UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission File Number:
001-33355
BigBand Networks,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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04-3444278
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(State or other
jurisdiction
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(I.R.S. Employer
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of incorporation or
organization)
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Identification
Number)
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475 Broadway Street
Redwood City, California 94063
(Address of principal executive
offices and zip code)
(650) 995-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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The NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the issuer as of the last business day of the
registrants most recently completed second fiscal quarter
(June 30, 2009) was approximately $221 million.
The number of shares outstanding of the registrants common
stock as of March 1, 2010 was 67,314,145.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement relating to
its 2010 Annual Stockholders Meeting are incorporated by
reference in Part III of this Annual Report on
Form 10-K.
BigBand
Networks, Inc.
FORM 10-K
for the fiscal year ended December 31, 2009
TABLE OF CONTENTS
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This Annual Report on
Form 10-K
(Form 10-K)
includes forward looking statements. All statements other than
statements of historical facts contained in this
Form 10-K,
including statements regarding our future results of operations
and financial position, business strategy and plans and our
objectives for future operations, are forward-looking
statements. The words believe, may,
will, estimate, continue,
anticipate, project, intend,
expect and similar expressions are intended to
identify forward looking statements. We have based these forward
looking statements largely on our current expectations and
projections about future events and financial trends that we
believe may affect our financial condition, results of
operations, business strategy, long-term and long-term business
operations and objectives, and financial needs. These forward
looking statements are subject to a number of risks,
uncertainties and assumptions, including those described in
Risk Factors in Item 1A of this
Form 10-K.
In light of these risks, uncertainties and assumptions, the
forward looking events and circumstances discussed in this
Form 10-K
may not occur and actual results could differ materially and
adversely from those anticipated or implied in the forward
looking statements.
Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time to time. It is not
possible for our management to predict all risks, nor can we
assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements we may make. Before investing in our
common stock, investors should be aware that the occurrence of
the risks, uncertainties and events described in the section
entitled Risk Factors and elsewhere in this
Form 10-K
could have a material adverse effect on our business, results of
operations and financial condition.
You should not rely upon our forward-looking statements as
predictions of future events. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee that our future results, levels
of activity, performance or events and circumstances reflected
in the forward-looking statements will be achieved or occur.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking
statements. We undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this
Form 10-K
to conform these statements to actual results or to changes in
our expectations.
This
Form 10-K
also contains statistical data and estimates that we obtained
from industry publications and reports generated by Forrester
Research. Although we have assessed the information in the
publications and found it to be reasonable and believe the
publications are reliable, we have not independently verified
the data.
You should read this
Form 10-K
and the documents that we reference in this
Form 10-K
and have filed with the Securities and Exchange Commission (SEC)
with the understanding that our actual future results, levels of
activity, performance and events and circumstances may be
materially different from what we currently expect.
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PART I
Overview
We develop, market and sell network-based platforms that enable
cable multiple system operators (MSOs) and telecommunications
companies (collectively, service providers) to offer video
services across coaxial, fiber and copper networks. We were
incorporated in Delaware in December 1998. Since that time, we
have developed significant expertise in rich media processing,
communications networking and bandwidth management. Our
customers are using our platforms to expand high-definition
television (HDTV) services, and enable high-quality video
advertising programming to subscribers. Our Broadcast Video,
TelcoTV, Switched Digital Video and IPTV (Personalized Video)
solutions are comprised of a combination of software and
programmable hardware platforms. We have sold our solutions to
more than 200 customers globally. We sell our products and
services to customers in the U.S. and Canada through our
direct sales force. Domestically, our customers include Bright
House, Cablevision, Charter, Comcast, Cox, Time Warner Cable and
Verizon, which are seven of the ten largest service providers in
the U.S. We sell to customers internationally through a
combination of direct sales and resellers. Our largest
international resellers include Guangdong Tongke, Sugys and
Ssangyong, who sell to end users such as Jiangsu Cable and LG
Powercom.
Industry
Background
MSOs and telecommunications companies derive most of their
revenues from consumer subscriptions for video, voice or data
services and from advertising. To attract and retain
subscribers, service providers are increasingly bundling video,
voice and data services, and offering richer and more
personalized services. The competition for video subscriptions
has been increasing over time, with initial competition coming
from satellite video providers, more recently between cable MSOs
and telecommunications companies and most recently from the
entry of media companies, such as Hulu and Apple, offering video
programming directly to consumers through the Internet. In this
competition, the service providers are competing on the volume
of HD programs and personalization that they can offer to
subscribers.
Consumer
Demands
Given increasing competition, service providers are attempting
to differentiate their offerings by addressing changing consumer
behavior and evolving advertiser demands. Spurred by the
delivery of video over the Internet, consumers are increasingly
directing their spending on video services to those providers
offering services that more offer greater personalization of
content, a higher quality experience and greater ease and speed
of access to their video services.
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Personalization. With the proliferation in
content, consumers are seeking content that is increasingly
customized to their personal interests. This personalized
content spans everything from the purchase of downloadable
episodes of television programming to customized video
programming, such as Video on Demand (VOD) and niche channel
packages.
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Richer Video Content. Consumers are demanding
a higher quality experience, whether online or in their
television viewing. As a result, consumers are continuing to
purchase HDTVs and high-speed data services to access richer
content, such as HD programming, user-generated video clips and
interactive online video games. For example, Forrester Research
estimates that 57% of all U.S. households will have HD
televisions by the end of 2010.
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Ease and Speed of Access. In an increasingly
mobile world, consumers desire faster access to content from
virtually anywhere using a wide range of devices, such as
portable media players, televisions, mobile phones, personal
digital assistants and personal computers.
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Consumers have been able to gain greater personalization, richer
content and better access to their voice and data services using
network-based technologies. For video, however, there has been
only a limited response to these consumer demands. To offer
richer, more personalized content at the speeds consumers
expect, and to capture the
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larger video subscription opportunity, service providers are
developing networks with the bandwidth to deliver richer video
services and the intelligence to tailor video services and
direct advertising to individual subscribers.
Advertiser
Demands
Traditionally, advertisers attempted to reach consumers through
media channels such as broadcast television that distributed the
same advertising to wide audiences. The Internet offers
advertisers a distribution channel that delivers more relevant
ads, while at the same time offering the interactivity required
to measure return on ad spending. Today, advertisers are
demanding that advertising on video services offer similar
relevancy, interactivity and measurability.
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Relevancy. Advertisers are demanding that
their advertisements be addressed to a relevant audience. For
example, they desire to target video advertising to particular
geographic zones, and ultimately want to tailor advertising to
specific subscribers.
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Interactivity. Advertisers want to provide
consumers with an easy and immediate way to respond to an
advertisement. For example, advertisers would like to provide
subscribers with the ability to use a remote control to
immediately access additional product information associated
with a television advertisement.
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Measurability. Advertisers are seeking ad
distribution networks that allow them to measure the
effectiveness of their ad spending and are willing to pay more
for video advertisements that result in a higher consumer
response rate.
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To encourage advertisers to direct more spending toward
television advertisements, service providers must be able to
deliver relevant advertisements and measure the effectiveness of
marketing campaigns for advertisers. The current video networks
of service providers are limited in their ability to provide the
intelligence necessary for the relevancy, interactivity and
measurability required to meet the expanding demands of
advertisers.
Intelligent,
High-Bandwidth Video Networks are Needed
Current service provider networks are not fully equipped for
increasingly rich and interactive video content. Cable MSOs that
originally built their networks for the one-way broadcast of
analog video content still lack the capacity to deliver as much
of the rich content and interactivity increasingly required by
consumers and advertisers. Telecommunications companies
originally constructed low-bandwidth networks capable of
delivering highly interactive voice services, but without the
bandwidth necessary to fully deliver rich video services.
Collectively, cable MSOs and telecommunications companies share
a need to develop intelligent, high-bandwidth video networks for
their consumer and advertiser customers.
Delivering high-quality, personalized video services and
relevant video-based advertising has strained service
providers existing network infrastructures. For a robust
delivery of these services, service providers must overcome the
following challenges:
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Bandwidth Limitations Posed by Video. Service
providers fixed-bandwidth networks are not fully equipped
for the volume and richness of content being demanded by
subscribers. For example, a typical HDTV video stream requires
19.4 megabits per second (Mbps) of continuous bandwidth, which
is up to ten times the bandwidth required by a standard
definition video stream and substantially greater than the
10 Mbps limit of most copper-based network data
connections. To meet the demand for more and richer content such
as HDTV, service providers must either undertake a costly
capital expansion of their network infrastructures or use their
existing infrastructure more efficiently.
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Difficulty of Delivering a High-Quality Video Experience.
Service provider networks are inherently prone to packet loss,
error and delay. This problem is exacerbated as the richness and
volume of the content being delivered across the network
increases. Importantly, HDTV is approximately 1,000 times more
sensitive to packet loss, error and delay than voice and data
services. To ensure a consistent high-quality subscriber viewing
experience, service providers must find solutions that maintain
the integrity of the video streams as these streams are
delivered across their networks.
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Lack of Customized Video Programming. Existing
networks lack the intelligence to allow service providers to
understand and react to subscriber television viewing behavior.
As a result, service providers lack the ability to deliver video
programming packages tailored to the interests of specific
subscribers or groups of subscribers. To deliver customized
video programming, service providers require networks that will
enable them to understand subscriber viewing behavior and, based
on that understanding, allow them to deliver new video channels
and programming packages to specific subscribers or groups of
subscribers.
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Requirement for More Relevant Video
Advertising. Advertisers are demanding that their
advertisements be addressed to a relevant audience. To satisfy
this demand, service providers need the capability to deliver
video advertising to particular geographic segments and
demographic groups, and ultimately, to tailor advertising to
specific subscribers. In most broadcast implementations, service
providers lack the capability to distinguish one subscriber from
another and the capacity to insert tailored advertising into a
continuous video stream without degrading service quality.
Service providers are seeking solutions that will enable the
seamless insertion of relevant advertisements into video streams.
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High Cost of Infrastructure
Investment. Service providers have invested
heavily to establish their existing network infrastructures,
including the deployment of a significant number of cable
set-top boxes. Service providers must either make significant
investments to upgrade or replace their existing infrastructure,
or find ways to extend the useful life of their installed
equipment. Service providers generally prefer network-based
capital investments since these costs can be allocated across
many subscribers without costly replacement of existing set-top
boxes.
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Need to Rapidly Deliver Advanced
Services. Historically, service providers have
needed to make very large capital expenditures to purchase
replacement network equipment to support next-generation
services. With the increasing pace of change, service providers
require platforms with the flexibility to rapidly deploy
advanced video services while minimizing lengthy and
capital-intensive network upgrades.
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Service providers face common challenges how to
rapidly and economically offer an increasing amount of video
content, deliver a more compelling user experience and deliver
more relevant programming and advertising to their subscribers.
The technical and bandwidth challenges associated with
delivering video services creates a need for platforms designed
for reliable and cost-effective video delivery.
The
BigBand Offering
We develop, market and sell network-based platforms that enable
service providers to offer video services across coaxial, fiber
and copper networks. Our software and hardware solutions are
used to offer video services commercially to tens of millions of
subscribers, 24 hours a day, seven days a week and have
been successfully deployed by leading service providers
worldwide, including seven of the ten largest service providers
in the U.S.
We combine rich media processing, modular software and
high-speed switching and routing with carrier-class hardware
designed to address specific service provider needs into our
solutions. Our solutions enable service providers to deliver
high-quality video services and offer more effective video
advertising. We offer our customers Broadcast Video, TelcoTV,
Switched Digital Video and IPTV (Personalized Video) solutions.
Our solution offers the following key benefits:
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Intelligent Bandwidth Management. Using our
solutions, service providers can address their increasing
bandwidth needs. For example, we offer what we believe to be the
most widely deployed switched digital video solution
commercially available today. Our Switched Digital Video
solution only transmits channels to subscribers when the
subscribers in a service group are in the process of watching
those channels, instead of broadcasting all channels to all
subscribers all the time. This enables service providers to
achieve 50% or greater savings in bandwidth usage for digital
subscribers, allowing service providers to offer additional
services (such as HDTV channels) without altering the subscriber
viewing experience.
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High-Quality Video Experience. Our solutions
allow service providers to minimize the likelihood of video
quality errors by detecting potential video quality degradation
in real-time and correcting such degradation before the video
stream is delivered to subscribers. Our Broadcast Video solution
is designed to increase the
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volume and quality of video delivered across a fixed-bandwidth
network by optimizing the delivery of video streams, while our
program level redundancy functionality adds the switching
capability to automatically provision an alternative video
stream should the quality of the primary stream begin to degrade.
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Enhanced Video Personalization. Using our
solutions, service providers have the ability to understand the
viewing habits of their customers and, as a result, can more
accurately tailor programming packages to the interests of their
subscribers. For example, our Switched Digital Video solution
enables service providers to satisfy consumer demand for
increasingly personalized content by expanding the number of
channels that can be offered because selected channels are only
delivered when the channel is requested by a subscriber in the
service group. Using this solution, one of our customers was
able to offer additional channel packages tailored to
demographic groups.
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Ability to Deliver Relevant Video
Advertising. Our solutions allow service
providers to insert advertising tailored to specific subscriber
groups. For example, using our IPTV solution, service providers
can simultaneously insert different ads into multiple copies of
the same program and forward them to specific geographic zones.
This allows service providers to attract advertisers interested
in reaching niche markets.
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Improved Return on Existing Infrastructure
Investment. Our network-based solutions allow
service providers to manage service quality from the network,
rather than deploying costly personnel and equipment at the
customer premises. Because our solutions are deployed at the
network level, service providers can leverage their
infrastructure investment across many subscribers and avoid the
hardware and service costs associated with an upgrade of
equipment in the homes of subscribers.
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High Availability. Our solutions are built
utilizing carrier class hardware that provides our customers
with solutions that offer improved uptime of the platforms for
the video services they deliver to consumers. The high
availability of our platforms is designed to reduce the cost of
maintenance of these platforms, and as a result reduce the total
cost of ownership.
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Platform Flexibility. Our solutions feature a
fully programmable hardware and modular software architecture.
Our
field-upgradable
hardware is designed to meet service provider platform
flexibility requirements and to minimize the need to replace
existing hardware.
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Strategy
Our objective is to be the leading provider of network-based
products that enable the delivery of high-bandwidth,
high-quality video services and more effective video
advertising. Key elements of our strategy include the following:
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Enhance Technology Leadership Position. Our
core strength is our media processing and video systems design
expertise. We use this expertise to deliver what we believe to
be the most-widely deployed switched digital video product
commercially available today. We will continue leveraging our
expertise to deliver solutions that focus on optimizing network
infrastructure and enabling delivery of a high-quality user
experience.
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Leverage Modular Architecture to Accelerate New Product
Introduction. We have created a series of media processing
software modules that, when combined with our programmable
hardware and switching fabric, serve as the foundation for a
range of network-based solutions. We believe our software
modules can serve as the foundation for rapidly delivering
solutions that address our customers bandwidth and service
delivery needs.
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Expand Footprint Within Existing Customer
Base. We have customer relationships with a
number of service providers both in the U.S. and
internationally, including seven of the ten largest service
providers in the U.S. We believe these customer
relationships give us a strong advantage in understanding our
customers network challenges and delivering timely
solutions. We will continue to work closely with our customers
on the designs of their network architectures and emerging
services, expand our relationships with these customers to
deploy more of our existing applications and develop and deliver
new applications to address their network challenges.
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Expand Customer Base. Service providers deploy
video services to subscribers across networks based on coaxial,
fiber and copper. We have successfully deployed our solutions
across these access technologies. We are currently providing
Verizon with a solution that allows digital transmission of
video over fiber-optic lines. Other telecommunications companies
deploying video services over existing DSL lines leverage our
media processing expertise to provide such video services. Still
others use our solutions to carry services over coaxial cable.
We intend to leverage our media processing expertise to
penetrate new customers worldwide, regardless of the type of
access networks they use.
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Broaden Advanced Advertising Capabilities. We
currently enable service providers to insert video
advertisements targeted to subscribers in specific geographic
zones. We intend to collaborate with our customers to continue
developing and deploying next-generation advertising solutions.
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Solutions
We are a category leader in digital video networking. Our video
networking solutions enable service providers to move, manage
and monetize video. We deliver proven network-based platforms to
empower service providers to transition from broadcast to the
delivery of personalized video services. Our product solutions
are a combination of advanced networking and video processing
hardware platforms with software modules that optimize existing
infrastructures and bandwidth to deliver application-specific
functions. We believe our approach of combining carrier-grade,
purpose-built platforms with modular software delivers a faster
return on investment and a lower total cost of ownership
compared to platforms offered by our competitors. We deliver the
following product solutions:
Switched Digital Video. We believe we were the
first company to develop and commercially deploy a switched
digital video solution. Traditionally, service providers
broadcast all channels to all subscribers at all times. Our
Switched Digital Video solution enables service providers to
transmit video channels to subscribers only when the subscribers
in a smaller subset of subscribers within a network, called a
service group, are in the process of watching those channels.
Depending on the number of subscribers and the amount of
duplicate channels within a service group, our Switched Digital
Video solution typically allows service providers to achieve up
to 50% bandwidth savings in the delivery of digital video
content and use the reclaimed bandwidth to offer additional
content. This reclaimed bandwidth can be used to deliver niche
video packages, more HDTV channels, high-speed data service
and/or voice
service. The diagram below illustrates how bandwidth can be
reclaimed using our Switched Digital Video solution, which
broadcasts only those channels that are being watched within a
service group.
In addition, our Switched Digital Video solution gives our
service providers real-time access to the actual viewing habits
of their subscriber groups, information that is increasingly
valuable as they and their advertisers seek to tailor
advertising or personalized channel services to specific
subscriber groups and individual subscribers. We deliver our
Switched Digital Video solution by combining our core media
processing modules with our Broadband Multimedia-Service Router
hardware platform, which we refer to as our BMR, BigBand Server
and Management Suite, and Broadband Edge QAM or BEQ.
Broadcast Video. Historically, video content
was broadcast only in analog form. Analog video presents a
number of limitations to service providers, including
deterioration of video quality, higher cost to insert relevant
advertising in the video stream, and the cost of converting
analog to digital for certain digital devices in the home, such
as digital video recorders. Our Broadcast Video solutions enable
advanced digital media processing and transport technologies for
service providers. For example, we were first to implement what
we believe has become the industrys de facto network
architecture for digital simulcast.
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Our digital simulcast product application enables service
providers to create a digital version of analog inputs and
deliver both analog and digital video streams to subscribers.
This gives service providers a cost-efficient way of migrating
subscribers from analog to digital video, which uses lower cost
all-digital set-top boxes, while still supporting a large
installed base of analog set-top boxes and televisions. In
addition, our digital simulcast product application allows
service providers to insert advertisements into the digital
video stream and deliver those advertisements either in digital
or analog form to subscribers. This offers our customers
incremental revenue opportunities through the ability to insert
advertisements into the digital stream targeted to specific
geographic zones. We deliver our Broadcast Video solution by
combining our BMR with our core media processing modules with
advanced splicing capability.
TelcoTV. Telecommunications companies use our
BMR to provide a very high-quality viewing experience to their
subscribers, while still benefiting from the use of digital
video transport throughout their networks. We enable
telecommunications companies to leverage their existing
Synchronous Optical Network, or SONET, infrastructure, which was
originally designed for voice communications, to transport video
content throughout the network. This provides significant cost
savings as telecommunications companies are not required to
build a dedicated video transport network. They deploy our
solution in network locations called video serving offices, or
VSOs, that provide service directly to consumers. Our TelcoTV
solution integrates our core media processing modules, our BMR
radio frequency, or RF, modulation, and local content insertion.
Personalized Video. We now offer service
providers our Media Services Platform (MSP2000), a
carrier-grade, network-based platform designed to enable service
providers to offer a range of personalized video applications
such as linear, zoned, and ultimately addressable advertising,
or time-shifted delivery of television programming. This enables
service providers to offer high quality, differentiated video
services in conjunction with new revenues, for example
increasing ad revenues via more targeting.
IPTV over DOCSIS. We offer an alternative
solution to deliver IP video services to home computers, IP set
top boxes and other IP consumer devices via standard DOCSIS 3.0
cable modems, which we market under the name vIP PASS. vIP PASS
leverages the control plane of our Converged Video Exchange
(CVEx) and Switched Digital Video, and our universal edge QAMs
to offload video transport from the cable modem termination
system. It is designed to provide cable MSOs an economical
alternative for delivery of managed IP services, compared to an
investment in additional cable modem termination system
downstream channel capacity.
Platforms
and Technologies
Our intelligent, network-based applications are built on an
architecture that combines modular software with extensible and
scalable hardware platforms. Our chassis-based hardware
platforms offer
field-upgradeable
hardware, high-speed switching and routing with general-purpose
processing capabilities. On top of this hardware, we layer
software that provides rich media processing capabilities to
support more services and more subscribers. Our hardware
platforms have been engineered to comply with the Level-3
Network Equipment Building System standard, or NEBS, which is a
set of telecommunications industry safety and environmental
design guidelines for equipment in central offices. Our
platforms consist of the following:
BigBand Broadband Multimedia-Service Router
(BMR). Our Broadband Multimedia-Service Router is
a platform that is designed for the real-time processing and
switching of video. The BMR platform is a protocol-neutral
architecture that processes and switches MPEG, IP and Ethernet
packets. We accelerate our software media processing
functionality through digital signal processors (DSPs) and field
programmable gate arrays (FPGAs), which also allow the BMR to be
upgraded or reconfigured over time from remote locations. The
BMR is a chassis-based design that provides carrier-class
reliability and the flexibility to expand functionality and
capacity as network requirements evolve by adding new network
cards. The BMR also supports the transmission of digital and
analog signals using radio frequency, or RF, interfaces to the
physical cable network through QAM, quadrature phase shift
keying and analog RF.
BigBand Broadband Edge QAM (BEQ). Our
Broadband Edge QAM platforms are used to convert digital video
and data streams into quadrature amplitude modulated (QAM) RF
streams that transport video and data across cable networks to
subscriber set top boxes and cable modems. The services that are
transported can include Switched Digital Video, Video on Demand,
Broadcast Video and DOCSIS High Speed Data. Our QAM platforms
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are modular and employ digital signal processors, FPGAs and our
own proprietary RF technology and algorithms. They are noted for
their high signal quality and thermal efficiency.
BigBand Media Services Platform (MSP2000). Our
Media Services Platform is designed to manage large numbers of
IP video streams combined with rich media processing to enable a
range of personalized video applications such as linear, zoned,
and addressable advertising. Our MSP2000 is a chassis-based
platform that is designed to provide carrier-class reliability,
scale and flexibility, including the ability to grow subscriber
services and new applications over time with the addition of new
hardware line cards. The BigBand MSP2000 is based on industry
standards, open interfaces and established network protocols to
simplify the platform integration into existing service provider
networks.
Converged Video Exchange (CVEx). Our CVEx
platform is a control plane solution designed to manage large
numbers of video sessions while optimizing network bandwidth
utilization. The CVEx platform is a fundamental component of our
Switched Digital Video deployments and offers Edge Resource
Manager (ERM) functionality to share QAM capacity across
different network services. In addition, CVEx serves as the
control plane for our vIP Pass solution to deliver managed IP
video services with high performance and cost effectively across
video QAMs.
Software
Applications
We have created a set of software modules that define the
attributes and functionality of our solutions. Our software
architecture allows these modules to be combined with one
another in various configurations. Selected modular software
components are described below:
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RateShaping. Our RateShaping module combines
digital signal processing and statistical multiplexing using
complex algorithms to enable more video streams to be
transported using the same amount of bandwidth. With
RateShaping, we conserve bandwidth by intelligently allocating
bandwidth to programs that require more, while reducing
bandwidth to programs that require less. The diagram below
depicts how our RateShaping module can take variable-rate video
streams and adjust them to conform to a fixed amount of
bandwidth capacity.
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RateClamping. The amount of bandwidth required
to deliver a digital video program varies based on the
complexity of the picture being transmitted within that program.
For applications where a constant bit rate is desired, such as
Switched Digital Video, RateClamping converts variable input
feeds into constant bit rate streams, with the output bandwidth
determined according to the service providers priorities.
RateClamping is frequently utilized to deliver services such as
VOD, Switched Digital Video and network-based digital video
recorders. The diagram below depicts how our RateClamping module
can convert variable-rate video streams into constant-rate video
streams.
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Splicing. Our Splicing functionality allows an
alternate program, usually an advertisement, to be seamlessly
inserted into an existing video stream. Using our Splicing
functionality, service providers
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can perform hundreds of concurrent splices of different
advertisements to multiple advertising zones, targeting
different neighborhoods, in a single BMR. Our Splicing
functionality is integral to our Broadcast Video solution.
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Program-level Redundancy. Our Redundancy
module inspects a video stream at the individual program level
to detect errors and switches to the
back-up
source program without interrupting other programs on the same
transport stream. By contrast, other competitive redundancy
solutions do not detect problems with individual programs, which
can result in a lower quality viewer experience.
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Metadata Processing. Our applications process
metadata such as the name of the program, plot summary and
actors. This allows the service provider to actively control the
type and amount of metadata that is provided to the
subscribers television, thus enabling the service provider
to populate program guide content and provide enhanced
interactive TV functions.
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Customers
We sell our products to cable MSOs and telecommunications
companies worldwide, both directly and through resellers. In the
U.S., our products are deployed by seven of the ten largest
service providers. Our significant customers for 2009 were as
follows:
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Bright House Networks
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Cox Communications
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Ssangyong
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Cableone
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Delta NV
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Sugys
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Cablevision Systems
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Guangdong Tongke
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Time Warner Cable
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Charter Communications
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Knology, Inc.
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Verizon
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Comcast
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Multikabel NV
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Videotron
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A substantial majority of our sales have been to a limited
number of large customers. However, our large customers have
changed over time. Sales to our five largest customers
represented 78%, 81% and 75%, respectively, of our net revenues
for the years ended December 31, 2009, 2008 and 2007. In
2009, Charter Communications, Time Warner Cable and Verizon each
represented 10% or more of our net revenues. In both 2008 and
2007, Cox Communications, Time Warner Cable and Verizon each
represented 10% or more of our net revenues. Although we are
attempting to broaden our customer base by penetrating new
markets and expanding internationally, we expect that for the
foreseeable future, a limited number of large customers will
continue to comprise a large percentage of our revenues. Net
revenues from sales to customers outside of the
U.S. represented 11%, 9% and 17%, respectively, of our net
revenues for the years ended December 31, 2009, 2008 and
2007.
We sell our solutions to a number of our large customers
pursuant to master purchase agreements. For example, we sell our
TelcoTV and Management Software solutions, as well as customer
support and training services, to Verizon pursuant to a master
purchase agreement that is effective through December 31,
2010. Among other things, this agreement provides that our
TelcoTV solution will be the exclusive edge modulation solution
for Verizon, subject to performance against certain
previously-negotiated service metrics. In addition, the
agreement provides for pricing (including previously-negotiated
annual price reductions), the terms of a five-year hardware and
software warranty and the terms of the five-year service
commitment. Likewise, we sell our Switched Digital Video and
Broadcast Video solutions to Time Warner Cable and Charter
Communications in conformance with master purchase agreements
between the parties. While the agreements with Time Warner Cable
and Charter Communications have lapsed, the parties have
continued to operate in conformance with such master purchase
agreements. Among other things, these agreements provide for
pricing, a one-year hardware and software warranty, and service
terms. In general, our master purchase agreements do not
guarantee amounts of purchases by customers. Thus, our business
is more dependent on the ordering patterns of our customers,
rather than the terms of the master purchase agreements with
these customers.
Backlog
We schedule production of our products based upon our backlog,
open contracts, informal commitments from customers and sales
projections. Our backlog consists of firm purchase orders by
customers for delivery within the next six months. As of
December 31, 2009, our backlog was $6.7 million,
compared to $7.0 million as of
11
December 31, 2008. Anticipated orders from customers may
fail to materialize and delivery schedules may be deferred or
cancelled for a number of reasons, including reductions in
capital spending by service providers or changes in specific
customer requirements. Because of the complexity of our customer
acceptance and revenue recognition criteria, in addition to
backlog, we have significant deferred revenues. As a result, our
backlog alone is not necessarily indicative of revenues for any
future periods.
Sales and
Marketing
We sell our products in the U.S. primarily through our
direct sales force and internationally through a combination of
direct sales to service providers and sales through independent
resellers. Our direct sales force, distributors and resellers
are supported by our highly trained technical staff, which
includes application engineers who work closely with service
providers to develop technical proposals and design systems to
optimize performance and economic benefits to potential
customers. Our sales offices outside of the U.S. are
located in China, Hong Kong and Korea. International resellers
are generally responsible for importing our products and
providing certain installation, technical support and other
services to customers in their territory.
Our marketing organization develops strategies for product lines
and market segments, and, in conjunction with our sales force,
identifies the evolving technical and application needs of
customers so that our product development resources can be
deployed to meet anticipated product requirements. Our marketing
organization is also responsible for setting price levels,
forecasting demand and generally supporting the sales force,
particularly at major accounts. We have programs in place to
heighten industry awareness of BigBand Networks and our
products, including participation in technical conferences,
industry initiatives, publication of articles in industry
journals and exhibitions at trade-shows.
Customer
Service and Technical Support
We offer our customers a range of support offerings, including
program management, training, installation and post-sales
technical support. As a part of our pre-sales effort, our
engineers design the implementation of our products in our
customers environments to meet their performance and
interoperability requirements. We also offer training classes to
assist them in the management of our solutions.
Our technical support organization, offers support worldwide
24 hours a day, seven days a week. For our direct
customers, we offer tiered customer support programs depending
upon the service needs of our customers deployments. Using
our standard support package, our customers receive telephone
support and access to online technical information. Under our
enhanced support package, in addition to the standard support
offerings, our customers are entitled to software product
upgrades and maintenance releases, advanced return materials
authorization and
on-site
support, if necessary. Support contracts typically have a
one-year term. For end customers purchasing through resellers,
primary product support is provided by our resellers, with
escalation support provided by us.
Research
and Development
We focus our research and development efforts on developing new
products and systems, and adding new features to existing
products and systems. Our development strategy is to identify
features, products and systems for both software and hardware
that are, or are expected to be, needed by our customers. Our
success in designing, developing, manufacturing and selling new
or enhanced products depends on a variety of factors, including
the identification of market demand for new products, product
selection, timely implementation of product design and
development, product performance, effective manufacturing and
assembly processes and effective sales and marketing. Because
our research and development efforts are complex, we may not be
able to successfully develop new products, and any new products
we develop may not achieve market acceptance.
Research and development expense was $46.4 million,
$54.0 million and $51.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
12
Intellectual
Property
As of December 31, 2009, we held 33 issued
U.S. patents and had numerous U.S. patent applications
pending. Our issued patents will expire between 2019 and 2025.
