|
|
Other income (expense)
|
|
|
858
|
|
|
|
2,352
|
|
|
|
6,203
|
|
|
|
608
|
|
|
|
(1,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for (benefit from) income taxes
|
|
|
(31,236
|
)
|
|
|
(7,806
|
)
|
|
|
12,180
|
|
|
|
(24,142
|
)
|
|
|
11,402
|
|
Provision for (benefit from) income taxes
|
|
|
338
|
|
|
|
(1,067
|
)
|
|
|
2,400
|
|
|
|
1,225
|
|
|
|
2,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,574
|
)
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
|
$
|
(25,367
|
)
|
|
$
|
8,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic net (loss) income per common share
|
|
|
68,389
|
|
|
|
65,936
|
|
|
|
63,559
|
|
|
|
49,041
|
|
|
|
11,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted net (loss) income per common share
|
|
|
68,389
|
|
|
|
65,936
|
|
|
|
67,264
|
|
|
|
49,041
|
|
|
|
57,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
163,857
|
|
|
$
|
201,513
|
|
|
$
|
210,835
|
|
|
$
|
193,219
|
|
|
$
|
109,126
|
|
Noncurrent assets
|
|
|
16,914
|
|
|
|
22,075
|
|
|
|
23,287
|
|
|
|
25,367
|
|
|
|
19,924
|
|
Total assets
|
|
|
180,771
|
|
|
|
223,588
|
|
|
|
234,122
|
|
|
|
218,586
|
|
|
|
129,050
|
|
Current liabilities
|
|
|
32,243
|
|
|
|
54,017
|
|
|
|
68,437
|
|
|
|
83,923
|
|
|
|
84,070
|
|
Noncurrent liabilities
|
|
|
14,395
|
|
|
|
19,295
|
|
|
|
27,266
|
|
|
|
23,077
|
|
|
|
23,287
|
|
Preferred stock warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,152
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,307
|
|
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion of our financial condition and
results of operations should be read together with the
consolidated financial statements and related notes that are
included elsewhere in this
Form 10-K.
This discussion contains forward-looking statements, which are
based upon current expectations that involve risks and
uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a
result of various factors, including those set forth under
Risk Factors or in other parts of this
Form 10-K.
Overview
We develop, market and sell network-based platforms that enable
cable multiple system operators (MSOs) and telecommunications
companies (collectively, service providers) to offer video
services across coaxial, fiber and copper networks. We were
incorporated in Delaware in December 1998. Since that time, we
have developed significant expertise in rich media processing,
communications networking and bandwidth management. Our
customers are using our platforms to expand high-definition
television (HDTV) services, and enable high-quality video
advertising programming to subscribers. Our Broadcast Video,
TelcoTV, Switched Digital Video and IPTV (Personalized Video)
solutions are comprised of a combination of software and
programmable hardware platforms. We have sold our solutions to
more than 200 customers globally. We sell our products and
services to customers in the U.S. and Canada through our
direct sales force. Domestically, our customers include Bright
House, Cablevision, Charter, Comcast, Cox, Time Warner Cable and
Verizon, which are seven of the ten largest service providers in
the U.S. We sell to customers internationally through a
combination of direct sales and resellers.
Net Revenues. We derive our net revenues
principally from our video products and related service
offerings. Our sales cycle typically ranges from six to eighteen
months, but can be longer if the sale relates to new product
introductions. Our sales process generally involves several
stages before we can recognize revenues on the sale of our
products. As a provider of advanced technologies, we seek to
actively participate with our existing and potential customers
in the evaluation of their technology needs and network
architectures, including the development of initial designs and
prototypes. Following these activities, we typically respond to
a service providers request for proposal, configure our
products to work within our customers network
architecture, and test our products first in laboratory testing
and then in field environments to ensure interoperability with
existing products in the service providers network.
Following testing, our revenue recognition generally depends on
satisfying the acceptance criteria specified in our contract
with the customer and our customers schedule for roll-out
of the product. Completion of several of these stages is
substantially outside of our control, which causes our revenue
patterns from a given customer to vary widely from period to
period. After initial deployment of our products, subsequent
purchases of our products typically have a more compressed sales
cycle.
Due to the concentrated nature of the cable and
telecommunications industries, we sell our products to a limited
number of large customers. Within a given quarter, our revenues
from our large customers can vary significantly based upon their
budgetary cycles and implementation schedules. For the years
ended December 31, 2010, 2009 and 2008, we derived
approximately 74%, 78% and 81%, respectively, of our net
revenues from our top five customers. We believe that for the
foreseeable future our net revenues will continue to be highly
concentrated in
29
a limited number of large customers. The loss of one or more of
our large customers, or the cancellation or deferral of
purchases by one or more of these customers, would have a
material adverse impact on our revenues and operating results.
We often recognize a substantial portion of our revenues in the
last month of a quarter, which limits our visibility to estimate
future revenues, product mix and gross margins.
Our service revenues include ongoing customer support and
maintenance, product installation and training. Our customer
support and maintenance is available in a tiered offering at
either a standard or an enhanced level. The majority of our
customers have purchased our enhanced level of customer support
and maintenance. Our accounting for revenues is complex, and we
account for revenues in accordance with applicable
U.S. generally accepted accounting principles (GAAP).
Cost of Net Revenues. Our cost of product
revenues consists primarily of payments for components and
product assembly, costs of product testing, provisions recorded
for excess and obsolete inventory, provisions recorded for
warranty obligations, manufacturing overhead and allocated
facilities and information technology expense. Cost of service
revenues is primarily comprised of personnel costs in providing
technical support, costs incurred to support deployment and
installation within our customers networks, training costs
and allocated facilities and information technology expense.
Gross Margin. Our gross profit as a percentage
of net revenues, or gross margin, has been and will continue to
be affected by a variety of factors, including the mix of
software, hardware and services sold, and the average selling
prices of our products. We achieve a higher gross margin on the
software content of our products compared to the hardware
content. In general, we expect the average selling prices of our
products to be adversely impacted by competitive pricing
pressures, but we seek to minimize the impact to our gross
margins by introducing new products with higher margins, selling
software enhancements to existing products, achieving price
reductions for components and improving product design to reduce
costs. Our gross margins for products are also influenced by the
specific terms of our contracts, which may vary significantly
from customer to customer based on the type of products sold,
the overall size of the customers order, and the
architecture of the customers network, which can influence
the amount and complexity of design, integration and
installation services. Our overhead costs for our services are
relatively fixed, and fluctuations of our service revenues
impact our service gross margin, which historically has been,
and we expect will continue to be, higher than our product gross
margin.
Operating Expenses. Our operating expenses
consist of research and development, sales and marketing,
general and administrative, restructuring and other charges.
Personnel-related costs are the most significant component of
our operating expenses. We expect our operating expenses,
excluding restructuring charges, to decrease in absolute dollars
for the year ending December 31, 2011 compared to the year
ended December 31, 2010, primarily due to the expense
reduction measures we announced on January 11, 2011, which
resulted in a reduction in headcount of approximately 9%.
Additionally, we are consolidating certain facility space to
further streamline our operations. As a result of these
measures, we expect to incur a one-time charge of approximately
$2.0 million for the three months ending March 31,
2011.
Research and development expense is the largest functional
component of our operating expenses and consists primarily of
personnel costs, independent contractor costs, prototype
expenses, and other allocated facilities and information
technology expense. All research and development costs are
expensed as incurred. Our development teams are located in Tel
Aviv, Israel; Shenzhen, China; Westborough, Massachusetts and
Redwood City, California. We expect our research and development
expense to decrease in absolute dollars for the year ending
December 31, 2011 compared to the year ended
December 31, 2010, primarily due to a projected reduction
in headcount.
Sales and marketing expense relates primarily to compensation
and associated costs for marketing and sales personnel, sales
commissions, promotional and other marketing expenses, travel,
trade-show expenses and allocated facilities and information
technology expense. Marketing programs are intended to generate
revenues from new and existing customers and are expensed as
incurred. We expect sales and marketing expense to increase
modestly in absolute dollars for the year ending
December 31, 2011 compared to the year ended
December 31, 2010, primarily due to projected growth in
headcount to expand our international distribution channels, and
to a lesser extent a projected increase in variable compensation
expense attributable to projected growth in orders.
30
General and administrative expense consists primarily of
compensation and associated costs for general and administrative
personnel, professional services and allocated facilities and
information technology expenses. Professional services consist
of outside legal, accounting and other consulting costs. We
expect general and administrative expense to decease modestly
for the year ending December 31, 2011, compared to the year
ended December 31, 2010, primarily due to cost containment
efforts.
Critical
Accounting Policies and Estimates
Our consolidated financial statements have been prepared in
accordance with U.S. GAAP, and pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The
preparation of our consolidated financial statements requires
our management to make estimates, assumptions, and judgments
that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the applicable periods. Management bases its
estimates, assumptions, and judgments on historical experience
and on various other factors that are believed to be reasonable
under the circumstances. Different assumptions and judgments
would change the estimates used in the preparation of our
consolidated financial statements, which, in turn, could change
the results from those reported. Our management evaluates its
estimates, assumptions and judgments on an ongoing basis.
The critical accounting policies requiring estimates,
assumptions and judgments that we believe have the most
significant impact on our consolidated financial statements are
described below.
Revenue
Recognition
Our software and hardware product applications are sold as
solutions and our software is a significant component of these
solutions. We provide unspecified software updates and
enhancements related to products through support contracts. As a
result, we account for revenues in accordance with Accounting
Standards Codification (ASC) 985 Software, for each
transaction, all of which involve the sale of products with a
significant software component. Revenue is recognized when all
of the following have occurred: (1) we have entered into an
arrangement with a customer; (2) delivery has occurred; (3)
customer payment is fixed or determinable and free of
contingencies and significant uncertainties; and
(4) collection is probable.
Product revenues consist of sales of our software and hardware
products. Software product sales include a perpetual license to
the Companys software. We recognize product revenues upon
shipment to our customers, including channel partners, on
non-cancellable contracts and purchase orders when all revenue
recognition criteria are met, or, if specified in an agreement,
upon receipt of final acceptance of the product, provided all
other criteria are met. End users and channel partners generally
have no rights of return, stock rotation rights, or price
protection. Shipping charges billed to customers are included in
product revenues and the related shipping costs are included in
cost of product revenues.
Substantially all of our product sales have been made in
combination with support services, which consist of software
updates and customer support. Our customer service agreements
allow customers to select from plans offering various levels of
technical support, unspecified software upgrades and
enhancements on an
if-and-when-available
basis. Revenues for support services are recognized on a
straight-line basis over the service contract term, which is
typically one year but can extend to five years for our
telecommunications customers. Revenues from other services, such
as installation, program management and training, are recognized
when the services are performed.
We use the residual method to recognize revenues when a customer
agreement includes one or more elements to be delivered at a
future date and vendor specific objective evidence (VSOE) of the
fair value of all undelivered elements exists. Under the
residual method, the fair value of the undelivered elements is
deferred and the remaining portion of the contract fee is
recognized as product revenues. If evidence of the fair value of
one or more undelivered elements does not exist, all revenues
are deferred and recognized when delivery of those elements
occurs or when fair value can be established. When the
undelivered element is customer support and there is no evidence
of fair value for this support, revenue for the entire
arrangement is bundled and revenue is recognized ratably over
the service period. VSOE of fair value for elements of an
arrangement is based on the normal pricing and discounting
practices for those services when sold separately.
31
Fees are typically considered to be fixed or determinable at the
inception of an arrangement based on specific products and
quantities to be delivered. In the event payment terms are
greater than 180 days, the fees are deemed not to be fixed
or determinable and revenues are recognized when the payments
become due, provided the remaining criteria for revenue
recognition have been met.
Deferred revenues consist primarily of deferred service fees
(including customer support and professional services such as
installation, program management and training) and product
revenues, net of the associated costs. Deferred product revenues
generally relate to acceptance provisions that have not been met
or partial shipment or when we do not have VSOE of fair value on
the undelivered items. When deferred revenues are recognized as
revenues, the associated deferred costs are also recognized as
cost of net revenues.
We assess the ability to collect from our customers based on a
number of factors, including the credit worthiness of the
customer and the past transaction history of the customer. If
the customer is not deemed credit worthy, all revenues are
deferred from the arrangement until payment is received and all
other revenue recognition criteria have been met.
In October 2009, the FASB issued ASU
2009-13
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements a consensus of the FASB Emerging Issues
Task Force (ASU
2009-13) and
ASU 2009-14
Software (Topic 985): Certain Revenue Arrangements That
Include Software Elements a consensus of the FASB
Emerging Issues Task Force (ASU
2009-14).
ASU 2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the
residual method of revenue allocation and require revenue to be
allocated using the relative selling price method. ASU
2009-14
removes tangible products from the scope of software revenue
guidance and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product
are covered by the scope of the software revenue guidance. ASU
2009-13 and
ASU 2009-14
are effective on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on
or after June 15, 2010, with early adoption permitted. We
adopted ASU
2009-13 and
ASU 2009-14
effective January 1, 2011, and do not expect a material
effect on our consolidated financial position, results of
operations or cash flows.
Inventories,
Net
Inventories, net consist primarily of finished goods and are
stated at the lower of standard cost or market. Standard cost
approximates actual cost on the
first-in,
first-out method, and is comprised of material, labor, and
overhead. Our net inventory balance was $11.1 million and
$4.9 million as of December 31, 2010 and 2009,
respectively. Our inventory requires lead time to manufacture,
and therefore we are required to order certain inventory in
advance of our anticipated sales. We regularly monitor inventory
quantities on-hand and record write-downs for excess and
obsolete inventories determined primarily by future demand
forecasts. Inventory write-downs are measured as the difference
between the cost of the inventory and market value, and are
charged to the provision for inventory which is a component of
our cost of net product revenues. At the point of the write-down
a new lower cost basis for that inventory is established and
subsequent changes in facts and circumstances do not result in
the restoration or increase in that newly established cost basis.
We record a liability for firm noncancellable and unconditional
purchase commitments for quantities in excess of our future
demand forecasts consistent with the valuation of our excess and
obsolete inventory. As of December 31, 2010, and 2009, the
liability for these purchase commitments was $0.8 million
and zero, respectively, and was included in other current
liabilities on our consolidated balance sheets, and cost of net
product revenues in our consolidated statements of operations.
The inventory provision balances included in inventories, net on
our consolidated balance sheets were $2.8 million and
$2.6 million as of December 31, 2010 and 2009,
respectively. Our write-downs for inventory charged to cost of
net product revenues were $1.9 million, $1.8 million
and $2.9 million for the years ended December 31,
2010, 2009 and 2008, respectively. We could be required to
increase our inventory provision balances if there were to be
sudden and significant decreases in demand for our products or
if there were a higher incidence of inventory obsolescence
because of rapidly changing technology and customer
requirements. We continue to regularly evaluate the exposure for
inventory write-downs and the adequacy of our liability for
purchase commitments.
32
Warranty
Liabilities
We provide a warranty for our software and hardware products. In
most cases, we warrant that our hardware will be free of defects
in workmanship for one year, and that our software media will be
free of defects for 90 days. In master purchase agreements
with large customers, however, we often warrant that our
products (hardware and software) will function in material
conformance to specifications for a period ranging from one to
five years from the date of shipment. In general, we accrue for
warranty claims based on our historical claims experience. In
addition, we accrue for warranty claims based on specific events
and other factors when we believe an exposure is probable and
can be reasonably estimated. The adequacy of the accrual is
reviewed on a periodic basis and adjusted, if necessary, based
on additional information as it becomes available.
Stock-Based
Compensation
We apply the fair value recognition and measurement provisions
of ASC 718 Compensation Stock
Compensation. Stock-based compensation is recorded at fair
value as of the grant date and recognized as an expense over the
employees requisite service period (generally the vesting
period), which we have elected to amortize on a straight-line
basis. We do not capitalize any stock-based compensation.
Under ASC 718, we estimate the fair value of stock options
granted using a Black-Scholes option-pricing formula and a
single option award approach. This model utilizes the estimated
fair value of common stock and requires that, at the date of
grant, we use the expected term of the option, the expected
volatility of the price of our common stock, risk free interest
rates and expected dividend yield of our common stock. This fair
value is then amortized on a straight-line basis over the
requisite service periods of the awards, which is generally the
vesting period. Options typically vest with respect to 25% of
the shares one year after the options vesting commencement
date and the remainder ratably on a monthly basis over the
following three years. In valuing share-based awards under
ASC 718, significant judgment is required in determining
the expected volatility of our common stock and the expected
term individuals will hold their share-based awards prior to
exercising. The computation of expected volatility is derived
primarily from our weighted historical volatility following our
IPO in March 2007, and to a lesser extent, the weighted
historical volatilities of several comparable companies within
the cable and telecommunications equipment industry. The
expected term of options granted represents the period of time
that options granted are expected to be outstanding and was
calculated using the simplified method permitted by SEC Staff
Accounting Bulletin (SAB) 107 as revised by SAB 110. In the
future, as we gain historical data for volatility in our stock
and the actual term employees hold their options, expected
volatility and expected term may change which could
substantially change the grant-date fair value of future awards
of stock options and ultimately the expense we record.
Restricted stock units (RSU) grants under the 2007 Plan
generally vest in increments over two to four years from the
date of grant. The RSUs are classified as equity awards because
the RSUs are paid only in shares upon vesting. RSU awards are
measured at the fair value at the date of grant, which
corresponds to the closing stock price of our common stock on
the date of grant. This fair value is then amortized on a
straight-line basis over the requisite service periods of the
RSUs, which is generally the vesting period.
On October 18, 2010, our stockholders approved a one-time
voluntary stock option exchange program that permitted eligible
employees to exchange certain outstanding stock options that
were underwater for a lesser number of RSUs. The Exchange
Program commenced on October 21, 2010 and ended on
November 18, 2010. Following the exchange, 5.2 million
options were exchanged for 1.8 million RSUs. We elected to
use the pooled method to account for exchanged options. Under
the pooled method the unamortized stock based compensation
expense associated with the exchanged options and any
incremental expense will be recognized over the remaining
vesting period of the RSUs.
Impairment
of Long-lived Assets
We assess impairment of long-lived assets for recoverability
when events or changes in circumstances indicate that their
carrying amount may not be recoverable. Circumstances which
could trigger a review include, but are not limited to:
significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal
factors; accumulation of costs significantly in excess of the
amount originally expected for the acquisition
33
or construction of the asset; current period cash flow or
operating losses combined with a history of losses or a forecast
of continuing losses associated with the use of the asset; or
current expectation that the asset will more likely than not be
sold or disposed of significantly before the end of its
estimated useful life.
Recoverability is assessed based on the sum of the undiscounted
cash flows expected to result from the use and the eventual
disposal of the asset. An impairment loss is recognized in the
consolidated statements of operations when the carrying amount
is not recoverable and exceeds fair value, which is determined
on a discounted cash flow basis.
