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1. Basis of Presentation and Significant Accounting Policies
Infinera Corporation (“Infinera” or the “Company”) prepared its interim condensed consolidated financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
The Company has made estimates and judgments affecting the amounts reported in its condensed consolidated financial statements and the accompanying notes. The Company’s actual results may differ materially from these estimates. The accounting estimates that require most significant, difficult, and subjective judgment include revenue recognition, stock-based compensation, inventory valuation, allowances for sales returns, allowances for doubtful accounts, accrued warranty, cash equivalents, fair value measurement of investments, other-than-temporary impairments, derivative instruments and accounting for income taxes.
The interim financial information is unaudited, but reflects all adjustments that are, in management’s opinion, necessary to provide a fair presentation of results for the interim periods presented. All adjustments are of a normal recurring nature. The Company reclassified certain amounts reported in previous periods to conform to the current presentation. This interim information should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
There have been no material changes in the Company’s significant accounting policies for the three months ended March 30, 2013 as compared to those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
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2. Recent Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update 2013-02, Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company adopted the guidance for ASU 2013-02 beginning in its fiscal quarter ended March 30, 2013. Other than requiring additional disclosures, the Company’s adoption of ASU 2013-02 did not have an impact on the Company’s financial position, results of operations or cash flow.
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3. Fair Value Measurements and Other-Than-Temporary Impairments
Fair Value Measurements
Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Valuation techniques used by the Company are based upon observable and unobservable inputs. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about market participant assumptions based on best information available. Observable inputs are the preferred source of values. These two types of inputs create the following fair value hierarchy:
Level 1 | – | Quoted prices in active markets for identical assets or liabilities. | ||
Level 2 | – | Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
Level 3 | – | Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable. |
The Company measures its cash equivalents, derivative instruments and debt securities at fair value and classifies its securities in accordance with the fair value hierarchy. The Company’s money market funds and U.S. treasuries are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.
The Company classifies its certificates of deposit, commercial paper, corporate bonds, and foreign currency exchange forward contracts within Level 2 of the fair value hierarchy as follows:
Certificates of Deposit
The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day. In the absence of any observable market transactions for a particular security, the fair market value at period end would be equal to the par value. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data, and result in the classification of these securities as Level 2 of the fair value hierarchy.
Commercial Paper
The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day and then follows a revised accretion schedule to determine the fair market value at period end. In the absence of any observable market transactions for a particular security, the fair market value at period end is derived by accreting from the last observable market price. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data accreted mathematically to par, and result in the classification of these securities as Level 2 of the fair value hierarchy.
Corporate Bonds
The Company reviews trading activity and pricing for each of the corporate bond securities in its portfolio as of the measurement date and determines if pricing data of sufficient frequency and volume in an active market exists in order to support Level 1 classification of these securities. Since sufficient quoted pricing for identical securities is not available, the Company obtains market pricing and other observable market inputs for similar securities from a number of industry standard data providers. In instances where multiple prices exist for similar securities, these prices are used as inputs into a distribution-curve to determine the fair market value at period end. As a result, the Company classifies its corporate bonds as Level 2 of the fair value hierarchy.
Foreign Currency Exchange Forward Contracts
As discussed in Note 5, “Derivative Instruments,” to the Notes to Condensed Consolidated Financial Statements, the Company mainly holds non-speculative foreign exchange forward contracts to hedge certain foreign currency exchange exposures. The Company estimates the fair values of derivatives based on quoted market prices or pricing models using current market rates. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. As a result, the Company classifies its derivative instruments as Level 2 of the fair value hierarchy.
The Company classifies its ARS within Level 3 of the fair value hierarchy. The Company’s ARS are classified within Level 3 because they are valued, in part, by using inputs that are unobservable in the market and are significant to the valuation. As of March 30, 2013, all of the Company’s ARS had been either called at par value or tendered at a price equal to 95% of par value.
During the first quarter of 2013, the Company disposed of its remaining $3.1 million (par value) ARS, with $0.1 million of ARS called at par value and $3.0 million of ARS tendered at 95% of par value. The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands):
As of March 30, 2013 | As of December 29, 2012 | |||||||||||||||||||||||||||||||
Fair Value Measured Using | Fair Value Measured Using | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Assets |
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Money market funds |
$ | 40,799 | $ | 0 | $ | 0 | $ | 40,799 | $ | 25,560 | $ | 0 | $ | 0 | $ | 25,560 | ||||||||||||||||
Certificates of deposit |
0 | 1,440 | 0 | 1,440 | 0 | 2,160 | 0 | 2,160 | ||||||||||||||||||||||||
Commercial paper |
0 | 25,769 | 0 | 25,769 | 0 | 14,843 | 0 | 14,843 | ||||||||||||||||||||||||
Corporate bonds |
0 | 31,634 | 0 | 31,634 | 0 | 57,467 | 0 | 57,467 | ||||||||||||||||||||||||
U.S. agency notes |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
U.S. treasuries |
9,013 | 0 | 0 | 9,013 | 15,020 | 0 | 0 | 15,020 | ||||||||||||||||||||||||
ARS |
0 | 0 | 0 | 0 | 0 | 0 | 2,873 | 2,873 | ||||||||||||||||||||||||
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Total assets |
$ | 49,812 | $ | 58,843 | $ | 0 | $ | 108,655 | $ | 40,580 | $ | 74,470 | $ | 2,873 | $ | 117,923 | ||||||||||||||||
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Liabilities |
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Foreign currency exchange forward contracts |
$ | 0 | $ | 71 | $ | 0 | $ | 71 | $ | 0 | $ | 112 | $ | 0 | $ | 112 | ||||||||||||||||
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During the three months ended March 30, 2013, there were no transfers of assets or liabilities between Level 1 and Level 2 financial assets and all Level 3 financial assets were disposed.
