SONICWALL INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

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

For the transition period from __________ to __________

Commission file number: 000-27723

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction of incorporation)

77-0270079

(I.R.S. Employer Identification No.)

1143 Borregas Avenue

Sunnyvale, California 94089

fax: (408) 745-9300

(Address of registrant’s principal executive offices)

(Former name, former address and former fiscal year, if changed since last report)

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 ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

TITLE OF EACH CLASS

Common Stock, no par value

OUTSTANDING AT JUNE 30, 2002

67,083,124 Shares

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001		4

Condensed Consolidated Statements of Operations for the three and six-month periods ended June 30, 2002 and 2001 (unaudited)		5

Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2002 and 2001 (unaudited)		6

Notes to Condensed Consolidated Financial Statements		7

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2002			December 31, 2001
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	142,026		$	60,908
Short term investments		91,250			166,271
Accounts receivable, net		11,853			15,642
Inventories, net		6,100			5,489
Deferred income taxes		13,743			20,364
Prepaid expenses and other current assets		3,153			3,384

Total current assets		268,125			272,058
Property and equipment, net		5,921			6,616
Goodwill		190,284			189,312
Purchased intangibles, net		36,306			48,014
Other assets		394			351

	$	501,030		$	516,351

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	5,535		$	7,400
Accrued restructuring		1,979			—
Accrued compensation and related benefits		3,888			3,854
Other accrued liabilities		7,711			11,263
Deferred revenue		15,442			15,122
Income taxes payable		3,770			9,934

Total current liabilities		38,325			47,573
Deferred tax liability		15,774			17,625

Total liabilities		54,099			65,198

Shareholders’ Equity:
Common stock		463,483			466,857
Deferred stock compensation		(948	)		(2,881	)
Accumulated other comprehensive income		82			194
Accumulated deficit		(15,686	)		(13,017	)

Total shareholders’ equity		446,931			451,153

	$	501,030		$	516,351

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
Revenue:
Product	$	21,771		$	21,098		$	41,374		$	41,064
License and service		5,973			5,459			14,472			10,067

Total revenue		27,744			26,557			55,846			51,131

Cost of revenue:
Product, excluding amortization of stock-based compensation of $6, $26, $26 and $36, respectively		6,520			6,036			13,405			11,775
License and service		1,004			368			1,986			532

Total cost of revenue		7,524			6,404			15,391			12,307

Gross margin		20,220			20,153			40,455			38,824

Operating expenses:
Research and development, excluding amortization of stock-based compensation of $21, $140, $184 and $300, respectively		4,431			5,079			9,543			10,473
Sales and marketing, excluding amortization of stock-based compensation of $147, $569, $528 and $1,053, respectively		11,427			7,657			22,951			14,379
General and administrative, excluding amortization of stock-based compensation of $30, $191, $94 and $463, respectively		2,509			2,307			5,316			4,292
Amortization of goodwill and intangibles		2,578			10,712			5,156			20,939
Restructuring charges		3,969			—			3,969			—
Stock-based compensation		204			926			832			1,852

Total operating expenses		25,118			26,681			47,767			51,935

Loss from operations		(4,898	)		(6,528	)		(7,312	)		(13,111	)
Interest income and other expense, net		1,695			2,510			3,380			5,520

Loss before income taxes		(3,203	)		(4,018	)		(3,932	)		(7,591	)
Benefit from (provision for) income taxes		1,093			(1,337	)		1,263			(3,308	)

Net loss	$	(2,110	)	$	(5,355	)	$	(2,669	)	$	(10,899	)

Net loss per share:
Basic	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.17	)

Diluted	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.17	)

Shares used in computing net loss per share:
Basic		67,110			63,867			66,932			63,244

Diluted		67,110			63,867			66,932			63,244

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2002	2001
Cash flows from operating activities:
Net loss	$

		PAGE
PART I.	FINANCIAL INFORMATION	3

ITEM 1.	Financial Statements	3
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	23

PART II.	OTHER INFORMATION	23

ITEM 1.	Legal Proceedings	23
ITEM 2.	Changes in Securities and Use of Proceeds	23
ITEM 3.	Defaults Upon Senior Securities	24
ITEM 4.	Submission of Matters to a Vote of Security Holders	24
ITEM 5.	Other Information	24
ITEM 6.	Exhibits and Reports on Form 8-K	24

SIGNATURES		25

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