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EX-32.2 - EX-32.2 - EXTREME NETWORKS INCextr-ex322_9.htm
EX-31.1 - EX-31.1 - EXTREME NETWORKS INCextr-ex311_6.htm
EX-32.1 - EX-32.1 - EXTREME NETWORKS INCextr-ex321_8.htm
EX-10.1 - EX-10.1 - EXTREME NETWORKS INCextr-ex101_471.htm
EX-31.2 - EX-31.2 - EXTREME NETWORKS INCextr-ex312_7.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

Form 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2015

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 000-25711

 

EXTREME NETWORKS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

DELAWARE

 

77-0430270

[State or other jurisdiction

of incorporation or organization]

 

[I.R.S Employer

Identification No.]

 

 

145 Rio Robles,

San Jose, California

 

95134

[Address of principal executive office]

 

[Zip Code]

Registrant’s telephone number, including area code: (408) 579-2800

 

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  x    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 (§ 229.405 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  x    No  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.

 

Large accelerated filer

 

o

 

Accelerated filer

 

x

 

 

 

 

 

 

 

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

The number of shares of the Registrant’s Common Stock, $.001 par value, outstanding at January 22, 2016, was 103,319,359

 

 

 

 


 

EXTREME NETWORKS, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED December 31,
2015

INDEX

 

 

 

 

 

 

PAGE

PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited):

 

 

 

 

 

Condensed Consolidated Balance Sheets as of December 31 and June 30, 2015

3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months ended December 31, 2015 and 2014

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months ended December 31, 2015 and 2014

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months ended December 31, 2015 and 2014

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

Item 4.

Controls and Procedures

30

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

32

 

 

 

Item 1A

Risk Factors

32

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

Item 3.

Defaults Upon Senior Securities

44

 

 

 

Item 4.

Mine Safety Disclosure

44

 

 

 

Item 5.

Other Information

44

 

 

 

Item 6.

Exhibits

45

 

 

Signatures

46

 

2


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

December 31,

2015

 

 

June 30,

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

85,865

 

 

$

76,225

 

Accounts receivable, net of allowances of $6,464 at December 31, 2015 and $2,396 at

   June 30, 2015

 

 

73,110

 

 

 

92,737

 

Inventories

 

 

56,601

 

 

 

58,014

 

Deferred income taxes

 

 

705

 

 

 

760

 

Prepaid expenses and other current assets

 

 

9,925

 

 

 

10,258

 

Total current assets

 

 

226,206

 

 

 

237,994

 

Property and equipment, net

 

 

32,948

 

 

 

39,862

 

Intangible assets, net

 

 

35,138

 

 

 

52,132

 

Goodwill

 

 

70,877

 

 

 

70,877

 

Other assets

 

 

27,618

 

 

 

27,795

 

Total assets

 

$

392,787

 

 

$

428,660

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

14,625

 

 

$

11,375

 

Accounts payable

 

 

25,536

 

 

 

40,135

 

Accrued compensation and benefits

 

 

28,995

 

 

 

25,195

 

Accrued warranty

 

 

10,415

 

 

 

8,676

 

Deferred revenue, net

 

 

75,548

 

 

 

76,551

 

Deferred distributors revenue, net of cost of sales to distributors

 

 

31,677

 

 

 

40,875

 

Other accrued liabilities

 

 

29,968

 

 

 

32,623

 

Total current liabilities

 

 

216,764

 

 

 

235,430

 

Deferred revenue, less current portion

 

 

21,505

 

 

 

23,231

 

Long-term debt, less current portion

 

 

47,375

 

 

 

55,500

 

Deferred income taxes

 

 

3,471

 

 

 

2,979

 

Other long-term liabilities

 

 

8,536

 

 

 

7,285

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, $.001 par value, issuable in series, 2,000,000 shares

   authorized; none issued

 

 

 

 

 

 

Common stock, $.001 par value, 750,000,000 shares authorized; 103,229,140 shares

   issued and outstanding at December 31, 2015 and 100,284,106 shares issued and

   outstanding at June 30, 2015

 

 

103

 

 

 