We make estimates and judgments about future undiscounted cash
flows and fair value. Although our cash flow forecasts are based
on assumptions that are consistent with our plans, there is
significant exercise of judgment involved in determining the
cash flows attributable to a long-lived asset over its estimated
remaining useful life. Our estimates of anticipated future cash
flows could be reduced significantly in the future. As a result,
the carrying amount of our long-lived assets could be reduced
through impairment charges in the future.
Accounting
for Income Taxes
Income taxes are calculated under the provisions of ASC 740
Incomes Taxes. Under ASC 740, the liability method
is used in accounting for income taxes, which includes the
effects of temporary differences between financial and taxable
amounts of assets and liabilities as well as the effects of net
operating loss and credit carryforwards to determine deferred
tax assets and liabilities. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to more likely than not be realized.
Management judgment is required in determining our provision for
income taxes, its deferred tax assets and liabilities, and any
valuation allowance recorded against the net deferred tax
assets. As of December 31, 2010, we recorded a full
valuation allowance against our deferred tax assets arising from
U.S. operations since, based on the available evidence, we
believed at that time it was more likely than not that we would
not be able to utilize all of these deferred tax assets in the
future. We intend to maintain the full valuation allowance
against our U.S. deferred tax assets until sufficient
evidence exists to support its reversal. We make estimates and
judgments about our future taxable income that are based on
assumptions that are consistent with our plans and estimates.
Should the actual amounts differ from our estimates, the amount
of our valuation allowance could be materially impacted.
34
Results
of Operations
The percentage relationships of the listed items from our
consolidated statements of operations as a percentage of total
net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Total cost of net revenues
|
|
|
48.8
|
|
|
|
41.8
|
|
|
|
39.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
51.2
|
|
|
|
58.2
|
|
|
|
60.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
45.6
|
|
|
|
33.3
|
|
|
|
29.2
|
|
Sales and marketing
|
|
|
18.7
|
|
|
|
17.3
|
|
|
|
15.6
|
|
General and administrative
|
|
|
14.8
|
|
|
|
13.6
|
|
|
|
11.3
|
|
Restructuring charges
|
|
|
0.8
|
|
|
|
1.0
|
|
|
|
1.1
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Gain on sale of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
Class action litigation charges
|
|
|
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
79.9
|
|
|
|
65.5
|
|
|
|
57.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(28.7
|
)
|
|
|
(7.3
|
)
|
|
|
3.2
|
|
Interest income
|
|
|
1.1
|
|
|
|
1.8
|
|
|
|
2.8
|
|
Other (expense) income, net
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for (benefit from) income taxes
|
|
|
(28.0
|
)
|
|
|
(5.6
|
)
|
|
|
6.6
|
|
Provision for (benefit from) income taxes
|
|
|
0.3
|
|
|
|
(0.8
|
)
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(28.3
|
)%
|
|
|
(4.8
|
)%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31, 2010 and 2009
Net
Revenues
Total net revenues decreased 19.9% to $111.7 million for
2010 from $139.5 million for 2009. The $27.8 million
decrease was primarily due to a $20.1 million decrease in
product revenues and a $7.7 million decrease in service
revenues.
Revenues from our top five customers comprised 74% and 78% of
net revenues for 2010 and 2009, respectively. For 2010, Cox
Communications, Time Warner Cable and Verizon each represented
10% or more of our net revenues. For 2009, Charter
Communications, Time Warner Cable and Verizon each represented
10% or more of our net revenues. Time Warner Cable represented
slightly more than 30% of our net revenues for both 2010 and
2009, which was related to some large Switched Digital Video
projects.
Net revenues by geographical region based on the shipping
destination of customer orders as a percentage of total net
revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
|
90.5
|
%
|
|
|
88.7
|
%
|
Asia
|
|
|
6.4
|
|
|
|
7.0
|
|
Europe
|
|
|
1.6
|
|
|
|
3.0
|
|
Americas, excluding United States
|
|
|
1.5
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
35
Product Revenues. Product revenues for 2010
were $73.6 million compared to $93.7 million for 2009.
The $20.1 million decrease was primarily attributable to a
$13.8 million decrease in Switched Digital Video (SDV)
revenues. Early SDV adopters substantially completed their
initial deployments and potential new customers did not commence
an SDV deployment in 2010. Broadcast Video revenues decreased to
a lesser extent primarily due to a decline in orders from our
customers. TelcoTV revenues decreased modestly due to a slowdown
in the rollout of the FiOS system by Verizon, which we expect
will continue for the near term. These decreases were offset by
a modest increase in IPTV revenues related to our new product
offerings, including our new Media Services Platform. We
anticipate IPTV will have a more meaningful contribution in
fiscal 2011.
Service Revenues. Service revenues for 2010
were $38.1 million compared to $45.9 million for 2009.
The decrease was primarily due to a one-time recognition of
$5.6 million of previously deferred service revenues from a
large TelcoTV customer related to analog technology that was
transitioned to digital technology during 2009, which did not
occur in the comparable 2010 period. Video customer support and
maintenance revenues decreased to a lesser extent due to
downward pricing pressure from existing customers. Lastly, video
installation and training revenues decreased modestly due to a
decline in overall order volume, primarily related to less SDV
deployments from both new and existing customers.
Gross
Profit and Gross Margin
Gross profit. Gross profit for 2010 was
$57.2 million compared to $81.2 million for 2009.
Gross margin decreased to 51.2% for 2010 compared to 58.2% in
2009.
Product gross margin. Product gross margin for
2010 was 42.0% compared to 50.9% for 2009. The decrease was
primarily due to lower absorption of fixed manufacturing costs,
a higher concentration of revenues being generated from lower
margin hardware products and continued downward pricing
pressure. During the year ended December 31, 2010, we
recorded an expense to cost of net product revenues of
$1.5 million, which was the remaining net book value of
purchased QAM edge resource management software, as there were
no material estimated future revenues for this technology in the
near term. In absolute dollars, manufacturing overhead decreased
$1.1 million for year ended December 31, 2010 from the
comparable prior period primarily due to a $0.4 million
decrease in wages and benefits related to decreased headcount
and $0.4 million related to lower depreciation expense. Our
provision for excess and obsolete inventory was
$1.9 million for 2010, and the provision was
$1.8 million for 2009. The 2010 provision was primarily
related to excess raw materials and customer service
inventories. Additionally, in 2010 we recorded a liability for
non-cancellable purchase commitments for quantities in excess of
our future demand forecasts of $0.8 million, compared to
zero for 2009. Product gross margin for 2010 and 2009 included
stock-based compensation of $1.2 million for both years.
Services gross margin. Services gross margin
for 2010 was 68.9% compared to 73.0% for 2009. This decrease was
primarily due to a $7.7 million decrease in service
revenues, primarily attributable to a one-time $5.6 million
recognition of deferred service revenues from analog technology
that was transitioned to digital technology with no related cost
of service during 2009, which did not occur in 2010. Cost of
services decreased $0.5 million for 2010 from 2009
primarily due to lower wages and benefits related to decreased
headcount. Services gross margin for 2010 and 2009 included
stock-based compensation of $0.9 million and
$0.7 million, respectively.
Operating
Expenses
Research and Development. Research and
development expense was $50.9 million for 2010, or 45.6% of
net revenues compared to $46.4 million for 2009, or 33.3%
of net revenues. This increase was primarily due to a
$2.1 million increase in wages and benefits related to
increased headcount, a $1.0 million increase in independent
contractor costs and a $0.9 million increase in prototype
expense related to the development of new product offerings.
Research and development expense included stock-based
compensation of $4.9 million for both 2010 and 2009.
Sales and Marketing. Sales and marketing
expense was $20.9 million for 2010, or 18.7% of net
revenues compared to $24.2 million for 2009, or 17.3% of
net revenues. This decrease was primarily due to a
$1.7 million decrease in compensation expense, which was
attributable to a reduction in headcount. Additionally,
marketing
36
programs decreased $0.7 million due to cost containment
efforts. Sales and marketing expense included stock-based
compensation of $2.1 million and $2.4 million for 2010
and 2009, respectively.
General and Administrative. General and
administrative expense was $16.5 million for 2010, or 14.8%
of net revenues compared to $18.9 million for 2009, or
13.6% of net revenues. The decrease was due to a
$1.2 million decrease in litigation-related activities and
a $0.6 million decrease in bonus expense as a result of a
decline in our financial performance. General and administrative
expense included stock-based compensation of $3.9 million
and $4.8 million for 2010 and 2009, respectively.
Restructuring Charges. Restructuring charges
relate to costs in connection with restructuring plans that were
authorized by our Audit Committee under designation of our Board
of Directors in response to market and economic conditions.
Restructuring charges for 2010 included $0.7 million of
severance and related expenses in connection with our May 2010
restructuring and a $0.2 million adjustment to our October
2007 restructuring for vacated facilities due to a further
change in expected sub lease rental income. Restructuring
charges for 2009 included $0.7 million of severance and
related expenses in connection with our February 2009
restructuring, and a $0.7 million adjustment to our October
2007 restructuring for vacated facilities due to a change in
expected sublease rental income.
Interest
Income
Interest income was $1.3 million for 2010 compared to
$2.6 million for 2009. The decrease in interest income was
primarily attributable to lower interest rates.
Other
(expense) income, net
Other (expense) income, net consists primarily of foreign
exchange gains (losses). Other (expense) income, net for 2010
was an expense of $0.4 million, compared to an expense of
$0.2 million for 2009.
Provision
for Income Taxes
Income tax expense for 2010 was $0.3 million on a pre-tax
loss of $31.2 million, compared to $1.1 million of tax
benefit on a pre-tax loss of $7.8 million for 2009. For
both 2010 and 2009, our effective tax rate differed from the
U.S. federal statutory rate primarily due to the
distribution and mixture of taxable profits in various
jurisdictions carrying foreign income taxes and certain
U.S. losses not benefitted due to our valuation allowance.
The 2009 effective tax rate also benefitted from beneficial
enterprise tax status in Israel of $1.3 million and a
federal operating loss carryback which provided a tax benefit of
$0.7 million.
As of December 31, 2010, we had net operating loss
carryforwards for federal and state income tax purposes of
$95.2 million and $24.0 million, respectively. We also
had federal research and development tax credit carryforwards of
approximately $2.9 million and state research and
development tax credit carryforwards of approximately
$1.4 million. If not utilized, the federal net operating
loss and tax credit carryforwards will expire between 2021 and
2030, and the state net operating loss and tax credit
carryforwards will expire in different years depending on the
specific state, ranging from 2011 to indefinite. Net operating
loss carryforwards and credit carryforwards reflected above may
be limited due to ownership changes as provided in
Section 382 of the Internal Revenue Code and similar state
provisions.
We use the
with-and-without
approach described in guidance which has been incorporated into
ASC 740 Income Taxes to determine the recognition and
measurement of excess tax benefits. Accordingly, we have elected
to recognize excess income tax benefits from stock option
exercises in additional paid-in capital, once realized. In
addition, we have elected to account for the indirect benefits
of stock-based compensation awards on other tax attributes, such
as research and development credits and alternative minimum tax
credits, in our consolidated statement of operations. As of
December 31, 2010, the portion of the federal and state
operating loss carryforwards which related to stock option
benefits was approximately $15.3 million.
37
Years
Ended December 31, 2009 and 2008
Net
Revenues
Total net revenues decreased 24.7% to $139.5 million for
2009 from $185.3 million for 2008. The $45.8 million
decrease was primarily due to a $53.5 million decrease in
Video product revenues and a $1.3 million decrease in Data
product revenues, partially offset by a $9.0 million
increase in service revenues. A majority of the reduction in our
Video product revenues was attributable to a slowdown in the
deployment schedule of our largest Telco TV customer.
Additionally, Broadcast Video revenues declined
$17.7 million as a result of reduced bookings related to
what we believe to be a reduction in advertising spending.
Our deferred revenues decreased by $15.7 million to
$44.9 million as of December 31, 2009 from
$60.6 million as of December, 31 2008. Our visibility
remains limited during these challenging economic times, and
pricing pressure from our competitors continues to delay sales
cycles.
Revenues from our top five customers comprised 78% and 81% of
net revenues for 2009 and 2008, respectively. For 2009, Charter
Communications, Time Warner Cable and Verizon each represented
10% or more of our net revenues. For 2008, Cox Communications,
Time Warner Cable and Verizon each represented 10% or more of
our net revenues. For 2009, Verizon represented slightly less
than 20% of our net revenues compared to slightly less than 30%
in 2008. Verizons percentage revenue contribution declined
for 2009 from the prior year due to a decline in order volume
associated with a slower deployment schedule in Verizons
video network. Time Warner Cable represented slightly more than
30% of our net revenues in 2009 compared to slightly less than
30% in 2008, due to Time Warner Cables deployment schedule
of large Switched Digital Video projects.
Net revenues by geographical region based on the shipping
destination of customer orders as a percentage of total net
revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
|
88.7
|
%
|
|
|
91.4
|
%
|
Asia
|
|
|
7.0
|
|
|
|
3.6
|
|
Europe
|
|
|
3.0
|
|
|
|
2.9
|
|
Americas, excluding United States
|
|
|
1.3
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Product Revenues. Product revenues for 2009
were $93.7 million compared to $148.4 million for
2008. Video product revenues decreased $53.5 million in
2009 compared to 2008, due to a $35.1 million decrease in
TelcoTV revenues, a $17.7 million decrease in Broadcast
Video revenues and a $0.7 million decrease in Switched
Digital Video revenues. Data revenues decreased
$1.3 million related to the retirement of our CMTS platform
products in October 2007.
Service Revenues. Service revenues for 2009
were $45.9 million compared to $36.9 million for 2008,
an increase of $9.0 million, or 24.3%. The increase was
primarily due to a $5.6 million recognition of service
revenues from decommissioned analog technology as described
below, a $5.8 million increase in Video customer support
and maintenance revenues from our new and installed base of
customers and a $2.0 million increase in Video installation
and training revenues. These increases were partially offset by
a $4.4 million decrease in customer support and maintenance
revenues from our retired CMTS platform products.
In an effort to switch to all-digital broadcasting, the
U.S. federal government set June 12, 2009 as the final
date for full power television stations that broadcasted in
analog to convert to digital only. Previously, we sold analog
products to a large TelcoTV customer that allowed analog
transmission of video over fiber-optic lines. As part of its
compliance with the move to all-digital, this customer completed
the decommissioning of the analog technology products from its
network and migrated to an all-digital format. We recognized
$5.6 million of the remaining deferred service revenues and
a $0.5 million benefit from the reversal of warranty
reserves related to these decommissioned analog technology
products in 2009.
38
Gross
Profit and Gross Margin
Gross profit. Gross profit for 2009 was
$81.2 million compared to $112.3 million for 2008.
Gross margin decreased to 58.2% for 2009 compared to 60.6% in
2008.
Product gross margin. Product gross margin for
2009 was 50.9% compared to 59.4% for 2008. Product gross margin
decreased due to a lower absorption of fixed manufacturing
costs, a higher concentration of revenues being generated from
lower margin hardware products and continued downward pricing
pressure. These factors were partially offset by a
$2.5 million decrease in manufacturing overhead expenses,
primarily due to a $1.2 million decrease in salary and
related benefits due to decreased headcount and a
$0.7 million decrease in bonus. We gained operational
efficiencies by centralizing our manufacturing operations in
Massachusetts and reduced our overhead expenses, travel and
other discretionary expenses by $0.8 million. Warranty
expense decreased $0.7 million, primarily related to a
$0.5 million benefit from the reversal of warranty reserves
related to decommissioned analog products. Product gross margin
for 2009 and 2008 included stock-based compensation of
$1.2 million and $1.0 million, respectively.
Services gross margin. Services gross margin
for 2009 was 73.0% compared to 65.4% for 2008. This increase was
primarily attributable to $5.6 million recognition of
deferred service revenues from decommissioned analog products
with no related cost of service. Additionally, cost of services
decreased $0.4 million primarily from lower compensation
expense and travel, due to a lower average headcount. Services
gross margin for 2009 and 2008 included stock-based compensation
of $0.9 million and $0.7 million, respectively.
Operating
Expenses
Research and Development. Research and
development expense was $46.4 million for 2009, or 33.3% of
net revenues compared to $54.0 million for 2008, or 29.2%
of net revenues. Our research and development expense decreased
$7.6 million primarily due to a $4.4 million decrease
in salary and related benefits as a result of a reduction in
force in the first quarter of 2009, and a shift of headcount to
a more cost effective location in Shenzhen, China. Additionally,
bonus expense decreased by $2.8 million as a result of a
decline in our financial performance and facility and other
allocated overhead expenses decreased $1.3 million due to
cost containment efforts. These factors were partially offset by
a $1.0 million increase in stock-based compensation, which
was $4.9 million and $3.9 million for 2009 and 2008,
respectively.
Sales and Marketing. Sales and marketing
expense was $24.2 million for 2009, or 17.3% of net
revenues compared to $28.9 million for 2008, or 15.6% of
net revenues. The $4.7 million decrease was primarily due
to a $3.9 million decrease in compensation expenses, a
$0.5 million decrease in travel expenses and a
$0.2 million decrease in marketing programs. These
decreases related to both a decrease in headcount and cost
containment efforts. Sales and marketing expense included
stock-based compensation of $2.4 million and
$2.6 million for 2009 and 2008, respectively.
General and Administrative. General and
administrative expense was $18.9 million for 2009, or 13.6%
of net revenues compared to $20.9 million for 2008, or
11.3% of net revenues. The $2.0 million decrease was
primarily due to a $1.4 million decrease in salary and
related benefits as a result of a reduction in headcount, a
$1.0 million decrease in bonus expense as a result of a
decline in our financial performance and a $0.9 million
decrease in Sarbanes-Oxley 404 compliance work and audit fees.
These factors were partially offset by an increase in
stock-based compensation, which was $4.8 million and
$3.7 million for 2009 and 2008, respectively.
Restructuring Charges. Restructuring charges
relate to costs in connection with restructuring plans that were
authorized by our Audit Committee under designation of our Board
of Directors in response to market and economic conditions.
Restructuring charges for 2009 included $0.7 million of
severance and related expenses in connection with our February
2009 restructuring and a $0.7 million adjustment to our
October 2007 restructuring for vacated facilities due to a
change in sub lease rental income assumptions. Restructuring
charges for 2008 included $1.1 million of vacated
facilities costs and $0.3 million of severance and related
expenses in connection with our April 2008 restructure plan. The
2008 charges also included a $0.7 million adjustment
related to our October 2007 restructuring due to changes in
assumptions for vacated facilities and severance costs.
39
Gain on sale of intangible assets. In October
2008, we sold certain intangible assets related to our FastFlow
provisioning software technology for consideration of
$1.8 million in cash and assumption of certain of our
customer obligations.
