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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
Form 10-Q
_____________________________________________________
(Mark One)
ý
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 27, 2019

¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File No. 000-25826
_____________________________________________________
HARMONIC INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________
Delaware
77-0201147
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
4300 North First Street
San Jose, CA 95134
(408) 542-2500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
____________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, $0.001 par value
 
HLIT
 
NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
¨
Accelerated filer
ý
 
 
 
 
Non-accelerated filer
¨  
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on October 25, 2019 was 90,343,130.



Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 

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Table of Contents

PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARMONIC INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
 
September 27, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
66,695

 
$
65,989

Accounts receivable, net
100,905

 
81,795

Inventories
28,970

 
25,638

Prepaid expenses and other current assets
40,317

 
23,280

Total current assets
236,887

 
196,702

Property and equipment, net
18,901

 
22,321

Operating lease right-of-use assets
27,694

 

Goodwill
238,734

 
240,618

Intangibles, net
6,518

 
12,817

Other long-term assets
39,472

 
38,377

Total assets
$
568,206

 
$
510,835

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Other debts and finance lease obligations, current
$
6,962

 
$
7,175

Accounts payable
31,227

 
33,778

Income taxes payable
1,128

 
1,099

Deferred revenue
47,873

 
41,592

Accrued and other current liabilities
59,260

 
52,761

Total current liabilities
146,450

 
136,405

Convertible notes, long-term
130,217

 
114,808

Other debts and finance lease obligations, long-term
10,384

 
12,684

Income taxes payable, long-term
269

 
460

Other non-current liabilities
39,836

 
18,228

Total liabilities
327,156

 
282,585

Commitments and contingencies (Note 17)

 

Stockholders’ equity:

 
 
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding

 

Common stock, $0.001 par value, 150,000 shares authorized; 90,315 and 87,057 shares issued and outstanding at September 27, 2019 and December 31, 2018, respectively
90

 
87

Additional paid-in capital
2,323,839

 
2,296,795

Accumulated deficit
(2,077,510
)
 
(2,067,416
)
Accumulated other comprehensive loss
(5,369
)
 
(1,216
)
Total stockholders’ equity
241,050

 
228,250

Total liabilities and stockholders’ equity
$
568,206

 
$
510,835

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
 
Three months ended
 
Nine months ended
 
September 27, 2019
 
September 28, 2018
 
September 27, 2019
 
September 28, 2018
Revenue:
 
 
 
 
 
 
 
Appliance and integration
$
83,082

 
$
71,965

 
$
189,864

 
$
204,385

SaaS and service
32,643

 
28,651

 
90,832

 
85,518

Total net revenue
115,725

 
100,616

 
280,696

 
289,903

Cost of revenue:
 
 
 
 
 
 
 
Appliance and integration
26,812

 
38,945

 
83,178

 
106,183

SaaS and service
13,373

 
11,569

 
36,201

 
34,832

Total cost of revenue
40,185

 
50,514

 
119,379

 
141,015

Total gross profit
75,540

 
50,102

 
161,317

 
148,888

Operating expenses:
 
 
 
 
 
 
 
Research and development
20,197

 
22,251

 
62,911

 
67,250

Selling, general and administrative
31,148

 
29,723

 
88,478

 
88,874

Amortization of intangibles
785

 
792

 
2,357

 
2,396

Restructuring and related charges
861

 
987

 
1,194

 
2,704

Total operating expenses
52,991

 
53,753

 
154,940

 
161,224

Income (loss) from operations
22,549

 
(3,651
)
 
6,377

 
(12,336
)
Interest expense, net
(3,000
)
 
(2,872
)
 
(8,862
)
 
(8,492
)
Loss on debt extinguishment
(5,695
)
 

 
(5,695
)
 

Other expense, net
(1,594
)
 
(365
)
 
(2,333
)
 
(698
)
Income (loss) before income taxes
12,260

 
(6,888
)
 
(10,513
)
 
(21,526
)
Provision for income taxes
603

 
870

 
981

 
2,839

Net income (loss)
$
11,657

 
$
(7,758
)
 
$
(11,494
)
 
$
(24,365
)
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.13

 
$
(0.09
)
 
$
(0.13
)
 
$
(0.29
)
Diluted
$
0.12

 
$
(0.09
)
 
$
(0.13
)
 
$
(0.29
)
Shares used in per share calculation:
 
 
 
 
 
 
 
Basic
89,964

 
86,321

 
89,030

 
85,188

Diluted
97,596

 
86,321

 
89,030

 
85,188

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
 
Three months ended
 
Nine months ended
 
September 27, 2019
 
September 28, 2018
 
September 27, 2019
 
September 28, 2018
Net income (loss)
$
11,657

 
$
(7,758
)
 
$
(11,494
)
 
$
(24,365
)
Losses reclassified into earnings

 

 
56

 

Change in foreign currency translation adjustments
(3,431
)
 
447

 
(3,874
)
 
(2,577
)
Other comprehensive income (loss) before tax
(3,431
)
 
447

 
(3,818
)
 
(2,577
)
Less: Provision for (benefit from) income taxes
284

 
(78
)
 
335

 
291

Other comprehensive income (loss), net of tax
(3,715
)
 
525

 
(4,153
)
 
(2,868
)
Total comprehensive income (loss)
$
7,942

 
$
(7,233
)
 
$
(15,647
)
 
$
(27,233
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)

 
Three Months Ended September 27, 2019
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance at June 28, 2019
89,074

 
$
89

 
$
2,302,798

 
$
(2,089,167
)
 
$
(1,654
)
 
$
212,066

Net income

 

 

 
11,657

 

 
11,657

Other comprehensive loss, net of tax

 

 

 

 
(3,715
)
 
(3,715
)
Issuance of common stock under option, stock award and purchase plans
1,241

 
1

 
2,975

 

 

 
2,976

Stock-based compensation

 

 
4,157

 

 

 
4,157

Issuance of warrant

 

 
16,142

 

 

 
16,142

Portion of repurchase price recorded in additional paid-in capital in connection with partial repurchase of 4.00% convertible notes due 2020

 

 
(27,111
)
 

 

 
(27,111
)
Conversion feature of 2.00% convertible notes due 2024

 

 
24,878

 

 

 
24,878

Balance at September 27, 2019
90,315

 
$
90

 
$
2,323,839

 
$
(2,077,510
)
 
$
(5,369
)
 
$
241,050

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 28, 2018
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Income (Loss)
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance at June 28, 2018
85,439

 
$
85

 
$
2,283,649

 
$
(2,062,988
)
 
$
(11
)
 
$
220,735

Net loss

 

 

 
(7,758
)
 

 
(7,758
)
Other comprehensive income, net of tax

 

 

 

 
525

 
525

Issuance of common stock under option, stock award and purchase plans
1,248

 
2

 
1,819

 

 

 
1,821

Stock-based compensation

 

 
5,411

 

 

 
5,411

Issuance of warrant

 

 
2,295

 

 

 
2,295

Balance at September 28, 2018
86,687

 
$
87

 
$
2,293,174

 
$
(2,070,746
)
 
$
514

 
$
223,029



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Nine Months Ended September 27, 2019
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance at December 31, 2018
87,057

 
$
87

 
$
2,296,795

 
$
(2,067,416
)
 
$
(1,216
)
 
$
228,250

Cumulative effect to retained earnings related to adoption of Topic 718 (1)

 

 

 
1,400

 

 
1,400

Balance at January 1, 2019
87,057

 
87

 
2,296,795

 
(2,066,016
)
 
