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1. BASIS OF PRESENTATION
The accompanying unaudited financial statements, consisting of the condensed consolidated balance sheet as of June 30, 2016, the condensed consolidated statements of operations for the three and six months ended June 30, 2016 and 2015, the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2016 and 2015, and the condensed consolidated statements of cash flows for the six months ended June 30, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. In addition, the condensed consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements as of that date. Accordingly, these condensed consolidated financial statements do not include all of the information and notes typically found in the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of Polycom, Inc. and its subsidiaries (the “Company”). In the opinion of management, the accompanying unaudited financial statements have been prepared on a basis consistent with the Company’s December 31, 2015 audited financial statements and all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement have been included. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as amended for the year ended December 31, 2015.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions 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 reported period. Actual results could differ from those estimates and operating results for the three and six months ended June 30, 2016 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Definitive Agreement and Plan of Merger with Mitel Networks Corporation
On April 15, 2016, the Company entered into a definitive Agreement and Plan of Merger with Mitel Networks Corporation (“Mitel”) to be acquired for $3.12 in cash and 1.31 common shares of Mitel for each share of our common stock.
Subsequent Event
On July 8, 2016, the Company terminated the definitive Agreement and Plan of Merger with Mitel and entered into a definitive Agreement and Plan of Merger with Triangle Private Holdings I, LLC (“NewCo”), an entity affiliated with Siris Capital Group, LLC (“Siris”) to be acquired for $12.50 in cash for each share of the Polycom common stock (the “Merger”). Consummation of the Merger is subject to customary closing conditions, including, without limitation, (i) the absence of certain legal impediments, (ii) the expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) antitrust regulatory approval in Germany and Russia, and (iv) approval by the Company’s stockholders of the Merger.
In connection with terminating the definitive agreement with Mitel, the Company paid a termination fee of $60.0 million to Mitel (the “Mitel Termination Fee”) on July 8, 2016, which was reimbursed by NewCo on July 22, 2016. If the Company terminates the definitive agreement with NewCo under specified circumstances, the Company may be required to pay NewCo a $60.0 million termination fee and/or repay to NewCo the Mitel Termination Fee that NewCo reimbursed to the Company.
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2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update which amends the current guidance related to accounting for credit losses on certain financial instruments by replacing the incurred loss model with a forward-looking expected loss model. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.
In March 2016, the FASB issued an accounting standard update which simplifies accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.
In March 2016, the FASB issued an accounting standard update which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not require de-designation provided that all other hedge accounting criteria continue to be met. The standard is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal year beginning after December 15, 2016. Early adoption is permitted. The standard can be applied either on a prospective basis or a modified retrospective basis. The Company is evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.
In February 2016, the FASB issued an accounting standard update which requires a lessee to generally recognize a right-of-use asset and a lease liability on the balance sheet. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted. The standard will be applied using a modified retrospective approach. The Company is evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.
In May 2014, the FASB issued an accounting standard update which provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In August 2015, the FASB issued an accounting standard update to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt the standard. In March 2016, the FASB issued an accounting standard update which clarifies the principal versus agent assessment in the new revenue recognition guidance. In April 2016, the FASB issued an accounting standard update which clarifies identifying performance obligations and the licensing implementation guidance in the new revenue recognition guidance. In May 2016, the FASB issued an accounting standard update which provides various narrow-scope improvements and practical expedients related to the new revenue recognition guidance. The Company is evaluating the potential effects of the adoption of these standards on its consolidated financial statements and disclosures.
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3. DISCONTINUED OPERATIONS
On December 4, 2012, the Company completed the disposition of the net assets of its enterprise wireless voice solutions (“EWS”) business to Mobile Devices Holdings, LLC, a Delaware limited liability corporation. Additional cash consideration of up to $12.5 million is payable to Polycom over this fiscal year subject to certain conditions, including meeting certain agreed-upon EBITDA-based milestones for the fiscal year ending December 31, 2016. These conditions were not met for the fiscal year ended December 31, 2015. Such additional cash consideration will be accounted for as a gain on sale of discontinued operations, net of taxes, when it is realized or realizable. For the six months ended June 30, 2016 and 2015, there were no realized gains on sale of discontinued operations.
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4. ACCOUNTS RECEIVABLE FINANCING
The Company has a financing agreement with an unrelated third party financing company (the “Financing Agreement”) whereby the Company offers distributors and resellers direct or indirect financing on their purchases of the Company’s products and services. In return, the Company agrees to pay the financing company a fee based on a defined percentage of the transaction amount financed. In certain instances, these financing arrangements result in a transfer of the Company’s receivables, without recourse, to the financing company. If the transaction meets the applicable criteria under Accounting Standards Codification (“ASC”) 860 and is accounted for as a sale of financial assets, the accounts receivable are excluded from the balance sheet upon the third party financing company’s payment remittance to the Company. In certain legal jurisdictions, the arrangement fees that involve maintenance services or products bundled with maintenance at one price do not qualify as a sale of financial assets in accordance with the authoritative guidance. Accordingly, accounts receivable related to these arrangements are accounted for as a secured borrowing in accordance with ASC 860, and the Company records a liability for any cash received, while maintaining the associated accounts receivable balance until the distributor or reseller remits payment to the third-party financing company.
In the three and six months ended June 30, 2016, total transactions entered into pursuant to the terms of the Financing Agreement were $53.1 million and $104.9 million, respectively, of which $29.4 million and $59.5 million, respectively, were related to the transfer of the financial assets arrangement. In the three and six months ended June 30, 2015, total transactions entered into were $53.0 million and $117.6 million, respectively, of which $33.7 million and $72.9 million, respectively, were related to the transfer of the financial assets arrangement. The financing of these receivables accelerated the collection of the Company’s cash and reduced its credit exposure. The amount due from the financing company as of June 30, 2016 and December 31, 2015 was $31.4 million and $32.7 million, respectively, of which $16.4 million and $22.1 million, respectively, was related to the accounts receivable transferred, and is included in “Trade receivables, net” in the Company’s condensed consolidated balance sheets. Fees incurred pursuant to the Financing Agreement were $1.0 million and $0.8 million for the three months ended June 30, 2016 and 2015, respectively, and were $1.8 million and $1.7 million for the six months ended June 30, 2016 and 2015, respectively. Those fees were recorded as reductions to revenues.
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5. GOODWILL, PURCHASED INTANGIBLES, AND SOFTWARE DEVELOPMENT COSTS
Goodwill
The following table presents the changes to the Company’s goodwill by segment during the six months ended June 30, 2016 (in thousands):
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Americas |
|
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EMEA |
|
|
APAC |
|
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Total |
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||||
Balance at December 31, 2015 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
148,734 |
|
|
$ |
558,775 |
|
Foreign currency translation |
|
— |
|
|
|
— |
|
|
|
(116 |
) |
|
|
(116 |
) |
Balance at June 30, 2016 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
148,618 |
|
|
$ |
558,659 |
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Purchased Intangible Assets and Software Development Costs
The following table presents details of the Company’s total purchased intangible assets and capitalized software development costs for products to be sold as of the following periods (in thousands):
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June 30, 2016 |
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December 31, 2015 |
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Gross Value |
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Accumulated Amortization & Impairment |
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Net Value |
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Gross Value |
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Accumulated Amortization & Impairment |
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Net Value |
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Core and developed technology |
$ |
81,178 |
|
|
$ |
(81,145 |
) |
|
$ |
33 |
|
|
$ |
81,178 |
|
|
$ |
(80,945 |
) |
|
$ |
233 |
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Customer and partner relationships |
|
79,525 |
|
|
|
(70,828 |
) |
|
|
8,697 |
|
|
|
79,525 |
|
|
|
(66,742 |
) |
|
|
12,783 |
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Non-compete agreements |
|
1,800 |
|
|
|
(1,800 |
) |
|
|
— |
|
|
|
1,800 |
|
|
|
(1,700 |
) |
|
|
100 |
|
Trade name |
|
3,400 |
|
|
|
(3,400 |
) |
|
|
— |
|
|
|
3,400 |
|
|
|
(3,369 |
) |
|
|
31 |
|
Finite-lived intangible assets |
|
165,903 |
|
|
|
(157,173 |
) |
|
|
8,730 |
|
|
|
165,903 |
|
|
|
(152,756 |
) |
|
|
13,147 |
|
Indefinite-lived trade name |
|
918 |
|
|
|
— |
|
|
|
918 |
|
|
|
918 |
|
|
|
— |
|
|
|
918 |
|
Total acquired intangible assets |
$ |
166,821 |
|
|
$ |
(157,173 |
) |
|
$ |
9,648 |
|
|
$ |
166,821 |
|
|
$ |
(152,756 |
) |
|
$ |
14,065 |
|
Capitalized software development costs for products to be sold |
$ |
14,604 |
|
|
$ |
(7,142 |
) |
|
$ |
7,462 |
|
|
$ |
12,993 |
|
|
$ |
(5,002 |
) |
|
$ |
7,991 |
|
Purchased intangibles include a purchased trade name of $0.9 million with an indefinite life as the Company expects to generate cash flows related to this asset indefinitely.
The following table summarizes the amortization expenses recorded in the following periods (in thousands):
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Three Months Ended |
|
|
Six Months Ended |
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||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Amortization of purchased intangibles in revenues |
$ |
— |
|
|
$ |
19 |
|
|
$ |
— |
|
|
$ |
38 |
|
Amortization of purchased intangibles in cost of product revenues |
|
100 |
|
|
|
100 |
|
|
|
200 |
|
|
|
757 |
|
Amortization of purchased intangibles in operating expenses |
|
2,017 |
|
|
|
2,417 |
|
|
|
4,217 |
|
|
|
4,834 |
|
Total amortization of purchased intangibles |
$ |
2,117 |
|
|
$ |
2,536 |
|
|
$ |
4,417 |
|
|
$ |
5,629 |
|
Amortization of purchased intangibles is not allocated to the Company’s segments.
The estimated future amortization expense as of June 30, 2016 is as follows (in thousands):
Year ending December 31, |
|
Amount |
|
|
Remainder of 2016 |
|
$ |
4,061 |
|
2017 |
|
|
4,669 |
|
Total |
|
$ |
8,730 |
|
In the six months ended June 30, 2016 and 2015, the Company capitalized approximately $1.6 million and $2.5 million of software development costs, respectively, for internally developed software products to be marketed and sold to customers after the point that technological feasibility has been reached and before the products are available for general release. The capitalized costs are being amortized over the estimated product useful life, generally three years, beginning when the products are available for general release. Management expects that the capitalized software development costs are recoverable from future gross profits generated by these products and services.
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6. RESTRUCTURING COSTS
The Company recorded $6.0 million and $0.3 million of net restructuring costs during the three months ended June 30, 2016 and 2015, respectively, and $13.5 million and $0.4 million during the six months ended June 30, 2016 and 2015, respectively. The restructuring costs during the six months ended June 30, 2016 were primarily related to certain actions announced in December 2015, which included reduction of approximately 11 percent of the Company’s global workforce that is expected to be substantially complete by the fourth quarter of 2016 and charges related to vacating certain leased facilities. These actions were designed to improve the Company's profitability by strategically investing in more accretive areas of the business and further leveraging its outsource partners. As of June 30, 2016, the Company has recorded a cumulative amount of $24.0 million in restructuring costs in connection with these actions, of which $13.5 million of restructuring costs were incurred during the six months ended June 30, 2016, and expects the remaining charges related to these actions to be approximately $1 million.
