UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JANUARY 24, 2004
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 000-27273
SYCAMORE NETWORKS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 04-3410558 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
220 Mill Road
Chelmsford, Massachusetts 01824
(Address of principal executive offices)
(Zip code)
(978) 250-2900
(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 x No ¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨.
The number of shares outstanding of the Registrant’s Common Stock as of January 31, 2004 was 273,038,378.
2
Sycamore Networks, Inc.
(in thousands, except par value)
(unaudited)
| January 24, 2004 |
July 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 301,638 | $ | 250,595 | ||||
| Short-term investments |
331,408 | 421,784 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $4,132 and $4,184 at January 24, 2004 and July 31, 2003, respectively |
3,994 | 10,769 | ||||||
| Inventories |
10,710 | 5,117 | ||||||
| Prepaids and other current assets |
4,389 | 3,680 | ||||||
| Total current assets |
652,139 | 691,945 | ||||||
| Property and equipment, net |
11,309 | 14,589 | ||||||
| Long-term investments |
344,900 | 323,204 | ||||||
| Other assets |
2,536 | 2,890 | ||||||
| Total assets |
$ | 1,010,884 | $ | 1,032,628 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,346 | $ | 3,475 | ||||
| Accrued compensation |
2,759 | 3,545 | ||||||
| Accrued warranty |
3,896 | 4,651 | ||||||
| Accrued expenses |
4,530 | 4,203 | ||||||
| Accrued restructuring costs |
15,621 | 19,086 | ||||||
| Deferred revenue |
2,367 | 2,677 | ||||||
| Other current liabilities |
2,563 | 2,476 | ||||||
| Total current liabilities |
36,082 | 40,113 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.01 par value, 5,000 shares authorized; none issued or outstanding |
— | — | ||||||
| Common stock, $.001 par value; 2,500,000 shares authorized; 273,037 and 272,099 shares issued at January 24, 2004 and July 31, 2003, respectively |
273 | 272 | ||||||
| Additional paid-in capital |
1,737,887 | 1,733,476 | ||||||
| Accumulated deficit |
(761,368 | ) | (736,192 | ) | ||||
| Deferred compensation |
(3,726 | ) | (6,822 | ) | ||||
| Treasury stock, at cost, 0 and 147 shares held at January 24, 2004 and July 31, 2003, respectively |
— | (11 | ) | |||||
| Accumulated other comprehensive income |
1,736 | 1,792 | ||||||
| Total stockholders’ equity |
974,802 | 992,515 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,010,884 | $ | 1,032,628 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended |
Six Months Ended |
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| January 24, 2004 |
January 25, 2003 |
January 24, 2004 |
January 25, 2003 |
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| Revenue: |
||||||||||||||||
| Product |
$ | 3,673 | $ | 7,453 | $ | 9,829 | $ | 10,301 | ||||||||
| Service |
3,202 | 3,372 | 5,487 | 6,462 | ||||||||||||
| Total revenue |
6,875 | 10,825 | 15,316 | 16,763 | ||||||||||||
| Cost of revenue: |
||||||||||||||||
| Product (exclusive of non-cash stock-based compensation expense of $77, $169, $157 and $338) |
2,152 | 6,414 | 5,760 | 10,715 | ||||||||||||
| Service (exclusive of non-cash stock-based compensation expense of $100, $188, $200 and $375) |
2,094 | 4,173 | 4,210 | 7,015 | ||||||||||||
| Stock-based compensation |
177 | 357 | 357 | 713 | ||||||||||||
| Total cost of revenue |
4,423 | 10,944 | 10,327 | 18,443 | ||||||||||||
| Gross profit (loss) |
2,452 | (119 | ) | 4,989 | (1,680 | ) | ||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development (exclusive of non-cash stock-based compensation expense of $1,106, $844, $1,790 and $1,718) |
11,751 | 13,432 | 23,049 | 27,359 | ||||||||||||
| Sales and marketing (exclusive of non-cash stock-based compensation expense of $263, $516, $537 and $1,128) |
4,345 | 5,070 | 8,756 | 10,012 | ||||||||||||
| General and administrative (exclusive of non-cash stock-based compensation expense of $399, $387, $746 and $918) |
1,482 | 1,751 | 3,450 | 3,409 | ||||||||||||
| Stock-based compensation |
1,768 | 1,747 | 3,073 | 3,764 | ||||||||||||
| Total operating expenses |
19,346 | 22,000 | 38,328 | 44,544 | ||||||||||||
| Loss from operations |
(16,894 | ) | (22,119 | ) | (33,339 | ) | (46,224 | ) | ||||||||
| Interest and other income, net |