Although we attempt to protect our intellectual property rights
through patents, copyrights, trademarks, trade secrets,
licensing arrangements and other measures, there is a risk that
any patent, trademark, copyright or other intellectual property
right owned by us may be invalidated, circumvented or
challenged; that these intellectual property rights may not
provide competitive advantages to us; and that any of our
pending or future patent applications may not be issued with the
scope of the claims sought by us, if at all. Others may develop
technologies that are similar or superior to our technology,
duplicate our technology or design around the patents that we
own. In addition, effective patent, copyright, trademark, trade
secret and other intellectual property protection may be
unavailable or limited in certain foreign countries in which we
do business currently or may do business in the future.
We generally enter into confidentiality or license agreements
with our employees, consultants, vendors and customers, and
generally limit access to and distribution of our confidential
and proprietary information. Nevertheless, we cannot assure you
that the steps taken by us will prevent misappropriation of our
technology. In addition, from time to time, legal action by us
may be necessary to enforce our patents and other intellectual
property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. For
example, on June 5, 2007, we filed a lawsuit in federal
court against Imagine Communications, Inc., alleging patent
infringement. Any such litigation could result in substantial
costs and diversion of resources and could negatively affect our
business, operating results and financial condition.
From time to time, it may be necessary for us to enter into
technology development or licensing agreements with third
parties. Although many companies are often willing to enter into
such technology development or licensing agreements, we may not
be able to negotiate these agreements on terms acceptable to us,
or at all. Our failure to enter into technology development or
licensing agreements, when necessary, could limit our ability to
develop and market new products and could cause our business to
suffer.
Our industry is characterized by the existence of a large number
of patents and frequent claims and related litigation regarding
patent and other intellectual property rights. In particular,
leading companies in the networking industry have extensive
patent portfolios. From time to time, third parties, including
certain of these leading companies, have asserted and may assert
exclusive patent, copyright, trademark and other intellectual
property rights against us or our customers. Although these
third parties may offer a license to their technology, the terms
of any offered license may not be acceptable and the failure to
obtain a license or the costs associated with any license could
cause our business, operating results or financial condition to
be materially adversely affected.
Manufacturing
and Suppliers
We outsource the manufacturing of our products. Flextronics
Corporation and Benchmark Electronics, Inc. each serves as a
sole contract manufacturer for particular lines of our video
products. Once our products are manufactured, they are sent to
our facility in Southborough, Massachusetts. We believe that
outsourcing our manufacturing enables us to conserve capital,
better adjust manufacturing volumes to meet changes in demand
and more quickly deliver products.
We submit purchase orders to our contract manufacturers that
describe the type and quantities of our products to be
manufactured, the delivery date and other delivery terms.
Neither Benchmark nor Flextronics has a written contractual
obligation to accept any purchase order that we submit.
We and our contract manufacturers purchase many of our
components from a sole supplier or a limited group of suppliers.
We do not have a written agreement with many of these component
suppliers, and we do not require our contract manufacturers to
have written agreements with these component manufacturers. As a
result, we may not be able to obtain an adequate supply of
components on a timely basis. Our reliance on sole or limited
suppliers involves several risks, including a potential
inability to obtain an adequate supply of required components
and reduced control over pricing, quality and timely delivery of
components. We monitor the supply of the component parts and the
availability of alternative sources. If our supply of any key
component is disrupted, we may be unable to deliver
13
our products to our customers on a timely basis, which could
result in lost or delayed revenues, injury to our reputation,
increased manufacturing costs and exposure to claims by our
customers. Even if alternate suppliers are available, we may
have difficulty identifying them in a timely manner, we may
incur significant additional expense in changing suppliers, and
we may experience difficulties or delays in the manufacturing of
our products.
Our manufacturing operations consist primarily of supply chain
managers, new product introduction and test engineering
personnel. Our manufacturing organization designs, develops and
implements complex test processes to help ensure the quality and
reliability of our products. The manufacturing of our products
is a complex process, and we may experience production problems
or manufacturing delays in the future. Any difficulties we
experience in managing relationships with our contract
manufacturers, or any interruption in our own or our contract
manufacturers operations, could impede our ability to meet our
customers requirements and harm our business, operating
results and financial condition.
Competition
The markets for our products are extremely competitive and are
characterized by rapid technological change. The principal
competitive factors in our markets include the following:
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product performance, features, interoperability and reliability;
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technological expertise;
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relationships with service providers;
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price of products and services and cost of ownership;
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sales and distribution capabilities;
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customer service and support;
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compliance with industry standards and certifications;
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size and financial stability of operations;
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breadth of product line;
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intellectual property portfolio;
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ability to scale manufacturing; and
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ability to interoperate with other vendors.
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We believe we compete principally on the performance, features,
interoperability and reliability of our products and our
technological expertise. Several companies, including companies
that are significantly larger and more established, such as
Cisco Systems and Motorola, also compete in the markets we
target. Many of these larger competitors have substantially
broader product offerings and bundle their products or
incorporate functionality into existing products in a manner
that discourages users from purchasing our products or that may
require us to add incremental features and functionality to
differentiate our products or lower our prices. Furthermore,
many of our competitors have greater financial, technical,
marketing, distribution, customer support and other resources,
as well as better name recognition and access to customers than
we do.
Conditions in our markets could change rapidly and significantly
as a result of technological advancements or continuing market
consolidation. The development and market acceptance of
alternative technologies could decrease the demand for our
products or render them obsolete. Our competitors may introduce
products that are less costly, provide superior performance or
achieve greater market acceptance than our products. In
addition, these larger competitors often have broader product
lines and market focus, are in a better position to withstand
any significant reduction in capital spending by customers in
these markets, and will therefore not be as susceptible to
downturns in a particular market. These competitive pressures
are likely to continue to adversely impact our business. We may
not be able to compete successfully in the future, and
competition may harm our business.
14
We believe standards bodies may commoditize the markets in which
we compete and would require that we add incremental features
and functions to differentiate our products. If the product
design or technology of our competitors were to become an
industry standard, our business could be seriously harmed.
Employees
As of December 31, 2009, we had employees as follows:
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By function:
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Servicing and manufacturing
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90
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Research and development
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262
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Sales and marketing
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70
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General and administrative
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62
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Total employees
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484
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By location:
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United States
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235
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Israel
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170
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Rest of world
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79
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Total employees
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484
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We also engage a number of temporary personnel and consultants.
None of our employees are represented by a labor union with
respect to his or her employment with us. We have not
experienced any work stoppages, and we consider our relations
with our employees to be good. Our future success will depend
upon our ability to attract and retain qualified personnel.
Competition for qualified personnel remains strong, and we may
not be successful in retaining our key employees or attracting
skilled personnel.
Financial
Information About Segments and Geographic Areas
For information about revenues and long-lived assets by
geographical region, see Notes to Consolidated Financial
Statements, Note 9 Segment Reporting
included in Part II, Item 8 of this Annual Report on
Form 10-K.
We report as a single reporting segment.
Additional
Information
We file registration statements, periodic and current reports,
proxy statements, and other materials with the SEC. You may read
and copy any materials we file with the SEC at the SECs
Office of Public Reference at 100 F Street, NE,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a web site at
http://www.sec.gov
that contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC, including our filings.
Our Internet address is
http://www.bigbandnet.com.
We make available, free of charge, through the Investor
Relations section of our website, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and any amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after they
are electronically filed with, or furnished to, the SEC. The
contents of our website are not incorporated into, or otherwise
to be regarded as part of this
Form 10-K.
15
An investment in our equity securities involves significant
risks. Any of these risks, as well as other risks not currently
known to us or that we currently consider immaterial, could have
a material adverse effect on our business, prospects, financial
condition or operating results. The trading price of our common
stock could decline due to any of these risks, and you may lose
all or part of your investment. In assessing the risks described
below, you should also refer to the other information contained
in this Annual Report on
Form 10-K,
including our consolidated financial statements and the related
notes, before deciding to purchase any shares of our common
stock.
We
depend on cable multiple system operators (MSOs) and
telecommunications companies adopting advanced technologies for
substantially all of our net revenues, and any decrease or delay
in capital spending for these advanced technologies would harm
our operating results, financial condition and cash
flows.
Almost all of our sales depend on cable MSOs and
telecommunications companies adopting advanced technologies, and
we expect these sales to continue to constitute a significant
majority of our sales for the foreseeable future. Demand for our
products will depend on the magnitude and timing of capital
spending by service providers on advanced technologies for
constructing and upgrading their network infrastructure, and a
reduction or delay in this spending could have a material
adverse effect on our business.
The capital spending patterns of our existing and potential
customers depend on a variety of factors, including:
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annual budget cycles;
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overall consumer demand for video services and the acceptance of
newly introduced services;
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competitive pressures, including pricing pressures;
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changes in general economic conditions due to fluctuations in
the equity and credit markets or otherwise;
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the impact of industry consolidation;
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the strategic focus of our customers and potential customers;
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technology adoption cycles and network architectures of service
providers, and evolving industry standards that may impact them;
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the status of federal, local and foreign government regulation
of telecommunications and television broadcasting, and
regulatory approvals that our customers need to obtain;
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discretionary customer spending patterns;
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bankruptcies and financial restructurings within the
industry; and
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work stoppages or other labor- or labor market-related issues
that may impact the timing of orders and revenues from our
customers.
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In 2009, we saw reduced capital spending by our customers. Any
continued slowdown or delay in the capital spending by service
providers as a result of any of the above factors would likely
have a significant adverse impact on our quarterly revenue and
profitability levels.
Our
operating results are likely to fluctuate significantly and may
fail to meet or exceed the expectations of securities analysts
or investors or our guidance, causing our stock price to
decline.
Our operating results have fluctuated in the past and are likely
to continue to fluctuate, on an annual and a quarterly basis, as
a result of a number of factors, many of which are outside of
our control. These factors include:
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the level and timing of capital spending by our customers;
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the timing, mix and amount of orders, especially from
significant customers;
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the level of our deferred revenue balances;
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changes in market demand for our products;
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our mix of products sold;
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the mix of software and hardware products sold;
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our unpredictable and lengthy sales cycles, which typically
range from six to 18 months;
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the timing of revenue recognition on sales arrangements, which
may include multiple deliverables and result in delays in
recognizing revenue;
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our ability to design, install and receive customer acceptance
of our products;
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materially different acceptance criteria in key customers
agreements, which can result in large amounts of revenue being
recognized, or deferred, as the different acceptance criteria
are applied to large orders;
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new product introductions by our competitors;
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market acceptance of new or existing products offered by us or
our customers;
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competitive market conditions, including pricing actions by our
competitors;
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our ability to complete complex development of our software and
hardware on a timely basis;
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unexpected changes in our operating expenses;
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the impact of new accounting, income tax and disclosure rules;
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the cost and availability of components used in our products;
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the potential loss of key manufacturer and supplier
relationships; and
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changes in domestic and international regulatory environments.
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We establish our expenditure levels for product development and
other operating expenses based on projected sales levels, and
our expenses are relatively fixed in the short term.
Accordingly, variations in the timing of our sales can cause
significant fluctuations in our operating results. As a result
of all these factors, our operating results in one or more
future periods may fail to meet or exceed the expectations of
securities analysts or investors or our guidance, which would
likely cause the trading price of our common stock to decline
substantially.
Our
customer base is highly concentrated, and there are a limited
number of potential customers for our products. The loss of any
of our key customers would likely reduce our revenues
significantly.
Historically, a large portion of our sales have been to a
limited number of large customers. Our five largest customers
accounted for approximately 78% of our net revenues for the year
ended December 31, 2009, compared to 81% for the year ended
December 31, 2008. Charter Communications, Time Warner
Cable and Verizon each represented 10% or more of our net
revenues for the year ended December 31, 2009. Cox
Communications, Time Warner Cable and Verizon each represented
10% or more of our net revenues for the year ended
December 31, 2008. We believe that for the foreseeable
future our net revenues will be concentrated in a limited number
of large customers.
We anticipate that a large portion of our revenues will continue
to depend on sales to a limited number of customers, and we do
not have contracts or other agreements that guarantee continued
sales to these or any other customers. Consequently, reduced
capital expenditures by any one of our larger customers (whether
caused by adverse financial conditions, more cautious spending
patterns due to the ongoing economic uncertainty or other
factors) is likely to have a material negative impact on our
operating results. In addition, as the consolidation of
ownership of cable MSOs and telecommunications companies
continues, we may lose existing customers and have access to a
shrinking pool of potential customers. We expect to see
continuing industry consolidation due to the significant capital
costs of constructing video, voice and data networks and for
other reasons. Further business combinations may occur in our
customer base, which will likely result in our customers gaining
increased purchasing leverage over us. This may reduce the
selling prices of our products and services and as a result may
harm our business and financial results. Many of our customers
desire to have two sources for the products we sell to
17
them. As a result, our future revenue opportunities could be
limited, and our profitability could be adversely impacted. The
loss of, or reduction in orders from, any of our key customers
would significantly reduce our revenues and have a material
adverse impact on our business, operating results and financial
condition.
If
revenues forecasted for a particular period are not realized in
such period due to the lengthy, complex and unpredictable sales
cycles of our products, our operating results for that or
subsequent periods will be harmed.
The sales cycles of our products are typically lengthy, complex
and unpredictable and usually involve:
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a significant technical evaluation period;
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a significant commitment of capital and other resources by
service providers;
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substantial time required to engineer the deployment of new
technologies for new video services;
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substantial testing and acceptance of new technologies that
affect key operations; and
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substantial test marketing of new services with subscribers.
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For these and other reasons, our sales cycles generally have
been between six and 18 months, but can last longer. If
orders forecasted for a specific customer for a particular
quarter do not occur in that quarter, our operating results for
that quarter or subsequent quarters could be substantially lower
than anticipated. Our quarterly and annual results may fluctuate
significantly due to revenue recognition rules and the timing of
the receipt of customer orders.
Additionally, we derive a large portion of our net revenues from
sales that include the network design, installation and
integration of equipment, including equipment acquired from
third parties to be integrated with our products to the
specifications of our customers. We base our revenue forecasts
on the estimated timing to complete the network design,
installation and integration of our customer projects and
customer acceptance of those products. The systems of our
customers are both diverse and complex, and our ability to
configure, test and integrate our systems with other elements of
our customers networks depends on technologies provided to
our customers by third parties. As a result, the timing of our
revenue related to the implementation of our solutions in these
complex networks is difficult to predict and could result in
lower than expected revenue in any particular quarter.
Similarly, our ability to deploy our equipment in a timely
fashion can be subject to a number of other risks, including the
availability of skilled engineering and technical personnel, the
availability of equipment produced by third parties and our
customers need to obtain regulatory approvals.
The
markets in which we operate are intensely competitive, many of
our competitors are larger, more established and better
capitalized than we are, and some of our competitors have
integrated products performing functions similar to our products
into their existing network infrastructure offerings, and
consequently our existing and potential customers may decide
against using our products in their networks, which would harm
our business.
The markets for selling network-based hardware and software
products to service providers are extremely competitive and have
been characterized by rapid technological change. We compete
broadly with system suppliers including ARRIS Group, Cisco
Systems, Harmonic, Motorola, SeaChange International and a
number of smaller companies. Many of our competitors are
substantially larger and have greater financial, technical,
marketing and other resources than we have. Given their capital
resources, long-standing relationships with service providers
worldwide, and broader product lines, many of these large
organizations are in a better position to withstand any
significant reduction in capital spending by customers in these
markets. If we are unable to overcome these resource advantages,
our competitive position would suffer.
In addition, other providers of network-based hardware and
software products offer functionality aimed at solving similar
problems addressed by our products. For example, several vendors
have announced products designed to compete with our Switched
Digital Video solution. The inclusion of functionality perceived
to be similar to our product offerings in our competitors
products that already have been accepted as necessary components
of network architecture may have an adverse effect on our
ability to market and sell our products. In addition, our
customers other vendors that can provide a broader product
offering may be able to offer pricing or other concessions that
we are not able to match because we currently offer a more
modest suite of products and have
18
fewer resources. If our existing or potential customers are
reluctant to add network infrastructure from new vendors or
otherwise decide to work with their other existing vendors, our
business, operating results and financial condition will be
adversely affected.
In recent years, we have seen consolidation among our
competitors, such as Ciscos acquisition of Scientific
Atlanta, Motorolas acquisition of Terayon, and purchases
of Video on Demand, or VOD, solutions by each of ARRIS Group,
Cisco, Harmonic and Motorola. In addition, some of our
competitors have entered into strategic relationships with one
another to offer a more comprehensive solution than would be
available individually. We expect this trend to continue as
companies attempt to strengthen or maintain their market
positions in the evolving industry for video by increasing the
amount of commercial and technical integration of their video
products. Due to our comparatively small size and comparatively
narrow product offerings, our ability to compete will depend on
our ability to partner with companies to offer a more complete
overall solution. If we fail to do so, our competitive position
will be harmed and our sales will likely suffer. These combined
companies may offer more compelling product offerings and may be
able to offer greater pricing flexibility, making it more
difficult for us to compete while sustaining acceptable gross
margins. Finally, continued industry consolidation may impact
customers perceptions of the viability of smaller
companies, which may affect their willingness to purchase
products from us. These competitive pressures could harm our
business, operating results and financial condition.
We
have been unable to achieve sustained profitability, which could
harm the price of our stock.
Historically, we have experienced significant operating losses
and we were not profitable in the years ended December 31,
2007 and 2009. If we fail to achieve or sustain profitability in
the future, it will harm our long-term business and we may not
meet the expectations of the investment community, which would
have a material adverse impact on our stock price.
We may
not accurately anticipate the timing of the market needs for our
products and develop such products at the appropriate times at
significant research and development expense, or we may not gain
market acceptance of our several emerging video services and/or
adoption of new network architectures and technologies, any of
which could harm our operating results and financial
condition.
Accurately forecasting and meeting our customers
requirements is critical to the success of our business.
Forecasting to meet customers needs is particularly
difficult for newer products and products under development. Our
ability to meet customer demand depends on our ability to
configure our solutions to the complex architectures that our
customers have developed, the availability of components and
other materials and the ability of our contract manufacturers to
scale their production of our products. Our ability to meet
customer requirements depends on our ability to obtain
sufficient volumes of required components and materials in a
timely fashion. If we fail to meet customers supply
expectations, our net revenues will be adversely affected, and
we will likely lose business. In addition, our priorities for
future product development are based on how we expect the market
for video services to develop in the U.S. and in
international markets.
Future demand for our products will depend significantly on the
growing market acceptance of several emerging video services
including HDTV, addressable advertising, video delivered over
telecommunications company networks and video delivered over
Internet Protocol by cable MSOs. The effective delivery of these
services will depend on service providers developing and
building new network architectures to deliver them. If the
introduction or adoption of these services or the deployment of
these networks is not as widespread or as rapid as we or our
customers expect, our revenue opportunities will be limited.
Our product development efforts require substantial research and
development expense, as we develop new technology, including
BigBand MSP2000 and technology primarily related to the delivery
of video over IP networks. In addition, as many of our products
are new solutions, there is a risk of delays in delivery of
these solutions. Our research and development expense was
$46.4 million for 2009, and there can be no assurance that
we will achieve an acceptable return on our research and
development efforts, and no assurance that we will be able to
deliver our solutions in time to achieve market acceptance.
Additionally, our customers are adopting new technologies,
standards and formats. In particular, service providers are
transitioning from delivering video via radio frequency, which
has historically represented a large
19
majority of our revenues, to delivering video over IP. While we
are in the process of developing products based this and other
new formats in order to remain competitive, we do not have such
products at this time and cannot be certain when, if at all, we
will have products in support of such new formats.
Our
ability to grow will depend significantly on our delivery of
products that help enable telecommunications companies to
provide video services. If the demand for video services from
telecommunications companies does not materialize or if these
service providers find alternative methods of delivering video
services, future sales of our Video products will
suffer.
Prior to 2006, our sales were primarily to cable MSOs. Since
2006, we have generated significant revenues from
telecommunications companies, though our revenues from these
customers declined for 2009 compared to 2008. This decline was
primarily attributable to our largest Telco customer slowing the
purchase of our solutions. Our ability to grow will depend on
our selling video products to telecommunications companies.
Although a number of our existing products are being deployed in
telecom networks, we will need to devote considerable resources
to obtain orders, qualify our products and hire knowledgeable
personnel to address telecommunications company customers, each
of which will require significant time and financial commitment.
These efforts may not be successful in the near future, or at
all. If technological advancements allow these
telecommunications companies to provide video services without
upgrading their current system infrastructure or provide them a
more cost-effective method of delivering video services than our
products, projected sales of our Video products will suffer.
Even if these providers choose our Video solutions, they may not
be successful in marketing video services to their customers, in
which case additional sales of our products would likely be
limited.
Selling successfully to telecommunication companies will be a
significant challenge for us. Several of our largest competitors
have mature customer relationships with many of the largest
telecommunications companies, while we have limited recent
experience with sales and marketing efforts designed to reach
these potential customers. In addition, telecommunications
companies face specific network architecture and legacy
technology issues that we have only limited expertise in
addressing. If we fail to penetrate the telecommunications
market successfully, our growth in revenues and our operating
results would likely be adversely impacted.
We
anticipate that our gross margins will fluctuate with changes in
our product mix and expected decreases in the average selling
prices of our hardware and software products, which will
adversely impact our operating results.
In 2009, we experienced some decline in our product gross
margins. We expect the decline in gross margins to continue in
2010. It is unlikely we will be able to maintain these high
margins in future periods. Our industry has historically
experienced a decrease in average selling prices. We anticipate
that the average selling prices of our products will continue to
decrease in the future in response to competitive pricing
pressures, increased sales discounts and new product
introductions by our competitors. We may experience substantial
decreases in future operating results due to a decrease of our
average selling prices. For example, our master agreement with
Verizon provides for contractually-negotiated annual price
reductions. Additionally, our failure to develop and introduce
new products on a timely basis would likely contribute to a
decline in our gross margins, which could have a material
adverse effect on our operating results and cause the price of
our common stock to decline. We also anticipate that our gross
margins will fluctuate from period to period as a result of the
mix of products we sell in any given period. If our sales of
lower margin products significantly expand in future quarterly
periods, our overall gross margin levels and operating results
would be adversely impacted.
Lower
deferred revenue balances will make future period results less
predictable.
Historically, we have had relatively high deferred revenue
balances at quarter end, which has provided us with some measure
of predictability for future periods. As of December 31,
2009, our deferred revenue balance was lower than both
December 31, 2008 and December 31, 2007. This lower
deferred revenue balance makes our quarterly revenue more
dependent on orders both received and shipped within the same
quarter, and therefore less predictable. This lack of deferred
revenues could cause additional revenue volatility and harm our
stock price.
20
Continued
weak general economic conditions may adversely affect our
financial condition and results of operations and make our
future business more difficult to forecast and
manage.
Our business is sensitive to changes in general economic
conditions, both in the U.S. and globally. Due to the
continued tight credit markets and concerns regarding the
availability of credit, our current or potential customers may
delay or reduce purchases of our products, which would adversely
affect our revenues and therefore harm our business and results
of operations.
More generally, we are unable to predict how deep the current
economic uncertainty will last. There can be no assurances that
government responses to the recession will restore confidence in
the U.S. and global economies. We expect our business to be
adversely impacted by any significant or prolonged weakness in
the U.S. or global economies as our customers capital
spending is expected to be reduced during an economic downturn.
The uncertainty regarding the U.S. and global economies
also has made it more difficult for us to forecast and manage
our business.
Our
efforts to develop additional channels to market and sell our
products internationally may not succeed.
Our video solutions traditionally have been sold directly to
large cable MSOs with recent sales directly to
telecommunications companies. To date, we have not focused on
smaller service providers and have had only limited access to
service providers in certain international markets, including
Asia and Europe. Although we intend to establish strategic
relationships with leading distributors worldwide in an attempt
to reach new customers, we may not succeed in establishing these
relationships. Even if we do establish these relationships, the
distributors may not succeed in marketing our products to their
customers. Some of our competitors have established
long-standing relationships with cable MSOs and
telecommunications companies that may limit our and our
distributors ability to sell our products to those
customers. Even if we were to sell our products to those
customers, it would likely not be based on long-term
commitments, and those customers would be able to terminate
their relationships with us at any time without significant
penalties.
International sales represented $15.7 million of our net
revenues for 2009 compared to $15.9 million for 2008. Our
international sales depend on our development of indirect sales
channels in Europe and Asia through distributor and reseller
arrangements with third parties. However, we may not be able to
successfully enter into additional reseller
and/or
distribution agreements
and/or may
not be able to successfully manage our product sales channels.
In addition, many of our resellers also sell products from other
vendors that compete with our products and may choose to focus
on products of those vendors. Additionally, our ability to
utilize an indirect sales model in these international markets
will depend on our ability to qualify and train those resellers
to perform product installations and to provide customer
support. If we fail to develop and cultivate relationships with
significant resellers, or if these resellers do not succeed in
their sales efforts (whether because they are unable to provide
support or otherwise), we may be unable to grow or sustain our
revenue in international markets.
We are
exposed to fluctuations in currency exchange rates, which could
negatively affect our financial results and cash
flows.
Because a substantial portion of our employee base is located in
Israel, we are exposed to fluctuations in currency exchange
rates between the U.S. dollar and the Israeli New Shekel.
These fluctuations could have a material adverse impact on our
financial results and cash flows. A decrease in the value of the
U.S. dollar relative to foreign currencies could increase
our operating expenses and the cost of raw materials to the
extent we must purchase components or pay employees in foreign
currencies.
Currently, we hedge a portion of our anticipated future expenses
and certain assets and liabilities denominated in the Israeli
New Shekel. The hedging activities we undertake are intended to
partially offset the impact of currency fluctuations. As our
hedging program is relatively short-term in nature, a material
long-term change in the value of the U.S. dollar versus the
Israeli New Shekel could increase our operating expenses in the
future.
21
Our
products must interoperate with many software applications and
hardware found in our customers networks. If we are unable
to ensure that our products interoperate properly, our business
would be harmed.
Our products must interoperate with our customers existing
networks, which often have varied and complex specifications,
utilize multiple protocol standards, software applications and
products from multiple vendors, and contain multiple generations
of products that have been added over time. As a result, we must
continually ensure that our products interoperate properly with
these existing networks. To meet these requirements, we must
undertake development efforts that require substantial capital
investment and employee resources. We may not accomplish these
development efforts quickly or cost-effectively, if at all. For
example, our products currently interoperate with set-top boxes
marketed by vendors such as Cisco Systems and Motorola and with
VOD servers marketed by ARRIS Group and SeaChange. If we fail to
maintain compatibility with these set-top boxes, VOD servers or
other software or equipment found in our customers
existing networks, we may face substantially reduced demand for
our products, which would adversely affect our business,
operating results and financial condition.
We have entered into interoperability arrangements with a number
of equipment and software vendors for the use or integration of
their technology with our products. In these cases, the
arrangements give us access to and enable interoperability with
various products in the digital video market that we do not
otherwise offer. If these relationships fail, we will have to
devote substantially more resources to the development of
alternative products and the support of our products, and our
efforts may not be as effective as the combined solutions with
our current partners. In many cases, these parties are either
companies with which we compete directly in other areas, such as
Motorola, or companies that have extensive relationships with
our existing and potential customers and may have influence over
the purchasing decisions of these customers. A number of our
competitors have stronger relationships with some of our
existing and potential partners and, as a result, our ability to
successfully partner with these companies may be harmed. Our
failure to establish or maintain key relationships with third
party equipment and software vendors may harm our ability to
successfully sell and market our products. We are currently
investing, and plan to continue to invest, significant resources
to develop these relationships. Our operating results could be
adversely affected if these efforts do not generate the revenues
necessary to offset this investment.
In addition, if we find errors in the existing software or
defects in the hardware used in our customers networks or
problematic network configurations or settings, as we have in
the past, we may have to modify our software or hardware so that
our products will interoperate with our customers
networks. This could cause longer installation times for our
products and could cause order cancellations, either of which
would adversely affect our business, operating results and
financial condition.
Our
ability to sell our products is highly dependent on the quality
of our support and services offerings, and our failure to offer
high-quality support and services would have a material adverse
effect on our sales and results of operations.
Once our products are deployed within our customers
networks, our customers depend on our support organization to
resolve any issues relating to our products. If we or our
channel partners do not effectively assist our customers in
deploying our products, or succeed in helping our customers
quickly resolve post-deployment issues and provide effective
ongoing support, our ability to sell our products to existing
customers would be adversely affected and our reputation with
potential customers could be harmed. In addition, as we expand
our operations internationally, our support organization will
face additional challenges including those associated with
delivering support, training and documentation in languages
other than English. Our failure to maintain high-quality support
and services would have a material adverse effect on our
business, operating results and financial condition.
If we
fail to comply with new laws and regulations, or changing
interpretations of existing laws or regulations, our future
revenues could be adversely affected.
Our products are subject to various legal and regulatory
requirements and changes. For example, effective June 12,
2009, federal law required that television broadcast stations
stop broadcasting in analog format and broadcast only in digital
format. This change may have accelerated the timing of sales of
our digital products, and consequently the revenue associated
with our broadcast solutions may not continue at recent levels,
which could
22
disappoint our investors causing our stock price to fall. These
and other similar implementations of laws and interpretations of
existing regulations could cause our customers to forgo or
change the timing of spending on new technology rollouts, such
as switched digital video, which could make our results more
difficult to predict, or harm our revenues.
Additionally, governments in the U.S. and other countries
have adopted laws and regulations regarding privacy and
advertising that could impact important aspects of our business.
In particular, governments are considering new limits or
requirements with respect to our customers collection,
use, storage and disclosure of personal information for
marketing purposes. Any legislation enacted or regulation issued
could dampen the growth and acceptance of addressable
advertising which is enabled by our products. If the use of our
products to increase advertising revenue is limited or becomes
unlawful, our business, results of operations and financial
condition would be harmed.
Our
expansion of international operations or reliance on operations
of contract manufacturers or developers may not
succeed.
As of December 31, 2009, approximately 79% of our research
and development headcount is located outside the U.S., primarily
in Israel and increasingly in China. Managing research and
development operations in numerous locations requires
substantial management oversight. If we are unable to expand our
international operations successfully and in a timely manner,
our business, operating results and financial condition may be
harmed. Such expansion may be more difficult or take longer than
we anticipate, and we may not be able to successfully market,
sell, deliver and support our products internationally.