The following table summarizes the changes in the Company’s restructuring reserves during the six months ended June 30, 2016 (in thousands):
|
Severance/Other |
|
|
Facilities |
|
|
Other |
|
|
Total |
|
||||
Balance at December 31, 2015 |
$ |
8,072 |
|
|
$ |
18,455 |
|
|
$ |
801 |
|
|
$ |
27,328 |
|
Additions to the reserve, net |
|
9,072 |
|
|
|
3,958 |
|
|
|
— |
|
|
|
13,030 |
|
Interest accretion |
|
— |
|
|
|
479 |
|
|
|
— |
|
|
|
479 |
|
Non-cash adjustments |
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
Cash payments |
|
(12,027 |
) |
|
|
(4,391 |
) |
|
|
(801 |
) |
|
|
(17,219 |
) |
Balance at June 30, 2016 |
$ |
5,117 |
|
|
$ |
18,504 |
|
|
$ |
— |
|
|
$ |
23,621 |
|
As of June 30, 2016, the restructuring reserve was primarily comprised of facilities-related liabilities pertaining to previous restructuring actions. At the time the reserve was initially set up, the Company calculated the fair value of its facilities-related liabilities based on the discounted future lease payments less sublease assumptions. This fair value measurement is classified as a Level 3 measurement under ASC 820. The key assumptions used in the valuation model include discount rates, cash flow projections, and estimated sublease income. These assumptions involve significant judgment, are based on management’s estimate of current and forecasted market conditions and are sensitive and susceptible to change. To the extent that actual sublease income, the timing of subleasing the facility, or the associated cost of, or the recorded liability related to subleasing or terminating the Company’s lease obligations for these facilities is different than initial estimates, the Company adjusts its restructuring reserves in the period during which such information becomes known.
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7. BALANCE SHEET DETAILS
Trade receivables, net consist of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Gross trade receivables |
$ |
211,748 |
|
|
$ |
242,911 |
|
Returns and other reserves |
|
(54,572 |
) |
|
|
(52,000 |
) |
Allowance for doubtful accounts |
|
(2,964 |
) |
|
|
(3,023 |
) |
Total |
$ |
154,212 |
|
|
$ |
187,888 |
|
Inventories consist of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Raw materials |
$ |
671 |
|
|
$ |
824 |
|
Work in process |
|
— |
|
|
|
117 |
|
Finished goods |
|
96,077 |
|
|
|
88,451 |
|
Total |
$ |
96,748 |
|
|
$ |
89,392 |
|
Prepaid expenses and other current assets consist of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Non-trade receivables |
$ |
8,147 |
|
|
$ |
7,689 |
|
Prepaid expenses |
|
33,200 |
|
|
|
33,174 |
|
Derivative assets |
|
6,873 |
|
|
|
10,396 |
|
Other current assets |
|
1,898 |
|
|
|
1,593 |
|
Total |
$ |
50,118 |
|
|
$ |
52,852 |
|
Deferred revenue consists of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Short-term: |
|
|
|
|
|
|
|
Service |
$ |
170,545 |
|
|
$ |
165,594 |
|
License |
|
3,574 |
|
|
|
4,965 |
|
Total |
$ |
174,119 |
|
|
$ |
170,559 |
|
Long-term: |
|
|
|
|
|
|
|
Service |
$ |
78,398 |
|
|
$ |
82,598 |
|
License |
|
4,874 |
|
|
|
3,593 |
|
Total |
$ |
83,272 |
|
|
$ |
86,191 |
|
Changes in deferred service revenue during the six months ended June 30, 2016 and 2015 are as follows (in thousands):
|
Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Balance at beginning of period |
$ |
248,192 |
|
|
$ |
257,280 |
|
Additions to deferred service revenue |
|
180,307 |
|
|
|
167,332 |
|
Amortization of deferred service revenue |
|
(179,556 |
) |
|
|
(170,232 |
) |
Balance at end of period |
$ |
248,943 |
|
|
$ |
254,380 |
|
Changes in deferred license revenue during the six months ended June 30, 2016 and 2015 are as follows (in thousands):
|
Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Balance at beginning of period |
$ |
8,558 |
|
|
$ |
5,524 |
|
Additions to deferred license revenue |
|
2,508 |
|
|
|
1,766 |
|
Amortization of deferred license revenue |
|
(2,618 |
) |
|
|
(1,238 |
) |
Balance at end of period |
$ |
8,448 |
|
|
$ |
6,052 |
|
The current portion of other accrued liabilities consists of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Accrued expenses |
$ |
27,703 |
|
|
$ |
25,179 |
|
Accrued co-op expenses |
|
1,979 |
|
|
|
2,670 |
|
Restructuring reserves |
|
13,054 |
|
|
|
16,187 |
|
Warranty obligations |
|
8,526 |
|
|
|
10,172 |
|
Derivative liabilities |
|
6,722 |
|
|
|
6,031 |
|
Employee stock purchase plan withholdings |
|
— |
|
|
|
9,668 |
|
Other accrued liabilities |
|
16,623 |
|
|
|
15,188 |
|
Total |
$ |
74,607 |
|
|
$ |
85,095 |
|
Changes in warranty obligations during the six months ended June 30, 2016 and 2015 are as follows (in thousands):
|
Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Balance at beginning of period |
$ |
10,172 |
|
|
$ |
11,613 |
|
Accruals for warranties issued during the period |
|
4,797 |
|
|
|
6,811 |
|
Actual charges against warranty reserve during the period |
|
(6,443 |
) |
|
|
(7,277 |
) |
Balance at end of period |
$ |
8,526 |
|
|
$ |
11,147 |
|
|
8. COMMITMENTS AND CONTINGENCIES
Litigation and SEC Investigation
From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. The Company expects that the number and significance of these matters will increase as its business expands. In particular, the Company faces an increasing number of patent and other intellectual property claims as the number of products and competitors in Polycom’s industry grows and the functionality of video, voice, data and web conferencing products overlap. Any claims or proceedings against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require the Company to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to the Company or at all. If management believes that a loss arising from these matters is probable and can be reasonably estimated, the Company will record a reserve for the loss. As additional information becomes available, any potential liability related to these matters is assessed and the estimates revised. Based on currently available information, management does not believe that the ultimate outcomes of these unresolved matters, individually and in the aggregate, are likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, litigation is subject to inherent uncertainties, and the Company’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position and results of operations or liquidity for the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.
Following the announcement of the execution of the merger agreement with Mitel Networks Corporation, a purported stockholder class action, styled Solak v. Leav, et al., No. 5:16-cv-03128-HRL, was filed on June 8, 2016 in the United States District Court for the Northern District of California, which is referred to as the Solak complaint. The Solak complaint named as defendants current and former members of the Polycom Board, Mitel, and the merger sub, which are collectively referred to as the defendants. The Solak complaint alleged that the defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder by failing to disclose all material information in connection with the proxy statement/prospectus related to the Mitel transaction. The Solak complaint also alleged that the current and former members of the Polycom Board violated Section 20(a) of the Exchange Act by acting as control persons of Polycom in connection with the purported omissions from the proxy statement/prospectus described above. Finally, the Solak complaint alleged that the current and former members of the Polycom Board breached their fiduciary duties to Polycom’s stockholders in connection with the merger and that Mitel and its merger sub aided and abetted the purported breaches of fiduciary duty. In support of these claims, the Solak complaint alleged, among other things, that the Polycom Board failed to disclose all material information regarding the merger, that the merger consideration undervalued Polycom, that the sales process that resulted in entry into the merger agreement was flawed, and that the merger agreement contained unreasonable deal protection devices that purportedly preclude competing offers and unduly favor Mitel. The action sought injunctive relief, including enjoining or rescinding the merger, and an award of other unspecified attorneys’ and other fees and costs, in addition to other relief. As a result of the transaction with Mitel being terminated and Polycom’s entry into the merger agreement with an entity affiliated with Siris, the suit was dismissed.
On July 23, 2013, the Company announced that Andrew M. Miller had resigned from the positions of Chief Executive Officer and President of Polycom and from Polycom’s Board of Directors. The Company disclosed that Mr. Miller’s resignation came after a review by the Audit Committee of certain expense submissions by Mr. Miller, where the Audit Committee found certain irregularities in the submissions, for which Mr. Miller had accepted responsibility. Specifically, the Audit Committee determined that Mr. Miller improperly submitted personal expenses to Polycom for payment as business expenses and, in doing so, submitted to Polycom false information about the nature and purpose of expenses. Mr. Miller has reached a settlement with the SEC.
SEC Investigation. As previously disclosed, the Company has cooperated with the Enforcement Staff of the SEC in connection with its investigation focused on Mr. Miller's expenses and his resignation. On March 31, 2015 the Company entered into a settlement with the SEC. Under the terms of the settlement in which the Company did not admit or deny the SEC’s findings, the Company paid $750,000 in a civil penalty, and agreed not to commit or cause any violations of certain provisions of the Securities Exchange Act of 1934 and related rules. On January 26, 2016, Mr. Miller reached a settlement with the SEC. Under the terms of the settlement, Mr. Miller agreed to pay $450,000, of which, $200,000 was paid to Polycom.
Class Action Lawsuit. On July 26, 2013, a purported shareholder class action, initially captioned Neal v. Polycom Inc., et al., Case No. 3:13-cv-03476-SC, and presently captioned Nathanson v. Polycom, Inc., et al., Case No. 3:13-cv-03476-SC, was filed in the United States District Court for the Northern District of California against the Company and certain of its current and former officers and directors. On December 13, 2013, the Court appointed a lead plaintiff and approved lead and liaison counsel. On February 24, 2014, the lead plaintiff filed a first amended complaint. The amended complaint alleged that, between January 20, 2011 and July 23, 2013, the Company issued materially false and misleading statements or failed to disclose information regarding the Company’s business, operational and compliance policies, including with respect to its former Chief Executive Officer’s expense submissions and the Company’s internal controls. The lawsuit further alleged that the Company’s financial statements were materially false and misleading. The amended complaint alleged violations of the federal securities laws and sought unspecified compensatory damages and other relief. On April 3, 2015, the Court dismissed all claims against Polycom and granted plaintiffs leave to amend. The lead plaintiff filed a second complaint on May 4, 2015. Polycom and the individual defendants moved to dismiss the second amended complaint on June 26, 2015. On January 8, 2016, the parties executed a settlement agreement. The proposed settlement is subject to, and contingent upon, the Court’s review and approval. The lead plaintiff moved for preliminary approval of the settlement. The Court has issued an order preliminarily approving the settlement and has scheduled a hearing for August 2016 to consider final approval of the settlement. If the settlement is approved, the settlement payment will be made by Polycom’s insurance carrier.
Derivative Lawsuits. On August 21, 2013 and October 16, 2013, two purported shareholder derivative suits, captioned Saraceni v. Miller, et al., Case No. 5:13-cv-03880, and Donnelly v. Miller, et al., Case No. 5:13-cv-04810, respectively, were filed in the United States District Court for the Northern District of California against certain of the Company’s current and former officers and directors. On October 31, 2013, these two federal derivative actions were consolidated into In re Polycom, Inc. Derivative Litigation, Lead Case No. 3:13-cv-03880. On January 13, 2015, the Court dismissed the operative complaint and granted plaintiffs leave to amend. On April 3, 2015, the Court approved a stipulation dismissing the action with prejudice and entering judgment in favor of defendants.
