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 September 30, 2004 | 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 94,735,697 on November 1, 2004.
2
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
(Unaudited)
| September 30, 2004 |
March 31, 2004 |
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| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 31,911 | $ | 21,626 | ||||
| Short-term investments |
30,861 | 28,337 | ||||||
| Accounts receivable, net of allowance of $1,516 on September 30, 2004 and $2,373 on March 31, 2004 |
43,303 | 34,295 | ||||||
| Inventories |
36,775 | 33,101 | ||||||
| Other current assets |
12,657 | 10,932 | ||||||
| Total current assets |
155,506 | 128,291 | ||||||
| Property and equipment, net |
31,754 | 31,175 | ||||||
| Intangible assets, net |
790 | 1,581 | ||||||
| Other assets |
1,397 | 2,197 | ||||||
| Total assets |
$ | 189,448 | $ | 163,244 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 38,033 | $ | 40,033 | ||||
| Short-term debt |
6,250 | — | ||||||
| Accrued liabilities |
20,558 | 21,718 | ||||||
| Total current liabilities |
64,841 | 61,751 | ||||||
| Long-term debt |
16,667 | — | ||||||
| Restructuring and other long – term liabilities |
18,248 | 20,311 | ||||||
| Total liabilities |
99,756 | 82,062 | ||||||
| Commitments and contingencies (Note 4) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.01 par value; 5,000 shares authorized; none outstanding |
— | — | ||||||
| Common stock, $.01 par value; 150,000 shares authorized; 94,638 and 84,048 issued and outstanding at September 30, 2004 and March 31, 2004, respectively |
947 | 840 | ||||||
| Additional paid-in-capital |
484,963 | 461,483 | ||||||
| Accumulated deficit |
(382,541 | ) | (367,779 | ) | ||||
| Accumulated other comprehensive loss |
(13,677 | ) | (13,362 | ) | ||||
| Total stockholders’ equity |
89,692 | 81,182 | ||||||
| Total liabilities and stockholders’ equity |
$ | 189,448 | $ | 163,244 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended September 30, |
Six Months Ended September 30, |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 43,615 | $ | 36,882 | $ | 89,656 | $ | 72,849 | ||||||||
| Cost of sales |
35,187 | 29,819 | 74,302 | 58,440 | ||||||||||||
| Gross profit |
8,428 | 7,063 | 15,354 | 14,409 | ||||||||||||
| Operating Expenses |
||||||||||||||||
| Research and development |
4,189 | 3,982 | 8,552 | 7,868 | ||||||||||||
| Selling, general and administrative |
9,979 | 9,939 | 19,610 | 16,895 | ||||||||||||
| Amortization of intangible assets |
395 | — | 790 | — | ||||||||||||
| Total operating expenses |
14,563 | 13,921 | 28,952 | 24,763 | ||||||||||||
| Operating loss |
(6,135 | ) | (6,858 | ) | (13,598 | ) | (10,354 | ) | ||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
153 | 269 | 303 | 531 | ||||||||||||
| Interest expense |
(552 | ) | (26 | ) | (770 | ) | (59 | ) | ||||||||
| Other expense, net |
(42 | ) | (107 | ) | (343 | ) | (284 | ) | ||||||||
| Loss before provision for income taxes |
(6,576 | ) | (6,722 | ) | (14,408 | ) | (10,166 | ) | ||||||||
| Provision for income taxes |
202 | 280 | 353 | 211 | ||||||||||||
| Net loss |
$ | (6,778 | ) | $ | (7,002 | ) | $ | (14,761 | ) | $ | (10,377 | ) | ||||
| Basic and diluted loss per share |
$ | (0.08 | ) | $ | (0.08 | ) | $ | (0.17 | ) | $ | (0.13 | ) | ||||
| Basic and diluted weighted average shares outstanding |
84,922 | 82,922 | 84,528 | 82,877 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended September 30, |
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| 2004 |
2003 |
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| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (14,761 | ) | $ | (10,377 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||
| Depreciation and amortization |
5,108 | 4,223 | ||||||
| Changes in assets and liabilities |
||||||||
| Accounts receivable |
(9,089 | ) | 2,831 | |||||
| Inventories |
(3,255 | ) | 288 | |||||
| Other assets |
175 | 1,274 | ||||||
| Accounts payable |
(2,142 | ) | 1,291 | |||||
| Income tax payable |
461 | 133 | ||||||
| Accrued liabilities |
(1,649 | ) | (9,021 | ) | ||||
| Long term liabilities |
(1,934 | ) | (1,948 | ) | ||||
| Net cash used for operating activities |
(27,086 | ) | (11,306 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of short-term investments |
(61,157 | ) | (139,332 | ) | ||||
| Proceeds from sale of short term investments |
58,575 | 152,648 | ||||||
| Purchase of property and equipment |
(5,549 | ) | (4,647 | ) | ||||
| Net cash provided by (used in) investing activities |
(8,131 | ) | 8,669 | |||||
| Cash flows from financing activities: |
||||||||
| Borrowing from banks |
25,000 | — | ||||||
| Repayment of bank borrowings |
(2,083 | ) | — | |||||
| Proceeds from sales of common stock |
23,587 | 600 | ||||||
| Net cash provided by financing activities |
46,504 | 600 | ||||||
| Effect of exchange rate changes on cash |
(1,002 | ) | 86 | |||||
| Net increase (decrease) in cash and cash equivalents |
10,285 | (1,951 | ) | |||||
| Cash and cash equivalents at beginning of period |
21,626 | 34,036 | ||||||
| Cash and cash equivalents at end of period |
$ | 31,911 | $ | 32,085 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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| Interest paid |
$ | 598 | $ | 74 | ||||
| Income taxes paid |
$ | 94 | $ | 222 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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, 2004, filed with the Securities and Exchange Commission on May 27, 2004.
CASH AND CASH EQUIVALENTS
The Company generally considers all highly liquid debt instruments purchased with a remaining maturity of three months or less at the time of purchase, 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 September 30, 2004 and March 31, 2004.
6
STRATEX NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SHORT- TERM INVESTMENTS
The Company invests its excess cash in high-quality marketable instruments to ensure that cash is readily available for use in its current operations. Accordingly, all of the marketable securities are classified as “available-for-sale” in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 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 gains on the portfolio as of September 30, 2004 were insignificant. At September 30, 2004, the available-for-sale securities had contractual maturities ranging from 1 month to 10 months, with a weighted average maturity of 2 months.
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):
| September 30, 2004 |
March 31, 2004 | |||||
| Raw materials |
$ | 14,530 | $ | 20,594 | ||
| Work in process |
3,468 | 1,719 | ||||
| Finished goods |
18,777 | 10,788 | ||||
| $ | 36,775 | $ | 33,101 | |||