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 SEPTEMBER 30, 2002
or
| [ ] | 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 _-_____
PACKETEER, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE (State of incorporation) |
77-0420107 (I.R.S. Employer Identification No.) |
10495 North De Anza Boulevard, Cupertino, CA 95014
(Address of principal executive offices)
Registrant’s telephone number, including area code: (408) 873-4400
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 [ ]
The number of shares outstanding of Registrant’s common stock, $0.001 par value, was 30,499,229 at November 4, 2002.
1
TABLE OF CONTENTS
| PART I | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements: | |||
| Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 | 3 | |||
| Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2002 and September 30, 2001 | 4 | |||
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and September 30, 2001 | 5 | |||
| Notes to Condensed Consolidated Financial Statements | 6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||
| Factors That May Affect Future Results | 16 | |||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 23 | ||
| Item 4. | Controls and Procedures | 24 | ||
| PART II | OTHER INFORMATION | |||
| Item 2. | Changes in Securities and Use of Proceeds | 25 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 26 | ||
| Signatures | 26 | |||
| Certifications | 27 | |||
| Exhibits | 29 | |||
In addition to historical information, this Form 10-Q contains forward-looking statements regarding our strategy, financial performance and revenue sources that involve a number of risks and uncertainties, including those discussed below at “Factors That May Affect Future Results” and in the “Risk Factors” section of Packeteer’s Annual Report on Form 10-K as filed with the SEC on March 22, 2002. Forward-looking statements in this report include, but are not limited to, those relating to the general expansion of our business, including the expansion of our network product lines, our ability to develop multiple applications, our planned introduction of new products and services, the possibility of acquiring complementary businesses, products, services and technologies, our development of relationships with providers of leading Internet technologies, our competition, the sufficiency of our cash, cash equivalents and investments and our business model targets. While this outlook represents our current judgment on the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested below. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q. Packeteer undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances arising after the date of this document.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKETEER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 37,411 | $ | 50,009 | ||||||
Short-term investments |
10,519 | 8,624 | ||||||||
Accounts receivable less allowance for doubtful accounts
of $79 and $132, as of September 30, 2002 and
December 31, 2001, respectively |
4,955 | 5,772 | ||||||||
Inventories |
2,198 | 2,189 | ||||||||
Prepaids and other current assets |
1,622 | 1,221 | ||||||||
Total current assets |
56,705 | 67,815 | ||||||||
Property and equipment, net |
1,135 | 1,377 | ||||||||
Long-term investments |
16,253 | 3,588 | ||||||||
Other long-term assets |
332 | 225 | ||||||||
Total assets |
$ | 74,425 | $ | 73,005 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities: |
||||||||||
Line of credit |
$ | 1,000 | $ | 1,851 | ||||||
Current portion of capital lease obligations
and note payable |
813 | 917 | ||||||||
Accounts payable |
1,427 | 2,282 | ||||||||
Accrued compensation |
2,099 | 2,082 | ||||||||
Other accrued liabilities |
2,413 | 3,854 | ||||||||
Deferred revenue |
5,441 | 4,106 | ||||||||
Total current liabilities |
13,193 | 15,092 | ||||||||
Long-term liabilities |
709 | 1,289 | ||||||||
Common stock; $0.001 par value; 85,000 shares
authorized; 30,356 and 29,951 issued and outstanding at
September 30, 2002 and December 31, 2001, respectively |
30 | 30 | ||||||||
Additional paid-in capital |
165,806 | 164,273 | ||||||||
Accumulated other comprehensive income |
152 | (18 | ) | |||||||
Deferred stock-based compensation |
(92 | ) | (400 | ) | ||||||
Notes receivable from stockholders |
(56 | ) | (83 | ) | ||||||
Accumulated deficit |
(105,317 | ) | (107,178 | ) | ||||||
Total stockholders’ equity |
60,523 | 56,624 | ||||||||
Total liabilities and stockholders’ equity |
$ | 74,425 | $ | 73,005 | ||||||
See accompanying notes to condensed consolidated financial statements
3
PACKETEER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three months ended | Nine months ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Revenues: |
|||||||||||||||||||
Product revenues |
$ | 12,006 | $ | 9,481 | $ | 33,879 | $ | 31,448 | |||||||||||
Service revenues |
2,031 | 1,447 | 5,509 | 3,749 | |||||||||||||||
Total net revenues |
14,037 | 10,928 | 39,388 | 35,197 | |||||||||||||||
Cost of revenues: |
|||||||||||||||||||
Product costs |
2,379 | 2,437 | 7,215 | 8,592 | |||||||||||||||
Service costs |
805 | 721 | 2,156 | 2,308 | |||||||||||||||
Amortization of acquired technology |
— | — | — | 1,199 | |||||||||||||||
Total cost of revenues |
3,184 | 3,158 | 9,371 | 12,099 | |||||||||||||||
Gross profit |
10,853 | 7,770 | 30,017 | 23,098 | |||||||||||||||
Operating expenses: |
|||||||||||||||||||
Research and development (exclusive of stock-
based compensation expense of $26 and $113
for the three months ended September 30, 2002
and 2001 respectively and $158 and $570 for the nine
months ended September 30, 2002 and 2001,
respectively) |
2,725 | 3,292 | 8,108 | 9,209 | |||||||||||||||
Sales and marketing (exclusive of stock-based