On November 22, 2013 and December 13, 2013, two purported shareholder derivative suits, captioned Ware v. Miller, et al., Case No. 1-13-cv-256608, and Clem v. Miller, et al., Case No. 1-13-cv-257664, respectively, were filed in the Superior Court of California, County of Santa Clara, against certain of the Company’s current and former officers and directors. On January 31, 2014, these two California state derivative actions were consolidated into In re Polycom, Inc. Derivative Shareholder Litigation, Lead Case No. 1-13-cv-256608. The Court stayed the California state derivative litigation pending resolution of both the federal derivative lawsuit and the federal securities class action.
The California state consolidated derivative lawsuit purports to assert claims on behalf of the Company, which is named as a nominal defendant in the actions. The original California state complaints allege claims for breach of fiduciary duty, unjust enrichment, and corporate waste, and allege certain defendants failed to maintain adequate internal controls and issued, or authorized the issuance of, materially false and misleading statements, including with respect to the Company’s former Chief Executive Officer’s expense submissions and the Company’s internal controls. The complaints further allege that certain defendants approved an unjustified separation agreement and caused the Company to repurchase its own stock at artificially inflated prices. The complaints seek unspecified compensatory damages, corporate governance reforms, and other relief. At this time, the Company is unable to estimate any range of reasonably possible loss relating to the derivative actions.
Officer and Director Indemnifications
As permitted or required under Delaware law and to the maximum extent allowable under that law, the Company has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited; however, the Company has a director and officer insurance policy that mitigates the Company’s exposure and enables the Company to recover a portion of any future amounts paid.
Other Indemnifications
As is customary in the Company’s industry, as provided for in local law in the United States, and other jurisdictions, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of its products. From time to time, the Company indemnifies customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of its products and services. In addition, from time to time, the Company also provides protection to customers against claims related to undiscovered liabilities, additional product liability or environmental obligations.
|
9. DEBT
In September 2013, the Company entered into a Credit Agreement (the “Credit Agreement”) that provides for a $250.0 million term loan (the “Term Loan”) maturing on September 13, 2018 (the “Maturity Date”), which bears interest at the Company’s option at either a base rate as set forth in the Credit Agreement plus a spread of 0.50% to 1.00%, or a reserve adjusted LIBOR rate plus a spread of 1.50% to 2.00% based on the Company’s consolidated leverage ratio for the preceding four fiscal quarters.
The Term Loan is payable in quarterly installments of principal equal to approximately $1.6 million which began on December 31, 2013, with the remaining outstanding principal amount of the Term Loan being due and payable on the Maturity Date. The Company may prepay the Term Loan, in whole or in part, at any time without premium or penalty. Amounts repaid or prepaid may not be borrowed again. The Term Loan is secured by substantially all the assets of the Company and certain domestic subsidiaries of the Company that are guarantors under the Credit Agreement, subject to certain exceptions and limitations.
The Credit Agreement contains customary affirmative and negative covenants, and financial covenants consisting of a consolidated fixed charge coverage ratio and a consolidated secured leverage ratio. The Company was in compliance with these covenants as of June 30, 2016. The Credit Agreement also includes customary events of default, including in the event of change of control, the occurrence of which could result in the acceleration of the obligations under the Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts.
At June 30, 2016, the weighted average interest rate on the Term Loan was 2.46%, the accrued interest on the Term Loan was $0.6 million, and the current and noncurrent portion of the outstanding Term Loan was $5.7 million and $225.9 million, respectively, net of unamortized debt issuance costs of $1.2 million.
The following table sets forth total interest expense recognized on the Term Loan (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Contractual interest expense |
$ |
1,426 |
|
|
$ |
1,292 |
|
|
$ |
2,852 |
|
|
$ |
2,550 |
|
Amortization of debt issuance costs |
|
134 |
|
|
|
133 |
|
|
|
267 |
|
|
|
266 |
|
Total |
$ |
1,560 |
|
|
$ |
1,425 |
|
|
$ |
3,119 |
|
|
$ |
2,816 |
|
As of June 30, 2016, future principal payments for long-term debt, including the current portion, are summarized as follows (in thousands):
|
|
Amount |
|
|
Remainder of 2016 |
|
$ |
3,126 |
|
2017 |
|
|
6,250 |
|
2018 |
|
|
223,437 |
|
Total |
|
$ |
232,813 |
|
|
10. INVESTMENTS
The Company had cash and cash equivalents of $576.5 million and $435.1 million at June 30, 2016 and December 31, 2015, respectively. Cash and cash equivalents generally consist of cash in banks, as well as highly liquid investments in money market funds, time deposits, savings accounts, commercial paper, U.S. government securities, U.S. government agency securities and corporate debt securities.
The Company’s U.S. government securities are mostly comprised of direct U.S. Treasury obligations that are guaranteed by the U.S. government and U.S. government agency securities that are mostly comprised of U.S. government agency instruments, including mortgage-backed securities. The Company’s non-U.S. government securities are mostly comprised of non-U.S. government instruments, mainly state, municipal and foreign government securities. To ensure that the investment portfolio is sufficiently diversified, the Company’s investment policy requires that a certain percentage of the Company’s portfolio be invested in these types of securities.
The Company’s corporate debt securities are comprised of publicly-traded domestic and foreign corporate debt securities. The Company does not purchase auction rate securities, and investments are in instruments that meet high quality credit rating standards, as specified in the Company’s investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issuer or type of instrument.
At June 30, 2016, the Company’s long-term investments had contractual maturities of one to two years.
The Company’s short-term and long-term investments in debt securities are summarized as follows (in thousands):
|
Cost Basis |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Balances at June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
43,081 |
|
|
$ |
40 |
|
|
$ |
— |
|
|
$ |
43,121 |
|
U.S. government agency securities |
|
40,788 |
|
|
|
27 |
|
|
|
(1 |
) |
|
|
40,814 |
|
Non-U.S. government securities |
|
2,004 |
|
|
|
— |
|
|
|
— |
|
|
|
2,004 |
|
Corporate debt securities |
|
40,285 |
|
|
|
16 |
|
|
|
(2 |
) |
|
|
40,299 |
|
Total short-term investments |
$ |
126,158 |
|
|
$ |
83 |
|
|
$ |
(3 |
) |
|
$ |
126,238 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
4,256 |
|
|
$ |
12 |
|
|
$ |
— |
|
|
$ |
4,268 |
|
U.S. government agency securities |
|
3,003 |
|
|
|
1 |
|
|
|
— |
|
|
|
3,004 |
|
Corporate debt securities |
|
11,499 |
|
|
|
23 |
|
|
|
(6 |
) |
|
|
11,516 |
|
Total long-term investments |
$ |
18,758 |
|
|
$ |
36 |
|
|
$ |
(6 |
) |
|
$ |
18,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
49,036 |
|
|
$ |
4 |
|
|
$ |
(45 |
) |
|
$ |
48,995 |
|
U.S. government agency securities |
|
67,723 |
|
|
|
1 |
|
|
|
(30 |
) |
|
|
67,694 |
|
Non-U.S. government securities |
|
7,303 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
7,302 |
|
Corporate debt securities |
|
60,290 |
|
|
|
1 |
|
|
|
(40 |
) |
|
|
60,251 |
|
Total short-term investments |
$ |
184,352 |
|
|
$ |
6 |
|
|
$ |
(116 |
) |
|
$ |
184,242 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
8,058 |
|
|
$ |
— |
|
|
$ |
(14 |
) |
|
$ |
8,044 |
|
U.S. government agency securities |
|
14,510 |
|
|
|
— |
|
|
|
(48 |
) |
|
|
14,462 |
|
Corporate debt securities |
|
24,056 |
|
|
|
2 |
|
|
|
(80 |
) |
|
|
23,978 |
|
Total long-term investments |
$ |
46,624 |
|
|
$ |
2 |
|
|
$ |
(142 |
) |
|
$ |
46,484 |
|
Unrealized Losses
The following table summarizes the fair value and gross unrealized losses of investments that are in an unrealized loss position only. The unrealized losses are aggregated by type of investment instrument and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|||||||||||||||
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities |
$ |
4,221 |
|
|
$ |
(1 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,221 |
|
|
$ |
(1 |
) |
Corporate debt securities |
|
11,475 |
|
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
|
11,475 |
|
|
|
(8 |
) |
Total investments |
$ |
15,696 |
|
|
$ |
(9 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,696 |
|
|
$ |
(9 |
) |
December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
48,445 |
|
|
$ |
(59 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
48,445 |
|
|
$ |
(59 |
) |
U.S. government agency securities |
|
71,861 |
|
|
|
(78 |
) |
|
|
— |
|
|
|
— |
|
|
|
71,861 |
|
|
|
(78 |
) |
Non-U.S. government securities |
|
5,001 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
5,001 |
|
|
|
(1 |
) |
Corporate debt securities |
|
52,571 |
|
|
|
(120 |
) |
|
|
— |
|
|
|
— |
|
|
|
52,571 |
|
|
|
(120 |
) |
Total investments |
$ |
177,878 |
|
|
$ |
(258 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
177,878 |
|
|
$ |
(258 |
) |
During six months ended June 30, 2016 and 2015, there were no investments in the Company’s portfolio that were other-than temporarily impaired and the Company did not incur any material realized net gains or losses.
|
11. FAIR VALUE MEASUREMENTS
The tables below set forth the Company’s recurring fair value measurements (in thousands):
|
|
|
|
|
|
Fair Value Measurements at June 30, 2016 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
47,894 |
|
|
$ |
47,894 |
|
|
$ |
— |
|
U.S. government agency securities |
|
|
29,980 |
|
|
|
— |
|
|
|
29,980 |
|
Non U.S. government securities |
|
|
1,000 |
|
|
|
— |
|
|
|
1,000 |
|
Corporate debt securities |
|
|
39,236 |
|
|
|
— |
|
|
|
39,236 |
|
Short-term investments |
|
|
126,238 |
|
|
|
— |
|
|
|
126,238 |
|
Long-term investments |
|
|
18,788 |
|
|
|
— |
|
|
|
18,788 |
|
Total fixed income available-for-sale securities |
|
$ |
263,136 |
|
|
$ |
47,894 |
|
|
$ |
215,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (a) |
|
$ |
6,873 |
|
|
$ |
— |
|
|
$ |
6,873 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (b) |
|
$ |
6,722 |
|
|
$ |
— |
|
|
$ |
6,722 |
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
10,313 |
|
|
$ |
10,313 |
|
|
$ |
— |
|
Non-U.S. government securities |
|
|
975 |
|
|
|
— |
|
|
|
975 |
|
Corporate debt securities |
|
|
19,799 |
|
|
|
— |
|
|
|
19,799 |
|
Short-term investments |
|
|
184,242 |
|
|
|
— |
|
|
|
184,242 |
|
Long-term investments |
|
|
46,484 |
|
|
|
— |
|
|
|
46,484 |
|
Total fixed income available-for-sale securities |
|
$ |
261,813 |
|
|
$ |
10,313 |
|
|
$ |
251,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (a) |
|
$ |
10,396 |
|
|
$ |
— |
|
|
$ |
10,396 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (b) |
|
$ |
6,031 |
|
|
$ |
— |
|
|
$ |
6,031 |
|
(a) |
Included in short-term derivative assets as “Prepaid expenses and other current assets” in the condensed consolidated balance sheets. |
(b) |
Included in short-term derivative liabilities as “Other accrued liabilities” in the condensed consolidated balance sheets. |
There were no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2016 and 2015. There were no investments classified as Level 3 as of June 30, 2016 and December 31, 2015.
In addition, the Company has facilities-related liabilities related to restructuring which were calculated based on the discounted future lease payments less sublease assumptions. This non-recurring fair value measurement is classified as a Level 3 measurement under ASC 820. See Note 6 for further details.
