Back to GetFilings.com



Table of Contents
 
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 JULY 31, 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 000-28139
 
 
BLUE COAT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
  
91-1715963
(IRS EMPLOYER IDENTIFICATION)
 
650 ALMANOR AVENUE SUNNYVALE, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
  
94085
(ZIP CODE)
 
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 220-2200
 
 
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 the issuer’s class of common stock, as of the latest practicable date.
 
CLASS
     
OUTSTANDING AT
August 31, 2002
Common Stock, par value $0.0001
     
44,110,176
 

Table of Contents
TABLE OF CONTENTS
 
         
  PAGE  
PART I.    FINANCIAL INFORMATION
     
Item 1.
   
Condensed Consolidated Financial Statements (Unaudited)
     
       
1
       
2
       
3
       
4-9
Item 2.
      
10-27
Item 3.
      
27
PART II.    OTHER INFORMATION
     
Item 1.
      
27-28
Item 2.
      
28
Item 6.
      
28
       
29
CERTIFICATIONS
      
30-31
 

Table of Contents
BLUE COAT SYSTEMS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
    
July 31,
2002
     
April 30, 2002
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
15,529
 
   
$
12,480
 
Short-term investments
   
 
16,420
 
   
 
27,466
 
Accounts receivable, net
   
 
7,100
 
   
 
6,100
 
Inventories
   
 
2,040
 
   
 
1,988
 
Prepaid expenses and other current assets
   
 
1,134
 
   
 
1,576
 
    
  
Total current assets
   
 
42,223
 
   
 
49,610
 
Property and equipment, net
   
 
4,990
 
   
 
6,047
 
Restricted investments
   
 
1,991
 
   
 
1,991
 
Other assets
   
 
1,084
 
   
 
1,066
 
    
  
Total assets
   
$
50,288
 
   
$
58,714
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
2,176
 
   
$
2,558
 
Accrued payroll and related benefits
   
 
2,395
 
   
 
2,594
 
Deferred revenue
   
 
6,517
 
   
 
6,153
 
Other accrued liabilities
   
 
6,036
 
   
 
8,562
 
    
  
Total current liabilities
   
 
17,124
 
   
 
19,867
 
Accrued restructuring reserve
   
 
6,376
 
   
 
7,182
 
Deferred revenue
   
 
1,322
 
   
 
1,401
 
    
  
Total liabilities
   
 
24,822
 
   
 
28,450
 
Commitments
                  
Stockholders’ equity:
                  
Common stock
   
 
4
 
   
 
4
 
Additional paid-in capital
   
 
883,947
 
   
 
883,964
 
Treasury stock
   
 
(908
)
   
 
(895
)
Notes receivable from stockholders
   
 
(32
)
   
 
(57
)
Deferred stock compensation
   
 
(2,473
)
   
 
(3,622
)
Accumulated deficit
   
 
(855,086
)
   
 
(849,123
)
Accumulated other comprehensive income (loss)
   
 
14
 
   
 
(7
)
    
  
Total stockholders’ equity
   
 
25,466
 
   
 
30,264
 
    
  
Total liabilities and stockholders’ equity
   
$
50,288
 
   
$
58,714
 
    
  
 
See notes to condensed consolidated financial statements

1

Table of Contents
BLUE COAT SYSTEMS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share amounts)
 
    
Three Months Ended July 31,
  
    
2002
     
2001
  
Net sales
   
$
11,035
 
   
$
20,443
 
Cost of goods sold
   
 
4,585
 
   
 
8,211
 
    
  
Gross profit
   
 
6,450
 
   
 
12,232
 
Operating expenses:
                  
Research and development
   
 
3,545
 
   
 
9,730
 
Sales and marketing
   
 
6,491
 
   
 
9,387
 
General and administrative
   
 
1,411
 
   
 
2,153
 
Stock compensation
   
 
1,126
 
   
 
7,847
 
Goodwill amortization
   
 
—  
 
   
 
16,452
 
Asset impairment
   
 
—  
 
   
 
62,944
 
    
  
Total operating expenses
   
 
12,573
 
   
 
108,513
 
    
  
Operating loss
   
 
(6,123
)
   
 
(96,281
)
Interest income
   
 
149
 
   
 
832
 
Other income (expense)
   
 
42
 
   
 
(22
)
    
  
Net loss before income taxes
   
 
(5,932
)
   
 
(95,471
)
Provision for income taxes
   
 
(31
)
   
 
(135
)
    
  
Net loss
   
$
(5,963
)
   
$
(95,606
)
    
  
Basic and diluted net loss per common share
   
$
(0.14
)
   
$
(2.36
)
    
  
Shares used in computing basic and diluted net loss per common share
   
 
43,438
 
   
 
40,585
 
    
  
 
See notes to condensed consolidated financial statements

2

Table of Contents
BLUE COAT SYSTEMS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
    
