 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 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 000-31523
IXIA
| California (State or other jurisdiction of incorporation or organization) |
95-4635982 (I.R.S. Employer Identification No.) |
26601 West Agoura Road, Calabasas, CA 91302
(Address of principal executive offices, including zip code)
(818) 871-1800
(Registrant’s telephone number, including area code)
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 No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common Stock (Class of Common Stock) |
57,213,517 (Outstanding at August 2, 2002) |
IXIA
TABLE OF CONTENTS
| Page Number | ||||||
PART I. FINANCIAL INFORMATION |
||||||
Item 1. Financial Statements (unaudited) |
||||||
Condensed Consolidated Balance Sheets as of
June 30, 2002 and December 31, 2001 |
3 | |||||
Condensed Consolidated Statements of Income
for the three and six months ended June 30,
2002 and 2001 |
4 | |||||
Condensed Consolidated Statements of Cash
Flows for the six months ended June 30,
2002 and 2001 |
5 | |||||
Notes to Condensed Consolidated Financial Statements |
6 | |||||
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
9 | |||||
Item 3. Quantitative and Qualitative Disclosures about Market
Risk |
13 | |||||
PART II. OTHER INFORMATION |
||||||
Item 5. Other Information |
14 | |||||
Item 6. Exhibits and Reports on Form 8-K |
14 | |||||
SIGNATURES |
15 | |||||
2
IXIA
Consolidated Balance Sheets
(in thousands)
| June 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (unaudited) | ||||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 54,860 | $ | 116,643 | ||||||
Short-term investments in securities |
15,285 | — | ||||||||
Accounts receivable, net of allowance for
doubtful accounts of $323 and $467 as of
June 30, 2002 and December 31, 2001,
respectively |
11,298 | 7,534 | ||||||||
Inventories |
5,337 | 3,316 | ||||||||
Income taxes receivable |
1,096 | 2,598 | ||||||||
Prepaid expenses and other current assets |
4,167 | 4,460 | ||||||||
Total current assets |
92,043 | 134,551 | ||||||||
Investments in securities |
44,808 | — | ||||||||
Property and equipment, net |
7,174 | 6,821 | ||||||||
Goodwill |
2,451 | 848 | ||||||||
Intangible assets, net |
5,260 | 1,688 | ||||||||
Other assets, net |
377 | 258 | ||||||||
Total assets |
$ | 152,113 | $ | 144,166 | ||||||
Liabilities and Shareholders’ Equity |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 2,144 | $ | 1,482 | ||||||
Accrued expenses |
3,426 | 3,317 | ||||||||
Deferred revenues |
1,962 | 1,546 | ||||||||
Total liabilities |
7,532 | 6,345 | ||||||||
Shareholders’ equity: |
||||||||||
Common stock, without par value; 200,000
shares authorized, 57,055 and 55,810 shares
issued and outstanding as of June 30, 2002
and December 31, 2001, respectively |
78,632 | 77,764 | ||||||||
Additional paid-in capital |
46,956 | 46,933 | ||||||||
Deferred stock-based compensation |
(5,580 | ) | (9,418 | ) | ||||||
Retained earnings |
24,573 | 22,542 | ||||||||
Total shareholders’ equity |
144,581 | 137,821 | ||||||||
Total liabilities and shareholders’ equity |
$ | 152,113 | $ | 144,166 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
IXIA
Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
| Three months ended | Six months ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Net revenues |
$ | 17,254 | $ | 15,146 | $ | 32,696 | $ | 43,969 | |||||||||||
Cost of revenues(1) |
3,382 | 3,371 | 6,360 | 9,281 | |||||||||||||||
Gross profit |
13,872 | 11,775 | 26,336 | 34,688 | |||||||||||||||
Operating expenses: (1)
|
|||||||||||||||||||
Research and development |
5,139 | 4,807 | 9,954 | 9,905 | |||||||||||||||
Sales and marketing |
5,470 | 5,004 | 9,970 | 10,872 | |||||||||||||||
General and administrative |
1,973 | 2,370 | 3,938 | 5,009 | |||||||||||||||
Amortization of purchased intangible
assets |
258 | — | 426 | — | |||||||||||||||
Total operating expenses |
12,840 | 12,181 | 24,288 | 25,786 | |||||||||||||||
Income (loss) from operations |
1,032 | (406 | ) | 2,048 | 8,902 | ||||||||||||||
Interest income, net |
740 | 1,065 | 1,379 | 2,345 | |||||||||||||||
Income before income taxes |
1,772 | 659 | 3,427 | 11,247 | |||||||||||||||
Income tax expense |
709 | 593 | 1,396 | 6,449 | |||||||||||||||
Net income |
$ | 1,063 | $ | 66 | $ | 2,031 | $ | 4,798 | |||||||||||
Earnings per share: |
|||||||||||||||||||
Basic |
$ | 0.02 | $ | 0.00 | $ | 0.04 | $ | 0.09 | |||||||||||
Diluted |
$ | 0.02 | $ | 0.00 | $ | 0.03 | $ | 0.08 | |||||||||||
Weighted average number of common and
common equivalent shares outstanding: |
|||||||||||||||||||
Basic |
56,747 | 54,317 | 56,491 | 53,931 | |||||||||||||||
Diluted |
60,430 | 61,537 | 60,710 | 62,098 | |||||||||||||||
(1) Stock-based compensation included in: |
|||||||||||||||||||
Cost of revenues |
$ | 102 | $ | 152 | $ | 240 | $ | 414 | |||||||||||
Research and development |
752 | 1,605 | 1,763 | 3,655 | |||||||||||||||
Sales and marketing |
391 | 942 | 800 | 2,047 | |||||||||||||||
General and administrative |
164 | 787 | 396 | 1,601 | |||||||||||||||