The fair value of the Company’s Term Loan under its Credit Agreement is measured using Level 2 inputs as the borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities. The Company has elected not to record its Term Loan at fair value, but has measured it at fair value for disclosure purposes. At June 30, 2016 and December 31, 2015, the estimated fair value of the Term Loan was approximately $229.3 million and $226.5 million, respectively, using observable market inputs. See Note 9 for further details.
|
12. FOREIGN CURRENCY DERIVATIVES
The Company maintains a foreign currency risk management program that is designed to reduce the volatility of the Company’s economic value from the effects of unanticipated currency fluctuations. International operations generate both revenues and costs denominated in foreign currencies. The Company’s policy is to hedge significant foreign currency revenues and costs to improve margin visibility and reduce earnings volatility associated with unexpected changes in currency.
Non-Designated Hedges
The Company hedges its net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce the risk that the Company’s earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset remeasurement gains and losses on the hedged assets and liabilities. The Company executes non-designated foreign exchange forward contracts primarily denominated in Euros, British Pounds, Israeli Shekels, Japanese Yen, Brazilian Reals, Chinese Yuan, and Mexican Pesos.
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding non-designated hedges at June 30, 2016 (in thousands):
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
||||||||||||||||
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
||||
Brazilian Real |
|
13,196 |
|
|
$ |
4,111 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Brazilian Real |
|
24,037 |
|
|
$ |
6,993 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Chinese Yuan |
|
— |
|
|
$ |
— |
|
|
— |
|
|
45,457 |
|
|
$ |
7,098 |
|
|
Buy |
Chinese Yuan |
|
42,005 |
|
|
$ |
6,390 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Euro |
|
22,866 |
|
|
$ |
25,374 |
|
|
Buy |
|
|
13,703 |
|
|
$ |
15,420 |
|
|
Buy |
Euro |
|
34,404 |
|
|
$ |
38,274 |
|
|
Sell |
|
|
54,468 |
|
|
$ |
60,981 |
|
|
Sell |
British Pound |
|
5,368 |
|
|
$ |
7,218 |
|
|
Buy |
|
|
14,718 |
|
|
$ |
22,741 |
|
|
Buy |
British Pound |
|
12,753 |
|
|
$ |
17,905 |
|
|
Sell |
|
|
15,684 |
|
|
$ |
24,082 |
|
|
Sell |
Israeli Shekel |
|
29,300 |
|
|
$ |
7,609 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Israeli Shekel |
|
29,300 |
|
|
$ |
7,613 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
96,170 |
|
|
$ |
935 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
96,170 |
|
|
$ |
867 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
21,914 |
|
|
$ |
1,184 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
44,977 |
|
|
$ |
2,430 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
The following table shows the effect of the Company’s non-designated hedges in the condensed consolidated statements of operations (in thousands):
Derivatives Not Designated as Hedging Instruments |
|
Location of Gain or (Loss) Recognized in Income on Derivative |
|
Amount of Gain or (Loss) Recognized in Income on Derivative |
|
|||||
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
1,325 |
|
|
$ |
(1,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
(822 |
) |
|
$ |
3,617 |
|
Cash Flow Hedges
The Company designates forward contracts as cash flow hedges of foreign currency revenues and expenses, primarily the Chinese Yuan, Euros and British Pounds. All foreign exchange contracts are carried at fair value on the condensed consolidated balance sheets and the maximum duration of foreign exchange forward contracts does not exceed 13 months.
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding cash flow hedges at June 30, 2016 (in thousands):
|
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
||||||||||||||||
|
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
||||
Chinese Yuan |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
85,643 |
|
|
$ |
12,851 |
|
|
Buy |
Euro |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
19,597 |
|
|
$ |
21,909 |
|
|
Buy |
Euro |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
58,032 |
|
|
$ |
65,094 |
|
|
Sell |
British Pound |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
16,782 |
|
|
$ |
24,405 |
|
|
Buy |
British Pound |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
15,816 |
|
|
$ |
23,146 |
|
|
Sell |
The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges in the condensed consolidated statements of operations for the following periods (in thousands):
|
|
Gain (Loss) Recognized in OCI or OCL- Effective Portion |
|
|
Location of Gain (Loss) Reclassified from OCI or OCL into Income-Effective Portion |
|
Gain (Loss) Reclassified from OCI or OCL into Income-Effective Portion |
|
|
Location of Gain (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing |
|
Gain (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing (a) |
|
|||||||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|||||||||||||||
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||||
Foreign exchange contracts |
|
$ |
728 |
|
|
$ |
(1,723 |
) |
|
Product revenues |
|
$ |
308 |
|
|
$ |
3,629 |
|
|
Interest and other income (expense), net |
|
$ |
744 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(161 |
) |
|
|
(531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
(513 |
) |
|
|
(1,007 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
(2 |
) |
|
|
(268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
(69 |
) |
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
728 |
|
|
$ |
(1,723 |
) |
|
|
|
$ |
(437 |
) |
|
$ |
1,427 |
|
|
|
|
$ |
744 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|||||||||||||||
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(899 |
) |
|
$ |
4,575 |
|
|
Product revenues |
|
$ |
1,606 |
|
|
$ |
10,265 |
|
|
Interest and other income (expense), net |
|
$ |
735 |
|
|
$ |
326 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(458 |
) |
|
|
(1,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
(1,346 |
) |
|
|
(2,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
(49 |
) |
|
|
(983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
(249 |
) |
|
|
(1,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(899 |
) |
|
$ |
4,575 |
|
|
|
|
$ |
(496 |
) |
|
$ |
3,985 |
|
|
|
|
$ |
735 |
|
|
$ |
326 |
|
|
(a) |
There were no gains or losses recognized in income due to ineffectiveness in the periods presented. |
As of June 30, 2016, the Company estimated that all values reported in accumulated other comprehensive loss will be reclassified to income within the next twelve months. Effective gains and losses recorded in other comprehensive (loss) income are reclassified to revenue and operating expense as and when the underlying forecasted foreign currency transactions affect earnings.
In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge would be immediately reclassified to “Interest and other income (expense), net” on the condensed consolidated statements of operations. For the six months ended June 30, 2016 and 2015, there were no such gains or losses.
The estimates of fair value are based on applicable and commonly quoted prices and prevailing financial market information as of June 30, 2016 and December 31, 2015. See Note 11 for additional information on the fair value measurements for all financial assets and liabilities, including derivative assets and derivative liabilities that are measured at fair value in the condensed consolidated financial statements on a recurring basis.
The following table shows the Company’s derivative instruments measured at gross fair value as reflected in the condensed consolidated balance sheets (in thousands):
|
Fair Value of Derivatives Designated as Hedge Instruments |
|
|
Fair Value of Derivatives Not Designated as Hedge Instruments |
|
||||||||||
|
June 30, 2016 |
|
|
December 31, 2015 |
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||
Derivative assets (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
2,380 |
|
|
$ |
2,283 |
|
|
$ |
4,493 |
|
|
$ |
8,113 |
|
Derivative liabilities (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
2,418 |
|
|
$ |
2,269 |
|
|
$ |
4,304 |
|
|
$ |
3,762 |
|
|
(a) |
All derivative assets are recorded in “Prepaid and other current assets” in the condensed consolidated balance sheets. |
(b) |
All derivative liabilities are recorded in “Other accrued liabilities” in the condensed consolidated balance sheets. |
Offsetting Derivative Assets and Liabilities
The Company has entered into master netting arrangements with each of its derivative counterparties. These arrangements afford the right to net derivative assets against liabilities with the same counterparty. Under certain default provisions, the Company has the right to set off any other amounts payable to the payee whether or not arising under this agreement. As a result of the netting provisions, the Company’s maximum amount of loss under derivative transactions due to credit risk is limited to the net amounts due from the counterparties under the derivative contracts. Although netting is permitted, it is currently the Company’s policy and practice to record all derivative assets and liabilities on a gross basis in the condensed consolidated balance sheets.
The following table sets forth the offsetting of derivative assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Assets |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,873 |
|
|
$ |
— |
|
|
$ |
6,873 |
|
|
$ |
(6,017 |
) |
|
$ |
— |
|
|
$ |
856 |
|
As of December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
10,396 |
|
|
$ |
— |
|
|
$ |
10,396 |
|
|
$ |
(5,413 |
) |
|
$ |
— |
|
|
$ |
4,983 |
|
The following table sets forth the offsetting of derivative liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Liabilities |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,722 |
|
|
$ |
— |
|
|
$ |
6,722 |
|
|
$ |
(6,017 |
) |
|
$ |
— |
|
|
$ |
705 |
|
As of December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,031 |
|
|
$ |
— |
|
|
$ |
6,031 |
|
|
$ |
(5,413 |
) |
|
$ |
— |
|
|
$ |
618 |
|
|
13. STOCKHOLDERS’ EQUITY
Share Repurchase Program
From time to time, the Company’s Board of Directors has approved plans under which the Company may at its discretion purchase shares of its common stock in the open market or via privately negotiated transactions. In July 2014, the Company announced that its Board of Directors had approved a share repurchase plan (the “2014 repurchase plan”) under which the Company may at its discretion purchase shares in the open market with an aggregate value of up to $200.0 million. Any share repurchases will be funded through cash on hand and future cash flow from operations. During the three and six months ended June 30, 2016, the Company did not purchase any shares of common stock in the open market. During the three and six months ended June 30, 2015, the Company purchased approximately 1.9 million and 4.8 million shares of common stock, respectively, in the open market for $25.0 million and $65.0 million, respectively. The purchase price for the shares of the Company’s stock repurchased is recorded as a reduction to stockholders’ equity. The excess of the cost of treasury stock that is retired over its par value and the portion allocated to additional paid-in capital based on the calculated average price in equity is recorded as a charge to retained earnings. The repurchased shares of common stock have been retired and reclassified as authorized and unissued shares. As of June 30, 2016, the Company had a remaining authorization to purchase up to an additional $60.1 million of shares in the open market under the 2014 repurchase plan.
Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss, net of tax, by component (in thousands). The tax effects were not shown separately, as the impacts were not material.
