SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
Commission file number: 0-15895
STRATEX NETWORKS, INC.
(Exact name of registrant specified in its charter)
| Delaware | 77-0016028 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS employer identification number) |
| 120 Rose Orchard Way San Jose, CA |
95134 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (408) 943-0777
Registrant’s former name: DMC Stratex Networks, Inc.
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 a check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨.
The number of outstanding shares of the Registrant’s common stock, par value $.01 per share, was 84,011,262 on February 5, 2004.
| PAGE | ||
| 1 | ||
| 2 | ||
| PART I - FINANCIAL INFORMATION |
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| Item 1 - Financial Statements |
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| 3 | ||
| 4 | ||
| 5-6 | ||
| 7-23 | ||
| Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24-50 | |
| Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
51 | |
| Item 4 - Controls and Procedures |
51 | |
| PART II - OTHER INFORMATION |
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| Item 1 - Legal Proceedings |
52 | |
| Item 6 - Exhibits and Reports on Form 8-K |
52 | |
| 53 | ||
| 54 | ||
2
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
(Unaudited)
| December 31, 2003 |
March 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 12,527 | $ | 34,036 | ||||
| Short-term investments |
42,719 | 56,146 | ||||||
| Accounts receivable, net |
35,193 | 31,072 | ||||||
| Inventories |
27,324 | 20,307 | ||||||
| Other current assets |
10,402 | 14,032 | ||||||
| Total current assets |
128,165 | 155,593 | ||||||
| Property and equipment, net |
30,230 | 28,836 | ||||||
| Intangible assets, net |
2,007 | — | ||||||
| Other assets |
1,499 | 356 | ||||||
| Total assets |
$ | 161,901 | $ | 184,785 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 26,354 | $ | 23,095 | ||||
| Accrued liabilities |
22,136 | 29,745 | ||||||
| Total current liabilities |
48,490 | 52,840 | ||||||
| Restructuring and other long – term liabilities |
16,207 | 19,145 | ||||||
| Total liabilities |
64,697 | 71,985 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.01 par value; 5,000,000 shares authorized; none outstanding |
— | — | ||||||
| Common stock, $.01 par value; 150,000,000 shares authorized; 83,862,802 shares outstanding |
839 | 827 | ||||||
| Additional paid-in-capital |
461,034 | 457,147 | ||||||
| Accumulated deficit |
(350,989 | ) | (330,711 | ) | ||||
| Accumulated other comprehensive loss |
(13,680 | ) | (14,463 | ) | ||||
| Total stockholders’ equity |
97,204 | 112,800 | ||||||
| Total liabilities and stockholders’ equity |
$ | 161,901 | $ | 184,785 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended December 31, |
Nine Months Ended December 31, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Net sales |
$ | 40,250 | $ | 49,265 | $ | 113,099 | $ | 151,144 | ||||||||
| Cost of sales |
34,151 | 35,411 | 92,591 | 114,006 | ||||||||||||
| Gross profit |
6,099 | 13,854 | 20,508 | 37,138 | ||||||||||||
| Operating Expenses |
||||||||||||||||
| Research and development |
4,396 | 3,351 | 12,264 | 10,433 | ||||||||||||
| Selling, general and administrative |
10,873 | 12,418 | 27,768 | 40,194 | ||||||||||||
| Restructuring charges |
— | 13,189 | — | 27,362 | ||||||||||||
| Amortization of intangible assets |
407 | — | 407 | — | ||||||||||||
| Total operating expenses |
15,676 | 28,958 | 40,439 | 77,989 | ||||||||||||
| Operating loss |
(9,577 | ) | (15,104 | ) | (19,931 | ) | (40,851 | ) | ||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
175 | 480 | 706 | 1,364 | ||||||||||||
| Other income (expense), net |
(371 | ) | (1,124 | ) | (713 | ) | (2,204 | ) | ||||||||
| Write down of investments and other assets |
— | (20 | ) | — | (412 | ) | ||||||||||
| Loss before provision for income taxes |
(9,773 | ) | (15,768 | ) | (19,938 | ) | (42,103 | ) | ||||||||
| Provision for income taxes |
128 | 396 | 340 | 1,339 | ||||||||||||
| Net loss |
$ | (9,901 | ) | $ | (16,164 | ) | $ | (20,278 | ) | $ | (43,442 | ) | ||||
| Basic and diluted loss per share |
$ | (0.12 | ) | $ | (0.20 | ) | $ | (0.24 | ) | $ | (0.53 | ) | ||||
| Basic and diluted weighted average shares outstanding |
83,801 | 82,615 | 83,151 | 82,496 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended December 31, |
||||||||
| 2003 |
2002 |
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| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (20,278 | ) | $ | (43,442 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used for) operating activities: |