(1,216
)
 
229,650

Net loss

 

 

 
(11,494
)
 

 
(11,494
)
Other comprehensive loss, net of tax

 

 

 

 
(4,153
)
 
(4,153
)
Issuance of common stock under option, stock award and purchase plans
3,258

 
3

 
4,292

 

 

 
4,295

Stock-based compensation

 

 
8,843

 

 

 
8,843

Issuance of warrant

 

 
16,142

 

 

 
16,142

Portion of repurchase price recorded in additional paid-in capital in connection with partial repurchase of 4.00% convertible notes due 2020

 

 
(27,111
)
 

 

 
(27,111
)
Conversion feature of 2.00% convertible notes due 2024

 

 
24,878

 

 

 
24,878

Balance at September 27, 2019
90,315

 
$
90

 
$
2,323,839

 
$
(2,077,510
)
 
$
(5,369
)
 
$
241,050

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 28, 2018
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Income
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance at December 31, 2017
82,554

 
$
83

 
$
2,272,690

 
$
(2,057,812
)
 
$
3,382

 
$
218,343

Cumulative effect to retained earnings related to adoption of ASC 606

 

 

 
11,431

 

 
11,431

Balance at January 1, 2018
82,554

 
83

 
2,272,690

 
(2,046,381
)
 
3,382

 
229,774

Net loss

 

 

 
(24,365
)
 

 
(24,365
)
Other comprehensive loss, net of tax

 

 

 

 
(2,868
)
 
(2,868
)
Issuance of common stock under option, stock award and purchase plans
4,133

 
4

 
4,130

 

 

 
4,134

Stock-based compensation

 

 
14,059

 

 

 
14,059

Issuance of warrant

 

 
2,295

 

 

 
2,295

Balance at September 28, 2018
86,687

 
$
87

 
$
2,293,174

 
$
(2,070,746
)
 
$
514

 
$
223,029

(1) See Note 2, “Recent Accounting Pronouncements” for more information on the adoption of Accounting Standard Update (“ASU”) No. 2018-07, Compensation-Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting issued by the Financial Accounting Standards Board.


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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Nine months ended
 
September 27, 2019
 
September 28, 2018
Cash flows from operating activities:
 
 
 
Net loss
$
(11,494
)
 
$
(24,365
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Amortization of intangibles
6,242

 
6,281

Depreciation
8,480

 
9,910

Stock-based compensation
8,719

 
14,202

Amortization of discount on convertible debt and issuance cost
4,960

 
4,482

Amortization of non-cash warrant
13,137

 
1,185

Restructuring, asset impairment and loss on retirement of fixed assets
85

 
1,105

Loss on debt extinguishment
5,695

 

Deferred income taxes, net
75

 
1,056

Foreign currency adjustments
(1,719
)
 
(1,034
)
Provision for excess and obsolete inventories
704

 
1,259

Allowance for doubtful accounts and returns
988

 
1,357

Other non-cash adjustments, net
1,150

 
286

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(20,521
)
 
(9,585
)
Inventories
(4,170
)
 
997

Prepaid expenses and other assets
(5,703
)
 
2,507

Accounts payable
(2,839
)
 
(4,032
)
Deferred revenue
8,002

 
1,783

Income taxes payable
(114
)
 
461

Accrued and other liabilities
(10,536
)
 
(2,188
)
Net cash provided by operating activities
1,141

 
5,667

Cash flows from investing activities:
 
 
 
Proceeds from sales of investments

 
104

Purchases of property and equipment
(4,973
)
 
(4,703
)
Net cash used in investing activities
(4,973
)
 
(4,599
)
Cash flows from financing activities:
 
 
 
Proceeds from convertible debt
115,500

 

Payments of convertible debt
(109,603
)
 

Payment of convertible debt issuance costs
(3,465
)
 

Proceeds from other debts and finance leases
4,684

 
5,066

Repayment of other debts and finance leases
(6,387
)
 
(6,568
)
Proceeds from common stock issued to employees
5,573

 
4,299

Payment of tax withholding obligations related to net share settlements of restricted stock units
(1,278
)
 
(166
)
Net cash provided by financing activities
5,024

 
2,631

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(486
)
 
(580
)
Net increase in cash, cash equivalents and restricted cash
706

 
3,119

Cash, cash equivalents and restricted cash at beginning of period
65,989

 
58,757

Cash, cash equivalents and restricted cash at end of period
$
66,695

 
$
61,876

Supplemental disclosures of cash flow information:
 
 
 
Income tax payments, net
980

 
1,209

Interest payments, net
3,432

 
2,727

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Capital expenditures incurred but not yet paid
543

 
664

Issuance of warrant
16,142

 
2,295

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
 
 
 
Cash and cash equivalents
$
66,695

 
$
61,654

Restricted cash included in prepaid expenses and other current assets

 
222

    Total cash, cash equivalents and restricted cash
$
66,695

 
$
61,876


The accompanying notes are an integral part of these condensed consolidated financial statements.

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HARMONIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) which Harmonic Inc. (“Harmonic,” or the “Company”) considers necessary to present fairly the results of operations for the interim periods covered and the consolidated financial condition of the Company at the date of the balance sheets. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2019 (the “2018 Form 10-K”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2019, or any other future period. The Company’s fiscal quarters are based on 13-week periods, except for the fourth quarter, which ends on December 31.
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2018 was derived from audited financial statements, and the unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the SEC for interim reporting. As permitted under those requirements, certain footnotes or other financial information that are normally required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP 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 revenue and expenses during the reporting period. The Company’s reported financial positions or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. If estimates or assumptions differ from actual results, subsequent periods are adjusted to reflect more current information.
Reclassifications
Certain prior period balances have been reclassified to conform to the current period’s presentation. These reclassifications did not have a material impact on previously reported financial statements.

Beginning in the first quarter of fiscal 2019, the Company revised the classification of total revenue in the Condensed Consolidated Statements of Operations from the two previous categories, “Product” and “Service”, to two new categories, “Appliance and integration” and “SaaS and service”. The Company has also reclassified revenue into the two new categories for all prior periods to conform to the current period’s presentation. This reclassification within revenue did not have an impact on total revenue or any segment revenue for any periods presented.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to its audited Consolidated Financial Statements included in the 2018 Form 10-K. There have been no significant changes to these policies during the nine months ended September 27, 2019 other than those disclosed in Note 2, “Recent Accounting Pronouncements”.


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NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements

Accounting Standards Codification (ASC) Topic 842, “Leases”

On January 1, 2019, the Company adopted ASC 842, Leases (“Topic 842”), using the modified retrospective method, applying Topic 842 to all leases existing at the date of initial application. The Company elected to use the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. The Company elected certain practical expedients, which among other things, allowed the Company to carry forward prior conclusions about lease identification and classification.

Adoption of the standard resulted in the balance sheet recognition of additional lease assets and liabilities of approximately $23.3 million; however, the adoption of the standard did not have an impact on the Company’s beginning retained earnings, results from operations or cash flows. See Note 4, “Leases” for additional information.

ASU No. 2018-07, Compensation-Stock Compensation (Topic 718)

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting. The new ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The Company adopted this new standard in the first quarter of fiscal 2019, and the adoption resulted in an adjustment of $1.4 million as the cumulative effect adjustment to opening retained earnings relating to the accounting of warrants which were previously granted to Comcast. This represents the cumulative impact of the remeasurement of unvested Comcast warrants on the date of adoption. See Note 15, “Warrants” for additional information.

ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This new standard requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Costs for implementation activities in the application development stage can be capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. The costs capitalized are expensed over the term of the hosting arrangement. The amendments in the new ASU also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element.

The Company early adopted this new standard in the third quarter of fiscal 2018 and applied it prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a significant impact on the Company’s Consolidated Financial Statements for the year ended December 31, 2018.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, the Company will be required to use a new forward-looking “expected loss” model. Additionally, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The new ASU will be effective for the Company beginning in the first quarter of fiscal 2020 and early adoption is permitted. The adoption of the new ASU is not expected to have a material impact on the Company’s consolidated financial statements.


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In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new ASU removes Step 2 of the goodwill impairment test and requires the assessment of fair value of individual assets and liabilities of a reporting unit to measure goodwill impairments. Goodwill impairment will then be the amount by which a reporting unit's carrying value exceeds its fair value. The new ASU will be effective for the Company beginning in the first quarter of fiscal 2020 on a prospective basis, and early adoption is permitted. The adoption of the new ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, which removes, modifies and adds to the disclosure requirements on fair value measurements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This guidance will become effective for the Company in fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this updated guidance. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this updated guidance and delay adoption of the additional disclosures until their effective date. The Company does not currently hold any level 3 assets or liabilities which require recurring measurements and the Company expects the impact to its disclosure will be relatively limited.

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic 715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. The new ASU is effective for the Company for fiscal years ending after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact of adopting the new ASU on its consolidated financial statements.

NOTE 3: REVENUE
The Company’s principal sources of revenue are from the sale of hardware, software, hardware and software maintenance contracts, and end-to-end solutions, encompassing design, manufacture, test, integration and installation of products. The Company also derives recurring revenue from subscriptions, which are comprised of subscription fees from customers utilizing the Company’s cloud-based video processing solutions.

Beginning in the first quarter of fiscal 2019, the Company revised the classification of total revenue in the Condensed Consolidated Statement of Operations from the two previous categories, “Product” and “Service”, to two new categories, “Appliance and integration” and “SaaS and service”. The “Appliance and integration” revenue category includes hardware, licenses and professional services and is reflective of non-recurring revenue, while the “SaaS and service” category includes usage fees for the Company’s SaaS platform and support revenue stream from the Company’s appliance-based customers and reflects the Company’s recurring revenue stream.

Significant Judgments. The Company has revenue arrangements that include promises to transfer multiple products and services to a customer. The Company may exercise significant judgment when determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together.

The Company has revenue arrangements that include multiple performance obligations. The Company allocates the transaction price to all separate performance obligations based on the relative standalone selling prices (“SSP”) of each obligation. The Company’s best evidence for SSP is the price the Company charges for that good or service when the Company sells it separately in similar circumstances to similar customers. If goods or services are not always sold separately, the Company uses the best estimate of SSP in the allocation of the transaction price. The objective of determining the best estimate of SSP is to estimate the price at which the Company would transact a sale if the product or service were sold on a standalone basis. The Company’s process for determining the best estimate of SSP involves management’s judgment, and considers multiple factors including, but not limited to, major product groupings, geographies, gross margin objectives and pricing practices. Pricing practices taken into consideration include contractually stated prices, discounts and applicable price lists. These factors may vary over time, depending upon the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the Company to consider additional factors, the Company’s best estimate of SSP may also change.


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If the Company has not yet established a price because the good or service has not previously been sold on a standalone basis, SSP for such good and service in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSP, using observable prices, with any residual amount of the transaction price allocated to the good or service for which the price has not yet been established.

Contract Balances. Deferred revenue represents the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. The Company’s payment terms vary by the type and location of its customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.

Contract assets exist when the Company has satisfied a performance obligation but does not have an unconditional right to consideration (e.g., because the entity first must satisfy another performance obligation in the contract before it is entitled to invoice the customer).

Contract assets and deferred revenue consisted of the following (in thousands):
 
As of
 
September 27,
2019
 
December 31,
2018
Contract assets
$
6,774

 
$
3,834

Deferred revenue
54,817

 
46,922


Contract assets and Deferred revenue (long-term) are reported as components of “Prepaid expenses and other current assets” and “Other non-current liabilities”, respectively, on the Condensed Consolidated Balance Sheets. See Note 8, “Balance Sheet Components” for additional information.

During the three months ended September 27, 2019 and September 28, 2018, the Company recognized revenue of $6.1 million and $7.8 million, respectively, that was included in the deferred revenue balance at the beginning of each fiscal year. During the nine months ended September 27, 2019 and September 28, 2018, the Company recognized revenue of $37.4 million and $43.2 million, respectively, that was included in the deferred revenue balance at the beginning of each fiscal year.

The Company elected the practical expedient under Topic 606 to not disclose the transaction price allocated to remaining performance obligations, since the majority of the Company’s arrangements have original expected durations of one year or less, or the invoicing corresponds to the value of the Company’s performance completed to date. These performance obligations primarily relate to the Company’s support and maintenance contracts which have a duration of one year or less and subscriptions services for which invoicing corresponds to the value of the Company’s performance completed to date.

In July 2019, Comcast elected enterprise license pricing for the Company’s CableOS software as contemplated under certain existing commercial agreements between the Company and Comcast (the “CableOS software license agreement”), which also includes maintenance and support services, and material rights. As of September 27, 2019, the aggregate amount of the transaction price under this agreement allocated to the remaining performance obligations is $110.3 million, and the Company will recognize this revenue as the related performance obligations are delivered over the next three years to four years.

See Note 16, “Segment Information” for disaggregated revenue information.

NOTE 4: LEASES
Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to eleven years. The lease term represents the non-cancelable period of the lease. For certain leases, the Company has an option to extend the lease term. These renewal options are not considered in the remaining lease term unless it is reasonably certain that the Company will exercise such options.

The Company elected certain practical expedients under Topic 842 which are: (i) to not record leases with an initial term of twelve months or less on the balance sheet; (ii) to combine the lease and non-lease components in determining the lease liabilities and right-of-use assets, and (iii) to carry forward prior conclusions about lease identification and classification.


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Table of Contents

The Company’s lease contracts do not provide an implicit borrowing rate, hence the Company determined the incremental borrowing rate based on information available at lease commencement to determine the present value of lease liability. The Company uses the parent entity’s incremental borrowing rates as the treasury operations are managed centrally by the parent entity and, consequently, the pricing of leases at a subsidiary level is typically significantly influenced by the credit risk evaluated at the parent or consolidated group level on the basis of guarantees or other payment mechanisms that allow the lessor to look beyond just the subsidiary for payment.

During the second quarter of fiscal 2019, the Company entered into a lease for a new facility which is intended to become the Company’s new headquarters in 2020. The new lease commenced in May 2019, as the facility was made available to the Company for constructing leasehold improvements. The lease was assessed under Topic 842 to be an operating lease and has a term of approximately eleven years.

The new lease resulted in the balance sheet recognition of $10.3 million in “Operating lease right-of use assets”, $4.0 million in “Prepaid expenses and other current assets”, $14.0 million in “Other non-current liabilities”, and $0.3 million in “Accrued and other current liabilities”.

