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UNDER
THE SECURITIES ACT OF 1933
Delaware | 3663 | 20-5961564 | ||
(State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer | ||
incorporation or organization) | Classification Code Number) | Identification Number) |
637 Davis Drive
Morrisville, North Carolina 27560
(919) 767-3250
including area code, of registrant’s principal executive offices)
Chief Executive Officer
Harris Stratex Networks, Inc.
Research Triangle Park
637 Davis Drive
Morrisville, North Carolina 27560
(919) 767-3250
including area code, of agent for service)
Juan Otero | Alan B. Kalin | |
General Counsel and Assistant Secretary | Bingham McCutchen LLP | |
Stratex Networks, Inc. | 1900 University Avenue | |
120 Rose Orchard Way | East Palo Alto, California 94303 | |
San Jose, California 95134 | (650) 849-4400 | |
(408) 943-0777 |
Proposed Maximum | ||||||||||||||||||||||
Title of Each Class of | Aggregate Offering Price per | Proposed Maximum | ||||||||||||||||||||
Securities to be Registered | Amount to be Registered (2) | Share (3) | Aggregate Offering Price (3) | Amount of Registration Fee (4) | ||||||||||||||||||
Shares of Class A common stock, par value $0.01 per share, underlying warrants (1) | 539,195 | $ | 11.80 | $ | 6,362,501.00 | $ | 681.00 | |||||||||||||||
(1) | Pursuant to Rule 415 of the Securities Act of 1933, as amended, or the Securities Act, this registration statement also registers such additional shares of Class A common stock of Harris Stratex Networks., Inc., or Harris Stratex, as may hereafter be offered or issued to prevent dilution resulting from stock splits, stock dividends, recapitalizations or other capital adjustments. | |
(2) | The number of shares of Class A common stock, par value $0.01 per share, of Harris Stratex being registered is based upon the product obtained by multiplying (x) 2,156,780 of shares of common stock, par value $0.01 per share, of Stratex Networks, Inc., or Stratex, issuable pursuant to outstanding warrants to purchase shares of common stock, par value $0.01 per share, of Stratex Networks, Inc. (which warrants are to be assumed by Harris Stratex in connection with the transactions contemplated by the Amended and Restated Formation, Contribution and Merger Agreement, dated as of December 18, 2006, among Harris Stratex, Harris Corporation, Stratex and Stratex Merger Corp.) that are outstanding immediately prior to the merger by (y) the merger conversion ratio of one-fourth. | |
(3) | Calculated pursuant to Rule 457(g) based on the price at which the warrants, following assumption by Harris Stratex, may be exercised. | |
(4) | Computed by multiplying the proposed maximum aggregate offering price by 0.000107. |
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The information in this prospectus is not complete and may be changed. Harris Stratex Networks, Inc. may not issue the securities offered by use of this prospectus until the registration statement filed with the Securities and Exchange Commission, of which this prospectus forms a part, is effective. This prospectus does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction where such offer, solicitation or sale is not permitted.
