Harmonic Announces Tentative Agreement to Settle Shareholder Class Action
Litigation Settlement and Other Adjustments to Be Incorporated in
10-K Filing
SUNNYVALE, Calif.--(BUSINESS WIRE)--March 17, 2008--Harmonic Inc. (NASDAQ:HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced that it had reached a tentative agreement for the settlement of a securities class action filed against the Company and certain of its officers and directors in 2000. The Company believes that it is in its best interests to avoid the cost, management distraction and risk associated with a trial, currently scheduled for August 2008. The tentative agreement is subject to certain contingencies, including execution of a definitive agreement and court approval. The agreement will provide a full release of Harmonic and the other named defendants in connection with the allegations in the lawsuit without any admission of fault on the part of Harmonic or its officers and directors. The cost of the settlement is $15 million, plus an estimated aggregate of $1.4 million in related legal fees and expenses in connection with proceedings in the securities class action and derivative lawsuits. Of this aggregate cost of settlement, Harmonic will pay $6.4 million and the Company's insurance carriers, having funded most litigation costs to date, will contribute the remaining $10 million. As a result of this tentative agreement, the Company will record a charge of $6.4 million in its financial statements for the year ended December 31, 2007 to be included in its Annual Report on Form 10-K to be filed with the SEC later today.
In addition, following the completion of year-end audit procedures, the Company has identified certain adjustments to its preliminary unaudited financial statements announced on January 29, 2008 for the quarter and year ended December 31, 2007. These adjustments result in the reduction of quarterly and annual revenue and net income by $984,000 and $253,000, respectively, and will also be included in the financial statements in the Annual Report on Form 10-K for 2007. The impact of the litigation settlement and these other adjustments will reduce the Company's reported diluted GAAP EPS for the quarter and year by $0.08 for both periods, but non-GAAP EPS reported on January 29 will remain unchanged.
Approximately $820,000 of the adjusted revenue and associated cost of sales of $413,000 are expected to be recognized in the first quarter of 2008. Revised unaudited financial statements, which include the litigation settlement charge and related expenses, the effect of the year-end adjustments and a revised GAAP to non-GAAP reconciliation, are attached at the end of this release.
About Harmonic Inc.
Harmonic Inc. is a leading provider of versatile and high performance video solutions that enable service providers to efficiently deliver the next generation of broadcast and on-demand video services, including high definition, video-on-demand, network personal video recording and time-shifted TV. Cable, satellite, broadcast and telecom service providers can utilize Harmonic's digital video, broadband optical access and software solutions to offer consumers a compelling and personalized viewing experience.
Harmonic (NASDAQ:HLIT) is headquartered in Sunnyvale, California with R&D, sales and system integration centers worldwide. The Company's customers, including many of the world's largest communications providers, deliver services in virtually every country. Visit www.harmonicinc.com for more information.
Legal Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to: our expectations regarding the settlement of the securities class action litigation, including our expectation that a final settlement agreement will be executed by the parties and approved by the court; our belief that the final settlement agreement will provide a full release of Harmonic and the other named defendants in connection with the allegations in the securities class action lawsuit without any admission of fault on the part of Harmonic or its officers and directors; and our expectation that the aggregate fees and expenses in connection with proceedings in the securities class action and derivative lawsuits will be approximately $1.4 million. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that: we will not be able to reach a definitive settlement agreement with the plaintiffs in the securities class action litigation, or that any such settlement agreement that is reached with the plaintiffs will be rejected by the court; the definitive settlement agreement will not be on the same terms that were reached in the tentative settlement; and that the aggregate fees and expenses in connection with proceedings in the securities class action and derivative lawsuits will exceed $1.4 million. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic's filings with the Securities and Exchange Commission, including our annual report filed on Form 10-K for the year ended December 31, 2006, our quarterly report on Form 10-Q for the quarterly period ended September 28, 2007, and our annual report on Form 10-K for the year ended December 31, 2007 that is expected to be filed on March 17, 2008. Harmonic does not undertake to update any forward-looking statements.
EDITOR'S NOTE - Product and company names used herein are trademarks or registered trademarks of their respective owners.