The components of lease expense are as follows (in thousands):
 
Three months ended
Nine months ended
 
September 27, 2019
September 27, 2019
Operating lease cost
$
2,641

$
6,868

Variable lease cost
837

2,360

Total lease cost
$
3,478

$
9,228

Supplemental cash flow information related to leases are as follows (in thousands):
 
Three months ended
Nine months ended
 
September 27, 2019
September 27, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
2,655

$
6,937

ROU assets obtained in exchange for operating lease obligations
$

$
10,305

Other information related to leases are as follows:
 
Nine months ended
 
September 27, 2019
Operating leases
 
Weighted-average remaining lease term (years)
7.2

Weighted-average discount rate
6.8
%
Future minimum lease payments under non-cancelable operating leases as of September 27, 2019 are as follows (in thousands):
Years ending December 31,
 
2019 (remaining three months)
$
2,795

2020
9,429

2021
5,732

2022
4,360

2023
4,131

Thereafter
20,347

Total future minimum lease payments
$
46,794

Less: imputed interest
(10,954
)
Total
$
35,840


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Table of Contents

Future minimum lease payments under non-cancelable operating leases as of December 31, 2018, as defined under the previous lease accounting guidance of ASC Topic 840, were as follows (in thousands):
Years ending December 31,
 
2019
$
13,515

2020
10,139

2021
4,088

2022
2,523

2023
2,220

Thereafter
6,694

Total future minimum lease payments
$
39,179



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Table of Contents

NOTE 5: INVESTMENTS IN EQUITY SECURITIES
EDC

In 2014, the Company acquired an 18.4% interest in Encoding.com, Inc. (“EDC”), a privately held video transcoding service company headquartered in San Francisco, California, for $3.5 million by purchasing EDC’s Series B preferred stock. EDC is considered a VIE but the Company determined that it is not the primary beneficiary of EDC. As a result, EDC is measured at its cost minus impairment, if any.

The Company determined that there were no indicators at September 27, 2019 that the EDC investment was impaired. The Company’s maximum exposure to loss from the EDC’s investment at September 27, 2019 and December 31, 2018, was limited to its investment cost of $3.6 million, including $0.1 million of transaction costs.

NOTE 6: DERIVATIVES AND HEDGING ACTIVITIES
The Company uses forward contracts to manage exposures to foreign currency exchange rates. The Company’s primary objective in holding derivative instruments is to reduce the volatility of earnings and cash flows associated with fluctuations in foreign currency exchange rates and the Company does not use derivative instruments for trading purposes. The use of derivative instruments exposes the Company to credit risk to the extent that the counterparties may be unable to meet their contractual obligations. As such, the potential risk of loss with any one counterparty is closely monitored by the Company.
Derivatives Not Designated as Hedging Instruments (Balance Sheet Hedges)
The Company’s balance sheet hedges consist of foreign currency forward contracts that generally mature within three months, are carried at fair value, and are used to minimize the short-term impact of foreign currency exchange rate fluctuation on cash and certain trade and inter-company receivables and payables. Changes in the fair value of these foreign currency forward contracts are recognized in “Other expense, net” in the Condensed Consolidated Statement of Operations and are largely offset by the changes in the fair value of the assets or liabilities being hedged.
Losses on the non-designated derivative instruments recognized during the periods presented were as follows (in thousands):
 
 
 
Three months ended
 
Nine months ended
 
Financial Statement Location
 
September 27, 2019
 
September 28, 2018
 
September 27, 2019
 
September 28, 2018
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Losses recognized in income
Other expense, net
 
$
(1,357
)
 
$
(30
)
 
$
(1,966
)
 
$
(1,412
)
The U.S. dollar equivalents of all outstanding notional amounts of foreign currency forward contracts are summarized as follows (in thousands):

 
September 27, 2019
 
December 31, 2018
Derivatives not designated as hedging instruments:
 

 

Purchase
 
$
26,233

 
$
28,975

The locations and fair value amounts of the Company’s derivative instruments reported in its Condensed Consolidated Balance Sheets are as follows (in thousands):
 
 
 
 
Asset Derivatives
 
 
 
Derivative Liabilities
 
 
Balance Sheet Location
 
September 27, 2019
 
December 31, 2018
 
Balance Sheet Location
 
September 27, 2019
 
December 31, 2018
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
 
Prepaid expenses and other current assets
 
$

 
$

 
Accrued and other current liabilities
 
$
182

 
$
333

Total derivatives
 
 
 
$

 
$

 
 
 
$
182

 
$
333


Offsetting of Derivative Assets and Liabilities
The Company recognizes all derivative instruments on a gross basis in the Condensed Consolidated Balance Sheets. However, the arrangements with its counterparties allows for net settlement, which are designed to reduce credit risk by permitting net settlement with the same counterparty. As of September 27, 2019, information related to the offsetting arrangements was as follows (in thousands):
 
 
Gross Amounts of Derivatives
 
Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets
 
Net Amounts of Derivatives Presented in the Condensed Consolidated Balance Sheets
Derivative liabilities
 
$
182

 

 
$
182

In connection with foreign currency derivatives entered in Israel, the Company’s subsidiaries in Israel are required to maintain a compensating balance with their bank at the end of each month. The compensating balance arrangements do not legally restrict the use of cash. As of September 27, 2019, the total compensating balance maintained was $1.0 million.


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Table of Contents

NOTE 7: FAIR VALUE MEASUREMENTS
The authoritative accounting guidance establishes a framework for measuring fair value and requires disclosure about the fair value measurements of assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. This guidance requires the Company to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured on a nonrecurring basis in periods subsequent to initial measurement, in a three-tier fair value hierarchy as described below.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1 — Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The forward exchange contracts are classified as Level 2 because they are valued using quoted market prices and other observable data for similar instruments in an active market.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
As of September 27, 2019
 
 
 
 
 
 
 
Accrued and other current liabilities
 
 
 
 
 
 
 
Derivative liabilities
$

 
$
182

 
$

 
$
182

Total liabilities measured and recorded at fair value
$

 
$
182

 
$

 
$
182

 
Level 1
 
Level 2
 
Level 3
 
Total
As of December 31, 2018
 
 
 
 
 
 
 
Accrued and other current liabilities
 
 
 
 
 
 
 
Derivative liabilities
$

 
$
333

 
$

 
$
333

Total liabilities measured and recorded at fair value
$

 
$
333

 
$

 
$
333


The Company’s liability for the TVN VDP (as defined below) was $1.1 million and $2.4 million as of September 27, 2019 and December 31, 2018, respectively. This amount is not included in the table above because its fair value at inception, based on Level 3 inputs, was determined during the fourth quarter of fiscal 2016. The fair value of this liability has not been subsequently remeasured based on the applicable accounting guidance. See Note 10, “Restructuring and related charges-TVN VDP,” for additional information on the Company’s TVN VDP liabilities.

The carrying value of the Company’s financial instruments, including cash equivalents, restricted cash, accounts receivable, accounts payable and accrued and other current liabilities, approximate fair value due to their short maturities.

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Table of Contents

The Company uses the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The fair value of the Company’s convertible notes is influenced by interest rates, the Company’s stock price and stock market volatility. The fair value of the Company’s 4.00% Senior Convertible Notes due 2020 (the “2020 Notes”) was approximately $60.3 million and $136.5 million as of September 27, 2019 and December 31, 2018, respectively. The fair value of Company’s 2.00% Convertible Senior Notes due 2024 (the “2024 Notes”) was approximately $120.0 million as of September 27, 2019. The 2020 Notes and 2024 Notes are classified as Level 2 valuations. The Company’s other debts assumed from the Thomson Video Networks (“TVN”) acquisition are classified within Level 2 because these borrowings are not actively traded and the majority of them have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities, therefore, the carrying value of these debts approximate its fair value. The other debts, excluding finance leases, outstanding as of September 27, 2019 and December 31, 2018 were in the aggregate of $17.3 million and $19.7 million, respectively. (See Note 11, “Convertible Notes, Other debts and Finance Leases” for additional information).
During the nine months ended September 27, 2019, there were no nonrecurring fair value measurements of assets and liabilities subsequent to initial recognition.