100

 

Additional paid-in-capital

 

 

876,225

 

 

 

865,282

 

Accumulated other comprehensive loss

 

 

(2,576

)

 

 

(1,291

)

Accumulated deficit

 

 

(778,616

)

 

 

(759,856

)

Total stockholders’ equity

 

 

95,136

 

 

 

104,235

 

Total liabilities and stockholders’ equity

 

$

392,787

 

 

$

428,660

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

2015

 

 

December 31,

2014

 

 

December 31,

2015

 

 

December 31,

2014

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

105,355

 

 

$

112,501

 

 

$

196,736

 

 

$

215,173

 

Service

 

 

33,950

 

 

 

34,707

 

 

 

67,150

 

 

 

68,309

 

Total net revenues

 

 

139,305

 

 

 

147,208

 

 

 

263,886

 

 

 

283,482

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

57,103

 

 

 

60,496

 

 

 

104,037

 

 

 

114,521

 

Service

 

 

11,927

 

 

 

11,550

 

 

 

24,456

 

 

 

23,272

 

Total cost of revenues

 

 

69,030

 

 

 

72,046

 

 

 

128,493

 

 

 

137,793

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

48,252

 

 

 

52,005

 

 

 

92,699

 

 

 

100,652

 

Service

 

 

22,023

 

 

 

23,157

 

 

 

42,694

 

 

 

45,037

 

Total gross profit

 

 

70,275

 

 

 

75,162

 

 

 

135,393

 

 

 

145,689

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

20,716

 

 

 

24,000

 

 

 

40,984

 

 

 

47,347

 

Sales and marketing

 

 

37,058

 

 

 

43,971

 

 

 

73,120

 

 

 

88,750

 

General and administrative

 

 

9,775

 

 

 

10,306

 

 

 

18,951

 

 

 

21,380

 

Acquisition and integration costs

 

 

807

 

 

 

3,500

 

 

 

1,145

 

 

 

7,558

 

Restructuring charge, net of reversals

 

 

3,031

 

 

 

 

 

 

8,634

 

 

 

 

Amortization of intangibles

 

 

4,251

 

 

 

4,467

 

 

 

8,718

 

 

 

8,934

 

Total operating expenses

 

 

75,638

 

 

 

86,244

 

 

 

151,552

 

 

 

173,969

 

Operating loss

 

 

(5,363

)

 

 

(11,082

)

 

 

(16,159

)

 

 

(28,280

)

Interest income

 

 

29

 

 

 

196

 

 

 

56

 

 

 

342

 

Interest expense

 

 

(809

)

 

 

(825

)

 

 

(1,635

)

 

 

(1,661

)

Other income (expense), net

 

 

112

 

 

 

(64

)

 

 

1,079

 

 

 

(498

)

Loss before income taxes

 

 

(6,031

)

 

 

(11,775

)

 

 

(16,659

)

 

 

(30,097

)

Provision for income taxes

 

 

1,203

 

 

 

1,330

 

 

 

2,101

 

 

 

2,338

 

Net loss

 

$

(7,234

)

 

$

(13,105

)

 

$

(18,760

)

 

$

(32,435

)

Basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic

 

$

(0.07

)

 

$

(0.13

)

 

$

(0.18

)

 

$

(0.33

)

Net loss per share - diluted

 

$

(0.07

)

 

$

(0.13

)

 

$

(0.18

)

 

$

(0.33

)

Shares used in per share calculation - basic

 

 

102,369

 

 

 

98,677

 

 

 

101,677

 

 

 

97,996

 

Shares used in per share calculation - diluted

 

 

102,369

 

 

 

98,677

 

 

 

101,677

 

 

 

97,996

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

2015

 

 

December 31,

2014

 

 

December 31,

2015

 

 

December 31,

2014

 

Net loss:

 

$

(7,234

)

 

$

(13,105

)

 

$

(18,760

)

 

$

(32,435

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains (losses) on available for sale

   securities, net of taxes

 

 

 

 

32

 

 

 

 

 

(25

)

Net change in unrealized gains (losses) on available

   for sale securities, net of taxes

 