Class action lawsuit charges. The Company was
a defendant in various class action lawsuits, all of which were
settled or dismissed as of December 31, 2009. In accordance
with the provisions of ASC 450 Contingencies, we
recorded an expense, which represented the amount we have agreed
to pay for $0.5 million and $1.5 million for 2009 and
2008, respectively.
Interest
Income
Interest income was $2.6 million for 2009 compared to
$5.2 million for 2008. The decrease in interest income was
primarily attributable to lower interest rates. Additionally,
our cash, cash equivalents and marketable securities decreased
by $2.7 million to $171.9 million as of
December 31, 2009 from $174.6 million as of
December 31, 2008.
Other
(expense) income, net
Other (expense) income, net consists primarily of foreign
exchange (losses) gains. Other (expense) income, net for 2009
was an expense of $0.2 million, compared to income of
$1.0 million for 2008. During 2008, we reduced our
forecasted cash flows in Israeli New Shekels and reduced the
notional value of our outstanding derivatives with maturity
dates of June through December 2008. As a result, our derivative
instruments were no longer deemed effective from an accounting
perspective, resulting in a $1.0 million gain for 2008,
compared to zero in 2009.
Provision
for Income Taxes
Income tax benefit for 2009 was $1.1 million on pre-tax
loss of $7.8 million, compared to $2.4 million of tax
expense on pre-tax income of $12.2 million for 2008. Our
effective tax rate differed from the U.S. federal statutory
rate for 2009 primarily due to the distribution and mixture of
taxable profits in various jurisdictions carrying foreign income
taxes and certain U.S. losses not benefitted due to our
valuation allowance, partially offset by beneficial enterprise
tax status in Israel of $1.3 million, a federal operating
loss carryback which provided a tax benefit of
$0.7 million, and federal refundable credits of
$0.1 million. Our effective tax rate differed from the
U.S. federal statutory rate for 2008 primarily due to the
distribution and mixture of taxable profits in various tax
jurisdictions, some of which carry adequate loss carry-forwards.
As of December 31, 2009, we had net operating loss
carry-forwards for federal and state income tax purposes of
$61.3 million and $20.2 million, respectively. We use
the
with-and-without
approach described in guidance which has been incorporated into
ASC 740 Income Taxes to determine the recognition
and measurement of excess tax benefits. Accordingly, we have
elected to recognize excess income tax benefits from stock
option exercises in additional paid-in capital, once realized.
In addition, we have elected to account for the indirect
benefits of stock-based compensation awards or other tax
attributes, such as research and development credits and
alternative minimum tax credits, in our consolidated statement
of operations. As of December 31, 2009, the portion of the
federal and state operating loss carry-forwards, which related
to stock option benefits, was approximately $15.3 million.
We also had federal research and development tax credit
carry-forwards of approximately $2.8 million and state
research and development tax credit carry-forwards of
approximately $1.0 million. If not utilized, the federal
net operating loss and tax credit carry-forwards will expire
between 2020 and 2029, and the state net operating loss and tax
credit carry-forwards will expire in different years depending
on the specific state, ranging from 2010 to indefinite. Net
operating loss carry-forwards and credit carry-forwards
reflected above may be limited due to ownership changes as
provided in Section 382 of the Internal Revenue Code and
similar state provisions.
Liquidity
and Capital Resources
Since inception, we have financed our operations primarily
through private and public sales of equity securities and from
cash provided by operations. As of December 31, 2010, we
had no long-term debt outstanding.
40
Cash
Flow
Cash, cash equivalents and marketable
securities. As of December 31, 2010, our
cash, cash equivalents and marketable securities of
$143.5 million were invested primarily in corporate debt
securities, commercial paper, securities of U.S. agencies
and certificates of deposit. We do not enter into investments
for trading or speculative purposes. Although cash, cash
equivalents and marketable securities decreased by
$28.4 million during 2010, we believe that our existing
sources of liquidity will be sufficient to meet our currently
anticipated cash requirements for at least the next
12 months. However, the networking industry is capital
intensive. In order to remain competitive, we must constantly
evaluate the need to make significant investments in products
and in research and development. We may seek additional equity
or debt financing from time to time to maintain or expand our
product lines or research and development efforts, or for other
strategic purposes such as acquisitions. The timing and amount
of any such financing requirements will depend on a number of
factors, including demand for our products, changes in industry
conditions, product mix, competitive factors and the timing of
any strategic acquisitions. There can be no assurance that such
financing will be available on acceptable terms, and any
additional equity financing would result in incremental
ownership dilution to our existing stockholders. There are no
significant limits or restrictions that affect our ability to
access our cash, cash equivalents and marketable securities.
Operating
activities
The key line items affecting cash from operating activities were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net (loss) income
|
|
$
|
(31,574
|
)
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
Add back non-cash charges
|
|
|
22,323
|
|
|
|
23,458
|
|
|
|
20,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before non-cash charges
|
|
|
(9,251
|
)
|
|
|
16,719
|
|
|
|
30,274
|
|
Decrease in accounts receivable
|
|
|
13,494
|
|
|
|
7,866
|
|
|
|
1,494
|
|
(Increase) decrease in inventories, net
|
|
|
(6,184
|
)
|
|
|
1,190
|
|
|
|
709
|
|
Decrease in deferred revenues, net
|
|
|
(18,396
|
)
|
|
|
(15,696
|
)
|
|
|
(6,726
|
)
|
Decrease in accounts payable and accrued and other liabilities
|
|
|
(8,299
|
)
|
|
|
(6,925
|
)
|
|
|
(2,332
|
)
|
Other, net
|
|
|
1,879
|
|
|
|
(2,831
|
)
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(26,757
|
)
|
|
$
|
323
|
|
|
$
|
23,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Non-cash charges primarily related to stock-based compensation
and depreciation of property and equipment. |
Changes in net cash used in operating activities were influenced
by the following factors:
Year
Ended December 31, 2010
Our net loss of $31.6 million included non-cash charges of
$22.3 million primarily related to $13.0 million of
stock-based compensation and $6.7 million of depreciation
expense. Operating cash activities included:
Accounts receivable decreased $13.5 million during 2010 due
to lower sales and shipments to our customers primarily due to
reduced volume and lower average selling prices of our products.
Inventories, net increased $6.2 million during 2010.
Inventory, net increased during 2010 due to lower sales and
shipments than we anticipated when we placed the orders, and
also due to purchases of inventory to prepare for anticipated
future sales.
Deferred revenues, net decreased $18.4 million during 2010.
This decrease was primarily due to lower sales and shipments in
the current year, compared to 2009.
41
Accounts payable and accrued and other liabilities decreased
$8.3 million during 2010. This decrease was primarily due
to timing of inventory orders and payments to our suppliers.
Year
Ended December 31, 2009
Our net loss of $6.7 million included non-cash charges of
$23.5 million primarily related to $14.2 million of
stock-based compensation and $8.5 million of depreciation
expense. Operating cash activities included:
Accounts receivable decreased $7.9 million during 2009 due
to lower sales and shipments to our customers primarily due to
the timing of orders.
Deferred revenues, net decreased $15.7 million during 2009.
This decrease was primarily due to lower shipments in 2009 than
in prior years, and our recognition of service revenues
including a one-time recognition of $5.6 million of
previously deferred service revenues from a large TelcoTV
customer related to analog technology that was transitioned to
digital technology during 2009.
Accounts payable and accrued and other liabilities decreased
$6.9 million during 2009. This decrease was primarily due
to lower accrued compensation and related benefits caused by
lower accrued bonus due to cost containment efforts.
Year
Ended December 31, 2008
Our net income of $9.8 million included non-cash charges of
$20.5 million primarily related to $11.9 million of
stock-based compensation and $9.8 million of depreciation
expense. Operating cash activities included deferred revenues,
net, which decreased $6.7 million during 2008. This was
primarily due to a decrease in deferred product revenues due to
the timing of orders.
Investing
Activities
Our investing activities provided cash of $21.1 million for
2010, primarily from maturities and sales, net of purchases of
marketable securities of $24.8 million, partially offset by
the purchase of property and equipment, primarily computer and
engineering equipment of $3.9 million.
Our investing activities used cash of $30.7 million for
2009, primarily from purchases, net of maturities and sales of
marketable securities of $23.8 million, the purchase of
property and equipment, primarily computer and engineering
equipment of $4.6 million, and the purchase of a software
license for $2.5 million.
Our investing activities used cash of $33.1 million for
2008, primarily from net purchases of marketable securities of
$23.8 million and the purchase of property and equipment of
$11.1 million primarily to support our new product
offerings. These capital expenditures consisted primarily of
computer and test equipment and software purchases, offset in
part by $1.8 million in proceeds from the sale of
intangible assets for our Fast Flow technology.
Financing
Activities
Our financing activities provided cash of $2.3 million,
$4.3 million and $5.4 million, for 2010, 2009 and
2008, respectively, primarily through the exercise of stock
options under our equity incentive plans and sale of stock under
our employee stock purchase plan.
42
Contractual
Obligations and Commitments
Our contractual obligations as of December 31, 2010 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
Than
|
|
|
|
Total
|
|
|
One Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations(1)
|
|
$
|
6,297
|
|
|
$
|
3,744
|
|
|
$
|
2,553
|
|
|
$
|
|
|
|
$
|
|
|
Purchase obligations(2)
|
|
|
6,332
|
|
|
|
6,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
12,629
|
|
|
$
|
10,076
|
|
|
$
|
2,553
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating lease obligations are net of $0.9 million of
sublease rentals from a portion of our Tel Aviv and
Massachusetts facilities. |
|
(2) |
|
Purchase obligations consist of firm non-cancelable agreements
to purchase inventory. |
Off-Balance
Sheet Arrangements
As of December 31, 2010, we had no off-balance sheet
arrangements as defined in Item 303(a) (4) of the
Securities and Exchange Commissions
Regulation S-K.
Effects
of Inflation
Our monetary assets, consisting primarily of cash, marketable
securities and accounts receivable, are not materially affected
by inflation because they are short-term in duration. Our
non-monetary assets, consisting primarily of inventory, goodwill
and prepaid expenses and other assets, are not affected
significantly by inflation. We believe that the impact of
inflation on the replacement costs of our equipment, furniture
and leasehold improvements will not materially affect our
operations. However, the rate of inflation affects our cost of
goods sold and operating expenses, such as those for employee
compensation, which may not be readily recoverable in the price
of the products and services offered by us.
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
Interest
Rate Sensitivity
The primary objectives of our investment activities are to
preserve principal, provide liquidity and maximize income
without exposing us to significant risk of loss. The securities
we invest in are subject to market risk. This means that a
change in prevailing interest rates may cause the principal
amount of our investment to fluctuate. We maintain our portfolio
of cash equivalents and short-term investments in a variety of
securities, including commercial paper, corporate debt
securities, government and non-government debt securities, money
market funds and certificates of deposit. The risk associated
with fluctuating interest rates is not limited to our investment
portfolio. As of December 31, 2010, our investments were
primarily in commercial paper, corporate notes and bonds, money
market funds and U.S. government and agency securities. If
overall interest rates fell 10% for the year ended
December 31, 2010, our interest income would have decreased
by an immaterial amount, assuming consistent investment levels.
Foreign
Currency Risk
Our sales contracts are primarily denominated in
U.S. dollars, and therefore the majority of our revenues
are not subject to foreign currency risk. However, if we extend
credit to international customers and the U.S. dollar
appreciates against our customers local currency, there is
an increased collection risk as it will require more local
currency to settle our U.S. dollar invoice.
43
Our operating expenses and cash flows are subject to
fluctuations due to changes in foreign currency exchange rates,
particularly changes in the Israeli New Shekel, and to a lesser
extent the Chinese Yuan and Euro. To help protect against
significant fluctuations in value and the volatility of future
cash flows caused by changes in currency exchange rates, we have
foreign currency risk management programs to hedge future
forecasted expenses denominated in Israeli New Shekels. An
adverse change in exchange rates of 10% for the Israeli New
Shekel, Chinese Yuan and Euro, without any hedging would have
resulted in an increase in our loss before taxes of
approximately $3.3 million for the year ended
December 31, 2010.
We continue to hedge a portion of our projected exposure to
exchange rate fluctuations between the U.S. dollar and the
Israeli New Shekel. Currency forward contracts and currency
options are generally utilized in these hedging programs. Our
hedging programs are intended to reduce, but not eliminate, the
impact of currency exchange rate movements. As our hedging
program is relatively short-term in nature, a long-term material
change in the value of the U.S. dollar versus the Israeli
New Shekel could adversely impact our operating expenses in the
future.
44
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index to
Consolidated Financial Statements
The following financial statements are filed as part of this
Annual Report:
45
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
BigBand Networks, Inc.
We have audited the accompanying consolidated balance sheets of
BigBand Networks, Inc. as of December 31, 2010 and 2009,
and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2010. Our audits
also included the financial statement schedules listed in the
Index at Item 15(a)(2). These financial statements and
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of BigBand Networks, Inc. and subsidiaries at
December 31, 2010 and 2009, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
BigBand Networks, Inc.s internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 9, 2011 expressed an unqualified opinion on the
effectiveness of internal control over financial reporting.
/s/ ERNST & YOUNG LLP
San Jose, California
March 9, 2011
46
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,537
|
|
|
$
|
24,894
|
|
Marketable securities
|
|
|
122,012
|
|
|
|
147,014
|
|
Accounts receivable, net of allowance for doubtful accounts of
$17 and $56 as of December 31, 2010 and 2009, respectively
|
|
|
5,001
|
|
|
|
18,495
|
|
Inventories, net
|
|
|
11,117
|
|
|
|
4,933
|
|
Prepaid expenses and other current assets
|
|
|
4,190
|
|
|
|
6,177
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
163,857
|
|
|
|
201,513
|
|
Property and equipment, net
|
|
|
8,088
|
|
|
|
11,417
|
|
Goodwill
|
|
|
1,656
|
|
|
|
1,656
|
|
Other non-current assets
|
|
|
7,170
|
|
|
|
9,002
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
180,771
|
|
|
$
|
223,588
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,656
|
|
|
$
|
9,483
|
|
Accrued compensation and related benefits
|
|
|
5,178
|
|
|
|
5,023
|
|
Current portion of deferred revenues, net
|
|
|
18,143
|
|
|
|
32,428
|
|
Current portion of other liabilities
|
|
|
4,266
|
|
|
|
7,083
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,243
|
|
|
|
54,017
|
|
Deferred revenues, net, less current portion
|
|
|
8,327
|
|
|
|
12,438
|
|
Other liabilities, less current portion
|
|
|
1,692
|
|
|
|
2,642
|
|
Accrued long-term Israeli severance pay
|
|
|
4,376
|
|
|
|
4,215
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 250,000 shares
authorized as of December 31, 2010 and 2009; 69,687 and
67,138 shares issued and outstanding as of
December 31, 2010 and 2009, respectively
|
|
|
70
|
|
|
|
67
|
|
Additional paid-in capital
|
|
|
299,003
|
|
|
|
283,704
|
|
Accumulated other comprehensive income
|
|
|
253
|
|
|
|
124
|
|
Accumulated deficit
|
|
|
(165,193
|
)
|
|
|
(133,619
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
134,133
|
|
|
|
150,276
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
180,771
|
|
|
$
|
223,588
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
47
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
73,606
|
|
|
$
|
93,662
|
|
|
$
|
148,417
|
|
Services
|
|
|
38,109
|
|
|
|
45,852
|
|
|
|
36,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
111,715
|
|
|
|
139,514
|
|
|
|
185,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
42,705
|
|
|
|
45,961
|
|
|
|
60,207
|
|
Services
|
|
|
11,850
|
|
|
|
12,384
|
|
|
|
12,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of net revenues
|
|
|
54,555
|
|
|
|
58,345
|
|
|
|
72,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
57,160
|
|
|
|
81,169
|
|
|
|
112,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
50,923
|
|
|
|
46,431
|
|
|
|
54,043
|
|
Sales and marketing
|
|
|
20,939
|
|
|
|
24,201
|
|
|
|
28,935
|
|
General and administrative
|
|
|
16,492
|
|
|
|
18,862
|
|
|
|
20,884
|
|
Restructuring charges
|
|
|
900
|
|
|
|
1,356
|
|
|
|
2,055
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
733
|
|
Gain on sale of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(1,800
|
)
|
Class action litigation charges
|
|
|
|
|
|
|
477
|
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
89,254
|
|
|
|
91,327
|
|
|
|
106,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(32,094
|
)
|
|
|
(10,158
|
)
|
|
|
5,977
|
|
Interest income
|
|
|
1,259
|
|
|
|
2,570
|
|
|
|
5,174
|
|
Other (expense) income, net
|
|
|
(401
|
)
|
|
|
(218
|
)
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for (benefit from) income taxes
|
|
|
(31,236
|
)
|
|
|
(7,806
|
)
|
|
|
12,180
|
|
Provision for (benefit from) income taxes
|
|
|
338
|
|
|
|
(1,067
|
)
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,574
|
)
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic net (loss) income per common share
|
|
|
68,389
|
|
|
|
65,936
|
|
|
|
63,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted net (loss) income per common share
|
|
|
68,389
|
|
|
|
65,936
|
|
|
|
67,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock-based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance as of December 31, 2007
|
|
|
61,907
|
|
|
$
|
62
|
|
|
$
|
248,139
|
|
|
$
|
(203
|
)
|
|
$
|
248
|
|
|
$
|
(136,660
|
)
|
|
$
|
111,586
|
|
Proceeds from exercise of common stock options
|
|
|
2,275
|
|
|
|
2
|
|
|
|
3,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,755
|
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
362
|
|
|
|
1
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,484
|
|
Vesting of restricted stock units, net
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
11,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,695
|
|
Net exercise for payment of tax liability for employee
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
Amortization of deferred stock-based compensation, net of
reversals
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Exercise of warrants cashless
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
|
|
(340
|
)
|
Net unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
476
|
|
Net settled unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(326
|
)
|
|
|
|
|
|
|
(326
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,780
|
|
|
|
9,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
64,639
|
|
|
|
65
|
|
|
|
265,176
|
|
|
|
|
|
|
|
58
|
|
|
|
(126,880
|
)
|
|
|
138,419
|
|
Proceeds from exercise of common stock options
|
|
|
1,444
|
|
|
|
1
|
|
|
|
2,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,712
|
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
478
|
|
|
|
|
|
|
|
1,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,593
|
|
Vesting of restricted stock units, net
|
|
|
577
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
14,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,219
|
|
Net exercise for payment of tax liability for employee
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
191
|
|
Net unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(404
|
)
|
|
|
|
|
|
|
(404
|
)
|
Net settled unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279
|
|
|
|
|
|
|
|
279
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,739
|
)
|
|
|
(6,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
67,138
|
|
|
|
67
|
|
|
|
283,704
|
|
|
|
|
|
|
|
124
|
|
|
|
(133,619
|
)
|
|
|
150,276
|
|
Proceeds from exercise of common stock options
|
|
|
899
|
|
|
|
1
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,019
|
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
504
|
|
|
|
1
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,248
|
|
Vesting of restricted stock units, net
|
|
|
1,024
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
13,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,035
|
|
Exercise of warrants cashless
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
147
|
|
Net unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
(176
|
)
|
Net settled unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
158
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,574
|
)
|
|
|
(31,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
69,687
|
|
|
$
|
70
|
|
|
$
|
299,003
|
|
|
$
|
|
|
|
$
|
253
|
|
|
$
|
(165,193
|
)
|
|
$
|
134,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
49
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Cash Flows from Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,574
|
)
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
13,035
|
|
|
|
14,219
|
|
|
|
11,695
|
|
Depreciation of property and equipment
|
|
|
6,681
|
|
|
|
8,457
|
|
|
|
9,833
|
|
Write-off of software license
|
|
|
1,458
|
|
|
|
|
|
|
|
|
|
Amortization of software license
|
|
|
625
|
|
|
|
417
|
|
|
|
|
|
Loss on disposal of property and equipment
|
|
|
470
|
|
|
|
103
|
|
|
|
337
|
|
Net settled unrealized gains (losses) on cash flow hedges
|
|
|
54
|
|
|
|
279
|
|
|
|
(326
|
)
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
733
|
|
Gain on sale of intangible assets Fast Flow
technology
|
|
|
|
|
|
|
|
|
|
|
(1,800
|
)
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Tax benefit from stock options
|
|
|
|
|
|
|
(17
|
)
|
|
|
(158
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable, net
|
|
|
13,494
|
|
|
|
7,866
|
|
|
|
1,494
|
|
(Increase) decrease in inventories, net
|
|
|
(6,184
|
)
|
|
|
1,190
|
|
|
|
709
|
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
2,098
|
|
|
|
(2,493
|
)
|
|
|
292
|
|
Increase in other non-current assets
|
|
|
(380
|
)
|
|
|
(808
|
)
|
|
|
(734
|
)
|
(Decrease) increase in accounts payable
|
|
|
(4,827
|
)
|
|
|
1,133
|
|
|
|
(3,161
|
)
|
Increase in long-term Israeli severance pay
|
|
|
161
|
|
|
|
470
|
|
|
|
557
|
|
(Decrease) increase in accrued and other liabilities
|
|
|
(3,472
|
)
|
|
|
(8,058
|
)
|
|
|
829
|
|
Decrease in deferred revenues
|
|
|
(18,396
|
)
|
|
|
(15,696
|
)
|
|
|
(6,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(26,757
|
)
|
|
|
323
|
|
|
|
23,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(176,235
|
)
|
|
|
(168,539
|
)
|
|
|
(202,829
|
)
|
Proceeds from maturities of marketable securities
|
|
|
166,089
|
|
|
|
130,271
|
|
|
|
151,154
|
|
Proceeds from sale of marketable securities
|
|
|
34,972
|
|
|
|
14,504
|
|
|
|
27,854
|
|
Purchase of property and equipment
|
|
|
(3,871
|
)
|
|
|
(4,619
|
)
|
|
|
(11,077
|
)
|
Decrease in restricted cash
|
|
|
129
|
|
|
|
162
|
|
|
|
6
|
|
Proceeds from sale of property and equipment
|
|
|
49
|
|
|
|
|
|
|
|
9
|
|
Purchase of software license
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
Proceeds from sale of intangible assets Fast Flow
technology
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
21,133
|
|
|
|
(30,721
|
)
|
|
|
(33,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock under employee stock plans
|
|
|
1,248
|
|
|
|
1,593
|
|
|
|
1,484
|
|
Proceeds from exercise of common stock options, net of tax
liability
|
|
|
1,019
|
|
|
|
2,701
|
|
|
|
3,726
|
|
Tax benefit from stock options
|
|
|
|
|
|
|
17
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,267
|
|
|
|
4,311
|
|
|
|
5,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(3,357
|
)
|
|
|
(26,087
|
)
|
|
|
(4,181
|
)
|
Cash and cash equivalents as of beginning of year
|
|
|
24,894
|
|
|
|
50,981
|
|
|
|
55,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents as of end of year
|
|
$
|
21,537
|
|
|
$
|
24,894
|
|
|
$
|
50,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (received) paid
|
|
$
|
(1,539
|
)
|
|
$
|
1,239
|
|
|
$
|
2,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
50
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Description
of Business
|
BigBand Networks, Inc. (BigBand or the Company), headquartered
in Redwood City, California, was incorporated on
December 3, 1998, under the laws of the state of Delaware
and commenced operations in January 1999. BigBand develops,
markets and sells network-based platforms that enable cable
multiple system operators and telecommunications companies to
offer video services across coaxial, fiber and copper networks.
