BLUE COAT SYSTEMS INC - 10-Q Quarterly Report

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 JANUARY 31, 2005

¨	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

March 7, 2005

Common Stock, par value $.0001

12,244,575

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		PAGE

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of January 31, 2005 and April 30, 2004	1

	Condensed Consolidated Statements of Operations for the three and nine months ended January 31, 2005 and 2004	2

	Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2005 and 2004	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	48

Item 6.	Exhibits	49

	Signatures	52

BLUE COAT SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)


	January 31, 2005			April 30, 2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	44,200		$	39,424
Short-term investments		80			80
Accounts receivable, net		8,814			10,441
Inventories		1,322			1,595
Prepaid expenses and other current assets		2,863			1,829

Total current assets		57,279			53,369

Property and equipment, net		3,307			2,490
Restricted investments		1,493			1,991
Goodwill		24,868			7,456
Identifiable intangible assets, net		4,297			1,849
Purchased software		456			—
Other assets		448			881

Total assets	$	92,148		$	68,036

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,958		$	2,890
Accrued payroll and related benefits		3,099			2,564
Deferred revenue		12,422			10,514
Accrued acquisition costs		225			4,991
Accrued restructuring reserve		2,694			3,100
Accrued royalty expense		352			432
Other accrued liabilities		2,948			2,141

Total current liabilities		24,698			26,632

Accrued restructuring reserve, less current portion		1,703			3,504
Deferred revenue, less current portion		2,578			1,785

Total liabilities		28,979			31,921

Commitments and Contingencies

Stockholders’ equity:
Preferred stock		—			—
Common stock		1			1
Additional paid-in capital		927,061			903,141
Treasury stock		(903	)		(903	)
Deferred stock compensation		(143	)		(727	)
Accumulated deficit		(862,845	)		(865,399	)
Accumulated other comprehensive income (loss)		(2	)		2

Total stockholders’ equity		63,169			36,115

Total liabilities and stockholders’ equity	$	92,148		$	68,036

BLUE COAT SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)


	Three Months Ended January 31,						Nine Months Ended January 31,
	2005			2004			2005			2004
Net sales:
Products	$	20,133		$	15,589		$	55,180		$	34,969
Services		4,616			3,525			12,621			9,973

Total net sales		24,749			19,114			67,801			44,942
Cost of goods sold:
Products		6,552			4,563			18,350			11,459
Services		1,408			1,014			4,022			2,813

Total cost of goods sold		7,960			5,577			22,372			14,272

Gross profit		16,789			13,537			45,429			30,670

Operating expenses:
Research and development		4,239			3,082			11,543			8,092
Sales and marketing		8,740			6,314			23,224			17,606
General and administrative		2,520			1,480			6,267			3,670
Legal settlement fees		—			—			—			1,100
Write-off of in-process technology		—			151			—			151
Amortization of intangible assets		170			152			474			152
Restructuring expense		—			—			—			856
Stock compensation		1,014			403			1,736			811

Total operating expenses		16,683			11,582			43,244			32,438

Operating income (loss)		106			1,955			2,185			(1,768	)
Interest income		208			90			450			262
Other expense		(36	)		(55	)		(20	)		(112	)

Net income (loss) before income taxes		278			1,990			2,615			(1,618	)
Provision for income taxes		(11	)		(28	)		(61	)		(120	)

Net income (loss)	$	267		$	1,962		$	2,554		$	(1,738	)

Basic net income (loss) per common share	$	0.02		$	0.19		$	0.22		$	(0.18	)

Diluted net income (loss) per common share	$	0.02		$	0.16		$	0.20		$	(0.18	)

Shares used in computing basic net income (loss) per common share		11,992			10,455			11,418			9,668

Shares used in computing diluted net income (loss) per common share		13,245			12,286			12,755			9,668

BLUE COAT SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Nine Months Ended January 31,
	2005			2004
Operating Activities
Net Income (Loss)	$	2,554		$	(1,738	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		1,157			1,806
Amortization of intangible assets		582			152
Amortization of purchased software		81			—
Write-off of in-process technology		—			151
Gain on disposition of equipment		—			(29	)
Stock compensation		1,736			811
Restructuring expense		—			856
Interest on notes receivable from stockholders		—			(9	)
Changes in operating assets and liabilities:
Accounts receivable		2,219			307
Inventories		273			204
Prepaid expenses and other current assets		(950	)		(556	)
Other assets		448			44
Deferred revenue		2,041			689
Accounts payable		68			1,920
Accrued liabilities		(2,081	)		(2,275	)
Accrued royalty expense		(80	)		(242	)

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