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable (Level 3) inputs (in thousands):
Three Months Ended | ||||||||||||||||||||
December 29, 2012 |
Total Net Gains Included in Other Comprehensive Loss |
Calls | Sold | March 30, 2013 |
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ARS – available-for-sale |
$ | 2,873 | $ | 0 | (1) | $ | (92 | )(2) | $ | (2,781 | )(3) | $ | 0 | |||||||
Three Months Ended | ||||||||||||||||||||
December 31, 2011 |
Total Net Gains Included in Other Comprehensive Loss |
Calls | March 31, 2012 |
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ARS – available-for-sale |
$ | 7,675 | $ | 16 | (1) | $ | (136 | )(2) | $ | 7,555 |
(1) |
Amount represents the change in the non-credit loss related other-than-temporary impairments (“OTTI”) recorded in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. |
(2) |
Amount represents the fair market value of the securities called at par value. Realized gains for the three months ended March 30, 2013 and March 31, 2012 were not significant. |
(3) |
Amount represents the fair market value of the securities sold at 95% of par value. Realized gains for the three months ended March 30, 2013 were $0.2 million. |
Investments at fair value were as follows (in thousands):
March 30, 2013 | ||||||||||||||||
Adjusted Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Money market funds |
$ | 40,799 | $ | 0 | $ | 0 | $ | 40,799 | ||||||||
Certificates of deposit |
1,440 | 0 | 0 | 1,440 | ||||||||||||
Commercial paper |
25,776 | 5 | (12 | ) | 25,769 | |||||||||||
Corporate bonds |
31,624 | 13 | (3 | ) | 31,634 | |||||||||||
U.S. treasuries |
9,009 | 4 | 0 | 9,013 | ||||||||||||
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Total available-for-sale investments |
$ | 108,648 | $ | 22 | $ | (15 | ) | $ | 108,655 | |||||||
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December 29, 2012 | ||||||||||||||||
Adjusted Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Money market funds |
$ | 25,560 | $ | 0 | $ | 0 | $ | 25,560 | ||||||||
Certificates of deposit |
2,160 | 0 | 0 | 2,160 | ||||||||||||
Commercial paper |
14,848 | 0 | (5 | ) | 14,843 | |||||||||||
Corporate bonds |
57,451 | 22 | (6 | ) | 57,467 | |||||||||||
U.S. treasuries |
15,015 | 5 | 0 | 15,020 | ||||||||||||
ARS |
2,707 | (1) | 166 | 0 | 2,873 | |||||||||||
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Total available-for-sale investments |
$ | 117,741 | $ | 193 | $ | (11 | ) | $ | 117,923 | |||||||
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(1) |
Amount represents the par value less $0.4 million of credit-related OTTI recognized through earnings in prior years. |
As of March 30, 2013, the Company’s available-for-sale investments in certificates of deposit, commercial paper, corporate bonds, and U.S. treasuries have a contractual maturity term of no more than 11 months. Proceeds from sales, maturities and calls of available-for-sale investments were $36.7 million for the three months ended March 30, 2013, and $37.2 million for the three months ended March 31, 2012. Net realized gains (losses) on short-term and long-term investments were $0.2 million for the three months ended March 30, 2013 and were not significant for the three months ended March 31, 2012. The specific identification method is used to account for gains and losses on available-for-sale investments.
Other-Than-Temporary Impairments
As a result of the Company’s disposal of $3.1 million ARS (par value) during the three months ended March 30, 2013, it recorded an approximately $0.2 million gain, which was recognized as Other gain (loss) in the Company’s condensed consolidated statements of operations.
A roll-forward of amortized cost, cumulative OTTI recognized in earnings and Accumulated other comprehensive loss is as follows (in thousands):
Amortized Cost |
Cumulative OTTI in Earnings |
Unrealized Gain |
OTTI Loss in Accumulated Other Comprehensive Loss |
Accumulated Other Comprehensive Income (Loss) |
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Balance at December 29, 2012 |
$ | 2,707 | $ | (394 | ) | $ | 784 | $ | (618 | ) | $ | 166 | ||||||||
Call on investments |
(87 | ) | 13 | (25 | ) | 20 | (5 | ) | ||||||||||||
Investments sold |
(2,620 | ) | 381 | (759 | ) | 598 | (161 | ) | ||||||||||||
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Balance at March 30, 2013 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
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4. Cost-method Investment
As of March 30, 2013, the Company’s investment in a privately-held company was $9.0 million. This investment is accounted for as a cost-basis investment, as the Company owns less than 20% of the voting securities and does not have the ability to exercise significant influence over operating and financial policies of the entity. The Company’s investment is in an entity that is not publicly traded and, therefore, no established market for the securities exists. The Company’s cost-method investment is carried at historical cost in its condensed consolidated financial statements and measured at fair value on a nonrecurring basis. If the Company believes that the carrying value of the cost basis investment is in excess of estimated fair value, the Company’s policy is to record an impairment charge in Other income (expense), net in the accompanying condensed consolidated statements of operations to adjust the carrying value to estimated fair value, when the impairment is deemed other-than-temporary. The Company regularly evaluates the carrying value of this cost-method investment for impairment. As of March 30, 2013, no event had occurred that would adversely affect the carrying value of this investment, therefore, the fair value of the cost-method investment is not estimated. The Company did not record any impairment charges for this cost-method investment during the three months ended March 30, 2013 and March 31, 2012.
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5. Derivative Instruments
Foreign Currency Exchange Forward Contracts
The Company enters into foreign currency exchange forward contracts to manage its exposure to fluctuations in foreign exchange rates that arise primarily from its Euro denominated receivables and Euro denominated restricted cash balance amounts that are pledged as collateral for certain stand-by and commercial letters of credit. Gains and losses on these contracts are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated accounts receivables and restricted cash, and therefore, do not subject the Company to material balance sheet risk. The forward contracts are with one high-quality institution and the Company consistently monitors the creditworthiness of the counterparty. None of the Company’s derivative instruments contain credit-risk related contingent features, any rights to reclaim cash collateral or any obligation to return cash collateral. The forward contracts entered into during the three months ended March 30, 2013 were denominated in Euros and typically had maturities of no more than 30 days. The contracts are settled for U.S. dollars at maturity at rates agreed to at inception of the contracts.