3,895 | 6,002 | 8,163 | 12,745 | ||||||||||||
| Loss before income taxes |
(12,999 | ) | (16,117 | ) | (25,176 | ) | (33,479 | ) | ||||||||
| Provision for income taxes |
— | — | — | — | ||||||||||||
| Net loss |
$ | (12,999 | ) | $ | (16,117 | ) | $ | (25,176 | ) | $ | (33,479 | ) | ||||
| Basic and diluted net loss per share |
$ | (0.05 | ) | $ | (0.06 | ) | $ | (0.09 | ) | $ | (0.13 | ) | ||||
| Weighted-average shares used in computing basic and diluted net loss per share |
271,801 | 264,981 | 271,138 | 263,640 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six Months Ended |
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| January 24, 2004 |
January 25, 2003 |
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| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (25,176 | ) | $ | (33,479 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
5,982 | 12,388 | ||||||
| Stock-based compensation |
3,430 | 4,477 | ||||||
| Provision for doubtful accounts |
(52 | ) | — | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
6,827 | 3,126 | ||||||
| Inventories |
(5,593 | ) | 3,179 | |||||
| Prepaids and other current assets |
(709 | ) | (2,464 | ) | ||||
| Deferred revenue |
(310 | ) | (3,049 | ) | ||||
| Accounts payable |
871 | (1,568 | ) | |||||
| Accrued expenses and other current liabilities |
(1,127 | ) | (5,168 | ) | ||||
| Accrued restructuring costs |
(3,465 | ) | (17,691 | ) | ||||
| Net cash used in operating activities |
(19,322 | ) | (40,249 | ) | ||||
| Cash flows from investing activities: |
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| Purchases of property and equipment |
(2,702 | ) | (2,347 | ) | ||||
| Purchases of investments |
(380,961 | ) | (300,503 | ) | ||||
| Maturities of investments |
449,585 | 514,115 | ||||||
| Decrease in other assets |
354 | 3,894 | ||||||
| Net cash provided by investing activities |
66,276 | 215,159 | ||||||
| Cash flows from financing activities: |
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| Proceeds from issuance of common stock |
4,112 | 2,000 | ||||||
| Purchase of treasury stock |
(23 | ) | (143 | ) | ||||
| Net cash provided by financing activities |
4,089 | 1,857 | ||||||
| Net increase in cash and cash equivalents |
51,043 | 176,767 | ||||||
| Cash and cash equivalents, beginning of period |
250,595 | 172,658 | ||||||
| Cash and cash equivalents, end of period |
$ | 301,638 | $ | 349,425 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
Notes To Consolidated Financial Statements
1. Description of Business
Sycamore Networks, Inc. (the “Company”) was incorporated in Delaware on February 17, 1998. The Company develops and markets intelligent optical networking products that are designed to enable telecommunications service providers to cost-effectively and easily transition their existing fiber optic network into an infrastructure that can provision, manage and deliver economic, high-bandwidth services to their customers.
2. Basis of Presentation
The accompanying financial data as of January 24, 2004 and for the three and six months ended January 24, 2004 and January 25, 2003 has been prepared by the Company, without audit, pursuant to 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 accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2003.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present a fair statement of financial position as of January 24, 2004 and results of operations and cash flows for the periods ended January 24, 2004 and January 25, 2003 have been made. The results of operations and cash flows for the periods ended January 24, 2004 are not necessarily indicative of the operating results and cash flows for the full fiscal year or any future periods.
3. Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in accordance with the intrinsic value provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”.
Under the intrinsic value method, when the exercise price of the Company’s employee stock awards equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company’s Consolidated Statements of Operations. The Company currently recognizes compensation expense under APB 25 relating to certain stock options and restricted stock with exercise prices below fair market value on the date of grant.
6
The Company is required under SFAS 123 to disclose pro forma information regarding the stock awards made