Six Months Ended June 30, 2016 |
|
Unrealized Gains and Losses on Cash Flow Hedges |
|
|
Unrealized Gains and Losses on Available-for- Sale Securities |
|
|
Foreign Currency Translation |
|
|
Total |
|
||||
Balance as of December 31, 2015 |
|
$ |
(59 |
) |
|
$ |
(197 |
) |
|
$ |
(947 |
) |
|
$ |
(1,203 |
) |
Other comprehensive loss before reclassifications |
|
|
(899 |
) |
|
|
292 |
|
|
|
(951 |
) |
|
|
(1,558 |
) |
Amounts reclassified from accumulated other comprehensive loss (a) |
|
|
496 |
|
|
|
(8 |
) |
|
|
— |
|
|
|
488 |
|
Net current-period other comprehensive loss |
|
|
(403 |
) |
|
|
284 |
|
|
|
(951 |
) |
|
|
(1,070 |
) |
Balance as of June 30, 2016 |
|
$ |
(462 |
) |
|
$ |
87 |
|
|
$ |
(1,898 |
) |
|
$ |
(2,273 |
) |
|
(a) |
See Note 12 for details of gains and losses, net of taxes, reclassified out of accumulated other comprehensive loss into net (loss) income related to cash flow hedges and each line item of net (loss) income affected by the reclassification. Gains and losses related to available-for-sale securities were reclassified into “Interest and other income (expense), net” in the condensed consolidated statement of operations for the six months ended June 30, 2016, net of taxes. |
|
14. STOCK-BASED COMPENSATION
The following table summarizes stock-based compensation expense recorded for the periods presented and its allocation within the condensed consolidated statements of operations (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Cost of product revenues |
$ |
1,133 |
|
|
$ |
505 |
|
|
$ |
1,914 |
|
|
$ |
1,460 |
|
Cost of service revenues |
|
2,373 |
|
|
|
877 |
|
|
|
3,484 |
|
|
|
2,185 |
|
Stock-based compensation expense included in cost of revenues |
|
3,506 |
|
|
|
1,382 |
|
|
|
5,398 |
|
|
|
3,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
7,550 |
|
|
|
2,698 |
|
|
|
11,293 |
|
|
|
5,311 |
|
Research and development |
|
4,912 |
|
|
|
1,915 |
|
|
|
6,941 |
|
|
|
4,488 |
|
General and administrative |
|
5,638 |
|
|
|
3,716 |
|
|
|
9,455 |
|
|
|
5,499 |
|
Stock-based compensation expense included in operating expenses |
|
18,100 |
|
|
|
8,329 |
|
|
|
27,689 |
|
|
|
15,298 |
|
Total stock-based compensation expense |
|
21,606 |
|
|
|
9,711 |
|
|
|
33,087 |
|
|
|
18,943 |
|
Tax benefit |
|
3,109 |
|
|
|
1,697 |
|
|
|
5,354 |
|
|
|
3,226 |
|
Total stock-based compensation expense, net of tax |
$ |
18,497 |
|
|
$ |
8,014 |
|
|
$ |
27,733 |
|
|
$ |
15,717 |
|
Stock-based compensation expense is not allocated to segments because it is centrally managed at the corporate level.
Stock Options
There were no stock options granted during the six months ended June 30, 2016 and 2015.
Performance Shares and Restricted Stock Units
During the six months ended June 30, 2016 and 2015, the Company granted 886,496 and 922,202 performance shares to certain employees and executives, at a weighted average fair value of $10.87 and $14.23 per share, respectively. The 2016 and 2015 grants are generally divided evenly over three annual performance periods commencing with calendar year 2016 and 2015, respectively, and will vest on the first, second and third anniversary of the grant date.
During the six months ended June 30, 2016 and 2015, the Company granted 2,976,147 and 2,788,043 restricted stock units to certain employees and executives, at a weighted average fair value of $10.86 and $13.80 per share, respectively.
During the six months ended June 30, 2016, there were no restricted stock units granted to non-employee directors. During the six months ended June 30, 2015, the Company granted 120,000 restricted stock units to non-employee directors, at a weighted average fair value of $13.14 per share.
Employee Stock Purchase Plan
During the six months ended June 30, 2016 and 2015, 1,236,759 and 1,183,426 shares, respectively, were purchased under the Company’s employee stock purchase plan (“ESPP”). As of June 30, 2016, there were 7,927,722 shares available to be issued under the ESPP.
Pursuant to the definitive Agreement and Plan of Merger entered into with Mitel, the Company suspended the ESPP and terminated all offering periods on April 15, 2016, and refunded ESPP contributions received from the participating employees toward the related purchases. Subsequently, the Company terminated the definitive Agreement and Plan of Merger with Mitel and entered into a definitive Agreement and Plan of Merger, dated July 8, 2016, to be acquired by an entity affiliated with Siris. Effective as of one day prior to the closing of the Merger, and contingent upon the closing of the Merger, the ESPP will be terminated. The Company expects that there will be no further offering periods under the ESPP prior to its termination in connection with the closing of the Merger. The Company recognized approximately $10.9 million of unamortized stock-based compensation expense in relation to the cancelled offering periods during the six months ended June 30, 2016. Refer to Note 1 for additional details regarding the proposed Merger.
Valuation Assumptions
For purchase rights granted pursuant to the ESPP, the estimated fair value per share of employee stock purchase rights for the two-year offering period commencing on February 1, 2016 ranged from $2.51 to $3.35, compared to the estimated fair value per share from $3.09 to $4.27 for the two-year offering period commencing on February 2, 2015.
The fair value of each employee stock purchase right grant is estimated on the date of grant using the Black-Scholes option valuation model and is recognized as expense using the graded vesting method using the following assumptions:
|
Three and Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Expected volatility |
31.85-34.97% |
|
|
30.04-30.73% |
|
||
Risk-free interest rate |
0.47-0.81% |
|
|
0.07-0.49% |
|
||
Expected dividends |
|
0.0% |
|
|
|
0.0% |
|
Expected life (years) |
0.5-2.0 |
|
|
0.5-2.0 |
|
The Company computed its expected volatility assumption based on blended volatility (50% historical volatility and 50% implied volatility). The selection of the blended volatility assumption was based upon the Company’s assessment that blended volatility is more representative of the Company’s future stock price trends as it weighs in the longer term historical volatility with the near term future implied volatility.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company’s employee stock purchases.
The dividend yield assumption is based on the Company’s history of not paying dividends and no future expectation of dividend payouts.
The expected life of employee stock purchase rights represents the contractual terms of the underlying program.
|
16. BUSINESS SEGMENT INFORMATION
The Company conducts its business globally and is managed geographically in three segments: (1) Americas, which consists of North America and Caribbean and Latin America (“CALA”) reporting units, (2) Europe, Middle East and Africa (“EMEA”) and (3) Asia Pacific (“APAC”). The segments are determined in accordance with how management views and evaluates the Company’s business and allocates its resources, and are based on the criteria as outlined in the authoritative guidance.
Segment Revenue and Profit
Segment revenues consist of product and service revenues. Product revenues are attributed to a segment based on the ordering location of the customer. For internal reporting purposes and determination of segment contribution margins, geographic segment product revenues may differ slightly from actual geographic revenues due to internal revenue allocations between the Company’s segments. Service revenues are generally attributed to a segment based on the end-user’s location where services are performed. A significant portion of each segment’s expenses arises from shared services and infrastructure that Polycom has historically allocated to the segments in order to realize economies of scale and to use resources efficiently.
Segment contribution margin includes all geographic segment revenues less the related cost of sales and direct revenues and marketing expenses. Cost of revenues consists of the standard cost of revenues and does not include items such as warranty expense, royalties, and the allocation of overhead expenses, including facilities and IT costs, as well as stock-based compensation costs and amortization of purchased intangible assets. Management allocates some infrastructure costs, such as facilities and IT costs, in determining segment contribution margins. Contribution margin is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated costs include corporate manufacturing costs, sales and marketing costs other than direct sales and marketing expenses, research and development expenses, general and administrative costs, such as legal and accounting, stock-based compensation costs, transaction-related costs, amortization of purchased intangibles, restructuring costs and interest and other income (expense), net.
Segment Data
The results of the reportable segments are derived directly from Polycom’s management reporting system. Management measures the performance of each segment based on several metrics, including contribution margin as defined above. Asset data, with the exception of gross accounts receivable, is not reviewed by management at the segment level.
Financial information for each reportable geographical segment as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015, based on the Company’s internal management reporting system and as utilized by the Company’s Chief Operating Decision Maker (“CODM”), its Chief Executive Officer, is as follows (in thousands):
|
Americas |
|
|
EMEA |
|
|
APAC |
|
|
Total |
|
||||
For the three months ended June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
142,019 |
|
|
$ |
72,660 |
|
|
$ |
73,100 |
|
|
$ |
287,779 |
|
% of total revenue |
|
49 |
% |
|
|
25 |
% |
|
|
26 |
% |
|
|
100 |
% |
Contribution margin |
$ |
52,721 |
|
|
$ |
27,820 |
|
|
$ |
31,341 |
|
|
$ |
111,882 |
|
% of segment revenue |
|
37 |
% |
|
|
38 |
% |
|
|
43 |
% |
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
158,333 |
|
|
$ |
80,865 |
|
|
$ |
77,377 |
|
|
$ |
316,575 |
|
% of total revenue |
|
50 |
% |
|
|
26 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
$ |
60,765 |
|
|
$ |
31,987 |
|
|
$ |
35,975 |
|
|
$ |
128,727 |
|
% of segment revenue |
|
38 |
% |
|
|
40 |
% |
|
|
46 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
297,513 |
|
|
$ |
146,189 |
|
|
$ |
134,152 |
|
|
$ |
577,854 |
|
% of total revenue |
|
52 |
% |
|
|
25 |
% |
|
|
23 |
% |
|
|
100 |
% |
Contribution margin |
$ |
115,588 |
|
|
$ |
54,772 |
|
|
$ |
58,498 |
|
|
$ |
228,858 |
|
% of segment revenue |
|
39 |
% |
|
|
37 |
% |
|
|
44 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
315,687 |
|
|
$ |
174,714 |
|
|
$ |
156,874 |
|
|
$ |
647,275 |
|
% of total revenue |
|
49 |
% |
|
|
27 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
$ |
121,616 |
|
|
$ |
74,764 |
|
|
$ |
72,088 |
|
|
$ |
268,468 |
|
% of segment revenue |
|
39 |
% |
|
|
43 |
% |
|
|
46 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016: Gross trade receivables |
$ |
101,167 |
|
|
$ |
61,201 |
|
|
$ |
49,380 |
|
|
$ |
211,748 |
|
% of total gross trade receivables |
|
48 |
% |
|
|
29 |
% |
|
|
23 |
% |
|
|
100 |
% |
As of December 31, 2015: Gross trade receivables |
$ |
97,742 |
|
|
$ |
78,726 |
|
|
$ |
66,443 |
|
|
$ |
242,911 |
|
% of total gross trade receivables |
|
40 |
% |
|
|
33 |
% |
|
|
27 |
% |
|
|
100 |
% |
During the three months ended June 30, 2016, two channel partners, ScanSource Communications (“ScanSource”) and Westcon Group, Inc. (“Westcon”), accounted for 23% and 11% of the Company’s total revenues, respectively. During the three months ended June 30, 2015, one channel partner, ScanSource, accounted for 23% of the Company’s total revenues. During the six months ended June 30, 2016, two channel partners, ScanSource and Westcon, accounted for 23% and 12% of the Company’s total revenues, respectively. During the six months ended June 30, 2015, one channel partner, ScanSource, accounted for 19% of the Company’s total revenues. ScanSource accounted for 24% and 20%, respectively, of total gross trade receivables at June 30, 2016 and December 31, 2015.