Our international operations, and the international operations
of our contract manufacturers and our outsourced development
contractors, are subject to a number of risks, including:
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continued uncertainty in the global economy;
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fluctuations in the value of local currencies in the markets we
are attempting to penetrate may adversely affect the price
competitiveness of our products;
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fluctuations in currency exchange rates, primarily fluctuations
in the Israeli New Shekel, may have an adverse effect on our
operating costs;
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political and economic instability;
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unpredictable changes in foreign government regulations and
telecommunications standards;
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legal, cultural and language differences in the conduct of
business;
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import and export license requirements, tariffs, taxes and other
trade barriers;
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potentially adverse tax consequences;
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the burden of complying with a wide variety of foreign laws,
treaties and technical standards;
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acts of war or terrorism and insurrections;
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difficulty in staffing and managing foreign operations; and
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changes in economic policies by foreign governments.
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The effects of any of the risks described above could reduce our
future revenues or increase our costs from our international
operations.
Regional
instability in Israel may adversely affect business conditions
and may disrupt our operations and negatively affect our
operating results.
A substantial portion of our research and development operations
and our contract manufacturing occurs in Israel. As of
December 31, 2009, we had 170 full-time employees
located in Israel. We also have customer service, marketing and
general and administrative employees at this facility.
Accordingly, we are directly influenced by the political,
economic and military conditions affecting Israel, and any major
hostilities, such as the hostilities in
23
Lebanon in 2006 and in Gaza in 2008, involving Israel or the
interruption or curtailment of trade between Israel and its
trading partners could significantly harm our business. The
September 2001 terrorist attacks, the ongoing U.S. war on
terrorism and the history of terrorist attacks and hostilities
within Israel have heightened the risks of conducting business
in Israel. In addition, Israel and companies doing business with
Israel have, in the past, been the subject of an economic
boycott. Israel has also been and is subject to civil unrest and
terrorist activity, with varying levels of severity, since
September 2000. Security and political conditions may have an
adverse impact on our business in the future. Hostilities
involving Israel or the interruption or curtailment of trade
between Israel and its trading partners could adversely affect
our operations and make it more difficult for us to retain or
recruit qualified personnel in Israel.
In addition, most of our employees in Israel are obligated to
perform annual reserve duty in the Israeli Defense Forces and
several were called for active military duty in connection with
the hostilities in Lebanon in 2006 and in Gaza in 2008. Should
hostilities in the region escalate again, some of our employees
would likely be called to active military duty, possibly
resulting in interruptions in our sales and development efforts
and other impacts on our business and operations, which we
cannot currently assess.
We
depend on a limited number of third parties to provide key
components of, and to provide manufacturing and assembly
services with respect to, our products.
We and our contract manufacturers obtain many components
necessary for the manufacture or integration of our products
from a sole supplier or a limited group of suppliers. We or our
contract manufacturers do not always have long-term agreements
in place with such suppliers. As an example, we do not have a
long-term purchase agreement in place with PowerOne, the sole
supplier of power supplies for our products. Our direct and
indirect reliance on sole or limited suppliers involves several
risks, including the inability to obtain an adequate supply of
required components, and reduced control over pricing, quality
and timely delivery of components. Our ability to deliver our
products on a timely basis to our customers would be materially
adversely impacted if we or our contract manufacturers needed to
find alternative replacements for (as examples) the chassis,
chipsets, central processing units or power supplies that we use
in our products. Significant time and effort would be required
to locate new vendors for these alternative components, if
alternatives are even available. Moreover, the lead times
required by the suppliers of some components are lengthy and
preclude rapid changes in quantity requirements and delivery
schedules. Even as we increase our use of standardized
components, we may experience supply chain issues, particularly
as a result of market volatility. Such volatility could lead
suppliers to decrease inventory, which in turn would lead to
increased manufacturing lead time for us. In addition, increased
demand by third parties for the components we use in our
products (for example, Field Programmable Gate Arrays or other
semiconductor technology) may lead to decreased availability and
higher prices for those components from our suppliers, since we
carry little inventory of our products and product components.
As a result, we may not be able to secure enough components at
reasonable prices or of acceptable quality to build products in
a timely manner, which would impact our ability to deliver
products to our customers, and our business, operating results
and financial condition would be adversely affected.
For manufacturing and assembly, we currently rely exclusively on
a number of suppliers including Flextronics or Benchmark,
depending on the product, to assemble our products, manage our
supply chain and negotiate component costs for our solutions.
Our reliance on these contract manufacturers reduces our control
over the assembly process, exposing us to risks, including
reduced control over quality assurance, production costs and
product supply. If we fail to manage our relationships with
these contract manufacturers effectively, or if these contract
manufacturers experience delays (including delays in their
ability to purchase components, as noted above), disruptions,
capacity constraints or quality control problems in their
operations, our ability to ship products to our customers could
be impaired and our competitive position and reputation could be
harmed. If these contract manufacturers are unable to negotiate
with their suppliers for reduced component costs, our operating
results would be harmed. Qualifying a new contract manufacturer
and commencing volume production is expensive and
time-consuming. If we are required to change contract
manufacturers, we may lose net revenues, incur increased costs
and damage our customer relationships.
24
We
must manage our business effectively even if our infrastructure,
management and resources might be strained due to our expense
reduction efforts and recent officer departures.
In the past several years, we have undertaken several reductions
in force, experienced a number of changes in our executive
management and other cost reduction measures. Effectively
managing our business with reduced headcount and expenses in
some areas will likely place increased strain on our resources.
For example, we may need to hire additional development and
customer support personnel. In addition, we may need to expand
and otherwise improve our internal systems, including our
management information systems, customer relationship and
support systems, and operating, administrative and financial
systems and controls. These efforts may require us to make
significant capital expenditures or incur significant expenses,
and divert the attention of management, sales, support and
finance personnel from our core business operations, which may
adversely affect our financial performance in future periods.
Moreover, to the extent we grow in the future, such growth will
result in increased responsibilities for our management
personnel. Managing any future growth will require substantial
resources that we may not have or otherwise be able to obtain.
In March 2010, we announced the departures of three officers,
including our chief operating officer and our chief
financial officer. Although we announced the appointment of a
new chief financial officer, we are uncertain when or if we will
replace our chief operating officer and his duties will
initially be performed by other officers. We have taken actions
to reduce the risk of any disruption in our business due to
these departures including retaining our departing chief
operating officer and chief financial officer as consultants for
a period of time. However, the departure of these officers will
place additional strain on our existing team and there can be no
assurance that the departure of these officers will not disrupt
our business operations, customer relationships or other matters.
Our
failure to adequately protect our intellectual property and
proprietary rights, or to secure such rights on reasonable
terms, may adversely affect us.
We hold numerous issued U.S. patents and have a number of
patent applications pending in the U.S. and foreign
jurisdictions. Although we attempt to protect our intellectual
property rights through patents, copyrights, trademarks,
licensing arrangements, maintaining certain technology as trade
secrets and other measures, we cannot be sure that any patent,
trademark, copyright or other intellectual property rights owned
by us will not be invalidated, circumvented or challenged, that
such intellectual property rights will provide competitive
advantages to us or that any of our pending or future patent
applications will be issued with the scope of the claims sought
by us, if at all. Despite our efforts, other competitors may be
able to develop technologies that are similar or superior to our
technology, duplicate our technology to the extent it is not
protected, or design around the patents that we own. In
addition, effective patent, copyright, trademark and trade
secret protection may be unavailable or limited in certain
foreign countries in which we do business or may do business in
the future.
The steps that we have taken may not prevent misappropriation of
our technology. In addition, to prevent misappropriation we may
need to take legal action to enforce our patents and other
intellectual property rights, protect our trade secrets,
determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or
invalidity. For example, on June 5, 2007, we filed a
lawsuit in federal court against Imagine Communications, Inc.,
alleging patent infringement. This and other potential
intellectual property litigation could result in substantial
costs and diversion of resources and could negatively affect our
business, operating results and financial condition.
In order to successfully develop and market certain of our
planned products, we may be required to enter into technology
development or licensing agreements with third parties whether
to avoid infringement or because we believe a specific
functionality is necessary for a successful product launch.
These third parties may be willing to enter into technology
development or licensing agreements only on a costly royalty
basis or on terms unacceptable to us, or not at all. Our failure
to enter into technology development or licensing agreements on
reasonable terms, when necessary, could limit our ability to
develop and market new products and could cause our business to
suffer. For example, we could face delays in product releases
until alternative technology can be identified, licensed or
developed, and integrated into our current products. These
delays, if they occur, could materially adversely affect our
business, operating results and financial condition.
25
We may
face intellectual property infringement claims from third
parties.
Our industry is characterized by the existence of an extensive
number of patents and frequent claims and related litigation
regarding patent and other intellectual property rights. From
time to time, third parties have asserted and may assert patent,
copyright, trademark and other intellectual property rights
against us or our customers. Our suppliers and customers may
have similar claims asserted against them. We have agreed to
indemnify some of our suppliers and customers for alleged patent
infringement. The scope of this indemnity varies, but, in some
instances, includes indemnification for damages and expenses
including reasonable attorneys fees. Any future
litigation, regardless of its outcome, could result in
substantial expense and significant diversion of the efforts of
our management and technical personnel. An adverse determination
in any such proceeding could subject us to significant
liabilities, temporary or permanent injunctions or require us to
seek licenses from third parties or pay royalties that may be
substantial. Furthermore, necessary licenses may not be
available on satisfactory terms, or at all.
Our
use of open source and third-party software could impose
limitations on our ability to commercialize our
products.
We incorporate open source software into our products, including
certain open source code which is governed by the GNU General
Public License, Lesser GNU General Public License and Common
Development and Distribution License. The terms of many open
source licenses have not been interpreted by U.S. courts,
and there is a risk that these licenses could be construed in a
manner that could impose unanticipated conditions or
restrictions on our ability to commercialize our products. In
such event, we could be required to seek licenses from third
parties in order to continue offering our products, make
generally available, in source code form, proprietary code that
links to certain open source modules, re-engineer our products,
discontinue the sale of our products if re-engineering could not
be accomplished on a cost-effective and timely basis, or become
subject to other consequences, any of which could adversely
affect our business, operating results and financial condition.
Our
business is subject to the risks of warranty returns, product
liability and product defects.
Products like ours are very complex and can frequently contain
undetected errors or failures, especially when first introduced
or when new versions are released. Despite testing, errors may
occur. Product errors could affect the performance of our
products, delay the development or release of new products or
new versions of products, adversely affect our reputation and
our customers willingness to buy products from us and
adversely affect market acceptance or perception of our
products. Any such errors or delays in releasing new products or
new versions of products or allegations of unsatisfactory
performance could cause us to lose revenue or market share,
increase our service costs, cause us to incur substantial costs
in redesigning the products, subject us to liability for damages
and divert our resources from other tasks, any one of which
could materially adversely affect our business, results of
operations and financial condition. Our products must
successfully interoperate with products from other vendors. As a
result, when problems occur in a network, it may be difficult to
identify the sources of these problems. The occurrence of
hardware and software errors, whether or not caused by our
products, could result in the delay or loss of market acceptance
of our products, and therefore delay our ability to recognize
revenue from sales, and any necessary revisions may cause us to
incur significant expenses. The occurrence of any such problems
could harm our business, operating results and financial
condition.
Although we have limitation of liability provisions in our
standard terms and conditions of sale, they may not fully or
effectively protect us from claims as a result of federal, state
or local laws or ordinances or unfavorable judicial decisions in
the U.S. or other countries. The sale and support of our
products also entails the risk of product liability claims. We
maintain insurance to protect against certain claims associated
with the use of our products, but our insurance coverage may not
adequately cover any claim asserted against us. In addition,
even claims that ultimately are unsuccessful could result in our
expenditure of funds in litigation and divert managements
time and other resources.
26
We may
engage in future acquisitions that dilute the ownership
interests of our stockholders, cause us to use a significant
portion of our cash, incur debt or assume contingent
liabilities.
As part of our business strategy, from time to time, we review
potential acquisitions of other businesses, and we may acquire
businesses, products, or technologies in the future. In the
event of any future acquisitions, we could:
|
|
|
|
|
issue equity securities which would dilute our current
stockholders percentage ownership;
|
|
|
|
incur substantial debt;
|
|
|
|
assume contingent liabilities; or
|
|
|
|
spend significant cash.
|
These actions could harm our business, operating results and
financial condition, or the price of our common stock. Moreover,
even if we do obtain benefits from acquisitions in the form of
increased sales and earnings, there may be a delay between the
time when the expenses associated with an acquisition are
incurred and the time when we recognize such benefits. This is
particularly relevant in cases where it is necessary to
integrate new types of technology into our existing portfolio
and where new types of products may be targeted for potential
customers with which we do not have pre-existing relationships.
Acquisitions and investment activities also entail numerous
risks, including:
|
|
|
|
|
difficulties in the assimilation of acquired operations,
technologies
and/or
products;
|
|
|
|
unanticipated acquisition transaction costs;
|
|
|
|
the diversion of managements attention from other business;
|
|
|
|
adverse effects on existing business relationships with
suppliers and customers;
|
|
|
|
risks associated with entering markets in which we have no or
limited prior experience;
|
|
|
|
the potential loss of key employees of acquired businesses;
|
|
|
|
difficulties in the assimilation of different corporate cultures
and practices; and
|
|
|
|
substantial charges for the amortization of certain purchased
intangible assets, deferred stock compensation or similar items.
|
We may not be able to successfully integrate any businesses,
products, technologies or personnel that we might acquire in the
future, and our failure to do so could have a material adverse
effect on our business, operating results and financial
condition.
Negative
conditions in the global credit markets may impair the value or
reduce the liquidity of a portion of our investment
portfolio.
As of December 31, 2009, we had $24.9 million in cash
and cash equivalents and $147.0 million in investments in
marketable debt securities. Historically, we have invested these
amounts primarily in government agency debt securities,
corporate debt securities, commercial paper, auction rate
securities, money market funds and taxable municipal debt
securities meeting certain criteria. We currently hold no
mortgaged-backed or auction rate securities. However, some of
our investments are subject to general credit, liquidity, market
and interest rate risks, which may be exacerbated by the ongoing
uncertainty in the U.S. and global credit markets that have
affected various sectors of the financial markets and caused
global credit and liquidity issues. In the future, these market
risks associated with our investment portfolio may harm the
results of our operations, liquidity and financial condition.
Although we believe we have chosen a more cautious portfolio
designed to preserve our existing cash position, it may not
adequately protect the value of our investments. Furthermore,
this more cautious portfolio is unlikely to provide us with any
significant interest income in the near term.
27
If we
do not adequately manage and evolve our financial reporting and
managerial systems and processes, our operating results and
financial condition may be harmed.
Our ability to successfully implement our business plan and
comply with regulations applicable to being a public reporting
company requires an effective planning and management process.
We expect that we will need to continue to improve existing, and
implement new, operational and financial systems, procedures and
controls to manage our business effectively in the future. Any
delay in the implementation of, or disruption in the transition
to, new or enhanced systems, procedures or controls, could harm
our ability to accurately forecast sales demand, manage our
supply chain and record and report financial and management
information on a timely and accurate basis. In addition, the
successful enhancement of our operational and financial systems,
procedures and controls will result in higher general and
administrative costs in future periods, and may adversely impact
our operating results and financial condition.
While
we believe that we currently have proper and effective internal
control over financial reporting, we must continue to comply
with laws requiring us to evaluate those internal
controls.
We are required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002. The provisions of the act require,
among other things, that we evaluate the effectiveness of our
internal control over financial reporting and disclosure
controls and procedures. Ensuring that we have adequate internal
financial and accounting controls and procedures in place to
help produce accurate financial statements on a timely basis is
a costly and time-consuming effort. For example, our accounting
for income taxes requires considerable, specific knowledge of
various tax acts, both foreign and domestic, and also involves
several subjective judgments that could lead to fluctuations in
our results of operations should some or all events not occur as
anticipated. We incur significant costs and demands upon
management as a result of complying with these laws and
regulations affecting us as a public company. If we fail to
maintain proper and effective internal controls in future
periods, it could adversely affect our ability to run our
business effectively and could cause investors to lose
confidence in our financial reporting.
We are
subject to import/export controls that could subject us to
liability or impair our ability to compete in international
markets.
Our products are subject to U.S. export controls and may be
exported outside the U.S. only with the required level of
export license or through an export license exception, in most
cases because we incorporate encryption technology into our
products. In addition, various countries regulate the import of
certain encryption technology and have enacted laws that could
limit our ability to distribute our products or could limit our
customers ability to implement our products in those
countries. Changes in our products or changes in export and
import regulations may create delays in the introduction of our
products in international markets, prevent our customers with
international operations from deploying our products throughout
their global systems or, in some cases, prevent the export or
import of our products to certain countries altogether. Any
change in export or import regulations or related legislation,
shift in approach to the enforcement or scope of existing
regulations, or change in the countries, persons or technologies
targeted by such regulations, could result in decreased use of
our products by, or in our decreased ability to export or sell
our products to, existing or potential customers internationally.
In addition, we may be subject to customs duties and export
quotas, which could have a significant impact on our revenue and
profitability. While we have not yet encountered significant
regulatory difficulties in connection with the sales of our
products in international markets, the future imposition of
significant customs duties or export quotas could have a
material adverse effect on our business.
Our
business is subject to the risks of earthquakes, fire, floods
and other natural catastrophic events, and to interruption by
manmade problems such as computer viruses or
terrorism.
Our corporate headquarters is located in the San Francisco
Bay area, a region known for seismic activity. A significant
natural disaster, such as an earthquake, fire or a flood, could
have a material adverse impact on our business, operating
results and financial condition. In addition, our computer
servers are vulnerable to computer viruses, break-ins and
similar disruptions from unauthorized tampering with our
computer systems. In addition, acts of terrorism or war or
public health outbreaks could cause disruptions in our or our
customers business or the
28
economy as a whole. To the extent that such disruptions result
in delays or cancellations of customer orders, or the deployment
of our products, our business, operating results and financial
condition would be adversely affected.
|
|
Item 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Our corporate headquarters are located at 475 Broadway Street,
Redwood City, California. These offices consist of approximately
27,646 square feet and the lease on this property expires
in December 2011.
In addition to our corporate headquarters, we lease
approximately 87,319 square feet of office space in
Westborough, Massachusetts under a lease that expires in March
2012 (of which approximately 32,000 square feet is
currently vacant and available for sublet), approximately
70,826 square feet of office space in Tel Aviv, Israel
under a lease that expires in February 2013 and approximately
10,600 square feet of office space in Shenzhen, China.
Additionally, we lease sales and support offices in Hong Kong,
Shanghai and Beijing, China; Seoul, Korea; and a warehouse space
in Southborough, Massachusetts.
We believe that our existing properties are in good condition
and are sufficient and suitable for the conduct of our business.
As our existing leases expire or in the event we need additional
space, we believe that suitable space will be available on
commercially reasonable terms.
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
A review of our current litigation is disclosed in the notes to
our consolidated financial statements. See Notes to
Consolidated Financial Statements, Note 7
Commitments and Contingencies Legal
Proceedings in Part II, Item 8 of this Annual
Report on
Form 10-K.
|
|
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information for Common Stock
Our common stock has been quoted on the Nasdaq Global Market
under the symbol BBND since our IPO on
March 20, 2007. Prior to that time, there was no public
market for our common stock.
For the indicated periods, the high and low sales prices of our
common stock as reported by the Nasdaq Global Market were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
7.10
|
|
|
$
|
4.13
|
|
Second quarter
|
|
$
|
7.18
|
|
|
$
|
4.68
|
|
Third quarter
|
|
$
|
5.90
|
|
|
$
|
3.63
|
|
Fourth quarter
|
|
$
|
4.45
|
|
|
$
|
3.20
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2008
|
|
|
|
High
|
|
|
Low
|
|
|
First quarter
|
|
$
|
6.47
|
|
|
$
|
3.75
|
|
Second quarter
|
|
$
|
7.96
|
|
|
$
|
4.64
|
|
Third quarter
|
|
$
|
5.00
|
|
|
$
|
2.76
|
|
Fourth quarter
|
|
$
|
6.03
|
|
|
$
|
2.36
|
|
Dividend
Policy
We have never paid any cash dividends on our common stock. Our
Board of Directors currently intends to retain any future
earnings to support our operations and to finance the growth and
development of our business and does not intend to pay cash
dividends on our common stock for the foreseeable future. Any
future determination related to our dividend policy will be made
at the discretion of our board.
Stockholders
As of March 1, 2010, there were 63 stockholders of
record of our common stock. Because many of our shares of common
stock are held by brokers and other institutions on behalf of
stockholders, we are unable to provide an exact total number of
stockholders represented by these record holders, however we
believe there are currently approximately 6,000 beneficial
owners of our common stock.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
None.
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
You should read the following selected consolidated financial
data in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operation
and our consolidated financial statements and the related notes
appearing elsewhere in this Annual Report on
Form 10-K.
Selected financial data was as follows (in thousands except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
93,662
|
|
|
$
|
148,417
|
|
|
$
|
144,715
|
|
|
$
|
154,013
|
|
|
$
|
85,966
|
|
Services
|
|
|
45,852
|
|
|
|
36,876
|
|
|
|
31,795
|
|
|
|
22,611
|
|
|
|
12,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
139,514
|
|
|
|
185,293
|
|
|
|
176,510
|
|
|
|
176,624
|
|
|
|
97,979
|
|
Cost of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
45,961
|
|
|
|
60,207
|
|
|
|
76,260
|
|
|
|
74,152
|
|
|
|
55,933
|
|
Services
|
|
|
12,384
|
|
|
|
12,755
|
|
|
|
13,414
|
|
|
|
9,245
|
|
|
|
3,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of net revenues
|
|
|
58,345
|
|
|
|
72,962
|
|
|
|
89,674
|
|
|
|
83,397
|
|
|
|
59,833
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
47,701
|
|
|
|
88,210
|
|
|
|
68,455
|
|
|
|
79,861
|
|
|
|
30,033
|
|
Services
|
|
|
33,468
|
|
|
|
24,121
|
|
|
|
18,381
|
|
|
|
13,366
|
|
|
|
8,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
81,169
|
|
|
|
112,331
|
|
|
|
86,836
|
|
|
|
93,227
|
|
|
|
38,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
46,431
|
|
|
|
54,043
|
|
|
|
51,862
|
|
|
|
37,194
|
|
|
|
30,701
|
|
Sales and marketing
|
|
|
24,201
|
|
|
|
28,935
|
|
|
|
39,868
|
|
|
|
29,523
|
|
|
|
22,729
|
|
General and administrative
|
|
|
18,862
|
|
|
|
20,884
|
|
|
|
16,286
|
|
|
|
13,176
|
|
|
|
6,984
|
|
Restructuring charges
|
|
|
1,356
|
|
|
|
2,055
|
|
|
|
2,998
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
733
|
|
|
|
572
|
|
|
|
572
|
|
|
|
573
|
|
Gain on sale of intangible assets
|
|
|
|
|
|
|
(1,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Class action litigation charges
|
|
|
477
|
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
91,327
|
|
|
|
106,354
|
|
|
|
111,586
|
|
|
|
80,465
|
|
|
|
60,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(10,158
|
)
|
|
|
5,977
|
|
|
|
(24,750
|
)
|
|
|
12,762
|
|
|
|
(22,841
|
)
|
Other income (expense)
|
|
|
2,352
|
|
|
|
6,203
|
|
|
|
608
|
|
|
|
(1,360
|
)
|
|
|
(1,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit from) provision for income taxes
and cumulative effect of change in accounting principle
|
|
|
(7,806
|
)
|
|
|
12,180
|
|
|
|
(24,142
|
)
|
|
|
11,402
|
|
|
|
(24,537
|
)
|
(Benefit from) provision for income taxes
|
|
|
(1,067
|
)
|
|
|
2,400
|
|
|
|
1,225
|
|
|
|
2,525
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before cumulative effect of change in acccounting
principle
|
|
|
(6,739
|
)
|
|
|
9,780
|
|
|
|
(25,367
|
)
|
|
|
8,877
|
|
|
|
(24,862
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
|
$
|
(25,367
|
)
|
|
$
|
8,877
|
|
|
$
|
(25,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
$
|
0.78
|
|
|
$
|
(2.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
$
|
0.16
|
|
|
$
|
(2.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic net (loss) income per common share
|
|
|
65,936
|
|
|
|
63,559
|
|
|
|
49,041
|
|
|
|
11,433
|
|
|
|
10,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted net (loss) income per common share
|
|
|
65,936
|
|
|
|
67,264
|
|
|
|
49,041
|
|
|
|
57,053
|
|
|
|
10,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
171,908
|
|
|
$
|
174,635
|
|
|
$
|
154,520
|
|
|
$
|
65,474
|
|
|
$
|
24,287
|
|
Working capital
|
|
|
147,496
|
|
|
|
142,398
|
|
|
|
109,296
|
|
|
|
25,056
|
|
|
|
5,812
|
|
Total assets
|
|
|
223,588
|
|
|
|
234,122
|
|
|
|
218,586
|
|
|
|
129,050
|
|
|
|
76,816
|
|
Current and long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,536
|
|
|
|
11,418
|
|
Preferred stock warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,152
|
|
|
|
1,642
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,307
|
|
|
|
117,307
|
|
Common stock and additional paid-in capital
|
|
|
283,771
|
|
|
|
265,241
|
|
|
|
248,201
|
|
|
|
17,075
|
|
|
|
14,990
|
|
Total stockholders equity (deficit)
|
|
|
150,276
|
|
|
|
138,419
|
|
|
|
111,586
|
|
|
|
(95,614
|
)
|
|
|
(107,819
|
)
|
31
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion of our financial condition and
results of operations should be read together with the
consolidated financial statements and related notes that are
included elsewhere in this
Form 10-K.
This discussion contains forward-looking statements, which are
based upon current expectations that involve risks and
uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a
result of various factors, including those set forth under
Risk Factors or in other parts of this
Form 10-K.
Overview
We develop, market and sell network-based platforms that enable
cable multiple system operators (MSOs) and telecommunications
companies (collectively, service providers) to offer video
services across coaxial, fiber and copper networks. We were
incorporated in Delaware in December 1998. Since that time, we
have developed significant expertise in rich media processing,
communications networking and bandwidth management. Our
customers are using our platforms to expand high-definition
television (HDTV) services, and ensure high-quality video
advertising programming to subscribers. Our Broadcast Video,
TelcoTV, Switched Digital Video and IPTV (Personalized Video)
solutions are comprised of a combination of software and
programmable hardware platforms. We have sold our solutions to
more than 200 customers globally. We sell our products and
services to customers in the U.S. and Canada through our
direct sales force. We sell to customers internationally through
a combination of direct sales and resellers. Our domestic
customers include Bright House, Cablevision, Charter, Comcast,
Cox, Time Warner Cable and Verizon, which are seven of the ten
largest service providers in the U.S. Our largest
international resellers include Guangdong Tongke, Sugys and
Ssangyong.
Our sales cycle typically ranges from six to 18 months, but
can be longer if the sale relates to new product introductions.
Our sales process generally involves several stages before we
can recognize revenues on the sale of our products. As a
provider of advanced technologies, we seek to actively
participate with our existing and potential customers in the
evaluation of their technology needs and network architectures,
including the development of initial designs and prototypes.
Following these activities, we typically respond to a service
providers request for proposal, configure our products to
work within our customers network architecture, and test
our products first in laboratory testing and then in field
environments to ensure interoperability with existing products
in the service providers network. Following testing, our
revenue recognition generally depends on satisfying the
acceptance criteria specified in our contract with the customer
and our customers schedule for roll-out of the product.
Completion of several of these stages is substantially outside
of our control, which causes our revenue patterns from a given
customer to vary widely from period to period. After initial
deployment of our products, subsequent purchases of our products
typically have a more compressed sales cycle.
Due to the nature of the cable and telecommunications
industries, we sell our products to a limited number of large
customers. For the years ended December 31, 2009, 2008 and
2007, we derived approximately 78%, 81% and 75%, respectively,
of our net revenues from our top five customers. We believe that
for the foreseeable future our net revenues will continue to be
highly concentrated in a limited number of large customers. The
loss of one or more of our large customers, or the cancellation
or deferral of purchases by one or more of these customers,
would have a material adverse impact on our revenues and
operating results.
Net Revenues. We derive our net revenues
principally from sales of, and services for video solutions,
with a minimal remaining contribution from our data products,
which we retired in October 2007. Our product revenues are
comprised of a combination of software licenses and programmable
hardware platforms. Our product revenues are influenced by a
variety of factors, including the level and timing of capital
spending by our customers and the annual budgetary cycles of,
and the timing and amount of orders from, significant customers.
The selling prices of our products vary based upon the
particular customer implementation, which impacts the relative
mix of software, hardware and services associated with the sale.
To date, our products primarily include Broadcast Video, TelcoTV
and Switched Digital Video.
Our service revenues include ongoing customer support and
maintenance, product installation and training. Our customer
support and maintenance is available in a tiered offering at
either a standard or an enhanced level. The majority of our
customers have purchased our enhanced level of customer support
and maintenance. The accounting
32
for revenues is complex, and we account for revenues in
accordance with applicable U.S. generally accepted
accounting principles (GAAP).
Cost of Net Revenues. Our cost of product
revenues consists primarily of payments for components and
product assembly, costs of product testing, provisions recorded
for excess and obsolete inventory, provisions recorded for
warranty obligations, manufacturing overhead and allocated
facilities and information technology expense. Cost of service
revenues is primarily comprised of personnel costs in providing
technical support, costs incurred to support deployment and
installation within our customers networks, training costs
and allocated facilities and information technology expense.
Headcount in these functions was 90 employees as of
December 31, 2009 compared to 93 employees as of
December 31, 2008. We project headcount in services and
manufacturing operations will continue to remain relatively flat
in the near term.
Gross Margin. Our gross profit as a percentage
of net revenues, or gross margin, has been and will continue to
be affected by a variety of factors, including the mix of
software, hardware and services sold, and the average selling
prices of our products. We achieve a higher gross margin on the
software content of our products compared to the hardware
content. In general, we continue to experience competitive
pricing pressures on our products and we expect the average
selling prices of our products to decline compared to the year
ended December 31, 2009. Our gross margins for products are
also influenced by the specific terms of our contracts, which
may vary significantly from customer to customer based on the
type of products sold, the overall size of the customers
order, and the architecture of the customer network, which can
influence the amount and complexity of design, integration and
installation services.
Operating Expenses. Our operating expenses
consist of research and development, sales and marketing,
general and administrative, restructuring and other charges.
Personnel related costs are the most significant component of
our operating expenses. We project our headcount will grow
modestly in the near term, primarily in engineering and sales,
to support new product initiatives and to expand our
international reseller network.
Research and development expense is the largest functional
component of our operating expenses and consists primarily of
personnel costs, independent contractor costs, prototype
expenses, and other allocated facilities and information
technology expense. The majority of our research and development
staff is focused on software development. All research and
development costs are expensed as incurred. Our development
teams are located in Tel Aviv, Israel; Shenzhen, Peoples
Republic of China; Westborough, Massachusetts and Redwood City,
California. Due to the long-term opportunities that we see for
our business, we are accelerating certain technology projects.