NOTE 8: BALANCE SHEET COMPONENTS
The following tables provide details of selected balance sheet components (in thousands):
 
September 27, 2019

December 31, 2018
Accounts receivable, net:
 
 
 
Accounts receivable
$
103,460

 
$
85,292

Less: allowances for doubtful accounts and sales returns
(2,555
)
 
(3,497
)
     Total
$
100,905

 
$
81,795


 
September 27, 2019
 
December 31, 2018
Inventories:
 
 
 
Raw materials
$
1,218

 
$
1,705

Work-in-process
1,329

 
991

Finished goods
16,377

 
12,267

Service-related spares
10,046

 
10,675

Total
$
28,970

 
$
25,638


 
September 27, 2019

December 31, 2018
Prepaid expenses and other current assets:
 
 
 
Deferred cost of revenue
$
9,290

 
$
3,671

Prepaid expenses
7,595

 
4,834

  French R&D tax credits receivable(1)
7,172

 
7,305

  Contract assets(2)
6,774

 
3,834

  Capitalized sales commissions
1,378

 
1,098

Other
8,108

 
2,538

Total
$
40,317

 
$
23,280

(1) The Company’s TVN subsidiary in France (the “TVN French Subsidiary”) participates in the French Crédit d’Impôt Recherche program (the “R&D tax credits”) which allows companies to monetize eligible research expenses. The R&D tax credits can be used to offset against income tax payable to the French government in each of the four years after being incurred, or if not utilized, are recoverable in cash. The amount of R&D tax credits recoverable are subject to audit by the French government. The R&D tax credits receivable at September 27, 2019 were approximately $22.3 million and are expected to be recoverable from 2020 through 2023.
(2) Contract assets reflect the satisfied performance obligations for which the Company does not yet have an unconditional right to consideration.

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Table of Contents

 
September 27, 2019
 
December 31, 2018
Property and equipment, net:
 
 
 
   Machinery and equipment
$
75,321

 
$
75,094

   Capitalized software
33,760

 
32,696

   Leasehold improvements
15,050

 
14,951

   Furniture and fixtures
6,001

 
6,049

      Property and equipment, gross
130,132

 
128,790

      Less: accumulated depreciation and amortization
(111,231
)
 
(106,469
)
         Total
$
18,901

 
$
22,321


 
September 27, 2019
 
December 31, 2018
Other long-term assets:
 
 
 
   French R&D tax credits receivable
$
15,131

 
$
19,249

   Deferred tax assets
8,500

 
8,695

   Equity investment
3,593

 
3,593

   Other
12,248

 
6,840

      Total
$
39,472

 
$
38,377


 
September 27, 2019
 
December 31, 2018
Accrued and other current liabilities:
 
 
 
   Accrued employee compensation and related expenses
$
17,270

 
$
21,451

   Operating lease liability (short-term)
9,453

 

   Accrued warranty
4,581

 
4,869

   Contingent inventory reserves
2,143

 
2,500

   Accrued Avid litigation settlement, current
2,000

 
1,500

   Accrued TVN VDP, current (3)
1,106

 
1,585

   Others
22,707

 
20,856

      Total
$
59,260

 
$
52,761


(3) See Note 10, “Restructuring and related charges-TVN VDP,” for additional information on the Company’s TVN VDP liabilities.

 
September 27, 2019
 
December 31, 2018
Other non-current liabilities:
 
 
 
Operating lease liability (long-term)
$
25,395

 
$

Deferred revenue (long-term)
6,944

 
5,330

Others
7,497

 
12,898

      Total
$
39,836

 
$
18,228



19


NOTE 9: GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
Goodwill
Goodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. The Company has two reporting units, Video and Cable Access.

The Company tests for goodwill impairment at the reporting unit level on an annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired. The Company’s annual goodwill impairment test is performed in the fiscal fourth quarter, with a testing date at the end of October. In evaluating goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value (including goodwill). If the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then no further testing is required. However, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the two-step goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized, if any. The two-step impairment test involves estimating the fair value of all assets and liabilities of the reporting unit, including the implied fair value of goodwill, through either estimated discounted future cash flows or market-based methodologies. No impairment indicators were identified as of September 27, 2019.

The changes in the carrying amount of goodwill for the nine months ended September 27, 2019 were as follows (in thousands):
 
Video
 
Cable Access
 
Total
Balance as of December 31, 2018
$
179,839

 
$
60,779

 
$
240,618

   Foreign currency translation adjustment, net
(1,869
)
 
(15
)
 
(1,884
)
Balance as of September 27, 2019
$
177,970

 
$
60,764

 
$
238,734


Intangible Assets, Net
The following is a summary of intangible assets, net (in thousands):
 
 
 
September 27, 2019
 
December 31, 2018
 
Weighted Average Remaining Life (Years)
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Developed core technology
0.4
 
$
31,707

 
$
(29,461
)
 
$
2,246

 
$
31,707

 
$
(25,576
)
 
$
6,131

Customer relationships/contracts
1.4
 
44,501

 
(40,291
)
 
4,210

 
44,650

 
(38,146
)
 
6,504

Trademarks and trade names
0.4
 
595

 
(533
)
 
62

 
623

 
(441
)
 
182

Maintenance agreements and related relationships
n/a
 
5,500

 
(5,500
)
 

 
5,500

 
(5,500
)
 

Order backlog
n/a
 
3,056

 
(3,056
)
 

 
3,112

 
(3,112
)
 

Total identifiable intangibles, net
 
 
$
85,359

 
$
(78,841
)
 
$
6,518

 
$
85,592

 
$
(72,775
)
 
$
12,817


20



Amortization expense for the identifiable purchased intangible assets for the three and nine months ended September 27, 2019 and September 28, 2018 was allocated as follows (in thousands):
 
Three months ended
 
Nine months ended
 
September 27,
2019
 
September 28,
2018
 
September 27,
2019
 
September 28,
2018
Included in cost of revenue
$
1,295

 
$
1,295

 
$
3,885

 
$
3,885

Included in operating expenses
785

 
792

 
2,357

 
2,396

Total amortization expense
$
2,080

 
$
2,087

 
$
6,242

 
$
6,281

The estimated future amortization expense of purchased intangible assets with definite lives is as follows (in thousands):
 
Cost of Revenue
 
Operating
Expenses
 
Total
Year ended December 31,
 
 
 
 
 
2019 (remaining three months)
$
1,295

 
$
780

 
$
2,075

2020
951

 
2,997

 
3,948

2021

 
495

 
495

Total future amortization expense
$
2,246

 
$
4,272

 
$
6,518


NOTE 10: RESTRUCTURING AND RELATED CHARGES
The Company has implemented several restructuring plans in an effort to better align its resources with its business strategy. The goal of these plans was to bring operational expenses to appropriate levels relative to its net revenues, while simultaneously implementing extensive company-wide expense control programs. These restructuring plans have primarily been comprised of excess facilities, severance payments and termination benefits related to headcount reductions.

In the three and nine months ended September 27, 2019, the Company recorded an aggregate amount of $1.1 million and $1.5 million, respectively, of restructuring and related charges for severance and employee benefits for certain employees within the Company’s general and administrative functions and one specific function within the Video segment. The Company made $0.4 million in payments in the nine months ended September 27, 2019, with the remaining $1.1 million liability outstanding as of September 27, 2019.

