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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 27, 2008
 
Date of Report
(Date of earliest event reported)
HARMONIC INC.
(Exact name of Registrant as specified in its charter)
         
Delaware   000-25826   77-0201147
(State or other jurisdiction of
incorporation or organization)
  Commission File Number    (I.R.S. Employer
Identification Number)
549 Baltic Way
Sunnyvale, CA 94089
(408) 542-2500
(Address, including zip code, and telephone number, including area code,
of Registrant’s principal executive offices)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


TABLE OF CONTENTS

Item 2.02. Results of Operations and Financial Condition.
Item 9.01. Financial Statements and Exhibits.
SIGNATURES
Exhibit Index
EX-99.1


Table of Contents

Item 2.02. Results of Operations and Financial Condition.
On October 27, 2008, Harmonic Inc. (“Harmonic” or the “Company”) issued a press release regarding its unaudited financial results for the quarter ended September 26, 2008. In the press release, Harmonic also announced that it would be holding a conference call on Monday, October 27, 2008, to discuss its financial results for the quarter ended September 26, 2008. A copy of the press release is furnished as Exhibit 99.1 hereto, and the information in Exhibit 99.1 is incorporated herein by reference.
The information in this Current Report on Form 8-K and the exhibit attached hereto is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall such information be incorporated by reference into any filing by Harmonic under the Securities Act of 1933, as amended, or under the Exchange Act, regardless of the general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
     
Exhibit Number   Description
99.1
  Press Release of Harmonic Inc., issued on October 27, 2008.

 


Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HARMONIC INC.
Date: October 27, 2008
         
By:   /s/ Robin N. Dickson      
  Robin N. Dickson     
  Chief Financial Officer     

 


Table of Contents

Exhibit Index
     
Exhibit Number   Description
99.1
  Press Release of Harmonic Inc., issued on October 27, 2008.

 

exv99w1
Exhibit 99.1
Harmonic Announces Third Quarter Results
Strong Year-over-Year Sales and Earnings Growth;
Maintaining Gross Margins
SUNNYVALE, Calif.—October 27, 2008—Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary and unaudited results for the quarter ended September 26, 2008.
For the third quarter of 2008, the Company reported net sales of $91.5 million, up 11% from $82.3 million in the third quarter of 2007. For the first nine months of 2008, net sales were $268.1 million, up 20% from $223.8 million in the same period of 2007. International sales represented 39% of revenue for the third quarter of 2008, compared to 46% in the same period of 2007. In the third quarter of 2008, Harmonic had strong bookings across the Company’s global customer base of cable, satellite, telco and other operators.
The Company maintained its gross margins in the third quarter of 2008, reflecting the continued success of its new products and solutions, as well as its sourcing strategy and product design innovations.
GAAP net income for the third quarter of 2008 was $12.0 million, or $0.12 per diluted share, up from $9.4 million, or $0.12 per diluted share, for the same period of 2007. The results for the third quarter of 2008 included a charge of approximately $0.8 million for the impairment of an investment in the unsecured debt of Lehman Brothers. Excluding this charge and non-cash accounting charges for stock-based compensation, the amortization of intangibles, excess facilities and a credit arising from the reversal of a valuation allowance against certain deferred tax assets, the non-GAAP net income for the third quarter of 2008 was $15.9 million, or $0.17 per diluted share, up from $11.9 million, or $0.15 per diluted share, for the same period of 2007. See “Use of Non-GAAP Financial Measures” and “GAAP to non-GAAP Reconciliation” below.
As of September 26, 2008, the Company had cash, cash equivalents and short-term investments of $293.4 million, up from $288.2 million as of June 27, 2008.
“We are pleased with our third quarter operating performance, bookings and momentum moving into the fourth quarter,” said Patrick Harshman, President and Chief Executive Officer. “Across different markets and geographies, video service providers continue to select our award-winning systems and solutions to expand their on-demand, high-definition and next-generation IP-based service offerings.”
“While the global economic environment creates uncertainty, we remain confident about our strong market position and long-term growth opportunities. Our technology leadership, diverse customer base and operating performance have placed us in an excellent position to further strengthen our competitive position and extend our global customer base.”
Business Outlook
The Company anticipates that net sales for the fourth quarter of 2008 will be in a range of $92 to $95 million and gross margins will be 47% to 49% on a GAAP basis. Non-GAAP gross margins for the same period, excluding charges for stock-based compensation and the amortization of intangibles, are anticipated to be in a range of 49% to 51%.
Conference Call Information
Harmonic will host a conference call today to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern). A listen-only broadcast of the conference call can be accessed on the Company’s website at www.harmonicinc.com or by calling +1.706.634.9047 (conference identification code 30815836). The replay will be available after 6:00 p.m. Pacific at the same website address or by calling +1.706.645.9291 (conference identification code 30815836).
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 belief that, across different markets and geographies, video service providers continue to select our award-winning systems and solutions to expand their on-demand, high-definition and next-generation IP-based service offerings; our beliefs regarding our strong market position and long-term growth opportunities; our belief that our technology leadership, diverse customer base and operating performance have placed us in an excellent position to further strengthen our competitive position and extend our global customer base; and our expectations regarding net sales, GAAP gross margins and non-GAAP gross margins for the fourth quarter of 2008. 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: the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace, or at all; our products will not generate sales that are commensurate with our expectations; the mix of products sold and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco industries; customer concentration and consolidation; general economic conditions, including the impact of recent turmoil in the global financial markets; market acceptance of new or existing Harmonic products; losses of one or more key customers; risks associated with Harmonic’s international operations; inventory management; the effect of competition; difficulties associated with rapid technological changes in Harmonic’s markets; the need to introduce new and enhanced products and the risk that our product development is not timely or does not result in expected benefits or market acceptance; risks associated with a cyclical and unpredictable sales cycle; and risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that expenses exceed our plans. 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, 2007, our subsequent quarterly reports on Form 10-Q, and our current reports on Form 8-K. 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
(In thousands)
(Unaudited)
                 
