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 incorporation)		Commission File Number		(I.R.S. Employer 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.):

   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 October 28, 2009, Harmonic Inc. (“Harmonic” or the “Company”) issued a press release regarding its unaudited financial results for the quarter ended October 2, 2009. In the press release, Harmonic also announced that it would be holding a conference call on October 28, 2009, to discuss its financial results for the quarter ended October 2, 2009. 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, and this Current Report on Form 8-K and the exhibit furnished herewith shall not be incorporated by reference into any filing by Harmonic under the Securities Act of 1933, as amended, or under the Exchange Act, 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 28, 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.

  Exhibit Index

Exhibit Number		Description
99.1		Press release of Harmonic Inc., issued on October 28, 2009.

Exhibit 99.1

Harmonic Announces Third Quarter Results

Sequential Revenue Growth in International Markets;
Extending Technology Leadership

SUNNYVALE, Calif.—October 28, 2009—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 October 2, 2009.

For the third quarter of 2009, the Company reported net sales of $83.9 million, compared to $91.5 million in the third quarter of 2008 and $81.3 million for the second quarter of 2009. For the first nine months of 2009, net sales were $232.9 million, compared to $268.1 million in the same period of 2008.

During the third quarter of 2009, the Company saw a sequential increase in quarterly sales to international customers, particularly in Europe. International sales represented 52% of revenue for the third quarter of 2009, up from 43% in the previous quarter and 39% in the third quarter of 2008. Total bookings for the third quarter were approximately $79.9 million, compared to $81.3 million in the previous quarter.

The Company reported GAAP net income for the third quarter of 2009 of $2.6 million, or $0.03 per diluted share, compared to net income of $12.0 million, or $0.12 per diluted share, for the same period of 2008. Excluding restructuring charges related to the recent Scopus acquisition and non-cash accounting charges for purchase accounting adjustments to inventory, stock-based compensation expense, the amortization of intangibles and certain tax adjustments, the non-GAAP net income for the third quarter of 2009 was $4.5 million, or $0.05 per diluted share, compared to $15.9 million, or $0.17 per diluted share, for the same period of 2008. See “Use of Non-GAAP Financial Measures” and “GAAP to non-GAAP Reconciliation” below.

As of October 2, 2009, the Company had cash, cash equivalents and short-term investments of $253.0 million, compared to $252.6 million as of July 3, 2009.

“We’re pleased with the sequential sales growth from our expanding base of international customers,” said Patrick Harshman, President and Chief Executive Officer. “However, we continue to see cautious customer spending compared to last year. In this market environment, we have continued to carefully manage our operating expenses while also continuing to extend our global reach and technology leadership across a range of compelling new video applications extending from HDTV to mobile video. We remain confident in our strong competitive position and long-term growth prospects.”

Business Outlook

Harmonic anticipates that net sales for the fourth quarter of 2009 will be in a range of $80.0 to $86.0 million. GAAP gross margins and operating expenses are expected to be in a range of 44% to 46% and $37.0 to $38.0 million, respectively. Non-GAAP gross margins and operating expenses for the fourth quarter of 2009, which exclude charges for stock-based compensation and the amortization of intangibles, are anticipated to be in a range of 47% to 49% and $33.0 to $34.0 million, respectively.

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 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 32354964). 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 32354964).

About Harmonic Inc.

Harmonic Inc. is redefining video delivery with the industry’s most powerful solutions for delivering live and on-demand video to TVs, PCs and mobile devices. Harmonic’s 20 years of technical innovation and market leadership enable the company to offer a unique and comprehensive solution portfolio—including encoding, transcoding, content preparation, stream processing, asset management, edge processing, and delivery. Broadcast, cable, Internet, mobile, satellite and telecom service providers around the world choose Harmonic’s IP-based digital video, software, and broadband edge and access solutions. Using these award-winning and industry-leading solutions, operators can reduce costs and differentiate their services by offering consumers a higher quality, personalized multi-screen 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 third quarter ended October 2, 2009; our belief that we are continuing to extend our global reach and technology leadership across a range of compelling new video applications; our confidence in our competitive position and long-term growth prospects, and our expectations regarding net sales, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the fourth 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 trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace, or at all; the possibility that the continuing integration of Scopus does not proceed as we expect; the possibility that 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, 2008, our quarterly report on Form 10-Q for the quarter ended July 3, 2009 and our current reports on Form 8-K. The forward-looking statements in this press release are based on information available to the Company as of the date hereof, and Harmonic disclaims any obligation 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)