As of September 27, 2019, total liabilities related to restructuring plans initiated prior to fiscal 2019 were $2.2 million.

The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The restructuring and related charges are included in “Cost of revenue” and “Operating expenses - Restructuring and related charges” in the Condensed Consolidated Statements of Operations. The following table summarizes the restructuring and related charges (in thousands):
 
Three months ended
 
Nine months ended
 
September 27,
2019

September 28,
2018
 
September 27,
2019
 
September 28,
2018
Restructuring and related charges in:
 
 
 
 
 
 
 
Cost of revenue
$
331

 
$
7

 
$
723

 
$
884

Operating expenses - Restructuring and related charges
861

 
987

 
1,194

 
2,704

Total restructuring and related charges
$
1,192

 
$
994

 
$
1,917

 
$
3,588

As of September 27, 2019 and December 31, 2018, the Company’s total restructuring liability was $3.4 million and $5.3 million, respectively, of which $3.0 million and $3.3 million, respectively, were reported as a component of “Accrued and other current liabilities”, and the remaining $0.4 million and $2.0 million, respectively, were reported as a component of “Other non-current liabilities” on the Company’s Condensed Consolidated Balance Sheets.

The following table summarizes the activities related to the Company’s restructuring plans during the nine months ended

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September 27, 2019 (in thousands):

 
 
Excess facilities
 
Severance and benefits
 
TVN VDP (1)
 
Others
 
Total
Balance at December 31, 2018
 
$
2,926

 
$

 
$
2,409

 
$

 
$
5,335

Charges for current period
 

 
1,476

 
50

 
367

 
1,893

Adjustments to restructuring provisions
 
47

 

 
(23
)
 

 
24

Cash payments
 
(1,409
)
 
(382
)
 
(1,324
)
 
(252
)
 
(3,367
)
Others
 
(382
)
 

 
(62
)
 

 
(444
)
Balance at September 27, 2019
 
$
1,182

 
$
1,094

 
$
1,050

 
$
115

 
$
3,441


(1) “TVN VDP” consists of restructuring-related costs in connection with the TVN acquisition that included global workforce reductions, exiting certain operating facilities and disposing of excess assets and an employee voluntary departure plan in France.

TVN VDP

The amount of restructuring-related costs recorded for the nine months ended September 27, 2019 was immaterial. The amount of restructuring-related costs recorded for the nine months ended September 28, 2018 was $1.8 million. The TVN VDP liability balance as of September 27, 2019 was $1.1 million, payable through 2020.

NOTE 11: CONVERTIBLE NOTES, OTHER DEBTS AND FINANCE LEASES
2.00% Convertible Senior Notes due 2024
In September 2019, the Company issued $115.5 million of 2.00% Convertible Senior Notes due 2024 (the “2024 Notes”) pursuant to an indenture (the “2024 Notes Indenture”), dated September 13, 2019, by and between the Company and U.S. Bank National Association, as trustee. The 2024 Notes bear interest at a rate of 2.00% per year, payable semiannually on March 1 and September 1 of each year, beginning March 1, 2020. The 2024 Notes will mature on September 1, 2024, unless earlier repurchased by the Company, redeemed by the Company or converted pursuant to their terms.

The 2024 Notes are convertible into cash, shares of the Company’s common stock, par value $0.001 (“Common Stock”), or a combination thereof, at the Company’s election, at an initial conversion rate of 115.5001 shares of Common Stock per $1,000 principal amount of 2024 Notes (which is equivalent to an initial conversion price of approximately $8.66 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes or a notice of redemption and under other circumstances, in each case, as set forth in the 2024 Notes Indenture.

Prior to the close of business on the business day immediately preceding June 1, 2024, the 2024 Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on December 31, 2019, and only during such fiscal quarter, if the last reported sale price of the Common Stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the 2024 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2024 Notes may convert all or any portion of their 2024 Notes regardless of the foregoing conditions.

The Company may not redeem the 2024 Notes prior to September 6, 2022. The Company may redeem for cash all or any portion of the 2024 Notes at its option, on or after September 6, 2022, if the last reported sale price of its Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30

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consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a redemption notice at a redemption price equal to 100% of the principal amount of the 2024 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If a fundamental change occurs, holders of the 2024 Notes may require the Company to purchase all or any portion of their 2024 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Concurrent with the closing of the 2024 Notes, the Company used $109.6 million of the proceeds to repurchase a portion of the outstanding principal of the 4.00% Senior Convertible Notes due 2020 (the “2020 Notes”) in privately negotiated transactions. In addition, the Company paid $0.9 million in accrued and unpaid interest on the repurchased portion and incurred approximately $4.3 million of debt issuance cost, resulting in net proceeds to the Company of approximately $0.7 million, which was used to fund general corporate expenses.

In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2024 Notes was valued at $24.9 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The resulting debt discount on the 2024 Notes is being amortized to interest expense at the effective interest rate over the contractual term of the 2024 Notes. The following table presents the components of the 2024 Notes as of September 27, 2019 (in thousands, except for years and percentages):

 
September 27, 2019
Liability:
 
  Principal amount
$
115,500

  Less: Debt discount, net of amortization
(24,686
)
  Less: Debt issuance costs, net of amortization
(3,350
)
  Carrying amount
$
87,464

  Remaining amortization period (years)
4.9

  Effective interest rate on liability component
7.95
%

4.00% Convertible Senior Notes due 2020
In December 2015, the Company issued $128.25 million in aggregate principal amount of the 2020 Notes pursuant to an indenture (the “2020 Notes Indenture”), dated December 14, 2015, by and between the Company and U.S. Bank National Association, as trustee. The 2020 Notes bear interest at a rate of 4.00% per year, payable in cash on June 1 and December 1 of each year and the 2020 Notes will mature on December 1, 2020 unless earlier repurchased or converted.
In September 2019, the Company used approximately $109.6 million of the net proceeds from the issuance of the 2024 Notes to repurchase $82.5 million aggregate principal of the 2020 Notes in privately negotiated transactions. The repurchase of the 2020 Notes was accounted for as a debt extinguishment, and the consideration transferred was allocated between the equity and liability components by determining the fair value of the conversion option immediately prior to the debt extinguishment and allocating that portion of the repurchase price to additional paid-in capital for $27.1 million, with the residual repurchase price allocated to the liability component, respectively. The partial repurchase of the 2020 Notes resulted in the recognition of a $5.7 million loss on debt extinguishment for the three months ended September 27, 2019.