As of March 30, 2013, the Company did not designate foreign currency exchange forward contracts related to Euro denominated receivables and restricted cash as hedges for accounting purposes, and accordingly changes in the fair value of these instruments are included in Other gain (loss), net in the accompanying condensed consolidated statements of operations. For the three months ended March 30, 2013 and March 31, 2012, the before-tax effect of foreign currency exchange forward contracts for Euro denominated receivables and restricted cash not designated as hedging instruments was a gain of $0.5 million and a loss of $0.8 million, respectively, included in Other gain (loss), net in the condensed consolidated statements of operations.
The fair value of derivative instruments not designated as hedging instruments in the Company’s condensed consolidated balance sheets was as follows (in thousands):
As of March 30, 2013 | As of December 29, 2012 | |||||||||||||||
Gross Notional(1) |
Other Accrued Liabilities |
Gross Notional(1) |
Other Accrued Liabilities |
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Foreign currency exchange forward contracts |
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Related to Euro denominated receivables |
$ | 21,646 | $ | (67 | ) | $ | 22,882 | $ | (105 | ) | ||||||
Related to restricted cash |
1,452 | (4 | ) | 1,495 | (7 | ) | ||||||||||
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$ | 23,098 | $ | (71 | ) | $ | 24,377 | $ | (112 | ) | |||||||
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(1) |
Represents the face amounts of forward contracts that were outstanding as of the period noted. |
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6. Balance Sheet Details
The following table provides details of selected balance sheet items (in thousands):
March 30, 2013 |
December 29, 2012 |
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Inventory |
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Raw materials |
$ | 12,224 | $ | 13,003 | ||||
Work in process |
53,136 | 57,281 | ||||||
Finished goods(1) |
65,631 | 57,525 | ||||||
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Total inventory |
$ | 130,991 | $ | 127,809 | ||||
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Property, plant and equipment, net: |
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Computer hardware |
$ | 9,066 | $ | 9,024 | ||||
Computer software |
16,134 | 15,834 | ||||||
Laboratory and manufacturing equipment |
125,633 | 120,543 | ||||||
Furniture and fixtures |
1,299 | 1,285 | ||||||
Leasehold improvements |
33,120 | 33,370 | ||||||
Construction in progress |
14,781 | 17,513 | ||||||
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Subtotal |
$ | 200,033 | $ | 197,569 | ||||
Less accumulated depreciation and amortization |
(122,878 | ) | (117,226 | ) | ||||
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Total property, plant and equipment, net |
$ | 77,155 | $ | 80,343 | ||||
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Accrued expenses: |
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Loss contingency related to non-cancelable purchase commitments |
$ | 4,687 | $ | 5,401 | ||||
Professional and other consulting fees |
3,379 | 3,703 | ||||||
Taxes payable |
3,068 | 3,588 | ||||||
Royalties |
704 | 1,516 | ||||||
Accrued rebate and customer prepay liability |
1,102 | 1,284 | ||||||
Other accrued expenses |
7,000 | 9,991 | ||||||
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Total accrued expenses |
$ | 19,940 | $ | 25,483 | ||||
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(1) |
Included in finished goods inventory at March 30, 2013 and December 29, 2012 were $12.6 million and $15.6 million, respectively, of inventory at customer locations for which product acceptance had not occurred. |
The Company had $3.6 million of standby letters of credit outstanding as of March 30, 2013 and December 29, 2012. These consisted of $1.5 million related to a value added tax license, $0.7 million related to property leases and $1.4 million related to a customer proposal guarantee.
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7. Comprehensive Loss
Total comprehensive loss consists of other comprehensive loss and net loss. Other comprehensive loss includes certain changes in equity that are excluded from net loss. Specifically, cumulative foreign currency translation adjustments and unrealized holding gains and losses on available-for-sale investments are included in Accumulated other comprehensive loss in the condensed consolidated balance sheets.
The following table sets forth the changes in accumulated other comprehensive loss by component for the three months ended March 30, 2013 (in thousands):
Unrealized Gain on Auction Rate Securities |
Unrealized Gain on Other Available-for-Sale Securities |
Foreign Currency Translation |
Accumulated Tax Effect |
Total | ||||||||||||||||
Beginning balance |
$ | 166 | $ | 16 | $ | (1,650 | ) | $ | (760 | ) | $ | (2,228 | ) | |||||||
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Other comprehensive loss before reclassifications |
0 | (9 | ) | (117 | ) | 0 | (126 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
(166 | ) | 0 | 0 | 0 | (166 | ) | |||||||||||||
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Net current-period other comprehensive loss |
(166 | ) | (9 | ) | (117 | ) | 0 | (292 | ) | |||||||||||
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Ending balance |
$ | 0 | $ | 7 | $ | (1,767 | ) | $ | (760 | ) | $ | (2,520 | ) | |||||||
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The following table provides details about reclassifications out of accumulated other comprehensive loss for the three months ended March 30, 2013 (in thousands):
Details
about Accumulated Other |
Amount Reclassified from Accumulated Other Comprehensive Loss |
Affected
Line Item in |
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Unrealized gain on auction rate securities |
$ | (166 | ) | Other gain (loss), net | ||
0 | Provision for income taxes | |||||
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Total reclassifications for the period |
$ | (166 | ) | Total, net of income tax | ||
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9. Stockholders’ Equity
Stock-based Compensation Plans
The Company’s stock-based compensation plans include stock options, RSUs, PSUs and employee stock purchases under the Company’s ESPP. As of March 30, 2013, there were a total of 19.4 million shares available for grant under the Company’s 2007 Equity Incentive Plan. The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):
Number of Options |
Average Exercise Price Per Share |
Aggregate Intrinsic Value |
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Outstanding at December 29, 2012 |