 

 

 

 

32

 

 

 

 

 

 

(25

)

Net change in foreign currency translation adjustments

 

 

(421

)

 

 

(654

)

 

 

(1,285

)

 

 

(1,420

)

Other comprehensive loss

 

 

(421

)

 

 

(622

)

 

 

(1,285

)

 

 

(1,445

)

Total comprehensive loss

 

$

(7,655

)

 

$

(13,727

)

 

$

(20,045

)

 

$

(33,880

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

December 31,

2015

 

 

December 31,

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,760

)

 

$

(32,435

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

5,366

 

 

 

6,406

 

Amortization of intangible assets

 

 

16,994

 

 

 

17,997

 

Provision for doubtful accounts and allowance for sales returns

 

 

2,122

 

 

 

2,520

 

Stock-based compensation

 

 

8,616

 

 

 

9,563

 

Non-cash restructuring charges

 

 

3,220

 

 

 

 

Other non-cash charges

 

 

(275

)

 

 

512

 

Changes in operating assets and liabilities, net

 

 

 

 

 

 

 

 

Accounts receivable

 

 

15,180

 

 

 

28,624

 

Inventories

 

 

1,413

 

 

 

2,679

 

Prepaid expenses and other assets

 

 

277

 

 

 

(8

)

Accounts payable

 

 

(14,628

)

 

 

8,196

 

Accrued compensation and benefits

 

 

3,800

 

 

 

(4,202

)

Deferred revenue

 

 

(2,729

)

 

 

608

 

Deferred distributor revenue, net of cost of sales to distributors

 

 

(6,874

)

 

 

(811

)

Other current and long term liabilities

 

 

245

 

 

 

1,804

 

Net cash provided by operating activities

 

 

13,967

 

 

 

41,453

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(1,409

)

 

 

(3,962

)

Proceeds from maturities of investments and marketable securities

 

 

 

 

 

3,000

 

Proceeds from sales of investments and marketable securities

 

 

 

 

 

9,051

 

Purchases of intangible assets

 

 

 

 

 

(419

)

Net cash (used in) provided by investing activities

 

 

(1,409

)

 

 

7,670

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under Revolving Facility

 

 

15,000

 

 

 

24,000

 

Repayment of debt

 

 

(19,875

)

 

 

(56,438

)

Proceeds from issuance of common stock

 

 

2,330

 

 

 

1,722

 

Net cash used in financing activities

 

 

(2,545

)

 

 

(30,716

)

 

 

 

 

 

 

 

 

 

Foreign currency effect on cash

 

 

(373

)

 

 

(2,625

)

 

 

 

 

 

 

 

 

 

Net increase  in cash and cash equivalents

 

 

9,640

 

 

 

15,782

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

76,225

 

 

 

73,190

 

Cash and cash equivalents at end of period

 

$

85,865

 

 

$

88,972

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

6


 

EXTREME NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.

Description of Business and Basis of Presentation

Extreme Networks, Inc. (“Extreme Networks” or the “Company”) is a leading provider of network infrastructure equipment and markets its products primarily to business, governmental, health care, service provider, and educational customers with a focus on large corporate enterprises and metropolitan service providers on a global basis. The Company conducts its sales and marketing activities on a worldwide basis through distributors, resellers and the Company’s field sales organization. Extreme Networks was incorporated in California in 1996 and reincorporated in Delaware in 1999.

The unaudited condensed consolidated financial statements of Extreme Networks included herein have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted under such rules and regulations. The condensed consolidated balance sheet at June 30, 2015 was derived from audited financial statements as of that date but does not include all disclosures required by generally accepted accounting principles for complete financial statements. These interim financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations and cash flows for the interim periods presented and the financial condition of Extreme Networks at December 31, 2015. The results of operations for the three and six months ended December 31, 2015 are not necessarily indicative of the results that may be expected for fiscal 2016 or any future periods.

Fiscal Year

The Company uses a fiscal calendar year ending on June 30. All references herein to "fiscal 2016" or "2016" represent the fiscal year ending June 30, 2016.