The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Segment contribution margin |
$ |
111,882 |
|
|
$ |
128,727 |
|
|
$ |
228,858 |
|
|
$ |
268,468 |
|
Corporate and unallocated costs |
|
(75,446 |
) |
|
|
(91,158 |
) |
|
|
(159,549 |
) |
|
|
(189,500 |
) |
Stock-based compensation expense |
|
(21,606 |
) |
|
|
(9,711 |
) |
|
|
(33,087 |
) |
|
|
(18,943 |
) |
Effect of stock-based compensation expense on warranty rates expense |
|
(235 |
) |
|
|
(80 |
) |
|
|
(341 |
) |
|
|
(133 |
) |
Amortization of purchased intangibles |
|
(2,117 |
) |
|
|
(2,517 |
) |
|
|
(4,417 |
) |
|
|
(5,591 |
) |
Restructuring costs |
|
(6,007 |
) |
|
|
(343 |
) |
|
|
(13,509 |
) |
|
|
(367 |
) |
Transaction-related costs |
|
(7,887 |
) |
|
|
— |
|
|
|
(12,131 |
) |
|
|
— |
|
Interest and other income (expense), net |
|
298 |
|
|
|
(178 |
) |
|
|
(470 |
) |
|
|
(1,640 |
) |
(Loss) income before provision for income taxes |
$ |
(1,118 |
) |
|
$ |
24,740 |
|
|
$ |
5,354 |
|
|
$ |
52,294 |
|
The following table summarizes the Company’s revenues, which includes products and services, by product category (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UC group systems |
$ |
171,411 |
|
|
$ |
195,169 |
|
|
$ |
350,315 |
|
|
$ |
399,820 |
|
UC personal devices |
|
68,774 |
|
|
|
66,802 |
|
|
|
136,584 |
|
|
|
134,267 |
|
UC platform |
|
47,594 |
|
|
|
54,604 |
|
|
|
90,955 |
|
|
|
113,188 |
|
Total |
$ |
287,779 |
|
|
$ |
316,575 |
|
|
$ |
577,854 |
|
|
$ |
647,275 |
|
|
17. INCOME TAXES
The following table presents the income tax expense and the effective tax rates (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Provision for income taxes |
$ |
8,879 |
|
|
$ |
5,093 |
|
|
$ |
12,016 |
|
|
$ |
11,449 |
|
Effective tax rate |
|
(794.2 |
)% |
|
|
20.6 |
% |
|
|
224.4 |
% |
|
|
21.9 |
% |
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions, and the effective tax rate reflects the applicable tax rates in effect in the various tax jurisdictions around the world where income is earned. During the three and six months ended June 30, 2016, the Company incurred losses in a jurisdiction where no tax benefit could be recorded. As a result, the forecasted losses from this jurisdiction were excluded from the determination of tax expense for the period. The tax impact of excluding the losses from the interim tax recorded was additional expense of $1.3 million and $3.1 million for the three and six months ended June 30, 2016, respectively. Additionally, the effective tax rate for the three and six months ended June 30, 2016 and 2015 differs from the U.S. federal statutory rate of 35% primarily due to impacts associated with proportional earnings from the Company’s operations in lower tax jurisdictions, recurring permanent adjustments, and discrete items recorded during the period presented. A significant portion of pretax (loss) income is generated and taxed outside the U.S. The impact on the tax provision due to lower statutory tax rates in foreign jurisdictions was additional expense of $0.3 million and a benefit of approximately $1.3 million for the three and six months ended June 30, 2016, respectively, and a benefit of $4.8 million and $10.1 million for the three and six months ended June 30, 2015, respectively.
The effective income tax rate can be impacted each period by discrete factors or events. For the three and six months ended June 30, 2016 and 2015, discrete benefits of $0.3 million and $0.7 million and $0.2 million and $0.7 million, respectively, were recorded for tax benefits realized on disqualifying dispositions of stock from the Company’s employee stock purchase plan. Additional discrete items recorded in the three months ended June 30, 2016 were $3.1 million in tax accrued related to accelerated non-deductible stock-based compensation expense related to the termination of the employee stock purchase plan and $1.6 million in aggregate to correct for out-of-period adjustment related to the transfer pricing charges for a foreign subsidiary for the years ended December 31, 2015 and 2014. The Company concluded that such amount is not material to any of its previously issued financial statements and therefore recorded the correction in the second quarter of 2016.
As of June 30, 2016, the amount of gross unrecognized tax benefits was $21.0 million, all of which would affect the Company’s effective tax rate if realized. The Company recognizes interest income and interest expense and penalties on tax overpayments and underpayments within income tax expense. As of June 30, 2016 and December 31, 2015, the Company had approximately $1.7 million and $1.4 million, respectively, of accrued interest and penalties related to uncertain tax positions. The Company anticipates that, except for $1.3 million in uncertain tax positions that may be reduced related to the lapse of various statutes of limitation, there will be no material changes in uncertain tax positions in the next 12 months.
The Company is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions, and has entered into agreements with the local governments in certain foreign jurisdictions where it has significant operations to provide it with favorable tax rates in those jurisdictions if certain criteria are met. The tax benefit realized from favorable tax rates for the three months ended June 30, 2016 and 2015 were not material in the aggregate and did not have a material impact on earnings per share.
The Company regularly assesses the ability to realize deferred tax assets recorded in all entities based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income. If the Company’s future business profits do not support the realization of deferred tax assets, an addition to the valuation allowance could be recorded. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
On July 27, 2015, the United States Tax Court (the “Court”) issued a taxpayer-favorable opinion with respect to Altera Corporation (“Altera”)’s litigation with the Internal Revenue Service (“IRS”). The litigation relates to the treatment of share-based compensation expense in an inter-company cost-sharing arrangement with the taxpayer’s foreign subsidiary for fiscal years 2004 through 2007. In its opinion, the Court accepted Altera’s position of excluding share-based compensation in its cost sharing arrangement and concluded that the related IRS Regulations were invalid. On December 1, 2015, the Court issued its final decision with respect to Altera’s litigation with the IRS. Subsequent to the decision, the IRS filed its appeal with the United States Court of Appeals for the Ninth Circuit on June 27, 2016, and as such, no adjustment to the consolidated financial statement is recorded at this time. The Company is monitoring this case for any material impact to its consolidated financial statement and potential favorable implications to the Company’s cost-sharing arrangement.
|
The following table presents the changes to the Company’s goodwill by segment during the six months ended June 30, 2016 (in thousands):
|
Americas |
|
|
EMEA |
|
|
APAC |
|
|
Total |
|
||||
Balance at December 31, 2015 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
148,734 |
|
|
$ |
558,775 |
|
Foreign currency translation |
|
— |
|
|
|
— |
|
|
|
(116 |
) |
|
|
(116 |
) |
Balance at June 30, 2016 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
148,618 |
|
|
$ |
558,659 |
|
The following table presents details of the Company’s total purchased intangible assets and capitalized software development costs for products to be sold as of the following periods (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||||||||||
|
Gross Value |
|
|
Accumulated Amortization & Impairment |
|
|
Net Value |
|
|
Gross Value |
|
|
Accumulated Amortization & Impairment |
|
|
Net Value |
|
||||||
Core and developed technology |
$ |
81,178 |
|
|
$ |
(81,145 |
) |
|
$ |
33 |
|
|
$ |
81,178 |
|
|
$ |
(80,945 |
) |
|
$ |
233 |
|
Customer and partner relationships |
|
79,525 |
|
|
|
(70,828 |
) |
|
|
8,697 |
|
|
|
79,525 |
|
|
|
(66,742 |
) |
|
|
12,783 |
|
Non-compete agreements |
|
1,800 |
|
|
|
(1,800 |
) |
|
|
— |
|
|
|
1,800 |
|
|
|
(1,700 |
) |
|
|
100 |
|
Trade name |
|
3,400 |
|
|
|
(3,400 |
) |
|
|
— |
|
|
|
3,400 |
|
|
|
(3,369 |
) |
|
|
31 |
|
Finite-lived intangible assets |
|
165,903 |
|
|
|
(157,173 |
) |
|
|
8,730 |
|
|
|
165,903 |
|
|
|
(152,756 |
) |
|
|
13,147 |
|
Indefinite-lived trade name |
|
918 |
|
|
|
— |
|
|
|
918 |
|
|
|
918 |
|
|
|
— |
|
|
|
918 |
|
Total acquired intangible assets |
$ |
166,821 |
|
|
$ |
(157,173 |
) |
|
$ |
9,648 |
|
|
$ |
166,821 |
|
|
$ |
(152,756 |
) |
|
$ |
14,065 |
|
Capitalized software development costs for products to be sold |
$ |
14,604 |
|
|
$ |
(7,142 |
) |
|
$ |
7,462 |
|
|
$ |
12,993 |
|
|
$ |
(5,002 |
) |
|
$ |
7,991 |
|
The following table summarizes the amortization expenses recorded in the following periods (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Amortization of purchased intangibles in revenues |
$ |
— |
|
|
$ |
19 |
|
|
$ |
— |
|
|
$ |
38 |
|
Amortization of purchased intangibles in cost of product revenues |
|
100 |
|
|
|
100 |
|
|
|
200 |
|
|
|
757 |
|
Amortization of purchased intangibles in operating expenses |
|
2,017 |
|
|
|
2,417 |
|
|
|
4,217 |
|
|
|
4,834 |
|
Total amortization of purchased intangibles |
$ |
2,117 |
|
|
$ |
2,536 |
|
|
$ |
4,417 |
|
|
$ |
5,629 |
|
The estimated future amortization expense as of June 30, 2016 is as follows (in thousands):
Year ending December 31, |
|
Amount |
|
|
Remainder of 2016 |
|
$ |
4,061 |
|
2017 |
|
|
4,669 |
|
Total |
|
$ |
8,730 |
|
|
The following table summarizes the changes in the Company’s restructuring reserves during the six months ended June 30, 2016 (in thousands):
|
Severance/Other |
|
|
Facilities |
|
|
Other |
|
|
Total |
|
||||
Balance at December 31, 2015 |
$ |
8,072 |
|
|
$ |
18,455 |
|
|
$ |
801 |
|
|
$ |
27,328 |
|
Additions to the reserve, net |
|
9,072 |
|
|
|
3,958 |
|
|
|
— |
|
|
|
13,030 |
|
Interest accretion |
|
— |
|
|
|
479 |
|
|
|
— |
|
|
|
479 |
|
Non-cash adjustments |
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
Cash payments |
|
(12,027 |
) |
|
|
(4,391 |
) |
|
|
(801 |
) |
|
|
(17,219 |
) |
Balance at June 30, 2016 |
$ |
5,117 |
|
|
$ |
18,504 |
|
|
$ |
— |
|
|
$ |
23,621 |
|
|
Trade receivables, net consist of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Gross trade receivables |
$ |
211,748 |
|
|
$ |
242,911 |
|
Returns and other reserves |
|
(54,572 |
) |
|
|
(52,000 |
) |
Allowance for doubtful accounts |
|
(2,964 |
) |
|
|
(3,023 |
) |
Total |
$ |
154,212 |
|
|
$ |
187,888 |
|
Inventories consist of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Raw materials |
$ |
671 |
|
|
$ |
824 |
|
Work in process |
|
— |
|
|
|
117 |
|
Finished goods |
|
96,077 |
|
|
|
88,451 |
|
Total |
$ |
96,748 |
|
|
$ |
89,392 |
|
Prepaid expenses and other current assets consist of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Non-trade receivables |
$ |
8,147 |
|
|
$ |
7,689 |
|
Prepaid expenses |
|
33,200 |
|
|
|
33,174 |
|
Derivative assets |
|
6,873 |
|
|
|
10,396 |
|
Other current assets |
|
1,898 |
|
|
|
1,593 |
|
Total |
$ |
50,118 |
|
|
$ |
52,852 |
|
Deferred revenue consists of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Short-term: |
|
|
|
|
|
|
|
Service |
$ |
170,545 |
|
|
$ |
165,594 |
|
License |
|
3,574 |
|
|
|
4,965 |
|
Total |
$ |
174,119 |
|
|
$ |
170,559 |
|
Long-term: |
|
|
|
|
|
|
|
Service |
$ |
78,398 |
|
|
$ |
82,598 |
|
License |
|
4,874 |
|
|
|
3,593 |
|
Total |
$ |
83,272 |
|
|
$ |
86,191 |
|
Changes in deferred service revenue during the six months ended June 30, 2016 and 2015 are as follows (in thousands):
|
Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Balance at beginning of period |
$ |
248,192 |
|
|
$ |
257,280 |
|
Additions to deferred service revenue |
|
180,307 |
|
|
|
167,332 |
|
Amortization of deferred service revenue |
|
(179,556 |
) |
|
|
(170,232 |
) |
Balance at end of period |
$ |
248,943 |
|
|
$ |
254,380 |
|
Changes in deferred license revenue during the six months ended June 30, 2016 and 2015 are as follows (in thousands):
|
Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Balance at beginning of period |
$ |
8,558 |
|
|
$ |
5,524 |
|
Additions to deferred license revenue |
|
2,508 |
|
|
|
1,766 |
|
Amortization of deferred license revenue |
|
(2,618 |
) |
|
|
(1,238 |
) |
Balance at end of period |
$ |
8,448 |
|
|
$ |
6,052 |
|
The current portion of other accrued liabilities consists of the following (in thousands):
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
Accrued expenses |
$ |
27,703 |
|
|
$ |
25,179 |
|
Accrued co-op expenses |
|
1,979 |
|
|
|
2,670 |
|
Restructuring reserves |
|
13,054 |
|
|
|
16,187 |
|
Warranty obligations |
|
8,526 |
|
|
|
10,172 |
|
Derivative liabilities |
|
6,722 |
|
|
|
6,031 |
|
Employee stock purchase plan withholdings |
|
— |