Accordingly, we expect our research and development expense to
increase in absolute dollars in the near term, due to new
product initiatives in key strategic areas for both new and
existing products.
Sales and marketing expense relates primarily to compensation
and associated costs for marketing and sales personnel, sales
commissions, promotional and other marketing expenses, travel,
trade-show expenses and allocated facilities and information
technology expense. Marketing programs are intended to generate
revenues from new and existing customers and are expensed as
incurred. We expect sales and marketing expense to grow modestly
in absolute dollars in the near term, primarily to expand our
international reseller network.
General and administrative expense consists primarily of
compensation and associated costs for general and administrative
personnel, professional services and allocated facilities and
information technology expenses. Professional services consist
of outside legal, accounting and other consulting costs. We
expect that general and administrative expense will increase
modestly in absolute dollars in the near term, to support a
modest growth in headcount both in the U.S. and abroad as
well as a modest projected increase in professional expenses.
Class action litigation charges are settlement fees and
expenses, related to a series of purported shareholder class
action lawsuits against our officers, our directors and the
underwriters of our initial public offering. In accordance with
the provisions of Financial Accounting Standards Board
Accounting Standards Codification (ASC) 450
Contingencies, we recorded an expense of
$1.5 million for the year ended December 31, 2008, and
an additional expense of $0.5 million for the year ended
December 31, 2009. These lawsuits were settled or dismissed
as of December 31, 2009, and hence we have no further
obligations.
33
Critical
Accounting Policies and Estimates
Our consolidated financial statements have been prepared in
accordance with U.S. GAAP, and pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The
preparation of our consolidated financial statements requires
our management to make estimates, assumptions and judgments that
affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the applicable periods. Management bases its
estimates, assumptions and judgments on historical experience
and on various other factors that are believed to be reasonable
under the circumstances. Different assumptions and judgments
would change the estimates used in the preparation of our
consolidated financial statements, which, in turn, could change
the results from those reported. Our management evaluates its
estimates, assumptions and judgments on an ongoing basis.
The critical accounting policies requiring estimates,
assumptions and judgments that we believe have the most
significant impact on our consolidated financial statements are
described below.
Revenue
Recognition
Our software and hardware are sold as solutions and our software
is a significant component of our solutions. We provide
unspecified software updates and enhancements related to
products through support contracts. With respect to certain
transactions and for all transactions involving the sale of
products with a significant software component, revenue is
recognized when all of the following have occurred: (1) we
have entered into an arrangement with a customer;
(2) delivery has occurred; (3) customer payment is
fixed or determinable and free of contingencies and significant
uncertainties; and (4) collection is probable.
Product revenues consist of sales of our software and hardware
products. Software product sales include a perpetual license to
our software. We recognize product revenues upon shipment to our
customers, including channel partners, on non-cancellable
contracts and purchase orders when all revenue recognition
criteria are met, or, if specified in an agreement, upon receipt
of final acceptance of the product, provided all other criteria
are met. End users and channel partners generally have no rights
of return, stock rotation rights or price protection. Shipping
charges billed to customers are included in product revenues and
the related shipping costs are included in cost of product
revenues.
Substantially all of our product sales have been made in
combination with support services, which consist of software
updates and customer support. Our customer service agreements
allow customers to select from plans offering various levels of
technical support, unspecified software upgrades and
enhancements on an
if-and-when-available
basis. Revenues for support services are recognized on a
straight-line basis over the service contract term, which is
typically one year but can extend to five years for our
telecommunications customers. Revenues from other services, such
as installation, program management and training, are recognized
when the services are performed.
We use the residual method to recognize revenues when a customer
agreement includes one or more elements to be delivered at a
future date and vendor specific objective evidence (VSOE) of the
fair value of all undelivered elements exists. Under the
residual method, the fair value of the undelivered elements is
deferred and the remaining portion of the contract fee is
recognized as product revenues. If evidence of the fair value of
one or more undelivered elements does not exist, all revenues
are deferred and recognized when delivery of those elements
occur or when fair value can be established. When the
undelivered element is customer support and there is no evidence
of fair value for this support, revenue for the entire
arrangement is bundled and revenue is recognized ratably over
the service period. VSOE of fair value for elements of an
arrangement is based upon the normal pricing and discounting
practices for those services when sold separately.
Fees are typically considered to be fixed or determinable at the
inception of an arrangement based on specific products and
quantities to be delivered. In the event payment terms are
greater than 180 days, the fees are deemed not to be fixed
or determinable and revenues are recognized when the payments
become due, provided the remaining criteria for revenue
recognition have been met.
Deferred revenues consist primarily of deferred service fees
(including customer support and professional services such as
installation, program management and training) and product
revenues, net of the associated costs. Deferred product revenue
generally relates to acceptance provisions that have not been
met or partial shipment or
34
when we do not have VSOE of fair value on the undelivered items.
When deferred revenues are recognized as revenues, the
associated deferred costs are also recognized as cost of net
revenues.
We assess the ability to collect from our customers based on a
number of factors, including the credit worthiness of the
customer and the past transaction history of the customer. If
the customer is not deemed credit worthy, all revenues are
deferred from the arrangement until payment is received and all
other revenue recognition criteria have been met.
Inventories,
Net
Inventories, net consist primarily of finished goods and are
stated at the lower of standard cost or market. Standard cost
approximates actual cost on the
first-in,
first-out method. We regularly monitor inventory quantities
on-hand and record write-downs for excess and obsolete
inventories based on our estimate of demand for our products,
potential obsolescence of technology, product life cycles and
whether pricing trends or forecasts indicate that the carrying
value of inventory exceeds its estimated selling price. These
factors are impacted by market and economic conditions,
technology changes, and new product introductions and require
estimates that may include elements that are uncertain. Actual
demand may differ from forecasted demand and may have a material
effect on gross margins. If inventory is written down, a new
cost basis is established that cannot be increased in future
periods.
Warranty
Liabilities
We provide a warranty for our software and hardware products. In
most cases, we warrant that our hardware will be free of defects
in workmanship for one year and that our software media will be
free of defects for 90 days. In master purchase agreements
with large customers, however, we often warrant that both our
hardware and software products will function in material
conformance to specifications for a period ranging from one to
five years from the date of shipment. In general, we accrue for
warranty claims based on the Companys historical claims
experience. In addition, we accrue for warranty claims based on
specific events and other factors when we believes an exposure
is probable and can be reasonably estimated. The adequacy of the
accrual is reviewed on a periodic basis and adjusted, if
necessary, based on additional information as it becomes
available.
Stock-Based
Compensation
We apply the fair value recognition and measurement provisions
of ASC 718 Compensation Stock Compensation
(ASC 718). Stock-based compensation is recorded at fair
value as of the grant date and recognized as an expense over the
employees requisite service period (generally the vesting
period), which we have elected to amortize on a straight-line
basis.
Under ASC 718, we estimate the fair value of stock option awards
using a Black-Scholes option-pricing formula and a single option
award approach. This model utilizes the estimated fair value of
common stock and requires that, at the date of grant, we use the
expected term of the option, the expected volatility of the
price of our common stock, risk free interest rates and expected
dividend yield of our common stock. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period.
Options typically vest with respect to 25% of the shares one
year after the options vesting commencement date and the
remainder ratably on a monthly basis over the following three
years. In valuing share-based awards under ASC 718, significant
judgment is required in determining the expected volatility of
our common stock and the expected term individuals will hold
their share-based awards prior to exercising. The computation of
expected volatility is derived primarily from the weighted
historical volatilities of several comparable companies within
the cable and telecommunications equipment industry and to a
lesser extent, our weighted historical volatility following our
IPO in March 2007. The expected term of options granted
represents the period of time that options granted are expected
to be outstanding and was calculated using the simplified method
permitted by SEC Staff Accounting Bulletin (SAB) 107 as revised
by SAB 110. In the future, as we gain historical data for
volatility in our own stock and the actual term employees hold
our options, expected volatility and expected term may change
which could substantially change the grant-date fair value of
future awards of stock options and ultimately the expense we
record.
35
Restricted stock units (RSU) grants under the 2007 Plan
generally vest in increments over two to four years from the
date of grant. The RSUs are classified as equity awards because
the RSUs are paid only in shares upon vesting. RSU awards are
measured at the fair value at the date of grant, which
corresponds to the closing stock price of the Companys
common stock on the date of grant. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the RSUs, which is generally the vesting period.
Impairment
of Long-lived Assets
We assess impairment of long-lived assets for recoverability
when events or changes in circumstances indicate that their
carrying amount may not be recoverable. Circumstances which
could trigger a review include, but are not limited to:
significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal
factors; accumulation of costs significantly in excess of the
amount originally expected for the acquisition or construction
of the asset; current period cash flow or operating losses
combined with a history of losses or a forecast of continuing
losses associated with the use of the asset; or current
expectation that the asset will more likely than not be sold or
disposed of significantly before the end of its estimated useful
life.
Recoverability is assessed based on the sum of the undiscounted
cash flows expected to result from the use and the eventual
disposal of the asset. An impairment loss is recognized in the
consolidated statements of operations when the carrying amount
is not recoverable and exceeds fair value, which is determined
on a discounted cash flow basis.
We make estimates and judgments about future undiscounted cash
flows and fair value. Although our cash flow forecasts are based
on assumptions that are consistent with our plans, there is
significant exercise of judgment involved in determining the
cash flows attributable to a long-lived asset over its estimated
remaining useful life. Our estimates of anticipated future cash
flows could be reduced significantly in the future. As a result,
the carrying amount of our long-lived assets could be reduced
through impairment charges in the future.
Accounting
for Income Taxes
We are required to estimate our taxes in each of the
jurisdictions in which we operate. We estimate actual current
tax exposure together with assessing temporary differences
resulting from differing treatment of items, such as accruals
and allowances not currently deductible for tax purposes. These
differences result in deferred tax assets and liabilities, which
are included on our consolidated balance sheets. In general,
deferred tax assets represent future tax benefits to be realized
when certain expenses previously recognized in our consolidated
statements of operations become deductible expenses under
applicable income tax laws or credit and net loss carry-forwards
are utilized. Accordingly, realization of our deferred tax
assets depends on future taxable income against which these
deductions, losses and credits can be utilized. We must assess
the likelihood that our deferred tax assets will be recovered
from future taxable income and to the extent we believe that
recovery is not likely, we must establish a valuation allowance,
thereby reducing the carrying value of deferred tax assets.
Management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities, and any
valuation allowance recorded against our net deferred tax
assets. As of December 31, 2009, we recorded a full
valuation allowance against all of our deferred tax assets
arising from U.S. operations. Based on the available
evidence, we believed it is more likely than not that we will
not be able to utilize all of these deferred tax assets in the
future. We intend to maintain the full valuation allowance
against our U.S. deferred tax assets until sufficient
evidence exists to support its reversal. We make estimates and
judgments about our future taxable income that are based on
assumptions that are consistent with our plans and estimates.
Should the actual amounts differ from our estimates, the amount
of our valuation allowance could be materially impacted.
The U.S. Congress enacted The Worker, Homeownership,
and Business Assistance Act of 2009 (the Act) on
November 6, 2009 creating an opportunity for us to elect to
carry back either a 2008 or 2009 federal net operating loss
(NOL) for three, four, or five years. The Act also suspended the
ninety percent limitation on the utilization of alternative
minimum tax (AMT) losses, effectively permitting us to elect to
carry back our entire applicable NOL. This Act favorably
impacted our 2009 effective tax rate.
36
Results
of Operations
The percentage relationships of the listed items from our
consolidated statements of operations as a percentage of total
net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Total cost of net revenues
|
|
|
41.8
|
|
|
|
39.4
|
|
|
|
50.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
58.2
|
|
|
|
60.6
|
|
|
|
49.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
33.3
|
|
|
|
29.2
|
|
|
|
29.4
|
|
Sales and marketing
|
|
|
17.3
|
|
|
|
15.6
|
|
|
|
22.6
|
|
General and administrative
|
|
|
13.6
|
|
|
|
11.3
|
|
|
|
9.2
|
|
Restructuring charges
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
1.7
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
0.4
|
|
|
|
0.3
|
|
Gain on sale of intangible assets
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
Class action litigation charges
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
65.5
|
|
|
|
57.4
|
|
|
|
63.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7.3
|
)
|
|
|
3.2
|
|
|
|
(14.0
|
)
|
Interest income
|
|
|
1.8
|
|
|
|
2.8
|
|
|
|
3.9
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Other (expense) income, net
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
(5.6
|
)
|
|
|
6.6
|
|
|
|
(13.7
|
)
|
(Benefit from) provision for income taxes
|
|
|
(0.8
|
)
|
|
|
1.3
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(4.8
|
)%
|
|
|
5.3
|
%
|
|
|
(14.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31, 2009 and 2008
Net
Revenues
Total net revenues decreased 24.7% to $139.5 million for
2009 from $185.3 million for 2008. The $45.8 million
decrease was primarily due to a $53.5 million decrease in
Video product revenues and a $1.3 million decrease in Data
product revenues, partially offset by a $9.0 million
increase in service revenues. A majority of the reduction in our
Video product revenues was attributable to a slowdown in the
deployment schedule of our largest Telco TV customer.
Additionally, Broadcast Video revenues declined
$17.7 million as a result of reduced bookings related to
what we believe to be a reduction in advertising spending.
Our deferred revenues decreased by $15.7 million to
$44.9 million as of December 31, 2009 from
$60.6 million as of December, 31 2008. Our visibility
remains limited during these challenging economic times, and
pricing pressure from our competitors continues to delay sales
cycles.
Revenues from our top five customers comprised 78% and 81% of
net revenues for 2009 and 2008, respectively. For 2009, Charter
Communications, Time Warner Cable and Verizon each represented
10% or more of our net revenues. For 2008, Cox Communications,
Time Warner Cable and Verizon each represented 10% or more of
our net revenues. For 2009, Verizon represented slightly less
than 20% of our net revenues compared to slightly less than 30%
in 2008. Verizons percentage revenue contribution declined
for 2009 from the prior year due to a decline in order volume
associated with a slower deployment schedule in Verizons
video network. Time Warner Cable represented slightly more than
30% of our net revenues in 2009 compared to slightly less than
30% in 2008, due to Time Warner Cables deployment schedule
of large Switched Digital Video projects.
37
Net revenues by geographical region based on the shipping
destination of customer orders as a percentage of total net
revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
|
88.7
|
%
|
|
|
91.4
|
%
|
|
|
83.2
|
%
|
Asia
|
|
|
7.0
|
|
|
|
3.6
|
|
|
|
7.7
|
|
Europe
|
|
|
3.0
|
|
|
|
2.9
|
|
|
|
8.3
|
|
Americas, excluding United States
|
|
|
1.3
|
|
|
|
2.1
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Revenues. Product revenues for 2009
were $93.7 million compared to $148.4 million for
2008. Video product revenues decreased $53.5 million in
2009 compared to 2008, due to a $35.1 million decrease in
TelcoTV revenues, a $17.7 million decrease in Broadcast
Video revenues and a $0.7 million decrease in Switched
Digital Video revenues. Data revenues decreased
$1.3 million related to the retirement of our CMTS platform
products in October 2007.
Service Revenues. Service revenues for 2009
were $45.9 million compared to $36.9 million for 2008,
an increase of $9.0 million, or 24.3%. The increase was
primarily due to a $5.6 million recognition of service
revenues from decommissioned analog technology as described
below, a $5.8 million increase in Video customer support
and maintenance revenues from our new and installed base of
customers and a $2.0 million increase in Video installation
and training revenues. These increases were partially offset by
a $4.4 million decrease in customer support and maintenance
revenues from our retired CMTS platform products.
In an effort to switch to all-digital broadcasting, the
U.S. federal government set June 12, 2009 as the final
date for full power television stations that broadcasted in
analog to convert to digital only. Previously, we sold analog
products to a large TelcoTV customer that allowed analog
transmission of video over fiber-optic lines. As part of its
compliance with the move to all-digital, this customer completed
the decommissioning of the analog technology products from its
network and migrated to an all-digital format. We recognized
$5.6 million of the remaining deferred service revenues and
a $0.5 million benefit from the reversal of warranty
reserves related to these decommissioned analog technology
products in 2009.
Gross
Profit and Gross Margin
Gross profit. Gross profit for 2009 was
$81.2 million compared to $112.3 million for 2008.
Gross margin decreased to 58.2% for 2009 compared to 60.6% in
2008.
Product gross margin. Product gross margin for
2009 was 50.9% compared to 59.4% for 2008. Product gross margin
decreased due to a lower absorption of fixed manufacturing
costs, a higher concentration of revenues being generated from
lower margin hardware products and continued downward pricing
pressure. These factors were partially offset by a
$2.5 million decrease in manufacturing overhead expenses,
primarily due to a $1.2 million decrease in salary and
related benefits due to decreased headcount and a
$0.7 million decrease in bonus. We gained operational
efficiencies by centralizing our manufacturing operations in
Massachusetts and reduced our overhead expenses, travel and
other discretionary expenses by $0.8 million. Warranty
expense decreased $0.7 million, primarily related to a
$0.5 million benefit from the reversal of warranty reserves
related to decommissioned analog products. Product gross margin
for 2009 and 2008 included stock-based compensation of
$1.2 million and $1.0 million, respectively.
Services gross margin. Services gross margin
for 2009 was 73.0% compared to 65.4% for 2008. This increase was
primarily attributable to $5.6 million recognition of
deferred service revenues from decommissioned analog products
with no related cost of service. Additionally, cost of services
decreased $0.4 million primarily from lower compensation
expense and travel, due to a lower average headcount. Services
gross margin for 2009 and 2008 included stock-based compensation
of $0.9 million and $0.7 million, respectively.
38
Operating
Expenses
Research and Development. Research and
development expense was $46.4 million for 2009, or 33.3% of
net revenues compared to $54.0 million for 2008, or 29.2%
of net revenues. Our research and development expense decreased
$7.6 million primarily due to a $4.4 million decrease
in salary and related benefits as a result of a reduction in
force in the first quarter of 2009, and a shift of
headcount to a more cost effective location in Shenzhen, China.
Additionally, bonus expense decreased by $2.8 million as a
result of a decline in our financial performance and facility
and other allocated overhead expenses decreased
$1.3 million due to cost containment efforts. These factors
were partially offset by a $1.0 million increase in
stock-based compensation, which was $4.9 million and
$3.9 million for 2009 and 2008, respectively.
Sales and Marketing. Sales and marketing
expense was $24.2 million for 2009, or 17.3% of net
revenues compared to $28.9 million for 2008, or 15.6% of
net revenues. The $4.7 million decrease was primarily due
to a $3.9 million decrease in compensation expenses, a
$0.5 million decrease in travel expenses and a
$0.2 million decrease in marketing programs. These
decreases related to both a decrease in headcount and cost
containment efforts. Sales and marketing expense included
stock-based compensation of $2.4 million and
$2.6 million for 2009 and 2008, respectively.
General and Administrative. General and
administrative expense was $18.9 million for 2009, or 13.6%
of net revenues compared to $20.9 million for 2008, or
11.3% of net revenues. The $2.0 million decrease was
primarily due to a $1.4 million decrease in salary and
related benefits as a result of a reduction in headcount, a
$1.0 million decrease in bonus expense as a result of a
decline in our financial performance and a $0.9 million
decrease in Sarbanes-Oxley 404 compliance work and audit fees.
These factors were partially offset by an increase in
stock-based compensation, which was $4.8 million and
$3.7 million for 2009 and 2008, respectively.
Restructuring Charges. On February 9,
2009, the Board of Directors authorized a restructuring plan
pursuant to which employees were terminated. This plan was made
in response to market and economic conditions, through which we
reduced our operating expenses to increase our flexibility. On
April 29, 2008, the Board of Directors authorized a
restructuring plan in connection with the redeployment of
resources pursuant to which employees were terminated and
facilities were vacated. On October 29, 2007, the Board of
Directors authorized a restructuring plan in connection with the
retirement of the CMTS pursuant to which employees were
terminated and facilities were vacated. Charges incurred with
these restructuring plans were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
|
|
|
April
|
|
|
October
|
|
|
|
|
|
|
2009 Plan
|
|
|
2008 Plan
|
|
|
2007 Plan
|
|
|
Total
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacated facilities costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
699
|
|
|
$
|
699
|
|
Severance and related expenses
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
657
|
|
|
$
|
|
|
|
$
|
699
|
|
|
$
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacated facilities costs
|
|
$
|
|
|
|
$
|
1,094
|
|
|
$
|
400
|
|
|
$
|
1,494
|
|
Severance and related expenses
|
|
|
|
|
|
|
272
|
|
|
|
270
|
|
|
|
542
|
|
Other charges
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
|
|
|
$
|
1,366
|
|
|
$
|
689
|
|
|
$
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration date of facilities lease obligations:
|
|
|
Not applicable
|
|
|
|
January 2013
|
|
|
|
March 2012
|
|
|
|
|
|
Gain on sale of intangible assets. In October
2008, we sold certain intangible assets related to our FastFlow
provisioning software technology for consideration of
$1.8 million in cash and assumption of certain of our
customer obligations.
Class action lawsuit charges. The Company was
a defendant in various class action lawsuits, all of which were
settled or dismissed as of December 31, 2009. In accordance
with the provisions of ASC 450, Contingencies,
39
we recorded an expense, which represented the amount we have
agreed to pay for $0.5 million and $1.5 million for
2009 and 2008, respectively.
Interest
Income
Interest income was $2.6 million for 2009 compared to
$5.2 million for 2008. The decrease in interest income was
primarily attributable to lower interest rates. Additionally,
our cash, cash equivalents and marketable securities decreased
by $2.7 million to $171.9 million as of
December 31, 2009 from $174.6 million as of
December 31, 2008.
Other
(expense) income, net
Other (expense) income, net consists primarily of foreign
exchange (losses) gains. Other (expense) income, net for 2009
was an expense of $0.2 million, compared to income of
$1.0 million for 2008. During 2008, we reduced our
forecasted cash flows in Israeli New Shekels and reduced the
notional value of our outstanding derivatives with maturity
dates of June through December 2008. As a result, our derivative
instruments were no longer deemed effective from an accounting
perspective, resulting in a $1.0 million gain for 2008,
compared to zero in 2009.
Provision
for Income Taxes
Income tax benefit for 2009 was $1.1 million on pre-tax
loss of $7.8 million, compared to $2.4 million of tax
expense on pre-tax income of $12.2 million for 2008. Our
effective tax rate differed from the U.S. federal statutory
rate for 2009 primarily due to the distribution and mixture of
taxable profits in various jurisdictions carrying foreign income
taxes and certain U.S. losses not benefitted due to our
valuation allowance, partially offset by beneficial enterprise
tax status in Israel of $1.3 million, a federal operating
loss carryback which provided a tax benefit of
$0.7 million, and federal refundable credits of
$0.1 million. Our effective tax rate differed from the
U.S. federal statutory rate for 2008 primarily due to the
distribution and mixture of taxable profits in various tax
jurisdictions, some of which carry adequate loss carry-forwards.
As of December 31, 2009, we had net operating loss
carry-forwards for federal and state income tax purposes of
$61.3 million and $20.2 million, respectively. We use
the
with-and-without
approach described in guidance which has been incorporated into
ASC 740 Income Taxes (ASC 740) to determine the
recognition and measurement of excess tax benefits. Accordingly,
we have elected to recognize excess income tax benefits from
stock option exercises in additional paid-in capital, once
realized. In addition, we have elected to account for the
indirect benefits of stock-based compensation awards or other
tax attributes, such as research and development credits and
alternative minimum tax credits, in our consolidated statement
of operations. As of December 31, 2009, the portion of the
federal and state operating loss carry-forwards, which related
to stock option benefits, was approximately $15.3 million.
We also had federal research and development tax credit
carry-forwards of approximately $2.8 million and state
research and development tax credit carry-forwards of
approximately $1.0 million. If not utilized, the federal
net operating loss and tax credit carry-forwards will expire
between 2020 and 2029, and the state net operating loss and tax
credit carry-forwards will expire in different years depending
on the specific state, ranging from 2010 to indefinite. Net
operating loss carry-forwards and credit carry-forwards
reflected above may be limited due to ownership changes as
provided in Section 382 of the Internal Revenue Code and
similar state provisions.
Years
Ended December 31, 2008 and 2007
Net
Revenues
Total net revenues increased 5.0% to $185.3 million for
2008 from $176.5 million for 2007. The $8.8 million
increase was due to a $24.5 million increase in Video
product revenues and a $5.1 million increase in service
revenues, partially offset by a $20.8 million decrease in
Data product revenues following the retirement of our CMTS
platform products.
Revenues from our top five customers comprised 81% and 75% of
net revenues for 2008 and 2007, respectively. For both 2008 and
2007, Cox Communications, Time Warner Cable and Verizon each
represented 10% or more of our net revenues. For 2008, Verizon
represented slightly less than 30% of our net revenues
40
compared to approximately 40% in 2007. Verizons percentage
revenue contribution declined for 2008 from the prior year due
to an increase in our overall total revenues, a contractual
price reduction and a decline in order volume, due to their
deployment schedule. Time Warner Cable represented less than 30%
of our net revenues in 2008 compared to less than 20% in 2007.
The increase in their revenues was primarily driven by
incremental orders for our Switched Digital Video solution in
2008.
During 2008, revenues from customers in the U.S. comprised
91% of net revenues compared to 83% for 2007. The percentage
increase in domestic revenues in 2008 was primarily attributable
to a decline in revenues from our Data products from
international customers, as we retired our CMTS platform
products.
Product Revenues. Product revenues for 2008
were $148.4 million compared to $144.7 million for
2007. Video product revenues increased $24.5 million for
2008 compared to 2007 due to a $39.6 million increase in
Switched Digital Video revenues and a $3.8 million increase
in Broadcast Video revenues, partially offset by an
$18.9 million decrease in TelcoTV revenues primarily due to
decreased orders from our largest telecommunications customer.
The increase in Switched Digital Video and Broadcast Video
revenues was primarily due to an increase in volume from our
customers, which was slightly offset by downward pressure on our
product pricing from both our customers and our competitors.
Data product revenues decreased by $20.8 million to
$2.9 million in 2008, compared to $23.7 million in
2007, due to the retirement of our CMTS platform products.
Service Revenues. Service revenues for 2008
were $36.9 million compared to $31.8 million for 2007,
an increase of $5.1 million, or 16.0%. Video service
revenues increased $7.8 million in 2008 compared to 2007,
which was comprised of a $4.0 million increase in Video
customer support and maintenance revenues from our new and
installed base of customers as well as a $3.8 million
increase in Video installation and training revenues. This was
partially offset by a $2.7 million decrease in Data service
revenues due to the retirement of our CMTS platform products.
Gross
Profit and Gross Margin
Gross profit. Gross profit for 2008 was
$112.3 million compared to $86.8 million for 2007, an
increase of $25.5 million, or 29.4%. Gross margin increased
to 60.6% for 2008 compared to 49.2% in 2007.
Product gross margin. Product gross margin for
2008 was 59.4% compared to 47.3% for 2007. Product gross margin
increased due to a higher concentration of software orders,
which have a higher gross margin and a $1.2 million
decrease in warranty expense, which was comprised of a
$0.6 million reversal of a warranty reserve primarily
related to our retired CMTS platform products and
$0.6 million of lower warranty expense on our Video
products. In 2008, we also benefited from $0.8 million in
revenues from the sale of previously reserved inventories of our
retired CMTS platform products. In 2007 product gross margin was
negatively impacted by a $5.0 million inventory charge
related to our Data product line, and there was no such charge
for 2008. Product gross margin for 2008 and 2007 included
stock-based compensation of $1.0 million and
$0.9 million, respectively.
Services gross margin. Services gross margin
for 2008 was 65.4% compared to 57.8% for 2007. This increase was
primarily related to a $5.1 million increase in service
revenues as well as a $0.7 million reduction in cost of
services, primarily attributable to lower compensation expense
and travel following a reduction in headcount. Services gross
margin for 2008 and 2007 included stock-based compensation of
$0.7 million and $0.6 million, respectively.
Operating
Expenses
Research and Development. Research and
development expense was $54.0 million for 2008, or 29.2% of
net revenues compared to $51.9 million for 2007, or 29.4%
of net revenues. The $2.2 million increase was primarily
due to an increase in bonus expense and depreciation expense.
These increases were slightly offset in part by decreased
expenditures following our restructuring plans, which resulted
in lower base salaries, travel, facility costs and lab and
prototype expenditures. Research and development expense
included stock-based compensation of $3.9 million and
$3.8 million for 2008 and 2007, respectively.
Sales and Marketing. Sales and marketing
expense was $28.9 million for 2008, or 15.6% of net
revenues, compared to $39.9 million for 2007, or 22.6% of
net revenues. The $10.9 million decrease was primarily due
to a
41
$5.2 million decrease in compensation expense related to a
reduction in headcount, a $1.3 million decrease in overhead
expenses, a $1.6 million decrease in travel, and a
$1.2 million decrease in marketing related activities, such
as trade shows and public relations. We significantly reduced
our headcount that sold our retired CMTS products. Sales and
marketing expense included stock-based compensation of
$2.6 million and $4.2 million for 2008 and 2007,
respectively.
General and Administrative. General and
administrative expense was $20.9 million for 2008, or 11.3%
of net revenues, compared to $16.3 million for 2007, or
9.2% of net revenues. The $4.6 million increase was
primarily due to a $1.6 million increase in stock-based
compensation, a $1.2 million increase in costs associated
with audit activities and Sarbanes-Oxley 404 compliance and a
$0.8 million increase in legal fees primarily attributable
to litigation-related costs. The remaining $1.0 million
increase relates to increased bonus expense, which was earned as
result of our favorable financial results in 2008, and increased
subcontractor expenses. General and administrative expense
included stock-based compensation of $3.7 million and
$2.1 million for 2008 and 2007, respectively.
Restructuring Charges. On October 29,
2007, the Audit Committee of our Board of Directors authorized a
restructuring plan in connection with the retirement of our CMTS
platform along with an approximate 15% company-wide reduction in
force. This resulted in net charges of $0.7 million and
$3.0 million for the years ended December 31, 2008 and
2007, respectively. Severance, comprised primarily of salary,
payroll taxes and medical benefits, was approximately
$0.3 million and $2.2 million for the years ended
December 31, 2008 and 2007, respectively. Our plan also
included vacating several leased facilities throughout the
world, with lease terms expiring through March 2012 resulting in
vacated facility charges, net of sublease income of
approximately $0.4 million and $0.7 million for the
years ended December 31, 2008 and 2007, respectively.