Principles of Consolidation

The consolidated financial statements include the accounts of Extreme Networks and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but are not limited to, the accounting for the allowances for doubtful accounts and sales returns, determining the fair value of acquired assets and assumed liabilities, estimated selling prices, inventory valuation and purchase commitments, depreciation and amortization, impairment of long-lived assets including goodwill, warranty accruals, restructuring liabilities, measurement of share-based compensation costs and income taxes. Actual results could differ materially from these estimates.

The Company predominantly uses the United States Dollar as its functional currency. The functional currency for certain of its foreign subsidiaries is the local currency. For those subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated to United States Dollars at current month end rates of exchange; and revenue and expenses are translated using the monthly average rate.

Certain balances included in the condensed consolidated statements of cash flows related to restructuring liabilities for prior periods have been reclassified to conform to the current period presentation.  In the condensed consolidated statement of cash flows, the changes in operating assets and liabilities for Other long-term liabilities includes the changes in restructuring liabilities and other accrued liabilities which were previously disclosed separately.

 

 

7


 

2.

Summary of Significant Accounting Policies 

For a description of significant accounting policies, see Note 3, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company's Annual report on Form 10-K for the fiscal year ended June 30, 2015. There have been no material changes to the Company's significant accounting policies since the filing of the Annual report on Form 10-K.

 

 

3.

Recently Issued Accounting Pronouncements

For a description of recently issued accounting pronouncements, see Note 4, Recently Issued Accounting Pronouncements, to the consolidated financial statements included in the Company's Annual report on Form 10-K for the fiscal year ended June 30, 2015. The following are accounting pronouncements issued that may materially affect the Company's financial statements since the filing of the Annual report on Form 10-K.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and the amendments for ASU-2015-17 can be applied retrospectively or prospectively.  The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.

 

 

4.

Balance Sheet Accounts

Cash and Cash Equivalents

The following is a summary of cash and available-for-sale securities (in thousands):

 

 

 

December 31,

2015

 

 

June 30,

2015

 

Cash

 

$

81,096

 

 

$

71,455

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

4,769

 

 

$

4,770

 

Total available-for-sale

 

$

4,769

 

 

$

4,770

 

 

 

 

 

 

 

 

 

 

Total cash, cash equivalents and available for sale securities

 

$

85,865

 

 

$

76,225

 

 

The Company considers highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Investments with original maturities of greater than three months, but less than one year at the balance sheet date are classified as short-term investments.

Inventory Valuation

The Company’s inventory balances as of December 31 and June 30, 2015 were $56.6 million and $58.0 million, respectively. The Company values its inventory at lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company has established inventory allowances primarily determined by the age of inventory or when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand. At the point of the loss recognition, 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. Any written down or obsolete inventory subsequently sold has not had a material impact on gross margin for any of the periods disclosed.

8


 

The following is a summary of our inventory by category (in thousands):

 

 

 

December 31,

2015

 

 

June 30,

2015

 

Finished goods

 

$

52,640

 

 

$

55,301

 

Raw materials

 

 

3,961

 

 

 

2,713

 

Total Inventory

 

$

56,601

 

 

$

58,014

 

 

Property and Equipment, Net

Property and equipment consist of the following (in thousands):

 

 

 

December 31,

2015

 

 

June 30,

2015

 

Computer equipment

 

$

33,943

 

 

$

32,753

 

Purchased software

 

 

5,671

 

 

 

5,425

 

Office equipment, furniture and fixtures

 

 

11,113

 

 

 

10,908

 

Leasehold improvements

 

 

20,682

 

 

 

24,293

 

Total property and equipment

 

 

71,409

 

 

 

73,379

 

Less: accumulated depreciation and amortization

 

 

(38,461

)

 

 

(33,517

)

Property and equipment, net

 

$

32,948

 

 

$

39,862

 

 

Intangibles

The following tables summarize the components of gross and net intangible asset balances (in thousands):

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining Amortization

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Period

 

Amount

 

 

Amortization

 

 

Amount

 

December 31,

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

0.65 years

 

$

48,000

 

 

$

36,194

 

 