9,008 | $ | 7.13 | $ | 5,726 | |||||||
Options exercised |
(140 | ) | $ | 2.96 | $ | 549 | ||||||
Options canceled |
(277 | ) | $ | 7.56 | ||||||||
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Outstanding at March 30, 2013 |
8,591 | $ | 7.19 | $ | 7,314 | |||||||
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Vested and expected to vest as of March 30, 2013 |
8,569 | $ | 7,313 | |||||||||
Exercisable at March 30, 2013 |
7,764 | $ | 7.10 | $ | 7,260 | |||||||
Number of Restricted Stock Units |
Weighted- Average Grant Date Fair Value Per Share |
Aggregate Intrinsic Value |
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Outstanding at December 29, 2012 |
6,703 | $ | 8.01 | $ | 38,873 | |||||||
RSUs granted |
383 | $ | 6.69 | |||||||||
RSUs released |
(1,474 | ) | $ | 8.03 | $ | 11,008 | ||||||
RSUs canceled |
(205 | ) | $ | 7.94 | ||||||||
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Outstanding at March 30, 2013 |
5,407 | $ | 7.91 | $ | 37,849 | |||||||
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Expected to vest at March 30, 2013 |
5,280 | $ | 36,961 | |||||||||
Number of Performance Stock Units |
Weighted- Average Grant Date Fair Value Per Share |
Aggregate Intrinsic Value |
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Outstanding at December 29, 2012 |
1,368 | $ | 10.53 | $ | 7,933 | |||||||
PSUs granted |
329 | $ | 6.76 | |||||||||
PSUs released |
(684 | ) | $ | 10.53 | $ | 4,284 | ||||||
PSUs canceled |
(460 | ) | $ | 11.82 | ||||||||
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Outstanding at March 30, 2013 |
553 | $ | 7.22 | $ | 3,871 | |||||||
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Expected to vest at March 30, 2013 |
312 | $ | 2,184 |
The aggregate intrinsic value of unexercised options, unreleased RSUs and unreleased PSUs is calculated as the difference between the closing price of the Company’s common stock of $7.00 at March 28, 2013 and the exercise prices of the underlying equity awards. The aggregate intrinsic value of the options which have been exercised and RSUs released is calculated as the difference between the fair market value of the common stock at the date of exercise or release and the exercise price of the underlying equity awards.
The following table presents total stock-based compensation cost for instruments granted but not yet amortized, net of estimated forfeitures, of the Company’s equity compensation plans as of March 30, 2013. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted-average period):
Unrecognized Compensation Expense, Net |
Weighted- Average Period (in years) |
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Stock options |
$ | 2,969 | 1.2 | |||||
RSUs |
$ | 25,585 | 1.9 | |||||
PSUs |
$ | 1,924 | 2.1 |
Employee Stock Options
The ranges of estimated values of stock options and performance-based stock options granted, as well as ranges of assumptions used in calculating these values were based on estimates as follows:
Three Months Ended | ||||
Employee and Director Stock Options |
March 30, 2013 |
March 31, 2012 |
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Volatility |
N/A | 65% - 68% | ||
Risk-free interest rate |
N/A | 0.7% - 1.0% | ||
Expected life |
N/A | 4.0 - 5.3 years | ||
Estimated fair value |
N/A | $3.75 - $3.76 | ||
Stock-based compensation expense (in thousands) |
$803 | $2,401 |
N/A | Not applicable because the Company did not grant any options to employees during the three months ended March 30, 2013. |
Employee Stock Purchase Plan
The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:
Three Months Ended | ||||
Employee Stock Purchase Plan |
March 30, 2013 |
March 31, 2012 |
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Volatility |
46% | 57% | ||
Risk-free interest rate |
0.14% | 0.16% | ||
Expected life |
0.5 years | 0.5 years | ||
Estimated fair value |
$1.87 | $2.63 | ||
Stock-based compensation expense (in thousands) |
$708 | $896 |
Restricted Stock Units
During the three months ended March 30, 2013, the Company granted RSUs to employees to receive an aggregate of 0.4 million shares of the Company’s common stock, at no cost. The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant. Amortization of stock-based compensation related to RSUs in the three months ended March 30, 2013 and March 31, 2012 was approximately $6.9 million and $6.3 million, respectively.
Performance Stock Units
During 2009, the Company granted PSUs primarily to members of the Company’s board of directors and executive officers. The number of shares to be issued upon vesting of PSUs range from 0.5 to 2.0 times the number of PSUs granted depending on the relative performance of the Company’s common stock price compared to the NASDAQ Composite Index over a three-year or four-year period. During the three months ended March 30, 2013, the Company released 0.5 million of PSUs based on a payout of 0.5 times of the target number of PSUs.
Pursuant to the Company’s 2007 Equity Incentive Plan, during 2012, the Company granted 0.5 million shares of PSUs to certain of the Company’s executive officers. These PSUs will only vest upon the achievement of certain specific revenue and operating profit criteria and are subject to each named executive officer’s continued service to the Company. If the financial performance metrics are not met within the time limits specified in the award agreements, the PSUs will be cancelled. During the three months ended March 30, 2013, the Company released 0.2 million shares of PSUs upon achievement of certain performance goals.
Pursuant to the Company’s 2007 Equity Incentive Plan, during the three months ended March 30, 2013, the Company granted 0.3 million shares of PSUs to certain of the Company’s executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the number of PSUs granted depending on the relative performance of the Company’s common stock price compared to the NASDAQ Telecom Composite Index over the span of one, two and three years of total shareholder returns.
Amortization of stock-based compensation related to PSUs in the three months ended March 30, 2013 was a credit of approximately $0.8 million, including $0.6 million of expense offset by a $1.4 million decrease in fair value for one award classified as a liability award, in accordance with Accounting Standard Codification 718, Compensation – Stock Compensation. Amortization of stock-based compensation related to PSUs in the three months ended March 31, 2012 was approximately $0.5 million.
Common Stock Warrants
During the first quarter of 2013, warrants to purchase 92,592 shares of common stock were net exercised. The aggregate consideration for such exercises was approximately $0.5 million. As of March 30, 2013, there were no warrants of common stock outstanding.