On April 29, 2008, the Audit Committee of our Board of
Directors authorized an additional restructuring plan. This
resulted in net charges of $1.4 million for the year ended
December 31, 2008, including charges of $1.1 million
for vacated facility charges and $0.3 million for severance
costs.
Gain on sale of intangible assets. In October
2008, consistent with our previously announced intent to focus
on our Video solutions, we sold certain intangible assets
related to our FastFlow provisioning software technology for
consideration of $1.8 million in cash and assumption of
certain of our customer obligations.
Class action lawsuit charges. On
January 27, 2009, the defendants reached an agreement in
principle with the lead plaintiff to settle our main purported
shareholder class action lawsuit pending in federal court. The
agreement provides a full release for all potential claims
arising from the securities laws alleged in the initial and
consolidated complaints, including claims for alleged violations
of the Securities Act of 1933 and the Exchange Act of 1934. We
recorded an expense for $1.5 million for the year ended
December 31, 2008, which represented the estimated amount
we agreed to pay as of December 31, 2008.
Interest
Income
Interest income was $5.2 million for 2008 compared to
$6.9 million for 2007. While cash and cash equivalents
increased for 2008, interest income decreased due to lower
interest rates for 2008 compared to 2007.
Interest
expense
We incurred no interest expense for 2008 and $0.6 million
for 2007. A portion of proceeds from our initial public offering
was used to repay outstanding borrowings, which resulted in the
elimination of interest expense for 2008.
Other
Income (Expense), Net
Other income expense, net consists primarily of foreign exchange
gains (losses) and in 2007 a charge from fair value adjustments
of preferred stock warrants. Other income (expense), net for
2008 was an income of $1.0 million, compared to an expense
of $5.6 million for 2007. In May 2008, we reduced our
forecasted cash flows in Israeli New Shekels and therefore
reduced the notional value of our outstanding derivatives with
maturity dates from June through December 2008. As a result of
this change in forecasted cash flow, the derivative instruments
were no
42
longer deemed to be highly effective, resulting in the
ineffective portion of the gain on these derivatives of
$0.8 million being recognized in other income (expense),
net in 2008. Other income (expense), net included a
$5.0 million charge from fair value adjustments of
preferred stock warrants in 2007. Upon the completion of our
initial public offering on March 27, 2007, the warrants to
purchase redeemable convertible preferred stock became warrants
to purchase our common stock and accordingly we ceased adjusting
these warrants for changes in fair value and reclassified their
respective liabilities to stockholders equity.
Provision
for Income Taxes
The provision for income taxes of $2.4 million and
$1.2 million for 2008 and 2007, respectively, were related
to provisions for both domestic and foreign income taxes. As of
December 31, 2008, we had net operating loss carry-forwards
for federal and state income tax purposes of $77.3 million
and $37.8 million, respectively. We use the
with-and-without
approach described in guidance which has been incorporated into
ASC 740 to determine the recognition and measurement of excess
tax benefits. Accordingly, we elected to recognize excess income
tax benefits from stock option exercises in additional paid-in
capital, once realized. In addition, we elected to account for
the indirect benefits of stock-based compensation awards or
other tax attributes, such as research and development credits
and alternative minimum tax credits, in our consolidated
statement of operations. As of December 31, 2008, the
portion of the federal and state operating loss carry-forwards,
which related to stock option benefits, was $13.1 million.
We also had federal research and development tax credit
carry-forwards of $2.7 million and state research and
development tax credit carry-forwards of $1.1 million. If
not utilized, the federal net operating loss and tax credit
carry-forwards will expire between 2021 and 2028, and the state
net operating loss and tax credit carry-forwards will expire in
different years depending on the specific state, ranging from
2010 to indefinite. Utilization of these net operating losses
and credit carry-forwards are subject to an annual limitation
due to the provisions of Section 382 of the Internal
Revenue Code.
Liquidity
and Capital Resources
Since inception, we have financed our operations primarily
through private and public sales of equity securities and from
cash provided by operations. As of December 31, 2009, we
had no long-term debt outstanding.
Cash
Flow
Cash, cash equivalents and marketable
securities. We had approximately
$171.9 million of cash, cash equivalents, and marketable
securities as of December 31, 2009. Marketable securities
consist principally of corporate debt securities, commercial
paper and securities of U.S. agencies with remaining time
to maturity of two years or less. Restricted cash of
$0.6 million as of December 31, 2009 was not included
in cash and cash equivalents.
Operating
activities
The key line items affecting cash from operating activities were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net (loss) income
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
|
$
|
(25,367
|
)
|
Add back non-cash charges
|
|
|
23,458
|
|
|
|
20,494
|
|
|
|
27,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before non-cash charges(1)
|
|
|
16,719
|
|
|
|
30,274
|
|
|
|
1,709
|
|
Decrease in accounts receivable
|
|
|
7,866
|
|
|
|
1,494
|
|
|
|
6,133
|
|
Decrease in inventories, net
|
|
|
1,190
|
|
|
|
709
|
|
|
|
321
|
|
(Decrease) increase in deferred revenues
|
|
|
(15,696
|
)
|
|
|
(6,726
|
)
|
|
|
16,686
|
|
Decrease in accounts payable and accrued and other liabilities
|
|
|
(6,925
|
)
|
|
|
(2,332
|
)
|
|
|
(2,063
|
)
|
Other, net
|
|
|
(2,831
|
)
|
|
|
115
|
|
|
|
(1,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
323
|
|
|
$
|
23,534
|
|
|
$
|
20,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
(1) |
|
Non-cash charges primarily related to stock-based compensation
and depreciation of property and equipment, and for 2007
revaluation of warrant liabilities. |
Net cash provided by operating activities decreased in 2009
compared to 2008 primarily due to the net loss in 2009 compared
to net income in 2008. This net cash provided from operating
activities was offset in 2009 primarily due to decreased
deferred revenues in 2009 and 2008. Net cash provided from
operating activities increased in 2008 compared to 2007
primarily due to net income in 2008 compared to a net loss in
2007. This net cash provided from operating activities was
offset in 2008 primarily due to decreased deferred revenues in
2008 compared to increased deferred revenues in 2007.
We expect cash from operating activities to fluctuate in future
periods as a result of a number of factors, including
fluctuations in our operating results, the rate at which
products are shipped during the quarter, accounts receivable
collections, inventory and supply chain management and the
timing and amount of taxes and other payments.
Investing
Activities
Our investing activities used cash of $30.7 million for
2009, primarily from net purchases of marketable securities of
$23.8 million, the purchase of property and equipment,
primarily computer and engineering equipment of
$4.6 million, and the purchase of a software license for
$2.5 million.
Our investing activities used cash of $33.1 million for
2008, primarily from net purchases of marketable securities of
$23.8 million and the purchase of property and equipment of
$11.1 million primarily to support our new product
offerings. These capital expenditures consisted primarily of
computer and test equipment and software purchases, offset in
part by $1.8 million in proceeds from the sale of
intangible assets for our Fast Flow technology.
Our investing activities used cash of $85.0 million for
2007, primarily from net purchases of marketable securities of
$72.2 million and the purchase of property and equipment of
$12.3 million primarily to support our new product
offerings. These capital expenditures consisted primarily of
computer and test equipment and software purchases.
Financing
Activities
Our financing activities provided cash from the issuance of
common stock (through the exercise of stock options under our
equity incentive plans and sale of stock under our employee
stock purchase plan) of $4.3 million for 2009.
Our financing activities provided cash of $5.4 million for
2008, primarily from the issuance of common stock from the
exercise of options under our equity incentive plans and sales
of stock under our employee stock purchase plan.
Our financing activities provided cash of $80.7 million for
2007, primarily from our IPO, which provided us with aggregate
net proceeds of $87.8 million and proceeds of
$5.7 million, primarily from the issuance of common stock
from the exercise of options under our equity incentive plans
and sales under our employee stock purchase plan. These
increases were partially offset by the repayment of loans and
capital leases of $14.5 million.
Liquidity
and Capital Resource Requirements
We believe that our existing sources of liquidity combined with
cash generated from operations will be sufficient to meet our
currently anticipated cash requirements for at least the next
12 months. However, the networking industry is capital
intensive. In order to remain competitive, we must constantly
evaluate the need to make significant investments in products
and in research and development. We may seek additional equity
or debt financing from time to time to maintain or expand our
product lines or research and development efforts, or for other
strategic purposes such as significant acquisitions. The timing
and amount of any such financing requirements will depend on a
number of factors, including demand for our products, changes in
industry conditions, product mix, competitive factors and the
timing of any strategic acquisitions. There can be no assurance
that such financing will be available on acceptable terms, and
any additional equity financing would result in incremental
ownership dilution to our existing stockholders.
44
Contractual
Obligations and Commitments
Our contractual obligations as of December 31, 2009 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period:
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
One Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations(1)
|
|
$
|
6,949
|
|
|
$
|
2,767
|
|
|
$
|
4,108
|
|
|
$
|
74
|
|
|
$
|
|
|
Purchase obligations(2)
|
|
|
2,972
|
|
|
|
2,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
9,921
|
|
|
$
|
5,739
|
|
|
$
|
4,108
|
|
|
$
|
74
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating lease obligations are net of sublease rentals from a
portion of our Tel Aviv facility. |
|
(2) |
|
Purchase obligations comprise firm non-cancelable agreements to
purchase inventory. |
Off-Balance
Sheet Arrangements
As of December 31, 2009, we had no off-balance sheet
arrangements as defined in Item 303(a) (4) of the
Securities and Exchange Commissions
Regulation S-K.
Effects
of Inflation
Our monetary assets, consisting primarily of cash, marketable
securities and receivables, are not significantly affected by
inflation because they are short-term in duration. Our
non-monetary assets, consisting primarily of inventory,
intangible assets, goodwill and prepaid expenses and other
assets, are not affected significantly by inflation. We believe
that the impact of inflation on replacement costs of equipment,
furniture and leasehold improvements will not materially affect
our operations. However, the rate of inflation affects our cost
of goods sold and operating expenses, such as those for employee
compensation, which may not be readily recoverable in the price
of the products and services offered by us.
Recent
Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial
Statements included in this
Form 10-K
for recent accounting pronouncements that could have an effect
on us.
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
Interest
Rate Sensitivity
The primary objectives of our investment activities are to
preserve principal, provide liquidity and maximize income
without exposing us to significant risk of loss. The securities
we invest in are subject to market risk. This means that a
change in prevailing interest rates may cause the principal
amount of our investment to fluctuate. To control this risk, we
maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial
paper, money market funds, government and non-government debt
securities and certificates of deposit. The risk associated with
fluctuating interest rates is not limited to our investment
portfolio. As of December 31, 2009, our investments were
primarily in commercial paper, corporate notes and bonds, money
market funds and U.S. government and agency securities. If
overall interest rates fell 10% for the year ended
December 31, 2009, our interest income would have decreased
by an immaterial amount, assuming consistent investment levels.
Foreign
Currency Risk
Our sales contracts are primarily denominated in
U.S. dollars, and therefore the majority of our revenues
are not subject to foreign currency risk. However, if we extend
credit to international customers and the U.S. dollar
appreciates against our customers local currency there is
an increased collection risk as it will require more local
currency to settle our U.S. dollar based invoice. Our
operating expense and cash flows are subject to fluctuations due
to changes in foreign currency exchange rates, particularly
changes in the Israeli New Shekel, and to a lesser extent the
Chinese Yuan and Euro. To protect against significant
fluctuations in value and the volatility of future cash flows
45
caused by changes in currency exchange rates, we have foreign
currency risk management programs to hedge both balance sheet
items and future forecasted expenses denominated in Israeli New
Shekels. An adverse change in exchange rates of 10% for the
Israeli New Shekel, Chinese Yuan and Euro, without any hedging,
would have resulted in an increase in our loss before taxes of
approximately $3.0 million for the year ended
December 31, 2009.
We continue to hedge our projected exposure to exchange rate
fluctuations between the U.S. dollar and the Israeli New
Shekel, and accordingly we do not anticipate that fluctuations
will have a material impact on our financial results for the
year ending December 31, 2010. Currency forward contracts
and currency options are generally utilized in these hedging
programs. Our hedging programs are intended to reduce, but not
eliminate, the impact of currency exchange rate movements. As
our hedging program is relatively short-term in nature, a
long-term material change in the value of the U.S. dollar
versus the Israeli New Shekel could adversely impact our
operating expenses in the future.
46
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index to
Consolidated Financial Statements
|
|
|
|
|
The following financial statements are filed as part of this
Annual Report:
|
|
|
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
51
|
|
|
|
|
53
|
|
|
|
|
54
|
|
47
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
BigBand Networks, Inc.
We have audited the accompanying consolidated balance sheets of
BigBand Networks, Inc. as of December 31, 2009 and 2008,
and the related consolidated statements of operations,
redeemable convertible preferred stock and stockholders
equity (deficit) and cash flows for each of the three years in
the period ended December 31, 2009. Our audits also
included the financial statement schedule listed in the Index at
Item 15(a)(2). These financial statements and schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of BigBand Networks, Inc. at
December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
BigBand Networks, Inc.s internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 1, 2010 expressed an
unqualified opinion thereon.
/s/ ERNST AND YOUNG LLP
San Jose, California
March 5, 2010
48
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,894
|
|
|
$
|
50,981
|
|
Marketable securities
|
|
|
147,014
|
|
|
|
123,654
|
|
Accounts receivable, net of allowance for doubtful accounts of
$56 and $39 as of December 31, 2009 and 2008, respectively
|
|
|
18,495
|
|
|
|
26,361
|
|
Inventories, net
|
|
|
4,933
|
|
|
|
6,123
|
|
Prepaid expenses and other current assets
|
|
|
6,177
|
|
|
|
3,716
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
201,513
|
|
|
|
210,835
|
|
Property and equipment, net
|
|
|
11,417
|
|
|
|
15,358
|
|
Goodwill
|
|
|
1,656
|
|
|
|
1,656
|
|
Other non-current assets
|
|
|
9,002
|
|
|
|
6,273
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
223,588
|
|
|
$
|
234,122
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
9,483
|
|
|
$
|
8,350
|
|
Accrued compensation and related benefits
|
|
|
5,023
|
|
|
|
11,433
|
|
Current portion of deferred revenues, net
|
|
|
32,428
|
|
|
|
39,433
|
|
Current portion of other liabilities
|
|
|
7,083
|
|
|
|
9,221
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
54,017
|
|
|
|
68,437
|
|
Deferred revenues, net, less current portion
|
|
|
12,438
|
|
|
|
21,129
|
|
Other liabilities, less current portion
|
|
|
2,642
|
|
|
|
2,392
|
|
Accrued long-term Israeli severance pay
|
|
|
4,215
|
|
|
|
3,745
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 250,000 shares
authorized as of December 31, 2009 and 2008; 67,138 and
64,639 shares issued and outstanding as of
December 31, 2009 and 2008, respectively
|
|
|
67
|
|
|
|
65
|
|
Additional paid-in capital
|
|
|
283,704
|
|
|
|
265,176
|
|
Accumulated other comprehensive income
|
|
|
124
|
|
|
|
58
|
|
Accumulated deficit
|
|
|
(133,619
|
)
|
|
|
(126,880
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
150,276
|
|
|
|
138,419
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
223,588
|
|
|
$
|
234,122
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
49
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
93,662
|
|
|
$
|
148,417
|
|
|
$
|
144,715
|
|
Services
|
|
|
45,852
|
|
|
|
36,876
|
|
|
|
31,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
139,514
|
|
|
|
185,293
|
|
|
|
176,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
45,961
|
|
|
|
60,207
|
|
|
|
76,260
|
|
Services
|
|
|
12,384
|
|
|
|
12,755
|
|
|
|
13,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of net revenues
|
|
|
58,345
|
|
|
|
72,962
|
|
|
|
89,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
81,169
|
|
|
|
112,331
|
|
|
|
86,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
46,431
|
|
|
|
54,043
|
|
|
|
51,862
|
|
Sales and marketing
|
|
|
24,201
|
|
|
|
28,935
|
|
|
|
39,868
|
|
General and administrative
|
|
|
18,862
|
|
|
|
20,884
|
|
|
|
16,286
|
|
Restructuring charges
|
|
|
1,356
|
|
|
|
2,055
|
|
|
|
2,998
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
733
|
|
|
|
572
|
|
Gain on sale of intangible assets
|
|
|
|
|
|
|
(1,800
|
)
|
|
|
|
|
Class action litigation charges
|
|
|
477
|
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
91,327
|
|
|
|
106,354
|
|
|
|
111,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(10,158
|
)
|
|
|
5,977
|
|
|
|
(24,750
|
)
|
Interest income
|
|
|
2,570
|
|
|
|
5,174
|
|
|
|
6,863
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(648
|
)
|
Other (expense) income, net
|
|
|
(218
|
)
|
|
|
1,029
|
|
|
|
(5,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
(7,806
|
)
|
|
|
12,180
|
|
|
|
(24,142
|
)
|
(Benefit from) provision for income taxes
|
|
|
(1,067
|
)
|
|
|
2,400
|
|
|
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
|
$
|
(25,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic net (loss) income per common share
|
|
|
65,936
|
|
|
|
63,559
|
|
|
|
49,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted net (loss) income per common share
|
|
|
65,936
|
|
|
|
67,264
|
|
|
|
49,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
50
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Paid-in
|
|
|
Stock-Based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
(In thousands)
|
|
Balance as of December 31, 2006
|
|
|
29,439
|
|
|
$
|
117,307
|
|
|
|
|
8,241
|
|
|
$
|
8
|
|
|
|
3,619
|
|
|
$
|
4
|
|
|
$
|
17,063
|
|
|
$
|
(1,405
|
)
|
|
$
|
9
|
|
|
$
|
(111,293
|
)
|
|
$
|
(95,614
|
)
|
|
|
|
|
Conversion of class B common stock into class A common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
3,619
|
|
|
|
4
|
|
|
|
(3,619
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock into class A common stock
|
|
|
(29,439
|
)
|
|
|
(117,307
|
)
|
|
|
|
37,762
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
117,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,307
|
|
|
|
|
|
Proceeds from initial public offering, net of expenses
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
87,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,769
|
|
|
|
|
|
Reclassification of preferred stock warrant liabilities to APIC
upon IPO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,125
|
|
|
|
|
|
Proceeds from exercise of class A common stock options
|
|
|
|
|
|
|
|
|
|
|
|
4,056
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,688
|
|
|
|
|
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,089
|
|
|
|
|
|
Tax benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,408
|
|
|
|
|
|
Net exercise for payment of tax liability for employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
Amortization of deferred stock-based compensation, net of
reversals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(335
|
)
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
867
|
|
|
|
|
|
Stock-based compensation related to non-employees in exchange
for services
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341
|
|
|
|
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Net unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194
|
|
|
|
|
|
|
|
194
|
|
|
|
|
|
Net settled unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,367
|
)
|
|
|
(25,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Paid-in
|
|
|
Stock-Based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
(In thousands)
|
|
Balance as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
61,907
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
248,139
|
|
|
|
(203
|
)
|
|
|
248
|
|
|
|
(136,660
|
)
|
|
|
111,586
|
|
|
|
|
|
Proceeds from exercise of common stock options
|
|
|
|
|
|
|
|
|
|
|
|
2,275
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
3,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,755
|
|
|
|
|
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
Vesting of restricted stock units, net
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,695
|
|
|
|
|
|
Net exercise for payment of tax liability for employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
Amortization of deferred stock-based compensation, net of
reversals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
Exercise of warrants cashless
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
Net unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
Net settled unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(326
|
)
|
|
|
|
|
|
|
(326
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,780
|
|
|
|
9,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
64,639
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
265,176
|
|
|
|
|
|
|
|
58
|
|
|
|
(126,880
|
)
|
|
|
138,419
|
|
|
|
|
|
Proceeds from exercise of common stock options
|
|
|
|
|
|
|
|
|
|
|
|
1,444
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
2,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,712
|
|
|
|
|
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,593
|
|
|
|
|
|
Vesting of restricted stock units, net
|
|
|
|
|
|
|
|
|
|
|
|
577
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,219
|
|
|
|
|
|
Net exercise for payment of tax liability for employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
Net unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(404
|
)
|
|
|
|
|
|
|
(404
|
)
|
|
|
|
|
Net settled unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279
|
|
|
|
|
|
|
|
279
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,739
|
)
|
|
|
(6,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
67,138
|
|
|
$
|
67
|
|
|
|
|
|
|
$
|
|
|
|
$
|
283,704
|
|
|
$
|
|
|
|
$
|
124
|
|
|
$
|
(133,619
|
)
|
|
$
|
150,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
BigBand
Networks, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Cash Flows from Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
|
$
|
(25,367
|
)
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
8,457
|
|
|
|
9,833
|
|
|
|
9,771
|
|
Amortization of software license
|
|
|
417
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
733
|
|
|
|
572
|
|
Gain on sale of intangible assets Fast Flow
technology
|
|
|
|
|
|
|
(1,800
|
)
|
|
|
|
|
Loss on disposal of property and equipment
|
|
|
103
|
|
|
|
337
|
|
|
|
165
|
|
Revaluation of warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
4,974
|
|
Stock-based compensation
|
|
|
14,219
|
|
|
|
11,695
|
|
|
|
10,749
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
180
|
|
|
|
867
|
|
Tax benefit from stock options
|
|
|
(17
|
)
|
|
|
(158
|
)
|
|
|
(25
|
)
|
Net settled unrealized gains (losses) on cash flow hedges
|
|
|
279
|
|
|
|
(326
|
)
|
|
|
3
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable, net
|
|
|
7,866
|
|
|
|
1,494
|
|
|
|
6,133
|
|
Decrease in inventories, net
|
|
|
1,190
|
|
|
|
709
|
|
|
|
321
|
|
(Increase) decrease in prepaid expenses and other current assets
|
|
|
(2,493
|
)
|
|
|
292
|
|
|
|
(1,501
|
)
|
Increase in other non-current assets
|
|
|
(808
|
)
|
|
|
(734
|
)
|
|
|
(867
|
)
|
Increase (decrease) in accounts payable
|
|
|
1,133
|
|
|
|
(3,161
|
)
|
|
|
(1,286
|
)
|
Increase in long-term Israeli severance pay
|
|
|
470
|
|
|
|
557
|
|
|
|
444
|
|
(Decrease) increase in accrued and other liabilities
|
|
|
(8,058
|
)
|
|
|
829
|
|
|
|
(777
|
)
|
(Decrease) increase in deferred revenues
|
|
|
(15,696
|
)
|
|
|
(6,726
|
)
|
|
|
16,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
323
|
|
|
|
23,534
|
|
|
|
20,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(168,539
|
)
|
|
|
(202,829
|
)
|
|
|
(170,460
|
)
|
Proceeds from maturities of marketable securities
|
|
|
130,271
|
|
|
|
151,154
|
|
|
|
78,445
|
|
Proceeds from sale of marketable securities
|
|
|
14,504
|
|
|
|
27,854
|
|
|
|
19,800
|
|
Purchase of property and equipment
|
|
|
(4,619
|
)
|
|
|
(11,077
|
)
|
|
|
(12,320
|
)
|
Purchase of software license
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of intangible assets Fast Flow
technology
|
|
|
|
|
|
|
1,800
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
9
|
|
|
|
40
|
|
Decrease (increase) in restricted cash
|
|
|
162
|
|
|
|
6
|
|
|
|
(505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(30,721
|
)
|
|
|
(33,083
|
)
|
|
|
(85,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of common stock options, net of tax
liability
|
|
|
2,701
|
|
|
|
3,726
|
|
|
|
4,575
|
|
Proceeds from issuance of common stock under employee stock plans
|
|
|
1,593
|
|
|
|
1,484
|
|
|
|
1,089
|
|
Proceeds from initial public offering, net of expenses
|
|
|
|
|
|
|
|
|
|
|
87,769
|
|
Principal payments on loans and capital leases
|
|
|
|
|
|
|
|
|
|
|
(14,550
|
)
|
Proceeds from exercise of warrants to purchase common stock
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
Tax benefit from stock options
|
|
|
17
|
|
|
|
158
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,311
|
|
|
|
5,368
|
|
|
|
80,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(26,087
|
)
|
|
|
(4,181
|
)
|
|
|
16,592
|
|
Cash and cash equivalents as of beginning of year
|
|
|
50,981
|
|
|
|
55,162
|
|
|
|
38,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents as of end of year
|
|
$
|
24,894
|
|
|
$
|
50,981
|
|
|
$
|
55,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued leasehold improvements
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,239
|
|
|
$
|
2,874
|
|
|
$
|
3,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
53
BIGBAND
NETWORKS, INC.
|
|
1.
|
Description
of Business
|
BigBand Networks, Inc. (BigBand or the Company), headquartered
in Redwood City, California, was incorporated on
December 3, 1998, under the laws of the state of Delaware
and commenced operations in January 1999. BigBand develops,
markets and sells network-based solutions that enable cable
Multiple System Operators and telecommunications companies to
offer video services across coaxial, fiber and copper networks.
|
|
2.
|
Significant
Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Management uses
estimates and judgments in determining recognition of revenues,
valuation of inventories, valuation of stock-based awards,
provision for warranty claims, the allowance for doubtful
accounts, restructuring costs, valuation of goodwill and
long-lived assets, and income tax amounts. Management bases its
estimates and assumptions on methodologies it believes to be
reasonable. Actual results could differ from those estimates,
and such differences could affect the results of operations
reported in future periods.
Revenue
Recognition
The Companys software and hardware product applications
are sold as solutions and its software is a significant
component of these solutions. The Company provides unspecified
software updates and enhancements related to products through
support contracts. As a result, the Company accounts for
revenues in accordance with ASC 985 Software, for each
transaction, all of which involve the sale of products with a
significant software component. Revenue is recognized when all
of the following have occurred: (1) the Company has entered
into an arrangement with a customer; (2) delivery has
occurred; (3) customer payment is fixed or determinable and
free of contingencies and significant uncertainties; and
(4) collection is probable.
Product revenues consist of sales of the Companys software
and hardware products. Software product sales include a
perpetual license to the Companys software. The Company
recognizes product revenues upon shipment to its customers,
including channel partners, on non-cancellable contracts and
purchase orders when all revenue recognition criteria are met,
or, if specified in an agreement, upon receipt of final
acceptance of the product, provided all other criteria are met.
End users and channel partners generally have no rights of
return, stock rotation rights, or price protection. Shipping
charges billed to customers are included in product revenues and
the related shipping costs are included in cost of product
revenues.
Substantially all of the Companys product sales have been
made in combination with support services, which consist of
software updates and customer support. The Companys
customer service agreements allow customers to select from plans
offering various levels of technical support, unspecified
software upgrades and enhancements on an
if-and-when-available
basis. Revenues for support services are recognized on a
straight-line basis over the service contract term, which is
typically one year but can extend to five years for the
Companys telecommunications customers. Revenues from other
services, such as installation, program management and training,
are recognized when the services are performed.
The Company uses the residual method to recognize revenues when
a customer agreement includes one or more elements to be
delivered at a future date and vendor specific objective
evidence (VSOE) of the fair value of all undelivered elements
exists. Under the residual method, the fair value of the
undelivered elements is deferred and
54
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the remaining portion of the contract fee is recognized as
product revenues. If evidence of the fair value of one or more
undelivered elements does not exist, all revenues are deferred
and recognized when delivery of those elements occur or when
fair value can be established. When the undelivered element is
customer support and there is no evidence of fair value for this
support, revenue for the entire arrangement is bundled and
revenue is recognized ratably over the service period. VSOE of
fair value for elements of an arrangement is based upon the
normal pricing and discounting practices for those services when
sold separately.
Fees are typically considered to be fixed or determinable at the
inception of an arrangement based on specific products and
quantities to be delivered. In the event payment terms are
greater than 180 days, the fees are deemed not to be fixed
or determinable and revenues are recognized when the payments
become due, provided the remaining criteria for revenue
recognition have been met.
Deferred revenues consist primarily of deferred service fees
(including customer support and professional services such as
installation, program management and training) and product
revenues, net of the associated costs. Deferred product revenue
generally relates to acceptance provisions that have not been
met or partial shipment or when the Company does not have VSOE
of fair value on the undelivered items. When deferred revenues
are recognized as revenues, the associated deferred costs are
also recognized as cost of net revenues.
The Company assesses the ability to collect from its customers
based on a number of factors, including the credit worthiness of
the customer and the past transaction history of the customer.
If the customer is not deemed credit worthy, all revenues are
deferred from the arrangement until payment is received and all
other revenue recognition criteria have been met.
Cash,
Cash Equivalents and Marketable Securities
The Company holds its cash and cash equivalents in checking,
money market and investment accounts with high credit quality
financial institutions. The Company considers all highly liquid
investments with original maturities of three months or less
when purchased to be cash equivalents.
Marketable securities consist principally of corporate debt
securities, commercial paper, securities of U.S. agencies
and certificates of deposit, with remaining time to maturity of
two years or less. If applicable, the Company considers
marketable securities with remaining time to maturity greater
than one year and in a consistent loss position for at least
nine months to be classified as long-term as it expects to hold
them to maturity. As of December 31, 2009, the Company did
not have any such securities. The Company considers all other
marketable securities with remaining time to maturity of less
than two years to be short-term marketable securities. The
short-term marketable securities are classified as current
assets because they can be readily converted into securities
with a shorter remaining time to maturity or into cash. The
Company determines the appropriate classification of its
marketable securities at the time of purchase and re-evaluates
such designations as of each balance sheet date. All marketable
securities and cash equivalents in the portfolio are classified
as
available-for-sale
and are stated at fair value, with all the associated unrealized
gains and losses reported as a component of accumulated other
comprehensive income (loss). Fair value is based on quoted
market rates or direct and indirect observable markets for these
investments. The amortized cost of debt securities is adjusted
for amortization of premiums and accretion of discounts to
maturity. Such amortization and accretion are included in
interest income. The cost of securities sold and any gains and
losses on sales are based on the specific identification method.
The Company reviews its investment portfolio periodically to
assess for
other-than-temporary
impairment in order to determine the classification of the
impairment as temporary or
other-than-temporary,
which involves considerable judgment regarding such factors as
the length of the time and the extent to which the market value
has been less than amortized cost, the nature of underlying
assets, the financial condition, credit rating, market liquidity
conditions and near-term prospects of the issuer. In April 2009,
the Financial Accounting Standards Board (FASB) issued new
guidance which was incorporated into FASB Accounting Standards
Codification (ASC) 320 Investments Debt and
Equity Securities, which established a new method of
recognizing and reporting
55
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
other-than-temporary
impairments of debt securities. If the fair value of a debt
security is less than its amortized cost basis at the balance
sheet date, an assessment would have to be made as to whether
the impairment is
other-than-temporary.