$0.01 par value
Research Triangle Park
637 Davis Drive
Morrisville, North Carolina 27560
(919) 767-3250
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EXHIBIT 5.1 | ||||||||
EXHIBIT 23.1 | ||||||||
EXHIBIT 23.2 | ||||||||
EXHIBIT 99.1 | ||||||||
EXHIBIT 99.2 | ||||||||
EXHIBIT 99.3 | ||||||||
EXHIBIT 99.4 | ||||||||
EXHIBIT 99.5 | ||||||||
EXHIBIT 99.6 | ||||||||
EXHIBIT 99.7 |
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• | the failure to obtain and retain expected synergies from the combination of the Microwave Communications Division and Stratex; | ||
• | rates of success in executing, managing and integrating key acquisitions and transactions, including the combination of the Microwave Communications Division and Stratex; | ||
• | the ability to achieve business plans for Harris Stratex; | ||
• | the ability to manage and maintain key customer relationships; | ||
• | the ability to fund debt service obligations through operating cash flow; | ||
• | the ability to obtain additional financing in the future and react to competitive and technological changes; | ||
• | the ability to comply with restrictive covenants in Harris Stratex’s indebtedness; | ||
• | the ability to compete with a range of other providers of microwave communications products and services; | ||
• | the effect of technological changes on Harris Stratex’s businesses; | ||
• | the functionality or market acceptance of new products that Harris Stratex may introduce; | ||
• | the extent to which Harris Stratex’s future earnings will be sufficient to cover its fixed charges; | ||
• | the parties’ ability to meet expectations regarding the timing, completion and accounting and tax treatments of the combination of the Microwave Communications Division and Stratex; | ||
• | Harris Stratex will be subject to intense competition; | ||
• | the failure of Harris Stratex to protect its intellectual property rights; | ||
• | currency and interest rate risks; and | ||
• | revenues of Harris Stratex following the combination of the Microwave Communications Division and Stratex may be lower than expected. |
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Class A common stock offered to holders of warrants | 539,195 shares. | |
Offering Price | $11.80 per share of Class A common stock subject to adjustment in accordance with the terms of the warrants. | |
Plan of Distribution | This prospectus relates to the issuance of Harris Stratex Class a common stock. | |
Use of proceeds | We intend to use the net proceeds from the cash exercise of the warrants for working capital and general corporate purposes. | |
Nasdaq Global Market symbol | “HSTX” |
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• | the diversion of management’s attention to integration matters; | ||
• | difficulties in achieving expected cost savings associated with the combination of the Microwave Communications Division and Stratex; | ||
• | difficulties in the integration of operations and systems; | ||
• | difficulties in the assimilation of employees; | ||
• | difficulties in replacing the support functions previously provided by Harris to the Microwave Communications Division, including support and assistance for financial and operational functions; | ||
• | challenges in keeping existing customers and obtaining new customers; and | ||
• | challenges in attracting and retaining key personnel. |
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• | a majority of its board of directors consists of independent directors; | ||
• | its director nominees must either be selected, or recommended for selection by the board of directors, either by: | ||
• | a majority of the independent directors; or | ||
• | a nominations committee comprised solely of independent directors; and | ||
• | the compensation of its officers be determined, or recommended to the board of directors for determination, either by: |
• | a majority of the independent directors; or | ||
• | a compensation committee comprised solely of independent directors. |
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• | the business direction and policies of Harris Stratex; | ||
• | mergers or other business combinations involving Harris Stratex, except during the first two years after the closing; | ||
• | the acquisition or disposition of assets by Harris Stratex; | ||
• | the payment or nonpayment of dividends; | ||
• | determinations with respect to tax returns; | ||
• | the combined company’s capital structure; and | ||
• | amendments to Harris Stratex’s certificate of incorporation and bylaws. |
