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

HARMONIC INC.

Delaware		000-25826		77-0201147
(State or other jurisdiction of		Commission File Number		(I.R.S. Employer
incorporation or organization)				Identification Number)

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))

 

 

Item 2.02. Results of Operations and Financial Condition.

On January 29, 2009, Harmonic Inc. (“Harmonic” or the “Company”) issued a press release regarding its unaudited financial results for the quarter and year ended December 31, 2008. In the press release, Harmonic also announced that it would be holding a conference call on Thursday, January 29, 2009, to discuss its financial results for the quarter and year ended December 31, 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 January 29, 2009.

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:		January 29, 2009
By:		/s/Robin N. Dickson
		Robin N. Dickson
		Chief Financial Officer

Exhibit Index

Exhibit Number		Description
99.1		Press Release of Harmonic Inc., issued on January 29, 2009.

Exhibit 99.1

Harmonic Announces Preliminary Unaudited

Fourth Quarter and Year End Results

Strong Sales and Earnings Growth; Strong Operating Performance;
Extended Worldwide Customer Base and Technology Leadership

SUNNYVALE, Calif.¾January 29, 2009¾Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary and unaudited results for the quarter and year ended December 31, 2008.

For the fourth quarter of 2008, the Company reported net sales of $96.9 million, up 11% from $87.4 million in the fourth quarter of 2007. For the full year 2008, net sales were $365.0 million, up 17% from $311.2 million in 2007. In 2008, the Company saw revenue growth across the range of its cable, satellite, telco, broadcast and other markets. Both domestic and international sales grew strongly in 2008, with international sales representing 47% and 44% of revenue, respectively, for the fourth quarter and the full year 2008.

The Company strengthened its gross margins in 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 fourth quarter of 2008 was $13.2 million, or $0.14 per diluted share, up from $6.6 million, or $0.07 per diluted share, for the same period of 2007. For the full year 2008, GAAP net income was $64.0 million, or $0.67 per diluted share, up from $23.4 million, or $0.28 per diluted share in 2007. The results for the quarter and year ended December 31, 2008 included a charge of approximately $5.2 million for the settlement of litigation and related costs.

Excluding the charge related to the settlement of litigation, as well as non-cash accounting charges for stock-based compensation, amortization of intangibles, and the reversal of a valuation allowance related to certain deferred tax assets, the non-GAAP net income for the fourth quarter of 2008 was $19.0 million, or $0.20 per diluted share, up from non-GAAP net income of $16.9 million, or $0.19 per diluted share, for the same period of 2007.

For the full year 2008, non-GAAP net income, excluding the items discussed in the preceding paragraph as well as the impairment of a marketable security, was $66.4 million, or $0.70 per diluted share, up from non-GAAP net income of $43.1 million, or $0.52 per share, for 2007.

For more information regarding non-GAAP financial measures, see “Use of Non-GAAP Financial Measures” and “GAAP to non-GAAP Reconciliation” below.

As of December 31, 2008, the Company had cash, cash equivalents and short-term investments of $327.2 million, up from $293.4 million as of September 26, 2008. During the fourth quarter, Harmonic announced a definitive agreement to acquire Scopus Video Networks Limited (NASDAQ: SCOP) for approximately $51.0 million in cash, net of Scopus’ cash and short-term investments. The proposed acquisition is subject to customary closing conditions, including the requirement that the parties obtain regulatory approvals and the approval of Scopus’ shareholders, and is currently expected to close in March of 2009.

“2008 was an outstanding year for our Company, with record revenues, gross margins and earnings,” said Patrick Harshman, President and Chief Executive Officer. “Underlying our success was the expanding range of video service providers around the globe who have selected Harmonic to power their mission-critical video services.

“Moving into 2009, we plan to continue investing in the long term growth of our business. We expect to announce a number of important new product introductions and to complete the acquisition of Scopus, which we believe will further expand our worldwide customer base and strengthen our technology leadership. We will also continue to focus on controlling our costs and improving our operating efficiencies.

“While the first quarter is usually the slowest period of the year and the global economic situation creates substantial near term uncertainty, we remain confident that our technology leadership, diversified customer base and strong financial position provide us with operational and strategic flexibility. We are well-positioned to further strengthen our competitive position and increase our global market share in 2009 and beyond.”

Business Outlook

Harmonic anticipates that net sales for the first quarter of 2009 will be in a range of $72 to $78 million. GAAP gross margins and operating expenses will be in a range of 45% to 47% and $32 to $33 million, respectively. Non-GAAP gross margins and operating expenses for the same period, excluding charges for stock-based compensation and the amortization of intangibles, are anticipated to be in a range of 47% to 49% and $30 to $31 million, respectively. All of these projections exclude the impact of closing the proposed acquisition of Scopus.

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 30815953). 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 30815953).