$

11,806

 

Customer relationships

 

0.75 years

 

 

37,000

 

 

 

26,722

 

 

 

10,278

 

Maintenance contracts

 

2.75 years

 

 

17,000

 

 

 

7,367

 

 

 

9,633

 

Trademarks

 

0.75 years

 

 

2,500

 

 

 

1,805

 

 

 

695

 

Order backlog

 

0.00 years

 

 

7,400

 

 

 

7,400

 

 

 

 

License agreements

 

9.90 years

 

 

3,596

 

 

 

1,494

 

 

 

2,102

 

Other intangibles

 

4.20 years

 

 

1,426

 

 

 

802

 

 

 

624

 

Total intangibles, net

 

 

 

$

116,922

 

 

$

81,784

 

 

$

35,138

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining Amortization

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Period

 

Amount

 

 

Amortization

 

 

Amount

 

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

1.20 years

 

$

48,000

 

 

$

28,194

 

 

$

19,806

 

Customer relationships

 

1.30 years

 

 

37,000

 

 

 

20,556

 

 

 

16,444

 

Maintenance contracts

 

3.30 years

 

 

17,000

 

 

 

5,667

 

 

 

11,333

 

Trademarks

 

1.30 years

 

 

2,500

 

 

 

1,389

 

 

 

1,111

 

Order backlog

 

0.30 years

 

 

7,400

 

 

 

6,967

 

 

 

433

 

License agreements

 

10.20 years

 

 

10,924

 

 

 

8,620

 

 

 

2,304

 

Other intangibles

 

3.80 years

 

 

2,684

 

 

 

1,983

 

 

 

701

 

Total intangibles, net

 

 

 

$

125,508

 

 

$

73,376

 

 

$

52,132

 

 

Amortization expense for the three months ended December 31, 2015 and 2014, was $8.1 million and $9.0 million, respectively. For the three months ended December 31, 2015 and 2014 amortization expense of $3.8 million and $4.5 million, respectively, is included in “Cost of revenues for products” on the condensed consolidated statements of operations. Amortization expense for the six months ended December 31, 2015 and 2014, was $17.0 million and $18.0 million, respectively. For the six months ended

9


 

December 31, 2015 and 2014 amortization expense of $8.3 million and $9.1 million, respectively, is included in Cost of revenues for products on the condensed consolidated statements of operations.  The remainder of the amortization expense is included in Amortization of intangibles on the condensed consolidated statement of operations for all periods. The amortization expense that is recognized in Cost of revenues for products is comprised of amortization for developed technology, license agreements and other intangibles.

Other Accrued Liabilities

The following are the components of other accrued liabilities (in thousands):

 

 

 

December 31,

2015

 

 

June 30,

2015

 

Accrued general and administrative costs

 

$

4,383

 

 

$

1,204

 

Restructuring

 

 

2,588

 

 

 

5,854

 

Other accrued liabilities

 

 

22,997

 

 

 

25,565

 

Total other accrued liabilities

 

$

29,968

 

 

$

32,623

 

 

Deferred Revenue, Net

Deferred revenue, net represents amounts for (i) deferred services revenue (support arrangements, professional services and training), and (ii) deferred product revenue net of the related cost of revenue when the revenue recognition criteria have not been met.

The following table summarizes deferred revenue, net (in thousands): 

 

 

 

December 31,

2015

 

 

June 30,

2015

 

Deferred services

 

$

84,706

 

 

$

87,441

 

Deferred product and other revenue

 

 

12,347

 

 

 

12,341

 

Total deferred revenue

 

 

97,053

 

 

 

99,782

 

Less: current portion

 

 

75,548

 

 

 

76,551

 

Non-current deferred revenue, net

 

$

21,505

 

 

$

23,231

 

 

The Company offers for sale to its customers, renewable support arrangements that range from one to five years. Deferred support revenue is included within deferred revenue, net within the services category above. The change in the Company’s deferred support revenue balance in relation to these arrangements was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

2015

 

 

December 31,

2014

 

 

December 31,

2015

 

 

December 31,

2014

 

Balance beginning of period

 