• | indemnification and other matters arising under the combination agreement or other agreements; | ||
• | intellectual property matters; | ||
• | employee recruiting and retention; | ||
• | competition for customers in the areas where Harris is permitted to do business under the non-competition agreement; | ||
• | sales or distributions by Harris of all or any portion of its ownership interest in Harris Stratex, which could be to a competitor of Harris Stratex; | ||
• | business combinations involving Harris Stratex; and | ||
• | business opportunities that may be attractive to both Harris and Harris Stratex. |
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• | except (1) as otherwise provided in the non-competition agreement between Harris and Harris Stratex relating to the combination of Stratex with the Microwave Communications Division or (2) opportunities offered to an individual who is a director or officer of both Harris Stratex and Harris in writing solely in that person’s capacity as an officer or director of Harris Stratex, Harris is free to compete with Harris Stratex in any activity or line of business; invest or develop a business relationship with any person engaged in the same or similar activities or businesses as Harris Stratex; or do business with any customer of Harris Stratex; or employ any former employee of Harris Stratex; | ||
• | neither Harris nor its affiliates have any duty to communicate its or their knowledge of or offer any potential business opportunity, transaction or other matter to Harris Stratex unless the opportunity was offered to the individual who is a director or officer of both Harris Stratex and Harris in writing solely in that person’s capacity as an officer or director of Harris Stratex; and | ||
• | if any director or officer of Harris who is also an officer or director or Harris Stratex becomes aware of a potential business opportunity, transaction or other matter (other than one expressly offered to that director or officer in writing solely in his or her capacity as a director or officer of Harris Stratex), that director or officer will have no duty to communicate or offer that opportunity to Harris Stratex, and will be permitted to communicate or offer that opportunity to Harris (or its affiliates), and |
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that director or officer will not be deemed to have acted in bad faith or in a manner inconsistent with the best interests of Harris Stratex or in a manner inconsistent with his or her fiduciary or other duties to Harris Stratex. |
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Fiscal Years | ||||||||
Ended March 31, | ||||||||
2006 | 2005 | |||||||
Number of significant customers | 1 | 1 | ||||||
Percentage of net sales | 10 | % | 21 | % |
Quarters Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Number of significant customers | 1 | 2 | ||||||
Percentage of net sales | 16 | % | 11%, 10%, | |||||
respectively |
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Fiscal Years Ended | ||||||
June 30, 2006 | July 1, 2005 | |||||
Number of significant customers | 1 | — | ||||
Percentage of net sales | 15 | % | — |
Quarters Ended | ||||
September 29, 2006 | September 30, 2005 | |||
Number of significant customers | — | — | ||
Percentage of net sales | — | — |
• | unexpected changes in regulatory requirements; | ||
• | fluctuations in foreign currency exchange rates; |
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• | imposition of tariffs and other barriers and restrictions; | ||
• | management and operation of an enterprise spread over various countries; | ||
• | burden of complying with a variety of foreign laws and regulations; | ||
• | application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to Harris Stratex’s sales and other transactions, which results in additional complexity and uncertainty; | ||
• | general economic and geopolitical conditions, including inflation and trade relationships; | ||
• | war and acts of terrorism; | ||
• | natural disasters; | ||
• | currency exchange controls; and | ||
• | changes in export regulations. |
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• | volume and timing of Harris Stratex’s product orders received and delivered during the quarter; | ||
• | Harris Stratex’s ability and the ability of its key suppliers to respond to changes on demand as needed; | ||
• | suppliers’ inability to perform and timely deliver as a result of their financial condition, component shortages or other supply chain constraints; | ||
• | continued market expansion through strategic alliances; | ||