|
|
2.
|
Significant
Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Management uses
estimates and judgments in determining recognition of revenues,
valuation of inventories and noncancellable and unconditional
purchase commitments, valuation of stock-based awards, provision
for warranty claims, the allowance for doubtful accounts,
restructuring costs, valuation of goodwill and long-lived
assets, and income tax amounts. Management bases its estimates
and assumptions on methodologies it believes to be reasonable.
Actual results could differ from those estimates, and such
differences could affect the results of operations reported in
future periods.
Revenue
Recognition
The Companys software and hardware product applications
are sold as solutions and its software is a significant
component of these solutions. The Company provides unspecified
software updates and enhancements related to products through
support contracts. As a result, the Company accounts for
revenues in accordance with Accounting Standards Codification
(ASC) 985 Software, for each transaction, all of which
involve the sale of products with a significant software
component. Revenue is recognized when all of the following have
occurred: (1) the Company has entered into an arrangement
with a customer; (2) delivery has occurred;
(3) customer payment is fixed or determinable and free of
contingencies and significant uncertainties; and
(4) collection is probable.
Product revenues consist of sales of the Companys software
and hardware products. Software product sales include a
perpetual license to the Companys software. The Company
recognizes product revenues upon shipment to its customers,
including channel partners, on non-cancellable contracts and
purchase orders when all revenue recognition criteria are met,
or, if specified in an agreement, upon receipt of final
acceptance of the product, provided all other criteria are met.
End users and channel partners generally have no rights of
return, stock rotation rights or price protection. Shipping
charges billed to customers are included in product revenues and
the related shipping costs are included in cost of product
revenues.
Substantially all of the Companys product sales have been
made in combination with support services, which consist of
software updates and customer support. The Companys
customer service agreements allow customers to select from plans
offering various levels of technical support, unspecified
software upgrades and enhancements on an
if-and-when-available
basis. Revenues for support services are recognized on a
straight-line basis over the service contract term, which is
typically one year but can extend to five years for the
Companys telecommunications customers. Revenues from other
services, such as installation, program management and training,
are recognized when the services are performed.
The Company uses the residual method to recognize revenues when
a customer agreement includes one or more elements to be
delivered at a future date and vendor specific objective
evidence (VSOE) of the fair value of all
51
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
undelivered elements exists. Under the residual method, the fair
value of the undelivered elements is deferred and the remaining
portion of the contract fee is recognized as product revenues.
If evidence of the fair value of one or more undelivered
elements does not exist, all revenues are deferred and
recognized when delivery of those elements occurs or when fair
value can be established. When the undelivered element is
customer support and there is no evidence of fair value for this
support, revenue for the entire arrangement is bundled and
revenue is recognized ratably over the service period. VSOE of
fair value for elements of an arrangement is based on the normal
pricing and discounting practices for those services when sold
separately.
Fees are typically considered to be fixed or determinable at the
inception of an arrangement based on specific products and
quantities to be delivered. In the event payment terms are
greater than 180 days, the fees are deemed not to be fixed
or determinable and revenues are recognized when the payments
become due, provided the remaining criteria for revenue
recognition have been met.
Deferred revenues consist primarily of deferred service fees
(including customer support and professional services such as
installation, program management and training) and product
revenues, net of the associated costs. Deferred product revenues
generally relate to acceptance provisions that have not been met
or partial shipment or when the Company does not have VSOE of
fair value on the undelivered items. When deferred revenues are
recognized as revenues, the associated deferred costs are also
recognized as cost of net revenues.
The Company assesses the ability to collect from its customers
based on a number of factors, including the credit worthiness of
the customer and the past transaction history of the customer.
If the customer is not deemed credit worthy, all revenues are
deferred from the arrangement until payment is received and all
other revenue recognition criteria have been met.
Cash,
Cash Equivalents and Marketable Securities
The Company holds its cash and cash equivalents in checking,
money market and investment accounts with high credit quality
financial institutions. The Company considers all highly liquid
investments with original maturities of three months or less
when purchased to be cash equivalents.
Marketable securities consist principally of corporate debt
securities, commercial paper, securities of U.S. agencies
and certificates of deposit, with remaining time to maturity of
two years or less. If applicable, the Company considers
marketable securities with remaining time to maturity greater
than one year and that have been in a consistent loss position
for at least nine months to be classified as long-term, as it
expects to hold them to maturity. As of December 31, 2010,
the Company did not have any such securities. The Company
considers all other marketable securities with remaining time to
maturity of less than two years to be short-term marketable
securities. The short-term marketable securities are classified
as current assets because they can be readily converted into
securities with a shorter remaining time to maturity or into
cash. The Company determines the appropriate classification of
its marketable securities at the time of purchase and
re-evaluates such designations as of each balance sheet date.
All marketable securities and cash equivalents in the portfolio
are classified as
available-for-sale
and are stated at fair value, with all the associated unrealized
gains and losses reported as a component of accumulated other
comprehensive income (loss). Fair value is based on quoted
market rates or direct and indirect observable markets for these
investments. The amortized cost of debt securities is adjusted
for amortization of premiums and accretion of discounts to
maturity. Such amortization and accretion are included in
interest income. The cost of securities sold and any gains and
losses on sales are based on the specific identification method.
The Company reviews its investment portfolio periodically to
assess for
other-than-temporary
impairment in order to determine the classification of the
impairment as temporary or
other-than-temporary,
which involves considerable judgment regarding factors such as
the length of the time and the extent to which the market value
has been less than amortized cost, the nature of underlying
assets, and the financial condition, credit rating, market
liquidity conditions and near-term prospects of the issuer. In
April 2009, the Financial Accounting Standards Board (FASB)
issued new guidance which was incorporated into FASB Accounting
Standards Codification 320
52
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments Debt and Equity Securities, which
established a new method of recognizing and reporting
other-than-temporary
impairments of debt securities. If the fair value of a debt
security is less than its amortized cost basis at the balance
sheet date, an assessment would have to be made as to whether
the impairment is
other-than-temporary.
If the Company considers it more likely than not that it will
sell the security before it will recover its amortized cost
basis, an
other-than-temporary
impairment will be considered to have occurred. An other-than
temporary impairment will also be considered to have occurred if
the Company does not expect to recover the entire amortized cost
basis of the security, even if it does not intend to sell the
security. The Company has recognized no
other-than-temporary
impairments for its marketable securities.
Fair
Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted
cash, accounts receivable, marketable securities, derivatives
used in the Companys hedging program, accounts payable,
other accrued liabilities, and the Israeli severance pay fund
assets approximate their fair value.
Credit
Risk and Concentrations of Significant Customers
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash equivalents, marketable securities, accounts receivable and
restricted cash. Cash equivalents, restricted cash and
marketable securities are invested through major banks and
financial institutions in the U.S. and Israel. Such
deposits in the U.S. may be in excess of insured limits and
are not insured in Israel. Management believes that the
financial institutions that hold the Companys investments
are financially sound and, accordingly, minimal credit risk
exists with respect to these investments.
The Companys customers are impacted by several factors,
including an industry downturn and tightening of access to
capital. The market that the Company serves is characterized by
a limited number of large customers creating a concentration of
risk. To date, the Company has not incurred any significant
charges related to uncollectible accounts receivable related to
large customers. Customers with accounts receivable balances of
10% or greater of the total accounts receivable balances as of
December 31, 2010 and 2009, and customers representing 10%
or greater of net revenues for the years ended December 31,
2010, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
Accounts Receivable as of
|
|
Percentage of Net Revenues
|
|
|
December 31,
|
|
for the Years Ended December 31,
|
Customers
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2008
|
|
A
|
|
|
18
|
%
|
|
|
24
|
%
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
27
|
%
|
B
|
|
|
10
|
%
|
|
|
*
|
|
|
|
15
|
%
|
|
|
18
|
%
|
|
|
29
|
%
|
C
|
|
|
29
|
%
|
|
|
15
|
%
|
|
|
*
|
|
|
|
10
|
%
|
|
|
*
|
|
D
|
|
|
13
|
%
|
|
|
43
|
%
|
|
|
11
|
%
|
|
|
*
|
|
|
|
14
|
%
|
|
|
|
* |
|
Represents less than 10% |
Inventories,
Net
Inventories, net consist primarily of finished goods and are
stated at the lower of standard cost or market. Standard cost
approximates actual cost on the
first-in,
first-out method, and is comprised of material, labor, and
overhead. The Companys net inventory balance was
$11.1 million and $4.9 million as of December 31,
2010 and 2009, respectively. The Companys inventory
requires lead time to manufacture, and therefore it is required
to order certain inventory in advance of anticipated sales. The
Company regularly monitors inventory quantities on-hand and
record write-downs for excess and obsolete inventories
determined primarily by future demand forecasts. Inventory
write-downs are measured as the difference between the cost of
the inventory and market value, and are charged to the provision
for inventory which is a component of its cost of net product
revenues. At the point of the
53
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
write-down a new lower cost basis for that inventory is
established and subsequent changes in facts and circumstances do
not result in the restoration or increase in that newly
established cost basis.
The Company records a liability for firm noncancellable and
unconditional purchase commitments for quantities in excess of
its future demand forecasts consistent with the valuation of its
excess and obsolete inventory. As of December 31, 2010, and
2009, the liability for these purchase commitments was
$0.8 million and zero, respectively, and was included in
other current liabilities on the Companys consolidated
balance sheets, and cost of net product revenues in its
consolidated statements of operations.
The inventory provision balances included in inventories, net on
the Companys consolidated balance sheets were
$2.8 million and $2.6 million as of December 31,
2010 and 2009, respectively. The Companys write-downs for
inventory charged to cost of net product revenues were
$1.9 million, $1.8 million and $2.9 million for
the years ended December 31, 2010, 2009 and 2008,
respectively. The Company could be required to increase its
inventory provision balances if there were to be sudden and
significant decreases in demand for its products or if there
were a higher incidence of inventory obsolescence because of
rapidly changing technology and customer requirements. The
Company continues to regularly evaluate the exposure for
inventory write-downs and the adequacy of its liability for
purchase commitments.
Property
and Equipment, Net
Property and equipment, net are stated at cost, less accumulated
depreciation. Repair and maintenance costs are expensed as
incurred. Depreciation is calculated using the straight-line
method and recorded over the estimated useful lives as follows:
|
|
|
|
|
Useful life
|
|
Computers, software and related equipment
|
|
3 years
|
Engineering and other equipment
|
|
1.5-5 years
|
Office furniture and fixtures
|
|
5 years
|
Leasehold improvements
|
|
Shorter of lease term or
estimated useful life of the asset
|
Software
licenses purchased
The Company capitalizes the costs of software licenses purchased
from external parties if the technological feasibility of the
product as a whole (that is, the product that will be ultimately
marketed) has been established at the time of purchase.
Amortization of the software license is based on the
straight-line method over the remaining estimated economic life
of the product. The Company wrote off approximately
$1.5 million related to a capitalized software license
during 2010, as further described in note 6 under other
non-current assets, as there were no material estimated future
revenues for this technology in the near term.
Impairment
of Long-Lived Assets
The Company periodically evaluates whether changes have occurred
that require revision of the remaining useful life of long-lived
assets or would render them not recoverable. If such
circumstances arise, the Company compares the carrying amount of
the long-lived assets to the estimated future undiscounted cash
flows expected to be generated by the long-lived assets. If the
estimated aggregate undiscounted cash flows are less than the
carrying amount of the long-lived assets, an impairment charge,
calculated as the amount by which the carrying amount of the
assets exceeds the fair value of the assets, is recorded.
54
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
Goodwill is tested for impairment on an annual basis and between
annual tests in certain circumstances, and written down when
impaired. This annual test is performed in the Companys
fourth quarter. The Company considered several factors including
its management structure and the nature of its operations and
concluded that it has only one reporting unit. Consistent with
this determination, it reviewed the carrying amount of this unit
compared to its fair value based on quoted market prices of the
Companys common stock. Following this approach, through
December 31, 2010, no impairment losses have been
recognized.
Warranty
Liabilities
The Company provides a warranty for its software and hardware
products. In most cases, the Company warrants that its hardware
will be free of defects in workmanship for one year, and that
its software media will be free of defects for 90 days. In
master purchase agreements with large customers, however, the
Company often warrants that its products (hardware and software)
will function in material conformance to specifications for a
period ranging from one to five years from the date of shipment.
In general, the Company accrues for warranty claims based on the
Companys historical claims experience. In addition, the
Company accrues for warranty claims based on specific events and
other factors when the Company believes an exposure is probable
and can be reasonably estimated. The adequacy of the accrual is
reviewed on a periodic basis and adjusted, if necessary, based
on additional information as it becomes available.
Income
Taxes
Income taxes are calculated under the provisions of ASC 740
Incomes Taxes. Under ASC 740, the liability method
is used in accounting for income taxes, which includes the
effects of temporary differences between financial and taxable
amounts of assets and liabilities as well as the effects of net
operating loss and credit carryforwards to determine deferred
tax assets and liabilities. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to more likely than not be realized.
Management judgment is required in determining the
Companys provision for income taxes, its deferred tax
assets and liabilities, and any valuation allowance recorded
against the net deferred tax assets. As of December 31,
2010, the Company recorded a full valuation allowance against
its deferred tax assets arising from U.S. operations since,
based on the available evidence, it believed at that time it was
more likely than not that the Company would not be able to
utilize all of these deferred tax assets in the future. The
Company intends to maintain the full valuation allowance against
its U.S. deferred tax assets until sufficient evidence
exists to support its reversal. The Company makes estimates and
judgments about its future taxable income that are based on
assumptions that are consistent with its plans and estimates.
Should the actual amounts differ from the Companys
estimates, the amount of its valuation allowance could be
materially impacted.
Foreign
Currency Derivative Instruments
The Company has expenses, assets and liabilities denominated in
currencies other than the U.S. dollar that are subject to
foreign currency risks, primarily related to expenses and
liabilities denominated in the Israeli New Shekel. A foreign
currency risk management program was established by the Company
to help protect against the impact of foreign currency exchange
rate movements on the Companys operating results. The
Company does not enter into derivatives for speculative or
trading purposes. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the
consolidated balance sheet at fair value. The accounting for
changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation.