Stock-Based Compensation
The following tables summarize the effects of stock-based compensation on the Company’s condensed consolidated balance sheets and statements of operations for the periods presented (in thousands):
March 30, 2013 |
December 29, 2012 |
|||||||
Stock-based compensation effects in inventory |
$ | 4,555 | $ | 4,891 | ||||
Stock-based compensation effects in deferred inventory cost |
$ | 23 | $ | 42 | ||||
Stock-based compensation effects in fixed assets |
$ | 165 | $ | 171 | ||||
Three Months Ended | ||||||||
March 30, 2013 |
March 31, 2012 |
|||||||
Stock-based compensation effects in net loss before income taxes |
||||||||
Cost of revenue |
$ | 486 | $ | 606 | ||||
Research and development |
3,119 | 3,320 | ||||||
Sales and marketing |
1,999 | 2,219 | ||||||
General and administration |
769 | 2,223 | ||||||
|
|
|
|
|||||
6,373 | 8,368 | |||||||
Cost of revenue – amortization from balance sheet(1) |
1,602 | 1,069 | ||||||
|
|
|
|
|||||
Total stock-based compensation expense |
$ | 7,975 | $ | 9,437 | ||||
|
|
|
|
(1) |
Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period. |
|
10. Income Taxes
Provision for income taxes for the three months ended March 30, 2013 was $0.3 million, or negative 2.2% on a pre-tax loss of $15.0 million, compared to a tax provision of $0.6 million, or negative 2.9%, on a pre-tax loss of $20.0 million for the three months ended March 31, 2012. The difference between the Company’s effective tax rates and the federal statutory rate of 35% is primarily attributable to unbenefited U.S. losses, foreign taxes provided on the income of the Company’s foreign subsidiaries, non-deductible stock-based compensation expense, and various discrete items. The lower tax expense in 2013 relates to a release of transfer pricing reserves following a statute of limitations lapse.
The realization of tax benefits of deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are scheduled to be deductible or taxable. Based on the available objective evidence, management believes it is more likely than not that the domestic net deferred tax assets will not be realizable. Accordingly, the Company has provided a full valuation allowance against its domestic deferred tax assets, net of deferred tax liabilities, as of March 30, 2013 and December 29, 2012. In determining future taxable income, the Company makes assumptions to forecast federal, state and international operating income, the reversal of temporary differences, and the implementation of any feasible and prudent tax planning strategies. The assumptions require significant judgment regarding the forecasts of future taxable income and are consistent with the Company’s forecasts used to manage its business. The Company intends to maintain the remaining valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease, in the valuation allowance.
|
11. Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Company’s chief executive officer. The Company’s chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. The Company has one business activity, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure.
Revenue by geographic region is based on the shipping address of the customer. The following tables set forth revenue and long-lived assets by geographic region (in thousands):
Revenue
Three Months Ended | ||||||||
March 30, 2013 |
March 31, 2012 |
|||||||
Americas: |
||||||||
United States |
$ | 79,073 | $ | 70,898 | ||||
Other Americas |
718 | 3,992 | ||||||
|
|
|
|
|||||
$ | 79,791 | $ | 74,890 | |||||
Europe, Middle East and Africa |
38,806 | 26,151 | ||||||
Asia Pacific |
6,028 | 3,660 | ||||||
|
|
|
|
|||||
Total revenue |
$ | 124,625 | $ | 104,701 | ||||
|
|
|
|
Property, plant and equipment, net
March 30, 2013 |
December 29, 2012 |
|||||||
United States |
$ | 75,313 | $ | 78,309 | ||||
Other Americas |
191 | 198 | ||||||
Europe, Middle East and Africa |
74 | 24 | ||||||
Asia Pacific |
1,577 | 1,812 | ||||||
|
|
|
|
|||||
Total property, plant and equipment, net |
$ | 77,155 | $ | 80,343 | ||||
|
|
|
|
|
12. Guarantees
Product Warranties
Upon delivery of products, the Company provides for the estimated cost to repair or replace products or the related components that may be returned under hardware warranties. In general, hardware warranty periods range from one to five years. Hardware warranties provide the purchaser with protection in the event that the product does not perform to product specifications. During the warranty period, the purchaser’s sole and exclusive remedy in the event of such defect or failure to perform is limited to the correction of the defect or failure by repair, refurbishment or replacement, at the Company’s sole option and expense. The Company estimates its hardware warranty obligations based on the Company’s historical experience of known product failure rates, use of materials to repair or replace defective products, and service delivery costs incurred in correcting product failures. In addition, from time to time, specific hardware warranty accruals may be made if unforeseen technical problems arise with specific products. Management periodically assesses the adequacy of the Company’s recorded warranty liabilities and adjusts the amounts as necessary.
Activity related to product warranty was as follows (in thousands):
Three Months Ended | ||||||||
March 30, 2013 |
March 31, 2012 |
|||||||
Beginning balance |
$ | 16,482 | $ | 12,865 | ||||
Charges to operations |
4,168 | 2,721 | ||||||
Utilization |
(2,083 | ) | (1,973 | ) | ||||
Change in estimate(1) |
(1,895 | ) | (627 | ) | ||||
|
|
|
|
|||||
Balance at the end of the period |
$ | 16,672 | $ | 12,986 | ||||
|
|
|
|
(1) |
The Company records hardware warranty liabilities based on the latest quality and cost information available as of that date. The favorable changes in estimate shown here are due to continued improvements in overall actual failure rates and the impact of these improvements on the Company’s estimate of expected future returns and changes in the estimated cost of replacing failed units using either repaired or new units. |
|
13. Litigation and Contingencies
Legal Matters
From time to time, the Company is subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, the Company does not expect that the ultimate costs to resolve these matters will have a material effect on its consolidated financial position, results of operations, or cash flows. A complete description of the Company’s legal proceedings can be found in “Item 3. Legal Proceedings” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012 filed with the SEC on March 5, 2013, which is incorporated herein by reference. Any updates to the information contained in the Company’s Annual Report on Form 10-K are set forth below.