• | continued timely rollout of new product functionality and features; | ||
• | increased competition resulting in downward pressures on the price of Harris Stratex’s products and services; | ||
• | unexpected delays in the schedule for shipments of existing products and new generations of the existing platforms; | ||
• | failure to realize expected cost improvement throughout Harris Stratex’s supply chain; | ||
• | order cancellations or postponements in product deliveries resulting in delayed revenue recognition; | ||
• | seasonality in the purchasing habits of customers; | ||
• | war and acts of terrorism; | ||
• | natural disasters; | ||
• | ability of Harris Stratex’s customers to obtain financing to enable their purchase of Harris Stratex’s products; | ||
• | fluctuations in foreign currency exchange rates; | ||
• | regulatory developments including denial of export and import licenses; and | ||
• | general economic conditions worldwide. |
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Three Months Ended | Fiscal Years Ended | |||||||||||||||||||||||||||
September 29, | September 30, | June 27, | June 28, | |||||||||||||||||||||||||
2006 | 2005 | June 30, | July 1, | July 2, | 2003(3) | 2002(4) | ||||||||||||||||||||||
(unaudited) | (unaudited) | 2006(1) | 2005 | 2004(2) | (unaudited) | (unaudited) | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Results of Operations: | ||||||||||||||||||||||||||||
Revenue from product sales and services | $ | 93,555 | $ | 75,324 | $ | 357,500 | $ | 310,427 | $ | 329,816 | $ | 297,470 | $ | 302,915 | ||||||||||||||
Cost of product sales and services | (62,011 | ) | (52,596 | ) | (271,340 | ) | (219,946 | ) | (245,933 | ) | (221,701 | ) | (217,237 | ) | ||||||||||||||
Net income (loss) | 5,131 | 1,397 | (35,848 | ) | (3,778 | ) | (20,233 | ) | (35,248 | ) | (29,752 | ) |
As of | As of | |||||||||||||||||||||||||||
September 29, | September 30, | July 2, | June 27, | June 28, | ||||||||||||||||||||||||
2006 | 2005 | June 30, | July 1, | 2004(2) | 2003(3) | 2002(4) | ||||||||||||||||||||||
(unaudited) | (unaudited) | 2006(1) | 2005 | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Total assets | $ | 353,913 | $ | 367,318 | $ | 352,649 | $ | 362,969 | $ | 344,183 | $ | 398,271 | $ | 422,985 | ||||||||||||||
Long-term liabilities | 3,074 | 6,749 | 12,642 | 14,180 | 14,978 | 11,900 | 12,466 | |||||||||||||||||||||
Total net assets | 260,134 | 290,378 | 252,020 | 280,313 | 246,517 | 272,350 | 296,770 |
(1) | Fiscal 2006 results for MCD include a $39.6 million after-tax charge related to inventory write-downs and other charges associated with product discontinuances, as well as the planned shutdown of manufacturing activities at the MCD plant in Montreal, Canada. | |
(2) | Fiscal 2004 results for MCD include a $7.3 million charge related to cost-reduction measures and fixed asset write downs. | |
(3) | Fiscal 2003 results for MCD include an $8.6 million write-down of inventory related to the exit from unprofitable products and the shut-down of the MCD manufacturing plant in Brazil, as well as an $8.3 million charge related to cost-reduction measures. | |
(4) | Fiscal 2002 results for MCD include a $15.8 million charge related to cost-reduction actions taken in the MCD international operations and collection losses related to the bankruptcy of a customer. |
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Six Months Ended | ||||||||||||||||||||||||||||
September 30, | Year Ended March 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005(3) | 2004 | 2003(2) | 2002(1) | ||||||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||||||||||
Net sales | $ | 133,516 | $ | 111,426 | $ | 230,892 | $ | 180,302 | $ | 157,348 | $ | 197,704 | $ | 228,844 | ||||||||||||||
Net income (loss) | 3,375 | (6,427 | ) | (2,297 | ) | (45,946 | ) | (37,068 | ) | (51,555 | ) | (168,873 | ) | |||||||||||||||
Basic and diluted net income (loss) per share | 0.03 | (0.07 | ) | (0.02 | ) | (0.51 | ) | (0.44 | ) | (0.62 | ) | (2.13 | ) | |||||||||||||||
Basic weighted average shares outstanding | 97,405 | 95,059 | 95,600 | 89,634 | 83,364 | 82,548 | 79,166 | |||||||||||||||||||||
Diluted weighted average shares outstanding | 100,537 | 95,059 | 95,600 | 89,634 | 83,364 | 82,548 | 79,166 |
At September 30, | At March 31, | ||||||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005(3) | 2004 | 2003(2) | 2002(1) | |||||||||||||||||||||||||
(in thousands, except employee head count) | |||||||||||||||||||||||||||||||
Balance Sheet and other Data: | |||||||||||||||||||||||||||||||