The Company selectively hedges future expenses denominated in
Israeli New Shekels by purchasing foreign currency forward
contracts or combinations of purchased and sold foreign currency
option contracts. When the U.S. dollar strengthens against
the Israeli New Shekel, the decrease in the value of future
foreign currency expenses
55
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
is offset by losses in the fair value of the contracts
designated as hedges. Conversely, when the U.S. dollar
weakens significantly against the Israeli New Shekel, the
increase in the value of future foreign currency expenses is
offset by gains in the fair value of the contracts designated as
hedges. The exposures are hedged using derivatives designated as
cash flow hedges under ASC 815 Derivatives and
Hedging. The effective portion of the derivatives gain
or loss is initially reported as a component of accumulated
other comprehensive income (loss) and, on occurrence of the
forecasted transaction, is subsequently reclassified to the
consolidated statement of operations, primarily in research and
development expenses. The ineffective portion of the gain or
loss is recognized immediately in other income (expense), net.
For the years ended December 31, 2010 and 2009, the
ineffective portion was not material. For the year ended
December 31, 2008, the gain was $0.8 million. These
derivative instruments generally have maturities of
180 days or less, and hence all unrealized amounts as of
December 31, 2010 will have settled as of June 30,
2011.
Prior to June 30, 2010, the Company entered into foreign
currency forward contracts to reduce the impact of foreign
currency fluctuations on assets and liabilities denominated in
currencies other than its functional currency, which is the
U.S. dollar. The Company did not have any such transactions
outstanding as of December 31, 2010. The Company recognized
these derivative instruments as either assets or liabilities on
the consolidated balance sheet at fair value. These forward
exchange contracts were not accounted for as hedges; therefore,
changes in the fair value of these instruments were recorded as
other income (expense), net in the consolidated statement of
operations. These derivative instruments generally had
maturities of 90 days. Gains and losses on these contracts
were intended to offset the impact of foreign exchange rate
changes on the underlying foreign currency denominated assets
and liabilities, primarily liabilities denominated in Israeli
New Shekels, and therefore, did not subject the Company to
material balance sheet risk.
All of the derivative instruments are with high quality
financial institutions and the Company monitors the
creditworthiness of these parties. Amounts relating to these
derivative instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Notional amount of currency option contracts: Israeli New Shekels
|
|
|
ILS 27,000
|
|
|
|
ILS 27,000
|
|
|
|
|
|
|
|
|
|
|
Notional amount of currency option contracts: U.S. dollars
|
|
$
|
7,548
|
|
|
$
|
7,454
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) included in other comprehensive income
on condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Settled underlying derivative was settled but
forecasted transaction has not occurred
|
|
$
|
50
|
|
|
$
|
(4
|
)
|
Unsettled primarily included as other current assets
(liabilities)
|
|
|
104
|
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
Total unrealized gains (losses) included in other comprehensive
income
|
|
$
|
154
|
|
|
$
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
56
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The change in accumulated other comprehensive income (loss) from
cash flow hedges included on the Companys consolidated
balance sheets was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accumulated other comprehensive loss related to cash flow hedges
as of beginning of year
|
|
$
|
(151
|
)
|
|
$
|
(621
|
)
|
Changes in settled and unsettled portion of cash flow hedges
|
|
|
102
|
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
(1,014
|
)
|
Less:
|
|
|
|
|
|
|
|
|
Changes in cash flow hedges: Loss reflected in condensed
consolidated statement of operations
|
|
|
(203
|
)
|
|
|
(863
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) related to cash
flow hedges as of end of year
|
|
$
|
154
|
|
|
$
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
Israeli
Severance Pay
The Companys wholly-owned subsidiary located in Israel is
required to fund future severance liabilities determined in
accordance with Israeli severance pay laws. Under these laws,
employees are entitled upon termination to one months
salary for each year of employment or portion thereof. The
Company records compensation expense to accrue for these costs
over the employment period, based on the assumption that the
benefits to which the employee is entitled, if the employee
separates immediately. The Company funds the liability by
monthly deposits in insurance policies and severance funds. The
provision for Israeli severance expenses included in the
Companys consolidated statements of operations for the
years ended December 31, 2010, 2009 and 2008, amounted to
approximately $1.1 million, $0.9 million, and
$1.2 million, respectively. The value of the severance fund
assets are primarily recorded in other non-current assets on the
Companys consolidated balance sheets, which was
$3.9 million and $3.6 million as of December 31,
2010 and 2009, respectively. The liability for long-term
severance accrued on the Companys consolidated balance
sheets was $4.4 million and $4.2 million as of
December 31, 2010 and 2009, respectively.
Stock-based
Compensation
The Company applies the fair value recognition and measurement
provisions of ASC 718 Compensation Stock
Compensation. Stock-based compensation is recorded at fair
value as of the grant date and recognized as an expense over the
employees requisite service period (generally the vesting
period), which the Company has elected to amortize on a
straight-line basis.
Under ASC 718, the Company estimates the fair value of
stock options granted using a Black-Scholes option-pricing
formula and a single option award approach. This model utilizes
the estimated fair value of common stock and requires that, at
the date of grant, the Company uses the expected term of the
option, the expected volatility of the price of its common
stock, risk free interest rates and expected dividend yield of
the Companys common stock. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period.
Options typically vest with respect to 25% of the shares one
year after the options vesting commencement date and the
remainder ratably on a monthly basis over the following three
years. In valuing share-based awards under ASC 718,
significant judgment is required in determining the expected
volatility of the Companys common stock and the expected
term individuals will hold their share-based awards prior to
exercising. The computation of expected volatility is derived
primarily from the Companys weighted historical volatility
following its IPO in March 2007, and to a lesser extent, the
weighted historical volatilities of several comparable companies
within the cable and telecommunications equipment industry. The
expected term of options granted
57
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
represents the period of time that options granted are expected
to be outstanding and was calculated using the simplified method
permitted by SEC Staff Accounting Bulletin (SAB) 107 as revised
by SAB 110. In the future, as the Company gains historical
data for volatility in its stock and the actual term employees
hold their options, expected volatility and expected term may
change which could substantially change the grant-date fair
value of future awards of stock options and ultimately the
expense the Company records.
Restricted stock units (RSU) grants under the 2007 Plan
generally vest in increments over two to four years from the
date of grant. The RSUs are classified as equity awards because
the RSUs are paid only in shares upon vesting. RSU awards are
measured at the fair value at the date of grant, which
corresponds to the closing stock price of the Companys
common stock on the date of grant. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the RSUs, which is generally the vesting period.
On October 18, 2010, the Companys stockholders
approved a one-time voluntary stock option exchange program that
permitted eligible employees to exchange certain outstanding
stock options that had exercise prices greater than the market
value of the Companys common stock for a lesser number of
RSUs. The exchange program commenced on October 21, 2010
and ended on November 18, 2010. Under this program, options
to purchase approximately 5.2 million shares were exchanged
for 1.8 million RSUs. The Company has elected to use the
pooled method to account for exchanged options. Under the pooled
method, the unamortized stock based compensation expense
associated with the exchanged options and any incremental
expense will be recognized over the remaining vesting period of
the RSUs.
Foreign
Currency Translation
The functional currency of the Companys foreign
subsidiaries is the U.S. dollar. Translation adjustments
resulting from remeasuring the foreign currency denominated
financial statements of subsidiaries into U.S. dollars are
included in the Companys consolidated statements of
operations. Translation gains and losses have not been
significant to date.
Research
and Development
Research and development costs consist primarily of compensation
and related costs for personnel, as well as costs related to
materials, supplies, and equipment depreciation. All research
and development costs are expensed as incurred.
Advertising
Costs
All advertising costs are expensed as incurred. Advertising
costs, which are included in sales and marketing expenses, were
not significant for all periods presented.
Other
Income (Expense), Net
For the years ended December 31, 2010, 2009 and 2008, other
income (expense), net, primarily included foreign currency gains
and losses.
Recently
Issued Accounting Standards
In October 2009, the FASB issued ASU
2009-13
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements a consensus of the FASB Emerging Issues
Task Force (ASU
2009-13) and
ASU 2009-14
Software (Topic 985): Certain Revenue Arrangements That
Include Software Elements a consensus of the FASB
Emerging Issues Task Force (ASU
2009-14).
ASU 2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the
residual method of revenue allocation and require revenue to be
allocated using the relative selling price method. ASU
2009-14
removes tangible products from the scope of software revenue
guidance
58
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product
are covered by the scope of the software revenue guidance. ASU
2009-13 and
ASU 2009-14
are effective on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on
or after June 15, 2010, with early adoption permitted. The
Company adopted ASU
2009-13 and
ASU 2009-14
effective January 1, 2011, and does not expect a material
effect on its consolidated financial position, results of
operations or cash flows.
In December 2010, the FASB issued ASU
2010-29,
Business Combinations (Topic 805) Disclosure of
Supplementary Pro Forma Information for Business Combinations
(ASU
2010-29).
ASU 2010-29
addresses diversity in practice about the interpretation of the
pro forma revenue and earnings disclosure requirements for
business combinations. ASU
2010-29
clarifies that when presenting comparative financial statements,
an entity should disclose revenue and earnings of the combined
entity as though the business combination(s) that occurred
during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. ASU
2010-29 also
expands the supplemental pro forma disclosures under
ASC 805 to include a description of the nature and amount
of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the
reported pro forma revenue and earnings. ASU
2010-29 is
effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010. The Company is currently evaluating the potential impact
of the adoption of ASU
2010-29 on
its consolidated financial position, results of operations and
cash flows.
|
|
3.
|
Basic and
Diluted Net (Loss) Income per Common Share
|
The computation of basic and diluted net (loss) income per
common share was as follows (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,574
|
)
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic net (loss) income per
common share
|
|
|
68,389
|
|
|
|
65,936
|
|
|
|
63,559
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
3,506
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
188
|
|
Employee stock purchase plan shares
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in diluted net (loss) income per
common share
|
|
|
68,389
|
|
|
|
65,936
|
|
|
|
67,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, 2009 and 2008, the Company had
securities outstanding that could potentially dilute basic net
income (loss) per common share in the future, but were excluded
from the computation of diluted net (loss)
59
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income per common share in the periods presented as their effect
would have been anti-dilutive. Potentially dilutive outstanding
securities were as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Stock options outstanding
|
|
|
6,376
|
|
|
|
12,115
|
|
|
|
8,572
|
|
Restricted stock units
|
|
|
4,946
|
|
|
|
2,497
|
|
|
|
215
|
|
Employee stock purchase plan shares
|
|
|
234
|
|
|
|
302
|
|
|
|
243
|
|
Warrants to purchase common stock
|
|
|
|
|
|
|
268
|
|
|
|
|
|
May
2010 Restructuring Plan
On May 4, 2010, the Audit Committee under designation of
the Board of Directors authorized a restructuring plan pursuant
to which the Company terminated a portion of its workforce. This
plan was made in response to market and economic conditions. In
connection with this restructuring plan, the Company recorded
restructuring charges of $0.7 million in 2010.
February
2009 Restructuring Plan
On February 9, 2009, the Audit Committee under designation
of the Board of Directors authorized a restructuring plan
pursuant to which employees were terminated. This plan was made
in response to market and economic conditions. In connection
with this restructuring plan, the Company recorded restructuring
charges of zero and $0.7 million in 2010 and 2009,
respectively.
April
2008 Restructuring Plan
On April 28, 2008, the Audit Committee under designation of
the Board of Directors authorized a restructuring plan in
connection with the redeployment of resources pursuant to which
employees were terminated under a plan of termination. In
connection with this restructuring plan, the Company recorded
restructuring charges of zero, zero and $1.4 million in
2010, 2009 and 2008, respectively.
October
2007 Restructuring Plan
On October 29, 2007, the Audit Committee under designation
of the Board of Directors authorized a restructuring plan in
connection with the retirement of the Companys cable modem
termination system product line pursuant to which employees were
terminated and facilities were vacated. During 2010, the Company
recorded a $0.2 million charge to adjust this restructuring
liability for changes in estimated sublease rentals, and the
Company finalized an agreement to sublease a portion of the
vacated facility and recorded a credit of $139,000 related to
the estimated sublease rental income. Inclusive of the 2010
adjustments, the Company has recorded $2.5 million,
$2.0 million and $0.2 million of cumulative charges
for severance, vacated facilities and other costs, respectively.
60
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summary
of Restructuring Plans
All of the restructuring plans were essentially complete as of
December 31, 2010. Restructuring activity for the year
ended December 31, 2010 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
December 31,
|
|
|
|
|
|
Cash
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Charges
|
|
|
Payments
|
|
|
2010
|
|
|
Vacated facilities
|
|
$
|
894
|
|
|
$
|
208
|
|
|
$
|
(539
|
)
|
|
$
|
563
|
|
Severance
|
|
|
|
|
|
|
692
|
|
|
|
(654
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring liability
|
|
$
|
894
|
|
|
$
|
900
|
|
|
$
|
(1,193
|
)
|
|
$
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less restructuring liability, current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability, less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The long-term portion of the restructuring liability relates to
the vacated facilities, and is expected to be paid through March
2012.
On January 7, 2011, the Audit Committee under authority of
the Board of Directors authorized a restructuring plan as
further described in note 14.
The fair value of the Companys cash equivalents and
marketable securities is determined in accordance with
ASC 820 Fair Value Measurements and Disclosures.
ASC 820 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a
market-based measurement that should be determined based on
assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions,
ASC 820 establishes a three-tier value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
observable inputs such as quoted prices in active markets
(Level 1), inputs other than the quoted prices in active
markets that are observable either directly or indirectly
(Level 2), and unobservable inputs in which there is little
or no market data, which requires the Company to develop its own
assumptions (Level 3). This hierarchy requires the Company
to use observable market data, when available, and to minimize
the use of unobservable inputs when determining fair value. For
the Companys Level 2 investments, fair value was
derived from non-binding market consensus prices that were
corroborated by observable market data, quoted market prices for
similar instruments, or pricing models, such as discounted cash
flow techniques, with all significant inputs derived from or
corroborated by observable market data. The Companys
discounted cash flow techniques use observable market inputs,
such as LIBOR-based yield curves.
61
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys fair value measurements of its financial
assets (cash, cash equivalents and marketable securities) as of
December 31, 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
|
|
|
$
|
69,728
|
|
|
$
|
|
|
|
$
|
69,728
|
|
U.S. Agency debt securities
|
|
|
|
|
|
|
43,791
|
|
|
|
|
|
|
|
43,791
|
|
Commercial paper
|
|
|
|
|
|
|
8,493
|
|
|
|
|
|
|
|
8,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,012
|
|
|
|
|
|
|
|
122,012
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
7,111
|
|
|
|
|
|
|
|
|
|
|
|
7,111
|
|
Commercial paper
|
|
|
|
|
|
|
1,499
|
|
|
|
|
|
|
|
1,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,111
|
|
|
|
1,499
|
|
|
|
|
|
|
|
8,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
$
|
7,111
|
|
|
$
|
123,511
|
|
|
$
|
|
|
|
$
|
130,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
143,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys fair value measurements of its financial
assets (cash, cash equivalents and marketable securities) as of
December 31, 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
|
|
|
$
|
70,819
|
|
|
$
|
|
|
|
$
|
70,819
|
|
U.S. Agency debt securities
|
|
|
1,265
|
|
|
|
63,014
|
|
|
|
|
|
|
|
64,279
|
|
Commercial paper
|
|
|
|
|
|
|
7,393
|
|
|
|
|
|
|
|
7,393
|
|
Certificates of deposit
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,788
|
|
|
|
141,226
|
|
|
|
|
|
|
|
147,014
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
12,527
|
|
|
|
|
|
|
|
|
|
|
|
12,527
|
|
Corporate debt securities
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
181
|
|
Commercial paper
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,527
|
|
|
|
1,181
|
|
|
|
|
|
|
|
13,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
$
|
18,315
|
|
|
$
|
142,407
|
|
|
$
|
|
|
|
$
|
160,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
171,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the amounts disclosed in the above table, the
fair value of the Companys Israeli severance pay assets,
which were almost fully comprised of Level 2 assets, was
$3.9 million and $3.6 million as of December 31,
2010 and 2009, respectively.
62
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Marketable
Securities
Marketable securities, which included
available-for-sale
securities as of December 31, 2010 and 2009 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Corporate debt securities
|
|
$
|
69,627
|
|
|
$
|
131
|
|
|
$
|
(30
|
)
|
|
$
|
69,728
|
|
U.S. Agency debt securities
|
|
|
43,795
|
|
|
|
8
|
|
|
|
(12
|
)
|
|
|
43,791
|
|
Commercial paper
|
|
|
8,491
|
|
|
|
2
|
|
|
|
|
|
|
|
8,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
121,913
|
|
|
$
|
141
|
|
|
$
|
(42
|
)
|
|
$
|
122,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Corporate debt securities
|
|
$
|
70,569
|
|
|
$
|
288
|
|
|
$
|
(38
|
)
|
|
$
|
70,819
|
|
U.S. Agency debt securities
|
|
|
64,256
|
|
|
|
70
|
|
|
|
(47
|
)
|
|
|
64,279
|
|
Commercial paper
|
|
|
7,394
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
7,393
|
|
Certificates of deposit
|
|
|
4,520
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
146,739
|
|
|
$
|
362
|
|
|
$
|
(87
|
)
|
|
$
|
147,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company did not hold any
marketable securities with remaining time to maturity of greater
than one year and in a consistent loss position for at least
nine months. Gross realized losses or gains on the sale of
marketable securities were not significant during the years
ended December 31, 2010, 2009 and 2008.
Through December 31, 2010, the Company had no marketable
securities that were considered
other-than-temporarily
impaired. The Company periodically reviews
other-than-temporary
impairments for
available-for-sale
debt instruments when it intends to sell or it is more likely
than not that it will be required to sell an
available-for-sale
debt instrument before recovery of its amortized cost basis. If
this assessment had identified
available-for-sale
debt instruments that were considered
other-than-temporarily
impaired and that the Company did not intend to sell and would
not be required to sell prior to recovery of the amortized cost
basis, the Company would separate the amount of the impairment
into the amount that was credit related and the amount due to
all other factors. The credit loss component would be recognized
in earnings and would be the difference between the debt
instruments amortized cost basis and the present value of
its expected future cash flows. The remaining difference between
the debt instruments fair value and the present value of
future expected cash flows due to factors that were not credit
related would be recognized in other comprehensive income (loss).