Cheetah Patent Infringement Litigation
Based on the information available at this time, the Company concluded that the likelihood of a loss with respect to this suit is now reasonably possible. The Company has further concluded, that the range of the reasonably possible loss is an insignificant amount and will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. No provision has been made for this lawsuit in our financial statements. Factors that the Company considered in the determination of the likelihood of a loss and the estimate of the range of that loss in respect to this matter included the merits of the case, the nature of the litigation (including the complex and technical nature of patent litigation), the length of time the matter has been pending, the lift of the stay by the court, the status of the plaintiff as a non-operating entity, the Company’s intention to vigorously defend the case unless it can be settled for an insignificant amount and the likelihood of the plaintiff accepting an amount in this range. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.
Cambrian Science Patent Infringement Litigation
Based on the information available at this time, the Company concluded that the likelihood of a loss with respect to this suit is less than reasonably possible and therefore, a range of loss cannot be provided. As a result, the Company has made no provision for this lawsuit in its financial statements. Factors that the Company considered in the determination of the likelihood of a loss in respect to this matter included the merits of the case, the nature of the litigation (including the complex and technical nature of patent litigation), the length of time the matter has been pending, and the status of the plaintiff as a non-operating entity. There have been no updates in the Company’s legal proceedings for the three months ended March 30, 2013 as compared to those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
Loss Contingencies
The Company is subject to the possibility of various losses arising in the ordinary course of business. These may relate to disputes, litigation and other legal actions. In the preparation of its quarterly and annual financial statements, the Company considers the likelihood of loss or the incurrence of a liability, including whether it is probable, reasonably possible or remote that a liability has been incurred, as well as the Company’s ability to reasonably estimate the amount of loss, in determining loss contingencies. In accordance with U.S. GAAP, an estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required. As of March 30, 2013, the Company has not accrued or recorded any such material liabilities.
|
In February 2013, the FASB issued Accounting Standards Update 2013-02, Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company adopted the guidance for ASU 2013-02 beginning in its fiscal quarter ended March 30, 2013. Other than requiring additional disclosures, the Company’s adoption of ASU 2013-02 did not have an impact on the Company’s financial position, results of operations or cash flow.
|
The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands):
As of March 30, 2013 | As of December 29, 2012 | |||||||||||||||||||||||||||||||
Fair Value Measured Using | Fair Value Measured Using | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Money market funds |
$ | 40,799 | $ | 0 | $ | 0 | $ | 40,799 | $ | 25,560 | $ | 0 | $ | 0 | $ | 25,560 | ||||||||||||||||
Certificates of deposit |
0 | 1,440 | 0 | 1,440 | 0 | 2,160 | 0 | 2,160 | ||||||||||||||||||||||||
Commercial paper |
0 | 25,769 | 0 | 25,769 | 0 | 14,843 | 0 | 14,843 | ||||||||||||||||||||||||
Corporate bonds |
0 | 31,634 | 0 | 31,634 | 0 | 57,467 | 0 | 57,467 | ||||||||||||||||||||||||
U.S. agency notes |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
U.S. treasuries |
9,013 | 0 | 0 | 9,013 | 15,020 | 0 | 0 | 15,020 | ||||||||||||||||||||||||
ARS |
0 | 0 | 0 | 0 | 0 | 0 | 2,873 | 2,873 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total assets |
$ | 49,812 | $ | 58,843 | $ | 0 | $ | 108,655 | $ | 40,580 | $ | 74,470 | $ | 2,873 | $ | 117,923 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||
Foreign currency exchange forward contracts |
$ | 0 | $ | 71 | $ | 0 | $ | 71 | $ | 0 | $ | 112 | $ | 0 | $ | 112 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable (Level 3) inputs (in thousands):
Three Months Ended | ||||||||||||||||||||
December 29, 2012 |
Total Net Gains Included in Other Comprehensive Loss |
Calls | Sold | March 30, 2013 |
||||||||||||||||
ARS – available-for-sale |
$ | 2,873 | $ | 0 | (1) | $ | (92 | )(2) | $ | (2,781 | )(3) | $ | 0 | |||||||
Three Months Ended | ||||||||||||||||||||
December 31, 2011 |
Total Net Gains Included in Other Comprehensive Loss |
Calls | March 31, 2012 |
|||||||||||||||||
ARS – available-for-sale |
$ | 7,675 | $ | 16 | (1) | $ | (136 | )(2) | $ | 7,555 |
(1) |
Amount represents the change in the non-credit loss related other-than-temporary impairments (“OTTI”) recorded in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. |
(2) |
Amount represents the fair market value of the securities called at par value. Realized gains for the three months ended March 30, 2013 and March 31, 2012 were not significant. |
(3) |
Amount represents the fair market value of the securities sold at 95% of par value. Realized gains for the three months ended March 30, 2013 were $0.2 million. |
Investments at fair value were as follows (in thousands):
March 30, 2013 | ||||||||||||||||
Adjusted Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Money market funds |
$ | 40,799 | $ | 0 | $ | 0 | $ | 40,799 | ||||||||
Certificates of deposit |
1,440 | 0 | 0 | 1,440 | ||||||||||||
Commercial paper |
25,776 | 5 | (12 | ) | 25,769 | |||||||||||
Corporate bonds |
31,624 | 13 | (3 | ) | 31,634 | |||||||||||
U.S. treasuries |
9,009 | 4 | 0 | 9,013 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale investments |
$ | 108,648 | $ | 22 | $ | (15 | ) | $ | 108,655 | |||||||
|
|
|
|
|
|
|
|
December 29, 2012 | ||||||||||||||||