The 2020 Notes are convertible into cash, shares of the Company’s Common Stock, or a combination thereof, at the Company’s election, at an initial conversion rate of 173.9978 shares of Common Stock per $1,000 principal amount of 2020 Notes (which is equivalent to an initial conversion price of approximately $5.75 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes and under other circumstances, in each case, as set forth in the 2020 Notes Indenture.
Prior to the close of business on the business day immediately preceding September 1, 2020, the 2020 Notes will be convertible only under the following circumstances: (1) during any fiscal quarter (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the 2020 Notes on each applicable trading day; (2) during the five business day period after any 5 consecutive trading day period (the “measurement period ”) in which the trading price per $1,000 principal amount of 2020 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of

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the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. Commencing on September 1, 2020 until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2020 Notes will be convertible in multiples of $1,000 principal amount regardless of the foregoing circumstances. The 2020 Notes do not have a redemption feature.
If a fundamental change occurs, holders of the 2020 Notes may require the Company to purchase all or any portion of their 2020 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2020 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2020 Notes was initially valued at $26.1 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The resulting debt discount on the 2020 Notes is being amortized to interest expense at the effective interest rate over the contractual term of the 2020 Notes. The following table presents the components of the 2020 Notes as of September 27, 2019 and December 31, 2018 (in thousands, except for years and percentages):
 
September 27, 2019
 
December 31, 2018
Liability:
 
 
 
  Principal amount
$
45,785

 
$
128,250

  Less: Debt discount, net of amortization
(2,706
)
 
(11,996
)
  Less: Debt issuance costs, net of amortization
(326
)
 
(1,446
)
  Carrying amount
$
42,753

 
$
114,808

  Remaining amortization period (years)
1.2

 
1.9

  Effective interest rate on liability component
9.94
%
 
9.94
%
The following table presents interest expense recognized for the 2020 Notes and 2024 Notes (in thousands):
 
Three months ended
 
Nine months ended
 
September 27, 2019
 
September 28, 2018
 
September 27, 2019
 
September 28, 2018
Contractual interest expense
$
1,235

 
$
1,283

 
$
3,800

 
$
3,848

Amortization of debt discount
1,513

 
1,364

 
4,425

 
4,001

Amortization of debt issuance costs
185

 
164

 
535

 
481

  Total interest expense recognized
$
2,933

 
$
2,811

 
$
8,760

 
$
8,330


Other Debts and Finance Leases

The Company has a variety of debt and credit facilities in France to satisfy the financing requirements of TVN operations. These arrangements are summarized in the table below (in thousands):
 
September 27, 2019
 
December 31, 2018
Financing from French government agencies related to various government incentive programs (1)
$
16,607

 
$
18,783

Term loans
655

 
914

Obligations under finance leases
84

 
162

  Total debt obligations
17,346

 
19,859

  Less: current portion
(6,962
)
 
(7,175
)
  Long-term portion
$
10,384

 
$
12,684

(1) As of September 27, 2019 and December 31, 2018, loans backed by French R&D tax credit receivables were $14.7 million and $16.7 million, respectively. As of September 27, 2019, the TVN French Subsidiary had an aggregate of $22.3 million of R&D tax credit receivables from the French government from 2020 through 2023. See Note 8, “Balance Sheet Components” for additional information. These tax loans have a fixed rate of 0.6%, plus EURIBOR 1 month + 1.3% and mature between 2020 through 2022. The remaining loans of $1.9 million at September 27, 2019, primarily relate to financial support from French government agencies for R&D innovation projects at minimal interest rates, and these loans mature between 2019 through 2025.

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Future minimum repayments

The table below presents the future minimum repayments of debts and finance lease obligations for TVN as of September 27, 2019 (in thousands):

Years ending December 31,
Finance lease obligations
 
Other Debt obligations
2019 (remaining three months)
$
62

 
$
704

2020
22

 
6,313

2021

 
5,095

2022

 
4,783

2023

 
148

Thereafter

 
219

Total
$
84

 
$
17,262


Line of Credit
On September 27, 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”). The Loan Agreement provided for a secured revolving credit facility in an aggregate principal amount of up to $15.0 million. Under the terms of the Loan Agreement, the principal amount of loans, plus the face amount of any outstanding letters of credit, at any time could exceed up to 85% of the Company’s eligible receivables. Under the terms of the Loan Agreement, the Company could request letters of credit from the Bank.
The Loan Agreement with the Bank was terminated effective September 10, 2019, in conjunction with the issuance of the 2024 Notes. There were no borrowings under the Loan Agreement prior to the termination, except $2.1 million committed towards security for letters of credit, which were unsecured as of September 27, 2019. The Company was in compliance with the covenants under the Loan Agreement prior to the termination.

NOTE 12: EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
Equity Award Plans
The Company’s stock benefit plans include the 2002 Employee Stock Purchase Plan (“ESPP”) and current active stock plans adopted in 1995 and 2002. See Note 12, “Employee Benefit Plans and Stock-based Compensation” of Notes to Consolidated Financial Statements in the 2018 Form 10-K for details pertaining to each plan.

The Company’s stockholders approved an amendment to the ESPP at the 2019 annual meeting of stockholders (the “2019 Annual Meeting”) to increase the number of shares of common stock reserved for issuance under the ESPP by 1,000,000 shares. The Company’s stockholders also approved an amendment to the 1995 Stock Plan at the 2019 Annual Meeting to increase the number of shares of common stock reserved for issuance thereunder by 3,500,000 shares. As of September 27, 2019, there were 1.2 million and 5.1 million shares of common stock reserved for future grants under the Company’s ESPP and active stock plans, respectively.


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Table of Contents

Stock Option Activities

The following table summarizes the Company’s stock option activities and related information during the nine months ended September 27, 2019 (in thousands, except per share amounts and terms):
 
 
Stock Options Outstanding
 
 
Number
of
Shares
 
Weighted
Average
Exercise Price
Per Share
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
Balance at December 31, 2018
 
3,068

 
$
5.76

 
 
 
 
Exercised
 
(308
)
 
4.85

 
 
 
 
Canceled or expired
 
(379
)
 
6.14

 
 
 
 
Balance at September 27, 2019
 
2,381

 
5.81

 
2.0
 
$
2,719.0

As of September 27, 2019
 
 
 
 
 
 
 
 
Vested and expected to vest
 
2,381

 
5.81

 
2.0
 
$
2,719.0

Exercisable
 
2,380

 
5.82

 
2.0
 
$
2,715.6

The aggregate intrinsic value disclosed above represents the difference between the exercise price of the options and the fair value of the Company’s common stock. There were no employee stock options granted in the nine months ended September 27, 2019.

There were no realized tax benefits attributable to stock options exercised in jurisdictions where this expense is deductible for tax purposes for the nine months ended September 27, 2019 and September 28, 2018, respectively.

Restricted Stock Units (“RSUs”) Activities

The following table summarizes the Company’s RSUs activities and related information during the nine months ended September 27, 2019 (in thousands, except per share amounts):
 
 
Restricted Stock Units Outstanding
 
 
Number
of
Shares
 
Weighted
Average Grant
Date Fair Value
Per Share
Balance at December 31, 2018
 
3,403

 
$
3.99

Granted
 
2,671

 
5.75

Vested
 
(2,126
)
 
3.96

Forfeited
 
(72
)
 
4.90

Balance at September 27, 2019
 
3,876

 
5.10

Market-based awards
In the second quarter of 2019, the Company granted 200,000 market-based RSUs (“MRSUs”) under the 1995 Stock Plan to a key executive that is expected to vest during a three-year period. The vesting condition for the MRSUs include performance of the Company’s total shareholder return (“TSR”) relative to the TSR of the NASDAQ Telecommunication Index. The aggregate grant-date fair value of these shares was estimated to be $1.1 million using a Monte-Carlo simulation valuation method. The stock-based compensation recognized for the MRSUs for the three and nine months ended September 27, 2019 was $0.1 million and $0.2 million, respectively. The unrecognized stock-based compensation of the MRSUs as of September 27, 2019 was $0.9 million. None of these MRSUs had vested as of September 27, 2019.