		October 2, 2009				December 31, 2008
Assets
Current assets:
Cash and cash equivalents		$	149,975			$	179,891
Short-term investments			102,989				147,272
Accounts receivable, net			70,347				63,923
Inventories			30,720				26,875
Deferred income taxes			36,384				36,384
Prepaid expenses and other current assets			15,561				15,985
Total current assets			405,976				470,330
Property and equipment, net			19,323				15,428
Goodwill, intangibles and other assets			110,856				78,605
		$	536,155			$	564,363
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable			15,051				13,366
Income taxes payable			2,357				1,434
Deferred revenue			29,905				29,909
Accrued liabilities			36,116				50,490
Total current liabilities			83,429				95,199
Accrued excess facilities costs, long-term			257				4,953
Income taxes payable, long-term			43,018				41,555
Other non-current liabilities			4,783				8,339
Total liabilities			131,487				150,046
Stockholders’ equity:
Common stock			2,277,088				2,263,331
Accumulated deficit			(1,872,580	)			(1,848,394	)
Accumulated other comprehensive income (loss)			160				(620	)
Total stockholders’ equity			404,668				414,317
		$	536,155			$	564,363

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

		Three Months Ended								Nine Months Ended
		October 2,				September 26,				October 2,				September 26,
		2009				2008				2009				2008
Net sales		$	83,861			$	91,455			$	232,909			$	268,071
Cost of sales			47,781				47,259				137,898				138,744
Gross profit			36,080				44,196				95,011				129,327
Operating expenses:
Research and development			15,879				13,724				45,825				40,264
Selling, general and administrative			19,405				19,254				61,431				56,725
Amortization of intangibles			1,367				160				3,289				479
Total operating expenses			36,651				33,138				110,545				97,468
Income (loss) from operations			(571	)			11,058				(15,534	)			31,859
Interest and other income, net			371				836				1,871				5,526
Income (loss) before income taxes			(200	)			11,894				(13,663	)			37,385
Provision for (benefit from) income taxes			(2,777	)			(71	)			10,523				(13,398	)
Net income (loss)		$	2,577			$	11,965			$	(24,186	)		$	50,783
Net income (loss) per share
Basic		$	0.03			$	0.13			$	(0.25	)		$	0.54
Diluted		$	0.03			$	0.12			$	(0.25	)		$	0.53
Shares used to compute net income (loss) per share:
Basic			96,104				94,805				95,742				94,365
Diluted			96,732				95,863				95,742				95,491

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

		Nine Months Ended
		October 2, 2009				September 26, 2008
Cash flows from operating activities:
Net income (loss)		$	(24,186	)		$	50,783
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Amortization of intangibles			9,222				4,746
Depreciation			6,299				5,215
Stock-based compensation			7,638				5,470
Excess tax benefits from stock-based compensation			—				(2,864	)
Loss on impairment of investment			—				845
Loss on disposal of fixed assets			191				22
Deferred income taxes			—				(46,249	)
Other non-cash adjustments, net			1,995				(2,090	)
Changes in assets and liabilities:
Accounts receivable, net			(303	)			(6,612	)
Inventories			12,097				1,741
Prepaid expenses and other assets			9,064				5,755
Accounts payable			(1,279	)			(7,812	)
Deferred revenue			(887	)			(6,967	)
Income taxes payable			2,156				31,430
Accrued excess facilities costs			(4,446	)			(4,808	)
Accrued and other liabilities			(27,332	)			(9,939	)
Net cash provided by (used in) operating activities			(9,771	)			18,666
Cash flows from investing activities:
Purchases of investments			(101,221	)			(91,868	)
Proceeds from sale of investments			146,241				109,363
Acquisition of property and equipment, net			(6,105	)			(6,049	)
Acquisition of intellectual property			—				(500	)
Acquisition of Scopus			(63,053	)			—
Acquisition of Rhozet			(453	)			(2,828	)
Redemption of Entone, Inc. convertible note			—				2,500
Net cash provided by (used in) investing activities			(24,591	)			10,618
Cash flows from financing activities:
Proceeds from issuance of common stock, net			4,239				8,367
Excess tax benefits from stock-based compensation			—				2,864
Net cash provided by financing activities			4,239				11,231
Effect of exchange rate changes on cash and cash equivalents			207				73
Net increase (decrease) in cash and cash equivalents			(29,916	)			40,588
Cash and cash equivalents at beginning of period			179,891				129,005
Cash and cash equivalents at end of period		$	149,975			$	169,593