Adjusted Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Money market funds |
$ | 25,560 | $ | 0 | $ | 0 | $ | 25,560 | ||||||||
Certificates of deposit |
2,160 | 0 | 0 | 2,160 | ||||||||||||
Commercial paper |
14,848 | 0 | (5 | ) | 14,843 | |||||||||||
Corporate bonds |
57,451 | 22 | (6 | ) | 57,467 | |||||||||||
U.S. treasuries |
15,015 | 5 | 0 | 15,020 | ||||||||||||
ARS |
2,707 | (1) | 166 | 0 | 2,873 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale investments |
$ | 117,741 | $ | 193 | $ | (11 | ) | $ | 117,923 | |||||||
|
|
|
|
|
|
|
|
(1) |
Amount represents the par value less $0.4 million of credit-related OTTI recognized through earnings in prior years. |
A roll-forward of amortized cost, cumulative OTTI recognized in earnings and Accumulated other comprehensive loss is as follows (in thousands):
Amortized Cost |
Cumulative OTTI in Earnings |
Unrealized Gain |
OTTI Loss in Accumulated Other Comprehensive Loss |
Accumulated Other Comprehensive Income (Loss) |
||||||||||||||||
Balance at December 29, 2012 |
$ | 2,707 | $ | (394 | ) | $ | 784 | $ | (618 | ) | $ | 166 | ||||||||
Call on investments |
(87 | ) | 13 | (25 | ) | 20 | (5 | ) | ||||||||||||
Investments sold |
(2,620 | ) | 381 | (759 | ) | 598 | (161 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at March 30, 2013 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
The fair value of derivative instruments not designated as hedging instruments in the Company’s condensed consolidated balance sheets was as follows (in thousands):
As of March 30, 2013 | As of December 29, 2012 | |||||||||||||||
Gross Notional(1) |
Other Accrued Liabilities |
Gross Notional(1) |
Other Accrued Liabilities |
|||||||||||||
Foreign currency exchange forward contracts |
||||||||||||||||
Related to Euro denominated receivables |
$ | 21,646 | $ | (67 | ) | $ | 22,882 | $ | (105 | ) | ||||||
Related to restricted cash |
1,452 | (4 | ) | 1,495 | (7 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 23,098 | $ | (71 | ) | $ | 24,377 | $ | (112 | ) | |||||||
|
|
|
|
|
|
|
|
(1) |
Represents the face amounts of forward contracts that were outstanding as of the period noted. |
|
The following table provides details of selected balance sheet items (in thousands):
March 30, 2013 |
December 29, 2012 |
|||||||
Inventory |
||||||||
Raw materials |
$ | 12,224 | $ | 13,003 | ||||
Work in process |
53,136 | 57,281 | ||||||
Finished goods(1) |
65,631 | 57,525 | ||||||
|
|
|
|
|||||
Total inventory |
$ | 130,991 | $ | 127,809 | ||||
|
|
|
|
|||||
Property, plant and equipment, net: |
||||||||
Computer hardware |
$ | 9,066 | $ | 9,024 | ||||
Computer software |
16,134 | 15,834 | ||||||
Laboratory and manufacturing equipment |
125,633 | 120,543 | ||||||
Furniture and fixtures |
1,299 | 1,285 | ||||||
Leasehold improvements |
33,120 | 33,370 | ||||||
Construction in progress |
14,781 | 17,513 | ||||||
|
|
|
|
|||||
Subtotal |
$ | 200,033 | $ | 197,569 | ||||
Less accumulated depreciation and amortization |
(122,878 | ) | (117,226 | ) | ||||
|
|
|
|
|||||
Total property, plant and equipment, net |
$ | 77,155 | $ | 80,343 | ||||
|
|
|
|
|||||
Accrued expenses: |
||||||||
Loss contingency related to non-cancelable purchase commitments |
$ | 4,687 | $ | 5,401 | ||||
Professional and other consulting fees |
3,379 | 3,703 | ||||||
Taxes payable |
3,068 | 3,588 | ||||||
Royalties |
704 | 1,516 | ||||||
Accrued rebate and customer prepay liability |
1,102 | 1,284 | ||||||
Other accrued expenses |
7,000 | 9,991 | ||||||
|
|
|
|
|||||
Total accrued expenses |
$ | 19,940 | $ | 25,483 | ||||
|
|
|
|
(1) |
Included in finished goods inventory at March 30, 2013 and December 29, 2012 were $12.6 million and $15.6 million, respectively, of inventory at customer locations for which product acceptance had not occurred. |
|
The following table sets forth the changes in accumulated other comprehensive loss by component for the three months ended March 30, 2013 (in thousands):
Unrealized Gain on Auction Rate Securities |
Unrealized Gain on Other Available-for-Sale Securities |
Foreign Currency Translation |
Accumulated Tax Effect |
Total | ||||||||||||||||
Beginning balance |
$ | 166 | $ | 16 | $ | (1,650 | ) | $ | (760 | ) | $ | (2,228 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive loss before reclassifications |
0 | (9 | ) | (117 | ) | 0 | (126 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
(166 | ) | 0 | 0 | 0 | (166 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net current-period other comprehensive loss |
(166 | ) | (9 | ) | (117 | ) | 0 | (292 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
$ | 0 | $ | 7 | $ | (1,767 | ) | $ | (760 | ) | $ | (2,520 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
The following table provides details about reclassifications out of accumulated other comprehensive loss for the three months ended March 30, 2013 (in thousands):
Details
about Accumulated Other |
Amount Reclassified from Accumulated Other Comprehensive Loss |
Affected
Line Item in |
||||
Unrealized gain on auction rate securities |
$ | (166 | ) | Other gain (loss), net | ||
0 | Provision for income taxes | |||||
|
|
|||||
Total reclassifications for the period |
$ | (166 | ) | Total, net of income tax | ||
|
|
|
The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):
Number of Options |
Average Exercise Price Per Share |
Aggregate Intrinsic Value |
||||||||||
Outstanding at December 29, 2012 |
9,008 | $ | 7.13 | $ | 5,726 | |||||||
Options exercised |
(140 | ) | $ | 2.96 | $ | 549 | ||||||
Options canceled |
(277 | ) | $ | 7.56 | ||||||||
|
|
|||||||||||
Outstanding at March 30, 2013 |
8,591 | $ | 7.19 | $ | 7,314 | |||||||
|
|
|||||||||||
Vested and expected to vest as of March 30, 2013 |
8,569 | $ | 7,313 | |||||||||
Exercisable at March 30, 2013 |
7,764 | $ | 7.10 | $ | 7,260 | |||||||
Number of Restricted Stock Units |
Weighted- Average Grant Date Fair Value Per Share |
Aggregate Intrinsic Value |
||||||||||
Outstanding at December 29, 2012 |
6,703 | $ | 8.01 | $ | 38,873 | |||||||
RSUs granted |
383 | $ | 6.69 | |||||||||