Total assets | $ | 184,154 | $ | 153,965 | $ | 180,830 | $ | 160,631 | $ | 163,244 | $ | 184,785 | $ | 214,117 | |||||||||||||||||
Long-term liabilities | 29,892 | 27,333 | 37,376 | 32,185 | 20,311 | 19,145 | 6,675 | ||||||||||||||||||||||||
Stockholders’ equity | 72,990 | 55,092 | 62,343 | 60,023 | 81,182 | 112,800 | 167,457 | ||||||||||||||||||||||||
Total employees | 471 | 446 | 453 | 456 | 617 | 587 | 760 |
(1) | Fiscal 2002 results for Stratex include inventory valuation charges of $102.7 million and restructuring and receivable valuation charges of $24.6 million related to the shutdown of its Seattle operations and outsourcing of manufacturing operations to an Asian supplier. | |
(2) | Fiscal 2003 results for Stratex include restructuring charges of $28.2 million related to outsourcing of manufacturing operations to an Asian supplier, as well as a recovery of $2.1 million of the inventory valuation recorded the prior year through sales of component inventory to suppliers. | |
(3) | Fiscal 2005 results for Stratex include inventory valuation charges of $2.6 million and $7.4 million of restructuring charges related to the shut down of operations in Cape Town, South Africa, outsourcing of manufacturing operations at the New Zealand and Cape Town, South Africa locations to an Asian supplier and exiting the sales and service offices in Argentina, Colombia and Brazil to independent distributors. |
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Three Months | ||||||||
Ended | Year Ended | |||||||
September 30, 2006 | June 30, 2006 | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands) | (in thousands) | |||||||
Microwave Communications Division of Harris Corporation | ||||||||
Results of Operations | ||||||||
Revenue from product sales and services | $ | 93,555 | $ | 357,500 | ||||
Cost of product sales and services(1) | (62,011 | ) | (271,340 | ) | ||||
Net income (loss) | 5,131 | (35,848 | ) | |||||
Financial Position at End of Period | ||||||||
Total assets | $ | 353,913 | $ | — | ||||
Long-term liabilities | 3,074 | — | ||||||
Total net assets | 260,134 | — | ||||||
Stratex Networks, Inc. | ||||||||
Results of Operations | ||||||||
Revenue from product sales and services | $ | 67,279 | $ | 242,257 | ||||
Cost of product sales and services | (46,512 | ) | (171,397 | ) | ||||
Net income | 1,552 | 3,691 | ||||||
Financial Position at End of Period | ||||||||
Total assets | $ | 184,154 | $ | — | ||||
Long-term liabilities | 29,892 | — | ||||||
Total net assets | 72,990 | — | ||||||
Pro Forma Adjustments | ||||||||
Results of Operations | ||||||||
Revenue from product sales and services | $ | — | $ | — | ||||
Cost of product sales and services(2) | (2,175 | ) | (8,700 | ) | ||||
Net loss(3) | (2,769 | ) | (15,815 | ) | ||||
Financial Position at End of Period | ||||||||
Total assets(4) | $ | 385,111 | $ | — | ||||
Long-term liabilities(5) | 41,666 | — |
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Three Months | ||||||||
Ended | Year Ended | |||||||
September 30, 2006 | June 30, 2006 | |||||||
(unaudited) | (unaudited) | |||||||
(in thousands) | (in thousands) | |||||||
Total net assets(6) | 340,230 | — | ||||||
Pro Forma Combined Financial Data of Harris Stratex Networks, Inc. | ||||||||
Results of Operations | ||||||||
Revenue from product sales and services | $ | 160,834 | $ | 599,757 | ||||
Cost of product sales and services | (110,698 | ) | (451,437 | ) | ||||
Net income (loss) | 3,914 | (47,972 | ) | |||||
Financial Position at End of Period | ||||||||
Total assets | $ | 923,178 | $ | — | ||||
Long-term liabilities | 74,632 | — | ||||||
Total net assets | 673,354 | — |
(1) | Fiscal 2006 results for MCD include a $39.6 million after-tax charge related to inventory write-downs and other charges associated with product discontinuances, as well as the planned shutdown of manufacturing activities at the MCD plant in Montreal, Canada. | |
(2) | Fiscal 2006 adjustment made to reflect $8.7 million amortization of developed technology identifiable assets. Three months ended September 30, 2006 adjustment made to reflect $2.2 million amortization of developed technology identifiable assets. | |
(3) | Fiscal 2006 adjustments made to reflect $12.0 million amortization of identifiable intangible assets and $3.8 million of stock-based compensation expense, which represents the expense that would have been recognized by Stratex had it implemented the provisions of Statement of Financial Accounting Standard No. 123R “Share-Based Payment”, or FAS 123R, as of July 1, 2005, which is when MCD was required to implement FAS 123R. Three months ended September 30, 2006 adjustment made to reflect $2.8 million amortization of identifiable intangible assets. | |