The contractual maturity date of the marketable securities was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Due within one year
|
|
$
|
97,179
|
|
|
$
|
107,449
|
|
Due within one to two years
|
|
|
24,833
|
|
|
|
39,565
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
122,012
|
|
|
$
|
147,014
|
|
|
|
|
|
|
|
|
|
|
63
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories,
Net
Inventories, net of provisions were comprised as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Finished products
|
|
$
|
9,110
|
|
|
$
|
4,933
|
|
Raw materials, parts and supplies
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
11,117
|
|
|
$
|
4,933
|
|
|
|
|
|
|
|
|
|
|
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other current assets were comprised as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Interest receivable
|
|
$
|
1,156
|
|
|
$
|
1,070
|
|
Prepaid maintenance
|
|
|
813
|
|
|
|
981
|
|
Taxes receivable
|
|
|
543
|
|
|
|
2,969
|
|
Other
|
|
|
1,678
|
|
|
|
1,157
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
4,190
|
|
|
$
|
6,177
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net
Property and equipment, net was comprised as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Engineering and other equipment
|
|
$
|
22,238
|
|
|
$
|
30,129
|
|
Computers, software and related equipment
|
|
|
17,215
|
|
|
|
19,942
|
|
Leasehold improvements
|
|
|
5,115
|
|
|
|
5,897
|
|
Office furniture and fixtures
|
|
|
1,110
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,678
|
|
|
|
57,100
|
|
Less: accumulated depreciation
|
|
|
(37,590
|
)
|
|
|
(45,683
|
)
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
$
|
8,088
|
|
|
$
|
11,417
|
|
|
|
|
|
|
|
|
|
|
Goodwill
Goodwill is carried at cost and is not amortized. The carrying
value of goodwill was approximately $1.7 million as of both
December 31, 2010 and 2009. Goodwill is tested for
impairment on an annual basis and between annual tests in
certain circumstances, and written down when impaired. The
Company considered several factors including its management
structure and the nature of its operations and concluded that it
has only one reporting unit. Consistent with this determination,
it reviewed the carrying amount of this unit compared to its
fair value based on quoted market prices of the Companys
common stock. Following this approach, through December 31,
2010, no impairment losses have been recognized.
64
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Non-current Assets
Other non-current assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Israeli severance pay
|
|
$
|
3,933
|
|
|
$
|
3,648
|
|
Security deposit
|
|
|
2,083
|
|
|
|
1,962
|
|
Deferred tax assets
|
|
|
530
|
|
|
|
449
|
|
Restricted cash
|
|
|
454
|
|
|
|
583
|
|
Software license
|
|
|
|
|
|
|
2,083
|
|
Other
|
|
|
170
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
Total other non-current assets
|
|
$
|
7,170
|
|
|
$
|
9,002
|
|
|
|
|
|
|
|
|
|
|
Software license in the above table comprised a quadrature
amplitude modulation (QAM) edge resource management technology
license purchased for $2.5 million by the Company on
June 30, 2009, which was being amortized on a straight line
basis over an estimated useful life of three years. During 2010,
the Company recorded an expense to cost of net product revenues
of $1.5 million, which was the remaining net book value of
the QAM purchased software, as there were no material estimated
future revenues for this technology in the near term.
Deferred
Revenues, Net
Deferred revenues, net were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred service revenues, net
|
|
$
|
22,091
|
|
|
$
|
27,252
|
|
Deferred product revenues, net
|
|
|
4,379
|
|
|
|
17,614
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenues, net
|
|
|
26,470
|
|
|
|
44,866
|
|
Less current portion of deferred revenues, net
|
|
|
(18,143
|
)
|
|
|
(32,428
|
)
|
|
|
|
|
|
|
|
|
|
Deferred revenues, net, less current portion
|
|
$
|
8,327
|
|
|
$
|
12,438
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
Other liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Foreign, franchise and other income tax liabilities
|
|
$
|
1,230
|
|
|
$
|
2,198
|
|
Accrued warranty
|
|
|
1,147
|
|
|
|
2,068
|
|
Rent and restructuring liabilities
|
|
|
1,015
|
|
|
|
1,581
|
|
Accrued professional fees
|
|
|
480
|
|
|
|
462
|
|
Sales and use tax payable
|
|
|
245
|
|
|
|
1,310
|
|
Other
|
|
|
1,841
|
|
|
|
2,106
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
5,958
|
|
|
|
9,725
|
|
Less current portion of other liabilities
|
|
|
(4,266
|
)
|
|
|
(7,083
|
)
|
|
|
|
|
|
|
|
|
|
Other liabilities, less current portion
|
|
$
|
1,692
|
|
|
$
|
2,642
|
|
|
|
|
|
|
|
|
|
|
65
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued
Warranty
Activity related to the product warranty was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance as of beginning of year
|
|
$
|
2,068
|
|
|
$
|
3,381
|
|
Warranty charged to cost of sales
|
|
|
431
|
|
|
|
412
|
|
Utilization of warranty
|
|
|
(735
|
)
|
|
|
(1,003
|
)
|
Other adjustments
|
|
|
(617
|
)
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of end of year
|
|
|
1,147
|
|
|
|
2,068
|
|
Less accrued warranty, current portion
|
|
|
(641
|
)
|
|
|
(1,047
|
)
|
|
|
|
|
|
|
|
|
|
Accrued warranty, less current portion
|
|
$
|
506
|
|
|
$
|
1,021
|
|
|
|
|
|
|
|
|
|
|
Other adjustments in 2010 comprised primarily of releases of
warranty related to a major telecommunications customer. As part
of the transition to all digital broadcasting from analog
transmission, the Company recorded a $0.5 million benefit
from the reversal of warranty reserves related to the
decommissioned analog products in 2009. The reversals of these
accrued warranty balances were recorded as a reduction of the
Companys cost of net product revenues, and are included in
the above table in other adjustments.
|
|
7.
|
Commitments
and Contingencies
|
Commitments
The Company and its subsidiaries operate from leased premises in
the U.S., Israel and Asia. The Company is committed to pay a
portion of the buildings operating expenses as determined
under the lease agreements. Future minimum lease payments due
under the related operating leases with an initial or remaining
non-cancellable lease term in excess of one year as of
December 31, 2010 were as follows (in thousands):
|
|
|
|
|
Years ending December 31,
|
|
|
|
|
2011
|
|
$
|
4,194
|
|
2012
|
|
|
2,692
|
|
2013
|
|
|
349
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
7,235
|
|
|
|
|
|
|
The terms of certain lease arrangements have free or escalating
rent payment provisions, and when significant, the rent expense
is recognized on a straight-line basis over the lease period
resulting in a deferred rent liability. Leasehold improvements
are amortized over the shorter of their useful life or the
contractual lease term. Rent expense under operating leases was
approximately $3.4 million, $3.2 million and
$3.6 million, for the years ended December 31, 2010,
2009 and 2008, respectively. The Company entered into a
non-cancellable sublease of a portion of its Tel Aviv facility
in December 2008, which expires in January 2013, and a sublease
of a portion of its Westborough, Massachusetts facility in
October 2010, which expires in March 2012. Sublease rentals
received were $0.5 million and $0.4 million for the
years ended December 31, 2010, and 2009, respectively, and
were not material for the year ended December 31, 2008.
The Company relies on a limited number of contract manufacturers
and suppliers to provide manufacturing services for a
substantial majority of its products. During the normal course
of business, in order to reduce manufacturing lead times and
ensure adequate component supply, the Company enters into
agreements with certain contract manufacturers and suppliers
that allow them to procure inventory based upon criteria as
defined by the
66
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company. The Company had firm non-cancellable agreements to
purchase inventory of $6.3 million and $3.0 million as
of December 31, 2010 and 2009, respectively.
Legal
Proceedings
BigBand
Networks, Inc. v. Imagine Communications, Inc., Case
No. 07-351
On June 5, 2007, the Company filed suit against Imagine
Communications, Inc. in the U.S. District Court, District
of Delaware, alleging infringement of certain U.S. Patents
covering advanced video processing and bandwidth management
techniques. The lawsuit seeks injunctive relief, along with
monetary damages for willful infringement. The Company is
subject to certain counterclaims by which Imagine
Communications, Inc. has challenged the validity and
enforceability of the Companys asserted patents. The
Company intends to defend itself vigorously against such
counterclaims. No trial date has been set. At this stage of the
proceeding, it is not possible for the Company to quantify the
extent of potential liabilities, if any, resulting from the
alleged counterclaims.
Securities
Litigation
In connection with the settlement of the Companys federal
securities litigation (In re BigBand Networks, Inc. Securities
Litigation, Case
No. C07-5101-SBA)
as ordered by the U.S. District Court for the Northern
District of California on September 22, 2009, the related
shareholder derivative lawsuit (Ifrah v. Bassan-Eskenazi,
et. al., Case No. 468401) was dismissed by the
Superior Court for the County of San Mateo, California on
September 23, 2009, and the state securities litigation
(Wiltjer v. Bassan-Eskenazi, et. al., Case
No. CGC-07-469661)
was dismissed by the Superior Court for the City and County of
San Francisco on October 27, 2009. As of
December 31, 2010 and 2009, the Company had no further
significant obligations under these lawsuits.
The Company allocated stock-based compensation expense as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of net revenues
|
|
$
|
2,104
|
|
|
$
|
2,084
|
|
|
$
|
1,733
|
|
Research and development
|
|
|
4,889
|
|
|
|
4,887
|
|
|
|
3,901
|
|
Sales and marketing
|
|
|
2,105
|
|
|
|
2,432
|
|
|
|
2,566
|
|
General and administrative
|
|
|
3,937
|
|
|
|
4,816
|
|
|
|
3,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
13,035
|
|
|
$
|
14,219
|
|
|
$
|
11,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Incentive Plans
Since March 15, 2007, the Company has granted all options
and RSUs under its 2007 Equity Incentive Plan (2007 Plan). The
2007 Plan allows the Company to award incentive and
non-qualified stock options, restricted stock, RSUs and stock
appreciation rights to employees, officers, directors and
consultants of the Company. Options under the 2007 Plan are
granted at an exercise price that equals the closing value of
the Companys common stock on the date of grant, generally
are exercisable in installments vesting over a four-year period
and generally have a maximum term of ten years from the date of
grant. The Company issues new shares for all transactions with
employees.
On October 18, 2010, the Companys stockholders
approved a one-time voluntary stock option exchange program
(Exchange Program) that permitted eligible employees to exchange
certain outstanding stock options that had exercise prices in
excess of the market value of the Companys common stock
for a lesser number of RSUs to be granted under the
Companys 2007 Plan and the Israeli
Sub-plan
thereunder. The Exchange Program was open to all
67
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the Companys employees in the U.S., Israel, China, Hong
Kong and Korea with outstanding stock options granted with an
exercise price greater than or equal to $3.50 per share. The
exchange ratios were as follows:
|
|
|
If the Exercise Price of an
|
|
The Exchange Ratio was
|
Eligible Option was:
|
|
(Exchanged Options for One RSU):
|
|
$3.50 $4.96
|
|
2.5-for-1
|
$4.97 $5.98
|
|
3-for-1
|
$5.99 $9.91
|
|
4-for-1
|
$9.92 and higher
|
|
5-for-1
|
The Exchange Program commenced on October 21, 2010 and
ended on November 18, 2010. Following the exchange, options
to purchase approximately 5.2 million shares were exchanged
for 1.8 million RSUs. The new RSUs vest (1) for
previously vested options, over 27 months in three equal
installments on the dates that are 9 months, 18 months
and 27 months following the RSU grant date, or (2) for
unvested options, over 36 months in 12 equal installments
on a quarterly basis following the RSU grant date. The Company
has elected to use the pooled method to account for the
exchanged options. Under the pooled method the unamortized stock
based compensation expense associated with the exchanged options
and any incremental expense is recognized over the remaining
vesting period of the RSUs. The incremental stock compensation
charge related to the Exchange Program was not material.
The Company has options outstanding under its 1999, 2001 and
2003 share option and incentive plans. Cancelled or
forfeited stock option grants under these plans are added to the
total amount of shares available for grant under the 2007 Plan.
The 2007 Plan contains an evergreen provision,
pursuant to which the number of shares available for issuance
under the 2007 Plan shall be increased on the first day of the
fiscal year, in an amount equal to the least of
(a) 6,000,000 shares, (b) 5% of the outstanding
Shares on the last day of the immediately preceding fiscal year
or (c) such number of shares determined by the Board of
Directors. On February 16, 2011, the Board of Directors
determined there would be no evergreen increase under the 2007
Plan for 2011. Shares available for future issuance under the
2007 Plan were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Available as of start of year
|
|
|
7,495
|
|
|
|
7,298
|
|
Authorized shares added
|
|
|
3,357
|
|
|
|
3,232
|
|
Options and RSUs cancelled
|
|
|
3,470
|
|
|
|
904
|
|
Options cancelled and exchanged for RSUs
|
|
|
5,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,490
|
|
|
|
11,434
|
|
Options and RSUs granted
|
|
|
(5,458
|
)
|
|
|
(3,939
|
)
|
RSUs granted following November 18, 2010 option exchange
|
|
|
(1,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available as of end of year
|
|
|
12,219
|
|
|
|
7,495
|
|
|
|
|
|
|
|
|
|
|
68
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Data pertaining to stock option activity under the plans was as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
Outstanding as of December 31, 2007
|
|
|
13,851
|
|
|
$
|
3.85
|
|
|
|
7.33
|
|
|
$
|
26,651
|
|
Granted
|
|
|
3,505
|
|
|
|
4.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,275
|
)
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,051
|
)
|
|
|
5.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008
|
|
|
13,030
|
|
|
$
|
4.17
|
|
|
|
7.58
|
|
|
$
|
22,978
|
|
Granted
|
|
|
1,316
|
|
|
|
4.02
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,444
|
)
|
|
|
1.87
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(787
|
)
|
|
|
5.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
12,115
|
|
|
$
|
4.33
|
|
|
|
6.99
|
|
|
$
|
7,621
|
|
Granted
|
|
|
2,829
|
|
|
|
2.97
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(899
|
)
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
Cancelled and exchanged for RSUs
|
|
|
(5,168
|
)
|
|
|
5.43
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,501
|
)
|
|
|
5.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2010
|
|
|
6,376
|
|
|
$
|
2.71
|
|
|
|
6.48
|
|
|
$
|
3,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest, net of forfeitures
|
|
|
5,723
|
|
|
$
|
2.68
|
|
|
|
6.16
|
|
|
$
|
3,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the years
ended December 31, 2010, 2009 and 2008 was
$1.8 million, $4.9 million, and $9.0 million,
respectively. The intrinsic value of an outstanding option is
calculated based on the difference between its exercise price
and the closing price of the Companys common stock on the
last trading date in the year, or in the case of an exercised
option, it is based on the difference between its exercise price
and the actual fair market value of the Companys common
stock on the date of exercise. Stock options with exercise
prices greater than the closing price of the Companys
common stock on the last trading day of the year have an
intrinsic value of zero. The aggregate intrinsic values for
options outstanding in the preceding table are based on the
Companys closing stock prices of $2.80, $3.44 and $5.52
per share as of December 31, 2010, 2009 and 2008,
respectively.
Stock options outstanding and exercisable as of
December 31, 2010 were as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
No. Shares
|
|
|
Exercise
|
|
Exercise Price ($)
|
|
Number
|
|
|
(Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
0.60 1.00
|
|
|
1,791
|
|
|
|
2.80
|
|
|
$
|
0.80
|
|
|
|
1,791
|
|
|
$
|
0.80
|
|
1.01 2.90
|
|
|
1,070
|
|
|
|
6.85
|
|
|
|
2.44
|
|
|
|
699
|
|
|
|
2.24
|
|
2.91 2.92
|
|
|
1,882
|
|
|
|
9.44
|
|
|
|
2.92
|
|
|
|
197
|
|
|
|
2.92
|
|
2.93 5.38
|
|
|
1,327
|
|
|
|
7.11
|
|
|
|
4.19
|
|
|
|
704
|
|
|
|
4.66
|
|
5.39 18.95
|
|
|
306
|
|
|
|
5.58
|
|
|
|
7.21
|
|
|
|
260
|
|
|
|
7.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,376
|
|
|
|
6.47
|
|
|
$
|
2.71
|
|
|
|
3,651
|
|
|
$
|
2.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of options granted
for the years ended December 31, 2010, 2009 and 2008 on a
per-share basis was approximately $1.86, $2.69 and $3.01,
respectively.
69
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-Based
Compensation
The fair value of each new option awarded and Employee Stock
Purchase Plan shares are estimated on the grant date using the
Black-Scholes valuation model using the assumptions noted as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
66-74
|
%
|
|
|
73-75
|
%
|
|
|
63-71
|
%
|
Expected term
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Risk-free interest
|
|
|
1.83-2.80
|
%
|
|
|
2.00-2.80
|
%
|
|
|
2.40-3.31
|
%
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
31-61
|
%
|
|
|
61-104
|
%
|
|
|
59-102
|
%
|
Expected term
|
|
|
0.5 years
|
|
|
|
0.5 years
|
|
|
|
0.5 years
|
|
Risk-free interest
|
|
|
0.16-0.22
|
%
|
|
|
0.16-0.74
|
%
|
|
|
0.74-1.87
|
%
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The computation of expected volatility is derived primarily from
the weighted historical volatilities of several comparable
companies within the cable and telecommunications equipment
industry and to a lesser extent, the Companys weighted
historical volatility following its IPO in March 2007. The
risk-free interest factor is based on the U.S. Treasury
yield curve in effect at the time of grant for zero coupon
U.S. Treasury notes with maturities approximately equal to
each grants expected term. For all periods presented, the
Company has elected to use the simplified method of determining
the expected term as permitted by SEC Staff Accounting Bulletin
(SAB) 107 as revised by SAB 110. The Company estimates its
forfeiture rate based on an analysis of its actual forfeitures
and will continue to evaluate the adequacy of the forfeiture
rate based on actual forfeiture experience, analysis of employee
turnover behavior, and other factors. Estimates are evaluated
each reporting period and adjusted, if necessary, by recognizing
the cumulative effect of the change in estimate on compensation
costs recognized in prior year periods.
As of December 31, 2010, total unrecognized stock
compensation expense relating to unvested stock options,
adjusted for estimated forfeitures, was $10.9 million. This
amount is expected to be recognized over a weighted-average
period of 3.2 years.
Restricted
Stock Units
The 2007 Plan provides for grants of RSUs that vest between two
and four years from the date of grant. The RSUs are classified
as equity awards because the RSUs are paid only in shares upon
vesting. RSU awards are measured at the fair value at the date
of grant, which corresponds to the closing stock price of the
Companys common stock on the date of grant. The total
intrinsic value of RSUs vesting during the years ended
December 31, 2010, 2009 and 2008 was $2.9 million,
$2.4 million and $0.2 million, respectively. The
Company recorded RSU stock-based compensation expense of
$5.4 million, $3.7 million and $1.0 million for
the years ended December 31, 2010, 2009 and 2008,
respectively.