compensation expense of $35 and $102 for the three
months ended September 30, 2002 and 2001
respectively, and $116 and $345 for the nine months
ended September 30, 2002 and 2001, respectively) |
5,825 | 5,232 | 16,825 | 16,886 | |||||||||||||||
General and administrative (exclusive of stock-
based compensation expense of $12 and $22 for
the three months ended September 30, 2002 and 2001,
respectively and $38 and $86 for the nine months
ended September 30, 2002 and 2001, respectively) |
1,152 | 1,435 | 3,431 | 4,291 | |||||||||||||||
Amortization of goodwill and other intangibles |
— | — | — | 11,017 | |||||||||||||||
Impairment of goodwill and other intangibles |
— | 52,552 | — | 52,552 | |||||||||||||||
Stock-based compensation |
73 | 237 | 312 | 1,001 | |||||||||||||||
Total operating expenses |
9,775 | 62,748 | 28,676 | 94,956 | |||||||||||||||
Income (loss) from operations |
1,078 | (54,978 | ) | 1,341 | (71,858 | ) | |||||||||||||
Other income, net |
309 | 696 | 727 | 1,703 | |||||||||||||||
Income (loss) before taxes |
1,387 | (54,282 | ) | 2,068 | (70,155 | ) | |||||||||||||
Provision for income taxes |
139 | — | 207 | — | |||||||||||||||
Net income (loss) |
$ | 1,248 | $ | (54,282 | ) | $ | 1,861 | $ | (70,155 | ) | |||||||||
Basic net income (loss) per share |
$ | 0.04 | $ | (1.83 | ) | $ | 0.06 | $ | (2.38 | ) | |||||||||
Diluted net income (loss) per share |
$ | 0.04 | $ | (1.83 | ) | $ | 0.06 | $ | (2.38 | ) | |||||||||
Shares used in computing basic net income (loss) per
share |
30,285 | 29,678 | 30,122 | 29,450 | |||||||||||||||
Shares used in computing diluted net income (loss)
per share |
30,427 | 29,678 | 30,343 | 29,450 | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
PACKETEER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine months ended | ||||||||||||
| September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | 1,861 | $ | (70,155 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
||||||||||||
Depreciation |
1,006 | 1,493 | ||||||||||
Amortization of goodwill and intangibles |
— | 12,263 | ||||||||||
Impairment of goodwill and intangibles |
— | 52,552 | ||||||||||
Other non-cash charges |
391 | 1,081 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
817 | 1,704 | ||||||||||
Inventories |
(9 | ) | 824 | |||||||||
Prepaids and other current assets |
(401 | ) | 776 | |||||||||
Accounts payable |
(855 | ) | (860 | ) | ||||||||
Accrued compensation and other accrued liabilities |
(1,424 | ) | (1,019 | ) | ||||||||
Deferred revenue |
1,335 | 1,172 | ||||||||||
Net cash provided by (used in) operating activities |
2,721 | (169 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of property and equipment |
(764 | ) | (833 | ) | ||||||||
Purchases of investments |
(58,693 | ) | (90,229 | ) | ||||||||
Proceeds from sales and maturities of investments |
44,224 | 116,912 | ||||||||||
Other assets |
(107 | ) | 428 | |||||||||
Net cash provided by (used in) investing activities |
(15,340 | ) | 26,278 | |||||||||
Cash flows from financing activities: |
||||||||||||
Net proceeds from issuance of common stock |
644 | 710 | ||||||||||
Proceeds from stockholders’ notes receivable |
27 | 83 | ||||||||||
Sale of stock to employees under the ESPP |
885 | 1,437 | ||||||||||
Borrowings under line of credit |
— | 5,107 | ||||||||||
Repayments of line of credit |
(851 | ) | (7,537 | ) | ||||||||
Proceeds from notes payable |
— | 551 | ||||||||||
Payments of notes payable |
(127 | ) | (62 | ) | ||||||||
Principal payments of capital lease obligations |
(557 | ) | (542 | ) | ||||||||
Net cash provided by (used in) financing activities |
21 | (253 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents |
(12,598 | ) | 25,856 | |||||||||
Cash and cash equivalents at beginning of period |
50,009 | 24,273 | ||||||||||
Cash and cash equivalents at end of period |
$ | 37,411 | $ | 50,129 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Cash paid during period for interest |
$ | 214 | $ | 431 | ||||||||
Cash paid during period for taxes |
$ | 92 | $ | — | ||||||||
See accompanying notes to condensed consolidated financial statements.
5
PACKETEER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by Packeteer, Inc., pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include the accounts of Packeteer, Inc. and its wholly-owned subsidiaries (“Packeteer” or collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. While in the opinion of the Company’s management, the unaudited financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of interim periods presented, these financial statements and notes should be read in conjunction with its audited consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC on March 22, 2002.
The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2002.
2. GOODWILL AND OTHER INTANGIBLE ASSETS — ADOPTION OF FASB STATEMENT 142
The following table presents the impact of SFAS No. 142, “Goodwill and Other Intangible Assets,” on net income (loss) and net income (loss) per share had the standard been in effect for the first nine months of fiscal 2001:
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (in thousands, except per share amounts) | 2002 | 2001 | 2002 | 2001 | |||||||||||||
Reported net income (loss) |
$ | 1,248 | $ | (54,282 | ) | $ | 1,861 | $ | (70,155 | ) | |||||||
Add back: Goodwill amortization |
— | — | — | 11,017 | |||||||||||||
Adjusted net income (loss) |
$ | 1,248 | $ | (54,282 | ) | $ | 1,861 | $ | (59,138 | ) | |||||||
Basic earnings per share: |
|||||||||||||||||
Reported net income (loss) |
$ | 0.04 | $ | (1.83 | ) | $ | 0.06 | $ | (2.38 | ) | |||||||
Goodwill amortization |
0.00 | — | 0.00 | 0.37 | |||||||||||||
Adjusted net income (loss) |
$ | 0.04 | $ | (1.83 | ) | $ | 0.06 | $ | |||||||||