(4) | Three months ended September 30, 2006 adjustment made to reflect (a) $17.7 million made to increase balance of cash in MCD to $32.1 million as of the closing date of the transaction; (b) $11.1 million to step up Stratex’s finished goods inventory to fair market value at the closing date of the proposed transactions; (c) $235.7 million and $130.2 million allocation of the purchase price to goodwill and identifiable intangible assets, respectively, which was determined as follows: |
Allocation of the purchase price of Stratex determined as follows (amounts in thousands): | ||||
Market price of Stratex stock(A) | $ | 400,148 | ||
Estimated acquisition costs | 9,000 | |||
Total purchase price to be allocated | $ | 409,148 | ||
Estimated | ||||||||
Allocation of purchase price based on fair market value | Useful Life | |||||||
Identifiable intangible assets: | ||||||||
Developed technology non-legacy products | $ | 77,500 | 10 years | |||||
Developed technology legacy products | 1,900 | 2 years | ||||||
Customer relationships | 5,400 | 8 years | ||||||
Backlog | 900 | 1 year | ||||||
Tradename — Eclipse | 16,000 | 10 years | ||||||
Tradename — Legacy Products | 200 | 2 years | ||||||
Tradename — Stratex | 28,300 | Indefinite | ||||||
Total identifiable intangible assets | 130,200 | |||||||
Net tangible assets(B) | 43,272 | |||||||
Goodwill | 235,676 | |||||||
Total purchase price allocation | $ | 409,148 | ||||||
This purchase price allocation is preliminary for all assets and liabilities being acquired by Harris Stratex. and (d) $(9.6) million to eliminate deferred tax assets on MCD’s historical Combined Balance Sheet as of September 30, 2006. | ||
(5) | Three months ended September 30, 2006 adjustments made to reflect (a) $39.1 million for the establishment of a deferred tax liability related to the future amortization of identifiable intangible assets in accordance with FAS 109; (b) $(3.1) million for the elimination of MCD’s payable to Harris against stockholders’ and division equity; and (c) $5.7 million capital lease obligation related to the equipment lease between Harris Stratex Networks Canada ULC and Harris Canada, Inc. as described under “Certain Relationships and Related Transactions — Lease Agreement (Equipment and Machinery)” beginning on page 77 of this prospectus. |
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(6) | Three months ended September 30, 2006 adjustments made to reflect footnotes (2), (3) and (4) above, as well as adjustments to current liabilities of $(2.0) million to reduce deferred revenue of Stratex, as previously described, and increase current liabilities by $3.8 million for payment of the single trigger employment agreements. |
A. | Total market price of Stratex common stock equal to the price of a share of Stratex common stock as of September 19, 2006 ($4.00) X diluted shares of Stratex common stock outstanding per the Stratex September 30, 2006 Balance Sheet (100.0 million shares). | ||
B. | Stratex net tangible assets as of September 30, 2006 are calculated as follows: |
Historical net assets reported | $ | 72,990 | ||
Inventory step-up | 11,137 | |||
Deferred revenue reduction | 2,039 | |||
Single trigger employment agreement payouts | (3,834 | ) | ||
Less deferred tax liability related to identifiable intangible assets | (39,060 | ) | ||
Adjusted net assets | $ | 43,272 | ||
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AND RESULTS OF OPERATIONS OF MCD
• | Business Considerations— a general description of the MCD businesses; the value drivers of these businesses and MCD’s strategy for achieving value; fiscal 2006 key indicators; and industry-wide opportunities, challenges and risks that are relevant to MCD in the microwave communications industry. | ||
• | Operations Review— an analysis of MCD’s consolidated results of operations and of the results in each of its three operating segments, to the extent the operating segment results are helpful to an understanding of the MCD business as a whole, for the three years presented in MCD’s financial statements. | ||
• | Liquidity, Capital Resources and Financial Strategies— an analysis of cash flows, contractual obligations, off-balance sheet arrangements, commercial commitments, financial risk management, impact of foreign exchange and impact of inflation. | ||
• | Critical Accounting Policies and Estimates— a discussion of accounting policies and estimates that require the most judgment and a discussion of accounting pronouncements that have been issued but not yet implemented by MCD and their potential impact. |