||||||||
| Depreciation expense |
6,699 | 8,402 | ||||||
| Amortization of intangible assets |
407 | — | ||||||
| Provision for uncollectible accounts |
— | 98 | ||||||
| Provision for warranty reserves |
5,269 | 7,650 | ||||||
| Provision for inventory reserves |
— | (1,745 | ) | |||||
| Non-cash restructuring expenses |
— | 3,965 | ||||||
| Write down of investments and other assets |
— | 412 | ||||||
| Changes in assets and liabilities |
||||||||
| Accounts receivable |
(4,086 | ) | 8,952 | |||||
| Inventories |
(2,863 | ) | 12,584 | |||||
| Other assets |
2,477 | 385 | ||||||
| Accounts payable |
2,209 | (2,248 | ) | |||||
| Income tax payable |
374 | 664 | ||||||
| Other accrued liabilities |
(13,357 | ) | (2,458 | ) | ||||
| Long term liabilities |
(2,939 | ) | 13,097 | |||||
| Net cash provided by (used for) operating activities |
(26,088 | ) | 6,316 | |||||
| Cash flows from investing activities: |
||||||||
| Purchase of short-term investments |
(195,238 | ) | (239,677 | ) | ||||
| Proceeds from sale of short term investments |
208,661 | 226,532 | ||||||
| Purchase of net assets of Plessey Broadband Wireless, a division of Tellumat (Pty) Ltd. |
(2,578 | ) | — | |||||
| Purchase of property and equipment |
(7,444 | ) | (3,372 | ) | ||||
| Net cash provided by (used for) investing activities |
3,401 | (16,517 | ) | |||||
| Cash flows from financing activities: |
||||||||
| Proceeds from sales of common stock |
899 | 862 | ||||||
| Effect of exchange rate changes on cash |
279 | 856 | ||||||
| Net decrease in cash and cash equivalents |
(21,509 | ) | (8,483 | ) | ||||
| Cash and cash equivalents at beginning of period |
34,036 | 35,888 | ||||||
| Cash and cash equivalents at end of period |
$ | 12,527 | $ | 27,405 | ||||
| SUPPLEMENTAL DATA: |
||||||||
| Interest paid |
$ | 103 | $ | 538 | ||||
| Income taxes paid |
$ | 237 | $ | 721 | ||||
5
STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended December 31, | ||||||
| 2003 |
2002 | |||||
| SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: |
||||||
| Non-cash purchase consideration for the acquisition of Plessey Broadband Wireless, a division of Tellumat (Pty) Ltd. through the issuance of common stock |
$ | 3,000,0000 | $ | — | ||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Stratex Networks, Inc. and its wholly-owned subsidiaries (the “Company”). Intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to current year presentation.
While the financial information furnished is unaudited, the financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in connection with the Company’s financial statements included in its annual report and Form 10-K for the fiscal year ended March 31, 2003, filed with the Securities and Exchange Commission on May 19, 2003.
CASH AND CASH EQUIVALENTS
The Company generally considers all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents. Auction rate preferred securities are considered as short term investments. Cash and cash equivalents consist of cash, money market funds, and short-term securities.
As of December 31, 2003, the Company had $5.7 million in standby letters of credit outstanding with several financial institutions to support bid and performance bonds issued to various customers. In connection with the issuance of these letters of credit, as of December 31, 2003, the Company has restricted $0.2 million of cash, which is included in cash and cash equivalents in the accompanying consolidated balance sheet, as collateral for these specific obligations, which generally expire within one year.
SHORT- TERM INVESTMENTS
The Company invests its excess cash in high-quality and easily marketable instruments. All the marketable securities are classified as “available-for-sale” in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). All investments are reported at fair market value with the related unrealized holding gains and losses reported as a component of accumulated other comprehensive loss. Unrealized holding losses on the portfolio as of December 31, 2003 were insignificant. At December 31, 2003, the available-for-sale securities had remaining contractual maturities ranging from 1 day to 500 days, with a weighted average remaining maturity of 97 days.
7
STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market, where cost includes material, labor and manufacturing overhead. Inventories consist of (in thousands):
| December 31, 2003 |
March 31, 2003 | |||||
| Raw materials |
$ | 18,367 | $ | 13,100 | ||
| Work in process |
2,728 | 4,267 | ||||
| Finished goods |
6,229 | 2,940 | ||||
| $ | 27,324 | $ | 20,307 | |||