Harmonic Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, December 31,
2007 2006
------------- --------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 129,005 $ 33,454
Short-term investments 140,255 58,917
Accounts receivable, net 69,302 64,674
Inventories 34,251 42,116
Deferred income taxes 3,506 --
Prepaid expenses and other current
assets 17,489 12,807
------------- --------------
Total current assets 393,808 211,968
Property and equipment, net 14,082 14,816
Intangibles and other assets 67,889 55,178
------------- --------------
$ 475,779 $ 281,962
============= ==============
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ -- $ 460
Accounts payable 20,500 33,863
Income taxes payable 481 7,098
Deferred revenue 37,865 29,052
Accrued liabilities 51,686 44,097
------------- --------------
Total current liabilities 110,532 114,570
Accrued excess facilities costs,
noncurrent 9,907 16,434
Other non-current liabilities 20,927 5,824
------------- --------------
Total liabilities 141,366 136,828
------------- --------------
Stockholders' equity:
Common stock 2,246,969 2,078,941
Accumulated deficit (1,912,386) (1,933,708)
Accumulated other comprehensive loss (170) (99)
------------- --------------
Total stockholders' equity 334,413 145,134
------------- --------------
$ 475,779 $ 281,962
============= ==============
Harmonic Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Year Ended
------------------- ----------------------
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
------------------------------------------
(In thousands, except per share data)
Net sales $ 87,390 $ 75,338 $ 311,204 $ 247,684
Cost of sales 46,675 45,174 177,129 146,238
--------- --------- ---------- -----------
Gross profit 40,715 30,164 134,075 101,446
--------- --------- ---------- -----------
Operating expenses:
Research and development 11,287 9,901 42,902 39,455
Selling, general and
administrative 24,332 16,621 70,690 65,243
Write-off of acquired in-
process technology -- -- 700 --
Amortization of
intangibles 160 291 525 470
--------- --------- ---------- -----------
Total operating
expenses 35,779 26,813 114,817 105,168
--------- --------- ---------- -----------
Income (loss) from
operations 4,936 3,351 19,258 (3,722)
Interest and other income,
net 2,997 1,816 6,263 5,338
--------- --------- ---------- -----------
Income before income taxes 7,933 5,167 25,521 1,616
Provision for income taxes 1,294 126 2,100 609
--------- --------- ---------- -----------
Net income $ 6,639 $ 5,041 $ 23,421 $ 1,007
========= ========= ========== ===========
Net income per share
Basic $ 0.08 $ 0.07 $ 0.29 $ 0.01
========= ========= ========== ===========
Diluted $ 0.07 $ 0.07 $ 0.28 $ 0.01
========= ========= ========== ===========
Shares used to compute net
income per share:
Basic 88,469 75,670 81,882 74,639
========= ========= ========== ===========
Diluted 90,377 76,547 83,249 75,183
========= ========= ========== ===========
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Year Ended
----------------------
December December
31, 2007 31, 2006
----------- ----------
(In thousands)
Cash flows from operating activities:
Net income $ 23,421 $ 1,007
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of intangibles 5,338 2,200
Write-off of acquired in-process technology 700 --
Depreciation 6,661 7,383
Stock-based compensation 6,196 5,722
Loss on disposal and impairment of fixed
assets 74 297
Deferred income taxes -- --
Changes in assets and liabilities:
Accounts receivable (4,191) (20,550)
Inventories 7,865 (3,224)
Prepaid expenses and other assets (6,354) (4,316)
Accounts payable (13,129) 13,396
Deferred revenue 10,205 7,774
Income taxes payable 208 493
Accrued excess facilities costs (6,684) (877)
Accrued and other liabilities 5,050 (671)
----------- ----------
Net cash provided by operating activities 35,360 8,634
----------- ----------
Cash flows from investing activities:
Purchases of investments (178,123) (70,398)
Proceeds from sale of investments 98,300 84,820
Acquisition of property and equipment, net (5,868) (5,143)
Acquisition of Rhozet, net of cash received (1,950) --
Purchase of Entone, Inc. note receivable (2,500) --
Acquisition of Entone Technologies, Inc.,
net of cash received (2,465) (26,232)
----------- ----------
Net cash used in investing activities (92,606) (16,953)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 153,337 4,778
Excess tax benefits from stock-based
compensation 70 --
Repayments under bank line and term loan (460) (812)
Repayments of capital lease obligations (72) (82)
----------- ----------
Net cash provided by financing activities 152,875 3,884
----------- ----------
Effect of exchange rate changes on cash and
cash equivalents (78) (71)
----------- ----------
Net increase (decrease) in cash and cash
equivalents 95,551 (4,364)
Cash and cash equivalents at beginning of
period 33,454 37,818
----------- ----------
Cash and cash equivalents at end of period $ 129,005 $ 33,454
=========== ==========
Harmonic Inc.
