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 OCTOBER 31, 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 000-28139
BLUE COAT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
| DELAWARE | 91-1715963 | |
| (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
(IRS EMPLOYER IDENTIFICATION) | |
| 650 ALMANOR AVENUE SUNNYVALE, CALIFORNIA |
94085 | |
| (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) | (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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 December 7, 2004 | |
| Common Stock, par value $.0001 |
12,166,611 |
| PAGE | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. |
Condensed Consolidated Financial Statements (Unaudited) | |||
| Condensed Consolidated Balance Sheets as of October 31, 2004 and April 30, 2004 | 1 | |||
| Condensed Consolidated Statements of Operations for the three and six months ended October 31, 2004 and 2003 | 2 | |||
| Condensed Consolidated Statements of Cash Flows for the six months ended October 31, 2004 and 2003 | 3 | |||
| Notes to Condensed Consolidated Financial Statements | 4 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 43 | ||
| Item 4. |
Controls and Procedures | 44 | ||
| PART II. OTHER INFORMATION | ||||
| Item 1. |
Legal Proceedings | 44 | ||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 45 | ||
| Item 3. |
Defaults Upon Senior Securities | 45 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 45 | ||
| Item 5. |
Other Information | 45 | ||
| Item 6. |
Exhibits | 45 | ||
| Signatures | 47 | |||
i
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
| October 31, 2004 |
April 30, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 42,609 | $ | 39,424 | ||||
| Short-term investments |
80 | 80 | ||||||
| Accounts receivable, net |
10,794 | 10,441 | ||||||
| Inventories |
1,269 | 1,595 | ||||||
| Prepaid expenses and other current assets |
2,115 | 1,829 | ||||||
| Notes receivable |
842 | — | ||||||
| Total current assets |
57,709 | 53,369 | ||||||
| Property and equipment, net |
3,350 | 2,490 | ||||||
| Restricted investments |
1,493 | 1,991 | ||||||
| Goodwill |
7,470 | 7,456 | ||||||
| Identifiable intangible assets, net |
1,545 | 1,849 | ||||||
| Other intangible assets, net |
501 | — | ||||||
| Other assets |
503 | 881 | ||||||
| Total assets |
$ | 72,571 | $ | 68,036 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,033 | $ | 2,890 | ||||
| Accrued payroll and related benefits |
2,885 | 2,564 | ||||||
| Deferred revenue |
11,532 | 10,514 | ||||||
| Accrued acquisition costs |
1,488 | 4,991 | ||||||
| Accrued restructuring reserve |
2,949 | 3,100 | ||||||
| Accrued royalty expense |
1,186 | 432 | ||||||
| Other accrued liabilities |
2,624 | 2,141 | ||||||
| Total current liabilities |
25,697 | 26,632 | ||||||
| Accrued restructuring reserve, less current portion |
2,204 | 3,504 | ||||||
| Deferred revenue, less current portion |
2,159 | 1,785 | ||||||
| Total liabilities |
30,060 | 31,921 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock |
— | — | ||||||
| Common stock |
1 | 1 | ||||||
| Additional paid-in capital |
906,530 | 903,141 | ||||||
| Treasury stock |
(903 | ) | (903 | ) | ||||
| Deferred stock compensation |
(5 | ) | (727 | ) | ||||
| Accumulated deficit |
(863,112 | ) | (865,399 | ) | ||||
| Accumulated other comprehensive income (loss) |
— | 2 | ||||||
| Total stockholders’ equity |
42,511 | 36,115 | ||||||
| Total liabilities and stockholders’ equity |
$ | 72,571 | $ | 68,036 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
| Three Months Ended October 31, |
Six Months Ended October 31, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales: |
||||||||||||||||
| Products |
$ | 17,906 | $ | 10,175 | $ | 35,047 | $ | 19,380 | ||||||||
| Services |
4,022 | 3,243 | 8,005 | 6,448 | ||||||||||||
| Total net sales |
21,928 | 13,418 | 43,052 | 25,828 | ||||||||||||
| Cost of goods sold: |
||||||||||||||||
| Products |
6,096 | 3,700 | 11,798 | 6,896 | ||||||||||||
| Services |
1,398 | 853 | 2,614 | 1,799 | ||||||||||||
| Total cost of goods sold |
7,494 | 4,553 | 14,412 | 8,695 | ||||||||||||
| Gross profit |
14,434 | 8,865 | 28,640 | 17,133 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
3,708 | 2,697 | 7,304 | 5,010 | ||||||||||||
| Sales and marketing |
7,713 | 5,578 | 14,484 | 11,292 | ||||||||||||
| General and administrative |
2,063 | 1,167 | 3,747 | 2,190 | ||||||||||||
| Amortization of identifiable intangible assets |
152 | — | 304 | — | ||||||||||||
| Legal settlement fees |
— | 1,100 | — | 1,100 | ||||||||||||
| Restructuring |
— | 856 | — | 856 | ||||||||||||
| Stock compensation |
358 | 123 | 722 | 408 | ||||||||||||
| Total operating expenses |
13,994 | 11,521 | 26,561 | 20,856 | ||||||||||||
| Operating income (loss) |
440 | (2,656 | ) | 2,079 | (3,723 | ) | ||||||||||
| Interest income |
150 | 87 | 242 | 172 | ||||||||||||
| Other income (expense) |
(3 | ) | (28 | ) | 16 | (57 | ) | |||||||||
| Net income (loss) before income taxes |
587 | (2,597 | ) | 2,337 | (3,608 | ) | ||||||||||
| (Provision) benefit for income taxes |
20 | (47 | ) | (50 | ) | (92 | ) | |||||||||
| Net income (loss) |
$ | 607 | $ | (2,644 | ) | $ | 2,287 | $ | (3,700 | ) | ||||||
| Basic net income (loss) per common share |
$ | 0.05 | $ | (0.27 | ) | $ | 0.21 | $ | (0.40 | ) | ||||||
| Diluted net income (loss) per common share |
$ | 0.05 | $ | (0.27 | ) | $ | 0.18 | $ | (0.40 | ) | ||||||
| Shares used in computing basic net income (loss) per common share |
11,197 | 9,630 | 11,131 | 9,274 | ||||||||||||
| Shares used in computing diluted net income (loss) per common share |
12,283 | 9,630 | 12,557 | 9,274 | ||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| Six Months Ended October 31, |
||||||||
| 2004 |
2003 |
|||||||
| Operating Activities |
||||||||
| Net income (loss) |
$ | 2,287 | $ | (3,700 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation |
675 | 1,219 | ||||||
| Amortization of intangible assets |
340 | — | ||||||
| Gain on disposition of equipment |
— | (29 | ) | |||||
| Stock compensation |
722 | 408 | ||||||
| Restructuring expense |
— | 856 | ||||||
| Interest on notes receivable |
(7 | ) | (6 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(353 | ) | 4,035 | |||||
| Inventories |
326 | 483 | ||||||
| Prepaid expenses and other current assets |
(286 | ) | (688 | ) | ||||
| Other assets |
378 | 53 | ||||||
| Deferred revenue |
1,392 | (24 | ) | |||||
| Accounts payable |
143 | 1,008 | ||||||
| Accrued liabilities |
(647 | ) | (2,195 | ) | ||||
| Accrued royalty expense |
754 | 45 | ||||||