RSUs released |
(1,474 | ) | $ | 8.03 | $ | 11,008 | ||||||
RSUs canceled |
(205 | ) | $ | 7.94 | ||||||||
|
|
|||||||||||
Outstanding at March 30, 2013 |
5,407 | $ | 7.91 | $ | 37,849 | |||||||
|
|
|||||||||||
Expected to vest at March 30, 2013 |
5,280 | $ | 36,961 | |||||||||
Number of Performance Stock Units |
Weighted- Average Grant Date Fair Value Per Share |
Aggregate Intrinsic Value |
||||||||||
Outstanding at December 29, 2012 |
1,368 | $ | 10.53 | $ | 7,933 | |||||||
PSUs granted |
329 | $ | 6.76 | |||||||||
PSUs released |
(684 | ) | $ | 10.53 | $ | 4,284 | ||||||
PSUs canceled |
(460 | ) | $ | 11.82 | ||||||||
|
|
|||||||||||
Outstanding at March 30, 2013 |
553 | $ | 7.22 | $ | 3,871 | |||||||
|
|
|||||||||||
Expected to vest at March 30, 2013 |
312 | $ | 2,184 |
The following table presents total stock-based compensation cost for instruments granted but not yet amortized, net of estimated forfeitures, of the Company’s equity compensation plans as of March 30, 2013. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted-average period):
Unrecognized Compensation Expense, Net |
Weighted- Average Period (in years) |
|||||||
Stock options |
$ | 2,969 | 1.2 | |||||
RSUs |
$ | 25,585 | 1.9 | |||||
PSUs |
$ | 1,924 | 2.1 |
The ranges of estimated values of stock options and performance-based stock options granted, as well as ranges of assumptions used in calculating these values were based on estimates as follows:
Three Months Ended | ||||
Employee and Director Stock Options |
March 30, 2013 |
March 31, 2012 |
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Volatility |
N/A | 65% - 68% | ||
Risk-free interest rate |
N/A | 0.7% - 1.0% | ||
Expected life |
N/A | 4.0 - 5.3 years | ||
Estimated fair value |
N/A | $3.75 - $3.76 | ||
Stock-based compensation expense (in thousands) |
$803 | $2,401 |
N/A | Not applicable because the Company did not grant any options to employees during the three months ended March 30, 2013. |
The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:
Three Months Ended | ||||
Employee Stock Purchase Plan |
March 30, 2013 |
March 31, 2012 |
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Volatility |
46% | 57% | ||
Risk-free interest rate |
0.14% | 0.16% | ||
Expected life |
0.5 years | 0.5 years | ||
Estimated fair value |
$1.87 | $2.63 | ||
Stock-based compensation expense (in thousands) |
$708 | $896 |
The following tables summarize the effects of stock-based compensation on the Company’s condensed consolidated balance sheets and statements of operations for the periods presented (in thousands):
March 30, 2013 |
December 29, 2012 |
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Stock-based compensation effects in inventory |
$ | 4,555 | $ | 4,891 | ||||
Stock-based compensation effects in deferred inventory cost |
$ | 23 | $ | 42 | ||||
Stock-based compensation effects in fixed assets |
$ | 165 | $ | 171 | ||||
Three Months Ended | ||||||||
March 30, 2013 |
March 31, 2012 |
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Stock-based compensation effects in net loss before income taxes |
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Cost of revenue |
$ | 486 | $ | 606 | ||||
Research and development |
3,119 | 3,320 | ||||||
Sales and marketing |
1,999 | 2,219 | ||||||
General and administration |
769 | 2,223 | ||||||
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6,373 | 8,368 | |||||||
Cost of revenue – amortization from balance sheet(1) |
1,602 | 1,069 | ||||||
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Total stock-based compensation expense |
$ | 7,975 | $ | 9,437 | ||||
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(1) |
Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period. |
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Revenue by geographic region is based on the shipping address of the customer. The following tables set forth revenue and long-lived assets by geographic region (in thousands):
Revenue
Three Months Ended | ||||||||
March 30, 2013 |
March 31, 2012 |
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Americas: |
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United States |
$ | 79,073 | $ | 70,898 | ||||
Other Americas |
718 | 3,992 | ||||||
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$ | 79,791 | $ | 74,890 | |||||
Europe, Middle East and Africa |
38,806 | 26,151 | ||||||
Asia Pacific |
6,028 | 3,660 | ||||||
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Total revenue |
$ | 124,625 | $ | 104,701 | ||||
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Property, plant and equipment, net
March 30, 2013 |
December 29, 2012 |
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United States |
$ | 75,313 | $ | 78,309 | ||||
Other Americas |
191 | 198 | ||||||
Europe, Middle East and Africa |
74 | 24 | ||||||
Asia Pacific |
1,577 | 1,812 | ||||||
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Total property, plant and equipment, net |
$ | 77,155 | $ | 80,343 | ||||
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Activity related to product warranty was as follows (in thousands):
Three Months Ended | ||||||||
March 30, 2013 |
March 31, 2012 |
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Beginning balance |
$ | 16,482 | $ | 12,865 | ||||
Charges to operations |
4,168 | 2,721 | ||||||
Utilization |
(2,083 | ) | (1,973 | ) | ||||
Change in estimate(1) |
(1,895 | ) | (627 | ) | ||||
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Balance at the end of the period |
$ | 16,672 | $ | 12,986 | ||||
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(1) |
The Company records hardware warranty liabilities based on the latest quality and cost information available as of that date. The favorable changes in estimate shown here are due to continued improvements in overall actual failure rates and the impact of these improvements on the Company’s estimate of expected future returns and changes in the estimated cost of replacing failed units using either repaired or new units. |
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