    September 26, 2008     December 31, 2007  
 
               
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 169,593     $ 129,005  
Short-term investments
    123,816       140,255  
Accounts receivable, net
    75,949       69,302  
Inventories
    32,530       34,251  
Deferred income taxes
    26,964       3,506  
Prepaid expenses and other current assets
    11,692       17,489  
 
           
 
               
Total current assets
    440,544       393,808  
 
               
Property and equipment, net
    14,894       14,082  
 
               
Goodwill, intangibles and other assets
    84,182       67,889  
 
           
 
 
  $ 539,620     $ 475,779  
 
           
 
               
Liabilities and stockholders’ equity
               
Current liabilities:
               
Accounts payable
    12,688       20,500  
Income taxes payable
    46       481  
Deferred revenue
    29,378       37,865  
Accrued liabilities
    40,589       51,686  
 
           
 
               
Total current liabilities
    82,701       110,532  
 
               
Accrued excess facilities costs, long-term
    6,584       9,907  
Income taxes payable, long-term
    40,773       8,908  
Other non-current liabilities
    8,511       12,019  
 
           
 
               
Total liabilities
    138,569       141,366  
 
           
 
               
Stockholders’ equity:
               
Common stock
    2,263,774       2,246,969  
Accumulated deficit
    (1,861,603 )     (1,912,386 )
Accumulated other comprehensive loss
    (1,120 )     (170 )
 
           
 
               
Total stockholders’ equity
    401,051       334,413  
 
           
 
               
 
  $ 539,620     $ 475,779  
 
           

 


 

Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 26,
2008
    September 28,
2007
    September 26,
2008
    September 28,
2007
 
 
                               
Net sales
  $ 91,455     $ 82,295     $ 268,071     $ 223,814  
 
                               
Cost of sales
    47,259       46,652       138,744       130,454  
 
                       
 
                               
Gross profit
    44,196       35,643       129,327       93,360  
 
                       
 
                               
Operating expenses:
                               
Research and development
    13,724       11,018       40,264       31,615  
Selling, general and administrative
    19,254       14,911       56,725       46,357  
Write-off of acquired in-process technology
          700             700  
Amortization of intangibles
    160       143       479       365  
 
                       
 
                               
Total operating expenses
    33,138       26,772       97,468       79,037  
 
                       
 
                               
Income from operations
    11,058       8,871       31,859       14,323  
 
                               
Interest and other income, net
    836       1,296       5,526       3,266  
 
                       
 
                               
Income before income taxes
    11,894       10,167       37,385       17,589  
 
                               
Provision for (benefit from) income taxes
    (71 )     750       (13,398 )     807  
 
                       
 
                               
Net income
  $ 11,965     $ 9,417     $ 50,783     $ 16,782  
 
                       
 
                               
Net income per share
                               
Basic
  $ 0.13     $ 0.12     $ 0.54     $ 0.21  
 
                       
 
                               
Diluted
  $ 0.12     $ 0.12     $ 0.53     $ 0.21  
 
                       
 
                               
Shares used to compute net income per share:
                               
Basic
    94,805       80,371       94,365       79,570  
 
                       
 
                               
Diluted
    95,863       81,642       95,491       80,743  
 
                       

 


 

Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                 
    Nine Months Ended  
    September 26, 2008     September 28, 2007  
 