French Retirement Benefit Plan
The Company assumed obligations under a defined benefit pension plan in connection with the acquisition of TVN in 2016. The plan is unfunded and there are no contributions required by laws or funding regulations, discretionary contributions or non-cash contributions expected to be made. The table below presents the components of net periodic benefit costs (in thousands):

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Table of Contents

 
Three months ended
 
Nine months ended
 
September 27, 2019
 
September 28, 2018
 
September 27,
2019

September 28,
2018
Service cost
$
57

 
$
59

 
$
171

 
$
185

Interest cost
20

 
18

 
59

 
56

  Net periodic benefit cost
$
77

 
$
77

 
$
230

 
$
241

The present value of the Company’s pension obligation as of September 27, 2019 was $4.9 million, of which $0.1 million was reported as a component of “Accrued and other current liabilities” and $4.8 million was reported as a component of “Other non-current liabilities” on the Company’s Condensed Consolidated Balance Sheets. The present value of the Company’s pension obligation as of December 31, 2018 was $4.9 million.

401(k) Plan
The Company has a retirement/savings plan for its U.S. employees, which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. This plan allows participants to contribute up to the applicable Internal Revenue Code limitations under the plan. The Company has made discretionary contributions to the plan of 25% of the first 4% contributed by eligible participants, up to a maximum contribution per participant of $1,000 per year. The contributions for the nine months ended September 27, 2019 and September 28, 2018 were $245,000 and $259,000, respectively.

Stock-based Compensation
The following table summarizes stock-based compensation for all plans (in thousands):
 
Three months ended
 
Nine months ended
 
September 27,
2019
 
September 28,
2018
 
September 27,
2019
 
September 28,
2018
Stock-based compensation in:
 
 
 
 
 
 
 
Cost of revenue
$
410

 
$
614

 
$
830

 
$
1,577

Research and development expense
1,120

 
1,676

 
2,318

 
4,298

Selling, general and administrative expense
2,566

 
3,143

 
5,571

 
8,327

Total stock-based compensation in operating expense
3,686

 
4,819

 
7,889

 
12,625

Total stock-based compensation
$
4,096

 
$
5,433

 
$
8,719

 
$
14,202

As of September 27, 2019, total unrecognized stock-based compensation cost related to unvested RSUs was $15.7 million and is expected to be recognized over a weighted-average period of approximately 1.49 years.
Valuation Assumptions
The Company estimates the fair value of employee stock options and stock purchase rights under the ESPP using a Black-Scholes option valuation model. The value of the stock purchase rights under the ESPP consists of: (1) the 15% discount on the purchase of the stock; (2) 85% of the fair value of the call option; and (3) 15% of the fair value of the put option. The call option and put option were valued using the Black-Scholes option pricing model.

 
ESPP Purchase Period Ending
 
December 31,
2019
 
July 1,
2019
 
December 31,
2018
 
July 2,
2018
Expected term (years)
0.5

 
0.5

 
0.5

 
0.5

Volatility
33
%
 
43
%
 
51
%
 
60
%
Risk-free interest rate
2.1
%
 
2.5
%
 
2.1
%
 
1.7
%
Expected dividends
0.0
%
 
0.0
%
 
0.0
%
 
0.0
%
Estimated weighted average fair value per share at purchase date
$1.36
 
$1.31
 
$1.32
 
$1.34
The expected term of the stock purchase rights under the ESPP represents the period of time from the beginning of the offering period to the purchase date. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility. The risk-free interest rate assumption is based on U.S. Treasury zero-coupon issues

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with remaining terms similar to the expected term. The Company has not paid and does not plan to pay any cash dividends in the foreseeable future.

NOTE 13: INCOME TAXES
The Company reported the following operating results for the periods presented (in thousands):
 
Three months ended
 
Nine months ended
 
September 27,
2019
 
September 28,
2018
 
September 27,
2019
 
September 28,
2018
Income (loss) before income taxes
$
12,260

 
$
(6,888
)
 
$
(10,513
)
 
$
(21,526
)
Provision for income taxes
603

 
870

 
981

 
2,839

Effective income tax rate
4.9
%
 
(12.6
)%

(9.3
)%

(13.2
)%
The Company operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. The Company’s effective income tax rate may be affected by changes in, or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carry forwards, changes in geographical mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets. The Company’s effective tax rate varies from year to year primarily due to the absence of several one-time, discrete items that benefited or decremented the tax rates in the previous years.
The Company's effective income tax rate of (9.3)% for the nine months ended September 27, 2019 was different from the U.S. federal statutory rate of 21%, primarily due to geographical mix of income and losses, full valuation allowance against U.S. federal, California and other states deferred tax assets, foreign withholding taxes and income taxes on earnings from operations in foreign tax jurisdictions. In addition, during the nine months ended September 27, 2019, the Company recorded a one-time benefit of approximately $0.8 million due to a valuation allowance release for one of its foreign subsidiaries. This release of valuation allowance was due to changes in forecasted taxable income resulting from the Company receiving a favorable tax ruling during the first quarter of 2019.

The Company's effective income tax rate of (13.2)% for the nine months ended September 28, 2018 was different from the U.S. federal statutory rate of 21%, primarily due to the Company’s geographical income mix and tax rates associated with certain earnings from operations in lower-tax jurisdictions, the increase in the valuation allowance against U.S. federal, California and other state deferred tax assets, detriment from non-deductible stock-based compensation, and the net of various discrete tax adjustments. For the nine months ended September 28, 2018, the discrete adjustments to the Company's tax expense were primarily withholding taxes.

The Company files U.S. federal and state, and foreign income tax returns in jurisdictions with varying statutes of limitations during which such tax returns may be audited and adjusted by the relevant tax authorities. The 2015 through 2018 tax years generally remain subject to examination by U.S. federal and most state tax authorities. In significant foreign jurisdictions, the 2013 through 2018 tax years generally remain subject to examination by their respective tax authorities. If, upon the conclusion of an audit, the ultimate determination of taxes owed in the jurisdictions under audit is for an amount in excess of the tax provision the Company has recorded in the applicable period, the Company’s overall tax expense, effective tax rate, operating results and cash flow could be materially and adversely impacted in the period of adjustment.
On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner, 145 T.C. No.3 (2015) related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was entered by the U.S. Tax Court on December 1, 2015 (the “2015 Decision”). On February 19, 2016, the U.S. Internal Revenue Service filed a notice of appeal in Altera Corp. v. Commissioner, 145 T.C. No. 3 (2015), to the Ninth Circuit Court of Appeals. The Ninth Circuit was to decide whether a regulation that mandates that stock-based compensation costs related to the intangible development activity of a qualified cost sharing arrangement (a “QCSA”) must be included in the joint cost pool of the QCSA (the “all costs rule”) is consistent with the arm’s length standard as set forth in Section 482 of the Internal Revenue Code. On June 7, 2019, the Ninth Circuit overturned the earlier Tax Court decision and ruled to include share-based compensation in the cost sharing pool. The company continues to include share-based compensation in the cost base consistent with the Ninth Circuit’s ruling.


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As of September 27, 2019, the total amount of gross unrecognized tax benefits, including interest and penalties, was approximately $17.3 million, of which $16.2 million would affect the Company’s effective tax rate if the benefits are eventually recognized, subject to valuation allowance considerations. The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense. The Company had $28 thousand of gross interest and penalties accrued as of September 27, 2019. The Company will continue to review its tax positions and provide for, or reverse, unrecognized tax benefits as issues arise. For the nine months ended September 27, 2019, the Company released $0.6 million of unrecognized tax benefits due to closures of tax audits in foreign jurisdictions.

NOTE 14: NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except per share amounts):
 
Three months ended
 
Nine months ended
 
September 27,
2019
 
September 28,
2018
 
September 27,
2019