If the Company considers it more likely than not that it will
sell the security before it will recover its amortized cost
basis, an
other-than-temporary
impairment will be considered to have occurred. An other-than
temporary impairment will also be considered to have occurred if
the Company does not expect to recover the entire amortized cost
basis of the security, even if it does not intend to sell the
security. The Company has recognized no
other-than-temporary
impairments for its marketable securities for the years ended
December 31, 2009, 2008 and 2007.
Fair
Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted
cash, accounts receivable, marketable securities, derivatives
used in the Companys hedging program, accounts payable and
other accrued liabilities approximate their fair value. The
carrying values of the Companys other long-term
liabilities and the Israeli severance pay fund assets
approximate their fair value.
Credit
Risk and Concentrations of Significant Customers
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash equivalents, marketable securities, accounts receivable and
restricted cash. Cash equivalents, restricted cash and
marketable securities are invested through major banks and
financial institutions in the U.S. and Israel. Such
deposits in the U.S. may be in excess of insured limits and
are not insured in Israel. Management believes that the
financial institutions that hold the Companys investments
are financially sound and, accordingly, minimal credit risk
exists with respect to these investments.
Customers with accounts receivable balances of 10% or greater of
the total accounts receivable balances as of December 31,
2009 and 2008, and customers representing 10% or greater of net
revenues for the years ended December 31, 2009, 2008 and
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total Accounts Receivable as of
|
|
|
Percentage of Net Revenues For
|
|
|
|
December 31,
|
|
|
The Years Ended December 31,
|
|
Customers
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
A
|
|
|
24
|
|
|
|
64
|
|
|
|
33
|
|
|
|
27
|
|
|
|
13
|
|
B
|
|
|
*
|
|
|
|
16
|
|
|
|
18
|
|
|
|
29
|
|
|
|
40
|
|
C
|
|
|
15
|
|
|
|
*
|
|
|
|
10
|
|
|
|
*
|
|
|
|
*
|
|
D
|
|
|
43
|
|
|
|
*
|
|
|
|
*
|
|
|
|
14
|
|
|
|
11
|
|
|
|
|
* |
|
Represents less than 10% |
The Companys customers are impacted by several factors,
including an industry downturn and tightening of access to
capital. The market that the Company serves is characterized by
a limited number of large customers creating a concentration of
risk. To date, the Company has not incurred any significant
charges related to uncollectible accounts. Management makes
judgments as to the Companys ability to collect
outstanding
56
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
receivables when collection becomes doubtful. Provisions are
made based upon specific review of the outstanding invoices.
Activity related to allowance for doubtful accounts was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Additions
|
|
|
Balance as of
|
|
|
|
Year
|
|
|
Expenses
|
|
|
(Deductions)
|
|
|
End of Year
|
|
|
Year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
39
|
|
|
$
|
(38
|
)
|
|
$
|
55
|
|
|
$
|
56
|
|
December 31, 2008
|
|
$
|
142
|
|
|
$
|
64
|
|
|
$
|
(167
|
)
|
|
$
|
39
|
|
December 31, 2007
|
|
$
|
152
|
|
|
$
|
99
|
|
|
$
|
(109
|
)
|
|
$
|
142
|
|
Inventories,
Net
Inventories, net consist primarily of finished goods and are
stated at the lower of standard cost or market. Standard cost
approximates actual cost on the
first-in,
first-out method. The Company regularly monitors inventory
quantities on-hand and records write-downs for excess and
obsolete inventories based on the Companys estimate of
demand for its products, potential obsolescence of technology,
product life cycles and whether pricing trends or forecasts
indicate that the carrying value of inventory exceeds its
estimated selling price. These factors are impacted by market
and economic conditions, technology changes, and new product
introductions and require estimates that may include factors
that are uncertain. If inventory is written down, a new cost
basis is established that cannot be increased in future periods.
Property
and Equipment, Net
Property and equipment, net are stated at cost, less accumulated
depreciation. Repair and maintenance costs are expensed as
incurred. Depreciation is calculated using the straight-line
method and recorded over the estimated useful lives as follows:
|
|
|
|
|
Useful Life
|
|
Computers, software and related equipment
|
|
3 years
|
Engineering and other equipment
|
|
5 years
|
Office furniture and fixtures
|
|
5 years
|
Leasehold improvements
|
|
Shorter of lease term or estimated
useful life of the asset
|
Software
licenses purchased
The Company capitalizes the costs of software licenses purchased
from external parties if the technological feasibility of the
product as a whole (that is, the product that will be ultimately
marketed) has been established at the time of purchase.
Amortization of the software license is based on the
straight-line method over the remaining estimated economic life
of the product.
Impairment
of Long-Lived Assets
The Company periodically evaluates whether changes have occurred
that require revision of the remaining useful life of long-lived
assets or would render them not recoverable. If such
circumstances arise, the Company compares the carrying amount of
the long-lived assets to the estimated future undiscounted cash
flows expected to be generated by the long-lived assets. If the
estimated aggregate undiscounted cash flows are less than the
carrying amount of the long-lived assets, an impairment charge,
calculated as the amount by which the carrying amount of the
assets exceeds the fair value of the assets, is recorded.
Through December 31, 2009, no material impairment losses
have been recognized.
57
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
Goodwill is tested for impairment on an annual basis and between
annual tests in certain circumstances, and written down when
impaired. The Company considered several factors including
management structure and the nature of operations and concluded
that it has only one reporting unit. Consistent with this
determination, it reviewed the carrying amount of this unit
compared to its fair value based on quoted market prices of the
Companys common stock. Following this approach, through
December 31, 2009, no impairment losses have been
recognized.
Warranty
Liabilities
The Company provides a warranty for its software and hardware
products. In most cases, the Company warrants that its hardware
will be free of defects in workmanship for one year, and that
its software media will be free of defects for 90 days. In
master purchase agreements with large customers, however, the
Company often warrants that its products (hardware and software)
will function in material conformance to specification for a
period ranging from one to five years from the date of shipment.
In general, the Company accrues for warranty claims based on the
Companys historical claims experience. In addition, the
Company accrues for warranty claims based on specific events and
other factors when the Company believes an exposure is probable
and can be reasonably estimated. The adequacy of the accrual is
reviewed on a periodic basis and adjusted, if necessary, based
on additional information as it becomes available.
Software
Development Costs
Software development costs are capitalized beginning when
technological feasibility has been established and ending when a
product is available for sale to customers. To date, the period
between achieving technological feasibility and when the
software is made available for sale to customers has been
relatively short and software development costs qualifying for
capitalization have not been significant. As such, all software
development costs have been expensed as incurred in research and
development expense.
Income
Taxes
As part of the process of preparing its consolidated financial
statements the Company is required to estimate its taxes in each
of the jurisdictions in which it operates. The Company estimates
actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as
accruals and allowances not currently deductible for tax
purposes. These differences result in deferred tax assets and
liabilities, which are included on the Companys
consolidated balance sheets. In general, deferred tax assets
represent future tax benefits to be received when certain
expenses previously recognized in the Companys
consolidated statements of operations become deductible expenses
under applicable income tax laws or loss or credit
carry-forwards are utilized. Accordingly, realization of the
Companys deferred tax assets depends on future taxable
income against which these deductions, losses, and credits can
be utilized. The Company must assess the likelihood that its
deferred tax assets will be recovered from future taxable income
and to the extent management believe that recovery is not
likely, it must establish a valuation allowance.
Management judgment is required in determining the
Companys provision for income taxes, its deferred tax
assets and liabilities, and any valuation allowance recorded
against its net deferred tax assets. As of December 31,
2009, the Company recorded a full valuation allowance against
its deferred tax assets arising from U.S. operations since,
based on the available evidence, management believed at that
time it was more likely than not that the Company would not be
able to utilize all of these deferred tax assets in the future.
The Company intends to maintain the full valuation allowance
against its U.S. deferred tax assets until sufficient
evidence exists to support its reversal. The Company makes
estimates and judgments about its future taxable income that are
based on assumptions that are consistent with its plans and
estimates. Should the actual amounts differ from the
Companys estimates, the amount of its valuation allowance
could be materially impacted.
58
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Currency Derivative Instruments
The Company has revenues, expenses, assets and liabilities
denominated in currencies other than the U.S. dollar that
are subject to foreign currency risks, primarily related to
expenses and liabilities denominated in the Israeli New Shekel.
A foreign currency risk management program was established by
the Company to help protect against the impact of foreign
currency exchange rate movements on the Companys operating
results. The Company does not enter into derivatives for
speculative or trading purposes. All derivatives, whether
designated in hedging relationships or not, are required to be
recorded on the consolidated balance sheet at fair value. The
accounting for changes in the fair value of a derivative depends
on the intended use of the derivative and the resulting
designation.
The Company selectively hedges future expenses denominated in
Israeli New Shekels by purchasing foreign currency forward
contracts or combinations of purchased and sold foreign currency
option contracts. When the U.S. dollar strengthens against
the Israeli New Shekel, the decrease in the value of future
foreign currency expenses is offset by losses in the fair value
of the contracts designated as hedges. Conversely, when the
U.S. dollar weakens significantly against the Israeli New
Shekel, the increase in the value of future foreign currency
expenses is offset by gains in the fair value of the contracts
designated as hedges. The exposures are hedged using derivatives
designated as cash flow hedges under ASC 815 Derivatives and
Hedging. The effective portion of the derivatives gain
or loss is initially reported as a component of accumulated
other comprehensive income (loss) and, upon occurrence of the
forecasted transaction, is subsequently reclassified to the
consolidated statement of operations, primarily in research and
development expenses. The ineffective portion of the gain or
loss is recognized immediately in other income (expense), net.
For the year ended December 31, 2009, the loss was $2,000
compared to a gain of $0.8 million for the year ended
December 31, 2008. These derivative instruments generally
have maturities of 180 days or less, and hence all
unrealized amounts as of December 31, 2009 will have
settled as of June 30, 2010.
The Company enters into foreign currency forward contracts to
reduce the impact of foreign currency fluctuations on assets and
liabilities denominated in currencies other than its functional
currency, which is the U.S. dollar. The Company recognizes
these derivative instruments as either assets or liabilities on
the consolidated balance sheet at fair value. These forward
exchange contracts are not accounted for as hedges; therefore,
changes in the fair value of these instruments are recorded as
other income (expense), net in the consolidated statement of
operations. These derivative instruments generally have
maturities of 90 days. Gains and losses on these contracts
are intended to offset the impact of foreign exchange rate
changes on the underlying foreign currency denominated assets
and liabilities, primarily liabilities denominated in Israeli
New Shekels, and therefore, do not subject the Company to
material balance sheet risk.
59
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All of the derivative instruments are with high quality
financial institutions and the Company monitors the
creditworthiness of these parties. Amounts relating to these
derivative instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Notional amount of currency option contracts: Israeli New Shekels
|
|
|
ILS 27,000
|
|
|
|
ILS 42,000
|
|
|
|
|
|
|
|
|
|
|
Notional amount of currency option contracts: U.S. dollars
|
|
$
|
7,454
|
|
|
$
|
11,926
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses included in other comprehensive income on
condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Settled underlying derivative was settled but
forecasted transaction has not occurred
|
|
$
|
(4
|
)
|
|
$
|
(285
|
)
|
Unsettled primarily included as other current
liabilities
|
|
|
(147
|
)
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
Total unrealized losses included in other comprehensive income
|
|
$
|
(151
|
)
|
|
$
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Notional amount of foreign currency forward contracts: Israeli
New Shekels
|
|
|
ILS 5,000
|
|
|
|
ILS 7,500
|
|
|
|
|
|
|
|
|
|
|
Notional amount of foreign currency forward contracts: U.S.
dollars
|
|
$
|
1,323
|
|
|
$
|
1,923
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains included in other income (expense) in
condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
Fair value included in other current (liabilities) assets on
condensed consolidated balance sheets
|
|
$
|
(3
|
)
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
The change in accumulated other comprehensive income (loss) from
cash flow hedges included on the Companys consolidated
balance sheets was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accumulated other comprehensive (loss) income related to cash
flow hedges as of beginning of year
|
|
$
|
(621
|
)
|
|
$
|
45
|
|
Changes in settled and unsettled portion of cash flow hedges
|
|
|
(393
|
)
|
|
|
(892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,014
|
)
|
|
|
(847
|
)
|
Less:
|
|
|
|
|
|
|
|
|
Changes in cash flow hedges: Loss reflected in condensed
consolidated statement of operations
|
|
|
(863
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss related to cash flow hedges
as of end of year
|
|
$
|
(151
|
)
|
|
$
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
Israeli
Severance Pay
The Companys wholly-owned subsidiary located in Israel is
required to fund future severance liabilities determined in
accordance with Israeli severance pay laws. Under these laws,
employees are entitled upon termination to one months
salary for each year of employment or portion thereof. The
Company records compensation expense to accrue for these costs
over the employment period, based on the assumption that the
benefits to which the employee is entitled, if the employee
separates immediately. The Company funds the liability
60
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
by monthly deposits in insurance policies and severance funds.
The provision for Israeli severance expenses included in the
Companys consolidated statements of operations for the
years ended December 31, 2009, 2008 and 2007, amounted to
approximately $0.9 million, $1.2 million, and
$1.3 million, respectively. The value of the severance fund
assets are recorded in other non-current assets on the
Companys consolidated balance sheets, which was
$3.6 million and $2.7 million as of December 31,
2009 and 2008, respectively. The liability for long-term
severance accrued on the Companys consolidated balance
sheets was $4.2 million and $3.7 million as of
December 31, 2009 and 2008, respectively.
Stock-based
Compensation
The Company applies the fair value recognition and measurement
provisions of ASC 718 Compensation Stock
Compensation. Stock-based compensation is recorded at fair
value as of the grant date and recognized as an expense over the
employees requisite service period (generally the vesting
period), which the Company has elected to amortize on a
straight-line basis.
Under ASC 718, the Company estimates the fair value of stock
options granted using a Black-Scholes option-pricing formula and
a single option award approach. This model utilizes the
estimated fair value of common stock and requires that, at the
date of grant, the Company uses the expected term of the option,
the expected volatility of the price of its common stock, risk
free interest rates and expected dividend yield of the
Companys common stock. This fair value is then amortized
on a straight-line basis over the requisite service periods of
the awards, which is generally the vesting period. Options
typically vest with respect to 25% of the shares one year after
the options vesting commencement date and the remainder
ratably on a monthly basis over the following three years. In
valuing share-based awards under ASC 718, significant judgment
is required in determining the expected volatility of the
Companys common stock and the expected term individuals
will hold their share-based awards prior to exercising. The
computation of expected volatility is derived primarily from the
weighted historical volatilities of several comparable companies
within the cable and telecommunications equipment industry and
to a lesser extent, the Companys weighted historical
volatility following its IPO in March 2007. The expected term of
options granted represents the period of time that options
granted are expected to be outstanding and was calculated using
the simplified method permitted by SEC Staff Accounting Bulletin
(SAB) 107 as revised by SAB 110. In the future, as the
Company gains historical data for volatility in its stock and
the actual term employees hold their options, expected
volatility and expected term may change which could
substantially change the grant-date fair value of future awards
of stock options and ultimately the expense the Company records.
Restricted stock units (RSU) grants under the 2007 Plan
generally vest in increments over two to four years from the
date of grant. The RSUs are classified as equity awards because
the RSUs are paid only in shares upon vesting. RSU awards are
measured at the fair value at the date of grant, which
corresponds to the closing stock price of the Companys
common stock on the date of grant. This fair value is then
amortized on a straight-line basis over the requisite service
periods of the RSUs, which is generally the vesting period.
Foreign
Currency Translation
The functional currency of the Companys foreign
subsidiaries is the U.S. dollar. Translation adjustments
resulting from remeasuring the foreign currency denominated
financial statements of subsidiaries into U.S. dollars are
included in the Companys consolidated statements of
operations. Translation gains and losses have not been
significant to date.
Research
and Development
Research and development costs consist primarily of compensation
and related costs for personnel, as well as costs related to
materials, supplies, and equipment depreciation. All research
and development costs are expensed as incurred.
61
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advertising
Costs
All advertising costs are expensed as incurred. Advertising
costs, which are included in sales and marketing expenses, were
not significant for all periods presented.
Other
Income (Expense), Net
For the years ended December 31, 2009, 2008 and 2007, other
income (expense), net, primarily included foreign currency gains
and losses. Additionally for the year ended December 31,
2007, other income (expense), net included the expense resulting
from fair value adjustments of redeemable convertible preferred
stock warrants.
Preferred
Stock Warrants
Upon the completion of its initial public offering on
March 27, 2007, the warrants to purchase redeemable
convertible preferred stock became warrants to purchase the
Companys common stock and accordingly the Company ceased
adjusting these warrants for changes in fair value and
reclassified their respective liabilities to stockholders
equity. Pursuant to ASC 480 Distinguishing Liabilities from
Equity, freestanding warrants for shares that were either
exercisable or warrants for shares that were redeemable were
classified as liabilities on the consolidated balance sheet at
fair value. At the end of each reporting period, changes in fair
value during the period were recorded as a component of other
expense, net.
For the years ended December 31, 2009, 2008 and 2007, the
Company recorded approximately zero, zero, and $5.0 million
of charges to other (expense) income, net to reflect the
increase in fair value of preferred stock warrants.
Recently
Adopted Accounting Standards
In December 2008, the FASB issued guidance which was included in
ASC 715 Compensation Retirement Benefits, and
was effective for fiscal years ending after December 15,
2009. This guidance requires an employer to disclose investment
policies and strategies, categories, fair value measurements,
and significant concentration of risk among its postretirement
benefit plan assets. The adoption of this guidance had no impact
on the Companys consolidated financial condition, results
of operations or cash flows.
In August 2009, the FASB issued Accounting Standards Update
(ASU)
2009-05,
Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value (ASU
2009-05).
ASU 2009-05
provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value
of such liability using one or more of the techniques prescribed
by the update. ASU
2009-05 was
effective in the three months ended December 31, 2009. The
adoption of ASU
2009-05 had
no impact on the Companys consolidated financial
condition, results of operations or cash flows.
Recently
Issued Accounting Standards
In October 2009, the FASB issued ASU
2009-13
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements a consensus of the FASB Emerging Issues
Task Force (ASU
2009-13) and
ASU 2009-14
Software (Topic 985): Certain Revenue Arrangements That
Include Software Elements a consensus of the FASB
Emerging Issues Task Force (ASU
2009-14).
ASU 2009-13
requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the
residual method of revenue allocation and require revenue to be
allocated using the relative selling price method. ASU
2009-14
removes tangible products from the scope of software revenue
guidance and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product
are covered by the scope of the software revenue guidance. ASU
2009-13 and
ASU 2009-14
are effective on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years
62
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
beginning on or after June 15, 2010, with early adoption
permitted. The Company is currently evaluating the potential
impact of the adoption of ASU
2009-13 and
ASU 2009-14
on its consolidated financial position, results of operations or
cash flows.
|
|
3.
|
Basic and
Diluted Net (Loss) Income per Common Share
|
The computation of basic and diluted net (loss) income per
common share was as follows (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(6,739
|
)
|
|
$
|
9,780
|
|
|
$
|
(25,367
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in basic net (loss) income per
common share
|
|
|
65,936
|
|
|
|
63,559
|
|
|
|
49,041
|
|
Stock options
|
|
|
|
|
|
|
3,506
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
188
|
|
|
|
|
|
Restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock purchase plan shares
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in diluted net (loss) income per
common share
|
|
|
65,936
|
|
|
|
67,264
|
|
|
|
49,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, 2008 and 2007, the Company had
securities outstanding that could potentially dilute basic net
income (loss) per common share in the future, but were excluded
from the computation of diluted net (loss) income per common
share in the periods presented as their effect would have been
anti-dilutive. Potentially dilutive outstanding securities were
as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Stock options outstanding
|
|
|
12,115
|
|
|
|
8,572
|
|
|
|
13,851
|
|
Restricted stock units
|
|
|
2,497
|
|
|
|
215
|
|
|
|
356
|
|
Employee stock purchase plan shares
|
|
|
302
|
|
|
|
243
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
268
|
|
|
|
|
|
|
|
428
|
|
February
2009 Restructuring Plan
On February 9, 2009, the Board of Directors authorized a
restructuring plan in order to respond to market and economic
conditions pursuant to which employees were terminated. This
resulted in severance costs of $0.7 million for the year
ended December 31, 2009.
April
2008 Restructuring Plan
On April 29, 2008, the Board of Directors authorized a
restructuring plan in connection with the redeployment of
resources pursuant to which employees were terminated under a
plan of termination. This resulted in net charges
63
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of zero and $1.4 million for the years ended
December 31, 2009 and 2008, respectively including charges
of $1.1 million for vacated facility charges and
$0.3 million for severance costs. The costs associated with
facility lease obligations are expected to be paid over the
remaining term of the related obligations which extend to
January 2013.
October
2007 Restructuring Plan
On October 29, 2007, the Board of Directors authorized a
restructuring plan in connection with the retirement of the
Companys cable modem termination system platform (CMTS)
under a plan of termination. This resulted in net charges of
$0.7 million, $0.7 million and $3.0 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Severance and related charges of zero,
$0.3 million and $2.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively consisted
primarily of salary and payroll taxes and medical benefits. The
Companys plan also involved vacating several leased
facilities throughout the world, with lease terms expiring
through March 2012 resulting in vacated facility charges, net of
sublease income of approximately $0.7 million,
$0.4 million and $0.7 million for the years ended
December 31, 2009, 2008 and 2007, respectively. The costs
associated with facility lease obligations are expected to be
paid over the remaining term of the related obligations which
extend to March 2012.
Restructuring
summary
All of the restructuring plans discussed above were essentially
complete as of December 31, 2009, including one previously
exited facility approved under the October 2007 restructuring
plan which is expected to be subleased in 2010. Total
restructuring activity for the plans discussed above was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Vacated Facilities
|
|
|
Severance and
|
|
|
|
|
|
Restructuring
|
|
|
|
Costs
|
|
|
Related Expenses
|
|
|
Other Costs
|
|
|
Liabilities
|
|
|
Balance, December 31, 2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Charges
|
|
|
665
|
|
|
|
2,193
|
|
|
|
140
|
|
|
|
2,998
|
|
Adjustments
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
Cash Payments
|
|
|
(101
|
)
|
|
|
(1,462
|
)
|
|
|
(34
|
)
|
|
|
(1,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
626
|
|
|
|
731
|
|
|
|
106
|
|
|
|
1,463
|
|
Charges
|
|
|
1,494
|
|
|
|
542
|
|
|
|
19
|
|
|
|
2,055
|
|
Adjustments(1)
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
|
(601
|
)
|
Cash Payments
|
|
|
(823
|
)
|
|
|
(1,273
|
)
|
|
|
(125
|
)
|
|
|
(2,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
696
|
|
|
|
|
|
|
|
|
|
|
|
696
|
|
Charges(2)
|
|
|
699
|
|
|
|
657
|
|
|
|
|
|
|
|
1,356
|
|
Adjustments
|
|
|
41
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
19
|
|
Cash Payments
|
|
|
(542
|
)
|
|
|
(635
|
)
|
|
|
|
|
|
|
(1,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
894
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less restructuring liability, current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability, less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjustments for the year ended December 31, 2008 related to
the leasehold improvements which were originally charged to
restructuring expense as part of the subleasing of a vacated
facility. |
|
(2) |
|
Charges for vacated facilities costs for the year ended
December 31, 2009 were due to the restructuring plan
approved by the Companys Board of Directors on
October 29, 2007. |
64
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of the Companys cash equivalents and
marketable securities is determined in accordance with ASC 820
Fair Value Measurements and Disclosures (ASC 820), which
the Company adopted in 2008. ASC 820 clarifies that fair value
is an exit price, representing the amount that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is
a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions,
ASC 820 establishes a three-tier value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
observable inputs such as quoted prices in active markets
(Level 1), inputs other than the quoted prices in active
markets that are observable either directly or indirectly
(Level 2) and unobservable inputs in which there is
little or no market data, which requires the Company to develop
its own assumptions (Level 3). This hierarchy requires the
Company to use observable market data, when available, and to
minimize the use of unobservable inputs when determining fair
value. The Company measures certain financial assets, mainly
comprised of marketable securities, at fair value.
The Companys fair value measurements of its financial
assets (cash, cash equivalents and marketable securities) as of
December 31, 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency debt securities
|
|
$
|
1,265
|
|
|
$
|
63,014
|
|
|
$
|
|
|
|
$
|
64,279
|
|
Corporate debt securities
|
|
|
|
|
|
|
70,819
|
|
|
|
|
|
|
|
70,819
|
|
Commercial paper
|
|
|
|
|
|
|
7,393
|
|
|
|
|
|
|
|
7,393
|
|
Certificates of deposit
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,788
|
|
|
|
141,226
|
|
|
|
|
|
|
|
147,014
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
12,527
|
|
|
|
|
|
|
|
|
|
|
|
12,527
|
|
Corporate debt securities
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
181
|
|
Commercial paper
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,527
|
|
|
|
1,181
|
|
|
|
|
|
|
|
13,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
$
|
18,315
|
|
|
$
|
142,407
|
|
|
$
|
|
|
|
$
|
160,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
171,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys fair value measurements of its financial
assets (cash, cash equivalents and marketable securities) as of
December 31, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency debt securities
|
|
$
|
|
|
|
$
|
55,296
|
|
|
$
|
|
|
|
$
|
55,296
|
|
Corporate debt securities
|
|
|
|
|
|
|
44,378
|
|
|
|
|
|
|
|
44,378
|
|
Commercial paper
|
|
|
|
|
|
|
22,986
|
|
|
|
|
|
|
|
22,986
|
|
Municipal debt securities (taxable)
|
|
|
|
|
|
|
994
|
|
|
|
|
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,654
|
|
|
|
|
|
|
|
123,654
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
30,092
|
|
|
|
|
|
|
|
|
|
|
|
30,092
|
|
U.S. Agency debt securities
|
|
|
|
|
|
|
4,004
|
|
|
|
|
|
|
|
4,004
|
|
Corporate debt securities
|
|
|
|
|
|
|
999
|
|
|
|
|
|
|
|
999
|
|
Commercial paper
|
|
|
|
|
|
|
9,937
|
|
|
|
|
|
|
|
9,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,092
|
|
|
|
14,940
|
|
|
|
|
|
|
|
45,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and marketable securities
|
|
$
|
30,092
|
|
|
$
|
138,594
|
|
|
$
|
|
|
|
$
|
168,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the amounts disclosed in the above table, the
fair value of the Companys Israeli severance pay assets,
which are fully comprised of Level 2 assets, was
$3.6 million and $2.7 million as of December 31,
2009 and 2008, respectively.
Marketable
Securities
Marketable securities, which included
available-for-sale
securities as of December 31, 2009 and December 31,
2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
U.S. Agency debt securities
|
|
$
|
64,256
|
|
|
$
|
70
|
|
|
$
|
(47
|
)
|
|
$
|
64,279
|
|
Corporate debt securities
|
|
|
70,569
|
|
|
|
288
|
|
|
|
(38
|
)
|
|
|
70,819
|
|
Commercial paper
|
|
|
7,394
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
7,393
|
|
Certificates of deposit
|
|
|
4,520
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
146,739
|
|
|
$
|
362
|
|
|
$
|
(87
|
)
|
|
$
|
147,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
U.S. Agency debt securities
|
|
$
|
54,852
|
|
|
$
|
444
|
|
|
$
|
|
|
|
$
|
55,296
|
|
Corporate debt securities
|
|
|
44,247
|
|
|
|
239
|
|
|
|
(108
|
)
|
|
|
44,378
|
|
Commercial paper
|
|
|
22,885
|
|
|
|
101
|
|
|
|
|
|
|
|
22,986
|
|
Municipal debt securities (taxable)
|
|
|
1,000
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
122,984
|
|
|
$
|
784
|
|
|
$
|
(114
|
)
|
|
$
|
123,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value and unrealized loss of investments showing
unrealized loss (primarily corporate debt securities, none of
which had been in a continuous loss position for more than nine
months) was $54.0 million and $87,000, respectively, as of
December 31, 2009, and $18.2 million and $114,000 as
of December 31, 2008, respectively. As of December 31,
2009, the Company did not hold any marketable securities with
remaining time to maturity of greater than one year and in a
consistent loss position for at least nine months. Gross
realized losses or gains on the sale of marketable securities
were not significant during the years ended December 31,
2009, 2008 and 2007.
Through December 31, 2009, the Company had no marketable
securities that were considered
other-than-temporarily
impaired. The Company periodically reviews
other-than-temporary
impairments for
available-for-sale
debt instruments when it intends to sell or it is more likely
than not that it will be required to sell an
available-for-sale
debt instrument before recovery of its amortized cost basis. If
this assessment had identified
available-for-sale
debt instruments that were considered
other-than-temporarily
impaired and that the Company did not intend to sell and would
not be required to sell prior to recovery of the amortized cost
basis, the Company would separate the amount of the impairment
into the amount that was credit related and the amount due to
all other factors. The credit loss component would be recognized
in earnings and would be the difference between the debt
instruments amortized cost basis and the present value of
its expected future cash flows. The remaining difference between
the debt instruments fair value and the present value of
future expected cash flows due to factors that were not credit
related would be recognized in other comprehensive income (loss).
The contractual maturity date of the marketable securities was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Due within one year
|
|
$
|
107,449
|
|
|
$
|
88,118
|
|
Due within one to two years
|
|
|
39,565
|
|
|
|
35,536
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$
|
147,014
|
|
|
$
|
123,654
|
|
|
|
|
|
|
|
|
|
|
Inventories,
Net
Inventories, net were comprised as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Finished products
|
|
$
|
4,933
|
|
|
$
|
6,085
|
|
Raw materials, parts and supplies
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
4,933
|
|
|
$
|
6,123
|
|
|
|
|
|
|
|
|
|
|
67
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other current assets were comprised as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Taxes receivable
|
|
$
|
2,969
|
|
|
$
|
424
|
|
Interest receivable
|
|
|
1,070
|
|
|
|
965
|
|
Prepaid maintenance
|
|
|
981
|
|
|
|
667
|
|
Other
|
|
|
1,157
|
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
6,177
|
|
|
$
|
3,716
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net
Property and equipment, net was comprised as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Engineering and other equipment
|
|
$
|
30,129
|
|
|
$
|
29,463
|
|
Computers, software and related equipment
|
|
|
19,942
|
|
|
|
18,973
|
|
Leasehold improvements
|
|
|
5,897
|
|
|
|
5,745
|
|
Office furniture and fixtures
|
|
|
1,132
|
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,100
|
|
|
|
55,373
|
|
Less: accumulated depreciation
|
|
|
(45,683
|
)
|
|
|
(40,015
|
)
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
$
|
11,417
|
|
|
$
|
15,358
|
|
|
|
|
|
|
|
|
|
|
The Company reviews the estimated useful lives of its fixed
assets on a periodic basis. In 2007, this review resulted in an
additional $0.8 million charge to depreciation expense. The
Company recorded no similar charges in 2008 and 2009.
