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 quarter ended March 28, 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 000-25711
EXTREME NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
| DELAWARE | 77-0430270 | |
| [State or other jurisdiction of incorporation or organization] |
[I.R.S. Employer Identification No.] |
| 3585 Monroe Street Santa Clara, California |
95051 | |
| [Address of principal executive offices] | [Zip Code] |
Registrant’s telephone number, including area code: (408) 579-2800
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 of the Registrant’s Common Stock, $.001 par value, outstanding at April 26, 2004 was 119,962,046.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 28, 2004
INDEX
| PAGE | ||||
| Item 1. |
||||
|
Condensed Consolidated Balance Sheets March 28, 2004 and June 29, 2003 |
3 | |||
|
Condensed Consolidated Statements of Operations Three and nine months ended March 28, 2004 and March 30, 2003 |
4 | |||
|
Condensed Consolidated Statements of Cash Flows Nine months ended March 28, 2004 and March 30, 2003 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3. |
31 | |||
| Item 4. |
32 | |||
| PART II. OTHER INFORMATION |
||||
| Item 1. |
32 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
Not Applicable | ||
| Item 3. |
Defaults Upon Senior Securities |
Not Applicable | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders |
Not Applicable | ||
| Item 5. |
Other Information |
Not Applicable | ||
| Item 6. |
34 | |||
| 35 | ||||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| March 28, 2004 |
June 29, 2003 |
|||||||
| (Unaudited) | (Note 1) | |||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 64,395 | $ | 44,340 | ||||
| Short-term investments |
115,922 | 119,277 | ||||||
| Accounts receivable, net |
30,748 | 26,794 | ||||||
| Inventories, net |
24,226 | 18,710 | ||||||
| Prepaid expenses and other current assets |
14,183 | 16,878 | ||||||
| Total current assets |
249,474 | 225,999 | ||||||
| Property and equipment, net |
63,736 | 73,767 | ||||||
| Marketable securities |
236,561 | 238,540 | ||||||
| Other assets |
28,804 | 11,951 | ||||||
| TOTAL ASSETS |
$ | 578,575 | $ | 550,257 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 22,560 | $ | 19,020 | ||||
| Accrued compensation and benefits |
14,358 | 14,665 | ||||||
| Restructuring liabilities |
5,200 | 6,812 | ||||||
| Lease liability |
2,826 | 4,396 | ||||||
| Accrued warranty |
8,936 | 10,200 | ||||||
| Deferred revenue |
54,693 | 48,298 | ||||||
| Other accrued liabilities |
22,580 | 25,317 | ||||||
| Total current liabilities |
131,153 | 128,708 | ||||||
| Restructuring liabilities, less current portion |
17,385 | 21,358 | ||||||
| Other long-term liabilities |
970 | 955 | ||||||
| Convertible subordinated notes |
200,000 | 200,000 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Convertible preferred stock |
— | — | ||||||
| Common stock and capital in excess of par value |
685,418 | 652,091 | ||||||
| Deferred stock compensation |
(260 | ) | (1,708 | ) | ||||
| Accumulated other comprehensive income |
1,459 | 2,306 | ||||||
| Accumulated deficit |
(457,550 | ) | (453,453 | ) | ||||
| Total stockholders’ equity |
229,067 | 199,236 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 578,575 | $ | 550,257 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| March 28, 2004 |
March 30, 2003 |
March 28, 2004 |
March 30, 2003 |
|||||||||||||
| Net revenues: |
||||||||||||||||
| Product |
$ | 76,059 | $ | 76,356 | $ | 224,315 | $ | 248,076 | ||||||||
| Service |
12,815 | 8,857 | 35,375 | 27,922 | ||||||||||||
| Total net revenues |
88,874 | 85,213 | 259,690 | 275,998 | ||||||||||||
| Cost of revenues: |
||||||||||||||||
| Product |
34,422 | 41,315 | 101,959 | 129,810 | ||||||||||||
| Service |
8,979 | 9,978 | 26,913 | 28,509 | ||||||||||||
| Total cost of revenues |
43,401 | 51,293 | 128,872 | 158,319 | ||||||||||||
| Gross margin: |
||||||||||||||||
| Product |
41,637 | 35,041 | 122,356 | 118,266 | ||||||||||||
| Service |
3,836 | (1,121 | ) | 8,462 | (587 | ) | ||||||||||
| Total gross margin |
45,473 | 33,920 | 130,818 | 117,679 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing |
23,343 | 25,006 | 68,779 | 78,055 | ||||||||||||
| Research and development |
15,001 | 13,749 | 42,867 | 41,676 | ||||||||||||
| General and administrative |
8,043 | 6,328 | 22,934 | 19,992 | ||||||||||||
| Amortization of deferred stock compensation |
198 | 994 | 931 | 3,336 | ||||||||||||
| Restructuring charge |
— | — | 962 | 14,187 | ||||||||||||
| Property and equipment write-off |
— | — | — | 12,678 | ||||||||||||
| Total operating expenses |
46,585 | 46,077 | 136,473 | 169,924 | ||||||||||||
| Operating loss |
(1,112 | ) | (12,157 | ) | (5,655 | ) | (52,245 | ) | ||||||||
| Other income, net |
345 | 990 | 2,707 | 2,860 | ||||||||||||
| Loss before income taxes |
(767 | ) | (11,167 | ) | (2,948 | ) | (49,385 | ) | ||||||||
| Provision (benefit) for income taxes |
339 | (4,105 | ) | 1,149 | (19,295 | ) | ||||||||||
| Net loss |
$ | (1,106 | ) | $ | (7,062 | ) | $ | (4,097 | ) | $ | (30,090 | ) | ||||
| Net loss per share – basic and diluted |
$ | (0.01 | ) | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.26 | ) | ||||
| Shares used in per share calculation – basic and diluted |
118,832 | 115,501 | 117,706 | 114,913 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| March 28, 2004 |
March 30, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (4,097 | ) | $ | (30,090 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation |
15,550 | 20,227 | ||||||
| Provision for doubtful accounts (reversal) |
(200 | ) | — | |||||
| Deferred income taxes |
— | (19,385 | ) | |||||
| Amortization of deferred stock compensation |
931 | 3,336 | ||||||
| Amortization of warrant-related costs |
3,153 | — | ||||||
| Restructuring charge |
962 | 26,865 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(3,754 | ) | 32,694 | |||||
| Inventories |
(5,516 | ) | 633 | |||||
| Prepaid expenses and other current assets, and Other assets |
5,388 | (6,785 | ) | |||||
| Accounts payable |
3,540 | (5,983 | ) | |||||
| Accrued compensation and benefits |
(307 | ) | (1,997 | ) | ||||
| Restructuring liabilities |
(6,425 | ) | (5,041 | ) | ||||
| Lease liability |
(1,570 | ) | (1,677 | ) | ||||
| Accrued warranty |
(1,264 | ) | 1,118 | |||||
| Deferred revenue |
6,395 | 6,723 | ||||||
| Other accrued liabilities |
(2,722 | ) | (5,675 | ) | ||||
| Net cash provided by operating activities |
10,064 | 14,963 | ||||||