Revenue Information
(Unaudited)
Three Months Ended Year Ended
------------------------- ---------------------------
December 31, December 31, December 31, December 31,
2007 2006 2007 2006
-----------------------------------------------------
(In thousands)
Product
Video Processing $41,954 48% $30,492 41% $134,744 43% $ 96,855 39%
Edge & Access 29,379 34% 32,500 43% 125,270 40% 109,529 44%
Software,
Services and
Other 16,057 18% 12,346 16% 51,190 17% 41,300 17%
------------ ------------ ------------- -------------
Total $87,390 100% $75,338 100% $311,204 100% $247,684 100%
======= ======= ======== ========
Geography
United States $49,810 57% $44,449 59% $175,257 56% $126,420 51%
International 37,580 43% 30,889 41% 135,947 44% 121,264 49%
------------ ------------ ------------- -------------
Total $87,390 100% $75,338 100% $311,204 100% $247,684 100%
======= ======= ======== ========
Market
Cable $46,493 53% $53,236 71% $185,803 60% $155,736 63%
Satellite 21,637 25% 8,405 11% 65,343 21% 26,189 11%
Telco & Other 19,260 22% 13,697 18% 60,058 19% 65,759 26%
------------ ------------ ------------- -------------
Total $87,390 100% $75,338 100% $311,204 100% $247,684 100%
======= ======= ======== ========
Use of Non-GAAP Financial Measures
In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes a number of items required by GAAP. Management believes that these accounting charges and credits, most of which are non-cash or non-recurring in nature, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company "through the eyes of management," and thereby enhance understanding of its operating performance. The non-GAAP measures presented here are gross margins, operating expense, net income and net income per share. The presentation of non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of non-GAAP financial measures to GAAP financial measures is included with the financial statements contained in this press release. The non-GAAP adjustments described below have historically been excluded from our non-GAAP measures. These adjustments, and the basis for excluding them, are:
-- Restructuring Activities
-- Severance Costs
The Company has incurred severance costs in cost of sales and
in operating expenses in connection with the closing of its
manufacturing and research and development facilities in the
UK. In addition, severance costs were incurred due to a
reorganization of its senior management following the
appointment of a new Chief Executive Officer. The Company
excludes one-time costs of this nature in evaluating its
ongoing operational performance. We believe that these costs
do not reflect expected future expenses nor do they provide
a meaningful comparison of current versus prior operating
results.
-- Excess Facilities
The Company has incurred excess facilities charges and
credits in operating expenses due to adjustments related to
vacating and subleasing portions of its Sunnyvale campus
and to the closing of its manufacturing and research and
development facilities in the UK. The Company excludes one-
time costs of this nature in evaluating its ongoing
operational performance. We believe that these costs do not
reflect expected future expenses nor do they provide a
meaningful comparison of current versus prior operating
results.
-- Product Discontinuance
In connection with the restructuring of its operations in
the UK, the Company recorded charges for excess inventory
in connection with discontinued products. The Company
excludes one-time costs of this nature in evaluating its
ongoing operational performance. We believe that these
costs do not reflect expected future expenses nor do they
provide a meaningful comparison of current versus prior
operating results.
--Litigation Settlement Costs
The Company incurred a litigation settlement charge and related
expenses in 2007. We exclude one-time costs of this nature in
evaluating our operating performance as it is difficult to
estimate the amount or timing of these items in advance.
Generally, in the case of legal settlements, these gains or losses
are recorded in the period in which the matter is concluded or
resolved even though the subject matter in this instance related
to litigation originally initiated in 2000. We believe that these
costs do not reflect future expenses nor do they provide a
meaningful comparison of current versus prior operating results.
-- Non-Cash Items
-- Stock-Based Compensation Expense
The Company has incurred stock-based compensation expense in
cost of sales and operating expenses as required under FAS
123R. The Company excludes stock-based compensation expense
because it believes that this measure is not relevant in
evaluating its core operating performance, either for
internal measurement purposes or for period-to-period
comparisons and benchmarking against other public
companies.