Three Months Ended July 31,
  
    
2002
     
2001
  
Operating Activities
                  
Net loss
   
$
(5,963
)
   
$
(95,606
)
Adjustments to reconcile net loss to net cash used in operating activities:
                  
Depreciation and amortization
   
 
748
 
   
 
1,095
 
Stock compensation
   
 
1,126
 
   
 
7,847
 
Goodwill amortization
   
 
—  
 
   
 
16,452
 
Asset impairment
   
 
—  
 
   
 
62,944
 
Interest on notes receivable from stockholders
   
 
(6
)
   
 
(10
)
Changes in operating assets and liabilities:
                  
Accounts receivable
   
 
(1,000
)
   
 
(1,201
)
Inventories
   
 
(51
)
   
 
1,301
 
Prepaid expenses and other current assets
   
 
442
 
   
 
905
 
Other assets
   
 
(18
)
   
 
65
 
Deferred Revenue
   
 
284
 
   
 
(281
)
Accounts payable
   
 
(382
)
   
 
(2,156
)
Accrued liabilities
   
 
(2,742
)
   
 
(3,908
)
    
  
Net cash used in operating activities
   
 
(7,562
)
   
 
(12,553
)
Investing Activities
                  
Purchases of property and equipment
   
 
(480
)
   
 
(1,148
)
Proceeds from sale of investments, net
   
 
11,067
 
   
 
2,386
 
    
  
Net cash provided by investing activities
   
 
10,587
 
   
 
1,238
 
Financing Activities
                  
Net proceeds from issuance of common stock
   
 
6
 
   
 
207
 
Proceeds from repayment of notes receivable
   
 
24
 
   
 
232
 
Repurchase of employee stock
   
 
(6
)
   
 
—  
 
    
  
Net cash provided by financing activities
   
 
24
 
   
 
439
 
    
  
Net increase (decrease) in cash and cash equivalents
   
 
3,049
 
   
 
(10,877
)
Cash and cash equivalents at beginning of period
   
 
12,480
 
   
 
55,356
 
    
  
Cash and cash equivalents at end of period
   
$
15,529
 
   
$
44,479
 
    
  
Treasury stock retirement/cancellation
   
$
—  
 
   
$
190
 
    
  
 
See notes to condensed consolidated financial statements.

3

Table of Contents

BLUE COAT SYSTEMS, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

Note 1.    Significant Accounting Policies
 
Basis of Presentation
 
The condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. The accompanying condensed consolidated financial statements and related notes as of July 31, 2002, and for the three-month period then ended, are unaudited, but include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our consolidated financial position, operating results, and cash flows for the interim date and periods presented. Certain prior year amounts in the condensed consolidated statements of cash flows have been reclassified to conform to the current period presentation. Results for the three months ended July 31, 2002 are not necessarily indicative of results for the entire fiscal year or future periods.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted as permitted under the Securities and Exchange Commission’s (SEC) rules and regulations. These condensed consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended April 30, 2002, included in the Company’s Annual Report on Form 10-K filed with the SEC on July 29, 2002.
 
On August 21, 2002, we changed our name from CacheFlow® Inc. to Blue Coat™ Systems, Inc. and all future SEC filings will be under Blue Coat Systems, Inc.
 
Use of Estimates
 
The preparation of the condensed consolidated financial statements and the 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 consolidated financial statements and accompanying notes. For us, these estimates include returns and allowances, valuation reserves for inventories, accrual of warranty costs, impairment charges related to long-lived assets, restructuring reserves, useful lives assigned for depreciation and amortization, income taxes, and contingencies. Actual results will differ from those estimates, and such differences could be material to the consolidated financial position and results of operations.
 
Revenue Recognition
 
We generally recognize product revenue upon shipment, assuming that evidence of an arrangement exists, the fee is determinable and collectibility is probable, unless we have future obligations for installation or must obtain customer acceptance, in which case revenue is deferred until these obligations are met. Probability of collection is assessed on a customer by customer basis. Customers are subjected to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. If it is determined from the outset of an arrangement that collection is not probable based upon our review process, revenue is not recognized until cash receipt. In the case of shipments to our distributors who have limited rights of return and stock rotation, we defer revenue until a point of sale report is received from the distributor confirming that our products and services have been sold to a reseller or an end user. Maintenance contract revenue is initially deferred when the customer purchases a maintenance contract and recognized evenly over the life of the contract. Maintenance contract revenue recognized for the three months ended July 31, 2002 and 2001 was $2.0 million and $1.8 million, respectively.

4

Table of Contents

BLUE COAT SYSTEMS, INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

Inventories
 
Inventories consisted of the following (in thousands):
 
    
July 31,
2002
   
April 30,
2002
Raw materials
   
$
566
   
$
416
Work-in-process
   
 
122
   
 
128
Finished goods
   
 
1,352
   
 
1,444
  <