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

		Three Months Ended																Nine Months Ended
		October 2,								September 26,								October 2,								September 26,
		2009								2008								2009								2008
Product
Video Processing		$	33,014				39	%		$	32,284				35	%		$	95,246				41	%		$	101,152				38	%
Edge & Access			32,678				39	%			43,029				47	%			88,447				38	%			124,191				46	%
Software, Services and Other			18,169				22	%			16,142				18	%			49,216				21	%			42,728				16	%
Total		$	83,861				100	%		$	91,455				100	%		$	232,909				100	%		$	268,071				100	%
Geography
United States		$	40,282				48	%		$	55,669				61	%		$	118,932				51	%		$	153,565				57	%
International			43,579				52	%			35,786				39	%			113,977				49	%			114,506				43	%
Total		$	83,861				100	%		$	91,455				100	%		$	232,909				100	%		$	268,071				100	%
Market
Cable		$	47,246				56	%		$	57,953				63	%		$	139,105				60	%		$	166,473				62	%
Satellite			17,488				21	%			19,824				22	%			44,292				19	%			53,378				20	%
Telco & Other			19,127				23	%			13,678				15	%			49,512				21	%			48,220				18	%
Total		$	83,861				100	%		$	91,455				100	%		$	232,909				100	%		$	268,071				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 integration of its acquisition of Scopus in March 2009, as well as other severance costs related to headcount reduction actions in response to the global economic slowdown. 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 and estimating income from subleases of buildings. Similar facilities charges have been incurred in connection with vacating certain buildings leased by Scopus which are no longer required. 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 does their inclusion in calculating our results of operations provide a meaningful comparison of current versus prior operating results.
	-		Product Discontinuance
			In connection with the rationalization of product lines following the acquisition of Scopus, the Company recorded charges for excess inventory in connection with products which have been discontinued or which are excess to requirements as they are expected to be sold on a very limited basis. 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 does their inclusion in calculating our results of operations provide a meaningful comparison of current versus prior operating results.

•

Acquisition Fees and Expenses

In accordance with the requirements of new business combination accounting standards, which the Company adopted on January 1, 2009, fees and expenses paid to professional advisers in connection with the acquisition of Scopus in March 2009 have been expensed. These acquisition-related costs are of a one-time nature and the Company excludes costs of this nature in evaluating its ongoing operational performance. We believe that these costs do not reflect expected future expenses nor does their

inclusion in calculating our results of operations 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. 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.
	-		Purchase Accounting Fair Value Adjustments Related to Inventory
			The Company has incurred a charge related to the fair value write-up of acquired inventory sold. GAAP purchase accounting rules require that inventory we acquired in connection with the acquisition of Scopus be written-up to estimated fair market value. Management believes that the charge arising from the fair value write-up of acquired inventory sold does not reflect the actual inventory costs incurred by Scopus prior to the acquisition and does not reflect expected future inventory costs nor does the inclusion of this information in calculating our results of operations provide a meaningful comparison of current versus prior operating results.
	-		Provision/Benefit for Income Taxes
			In 2008, the Company 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 the inclusion of this information in calculating our net income provide a meaningful comparison of current versus prior net income.
			Additionally, in 2009, the Company has assumed an effective tax rate of 35% for non-GAAP purposes because management believes that the 35% effective tax rate is reflective of a current normalized tax rate for Harmonic and its consolidated subsidiaries on a global basis. Management believes that this rate i) more appropriately reflects a provision for income taxes based on computed and expected amounts of non-GAAP pre-tax income, and ii) excludes the impact of certain discrete events which can cause quarterly tax provisions to be volatile. Certain discrete items are required by GAAP to be recorded in the current period but do not reflect future expected tax provisions or effective rates nor does the inclusion of this information in calculating our net income provide a meaningful comparison of current versus prior net income.