Goodwill
The carrying value of goodwill was approximately
$1.7 million as of both December 31, 2009 and 2008.
There were no additions or adjustments to goodwill during the
years ended December 31, 2009 and 2008.
Other
Non-current Assets
Other non-current assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Israeli severance pay
|
|
$
|
3,648
|
|
|
$
|
2,661
|
|
Software license
|
|
|
2,083
|
|
|
|
|
|
Security deposit
|
|
|
1,962
|
|
|
|
2,125
|
|
Restricted cash
|
|
|
583
|
|
|
|
745
|
|
Deferred tax assets
|
|
|
449
|
|
|
|
644
|
|
Other
|
|
|
277
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Total other non-current assets
|
|
$
|
9,002
|
|
|
$
|
6,273
|
|
|
|
|
|
|
|
|
|
|
68
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Software license represents the Companys purchase of a
quadrature amplitude modulation (QAM) edge resource management
technology license for $2.5 million in 2009. The Company
amortizes the amounts paid for the software license fee using
the straight-line method over the estimated useful life of three
years. Restricted cash consists of a certificate of deposit that
is used to secure a standby letter of credit required in
connection with an operating lease of the Company and cash used
as credit card collateral.
Deferred
Revenues, Net
Deferred revenues, net were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred service revenues, net
|
|
$
|
27,252
|
|
|
$
|
39,675
|
|
Deferred product revenues, net
|
|
|
17,614
|
|
|
|
20,887
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenues, net
|
|
|
44,866
|
|
|
|
60,562
|
|
Less current portion of deferred revenues, net
|
|
|
(32,428
|
)
|
|
|
(39,433
|
)
|
|
|
|
|
|
|
|
|
|
Deferred revenues, net, less current portion
|
|
$
|
12,438
|
|
|
$
|
21,129
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
Other liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Rent and restructuring liabilities
|
|
$
|
1,581
|
|
|
$
|
1,602
|
|
Foreign, franchise and other income tax liabilities
|
|
|
2,198
|
|
|
|
2,071
|
|
Accrued warranty
|
|
|
2,068
|
|
|
|
3,381
|
|
Sales and use tax payable
|
|
|
1,310
|
|
|
|
831
|
|
Accrued professional fees
|
|
|
462
|
|
|
|
721
|
|
Customer prepayments
|
|
|
816
|
|
|
|
155
|
|
Accrued class action litigation charges
|
|
|
|
|
|
|
1,504
|
|
Other
|
|
|
1,290
|
|
|
|
1,348
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
9,725
|
|
|
|
11,613
|
|
Less current portion of other liabilities
|
|
|
(7,083
|
)
|
|
|
(9,221
|
)
|
|
|
|
|
|
|
|
|
|
Other liabilities, less current portion
|
|
$
|
2,642
|
|
|
$
|
2,392
|
|
|
|
|
|
|
|
|
|
|
69
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued
Warranty
Activity related to the product warranty was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance as of beginning of year
|
|
$
|
3,381
|
|
|
$
|
4,359
|
|
Warranty charged to cost of sales
|
|
|
412
|
|
|
|
1,275
|
|
Utilization of warranty
|
|
|
(1,003
|
)
|
|
|
(1,554
|
)
|
Other adjustments
|
|
|
(722
|
)
|
|
|
(699
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of end of year
|
|
|
2,068
|
|
|
|
3,381
|
|
Less accrued warranty, current portion
|
|
|
(1,047
|
)
|
|
|
(1,669
|
)
|
|
|
|
|
|
|
|
|
|
Accrued warranty, less current portion
|
|
$
|
1,021
|
|
|
$
|
1,712
|
|
|
|
|
|
|
|
|
|
|
As part of the transition to switch to all digital broadcasting
from analog transmission, the Company recorded a
$0.5 million benefit from the reversal of warranty reserves
related to the decommissioned analog products in 2009. The
reversal of this warranty reserve was recorded as a reduction of
the Companys cost of net product revenues, and is included
in the above table in other adjustments.
|
|
7.
|
Commitments
and Contingencies
|
Commitments
The Company and its subsidiaries operate from leased premises in
the U.S., Israel and Asia. The Company is committed to pay a
portion of the buildings operating expenses as determined
under the lease agreements. Future minimum lease payments due
under the related operating leases with an initial or remaining
non-cancellable lease term in excess of one year as of
December 31, 2009 were as follows (in thousands):
|
|
|
|
|
Years ending December 31,
|
|
|
|
|
2010
|
|
$
|
3,188
|
|
2011
|
|
|
3,069
|
|
2012
|
|
|
1,881
|
|
2013
|
|
|
100
|
|
2014
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
8,238
|
|
|
|
|
|
|
The terms of certain lease arrangements have free or escalating
rent payment provisions, and when significant, the rent expense
is recognized on a straight-line basis over the lease period
resulting in a deferred rent liability. Leasehold improvements
are amortized over the shorter of their useful life or the
contractual lease term. Rent expense under operating leases was
approximately $3.2 million, $3.6 million and
$4.0 million, for the years ended December 31, 2009,
2008 and 2007, respectively. The Company entered into a
non-cancellable sublease of a portion of its Tel Aviv facility
in December 2008, which expires in January 2013. Sublease
rentals received were $0.4 million for the year ended
December 31, 2009, and were not material for the years
ended December 31, 2008 and 2007.
70
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Legal
Proceedings
BigBand
Networks, Inc. v. Imagine Communications, Inc., Case
No. 07-351
On June 5, 2007, the Company filed suit against Imagine
Communications, Inc. in the U.S. District Court, District
of Delaware, alleging infringement of certain U.S. Patents
covering advanced video processing and bandwidth management
techniques. The lawsuit seeks injunctive relief, along with
monetary damages for willful infringement. The Company is
subject to certain counterclaims by which Imagine
Communications, Inc. has challenged the validity and
enforceability of the Companys asserted patents. The
Company intends to defend itself vigorously against such
counterclaims. No trial date has been set. At this stage of the
proceeding, it is not possible for the Company to quantify the
extent of potential liabilities, if any, resulting from the
alleged counterclaims.
Securities
Litigation
In connection with the settlement of the Companys federal
securities litigation (In re BigBand Networks, Inc.
Securities Litigation, Case No. C
07-5101-SBA)
as ordered by the U.S. District Court for the Northern
District of California on September 22, 2009, the related
shareholder derivative lawsuit (Ifrah v.
Bassan-Eskenazi, et. al., Case No. 468401) was
dismissed by the Superior Court for the County of
San Mateo, California on September 23, 2009, and the
state securities litigation (Wiltjer v. Bassan-Eskenazi,
et. al., Case
No. CGC-07-469661)
was dismissed by the Superior Court for the City and County of
San Francisco on October 27, 2009. As of
December 31, 2009, the Company had no further significant
obligations under these lawsuits.
Indemnities
From time to time, in its normal course of business, the Company
may indemnify other parties with whom it enters into contractual
relationships, including customers, lessors and parties to other
transactions with the Company. The Company may agree to hold
other parties harmless against specific losses such as those
that could arise from a breach of representation or breach of
covenant, or third-party infringement claims. It may not be
possible to determine the maximum potential amount of liability
under such indemnification obligations due to the unique facts
and circumstances that are likely to be involved in each
particular claim and indemnification provision. Historically,
there have been no such indemnification claims.
The Company allocated stock-based compensation expense as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of net revenues
|
|
$
|
2,084
|
|
|
$
|
1,733
|
|
|
$
|
1,534
|
|
Research and development
|
|
|
4,887
|
|
|
|
3,901
|
|
|
|
3,837
|
|
Sales and marketing
|
|
|
2,432
|
|
|
|
2,566
|
|
|
|
4,184
|
|
General and administrative
|
|
|
4,816
|
|
|
|
3,675
|
|
|
|
2,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
14,219
|
|
|
$
|
11,875
|
|
|
$
|
11,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Incentive Plans
On January 31, 2007, the Board of Directors approved the
2007 Equity Incentive Plan (2007 Plan), which became effective
on March 15, 2007. The Company has options outstanding
under its 1999, 2001 and 2003 share option and incentive
plans (the Prior Plans), but no longer grants stock options or
restricted stock units (RSUs) under any of the Prior Plans.
Cancelled or forfeited stock option grants under the Prior Plans
will be added to the total amount of shares available for grant
under the 2007 Plan. In addition, shares authorized but unissued
as of
71
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 15, 2007 under the Prior Plans were added to shares
available for grant under the 2007 Plan up to a maximum of
20,005,559 shares. The 2007 Plan contains an
evergreen provision, pursuant to which the number of
shares available for issuance under the 2007 Plan shall be
increased on the first day of the fiscal year, in an amount
equal to the least of (a) 6,000,000 shares,
(b) 5% of the outstanding Shares on the last day of the
immediately preceding fiscal year or (c) such number of
shares determined by the Board of Directors. The Board of
Directors increased the amount of shares reserved under the 2007
Plan by 3,356,892 on February 25, 2010, which was equal to
5% of the outstanding shares as of January 1, 2010.
The 2007 Plan allows the Company to award stock options
(incentive and non-qualified), restricted stock, RSUs, and stock
appreciation rights to employees, officers, directors and
consultants of the Company. The exercise price of incentive
stock options granted under the 2007 Plan to participants with
10% or more voting power of all classes of stock of the Company
or any parent or subsidiary company may not be less than 110% of
the fair market value of the Companys common stock on the
date of the grant. Options granted under the 2007 Plan are
generally exercisable in installments vesting over a four-year
period and have a maximum term of ten years from the date of
grant. The Company creates newly issued shares for all share
transaction with employees.
Shares available for future issuance under the 2007 Plan were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Available as of start of year
|
|
|
7,298
|
|
|
|
5,906
|
|
Authorized shares added
|
|
|
3,232
|
|
|
|
3,095
|
|
Options and RSUs cancelled
|
|
|
904
|
|
|
|
2,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,434
|
|
|
|
11,122
|
|
Options and RSUs granted
|
|
|
(3,939
|
)
|
|
|
(3,824
|
)
|
|
|
|
|
|
|
|
|
|
Available as of end of year
|
|
|
7,495
|
|
|
|
7,298
|
|
|
|
|
|
|
|
|
|
|
Data pertaining to stock option activity under the plans was as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Outstanding at December 31, 2006
|
|
|
16,020
|
|
|
$
|
2.31
|
|
|
|
8.09
|
|
|
$
|
55,194
|
|
Granted
|
|
|
3,846
|
|
|
|
7.58
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,055
|
)
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,960
|
)
|
|
|
4.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2007
|
|
|
13,851
|
|
|
$
|
3.85
|
|
|
|
7.33
|
|
|
$
|
26,651
|
|
Granted
|
|
|
3,505
|
|
|
|
4.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,275
|
)
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,051
|
)
|
|
|
5.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008
|
|
|
13,030
|
|
|
$
|
4.17
|
|
|
|
7.58
|
|
|
$
|
22,978
|
|
Granted
|
|
|
1,316
|
|
|
|
4.02
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,444
|
)
|
|
|
1.87
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(787
|
)
|
|
|
5.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
12,115
|
|
|
$
|
4.33
|
|
|
|
6.99
|
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest, net of forfeitures
|
|
|
11,853
|
|
|
$
|
4.32
|
|
|
|
6.95
|
|
|
$
|
7,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total intrinsic value of options exercised during the years
ended December 31, 2009, 2008 and 2007 was
$4.9 million, $9.0 million, and $28.0 million,
respectively. The intrinsic value of an outstanding option is
calculated based on the difference between its exercise price
and the closing price of the Companys common stock on the
last trading date in the year, or in the case of an exercised
option, it is based on the difference between its exercise price
and the actual fair market value of the Companys common
stock on the date of exercise. Stock options with exercise
prices greater than the closing price of the Companys
common stock on the last trading day of the year have an
intrinsic value of zero. The aggregate intrinsic values for
options outstanding in the preceding table are based on the
Companys closing stock prices of $3.44, $5.52 and $5.14
per share as of December 31, 2009, 2008 and 2007
respectively.
Stock options outstanding and exercisable as of
December 31, 2009 were as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Contractual Life
|
|
|
Weighted Average
|
|
|
No. Shares
|
|
|
Weighted Average
|
|
Exercise Price ($)
|
|
Number
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
0.20 - 1.00
|
|
|
2,444
|
|
|
|
4.08
|
|
|
$
|
0.79
|
|
|
|
2,444
|
|
|
$
|
0.79
|
|
1.32 - 2.60
|
|
|
856
|
|
|
|
5.32
|
|
|
|
2.11
|
|
|
|
786
|
|
|
|
2.09
|
|
3.08 - 5.28
|
|
|
5,139
|
|
|
|
8.16
|
|
|
|
4.61
|
|
|
|
2,053
|
|
|
|
4.98
|
|
5.29 - 7.34
|
|
|
3,307
|
|
|
|
7.73
|
|
|
|
5.97
|
|
|
|
1,852
|
|
|
|
6.05
|
|
9.33 - 13.12
|
|
|
196
|
|
|
|
7.26
|
|
|
|
11.14
|
|
|
|
139
|
|
|
|
11.15
|
|
14.85 - 18.95
|
|
|
173
|
|
|
|
7.18
|
|
|
|
17.35
|
|
|
|
119
|
|
|
|
17.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,115
|
|
|
|
6.99
|
|
|
$
|
4.33
|
|
|
|
7,393
|
|
|
$
|
3.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of options granted
for the years ended December 31, 2009, 2008 and 2007 on a
per-share basis was approximately $2.69, $3.01 and $6.63,
respectively.
Stock-Based
Compensation
The fair value of each new option awarded and Employee Stock
Purchase Plan shares are estimated on the grant date using the
Black-Scholes valuation model using the assumptions noted as
follows:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Stock Options
|
|
|
|
|
|
|
Expected volatility
|
|
73-75%
|
|
63-71%
|
|
75-91%
|
Expected term
|
|
6 years
|
|
6 years
|
|
6 years
|
Risk-free interest
|
|
2.00-2.80%
|
|
2.40-3.31%
|
|
3.89-4.75%
|
Expected dividends
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Stock Purchase Plan
|
|
|
|
|
|
|
Expected volatility
|
|
61-104%
|
|
59-102%
|
|
55-90%
|
Expected term
|
|
0.5 years
|
|
0.5 years
|
|
0.5-0.6 years
|
Risk-free interest
|
|
0.16-0.74%
|
|
0.74-1.87%
|
|
3.71-5.12%
|
Expected dividends
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
The computation of expected volatility is derived primarily from
the weighted historical volatilities of several comparable
companies within the cable and telecommunications equipment
industry and to a lesser extent, the Companys weighted
historical volatility following its IPO in March 2007. The
risk-free interest factor is based on the U.S. Treasury
yield curve in effect at the time of grant for zero coupon
U.S. Treasury notes with maturities
73
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximately equal to each grants expected term. For all
periods presented, the Company has elected to use the simplified
method of determining the expected term as permitted by SEC
Staff Accounting Bulletin (SAB) 107 as revised by SAB 110.
The Company estimates its forfeiture rate based on an analysis
of its actual forfeitures and will continue to evaluate the
adequacy of the forfeiture rate based on actual forfeiture
experience, analysis of employee turnover behavior, and other
factors. Estimates are evaluated each reporting period and
adjusted, if necessary, by recognizing the cumulative effect of
the change in estimate on compensation costs recognized in prior
year periods.
As of December 31, 2009, total unrecognized stock
compensation expense relating to unvested stock options,
adjusted for estimated forfeitures, was $19.3 million. This
amount is expected to be recognized over a weighted-average
period of 2.4 years.
Restricted
Stock Units
The 2007 Plan provides for grants of restricted stock units
(RSUs) that vest between two and four years from the date of
grant. The RSUs are classified as equity awards because the RSUs
are paid only in shares upon vesting. RSU awards are measured at
the fair value at the date of grant, which corresponds to the
closing stock price of the Companys common stock on the
date of grant. The total intrinsic value of RSUs vesting during
the years ended December 31, 2009, 2008 and 2007 was
$2.4 million, $0.2 million and zero, respectively. The
Company recorded RSU stock-based compensation expense of
$3.7 million, $1.0 million and $0.8 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
The Companys RSU activity was as follows (units in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Restricted
|
|
|
Grant-Date
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Stock Units
|
|
|
Fair Value
|
|
|
Life (Years)
|
|
|
Value
|
|
|
Unvested as of December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
406
|
|
|
|
15.14
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(50
|
)
|
|
|
18.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2007
|
|
|
356
|
|
|
$
|
14.61
|
|
|
|
2.23
|
|
|
$
|
1,832
|
|
Granted
|
|
|
319
|
|
|
|
5.35
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(27
|
)
|
|
|
5.56
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(80
|
)
|
|
|
18.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2008
|
|
|
568
|
|
|
$
|
9.38
|
|
|
|
1.24
|
|
|
$
|
3,138
|
|
Granted
|
|
|
2,623
|
|
|
|
5.25
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(577
|
)
|
|
|
7.07
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(117
|
)
|
|
|
9.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2009
|
|
|
2,497
|
|
|
$
|
5.58
|
|
|
|
1.77
|
|
|
$
|
8,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest after December 31, 2009(1)
|
|
|
2,300
|
|
|
|
|
|
|
|
1.72
|
|
|
$
|
7,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
RSUs expected to vest reflect an estimated forfeiture rate. |
As of December 31, 2009, total unrecognized stock
compensation expense relating to unvested RSUs, adjusted for
estimated forfeitures, was $11.6 million. This amount is
expected to be recognized over a weighted-average period of
3.0 years.
74
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee
Stock Purchase Plan
On January 31, 2007, the Board of Directors approved the
2007 Employee Stock Purchase Plan (ESPP), which became effective
on March 15, 2007. Under the ESPP, employees may purchase
shares of common stock at a price per share that is 85% of the
fair market value of the Companys common stock as of the
beginning or the end of each six month offering period,
whichever is lower. The ESPP contains an evergreen provision,
pursuant to which an annual increase may be added on the first
day of each fiscal year, equal to the least of
(i) 3,000,000 shares of the Companys common
stock, (ii) 2% of the outstanding shares of the
Companys common stock on the first day of the fiscal year
or (iii) an amount determined by the Board of Directors.
The Board of Directors increased the amount of shares reserved
under the ESPP by 1,342,756 on February 25, 2010, which was
equal to 2% of the outstanding shares as of January 1,
2010. The ESPP is compensatory in nature, and therefore results
in compensation expense. The Company recorded stock-based
compensation expense associated with its ESPP of
$0.8 million, $0.9 million and $0.7 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
Shares available for future issuance under the ESPP were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Available as of start of year
|
|
|
1,662
|
|
|
|
786
|
|
Authorized shares added
|
|
|
1,293
|
|
|
|
1,238
|
|
Common shares issued
|
|
|
(478
|
)
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
Available as of end of year
|
|
|
2,477
|
|
|
|
1,662
|
|
|
|
|
|
|
|
|
|
|
Shares Reserved
Common stock available for future issuance was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ESPP shares reserved for future issuance
|
|
|
2,477
|
|
|
|
1,662
|
|
Restricted stock units
|
|
|
2,497
|
|
|
|
568
|
|
Warrants to purchase common stock
|
|
|
268
|
|
|
|
268
|
|
Stock options:
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
12,115
|
|
|
|
13,030
|
|
Reserved for future grants
|
|
|
7,497
|
|
|
|
7,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,854
|
|
|
|
22,826
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Warrants
As of December 31, 2009, a warrant holder had unexercised
warrants outstanding to purchase 267,858 shares of the
Companys common stock for an exercise price of $1.79 per
share. These warrants will expire on March 20, 2010. In
2008, a warrant holder exercised its common stock warrants for
160,300 shares, and under the cashless exercise provisions
of the warrant agreement received 67,663 shares in full
settlement of the warrant. In 2007, warrants to purchase
502,000 shares of common stock were exercised with total
proceeds of approximately $1.8 million paid to the Company.
75
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ASC 280, Segment Reporting, establishes standards for
reporting information about operating segments. Operating
segments are defined as components of an enterprise for which
separate financial information is available and is evaluated
regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in
assessing performance. The Companys chief operating
decision maker is the Chief Executive Officer (CEO). The CEO
reviews financial information presented on a consolidated basis
for evaluating financial performance and allocating resources.
There are no segment managers who are held accountable for
operations below the consolidated financial statement level.
Accordingly, the Company reports as a single reporting segment.
Net revenues by geographical region were allocated based on the
shipping destination of customer orders, and were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
123,819
|
|
|
$
|
169,397
|
|
|
$
|
146,835
|
|
Asia
|
|
|
9,734
|
|
|
|
6,648
|
|
|
|
13,670
|
|
Europe
|
|
|
4,198
|
|
|
|
5,343
|
|
|
|
14,612
|
|
Americas, excluding United States
|
|
|
1,763
|
|
|
|
3,905
|
|
|
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
139,514
|
|
|
$
|
185,293
|
|
|
$
|
176,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product net revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Video
|
|
$
|
92,042
|
|
|
$
|
145,517
|
|
|
$
|
121,046
|
|
Data
|
|
|
1,620
|
|
|
|
2,900
|
|
|
|
23,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product net revenues
|
|
$
|
93,662
|
|
|
$
|
148,417
|
|
|
$
|
144,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service net revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Video
|
|
$
|
44,140
|
|
|
$
|
30,811
|
|
|
$
|
23,009
|
|
Data
|
|
|
1,712
|
|
|
|
6,065
|
|
|
|
8,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service net revenues
|
|
$
|
45,852
|
|
|
$
|
36,876
|
|
|
$
|
31,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets by geographical regions were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
6,286
|
|
|
$
|
8,859
|
|
Israel
|
|
|
4,728
|
|
|
|
6,305
|
|
Rest of World
|
|
|
403
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
11,417
|
|
|
$
|
15,358
|
|
|
|
|
|
|
|
|
|
|
76
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys (loss) income before (benefit from) provision
for income taxes was comprised as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
$
|
(10,276
|
)
|
|
$
|
8,833
|
|
|
$
|
(25,755
|
)
|
Foreign
|
|
|
2,470
|
|
|
|
3,347
|
|
|
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
$
|
(7,806
|
)
|
|
$
|
12,180
|
|
|
$
|
(24,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(687
|
)
|
|
$
|
199
|
|
|
$
|
|
|
State
|
|
|
108
|
|
|
|
669
|
|
|
|
(48
|
)
|
Foreign
|
|
|
(642
|
)
|
|
|
1,578
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,221
|
)
|
|
|
2,446
|
|
|
|
1,180
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(39
|
)
|
|
|
40
|
|
|
|
38
|
|
State
|
|
|
(5
|
)
|
|
|
7
|
|
|
|
6
|
|
Foreign
|
|
|
198
|
|
|
|
(93
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
(46
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit from) provision for income taxes
|
|
$
|
(1,067
|
)
|
|
$
|
2,400
|
|
|
$
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of the tax (benefit) provision at federal
statutory rate to the Companys (benefit from) provision
for income taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Tax (benefit) provision at federal statutory rate
|
|
$
|
(2,732
|
)
|
|
$
|
4,263
|
|
|
$
|
(8,450
|
)
|
U.S. losses not benefited (net operating loss carryforward
utilized)
|
|
|
2,063
|
|
|
|
(2,668
|
)
|
|
|
7,113
|
|
Foreign operations
|
|
|
(1,411
|
)
|
|
|
1,523
|
|
|
|
618
|
|
State taxes
|
|
|
68
|
|
|
|
441
|
|
|
|
(27
|
)
|
Research and development tax credits
|
|
|
(200
|
)
|
|
|
(510
|
)
|
|
|
(1,037
|
)
|
Stock-based compensation
|
|
|
1,074
|
|
|
|
(797
|
)
|
|
|
1,127
|
|
Warrant amortization
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
Permanent items
|
|
|
71
|
|
|
|
148
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes
|
|
$
|
(1,067
|
)
|
|
$
|
2,400
|
|
|
$
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the Companys net deferred tax
assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
22,902
|
|
|
$
|
23,810
|
|
Reserves and accruals
|
|
|
12,474
|
|
|
|
13,615
|
|
Stock compensation
|
|
|
4,262
|
|
|
|
2,883
|
|
Depreciation and amortization
|
|
|
1,869
|
|
|
|
1,652
|
|
Tax credit carryforwards
|
|
|
3,413
|
|
|
|
4,091
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
44,920
|
|
|
|
46,051
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(239
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred taxes
|
|
|
44,681
|
|
|
|
45,849
|
|
Valuation allowance
|
|
|
(44,471
|
)
|
|
|
(45,407
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
210
|
|
|
$
|
442
|
|
|
|
|
|
|
|
|
|
|
Recognition of deferred tax assets is appropriate when
realization of such assets is more likely than not. Based upon
the weight of available evidence, which includes the
Companys historical operating performance and the recorded
U.S. cumulative net losses in all prior fiscal periods, the
Company has provided a full valuation allowance against its
U.S. deferred tax assets. The Companys valuation
allowance decreased by $0.9 million, $4.1 million, and
increased by $3.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively. As of
December 31, 2009, the Company had U.S. federal and
state net operating losses of approximately $61.3 million
and $20.2 million, respectively. The U.S. federal net
operating loss carry-forwards will expire at various dates
beginning in 2021 through 2029 if not utilized. Most state net
operating loss carry-forwards will expire at various dates
beginning in 2010 through indefinite.
As of December 31, 2009, the Company had U.S. tax
credit carry-forwards, primarily from research and development
credits, of approximately $2.8 million for federal and
$1.0 million for state. The federal credit will expire at
various dates beginning in 2020 through 2029 if unused. The
California state research and development credits can be carried
forward indefinitely. Massachusetts state research and
developmental credits can be carried forward for 15 years.
Net operating loss carry-forwards and credit carry-forwards
reflected above may be limited due to ownership changes as
provided in Section 382 of the Internal Revenue Code and
similar state provisions. The Company has not provided for
U.S. federal income taxes on all of the
non-U.S. subsidiaries
undistributed earnings as of December 31, 2009, because
such earnings are intended to be indefinitely reinvested. Upon
distribution of those earnings in the form of dividends or
otherwise, the Company would be subject to applicable
U.S. federal and state income taxes.
The Company uses the
with-and-without
approach described in ASC 740 Income Taxes (ASC
740) to determine the recognition and measurement of excess
tax benefits. Accordingly, the Company has elected to recognize
excess income tax benefits from stock option exercises in
additional paid in capital only if an incremental income tax
benefit would be realized after considering all other tax
attributes presently available to the Company. As of
December 31, 2009, the amount of such excess tax benefits
from stock options included in net operating losses was
$15.3 million. In addition, the Company has elected to
account for the indirect effects of stock-based awards on other
tax attributes, such as the research and alternative minimum tax
credits, through the consolidated statement of operations.
78
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 1, 2007, the Company adopted guidance
related to accounting for uncertainties in income taxes, which
has been incorporated into ASC 740. The Companys policy is
to include interest and penalties related to unrecognized tax
benefits within its provision for income taxes. The
Companys only major tax jurisdictions are the
U.S. and Israel. The tax years 1999 through 2009 remain
open and subject to examination by the appropriate governmental
agencies in the U.S. The Company is currently under audit
in Israel for the tax years 2004 through 2007. The
Companys results of operations are expected to be impacted
by these assessments and may result in a tax benefit of up to
$0.5 million. The Companys total amount of
unrecognized tax benefits as of December 31, 2009 was
$3.4 million, of which $1.5 million if recognized,
would affect the Companys effective tax rate. Changes to
the amount of unrecognized tax benefits from U.S. federal
and state research and development credits and other tax
positions were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance as of beginning of year
|
|
$
|
2,304
|
|
|
$
|
1,405
|
|
Tax positions related to current year
|
|
|
388
|
|
|
|
531
|
|
Tax positions related to prior years
|
|
|
700
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of year
|
|
$
|
3,392
|
|
|
$
|
2,304
|
|
|
|
|
|
|
|
|
|
|
Income derived by BigBand Networks Ltd., the Companys
Israeli subsidiary, is generally subject to the regular Israeli
corporate tax rate of 26% for the tax year 2009. However, per an
application initiated December 21, 2008 and approved
November 15, 2009, the Company now enjoys the status of a
Beneficial Enterprise, as stipulated in rules and procedures
from the Israeli tax authority. According to the provisions of
the law, the tax benefits to which the Company is entitled shall
be determined in accordance with the development region in which
the Companys plant is located during the selected year and
in accordance with the provisions of section 51(a) of the
law.
The U.S Congress enacted The Worker, Homeownership, and
Business Assistance Act of 2009 (the Act) on
November 6, 2009 creating an opportunity for the Company to
elect to carry back a 2008 federal net operating loss (NOL) for
three, four, or five years. The Act also suspends the ninety
percent limit on the utilization of alternative minimum tax
(AMT) losses, effectively permitting the Company to elect to
carry back its entire applicable NOL. The Company has elected to
carry back the 2009 federal NOL for three years resulting in a
tax benefit of $0.7 million for the year ended
December 31, 2009.
|
|
11.
|
401(k)
Savings and Retirement Plan
|
The Company sponsors a 401(k) Savings and Retirement Plan (Plan)
for all employees who meet certain eligibility requirements.
Participants may contribute, on a pre-tax basis, between
1 percent and 90 percent of their annual compensation,
but not to exceed a maximum contribution amount pursuant to
Section 401(k) of the Internal Revenue Code. The Company is
not required to contribute, nor has it contributed, to the Plan
for any of the periods presented.