70
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
RSUs expected to vest reflect an estimated forfeiture rate. The
Companys RSU activity was as follows (units in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Restricted
|
|
|
Grant-Date
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Stock Units
|
|
|
Fair Value
|
|
|
Life (Years)
|
|
|
Value
|
|
|
Unvested as of December 31, 2007
|
|
|
356
|
|
|
$
|
14.61
|
|
|
|
2.23
|
|
|
$
|
1,832
|
|
Granted
|
|
|
319
|
|
|
|
5.35
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(27
|
)
|
|
|
5.56
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(80
|
)
|
|
|
18.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2008
|
|
|
568
|
|
|
$
|
9.38
|
|
|
|
1.24
|
|
|
$
|
3,138
|
|
Granted
|
|
|
2,623
|
|
|
|
5.25
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(577
|
)
|
|
|
7.07
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(117
|
)
|
|
|
9.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2009
|
|
|
2,497
|
|
|
$
|
5.58
|
|
|
|
1.77
|
|
|
$
|
8,590
|
|
Granted
|
|
|
2,304
|
|
|
|
2.86
|
|
|
|
|
|
|
|
|
|
Granted following November 18, 2010 option exchange
|
|
|
1,813
|
|
|
|
2.91
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(1,024
|
)
|
|
|
4.92
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(644
|
)
|
|
|
4.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2010
|
|
|
4,946
|
|
|
$
|
3.57
|
|
|
|
1.28
|
|
|
$
|
13,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest after December 31, 2010
|
|
|
3,933
|
|
|
|
|
|
|
|
1.22
|
|
|
$
|
11,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, total unrecognized stock
compensation expense relating to unvested RSUs, adjusted for
estimated forfeitures, was $14.6 million. This amount is
expected to be recognized over a weighted-average period of
2.1 years.
During 2010, the Company granted 447,000 RSUs for which vesting
was subject to achievement of 2010 incentive compensation plan
targets. These targets were not met, and therefore no expense
was recorded in 2010. The terms of these RSUs were modified to
be included in the 2011 incentive compensation plan.
In June 2010, the Company granted 91,000 RSUs to an executive
officer of the Company which vest in five years; however,
vesting will accelerate if certain stock performance criteria
are attained. The stock compensation expense for these RSUs is
being recorded over their estimated vesting period using the
Monte Carlo method and such expense was $29,000 for 2010.
Employee
Stock Purchase Plan
Under the Companys 2007 Employee Stock Purchase Plan
(ESPP), employees may purchase shares of common stock at a price
per share that is 85% of the fair market value of the
Companys common stock as of the beginning or the end of
each six month offering period, whichever is lower. The ESPP
contains an evergreen provision, pursuant to which an annual
increase may be added on the first day of each fiscal year,
equal to the least of (i) 3,000,000 shares of the
Companys common stock, (ii) 2% of the outstanding
shares of the Companys common stock on the first day of
the fiscal year or (iii) an amount determined by the Board
of Directors. On February 16, 2011, the Board of Directors
determined there would be no evergreen increase under the ESPP
for 2011. The ESPP is compensatory in nature, and therefore
results in compensation expense. The Company recorded
stock-based compensation expense associated with its ESPP of
$0.4 million, $0.8 million and $0.9 million for
the years ended
71
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2010, 2009 and 2008, respectively. Shares
available for future issuance under the ESPP were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Available as of start of year
|
|
|
2,477
|
|
|
|
1,662
|
|
Authorized shares added
|
|
|
1,343
|
|
|
|
1,293
|
|
Common shares issued
|
|
|
(504
|
)
|
|
|
(478
|
)
|
|
|
|
|
|
|
|
|
|
Available as of end of year
|
|
|
3,316
|
|
|
|
2,477
|
|
|
|
|
|
|
|
|
|
|
Shares Reserved
Common stock available for future issuance was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Restricted stock units
|
|
|
4,946
|
|
|
|
2,497
|
|
ESPP shares reserved for future issuance
|
|
|
3,316
|
|
|
|
2,477
|
|
Warrants to purchase common stock
|
|
|
|
|
|
|
268
|
|
Stock options:
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
6,376
|
|
|
|
12,115
|
|
Available for future grants
|
|
|
12,219
|
|
|
|
7,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,857
|
|
|
|
24,854
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Warrants
The Company had no warrants outstanding as of December 31,
2010. In March 2010, a warrant holder holding common stock
warrants for 267,858 shares received 122,212 shares in
full settlement of this warrant under the cashless exercise
provisions of the warrant agreement dated February 20,
2003. In 2008, a warrant holder exercised its common stock
warrants for 160,300 shares, and under the cashless exercise
provisions of the warrant agreement received 67,663 shares
in full settlement of the warrant.
ASC 280 Segment Reporting, establishes standards for
reporting information about operating segments. Operating
segments are defined as components of an enterprise for which
separate financial information is available and is evaluated
regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in
assessing performance. The Companys chief operating
decision maker is the Chief Executive Officer (CEO). The CEO
reviews financial information presented on a consolidated basis
for evaluating financial performance and allocating resources.
There are no segment managers who are held accountable for
operations below the consolidated financial statement level.
Accordingly, the Company reports as a single reporting segment.
72
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net revenues by geographical region were allocated based on the
shipping destination of customer orders, and were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
101,115
|
|
|
$
|
123,819
|
|
|
$
|
169,397
|
|
Asia
|
|
|
7,146
|
|
|
|
9,734
|
|
|
|
6,648
|
|
Europe
|
|
|
1,783
|
|
|
|
4,198
|
|
|
|
5,343
|
|
Americas, excluding United States
|
|
|
1,671
|
|
|
|
1,763
|
|
|
|
3,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
111,715
|
|
|
$
|
139,514
|
|
|
$
|
185,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product net revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Video
|
|
$
|
73,507
|
|
|
$
|
92,042
|
|
|
$
|
145,517
|
|
Data
|
|
|
99
|
|
|
|
1,620
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product net revenues
|
|
$
|
73,606
|
|
|
$
|
93,662
|
|
|
$
|
148,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service net revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Video
|
|
$
|
37,362
|
|
|
$
|
44,140
|
|
|
$
|
30,811
|
|
Data
|
|
|
747
|
|
|
|
1,712
|
|
|
|
6,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service net revenues
|
|
$
|
38,109
|
|
|
$
|
45,852
|
|
|
$
|
36,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets by geographical regions were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Israel
|
|
$
|
3,829
|
|
|
$
|
4,728
|
|
United States
|
|
|
3,584
|
|
|
|
6,286
|
|
Rest of World
|
|
|
675
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
8,088
|
|
|
$
|
11,417
|
|
|
|
|
|
|
|
|
|
|
The Companys (loss) income before provision for (benefit
from) income taxes was comprised as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Domestic
|
|
$
|
(33,584
|
)
|
|
$
|
(10,276
|
)
|
|
$
|
8,833
|
|
Foreign
|
|
|
2,348
|
|
|
|
2,470
|
|
|
|
3,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for (benefit from) income taxes
|
|
$
|
(31,236
|
)
|
|
$
|
(7,806
|
)
|
|
$
|
12,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Provision for (benefit from) income taxes was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4
|
|
|
$
|
(687
|
)
|
|
$
|
199
|
|
State
|
|
|
61
|
|
|
|
108
|
|
|
|
669
|
|
Foreign
|
|
|
309
|
|
|
|
(642
|
)
|
|
|
1,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
|
|
(1,221
|
)
|
|
|
2,446
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
38
|
|
|
|
(39
|
)
|
|
|
40
|
|
State
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
7
|
|
Foreign
|
|
|
(80
|
)
|
|
|
198
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
154
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit from) income taxes
|
|
$
|
338
|
|
|
$
|
(1,067
|
)
|
|
$
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of tax (benefit) provision at federal statutory
rate to the Companys were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Tax (benefit) provision at federal statutory rate
|
|
$
|
(10,933
|
)
|
|
$
|
(2,732
|
)
|
|
$
|
4,263
|
|
U.S. losses not benefited (net operating loss carryforward
utilized)
|
|
|
10,158
|
|
|
|
2,063
|
|
|
|
(2,668
|
)
|
Foreign operations
|
|
|
(671
|
)
|
|
|
(1,411
|
)
|
|
|
1,523
|
|
State taxes
|
|
|
34
|
|
|
|
68
|
|
|
|
441
|
|
Research and development tax credits
|
|
|
(221
|
)
|
|
|
(200
|
)
|
|
|
(510
|
)
|
Stock-based compensation
|
|
|
1,807
|
|
|
|
1,074
|
|
|
|
(797
|
)
|
Permanent items
|
|
|
164
|
|
|
|
71
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
338
|
|
|
$
|
(1,067
|
)
|
|
$
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the Companys net deferred tax
assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
35,861
|
|
|
$
|
22,902
|
|
Reserves and accruals
|
|
|
9,994
|
|
|
|
12,474
|
|
Stock compensation
|
|
|
6,193
|
|
|
|
4,262
|
|
Depreciation and amortization
|
|
|
1,300
|
|
|
|
1,869
|
|
Tax credit carryforwards
|
|
|
3,856
|
|
|
|
3,413
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
57,204
|
|
|
|
44,920
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(288
|
)
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred taxes
|
|
|
56,916
|
|
|
|
44,681
|
|
Valuation allowance
|
|
|
(56,674
|
)
|
|
|
(44,471
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
242
|
|
|
$
|
210
|
|
|
|
|
|
|
|
|
|
|
Recognition of deferred tax assets is appropriate when
realization of such assets is more likely than not. Based upon
the weight of available evidence, which includes the
Companys historical operating performance and the recorded
domestic cumulative net losses in prior fiscal periods, the
Company has provided a full valuation allowance against its
U.S. deferred tax assets. The Companys valuation
allowance increased by $12.2 million, decreased by
$0.9 million, and decreased by $4.1 million for the
years ended December 31, 2010, 2009 and 2008, respectively.
As of December 31, 2010, the Company has U.S. federal
and state net operating losses of approximately
$95.2 million and $24.0 million, respectively. The
U.S. federal net operating loss carryforwards will expire
at various dates beginning in 2021 through 2030 if not utilized.
Most state net operating loss carryforwards will expire at
various dates beginning in 2011 through 2030.
As of December 31, 2010, the Company has U.S. tax
credit carryforwards, primarily from research and development
credits, of approximately $2.9 million for federal and
$1.4 million for state. The federal credit will expire at
various dates beginning in 2021 through 2030 if unused. The
California state research and development credits can be carried
forward indefinitely. Massachusetts state research and
developmental credits can be carried forward for 15 years.
Net operating loss carryforwards and credit carryforwards
reflected above are likely to be limited due to ownership
changes as provided in Section 382 of the Internal Revenue
Code and similar state provisions. The Company has not provided
for U.S. federal income taxes on all of the
non-U.S. subsidiaries
undistributed earnings as of December 31, 2010, because
such earnings are intended to be indefinitely reinvested. Upon
distribution of those earnings in the form of dividends or
otherwise, the Company would be subject to applicable
U.S. federal and state income taxes.
The Company uses the
with-and-without
approach described in guidance which has been incorporated into
ASC 740 Income Taxes to determine the recognition
and measurement of excess tax benefits. Accordingly, the Company
has elected to recognize excess income tax benefits from stock
option exercises in additional paid-in capital only if an
incremental income tax benefit would be realized after
considering all other tax attributes presently available to the
Company. As of December 31, 2010, the amount of such excess
tax benefits from stock options included in net operating losses
was $15.3 million. In addition, the Company has elected to
account for the indirect effects of stock-based awards on other
tax attributes, such as the research and alternative minimum tax
credits, through the consolidated statement of operations.
75
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 1, 2007, the Company adopted Financial
Interpretation No. 48 (ASC-740-10), Accounting for
Uncertainty in Income Taxes. The Companys policy is to
include interest and penalties related to unrecognized tax
benefits within its provision for income taxes. The liability
for uncertain income taxes as of December 31, 2010 includes
interest and penalty of $73,000. The Companys only major
tax jurisdictions are the U.S. and Israel. The tax years
2000 through 2010 remain open and subject to examination by the
appropriate governmental agencies in the U.S. and the tax
years 2008 through 2010 remain open and subject to examination
by the appropriate governmental agencies in Israel. The
Companys total amount of unrecognized tax benefits as of
December 31, 2010 was $3.1 million, of which
$1.1 million if recognized, would affect the Companys
effective tax rate. The Company expects the unrecognized tax
benefits to remain unchanged for the next year. Changes to the
amount of unrecognized tax benefits were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance as of beginning of year
|
|
$
|
3,392
|
|
|
$
|
2,304
|
|
Tax positions related to current year
|
|
|
475
|
|
|
|
388
|
|
Tax positions related to prior years
|
|
|
(751
|
)
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of year
|
|
$
|
3,116
|
|
|
$
|
3,392
|
|
|
|
|
|
|
|
|
|
|
Income derived by BigBand Networks Ltd., the Companys
Israeli subsidiary, was generally subject to the regular Israeli
corporate tax rate of 25% for 2010. However, per an application
initiated December 21, 2008 and approved on
November 15, 2009, the Company now enjoys the status of a
Beneficial Enterprise, as stipulated in rules and procedures
from the Israeli tax authority. The tax benefits to which the
Company is entitled are determined by the development region in
which the Companys plant is located. For the year ended
December 31, 2010 this Beneficial Enterprise status reduced
the Companys income tax expense for its Israeli subsidiary
by approximately $0.3 million.
|
|
11.
|
401(k)
Savings and Retirement Plan
|
The Company sponsors a 401(k) Savings and Retirement Plan (Plan)
for all employees who meet certain eligibility requirements.
Participants may contribute, on a pre-tax basis, between
1 percent and 90 percent of their annual compensation,
but not to exceed a maximum contribution amount pursuant to
Section 401(k) of the Internal Revenue Code. The Company is
not required to contribute, nor has it contributed, to the Plan
for any of the periods presented.
|
|
12.
|
Accumulated
Other Comprehensive Income
|
Accumulated other comprehensive income includes unrealized gains
(losses) on cash flow hedges and marketable securities, net of
taxes. Accumulated other comprehensive income was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net unrealized gain (loss) on cash flow hedges
|
|
$
|
154
|
|
|
$
|
(151
|
)
|
Net unrealized gain on marketable securities
|
|
|
99
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
253
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
76
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Selected
Quarterly Financial Information
(Unaudited)
|
Unaudited quarterly financial data for the last two years was as
follows (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
|
Total net revenues
|
|
$
|
26,336
|
|
|
$
|
26,751
|
|
|
$
|
26,393
|
|
|
$
|
32,235
|
|
Gross profit
|
|
|
14,496
|
|
|
|
13,671
|
|
|
|
13,959
|
|
|
|
15,034
|
|
Net loss
|
|
|
(5,910
|
)
|
|
|
(7,254
|
)
|
|
|
(9,641
|
)
|
|
|
(8,769
|
)
|
Basic net loss per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.13
|
)
|
Diluted net loss per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
|
Total net revenues
|
|
$
|
34,398
|
|
|
$
|
22,202
|
|
|
$
|
39,026
|
|
|
$
|
43,888
|
|
Gross profit
|
|
|
19,415
|
|
|
|
11,106
|
|
|
|
24,995
|
|
|
|
25,653
|
|
Net (loss) income
|
|
|
(1,238
|
)
|
|
|
(10,858
|
)
|
|
|
3,075
|
|
|
|
2,282
|
|
Basic net (loss) income per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
|
14.
|
Subsequent
Events (Unaudited)
|
On January 7, 2011, the Audit Committee under authority of
the Board of Directors authorized a restructuring plan pursuant
to which the Company reduced headcount by approximately 9%, and
vacated a portion of certain facilities for sublease. On
February 23, 2011, the Company entered into a sublease for
the vacated portion of its Tel Aviv facility. Approximately
$2.0 million of severance and vacated facility charges are
expected to be incurred in the three months ending
March 31, 2011.
77
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None
|
|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on
Form 10-K,
as required by paragraph (b) of
Rule 13a-15
or
Rule 15d-15
under the Securities Exchange Act of 1934, as amended, we
evaluated under the supervision of our Chief Executive Officer
and our Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in
Rules 13a-15(e)
or 15d-15(e)
of the Securities Exchange Act of 1934, as amended). 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 (i) is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and
(ii) is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure. Our disclosure controls and procedures are
designed to provide reasonable assurance that such information
is accumulated and communicated to our management. Our
disclosure controls and procedures include components of our
internal control over financial reporting. Managements
assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable
assurance because a control system, no matter how well designed
and operated, can provide only reasonable, but not absolute,
assurance that the control systems objectives will be met.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a
material effect on our financial statements.
Management assessed our internal control over financial
reporting as of December 31, 2010, the end of our fiscal
year. Management based its assessment on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of
such elements as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting
policies, and our overall control environment. This assessment
is supported by testing and monitoring performed by our finance
organization.
Based on our assessment, management has concluded that our
internal control over financial reporting was effective as of
the end of the fiscal year to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external reporting
purposes in accordance with generally accepted accounting
principles. We reviewed the results of managements
assessment with the Audit Committee of our Board of Directors.
Ernst & Young LLP, an independent registered public
accounting firm, has audited the effectiveness of our internal
control over financial reporting as of December 31, 2010
and its report is included below.
Changes
in Internal Control over Financial Reporting
During the three months ended December 31, 2010, there was
no change in our internal control over financial reporting
identified in connection with the evaluation required by
paragraph (d) of
Rule 13a-15
or
Rule 15d-15
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
78
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
BigBand Networks, Inc.
We have audited BigBand Networks, Inc.s internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO
criteria). BigBand Networks, Inc.s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, BigBand Networks, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of BigBand Networks, Inc. as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2010 and our report thereon dated
March 9, 2011 expressed an unqualified opinion thereon.
San Jose, California
March 9, 2011
79
|
|
Item 9B.
|
OTHER
INFORMATION
|
Our annual meeting of stockholders is currently scheduled to be
held on May 18, 2011.
PART III
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information regarding our directors and officers is incorporated
herein by reference from the information to be contained in the
Companys Proxy Statement for the 2011 Annual Meeting of
Stockholders (2011 Proxy Statement) set forth under the caption
entitled Election of Directors.
Information regarding our compliance with Section 16 of the
Securities Exchange Act of 1934, as amended, is incorporated
herein by reference from the information to be contained in the
2011 Proxy Statement set forth under the caption entitled
Section 16(a) Beneficial Ownership Reporting
Compliance.
Information regarding our Audit Committee is incorporated herein
by reference from the information to be contained in the 2011
Proxy Statement set forth under the caption entitled
Corporate Governance Principles and Board
Matters Committees of the Board of
Directors Audit Committee.
We have adopted a Code of Business Conduct and Ethics that
applies to all employees including our principal executive
officer and principal financial and accounting officer. This
code is available on our website at
http://www.bigbandnet.com
under About Us Investor Relations
Corporate Governance. We will disclose on our website whether
there have been any amendments or waivers to the Code of
Business Conduct and Ethics. We will provide copies of these
documents, in electronic or paper form, upon request, free of
charge.