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 our final results for the fourth quarter and year ended December 31, 2008; our expectations regarding the closing of the proposed acquisition of Scopus, including the expected date of closing and the benefits that Harmonic expects to result from the acquisition; our plans to continue investing in the long term growth of our business; our expectation that we will announce a number of important new product introductions; our belief that our new product introductions and our acquisition of Scopus will further expand our worldwide customer base and strengthen our technology leadership; our expectation that we will continue to focus on controlling our costs and improving our operating efficiencies; our belief that our technology leadership, diversified customer base and strong financial position provide us with operational and strategic flexibility, and that we are well-positioned to further strengthen our competitive position and increase our global market share in 2009 and beyond; and our expectations regarding net sales, GAAP gross margins and non-GAAP gross margins for the first quarter of 2009. 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 acquisition of Scopus does not close when expected, or at all; if we do complete the acquisition of Scopus, we will not be able to integrate Scopus into our business as effectively or efficiently as expected; Scopus does not provide Harmonic with the benefits and synergies that we currently expect from the acquisition; 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.

Harmonic Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

		December 31, 2008				December 31, 2007
Assets
Current assets:
Cash and cash equivalents		$	179,891			$	129,005
Short-term investments			147,272				140,255
Accounts receivable, net			63,923				69,302
Inventories			26,875				34,251
Deferred income taxes			36,384				3,506
Prepaid expenses and other current assets			15,985				17,489
Total current assets			470,330				393,808
Property and equipment, net			15,428				14,082
Goodwill, intangibles and other assets			78,605				67,889
		$	564,363			$	475,779
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	13,366			$	20,500
Income taxes payable			1,434				481
Deferred revenue			29,909				37,865
Accrued liabilities			50,490				51,686
Total current liabilities			95,199				110,532
Accrued excess facilities costs, long-term			4,953				9,907
Income taxes payable, long-term			41,555				8,908
Other non-current liabilities			8,339				12,019
Total liabilities			150,046				141,366
Stockholders’ equity:
Common stock			2,263,331				2,246,969
Accumulated deficit			(1,848,394	)			(1,912,386	)
Accumulated other comprehensive loss			(620	)			(170	)
Total stockholders’ equity			414,317				334,413
		$	564,363			$	475,779

Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

		Three Months Ended								Year Ended
		December 31,				December 31,				December 31,				December 31,
		2008				2007				2008				2007
Net sales		$	96,891			$	87,390			$	364,963			$	311,204
Cost of sales			48,685				46,675				187,430				177,129
Gross profit			48,206				40,715				177,533				134,075
Operating expenses:
Research and development			14,207				11,288				54,471				42,902
Selling, general and administrative			26,394				24,332				83,118				70,690
Write-off of acquired in-process technology			—				—				—				700
Amortization of intangibles			160				160				639				525
Total operating expenses			40,761				35,780				138,228				114,817
Income from operations			7,445				4,935				39,305				19,258
Interest and other income, net			1,138				2,997				6,664				6,263
Income before income taxes			8,583				7,932				45,969				25,521
Provision for (benefit from) income taxes			(4,626	)			1,293				(18,023	)			2,100
Net income		$	13,209			$	6,639			$	63,992			$	23,421
Net income per share
Basic		$	0.14			$	0.08			$	0.68			$	0.29
Diluted		$	0.14			$	0.07			$	0.67			$	0.28
Shares used to compute net income per share:
Basic			95,014				88,469				94,535				81,882
Diluted			95,533				90,377				95,434				83,249

Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

		Year Ended
		December 31,2008				December 31, 2007
Cash flows from operating activities:
Net income		$	63,992			$	23,421
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Amortization of intangibles			6,275				5,338
Write-off of acquired in-process technology			—				700
Depreciation			7,014				6,661
Stock-based compensation			7,806				6,196
Loss on disposal of fixed assets			185				74
Deferred income taxes			(55,859	)			—
Other non-cash adjustments, net			3,243				278
Changes in assets and liabilities:
Accounts receivable			6,529				(4,191	)
Inventories			7,388				7,865
Prepaid expenses and other assets			3,278				(6,847	)
Accounts payable			(7,134	)			(13,129	)
Deferred revenue			(6,433	)			10,205
Income taxes payable			33,657				208
Accrued excess facilities costs			(6,472	)			(6,684	)
Accrued and other liabilities			(3,242	)			5,050
Net cash provided by operating activities			60,127				35,145
Cash flows from investing activities:
Purchases of investments			(132,813	)			(177,908	)
Proceeds from sale of investments			124,237				98,300
Acquisition of property and equipment, net			(8,546	)			(5,868	)
Acquisition of intellectual property			(500	)			—
Acquisition of Rhozet Corp., net of cash received			(2,830	)			(1,950	)
Redemption (purchase) of Entone, Inc. convertible note			2,500				(2,500	)
Acquisition costs related to the merger of Entone Technologies, Inc.			—				(2,465	)
Net cash used in investing activities			(17,952	)			(92,391	)
Cash flows from financing activities:
Repayments under bank line and term loan			—				(460	)
Repayments of capital lease obligations			—				(72	)
Proceeds from issuance of common stock, net			8,463				153,337
Excess tax benefits from stock-based compensation			—				70
Net cash provided by financing activities			8,463				152,875
Effect of exchange rate changes on cash and cash equivalents			248				(78	)
Net increase in cash and cash equivalents			50,886				95,551
Cash and cash equivalents at beginning of period			129,005				33,454
Cash and cash equivalents at end of period		$	179,891			$	129,005

Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)

		Three Months Ended																Year Ended
		December 31,								December 31,								December 31,								December 31,
		2008								2007								2008								2007
Product
Video Processing		$	37,165				38	%		$	41,941				48	%		$	137,390				38	%		$	134,744				43	%
Edge & Access			40,719				42	%			29,397				34	%			165,246				45	%			125,270				40	%
Software, Services and Other			19,007				20	%			16,052				18	%			62,327				17	%			51,190				17	%
Total		$	96,891				100	%		$	87,390				100	%		$	364,963				100	%		$	311,204				100	%
Geography
United States		$	51,596				53	%		$	49,810				57	%		$	205,162				56	%		$	175,257				56	%
International			45,295				47	%			37,580				43	%			159,801				44	%			135,947				44	%
Total		$	96,891				100	%		$	87,390				100	%		$	364,963				100	%		$	311,204				100	%
Market
Cable		$	60,929				63	%		$	46,493				53	%		$	227,402				62	%		$	185,803				60	%
Satellite			20,301				21	%			21,637				25	%			73,679				20	%			65,343				21	%
Telco & Other			15,661				16	%			19,260				22	%			63,882				18	%			60,058				19	%
Total		$	96,891				100	%		$	87,390				100	%		$	364,963				100	%		$	311,204				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 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 historical non-GAAP financial measures discussed in this press release to the most directly comparable historical 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.

•

Litigation Settlement Costs

The Company has incurred charges in connection with the settlement of litigation and related expenses. The Company excludes one-time costs of this nature in evaluating its ongoing 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 of such litigation originated several years prior to the applicable settlement. 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 companies.
			Amortization of Intangibles
			The Company has incurred a charge for amortization of intangibles related to acquisitions made by the Company. The Company 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 Company has incurred a charge as a result of the fair value of the Company’s investment in the unsecured debt of Lehman Brothers Holdings, Inc. being substantially reduced because of the bankruptcy of the issuer. As a result, the Company 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. The Company 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 December 31, 2008												Three Months Ended December 31, 2007
						Operating												Operating
(In thousands)		Gross Margin				Expense				Net Income				Gross Margin				Expense				Net Income
GAAP		$	48,206			$	40,761			$	13,209			$	40,715			$	35,780			$	6,639
Cost of sales related to stock based compensation expense			318								318				280								280
Research and development expense related to stock based compensation expense							(824	)			824								(573	)			573
Selling, general and administrative expense related to stock based compensation expense							(1,194	)			1,194								(868	)			868
Selling, general and administrative expense related to excess facilities expense							(96	)			96								(482	)			482
Selling, general and administrative expense related to litigation settlements							(5,189	)			5,189								(6,400	)			6,400
Amortization of intangibles from acquisitions			1,350				(160	)			1,510				1,474				(160	)			1,634
Income tax valuation allowance adjustment											(3,326	)
Non-GAAP		$	49,874			$	33,298			$	19,014			$	42,469			$	27,297			$	16,876
GAAP per share – basic										$	0.14											$	0.08
GAAP per share – diluted										$	0.14											$	0.07
Non-GAAP income per share — basic										$	0.20											$	0.19
Non-GAAP income per share — diluted										$	0.20											$	0.19
Shares used in per-share calculation – basic											95,014												88,469
Shares used in per-share calculation – diluted											95,533												90,377

		Year Ended December 31, 2008												Year Ended December 31, 2007
						Operating												Operating
		Gross Margin				Expense				Net Income				Gross Margin				Expense				Net Income
GAAP		$	177,533			$	138,228			$	63,992			$	134,075			$	114,817			$	23,421
Cost of sales related to severance costs															188								188
Cost of sales related to stock based compensation expense			1,137								1,137				998								998
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							(2,845	)			2,845								(2,012	)			2012
Selling, general and administrative expense related to severance costs																			(131	)			131
Selling, general and administrative expense related to stock based compensation expense							(3,824	)			3,824								(3,186	)			3,186
Selling, general and administrative expense related to excess facilities expense (recovery)							(1,834	)			1,834								331				(331	)
Selling, general and administrative expense related to litigation settlements							(5,189	)			5,189								(6,400	)			6,400
Amortization of intangibles from acquisitions			5,501				(639	)			6,140				4,740				(1,225	)			5,965
Impairment of Lehman Brothers investment											845
Income tax valuation allowance adjustment											(19,394	)
Non-GAAP		$	184,171			$	123,897			$	66,412			$	140,773			$	101,860			$	43,076
GAAP per share – basic										$	0.68											$	0.29
GAAP per share – diluted										$	0.67											$	0.28
Non-GAAP income per share — basic										$	0.70											$	0.53
Non-GAAP income per share — diluted										$	0.70											$	0.52
Shares used in per-share calculation – basic											94,535												81,882
Shares used in per-share calculation – diluted											95,434												83,249