|
|
|
9,668 |
|
Other accrued liabilities |
|
16,623 |
|
|
|
15,188 |
|
Total |
$ |
74,607 |
|
|
$ |
85,095 |
|
Changes in warranty obligations during the six months ended June 30, 2016 and 2015 are as follows (in thousands):
|
Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Balance at beginning of period |
$ |
10,172 |
|
|
$ |
11,613 |
|
Accruals for warranties issued during the period |
|
4,797 |
|
|
|
6,811 |
|
Actual charges against warranty reserve during the period |
|
(6,443 |
) |
|
|
(7,277 |
) |
Balance at end of period |
$ |
8,526 |
|
|
$ |
11,147 |
|
|
The following table sets forth total interest expense recognized on the Term Loan (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Contractual interest expense |
$ |
1,426 |
|
|
$ |
1,292 |
|
|
$ |
2,852 |
|
|
$ |
2,550 |
|
Amortization of debt issuance costs |
|
134 |
|
|
|
133 |
|
|
|
267 |
|
|
|
266 |
|
Total |
$ |
1,560 |
|
|
$ |
1,425 |
|
|
$ |
3,119 |
|
|
$ |
2,816 |
|
As of June 30, 2016, future principal payments for long-term debt, including the current portion, are summarized as follows (in thousands):
|
|
Amount |
|
|
Remainder of 2016 |
|
$ |
3,126 |
|
2017 |
|
|
6,250 |
|
2018 |
|
|
223,437 |
|
Total |
|
$ |
232,813 |
|
|
The Company’s short-term and long-term investments in debt securities are summarized as follows (in thousands):
|
Cost Basis |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Balances at June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
43,081 |
|
|
$ |
40 |
|
|
$ |
— |
|
|
$ |
43,121 |
|
U.S. government agency securities |
|
40,788 |
|
|
|
27 |
|
|
|
(1 |
) |
|
|
40,814 |
|
Non-U.S. government securities |
|
2,004 |
|
|
|
— |
|
|
|
— |
|
|
|
2,004 |
|
Corporate debt securities |
|
40,285 |
|
|
|
16 |
|
|
|
(2 |
) |
|
|
40,299 |
|
Total short-term investments |
$ |
126,158 |
|
|
$ |
83 |
|
|
$ |
(3 |
) |
|
$ |
126,238 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
4,256 |
|
|
$ |
12 |
|
|
$ |
— |
|
|
$ |
4,268 |
|
U.S. government agency securities |
|
3,003 |
|
|
|
1 |
|
|
|
— |
|
|
|
3,004 |
|
Corporate debt securities |
|
11,499 |
|
|
|
23 |
|
|
|
(6 |
) |
|
|
11,516 |
|
Total long-term investments |
$ |
18,758 |
|
|
$ |
36 |
|
|
$ |
(6 |
) |
|
$ |
18,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
49,036 |
|
|
$ |
4 |
|
|
$ |
(45 |
) |
|
$ |
48,995 |
|
U.S. government agency securities |
|
67,723 |
|
|
|
1 |
|
|
|
(30 |
) |
|
|
67,694 |
|
Non-U.S. government securities |
|
7,303 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
7,302 |
|
Corporate debt securities |
|
60,290 |
|
|
|
1 |
|
|
|
(40 |
) |
|
|
60,251 |
|
Total short-term investments |
$ |
184,352 |
|
|
$ |
6 |
|
|
$ |
(116 |
) |
|
$ |
184,242 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
8,058 |
|
|
$ |
— |
|
|
$ |
(14 |
) |
|
$ |
8,044 |
|
U.S. government agency securities |
|
14,510 |
|
|
|
— |
|
|
|
(48 |
) |
|
|
14,462 |
|
Corporate debt securities |
|
24,056 |
|
|
|
2 |
|
|
|
(80 |
) |
|
|
23,978 |
|
Total long-term investments |
$ |
46,624 |
|
|
$ |
2 |
|
|
$ |
(142 |
) |
|
$ |
46,484 |
|
The following table summarizes the fair value and gross unrealized losses of investments that are in an unrealized loss position only. The unrealized losses are aggregated by type of investment instrument and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|||||||||||||||
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities |
$ |
4,221 |
|
|
$ |
(1 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,221 |
|
|
$ |
(1 |
) |
Corporate debt securities |
|
11,475 |
|
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
|
11,475 |
|
|
|
(8 |
) |
Total investments |
$ |
15,696 |
|
|
$ |
(9 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,696 |
|
|
$ |
(9 |
) |
December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
48,445 |
|
|
$ |
(59 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
48,445 |
|
|
$ |
(59 |
) |
U.S. government agency securities |
|
71,861 |
|
|
|
(78 |
) |
|
|
— |
|
|
|
— |
|
|
|
71,861 |
|
|
|
(78 |
) |
Non-U.S. government securities |
|
5,001 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
5,001 |
|
|
|
(1 |
) |
Corporate debt securities |
|
52,571 |
|
|
|
(120 |
) |
|
|
— |
|
|
|
— |
|
|
|
52,571 |
|
|
|
(120 |
) |
Total investments |
$ |
177,878 |
|
|
$ |
(258 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
177,878 |
|
|
$ |
(258 |
) |
|
The tables below set forth the Company’s recurring fair value measurements (in thousands):
|
|
|
|
|
|
Fair Value Measurements at June 30, 2016 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
47,894 |
|
|
$ |
47,894 |
|
|
$ |
— |
|
U.S. government agency securities |
|
|
29,980 |
|
|
|
— |
|
|
|
29,980 |
|
Non U.S. government securities |
|
|
1,000 |
|
|
|
— |
|
|
|
1,000 |
|
Corporate debt securities |
|
|
39,236 |
|
|
|
— |
|
|
|
39,236 |
|
Short-term investments |
|
|
126,238 |
|
|
|
— |
|
|
|
126,238 |
|
Long-term investments |
|
|
18,788 |
|
|
|
— |
|
|
|
18,788 |
|
Total fixed income available-for-sale securities |
|
$ |
263,136 |
|
|
$ |
47,894 |
|
|
$ |
215,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (a) |
|
$ |
6,873 |
|
|
$ |
— |
|
|
$ |
6,873 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (b) |
|
$ |
6,722 |
|
|
$ |
— |
|
|
$ |
6,722 |
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
10,313 |
|
|
$ |
10,313 |
|
|
$ |
— |
|
Non-U.S. government securities |
|
|
975 |
|
|
|
— |
|
|
|
975 |
|
Corporate debt securities |
|
|
19,799 |
|
|
|
— |
|
|
|
19,799 |
|
Short-term investments |
|
|
184,242 |
|
|
|
— |
|
|
|
184,242 |
|
Long-term investments |
|
|
46,484 |
|
|
|
— |
|
|
|
46,484 |
|
Total fixed income available-for-sale securities |
|
$ |
261,813 |
|
|
$ |
10,313 |
|
|
$ |
251,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (a) |
|
$ |
10,396 |
|
|
$ |
— |
|
|
$ |
10,396 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (b) |
|
$ |
6,031 |
|
|
$ |
— |
|
|
$ |
6,031 |
|
(a) |
Included in short-term derivative assets as “Prepaid expenses and other current assets” in the condensed consolidated balance sheets. |
(b) |
Included in short-term derivative liabilities as “Other accrued liabilities” in the condensed consolidated balance sheets. |
|
The following table shows the Company’s derivative instruments measured at gross fair value as reflected in the condensed consolidated balance sheets (in thousands):
|
Fair Value of Derivatives Designated as Hedge Instruments |
|
|
Fair Value of Derivatives Not Designated as Hedge Instruments |
|
||||||||||
|
June 30, 2016 |
|
|
December 31, 2015 |
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||
Derivative assets (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
2,380 |
|
|
$ |
2,283 |
|
|
$ |
4,493 |
|
|
$ |
8,113 |
|
Derivative liabilities (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
2,418 |
|
|
$ |
2,269 |
|
|
$ |
4,304 |
|
|
$ |
3,762 |
|
|
(a) |
All derivative assets are recorded in “Prepaid and other current assets” in the condensed consolidated balance sheets. |
(b) |
All derivative liabilities are recorded in “Other accrued liabilities” in the condensed consolidated balance sheets. |
The following table sets forth the offsetting of derivative assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Assets |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,873 |
|
|
$ |
— |
|
|
$ |
6,873 |
|
|
$ |
(6,017 |
) |
|
$ |
— |
|
|
$ |
856 |
|
As of December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
10,396 |
|
|
$ |
— |
|
|
$ |
10,396 |
|
|
$ |
(5,413 |
) |
|
$ |
— |
|
|
$ |
4,983 |
|
The following table sets forth the offsetting of derivative liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Liabilities |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,722 |
|
|
$ |
— |
|
|
$ |
6,722 |
|
|
$ |
(6,017 |
) |
|
$ |
— |
|
|
$ |
705 |
|
As of December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,031 |
|
|
$ |
— |
|
|
$ |
6,031 |
|
|
$ |
(5,413 |
) |
|
$ |
— |
|
|
$ |
618 |
|
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding cash flow hedges at June 30, 2016 (in thousands):
|
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
||||||||||||||||
|
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
||||
Chinese Yuan |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
85,643 |
|
|
$ |
12,851 |
|
|
Buy |
Euro |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
19,597 |
|
|
$ |
21,909 |
|
|
Buy |
Euro |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
58,032 |
|
|
$ |
65,094 |
|
|
Sell |
British Pound |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
16,782 |
|
|
$ |
24,405 |
|
|
Buy |
British Pound |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
15,816 |
|
|
$ |
23,146 |
|
|
Sell |
The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges in the condensed consolidated statements of operations for the following periods (in thousands):
|
|
Gain (Loss) Recognized in OCI or OCL- Effective Portion |
|
|
Location of Gain (Loss) Reclassified from OCI or OCL into Income-Effective Portion |
|
Gain (Loss) Reclassified from OCI or OCL into Income-Effective Portion |
|
|
Location of Gain (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing |
|
Gain (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing (a) |
|
|||||||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|||||||||||||||
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||||
Foreign exchange contracts |
|
$ |
728 |
|
|
$ |
(1,723 |
) |
|
Product revenues |
|
$ |
308 |
|
|
$ |
3,629 |
|
|
Interest and other income (expense), net |
|
$ |
744 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(161 |
) |
|
|
(531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
(513 |
) |
|
|
(1,007 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
(2 |
) |
|
|
(268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
(69 |
) |
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
728 |
|
|
$ |
(1,723 |
) |
|
|
|
$ |
(437 |
) |
|
$ |
1,427 |
|
|
|
|
$ |
744 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|||||||||||||||
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(899 |
) |
|
$ |
4,575 |
|
|
Product revenues |
|
$ |
1,606 |
|
|
$ |
10,265 |
|
|
Interest and other income (expense), net |
|
$ |
735 |
|
|
$ |
326 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(458 |
) |
|
|
(1,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
(1,346 |
) |
|
|
(2,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
(49 |
) |
|
|
(983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
(249 |
) |
|
|
(1,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(899 |
) |
|
$ |
4,575 |
|
|
|
|
$ |
(496 |
) |
|
$ |
3,985 |
|
|
|
|
$ |
735 |
|
|
$ |
326 |
|
|
(a) |
There were no gains or losses recognized in income due to ineffectiveness in the periods presented. |
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding non-designated hedges at June 30, 2016 (in thousands):
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
||||||||||||||||
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
||||
Brazilian Real |
|
13,196 |
|
|
$ |
4,111 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Brazilian Real |
|
24,037 |
|
|
$ |
6,993 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Chinese Yuan |
|
— |
|
|
$ |
— |
|
|
— |
|
|
45,457 |
|
|
$ |
7,098 |
|
|
Buy |
Chinese Yuan |
|
42,005 |
|
|
$ |
6,390 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Euro |
|
22,866 |
|
|
$ |
25,374 |
|
|
Buy |
|
|
13,703 |
|
|
$ |
15,420 |
|
|
Buy |
Euro |
|
34,404 |
|
|
$ |
38,274 |
|
|
Sell |
|
|
54,468 |
|
|
$ |
60,981 |
|
|
Sell |
British Pound |
|
5,368 |
|
|
$ |
7,218 |
|
|
Buy |
|
|
14,718 |
|
|
$ |
22,741 |
|
|
Buy |
British Pound |
|
12,753 |
|
|
$ |
17,905 |
|
|
Sell |
|
|
15,684 |
|
|
$ |
24,082 |
|
|
Sell |
Israeli Shekel |
|
29,300 |
|
|
$ |
7,609 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Israeli Shekel |
|
29,300 |
|
|
$ |
7,613 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
96,170 |
|
|
$ |
935 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
96,170 |
|
|
$ |
867 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
21,914 |
|
|
$ |
1,184 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
44,977 |
|
|
$ |
2,430 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
The following table shows the effect of the Company’s non-designated hedges in the condensed consolidated statements of operations (in thousands):
Derivatives Not Designated as Hedging Instruments |
|
Location of Gain or (Loss) Recognized in Income on Derivative |
|
Amount of Gain or (Loss) Recognized in Income on Derivative |
|
|||||
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
1,325 |
|
|
$ |
(1,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
(822 |
) |
|
$ |
3,617 |
|
|
The following table summarizes the changes in accumulated other comprehensive loss, net of tax, by component (in thousands). The tax effects were not shown separately, as the impacts were not material.