In the year ended December 31, 2010, there were no changes
in the procedures by which shareholders may recommend nominees
to our Board of Directors.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
Information regarding compensation of our officers and directors
is incorporated herein by reference from the information to be
contained in our 2011 Proxy Statement set forth under the
captions entitled Executive Compensation and
Director Compensation.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information regarding ownership of our common stock is
incorporated herein by reference from the information to be
contained in our 2011 Proxy Statement set forth under the
captions entitled Equity Compensation Plan
Information and Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information regarding certain relationships and related
transactions is incorporated herein by reference from the
information to be contained in our 2011 Proxy Statement set
forth under the captions entitled Certain Relationships
and Related Transactions and Corporate Governance
Principles and Board Matters Board
Independence.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information regarding principal accountant fees and services is
incorporated herein by reference from the information to be
contained in our 2011 Proxy Statement set forth under the
caption entitled Principal Accountant Fees and
Services.
80
PART IV
|
|
Item 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) The financial statements filed as part of this
report are listed in Part II, Item 8 of this
Form 10-K.
(a)(2) Except for the allowance for doubtful accounts and
provision for obsolete and excess inventory schedules shown
below, no financial statement schedules are required to be filed
as part of this report on the basis that any required
information is provided in the financial statements, or in the
related notes thereto, in Part II, Item 8 of this
Form 10-K
or is not required to be filed as the information is not
applicable.
The change in our allowance for doubtful accounts was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
Charged to
|
|
|
|
|
|
|
Beginning of
|
|
Costs and
|
|
Additions
|
|
Balance as of
|
|
|
Year
|
|
Expenses
|
|
(Deductions)
|
|
End of Year
|
|
Year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
56
|
|
|
$
|
(39
|
)
|
|
$
|
|
|
|
$
|
17
|
|
December 31, 2009
|
|
$
|
39
|
|
|
$
|
(38
|
)
|
|
$
|
55
|
|
|
$
|
56
|
|
December 31, 2008
|
|
$
|
142
|
|
|
$
|
64
|
|
|
$
|
(167
|
)
|
|
$
|
39
|
|
The change in our provision for obsolete and excess inventory
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
Charged to
|
|
|
|
|
|
|
Beginning of
|
|
Costs and
|
|
|
|
Balance as of
|
|
|
Year
|
|
Expenses
|
|
Deductions
|
|
End of Year
|
|
Year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
2,566
|
|
|
$
|
1,929
|
|
|
$
|
(1,702
|
)
|
|
$
|
2,793
|
|
December 31, 2009
|
|
$
|
5,359
|
|
|
$
|
1,762
|
|
|
$
|
(4,555
|
)
|
|
$
|
2,566
|
|
December 31, 2008
|
|
$
|
8,524
|
|
|
$
|
2,879
|
|
|
$
|
(6,044
|
)
|
|
$
|
5,359
|
|
(a)(3) Exhibits.
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed with
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
this 10-K
|
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant
|
|
S-1
|
|
333-139652
|
|
3.1B
|
|
December 22, 2006
|
|
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant
|
|
S-1
|
|
333-139652
|
|
3.2B
|
|
December 22, 2006
|
|
|
|
10
|
.1*
|
|
Form of Indemnification Agreement
|
|
S-1
|
|
333-139652
|
|
10.1
|
|
December 22, 2006
|
|
|
|
10
|
.2*
|
|
2001 Share Option and Incentive Plan
|
|
S-1
|
|
333-139652
|
|
10.3
|
|
December 22, 2006
|
|
|
|
10
|
.3*
|
|
2003 Share Option and Incentive Plan
|
|
S-1
|
|
333-139652
|
|
10.4
|
|
December 22, 2006
|
|
|
|
10
|
.4*
|
|
2004 Share Option and Incentive Plan Sub-Plan for Israeli
Employees
|
|
S-1
|
|
333-139652
|
|
10.5
|
|
December 22, 2006
|
|
|
|
10
|
.5*
|
|
2007 Equity Incentive Plan
|
|
S-1/A
|
|
333-139652
|
|
10.6
|
|
March 8, 2007
|
|
|
|
10
|
.5A*
|
|
Form of Option Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6A
|
|
August 8, 2007
|
|
|
|
10
|
.5B*
|
|
Form of Option Agreement (Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6B
|
|
August 8, 2007
|
|
|
|
10
|
.5C*
|
|
Form of Restricted Stock Unit Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6C
|
|
August 8, 2007
|
|
|
|
10
|
.5D*
|
|
Form of Restricted Stock Unit Agreement (Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6D
|
|
August 8, 2007
|
|
|
|
10
|
.5E*
|
|
2007 Equity Incentive Plan Sub-Plan for Israeli Employees
|
|
10-Q
|
|
001-33355
|
|
10.6E
|
|
August 8, 2007
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed with
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
this 10-K
|
|
|
10
|
.5F*
|
|
Form of Israeli Sub-Plan Option Agreement
|
|
10-Q
|
|
001-33355
|
|
10.6F
|
|
August 8, 2007
|
|
|
|
10
|
.6*
|
|
Employee Stock Purchase Plan
|
|
S-1/A
|
|
333-139652
|
|
10.23
|
|
February 26, 2007
|
|
|
|
10
|
.7*
|
|
Employment Agreement Amir Bassan-Eskenazi
|
|
S-1
|
|
333-139652
|
|
10.8
|
|
December 22, 2006
|
|
|
|
10
|
.7A*
|
|
Amendment to Employment Agreement Amir
Bassan-Eskenazi
|
|
8-K
|
|
001-33355
|
|
10.8A
|
|
January 5, 2009
|
|
|
|
10
|
.8*
|
|
Employment Agreement Ran Oz
|
|
S-1
|
|
333-139652
|
|
10.9
|
|
December 22, 2006
|
|
|
|
10
|
.8A*
|
|
Amendment to Employment Agreement Ran Oz
|
|
10-Q
|
|
001-33355
|
|
10.9A
|
|
May 15, 2008
|
|
|
|
10
|
.9*
|
|
Offer Letter Agreement Ravi Narula
|
|
8-K
|
|
001-33355
|
|
10.1
|
|
June 17, 2010
|
|
|
|
10
|
.10*
|
|
Offer Letter Agreement Robert Horton
|
|
S-1/A
|
|
333-139652
|
|
10.12
|
|
January 26, 2007
|
|
|
|
10
|
.10A*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
10-K
|
|
001-33355
|
|
10.12A
|
|
March 12, 2008
|
|
|
|
10
|
.10B*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
8-K
|
|
001-33355
|
|
10.12B
|
|
January 5, 2009
|
|
|
|
10
|
.11*
|
|
Letter Agreement Harald Braun
|
|
10-Q
|
|
001-33355
|
|
10.26
|
|
May 7, 2009
|
|
|
|
10
|
.11A
|
|
Offer Letter Agreement Harald Braun
|
|
8-K
|
|
001-33355
|
|
10.1
|
|
October 19, 2010
|
|
|
|
10
|
.12*
|
|
Letter Agreement Ken Goldman
|
|
S-1
|
|
333-139652
|
|
10.15
|
|
December 22, 2006
|
|
|
|
10
|
.13*
|
|
Letter Agreement Robert Sachs
|
|
S-1
|
|
333-139652
|
|
10.16
|
|
December 22, 2006
|
|
|
|
10
|
.14*
|
|
Letter Agreement Michael J. Pohl
|
|
10-Q
|
|
001-33355
|
|
10.27
|
|
May 7, 2009
|
|
|
|
10
|
.15*
|
|
Letter Agreement Dennis Wolf
|
|
10-Q
|
|
001-33355
|
|
10.29
|
|
November 6, 2009
|
|
|
|
10
|
.16*
|
|
Letter Agreement David Lockwood
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.17
|
|
Agreement by and among BigBand Networks, Inc., ValueAct SmallCap
Master Fund, VA SmallCap Partners, ValueAct SmallCap Management,
ValueAct SmallCap Management GP, VA Partners, ValueAct Capital
Management, and David Lockwood dated July 29, 2010
|
|
8-K
|
|
001-33355
|
|
10.1
|
|
July 29, 2010
|
|
|
|
10
|
.18A
|
|
Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17A
|
|
December 22, 2006
|
|
|
|
10
|
.18B
|
|
First Amendment to Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17B
|
|
December 22, 2006
|
|
|
|
10
|
.18C
|
|
Second Amendment to Lease (475 Broadway, Redwood City,
California)
|
|
S-1
|
|
333-139652
|
|
10.17C
|
|
December 22, 2006
|
|
|
|
10
|
.18D
|
|
Third Amendment to Lease (475 Broadway, Redwood City, California)
|
|
10-Q
|
|
001-33355
|
|
99.1
|
|
August 10, 2009
|
|
|
|
10
|
.19
|
|
Lease (8 Technology Drive, Westborough, Massachusetts)
|
|
S-1
|
|
333-139652
|
|
10.20
|
|
December 22, 2006
|
|
|
|
10
|
.19A
|
|
Sublease Agreement (8 Technology Drive, Westborough,
Massachusetts)
|
|
10-Q
|
|
001-33355
|
|
10.19A
|
|
November 8, 2010
|
|
|
|
10
|
.20
|
|
Lease Agreement (Tel Aviv, Israel)
|
|
8-K
|
|
001-33355
|
|
99.1
|
|
July 30, 2007
|
|
|
|
10
|
.20A
|
|
Amendment to Lease Agreement (Tel Aviv, Israel)
|
|
10-K
|
|
001-33355
|
|
10.24A
|
|
March 12, 2008
|
|
|
|
10
|
.20B
|
|
Amended Sublease Agreement (Tel Aviv, Israel)
|
|
|
|
|
|
|
|
|
|
X
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed with
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
this 10-K
|
|
|
24
|
.1
|
|
Power of Attorney (included on signature page to Form 10-K)
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.2
|
|
Certification of Principal Financial and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
32
|
.1+
|
|
Certification of Principal Executive Officer and Principal
Financial and Accounting Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
+ |
|
This exhibit shall not be deemed filed for the
purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that Section, nor shall it be deemed
to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, whether made before or after
the date hereof, except to the extent this exhibit is
specifically incorporated by reference. |
|
* |
|
Management compensatory plan or arrangement. |
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIGBAND NETWORKS, INC.
|
|
|
|
By:
|
/s/ Amir
Bassan-Eskenazi
|
Amir Bassan-Eskenazi
President and Chief Executive Officer
Date: March 9, 2011
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Amir
Bassan-Eskenazi, Ravi Narula and Robert Horton, and each of
them, as his true and lawful attorney in fact and agent with
full power of substitution, for him in any and all capacities,
to sign any and all amendments to this
Form 10-K,
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney in fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorney in fact and agent, or his substitute, may lawfully
do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Exchange Act of 1934, this
Form 10-K
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Amir
Bassan-Eskenazi
Amir
Bassan-Eskenazi
|
|
President and Chief Executive Officer (Principal Executive
Officer)
|
|
March 9, 2011
|
|
|
|
|
|
/s/ Ravi
Narula
Ravi
Narula
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 9, 2011
|
|
|
|
|
|
/s/ Michael
Pohl
Michael
Pohl
|
|
Chairman of the Board of Directors
|
|
March 9, 2011
|
|
|
|
|
|
/s/ Harald
Braun
Harald
Braun
|
|
Director
|
|
March 9, 2011
|
|
|
|
|
|
/s/ Ken
Goldman
Ken
Goldman
|
|
Director
|
|
March 9, 2011
|
|
|
|
|
|
/s/ David
Lockwood
David
Lockwood
|
|
Director
|
|
March 9, 2011
|
|
|
|
|
|
/s/ Ran
Oz
Ran
Oz
|
|
Director
|
|
March 9, 2011
|
84
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Robert
Sachs
Robert
Sachs
|
|
Director
|
|
March 9, 2011
|
|
|
|
|
|
/s/ Dennis
Wolf
Dennis
Wolf
|
|
Director
|
|
March 9, 2011
|
|
|
|
|
|
/s/ Geoffrey
Yang
Geoffrey
Yang
|
|
Director
|
|
March 9, 2011
|
85
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed with
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
this 10-K
|
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant
|
|
S-1
|
|
333-139652
|
|
3.1B
|
|
December 22, 2006
|
|
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant
|
|
S-1
|
|
333-139652
|
|
3.2B
|
|
December 22, 2006
|
|
|
|
10
|
.1*
|
|
Form of Indemnification Agreement
|
|
S-1
|
|
333-139652
|
|
10.1
|
|
December 22, 2006
|
|
|
|
10
|
.2*
|
|
2001 Share Option and Incentive Plan
|
|
S-1
|
|
333-139652
|
|
10.3
|
|
December 22, 2006
|
|
|
|
10
|
.3*
|
|
2003 Share Option and Incentive Plan
|
|
S-1
|
|
333-139652
|
|
10.4
|
|
December 22, 2006
|
|
|
|
10
|
.4*
|
|
2004 Share Option and Incentive Plan Sub-Plan for Israeli
Employees
|
|
S-1
|
|
333-139652
|
|
10.5
|
|
December 22, 2006
|
|
|
|
10
|
.5*
|
|
2007 Equity Incentive Plan
|
|
S-1/A
|
|
333-139652
|
|
10.6
|
|
March 8, 2007
|
|
|
|
10
|
.5A*
|
|
Form of Option Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6A
|
|
August 8, 2007
|
|
|
|
10
|
.5B*
|
|
Form of Option Agreement (Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6B
|
|
August 8, 2007
|
|
|
|
10
|
.5C*
|
|
Form of Restricted Stock Unit Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6C
|
|
August 8, 2007
|
|
|
|
10
|
.5D*
|
|
Form of Restricted Stock Unit Agreement (Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6D
|
|
August 8, 2007
|
|
|
|
10
|
.5E*
|
|
2007 Equity Incentive Plan Sub-Plan for Israeli Employees
|
|
10-Q
|
|
001-33355
|
|
10.6E
|
|
August 8, 2007
|
|
|
|
10
|
.5F*
|
|
Form of Israeli Sub-Plan Option Agreement
|
|
10-Q
|
|
001-33355
|
|
10.6F
|
|
August 8, 2007
|
|
|
|
10
|
.6*
|
|
Employee Stock Purchase Plan
|
|
S-1/A
|
|
333-139652
|
|
10.23
|
|
February 26, 2007
|
|
|
|
10
|
.7*
|
|
Employment Agreement Amir Bassan-Eskenazi
|
|
S-1
|
|
333-139652
|
|
10.8
|
|
December 22, 2006
|
|
|
|
10
|
.7A*
|
|
Amendment to Employment Agreement Amir
Bassan-Eskenazi
|
|
8-K
|
|
001-33355
|
|
10.8A
|
|
January 5, 2009
|
|
|
|
10
|
.8*
|
|
Employment Agreement Ran Oz
|
|
S-1
|
|
333-139652
|
|
10.9
|
|
December 22, 2006
|
|
|
|
10
|
.8A*
|
|
Amendment to Employment Agreement Ran Oz
|
|
10-Q
|
|
001-33355
|
|
10.9A
|
|
May 15, 2008
|
|
|
|
10
|
.9*
|
|
Offer Letter Agreement Ravi Narula
|
|
8-K
|
|
001-33355
|
|
10.1
|
|
June 17, 2010
|
|
|
|
10
|
.10*
|
|
Offer Letter Agreement Robert Horton
|
|
S-1/A
|
|
333-139652
|
|
10.12
|
|
January 26, 2007
|
|
|
|
10
|
.10A*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
10-K
|
|
001-33355
|
|
10.12A
|
|
March 12, 2008
|
|
|
|
10
|
.10B*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
8-K
|
|
001-33355
|
|
10.12B
|
|
January 5, 2009
|
|
|
|
10
|
.11*
|
|
Letter Agreement Harald Braun
|
|
10-Q
|
|
001-33355
|
|
10.26
|
|
May 7, 2009
|
|
|
|
10
|
.11A
|
|
Offer Letter Agreement Harald Braun
|
|
8-K
|
|
001-33355
|
|
10.1
|
|
October 19, 2010
|
|
|
|
10
|
.12*
|
|
Letter Agreement Ken Goldman
|
|
S-1
|
|
333-139652
|
|
10.15
|
|
December 22, 2006
|
|
|
|
10
|
.13*
|
|
Letter Agreement Robert Sachs
|
|
S-1
|
|
333-139652
|
|
10.16
|
|
December 22, 2006
|
|
|
|
10
|
.14*
|
|
Letter Agreement Michael J. Pohl
|
|
10-Q
|
|
001-33355
|
|
10.27
|
|
May 7, 2009
|
|
|
|
10
|
.15*
|
|
Letter Agreement Dennis Wolf
|
|
10-Q
|
|
001-33355
|
|
10.29
|
|
November 6, 2009
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed with
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
this 10-K
|
|
|
10
|
.16*
|
|
Letter Agreement David Lockwood
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.17
|
|
Agreement by and among BigBand Networks, Inc., ValueAct SmallCap
Master Fund, VA SmallCap Partners, ValueAct SmallCap Management,
ValueAct SmallCap Management GP, VA Partners, ValueAct Capital
Management, and David Lockwood dated July 29, 2010
|
|
8-K
|
|
001-33355
|
|
10.1
|
|
July 29, 2010
|
|
|
|
10
|
.18A
|
|
Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17A
|
|
December 22, 2006
|
|
|
|
10
|
.18B
|
|
First Amendment to Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17B
|
|
December 22, 2006
|
|
|
|
10
|
.18C
|
|
Second Amendment to Lease (475 Broadway, Redwood City,
California)
|
|
S-1
|
|
333-139652
|
|
10.17C
|
|
December 22, 2006
|
|
|
|
10
|
.18D
|
|
Third Amendment to Lease (475 Broadway, Redwood City, California)
|
|
10-Q
|
|
001-33355
|
|
99.1
|
|
August 10, 2009
|
|
|
|
10
|
.19
|
|
Lease (8 Technology Drive, Westborough, Massachusetts)
|
|
S-1
|
|
333-139652
|
|
10.20
|
|
December 22, 2006
|
|
|
|
10
|
.19A
|
|
Sublease Agreement (8 Technology Drive, Westborough,
Massachusetts)
|
|
10-Q
|
|
001-33355
|
|
10.19A
|
|
November 8, 2010
|
|
|
|
10
|
.20
|
|
Lease Agreement (Tel Aviv, Israel)
|
|
8-K
|
|
001-33355
|
|
99.1
|
|
July 30, 2007
|
|
|
|
10
|
.20A
|
|
Amendment to Lease Agreement (Tel Aviv, Israel)
|
|
10-K
|
|
001-33355
|
|
10.24A
|
|
March 12, 2008
|
|
|
|
10
|
.20B
|
|
Amended Sublease Agreement (Tel Aviv, Israel)
|
|
|
|
|
|
|
|
|
|
X
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
|
24
|
.1
|
|
Power of Attorney (included on signature page to Form 10-K)
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.2
|
|
Certification of Principal Financial and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
32
|
.1+
|
|
Certification of Principal Executive Officer and Principal
Financial and Accounting Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
+ |
|
This exhibit shall not be deemed filed for the
purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that Section, nor shall it be deemed
to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, whether made before or after
the date hereof, except to the extent this exhibit is
specifically incorporated by reference. |
* |
|
Management compensatory plan or arrangement. |
87