| $ | 1,409 | $ | 3,486 | $ | 3,199 | $ | 7,717 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
IXIA
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six months ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 2,031 | $ | 4,798 | ||||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||
Depreciation and amortization |
2,460 | 1,109 | ||||||||||
Allowance for doubtful accounts |
(50 | ) | 243 | |||||||||
Stock-based compensation |
3,199 | 7,717 | ||||||||||
Interest receivable from shareholders |
— | (8 | ) | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(3,714 | ) | 4,395 | |||||||||
Inventories |
(2,021 | ) | (91 | ) | ||||||||
Income taxes receivable |
2,164 | (1,732 | ) | |||||||||
Prepaid expenses and other current assets |
293 | 283 | ||||||||||
Other assets |
(119 | ) | 18 | |||||||||
Accounts payable |
662 | (3,302 | ) | |||||||||
Accrued expenses |
109 | (2,203 | ) | |||||||||
Deferred revenue |
87 | (435 | ) | |||||||||
Income taxes payable |
— | 1,399 | ||||||||||
Net cash provided by operating activities |
5,101 | 12,191 | ||||||||||
Cash used in investing activities: |
||||||||||||
Purchases of property and equipment |
(2,405 | ) | (3,584 | ) | ||||||||
Purchase of investments |
(68,340 | ) | — | |||||||||
Proceeds from redemption of investments |
8,247 | — | ||||||||||
Payments in connection with acquisition |
(5,254 | ) | — | |||||||||
Cash used in investing activities |
(67,752 | ) | (3,584 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from exercise of stock options |
868 | 1,263 | ||||||||||
Proceeds from related-party notes receivable |
— | 270 | ||||||||||
Net cash provided by financing activities |
868 | 1,533 | ||||||||||
Net increase (decrease) in cash and cash
equivalents |
(61,783 | ) | 10,140 | |||||||||
Cash and cash equivalents at beginning of period |
116,643 | 96,066 | ||||||||||
Cash and cash equivalents at end of period |
$ | 54,860 | $ | 106,206 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
IXIA
Notes to Consolidated Financial Statements
June 30, 2002
(unaudited)
| 1. | Business |
Ixia (the “Company”) was incorporated on May 27, 1997 as a California corporation. The Company develops, markets and sells high-speed, distributed, multiport traffic generators and performance analyzers for wire-speed verification of optical networking equipment, LAN, MAN, and WAN multi-layer switches and routers. Our customers include manufacturers of network equipment, Internet and network service providers, communications chip manufacturers and network users.
| 2. | Basis of Presentation |
The accompanying consolidated financial statements as of June 30, 2002 and for the three and six months ended June 30, 2002 and 2001, are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position, operating results and cash flows for the interim periods presented. The results of operations for the current interim periods presented are not necessarily indicative of results to be expected for the full year end December 31, 2002 or any other future period.
These consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. 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. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
| 3. | Investments |
The Company’s investments at June 30, 2002 consisted of held-to-maturity U.S. government debt and corporate debt securities. Held-to-maturity securities are carried at amortized cost. Amortization of the purchase discounts and premiums is included in interest income. Realized gains and losses and declines in value judged to be other than temporary are included in results of operations. Realized gains and losses are calculated using the specific identification method and were not material to the Company’s results of operations in any period presented.
Investments at June 30, 2002 consisted of the following (in thousands):
| Carrying | Fair | ||||||||||
| Value | Value | ||||||||||
Held-to-maturity investments: |
|||||||||||
Maturities within one year: |
|||||||||||
U.S. government debt securities |
$ | 12,231 | $ | 12,185 | |||||||
Corporate debt securities |
3,054 | 3,058 | |||||||||
| 15,285 | 15,243 | ||||||||||
Maturities after one year through three years: |
|||||||||||
U.S. government debt securities |
26,091 | 26,248 | |||||||||
Corporate debt securities |
18,717 | 18,777 | |||||||||
| 44,808 | 45,025 | ||||||||||
Total investments |
$ | 60,093 | $ | 60,268 | |||||||
6
IXIA
Notes to Consolidated Financial Statements
| 4. | Inventories |
Inventories consist of the following (in thousands):
| June 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
Raw materials |
$ | 2,129 | $ | 1,502 | ||||
Work in process |
1,296 | 1,510 | ||||||
Finished goods |
1,912 | 304 | ||||||
| $ | 5,337 | $ | 3,316 | |||||
| 5. | Earnings per Share |
Basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on the weighted average number of common shares and dilutive potential common shares outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2002 and 2001 (in thousands, except per share data):
| Three months ended | Six months ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||