               
Cash flows from operating activities:
               
Net income
  $ 50,783     $ 16,782  
Adjustments to reconcile net income to cash provided by (used in) operating activities:
               
Amortization of intangibles
    4,746       3,661  
Write-off of acquired in-process technology
          700  
Depreciation
    5,215       5,089  
Stock-based compensation
    5,470       4,475  
Excess tax benefits from stock-based compensation
    (2,864 )      
Loss (gain) on disposal and impairment of fixed assets
    22       (31 )
Loss on impairment of investments
    845        
Deferred income taxes
    (46,249 )      
Other non-cash adjustments, net
    (2,090 )     (386 )
Changes in assets and liabilities:
               
Accounts receivable
    (6,612 )     (4,234 )
Inventories
    1,741       5,777  
Prepaid expenses and other assets
    5,755       1,108  
Accounts payable
    (7,812 )     (18,217 )
Deferred revenue
    (6,967 )     3,714  
Income taxes payable
    31,430       (271 )
Accrued excess facilities costs
    (4,808 )     (5,661 )
Accrued and other liabilities
    (9,939 )     (3,242 )
 
           
Net cash provided by (used in) operating activities
    18,666       9,264  
 
           
 
               
Cash flows from investing activities:
               
Purchases of investments
    (91,868 )     (70,507 )
Proceeds from sale of investments
    109,363       71,578  
Acquisition of property and equipment, net
    (6,049 )     (4,193 )
Acquisition of intellectual property
    (500 )      
Acquisition of Rhozet Corp., net of cash received
    (2,828 )     (1,370 )
Redemption (purchase) of Entone, Inc. convertible note
    2,500       (2,500 )
Acquisition costs related to the merger of Entone Technologies, Inc.
          (2,466 )
 
           
Net cash provided by (used in) investing activities
    10,618       (9,458 )
 
           
 
Cash flows from financing activities:
               
Repayments under bank line and term loan
          (460 )
Repayments of capital lease obligations
          (65 )
Proceeds from issuance of common stock, net
    8,367       8,292  
Excess tax benefits from stock-based compensation
    2,864        
 
           
Net cash provided by financing activities
    11,231       7,767  
 
           
 
               
Effect of exchange rate changes on cash and cash equivalents
    73       (34 )
 
           
 
               
Net increase in cash and cash equivalents
    40,588       7,539  
Cash and cash equivalents at beginning of period
    129,005       33,454  
 
           
 
               
Cash and cash equivalents at end of period
  $ 169,593     $ 40,993  
 
           

 


 

Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
                                                                 
    Three Months Ended     Nine Months Ended  
    September 26,     September 28,     September 26,     September 28,  
    2008     2007     2008     2007  
 
Product
                                                               
Video Processing
  $ 32,284       35 %   $ 38,623       47 %   $ 101,152       38 %   $ 92,790       41 %
Edge & Access
    43,029       47 %     29,156       35 %     124,191       46 %     95,891       43 %
Software, Services and Other
    16,142       18 %     14,516       18 %     42,728       16 %     35,133       16 %
 
                                               
Total
  $ 91,455       100 %   $ 82,295       100 %   $ 268,071       100 %   $ 223,814       100 %
 
                                                       
 
                                                               
Geography
                                                               
United States
  $ 55,669       61 %   $ 44,638       54 %   $ 153,565       57 %   $ 125,447       56 %
International
    35,786       39 %     37,657       46 %     114,506       43 %     98,367       44 %
 
                                               
Total
  $ 91,455       100 %   $ 82,295       100 %   $ 268,071       100 %   $ 223,814       100 %
 
                                                       
 
                                                               
Market
                                                               
Cable
  $ 57,953       63 %   $ 41,608       51 %   $ 166,473       62 %   $ 139,310       62 %
Satellite
    19,824       22 %     26,462       32 %     53,378       20 %     43,706       20 %
Telco & Other
    13,678       15 %     14,225       17 %     48,220       18 %     40,798       18 %
 
                                               
Total
  $ 91,455       100 %   $ 82,295       100 %   $ 268,071       100 %   $ 223,814       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, 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 financial 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 financial measures presented here are gross margin, 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 the non-GAAP financial measures discussed in this press release to the most directly comparable 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 financial 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. 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 portions of its Sunnyvale campus, estimating income from subleases of buildings, and to the closing of its manufacturing and research and development facilities in the UK. The Company excludes one-time charges and credits of this nature in evaluating its ongoing operational performance. We believe that these charges and credits 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.
  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 companies.
 
    Amortization of Intangibles
 
      The Company has incurred amortization of intangibles related to acquisitions made by the Company. 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 companies because these expenses will vary if and when the Company makes additional acquisitions.
 