79
BIGBAND
NETWORKS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Accumulated
Other Comprehensive Income
|
Accumulated other comprehensive income includes unrealized gains
(losses) on cash flow hedges and marketable securities, net of
taxes. Accumulated other comprehensive income was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net unrealized loss on cash flow hedges
|
|
$
|
(151
|
)
|
|
$
|
(621
|
)
|
Net unrealized gain on marketable securities
|
|
|
275
|
|
|
|
679
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
124
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Selected
Quarterly Financial Information (Unaudited)
|
Unaudited quarterly financial data for the last two years was as
follows (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
|
Total net revenues
|
|
$
|
34,398
|
|
|
$
|
22,202
|
|
|
$
|
39,026
|
|
|
$
|
43,888
|
|
Gross profit
|
|
|
19,415
|
|
|
|
11,106
|
|
|
|
24,995
|
|
|
|
25,653
|
|
Net (loss) income
|
|
|
(1,238
|
)
|
|
|
(10,858
|
)
|
|
|
3,075
|
|
|
|
2,282
|
|
Basic net (loss) income per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
Fourth Quarter
|
|
|
Third Quarter
|
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
Total net revenues
|
|
$
|
54,093
|
|
|
$
|
48,283
|
|
|
$
|
43,011
|
|
|
$
|
39,906
|
|
Gross profit
|
|
|
34,030
|
|
|
|
28,561
|
|
|
|
25,373
|
|
|
|
24,367
|
|
Net income (loss)
|
|
|
7,322
|
|
|
|
3,131
|
|
|
|
1,247
|
|
|
|
(1,920
|
)
|
Basic net income (loss) per common share
|
|
$
|
0.11
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
Diluted net income (loss) per common share
|
|
$
|
0.11
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
80
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None
|
|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on
Form 10-K,
as required by paragraph (b) of
Rule 13a-15
or
Rule 15d-15
under the Securities Exchange Act of 1934, as amended, we
evaluated under the supervision of our Chief Executive Officer
and our Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in
Rules 13a-15(e)
or 15d-15(e)
of the Securities Exchange Act of 1934, as amended). Based on
this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls
and procedures are effective to ensure that information we are
required to disclose in reports that we file or submit under the
Securities Exchange Act of 1934 (i) is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and
(ii) is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure. Our disclosure controls and procedures are
designed to provide reasonable assurance that such information
is accumulated and communicated to our management. Our
disclosure controls and procedures include components of our
internal control over financial reporting. Managements
assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable
assurance because a control system, no matter how well designed
and operated, can provide only reasonable, but not absolute,
assurance that the control systems objectives will be met.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a
material effect on our financial statements.
Management assessed our internal control over financial
reporting as of December 31, 2009, the end of our fiscal
year. Management based its assessment on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of
such elements as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting
policies, and our overall control environment. This assessment
is supported by testing and monitoring performed by our finance
organization.
Based on our assessment, management has concluded that our
internal control over financial reporting was effective as of
the end of the fiscal year to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external reporting
purposes in accordance with generally accepted accounting
principles. We reviewed the results of managements
assessment with the Audit Committee of our Board of Directors.
Ernst & Young LLP, independent registered public
accounting firm, has audited the effectiveness of our internal
control over financial reporting as of December 31, 2009
and its report is included below.
Changes
in Internal Control over Financial Reporting
During the three months ended December 31, 2009, there was
no change in our internal control over financial reporting
identified in connection with the evaluation required by
paragraph (d) of
Rule 13a-15
or
Rule 15d-15
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
81
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
BigBand Networks, Inc.
We have audited BigBand Networks Inc.s internal control
over financial reporting as of December 31, 2009 based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). BigBand Networks,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, BigBand Networks, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009 based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of BigBand Networks, Inc as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, redeemable convertible preferred stock
and stockholders equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2009
and our report dated March 1, 2010 expressed an unqualified
opinion thereon.
San Jose, California
March 5, 2010
82
|
|
Item 9B.
|
OTHER
INFORMATION
|
Annual
Meeting
Our annual meeting of stockholders is currently scheduled to be
held on May 24, 2010.
Management
Compensation
We achieved neither the pre-determined company revenue nor
operating contribution targets for funding 90% of the Incentive
Compensation Plan (ICP) for the second half of the year (which
funds 30% of the annual ICP payment) and for the full year
(which funds the remaining 40% of the annual ICP payment).
However, our Board used its authority to fund the discretionary
10% of the ICP to the following extent: 5.5% for the second half
of the year, and 7.0% for the full year (based on an average of
8.5% discretionary funding for the first half of the year and
5.5% for the second half of the year).
2009
Incentive Compensation Program
Amir Bassan-Eskenazi, President and Chief Executive
Officer
|
|
|
|
|
Base Salary (annual):
|
|
$
|
325,000
|
|
Bonus Potential at 100% funding
|
|
|
|
|
First Half:
|
|
|
97,500
|
|
Second Half:
|
|
|
97,500
|
|
Annual:
|
|
|
130,000
|
|
|
|
|
|
|
Total:
|
|
$
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Half
|
|
|
Second Half
|
|
|
|
% Goal
|
|
|
% Actual
|
|
2009 Officer Bonus Goal
|
|
Weighting
|
|
|
Achievement
|
|
|
1) Achieve revenues goal
|
|
|
22
|
%
|
|
|
19
|
%
|
2) Achieve earnings goal
|
|
|
15
|
%
|
|
|
0
|
%
|
3) Achieve bookings goal
|
|
|
20
|
%
|
|
|
13
|
%
|
4) Achieve cash and investments goal
|
|
|
4
|
%
|
|
|
2
|
%
|
5) Achieve financial analyst and investor relations
goal
|
|
|
4
|
%
|
|
|
1
|
%
|
6) Achieve new product development and release
schedule goals
|
|
|
14
|
%
|
|
|
14
|
%
|
7) Achieve specified product plan goal
|
|
|
4
|
%
|
|
|
0
|
%
|
8) Achieve specified customer satisfaction goal
|
|
|
7
|
%
|
|
|
7
|
%
|
9) Achieve global channels goal
|
|
|
3
|
%
|
|
|
0
|
%
|
10) Achieve employee satisfaction and retention goal
|
|
|
7
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
62
|
%
|
83
2009
Incentive Compensation Program
Maurice Castonguay, Senior Vice President and Chief Financial
Officer
|
|
|
|
|
Base Salary (annual):
|
|
$
|
280,000
|
|
Bonus Potential at 100% funding
|
|
|
|
|
First Half:
|
|
|
42,000
|
|
Second Half:
|
|
|
42,000
|
|
Annual:
|
|
|
56,000
|
|
|
|
|
|
|
Total:
|
|
$
|
140,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Half
|
|
|
Second Half
|
|
|
|
|
|
|
% Goal
|
|
|
% Actual
|
|
|
|
|
2009 Officer Bonus Goal
|
|
Weighting
|
|
|
Achievement
|
|
|
|
|
|
1) Achieve earnings goal
|
|
|
5
|
%
|
|
|
0
|
%
|
|
|
|
|
2) Achieve departmental budgeting goal
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
|
3) Achieve cash and investments goal
|
|
|
15
|
%
|
|
|
7
|
%
|
|
|
|
|
4) Achieve expense hedging goal
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
|
5) Achieve investor relations, financial analyst
relations, and operating results goals
|
|
|
15
|
%
|
|
|
4
|
%
|
|
|
|
|
6) Achieve financial controls goal
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
|
|
7) Achieve corporate governance goal
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
|
8) Achieve internal communication goal
|
|
|
12
|
%
|
|
|
11
|
%
|
|
|
|
|
9) Achieve employee satisfaction and retention goal
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
75
|
%
|
|
|
|
|
84
2009
Incentive Compensation Program
David Heard, Chief Operating Officer
|
|
|
|
|
Base Salary (annual):
|
|
$
|
325,000
|
|
Bonus Potential at 100% funding
|
|
|
|
|
First Half:
|
|
|
68,250
|
|
Second Half:
|
|
|
68,250
|
|
Annual:
|
|
|
91,000
|
|
|
|
|
|
|
Total:
|
|
$
|
227,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Half
|
|
|
Second Half
|
|
|
|
% Goal
|
|
|
% Actual
|
|
2009 Officer Bonus Goal
|
|
Weighting
|
|
|
Achievement
|
|
|
1) Achieve specified bookings goal
|
|
|
25
|
%
|
|
|
16
|
%
|
2) Achieve specified margins goal
|
|
|
5
|
%
|
|
|
5
|
%
|
3) Achieve specified revenues goal
|
|
|
10
|
%
|
|
|
8
|
%
|
4) Achieve specified earnings goal
|
|
|
5
|
%
|
|
|
0
|
%
|
5) Achieve product footprint and market share goals
|
|
|
22
|
%
|
|
|
5
|
%
|
6) Achieve product delivery goals
|
|
|
10
|
%
|
|
|
3
|
%
|
7) Achieve specified new product development goal
|
|
|
5
|
%
|
|
|
1
|
%
|
8) Achieve development process goals
|
|
|
9
|
%
|
|
|
9
|
%
|
9) Achieve customer satisfaction goal
|
|
|
5
|
%
|
|
|
5
|
%
|
10) Achieve employee satisfaction, retention and
development goals
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
56
|
%
|
2009
Incentive Compensation Program
Rob Horton, Senior Vice President and General Counsel
|
|
|
|
|
Base Salary (annual):
|
|
$
|
250,000
|
|
Bonus Potential:
|
|
|
|
|
First Half:
|
|
|
37,500
|
|
Second Half:
|
|
|
37,500
|
|
Annual:
|
|
|
50,000
|
|
|
|
|
|
|
Total:
|
|
$
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Half
|
|
|
Second Half
|
|
|
|
% Goal
|
|
|
% Goal
|
|
2009 Officer Bonus Goal
|
|
Weighting
|
|
|
Weighting
|
|
|
1) Achieve departmental budgeting goal
|
|
|
15
|
%
|
|
|
15
|
%
|
2) Achieve corporate governance and securities
compliance goals
|
|
|
20
|
%
|
|
|
15
|
%
|
3) Achieve business development goals
|
|
|
15
|
%
|
|
|
15
|
%
|
4) Achieve internal customer satisfaction goal
|
|
|
20
|
%
|
|
|
20
|
%
|
5) Achieve employee satisfaction, retention and
development goals
|
|
|
5
|
%
|
|
|
5
|
%
|
6) Achieve specified litigation management goals
|
|
|
10
|
%
|
|
|
10
|
%
|
7) Achieve sales support goals
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
95
|
%
|
85
2009
Incentive Compensation Program
Ran Oz, Executive Vice President and Chief Technology
Officer
|
|
|
|
|
Base Salary (annual):
|
|
$
|
225,000
|
|
Bonus Potential at 100% funding
|
|
|
|
|
First Half:
|
|
|
33,750
|
|
Second Half:
|
|
|
33,750
|
|
Annual:
|
|
|
45,000
|
|
|
|
|
|
|
Total:
|
|
$
|
112,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Half
|
|
|
Second Half
|
|
|
|
% Goal
|
|
|
% Goal
|
|
2009 Officer Bonus Goal
|
|
Weighting
|
|
|
Weighting
|
|
|
1) Achieve specified product roadmap and planning
goals
|
|
|
10
|
%
|
|
|
8
|
%
|
3) Achieve specified product demonstration and
development goal
|
|
|
25
|
%
|
|
|
23
|
%
|
4) Achieve product market share goal
|
|
|
20
|
%
|
|
|
17
|
%
|
5) Achieve specified on-demand product strategy goal
|
|
|
5
|
%
|
|
|
3
|
%
|
6) Achieve customer relations and positioning goal
|
|
|
20
|
%
|
|
|
15
|
%
|
7) Achieve specified innovation-related sales goal
|
|
|
10
|
%
|
|
|
0
|
%
|
8) Achieve employee satisfaction and retention goal
|
|
|
10
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
73
|
%
|
PART III
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information regarding our directors and officers is incorporated
herein by reference from the information to be contained in the
Companys Proxy Statement for the 2010 Annual Meeting of
Stockholders (2010 Proxy Statement) set forth under the caption
entitled Election of Directors.
Information regarding our compliance with Section 16 of the
Securities Exchange Act of 1934, as amended, is incorporated
herein by reference from the information to be contained in the
2010 Proxy Statement set forth under the caption entitled
Section 16(a) Beneficial Ownership Reporting
Compliance.
Information regarding our Audit Committee is incorporated herein
by reference from the information to be contained in the 2010
Proxy Statement set forth under the caption entitled
Corporate Governance Principles and Board
Matters Committees of the Board of
Directors Audit Committee.
We have adopted a Code of Business Conduct and Ethics that
applies to all employees including our principal executive
officer and principal financial and accounting officer. This
code is available on our website at
http://www.bigbandnet.com
under About Us Investor Relations
Corporate Governance. We will disclose on our website whether
there have been any amendments or waivers to the Code of
Business Conduct and Ethics. We will provide copies of these
documents, in electronic or paper form, upon request, free of
charge.
In the year ended December 31, 2009, there were no changes
in the procedures by which shareholders may recommend nominees
to our Board of Directors.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
Information regarding compensation of our officers and directors
is incorporated herein by reference from the information to be
contained in our 2010 Proxy Statement set forth under the
captions entitled Executive Compensation and
Director Compensation.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information regarding ownership of our common stock is
incorporated herein by reference from the information to be
contained in our 2010 Proxy Statement set forth under the
captions entitled Equity Compensation Plan
Information and Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
86
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information regarding certain relationships and related
transactions is incorporated herein by reference from the
information to be contained in our 2010 Proxy Statement set
forth under the captions entitled Certain Relationships
and Related Transactions and Corporate Governance
Principles and Board Matters Board
Independence.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information regarding principal accountant fees and services is
incorporated herein by reference from the information to be
contained in our 2010 Proxy Statement set forth under the
caption entitled Principal Accountant Fees and
Services.
PART IV
|
|
Item 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) The financial statements filed as part of this
report are listed in Part II, Item 8 of this
Form 10-K.
(a)(2) Except for the allowance for doubtful accounts schedule
shown below, no financial statement schedules are required to be
filed as part of this report on the basis that any required
information is provided in the financial statements, or in the
related notes thereto, in Part II, Item 8 of this
Form 10-K
or is not required to be filed as the information is not
applicable.
The change in our allowance for doubtful accounts was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
Charged to
|
|
|
|
|
|
|
Beginning of
|
|
Costs and
|
|
Additions
|
|
Balance as of
|
|
|
Year
|
|
Expenses
|
|
(Deductions)
|
|
End of Year
|
|
Year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
39
|
|
|
$
|
(38
|
)
|
|
$
|
55
|
|
|
$
|
56
|
|
December 31, 2008
|
|
$
|
142
|
|
|
$
|
64
|
|
|
$
|
(167
|
)
|
|
$
|
39
|
|
December 31, 2007
|
|
$
|
152
|
|
|
$
|
99
|
|
|
$
|
(109
|
)
|
|
$
|
142
|
|
(a)(3) Exhibits.
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed With
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
This 10-K
|
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant
|
|
S-1
|
|
333-139652
|
|
3.1B
|
|
December 22, 2006
|
|
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant
|
|
S-1
|
|
333-139652
|
|
3.2B
|
|
December 22, 2006
|
|
|
|
10
|
.1*
|
|
Form of Indemnification Agreement
|
|
S-1
|
|
333-
|
|
10.1
|
|
December 22, 2006
|
|
|
|
10
|
.2*
|
|
2001 Share Option and Incentive Plan
|
|
S-1
|
|
333-
|
|
10.3
|
|
December 22, 2006
|
|
|
|
10
|
.3*
|
|
2003 Share Option and Incentive Plan
|
|
S-1
|
|
333-
|
|
10.4
|
|
December 22, 2006
|
|
|
|
10
|
.4*
|
|
2004 Share Option and Incentive Plan
Sub-Plan for
Israeli Employees
|
|
S-1
|
|
333-
|
|
10.5
|
|
December 22, 2006
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed With
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
This 10-K
|
|
|
10
|
.5*
|
|
2007 Equity Incentive Plan
|
|
S-1/A
|
|
333-139652
|
|
10.6
|
|
March 8, 2007
|
|
|
|
10
|
.5A*
|
|
Form of Option Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6A
|
|
August 8, 2007
|
|
|
|
10
|
.5B*
|
|
Form of Option Agreement
(Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6B
|
|
August 8, 2007
|
|
|
|
10
|
.5C*
|
|
Form of Restricted Stock Unit Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6C
|
|
August 8, 2007
|
|
|
|
10
|
.5D*
|
|
Form of Restricted Stock Unit Agreement
(Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6D
|
|
August 8, 2007
|
|
|
|
10
|
.5E*
|
|
2007 Equity Incentive Plan
Sub-Plan for
Israeli Employees
|
|
10-Q
|
|
001-33355
|
|
10.6E
|
|
August 8, 2007
|
|
|
|
10
|
.5F*
|
|
Form of Israeli
Sub-Plan
Option Agreement
|
|
10-Q
|
|
001-33355
|
|
10.6F
|
|
August 8, 2007
|
|
|
|
10
|
.6*
|
|
Employee Stock Purchase Plan
|
|
S-1/A
|
|
333-139652
|
|
10.23
|
|
February 26, 2007
|
|
|
|
10
|
.7*
|
|
Employment Agreement Amir Bassan-Eskenazi
|
|
S-1
|
|
333-139652
|
|
10.8
|
|
December 22, 2006
|
|
|
|
10
|
.7A*
|
|
Amendment to Employment Agreement Amir
Bassan-Eskenazi
|
|
8-K
|
|
001-33355
|
|
10.8A
|
|
January 5, 2009
|
|
|
|
10
|
.8*
|
|
Employment Agreement Ran Oz
|
|
S-1
|
|
333-139652
|
|
10.9
|
|
December 22, 2006
|
|
|
|
10
|
.8A*
|
|
Amendment to Employment Agreement Ran Oz
|
|
10-Q
|
|
001-33355
|
|
10.9A
|
|
May 15, 2008
|
|
|
|
10
|
.9*
|
|
Offer Letter Agreement Maurice Castonguay
|
|
10-K
|
|
001-33355
|
|
10.10
|
|
March 12, 2008
|
|
|
|
10
|
.9A*
|
|
Transition Services Agreement Maurice Castonguay
|
|
8-K
|
|
001-33355
|
|
10.9A
|
|
March 5, 2010
|
|
|
|
10
|
.10*
|
|
Offer Letter Agreement David Heard
|
|
S-1/A
|
|
333-139652
|
|
10.7
|
|
February 26, 2007
|
|
|
|
10
|
.10A
|
|
Amendment to Offer Letter Agreement David Heard
|
|
10-K
|
|
001-33355
|
|
10.11A
|
|
March 12, 2008
|
|
|
|
10
|
.10B*
|
|
Amendment to Offer Letter Agreement David Heard
|
|
8-K
|
|
001-33355
|
|
10.11B
|
|
January 5, 2009
|
|
|
|
10
|
.10C*
|
|
Transition Services Agreement David Heard
|
|
8-K
|
|
001-33355
|
|
10.10C
|
|
March 4, 2010
|
|
|
|
10
|
.11*
|
|
Offer Letter Agreement Robert Horton
|
|
S-1/A
|
|
333-139652
|
|
10.12
|
|
January 26, 2007
|
|
|
|
10
|
.11A*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
10-K
|
|
001-33355
|
|
10.12A
|
|
March 12, 2008
|
|
|
|
10
|
.11B*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
8-K
|
|
001-33355
|
|
10.12B
|
|
January 5, 2009
|
|
|
|
10
|
.12*
|
|
Offer Letter Agreement Sean Rooney
|
|
10-Q
|
|
001-33355
|
|
10.28
|
|
November 6, 2009
|
|
|
|
10
|
.13*
|
|
Letter Agreement Harald Braun
|
|
10-Q
|
|
001-33355
|
|
10.26
|
|
May 7, 2009
|
|
|
|
10
|
.14*
|
|
Letter Agreement Ken Goldman
|
|
S-1
|
|
333-139652
|
|
10.15
|
|
December 22, 2006
|
|
|
|
10
|
.15*
|
|
Letter Agreement Robert Sachs
|
|
S-1
|
|
333-139652
|
|
10.16
|
|
December 22, 2006
|
|
|
|
10
|
.16*
|
|
Letter Agreement Michael J. Pohl
|
|
10-Q
|
|
001-33355
|
|
10.27
|
|
May 7, 2009
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed With
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
This 10-K
|
|
|
10
|
.17*
|
|
Letter Agreement Dennis Wolf
|
|
10-Q
|
|
001-33355
|
|
10.29
|
|
November 6, 2009
|
|
|
|
10
|
.18A
|
|
Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17A
|
|
December 22, 2006
|
|
|
|
10
|
.18B
|
|
First Amendment to Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17B
|
|
December 22, 2006
|
|
|
|
10
|
.18C
|
|
Second Amendment to Lease (475 Broadway, Redwood City,
California)
|
|
S-1
|
|
333-139652
|
|
10.17C
|
|
December 22, 2006
|
|
|
|
10
|
.18D
|
|
Third Amendment to Lease (475 Broadway, Redwood City, California)
|
|
10-Q
|
|
001-33355
|
|
99.1
|
|
August 10, 2009
|
|
|
|
10
|
.19
|
|
Lease (8 Technology Drive, Westborough, Massachusetts)
|
|
S-1
|
|
333-139652
|
|
10.20
|
|
December 22, 2006
|
|
|
|
10
|
.20
|
|
Lease Agreement (Tel Aviv, Israel)
|
|
8-K
|
|
001-33355
|
|
99.1
|
|
July 30, 2007
|
|
|
|
10
|
.20A
|
|
Amendment to Lease Agreement (Tel Aviv, Israel)
|
|
10-K
|
|
001-33355
|
|
10.24A
|
|
March 12, 2008
|
|
|
|
10
|
.20B
|
|
Sublease Agreement (Tel Aviv, Israel)
|
|
10-K
|
|
001-33355
|
|
10.24B
|
|
March 10, 2009
|
|
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
|
24
|
.1
|
|
Power of Attorney (included on signature page to
Form 10-K)
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.2
|
|
Certification of Principal Financial and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
32
|
.1+
|
|
Certification of Principal Executive Officer and Principal
Financial and Accounting Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
+ |
|
This exhibit shall not be deemed filed for the
purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that Section, nor shall it be deemed
to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, whether made before or after
the date hereof, except to the extent this exhibit is
specifically incorporated by reference. |
|
* |
|
Management compensatory plan or arrangement |
89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIGBAND NETWORKS, INC.
|
|
|
|
By:
|
/s/ Amir
Bassan-Eskenazi
|
Amir Bassan-Eskenazi
President and Chief Executive Officer
Date: March 5, 2010
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Amir
Bassan-Eskenazi, Maurice L. Castonguay and Robert Horton, and
each of them, as his true and lawful attorney in fact and agent
with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this
Form 10-K,
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney in fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorney in fact and agent, or his substitute, may lawfully
do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Exchange Act of 1934, this
Form 10-K
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Amir
Bassan-Eskenazi
Amir
Bassan-Eskenazi
|
|
President and Chief Executive Officer (Principal Executive
Officer)
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Maurice
L Castonguay
Maurice
L Castonguay
|
|
Chief Financial Officer)
(Principal Financial and Accounting Officer)
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Michael
Pohl
Michael
Pohl
|
|
Chairman of the Board of Directors
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Harald
Braun
Harald
Braun
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Ken
Goldman
Ken
Goldman
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Ran
Oz
Ran
Oz
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Robert
Sachs
Robert
Sachs
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Dennis
Wolf
Dennis
Wolf
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Geoffrey
Yang
Geoffrey
Yang
|
|
Director
|
|
March 5, 2010
|
90
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed with
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
this 10-K
|
|
|
3
|
.1
|
|
Form of Amended and Restated Certificate of Incorporation of the
Registrant
|
|
S-1
|
|
333-139652
|
|
3.1B
|
|
December 22, 2006
|
|
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant
|
|
S-1
|
|
333-139652
|
|
3.2B
|
|
December 22, 2006
|
|
|
|
10
|
.1*
|
|
Form of Indemnification Agreement
|
|
S-1
|
|
333-
|
|
10.1
|
|
December 22, 2006
|
|
|
|
10
|
.2*
|
|
2001 Share Option and Incentive Plan
|
|
S-1
|
|
333-
|
|
10.3
|
|
December 22, 2006
|
|
|
|
10
|
.3*
|
|
2003 Share Option and Incentive Plan
|
|
S-1
|
|
333-
|
|
10.4
|
|
December 22, 2006
|
|
|
|
10
|
.4*
|
|
2004 Share Option and Incentive Plan
Sub-Plan for
Israeli Employees
|
|
S-1
|
|
333-
|
|
10.5
|
|
December 22, 2006
|
|
|
|
10
|
.5*
|
|
2007 Equity Incentive Plan
|
|
S-1/A
|
|
333-139652
|
|
10.6
|
|
March 8, 2007
|
|
|
|
10
|
.5 A*
|
|
Form of Option Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6A
|
|
August 8, 2007
|
|
|
|
10
|
.5B*
|
|
Form of Option Agreement
(Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6B
|
|
August 8, 2007
|
|
|
|
10
|
.5C*
|
|
Form of Restricted Stock Unit Agreement (U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6C
|
|
August 8, 2007
|
|
|
|
10
|
.5D*
|
|
Form of Restricted Stock Unit Agreement
(Non-U.S.)
|
|
10-Q
|
|
001-33355
|
|
10.6D
|
|
August 8, 2007
|
|
|
|
10
|
.5E*
|
|
2007 Equity Incentive Plan
Sub-Plan for
Israeli Employees
|
|
10-Q
|
|
001-33355
|
|
10.6E
|
|
August 8, 2007
|
|
|
|
10
|
.5F*
|
|
Form of Israeli
Sub-Plan
Option Agreement
|
|
10-Q
|
|
001-33355
|
|
10.6F
|
|
August 8, 2007
|
|
|
|
10
|
.6*
|
|
Employee Stock Purchase Plan
|
|
S-1/A
|
|
333-139652
|
|
10.23
|
|
February 26, 2007
|
|
|
|
10
|
.7*
|
|
Employment Agreement Amir Bassan-Eskenazi
|
|
S-1
|
|
333-139652
|
|
10.8
|
|
December 22, 2006
|
|
|
|
10
|
.7A*
|
|
Amendment to Employment Agreement Amir
Bassan-Eskenazi
|
|
8-K
|
|
001-33355
|
|
10.8A
|
|
January 5, 2009
|
|
|
|
10
|
.8*
|
|
Employment Agreement Ran Oz
|
|
S-1
|
|
333-139652
|
|
10.9
|
|
December 22, 2006
|
|
|
|
10
|
.8A*
|
|
Amendment to Employment Agreement Ran Oz
|
|
10-Q
|
|
001-33355
|
|
10.9A
|
|
May 15, 2008
|
|
|
|
10
|
.9*
|
|
Offer Letter Agreement Maurice Castonguay
|
|
10-K
|
|
001-33355
|
|
10.10
|
|
March 12, 2008
|
|
|
|
10
|
.9A*
|
|
Transition Services Agreement Maurice Castonguay
|
|
8-K
|
|
001-33355
|
|
10.9A
|
|
March 5, 2010
|
|
|
|
10
|
.10*
|
|
Offer Letter Agreement David Heard
|
|
S-1/A
|
|
333-139652
|
|
10.7
|
|
February 26, 2007
|
|
|
|
10
|
.10A
|
|
Amendment to Offer Letter Agreement David Heard
|
|
10-K
|
|
001-33355
|
|
10.11A
|
|
March 12, 2008
|
|
|
|
10
|
.10B*
|
|
Amendment to Offer Letter Agreement David Heard
|
|
8-K
|
|
001-33355
|
|
10.11B
|
|
January 5, 2009
|
|
|
|
10
|
.10C*
|
|
Transition Services Agreement David Heard
|
|
8-K
|
|
001-33355
|
|
10.10C
|
|
March 4, 2010
|
|
|
|
10
|
.11*
|
|
Offer Letter Agreement Robert Horton
|
|
S-1/A
|
|
333-139652
|
|
10.12
|
|
January 26, 2007
|
|
|
|
10
|
.11A*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
10-K
|
|
001-33355
|
|
10.12A
|
|
March 12, 2008
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Exhibit
|
|
|
|
Filed with
|
Number
|
|
Description
|
|
Form
|
|
Number
|
|
Number
|
|
Filing Date
|
|
this 10-K
|
|
|
10
|
.11B*
|
|
Amendment to Offer Letter Agreement Robert Horton
|
|
8-K
|
|
001-33355
|
|
10.12B
|
|
January 5, 2009
|
|
|
|
10
|
.12*
|
|
Offer Letter Agreement Sean Rooney
|
|
10-Q
|
|
001-33355
|
|
10.28
|
|
November 6, 2009
|
|
|
|
10
|
.13*
|
|
Letter Agreement Harald Braun
|
|
10-Q
|
|
001-33355
|
|
10.26
|
|
May 7, 2009
|
|
|
|
10
|
.14*
|
|
Letter Agreement Ken Goldman
|
|
S-1
|
|
333-139652
|
|
10.15
|
|
December 22, 2006
|
|
|
|
10
|
.15*
|
|
Letter Agreement Robert Sachs
|
|
S-1
|
|
333-139652
|
|
10.16
|
|
December 22, 2006
|
|
|
|
10
|
.16*
|
|
Letter Agreement Michael J. Pohl
|
|
10-Q
|
|
001-33355
|
|
10.27
|
|
May 7, 2009
|
|
|
|
10
|
.17*
|
|
Letter Agreement Dennis Wolf
|
|
10-Q
|
|
001-33355
|
|
10.29
|
|
November 6, 2009
|
|
|
|
10
|
.18A
|
|
Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17A
|
|
December 22, 2006
|
|
|
|
10
|
.18B
|
|
First Amendment to Lease (475 Broadway, Redwood City, California)
|
|
S-1
|
|
333-139652
|
|
10.17B
|
|
December 22, 2006
|
|
|
|
10
|
.18C
|
|
Second Amendment to Lease (475 Broadway, Redwood City,
California)
|
|
S-1
|
|
333-139652
|
|
10.17C
|
|
December 22, 2006
|
|
|
|
10
|
.18D
|
|
Third Amendment to Lease (475 Broadway, Redwood City, California)
|
|
10-Q
|
|
001-33355
|
|
99.1
|
|
August 10, 2009
|
|
|
|
10
|
.19
|
|
Lease (8 Technology Drive, Westborough, Massachusetts)
|
|
S-1
|
|
333-139652
|
|
10.20
|
|
December 22, 2006
|
|
|
|
10
|
.20
|
|
Lease Agreement (Tel Aviv, Israel)
|
|
8-K
|
|
001-33355
|
|
99.1
|
|
July 30, 2007
|
|
|
|
10
|
.20A
|
|
Amendment to Lease Agreement (Tel Aviv, Israel)
|
|
10-K
|
|
001-33355
|
|
10.24A
|
|
March 12, 2008
|
|
|
|
10
|
.20B
|
|
Sublease Agreement (Tel Aviv, Israel)
|
|
10-K
|
|
001-33355
|
|
10.24B
|
|
March 10, 2009
|
|
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
|
24
|
.1
|
|
Power of Attorney (included on signature page to
Form 10-K)
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
31
|
.2
|
|
Certification of Principal Financial and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
32
|
.1+
|
|
Certification of Principal Executive Officer and Principal
Financial and Accounting Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
+ |
|
This exhibit shall not be deemed filed for the
purposes of Section 18 of the Exchange Act or otherwise
subject to the liability of that Section, nor shall it be deemed
to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, whether made before or after
the date hereof, except to the extent this exhibit is
specifically incorporated by reference. |
|
* |
|
Management compensatory plan or arrangement |
92