-- Impairment and Amortization of Intangibles
The Company has incurred amortization of intangibles and has
taken a charge for acquired in-process technology related
to acquisitions the Company has made. In addition, the
Company recorded an impairment of its fixed assets and
intangibles due to its decision to discontinue a product
line. Management excludes these items when it evaluates its
core operating performance. We believe that eliminating
these expenses is useful to investors when comparing
historical and prospective results and comparing such
results to other public companies because these expenses
will vary if and when the Company makes additional
acquisitions.
Harmonic Inc.
GAAP to Non-GAAP Income Reconciliation
(Unaudited)
Three Months Ended Three Months Ended
December 31, 2007 December 31, 2006
-------------------------- -------------------------
Gross Operating Net Gross Operating Net
Margin Expense Income Margin Expense Income
----------------------------------------------------
(In thousands)
GAAP $ 40,715 $ 35,779 $ 6,639 $ 30,164 $ 26,813 $ 5,041
Cost of sales
related to
severance costs 287 287
Cost of sales
related to
product
discontinuance 1,134 1,134
Cost sales related
to stock based
compensation
expense 280 280 202 202
Research and
development
expense related
to stock based
compensation
expense (573) 573 (334) 334
Selling, general
and
administrative
expense related
to severance
costs (198) 198
Selling, general
and
administrative
expense related
to excess
facilities costs (482) 482 (116) 116
Selling, general
and
administrative
expense related
to stock based
compensation
expense (868) 868 (810) 810
Selling, general
and
administrative
expense related
to litigation
settlement (6,400) 6,400
Impairment and
amortization of
fixed assets and
intangibles 1,474 (160) 1,634 1,237 (491) 1,728
-------------------------- -------------------------
Non-GAAP $ 42,469 $ 27,296 $16,876 $ 33,024 $ 24,864 $ 9,850
========================== =========================
GAAP income per
share - basic $ 0.08 $ 0.07
======== =======
GAAP income per
share - diluted $ 0.07 $ 0.07
======== =======
Non-GAAP income
per share - basic $ 0.19 $ 0.13
======== =======
Non-GAAP income
per share -
diluted $ 0.19 $ 0.13
======== =======
Shares used in
per-share
calculation -
basic 88,469 75,670
======== =======
Shares used in
per-share
calculation -
diluted 90,377 76,547
======== =======
Year Ended December 31, Year Ended December 31,
2007 2006
-------------------------- -------------------------
Gross Operating Net Gross Operating Net
Margin Expense Income Margin Expense Income
----------------------------------------------------
GAAP $134,075 $114,817 $23,421 $101,446 $105,168 $ 1,007
Cost of sales
related to
severance costs 188 188 587 587
Cost of sales
related to
product
discontinuance 772 772 1,134 1,134
Cost of sales
related to stock
based
compensation
expense 998 998 957 957
Research and
development
expense related
to severance
costs (334) 334 (12) 12
Research and
development
expense related
to stock based
compensation
expense (2,012) 2,012 (1,638) 1,638
Selling, general
and
administrative
expense related
to severance
costs (131) 131 (848) 848
Selling, general
and
administrative
expense related
to stock based
compensation
expense (3,186) 3,186 (3,124) 3,124
Selling, general
and
administrative
expense related
to excess
facilities
expense
(recovery) 331 (331) (2,174) 2,174
Selling, general
and
administrative
expense related
to litigation
settlement (6,400) 6,400
Impairment and
amortization of
fixed assets and
intangibles 4,740 (1,225) 5,965 1,730 (670) 2,400
-------------------------- -------------------------
Non-GAAP $140,773 $101,860 $43,076 $105,854 $ 96,702 $13,881
========================== =========================
GAAP income per
share - basic $ 0.29 $ 0.01
======== =======
GAAP income per
share - diluted $ 0.28 $ 0.01
======== =======
Non-GAAP income
per share - basic $ 0.53 $ 0.19
======== =======
Non-GAAP income
per share -
diluted $ 0.52 $ 0.18
======== =======
Shares used in
per-share
calculation -
basic 81,882 74,639
======== =======
Shares used in
per-share
calculation -
diluted 83,249 75,183
======== =======
CONTACT: Harmonic Inc.
Robin N. Dickson, 408-542-2500
Chief Financial Officer
or
StreetConnect
Michael Newman, 408-542-2760 (Investor Relations)
SOURCE: Harmonic Inc.