    Impairment of a Marketable Security
 
      The fair value of the Company’s investment in the unsecured debt of Lehman Brothers Holdings, Inc. has been substantially reduced because of the bankruptcy of the issuer. As a result, we recorded an “other-than-temporary” impairment charge to reduce the carrying value of this investment. This impairment charge has been excluded from our non-GAAP net income because we expect the impairment charge to be a non-recurring item. As such, we believe that its inclusion in our calculation of non-GAAP net income would not provide a meaningful comparison of current versus prior net income.
 
    Reversal of Valuation Allowance for Certain Deferred Tax Assets
 
      The Company has reversed a valuation allowance against certain deferred tax assets, resulting in a credit to its provision for income taxes. Management has excluded the discrete benefit from this reversal from its calculation of the Company’s non-GAAP net income because it believes that it is of a one-time nature and does not reflect future expected tax provisions nor does it provide a meaningful comparison of current versus prior net income.

 


 

Harmonic Inc.
GAAP to non-GAAP Income Reconciliation
(Unaudited)
                                                 
    Three Months Ended September 26, 2008     Three Months Ended September 28, 2007  
            Operating                     Operating          
(In thousands)   Gross Margin     Expense     Net Income     Gross Margin     Expense   Net Income  
             
 
GAAP
  $ 44,196     $ 33,138     $ 11,965     $ 35,643     $ 26,772     $ 9,417  
 
                                               
Cost of sales related to stock based compensation expense
    325               325       255               255  
Research and development expense related to stock based compensation expense
            (785 )     785               (563 )     563  
Selling, general and administrative expense related to stock based compensation expense
            (1,110 )     1,110               (870 )     870  
Selling, general and administrative expense related to excess facilities expense
            (283 )     283               1,384       (1,384 )
Amortization of intangibles from acquisitions
    1,356       (160 )     1,516       1,337       (843 )     2,180  
Impairment on Lehman Brothers investment
                    845                          
Income tax valuation allowance adjustment
                    (970 )                        
 
                                               
             
Non-GAAP
  $ 45,877     $ 30,800     $ 15,859     $ 37,235     $ 25,880     $ 11,901  
             
 
                                               
GAAP per share — basic
                  $ 0.13                     $ 0.12  
 
                                           
GAAP per share — diluted
                  $ 0.12                     $ 0.12  
 
                                           
Non-GAAP income per share — basic
                  $ 0.17                     $ 0.15  
 
                                           
Non-GAAP income per share — diluted
                  $ 0.17                     $ 0.15  
 
                                           
Shares used in per-share calculation — basic
                    94,805                       80,371  
 
                                           
Shares used in per-share calculation — diluted
                    95,863                       81,642  
 
                                           
                                                 
    Nine Months Ended September 26, 2008     Nine Months Ended September 28, 2007  
            Operating                     Operating          
    Gross Margin     Expense     Net Income     Gross Margin     Expense   Net Income  
             
 
                                               
GAAP
  $ 129,327     $ 97,468     $ 50,783     $ 93,360     $ 79,037     $ 16,782  
 
                                               
Cost of sales related to severance costs
                            188               188  
Cost of sales related to stock based compensation expense
    819               819       719               719  
Cost of sales related to product discontinuance
                            772               772  
Research and development expense related to severance costs
                                    (334 )     334  
Research and development expense related to stock based compensation expense
            (2,021 )     2,021               (1,439 )     1,439  
Selling, general and administrative expense related to severance costs
                                    (131 )     131  
Selling, general and administrative expense related to stock based compensation expense
            (2,630 )     2,630               (2,317 )     2,317  
Selling, general and administrative expense related to excess facilities expense
            (1,738 )     1,738               813       (813 )
Amortization of intangibles from acquisitions
    4,151       (479 )     4,630       3,266       (1,065 )     4,331  
Impairment on Lehman Brothers investment
                    845                          
Income tax valuation allowance adjustment
                    (16,068 )                        
 
                                               
             
Non-GAAP
  $ 134,297     $ 90,600     $ 47,398     $ 98,305     $ 74,564     $ 26,200  
             
 
                                               
GAAP per share — basic
                  $ 0.54                     $ 0.21  
 
                                           
GAAP per share — basic
                  $ 0.53                     $ 0.21  
 
                                           
Non-GAAP income per share — basic
                  $ 0.50                     $ 0.33  
 
                                           
Non-GAAP income per share — diluted
                  $ 0.50                     $ 0.32  
 
                                           
Shares used in per-share calculation — basic
                    94,365                       79,570  
 
                                           
Shares used in per-share calculation — diluted
                    95,491                       80,743