Six Months Ended June 30, 2016 |
|
Unrealized Gains and Losses on Cash Flow Hedges |
|
|
Unrealized Gains and Losses on Available-for- Sale Securities |
|
|
Foreign Currency Translation |
|
|
Total |
|
||||
Balance as of December 31, 2015 |
|
$ |
(59 |
) |
|
$ |
(197 |
) |
|
$ |
(947 |
) |
|
$ |
(1,203 |
) |
Other comprehensive loss before reclassifications |
|
|
(899 |
) |
|
|
292 |
|
|
|
(951 |
) |
|
|
(1,558 |
) |
Amounts reclassified from accumulated other comprehensive loss (a) |
|
|
496 |
|
|
|
(8 |
) |
|
|
— |
|
|
|
488 |
|
Net current-period other comprehensive loss |
|
|
(403 |
) |
|
|
284 |
|
|
|
(951 |
) |
|
|
(1,070 |
) |
Balance as of June 30, 2016 |
|
$ |
(462 |
) |
|
$ |
87 |
|
|
$ |
(1,898 |
) |
|
$ |
(2,273 |
) |
|
(a) |
See Note 12 for details of gains and losses, net of taxes, reclassified out of accumulated other comprehensive loss into net (loss) income related to cash flow hedges and each line item of net (loss) income affected by the reclassification. Gains and losses related to available-for-sale securities were reclassified into “Interest and other income (expense), net” in the condensed consolidated statement of operations for the six months ended June 30, 2016, net of taxes. |
|
The following table summarizes stock-based compensation expense recorded for the periods presented and its allocation within the condensed consolidated statements of operations (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Cost of product revenues |
$ |
1,133 |
|
|
$ |
505 |
|
|
$ |
1,914 |
|
|
$ |
1,460 |
|
Cost of service revenues |
|
2,373 |
|
|
|
877 |
|
|
|
3,484 |
|
|
|
2,185 |
|
Stock-based compensation expense included in cost of revenues |
|
3,506 |
|
|
|
1,382 |
|
|
|
5,398 |
|
|
|
3,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
7,550 |
|
|
|
2,698 |
|
|
|
11,293 |
|
|
|
5,311 |
|
Research and development |
|
4,912 |
|
|
|
1,915 |
|
|
|
6,941 |
|
|
|
4,488 |
|
General and administrative |
|
5,638 |
|
|
|
3,716 |
|
|
|
9,455 |
|
|
|
5,499 |
|
Stock-based compensation expense included in operating expenses |
|
18,100 |
|
|
|
8,329 |
|
|
|
27,689 |
|
|
|
15,298 |
|
Total stock-based compensation expense |
|
21,606 |
|
|
|
9,711 |
|
|
|
33,087 |
|
|
|
18,943 |
|
Tax benefit |
|
3,109 |
|
|
|
1,697 |
|
|
|
5,354 |
|
|
|
3,226 |
|
Total stock-based compensation expense, net of tax |
$ |
18,497 |
|
|
$ |
8,014 |
|
|
$ |
27,733 |
|
|
$ |
15,717 |
|
The fair value of each employee stock purchase right grant is estimated on the date of grant using the Black-Scholes option valuation model and is recognized as expense using the graded vesting method using the following assumptions:
|
Three and Six Months Ended |
|
|||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||
Expected volatility |
31.85-34.97% |
|
|
30.04-30.73% |
|
||
Risk-free interest rate |
0.47-0.81% |
|
|
0.07-0.49% |
|
||
Expected dividends |
|
0.0% |
|
|
|
0.0% |
|
Expected life (years) |
0.5-2.0 |
|
|
0.5-2.0 |
|
|
Financial information for each reportable geographical segment as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015, based on the Company’s internal management reporting system and as utilized by the Company’s Chief Operating Decision Maker (“CODM”), its Chief Executive Officer, is as follows (in thousands):
|
Americas |
|
|
EMEA |
|
|
APAC |
|
|
Total |
|
||||
For the three months ended June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
142,019 |
|
|
$ |
72,660 |
|
|
$ |
73,100 |
|
|
$ |
287,779 |
|
% of total revenue |
|
49 |
% |
|
|
25 |
% |
|
|
26 |
% |
|
|
100 |
% |
Contribution margin |
$ |
52,721 |
|
|
$ |
27,820 |
|
|
$ |
31,341 |
|
|
$ |
111,882 |
|
% of segment revenue |
|
37 |
% |
|
|
38 |
% |
|
|
43 |
% |
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
158,333 |
|
|
$ |
80,865 |
|
|
$ |
77,377 |
|
|
$ |
316,575 |
|
% of total revenue |
|
50 |
% |
|
|
26 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
$ |
60,765 |
|
|
$ |
31,987 |
|
|
$ |
35,975 |
|
|
$ |
128,727 |
|
% of segment revenue |
|
38 |
% |
|
|
40 |
% |
|
|
46 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
297,513 |
|
|
$ |
146,189 |
|
|
$ |
134,152 |
|
|
$ |
577,854 |
|
% of total revenue |
|
52 |
% |
|
|
25 |
% |
|
|
23 |
% |
|
|
100 |
% |
Contribution margin |
$ |
115,588 |
|
|
$ |
54,772 |
|
|
$ |
58,498 |
|
|
$ |
228,858 |
|
% of segment revenue |
|
39 |
% |
|
|
37 |
% |
|
|
44 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
315,687 |
|
|
$ |
174,714 |
|
|
$ |
156,874 |
|
|
$ |
647,275 |
|
% of total revenue |
|
49 |
% |
|
|
27 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
$ |
121,616 |
|
|
$ |
74,764 |
|
|
$ |
72,088 |
|
|
$ |
268,468 |
|
% of segment revenue |
|
39 |
% |
|
|
43 |
% |
|
|
46 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016: Gross trade receivables |
$ |
101,167 |
|
|
$ |
61,201 |
|
|
$ |
49,380 |
|
|
$ |
211,748 |
|
% of total gross trade receivables |
|
48 |
% |
|
|
29 |
% |
|
|
23 |
% |
|
|
100 |
% |
As of December 31, 2015: Gross trade receivables |
$ |
97,742 |
|
|
$ |
78,726 |
|
|
$ |
66,443 |
|
|
$ |
242,911 |
|
% of total gross trade receivables |
|
40 |
% |
|
|
33 |
% |
|
|
27 |
% |
|
|
100 |
% |
The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Segment contribution margin |
$ |
111,882 |
|
|
$ |
128,727 |
|
|
$ |
228,858 |
|
|
$ |
268,468 |
|
Corporate and unallocated costs |
|
(75,446 |
) |
|
|
(91,158 |
) |
|
|
(159,549 |
) |
|
|
(189,500 |
) |
Stock-based compensation expense |
|
(21,606 |
) |
|
|
(9,711 |
) |
|
|
(33,087 |
) |
|
|
(18,943 |
) |
Effect of stock-based compensation expense on warranty rates expense |
|
(235 |
) |
|
|
(80 |
) |
|
|
(341 |
) |
|
|
(133 |
) |
Amortization of purchased intangibles |
|
(2,117 |
) |
|
|
(2,517 |
) |
|
|
(4,417 |
) |
|
|
(5,591 |
) |
Restructuring costs |
|
(6,007 |
) |
|
|
(343 |
) |
|
|
(13,509 |
) |
|
|
(367 |
) |
Transaction-related costs |
|
(7,887 |
) |
|
|
— |
|
|
|
(12,131 |
) |
|
|
— |
|
Interest and other income (expense), net |
|
298 |
|
|
|
(178 |
) |
|
|
(470 |
) |
|
|
(1,640 |
) |
(Loss) income before provision for income taxes |
$ |
(1,118 |
) |
|
$ |
24,740 |
|
|
$ |
5,354 |
|
|
$ |
52,294 |
|
The following table summarizes the Company’s revenues, which includes products and services, by product category (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UC group systems |
$ |
171,411 |
|
|
$ |
195,169 |
|
|
$ |
350,315 |
|
|
$ |
399,820 |
|
UC personal devices |
|
68,774 |
|
|
|
66,802 |
|
|
|
136,584 |
|
|
|
134,267 |
|
UC platform |
|
47,594 |
|
|
|
54,604 |
|
|
|
90,955 |
|
|
|
113,188 |
|
Total |
$ |
287,779 |
|
|
$ |
316,575 |
|
|
$ |
577,854 |
|
|
$ |
647,275 |
|
|
The following table presents the income tax expense and the effective tax rates (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
||||
Provision for income taxes |
$ |
8,879 |
|
|
$ |
5,093 |
|
|
$ |
12,016 |
|
|
$ |
11,449 |
|
Effective tax rate |
|
(794.2 |
)% |
|
|
20.6 |
% |
|
|
224.4 |
% |
|
|
21.9 |
% |
|
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