$

85,255

 

 

$

87,012

 

 

$

87,441

 

 

$

89,657

 

New support arrangements

 

 

29,773

 

 

 

35,517

 

 

 

56,819

 

 

 

64,056

 

Recognition of support revenue

 

 

(30,322

)

 

 

(31,156

)

 

 

(59,554

)

 

 

(62,340

)

Balance end of period

 

 

84,706

 

 

 

91,373

 

 

 

84,706

 

 

 

91,373

 

Less: current portion

 

 

63,201

 

 

 

67,433

 

 

 

63,201

 

 

 

67,433

 

Non-current deferred revenue

 

$

21,505

 

 

$

23,940

 

 

$

21,505

 

 

$

23,940

 

 

Deferred Distributors Revenue, Net of Cost of Sales to Distributors

The Company records revenue from its distributors on a sell-through basis, recording deferred revenue and deferred cost of sales associated with all sales transactions to its distributors in “Deferred distributors revenue, net of cost of sales to distributors” in the liability section of its condensed consolidated balance sheet. The amount shown as “Deferred distributors revenue, net of cost of sales to distributors” represents the deferred gross profit on sales to distributors based on contractual pricing.

10


 

The following table summarizes deferred distributors revenue, net of cost of sales to distributors (in thousands):

 

 

 

December 31,

2015

 

 

June 30,

2015

 

Deferred distributors revenue

 

$

41,653

 

 

$

53,366

 

Deferred cost of sales to distributors

 

 

(9,976

)

 

 

(12,491

)

Deferred distributors revenue, net of cost of sales to distributors

 

$

31,677

 

 

$

40,875

 

 

Debt

The Company’s debt is comprised of the following:

 

 

 

December 31,

2015

 

 

June 30,

2015

 

Current portion of long-term debt:

 

 

 

 

 

 

 

 

Term Loan

 

$

14,625

 

 

$

11,375

 

Current portion of long-term debt

 

$

14,625

 

 

$

11,375

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion:

 

 

 

 

 

 

 

 

Term Loan

 

$

37,375

 

 

$

45,500

 

Revolving Facility

 

 

10,000

 

 

 

10,000

 

Total long-term debt, less current portion

 

 

47,375

 

 

 

55,500

 

Total debt

 

$

62,000

 

 

$

66,875

 

 

During fiscal 2015, the Company amended its credit agreement which provides for a five-year revolving credit facility for up to $50.0 million (the “Revolving Facility”) and a $65.0 million five-year term loan (the “Term Loan”) and together with the Revolving Facility the (“Senior Secured Credit Facilities, as amended”). 

The Senior Secured Credit Facilities, as amended contains, among others, certain financial covenants that require the Company to maintain defined minimum financial ratios which may limit the Company’s availability to borrowings under the Revolving Facility. As of December 31, 2015, the Company had $32.2 million of availability under the Revolving Facility and is in compliance with its covenants.

The Company had $1.0 million of outstanding letters of credit as of December 31, 2015.

Guarantees and Product Warranties

Networking products may contain undetected hardware or software errors when new products or new versions or updates of existing products are released to the marketplace. In the past, we had experienced such errors in connection with products and product updates. The Company’s standard hardware warranty period is typically 12 months from the date of shipment to end-users and 90 days for software. For certain access products, the Company offers a limited lifetime hardware warranty commencing on the date of shipment from the Company and ending five (5) years following the Company’s announcement of the end of sale of such product. Upon shipment of products to its customers, the Company estimates expenses for the cost to repair or replace products that may be returned under warranty and accrue a liability in cost of product revenue for this amount. The determination of the Company’s warranty requirements is based on actual historical experience with the product or product family, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance with changes in these factors.

11


 

Upon issuance of a standard product warranty, the Company discloses and recognizes a liability for the obligations it assumes under the product warranty. The following table summarizes the activity related to the Companys product warranty liability during the three and six months ended December 31, 2015 and 2014:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

2015

 

 

December 31,

2014

 

 

December 31,

2015

 

 

December 31,

2014

 

Balance beginning of period

 

$

9,244