Harmonic Inc.
GAAP to Non-GAAP Income (Loss) Reconciliation
(Unaudited)

		Three Months Ended October 2, 2009												Three Months Ended September 26, 2008
		Gross				Operating				Net Income				Gross				Operating				Net Income
(In thousands)		Margin				Expense				(loss)				Margin				Expense				(loss)
GAAP		$	36,080			$	36,651			$	2,577			$	44,196			$	33,138			$	11,965
Purchase accounting fair value adjustments related to inventory			518								518
Cost sales related to stock based compensation expense			376								376				325								325
Research and development expense related to stock based compensation expense							(972	)			972								(785	)			785
Selling, general and administrative expense related to stock based compensation expense							(1,346	)			1,346								(1,110	)			1,110
Selling, general and administrative expense related to excess facilities expense							(32	)			32								(283	)			283
Selling, general and administrative expense related to restructuring costs							(237	)			237
Amortization of intangibles			2,207				(1,367	)			3,574				1,356				(160	)			1,516
Impairment on Lehman Brothers investment																							845
Discrete tax items and adjustments											(5,175	)											(970	)
Non-GAAP		$	39,181			$	32,697			$	4,457			$	45,877			$	30,800			$	15,859
GAAP income per share — basic										$	0.03											$	0.13
GAAP income per share —diluted										$	0.03											$	0.12
Non-GAAP income per share — basic										$	0.05											$	0.17
Non-GAAP income per share —diluted										$	0.05											$	0.17
Shares used in per-share calculation — basic											96,104												94,805
Shares used in per-share calculation — diluted											96,732												95,863

		Nine Months Ended October 2, 2009												Nine Months Ended September 26, 2008
		Gross				Operating				Net Income				Gross				Operating				Net Income
(In thousands)		Margin				Expense				(loss)				Margin				Expense				(loss)
GAAP		$	95,011			$	110,545			$	(24,186	)		$	129,327			$	97,468			$	50,783
Cost of sales related to severance costs			822								822
Cost of sales related to Scopus product discontinuance			5,965								5,965
Purchase accounting fair value adjustments related to inventory			1,142								1,142
Cost sales related to stock based compensation expense			1,086								1,086				819								819
Research and development expense related to restructuring costs							(712	)			712
Research and development expense related to stock based compensation expense							(2,771	)			2,771								(2,021	)			2,021
Selling, general and administrative expense related to restructuring costs							(2,291	)			2,291
Selling, general and administrative expense related to stock based compensation expense							(3,780	)			3,780								(2,630	)			2,630
Selling, general and administrative expense related to excess facilities expense							(423	)			423								(1,738	)			1,738
Acquisition costs related to Scopus							(3,367	)			3,367
Amortization of intangibles			5,893				(3,289	)			9,182				4,151				(479	)			4,630
Impairment on Lehman Brothers investment																							845
Discrete tax items and adjustments											4,265												(16,068	)
Non-GAAP		$	109,919			$	93,912			$	11,620			$	134,297			$	90,600			$	47,398
GAAP income (loss) per share — basic										$	(0.25	)										$	0.54
GAAP income (loss) per share — diluted										$	(0.25	)										$	0.53
Non-GAAP income per share — basic										$	0.12											$	0.50
Non-GAAP income per share — diluted										$	0.12											$	0.50
Shares used in per-share calculation — basic											95,742												94,365
Shares used in per-share calculation — diluted, GAAP											95,742												95,491
Shares used in per-share calculation — diluted, non-GAAP											96,250												95,491