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• | Continue profitable revenue growth in all segments; | ||
• | Ongoing attention to operating efficiencies and cost reductions; | ||
• | Maintain an efficient capital structure. |
• | Continuing build-out of new networks in emerging markets to meet rapid subscriber growth; | ||
• | Increasing demand for microwave communications due to build-outs for third-generation, or 3G, services rapidly increasing the number of cell sites; | ||
• | Increasing demand to support capacity needs for new triple-play services; | ||
• | Continuing fixed-line to mobile-line substitution; | ||
• | Private networks and public telecommunications operators building high-reliability, high-bandwidth networks that are more secure and better protected against natural and man-made disasters; | ||
• | Continuing global mobile operator consolidation; and | ||
• | The Federal Communications Commission, or FCC, mandate for a 2 GHz relocation project in calendar 2007. |
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Percent | ||||||||||||
Increase/ | ||||||||||||
Q1 FY07 | Q1 FY06 | (Decrease) | ||||||||||
(in millions) | ||||||||||||
Revenue | $ | 93.6 | $ | 75.3 | 24.3 | % | ||||||
Net income | $ | 5.1 | $ | 1.4 | 267.3 | % | ||||||
% of revenue | 5.5 | % | 1.9 | % |
Percent | ||||||||||||
Increase/ | ||||||||||||
Q1 FY07 | Q1 FY06 | (Decrease) | ||||||||||
(in millions) | ||||||||||||
Revenue | $ | 93.6 | $ | 75.3 | 24.3 | % | ||||||
Cost of product sales and services | (62.0 | ) | (52.6 | ) | 17.9 | % | ||||||
Gross margin | $ | 31.6 | $ | 22.7 | 38.8 | % | ||||||
% of revenue | 33.7 | % | 30.2 | % |
Percent | ||||||||||||
Increase/ | ||||||||||||
Q1 FY07 | Q1 FY06 | (Decrease) | ||||||||||
(in millions) | ||||||||||||
Engineering, selling and administrative expenses | $ | 24.4 | $ | 19.5 | 24.8 | % | ||||||
% of revenue | 26.1 | % | 25.9 | % |
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Percent | ||||||||||||
Increase/ | ||||||||||||
Q1 FY07 | Q1 FY06 | (Decrease) | ||||||||||
(in millions) | ||||||||||||
Income before income taxes | $ | 5.5 | $ | 1.7 | 232.8 | % | ||||||
Income tax expense | 0.4 | 0.3 | 52.5 | % | ||||||||
% of income before income taxes | 7.4 | % | 16.1 | % |
Percent | ||||||||||||
Increase/ | ||||||||||||
Q1 FY07 | Q1 FY06 | (Decrease) | ||||||||||
(in millions) | ||||||||||||
Revenue | $ | 49.8 | $ | 45.6 | 9.3 | % | ||||||
Segment operating income | 1.9 | 6.4 | (70.3 | )% | ||||||||
% of revenue | 3.8 | % | 14.1 | % |
Percent | ||||||||||||
Increase/ | ||||||||||||
Q1 FY07 | Q1 FY06 | (Decrease) | ||||||||||
(in millions) | ||||||||||||
Revenue | $ | 39.3 | $ | 25.7 | 52.5 | % | ||||||
Segment operating income (loss) | 5.0 | (3.3 | ) | — | ||||||||
% of revenue | 12.6 | % | (12.9 | )% |
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Percent | ||||||||||||
Increase/ | ||||||||||||
Q1 FY07 | Q1 FY06 | (Decrease) | ||||||||||
(in millions) | ||||||||||||
Revenue | $ | 4.5 | $ | 4.0 | 11.5 | % | ||||||
Segment operating income | 0.3 | 0.1 | 384.2 | % | ||||||||
% of revenue | 6.2 | % | 1.4 | % |
First Quarter | ||||||||
2007 | 2006 | |||||||
(in millions) | ||||||||
Net cash used in operating activities | $ | (1.0 | ) | $ | (7.4 | ) | ||
Net cash provided by (used in) investing activities | (1.3 | ) | 3.2 | |||||
Net cash provided by financing activities | 2.6 | 1.9 | ||||||
Effect of foreign exchange rate changes on cash | 0.3 | 1.0 | ||||||
Net increase (decrease) in cash and cash equivalents | $ | 0.6 | $ | (1.3 | ) | |||
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2006/2005 | 2005/2004 | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
Increase/ | Increase/ | |||||||||||||||||||
2006 | 2005 | (Decrease) | 2004 | (Decrease) | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Revenue | $ | 357.5 | $ | 310.4 | 15.2 | % | $ | 329.8 | (5.9 | )% | ||||||||||
Net loss | $ | (35.8 | ) | $ | (3.8 | ) | (848.9 | )% | $ | (20.2 | ) | (81.3 | )% | |||||||
% of revenue | (10.0 | )% | (1.2 | )% | (6.1 | )% |
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2006/2005 | 2005/2004 | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
Increase/ | Increase/ | |||||||||||||||||||
2006 | 2005 | (Decrease) | 2004 | (Decrease) | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Revenue | $ | 357.5 | $ | 310.4 | 15.2 | % | $ | 329.8 | (5.9 | )% | ||||||||||
Cost of product sales and services | (271.3 | ) | (219.9 | ) | 23.4 | % | (245.9 | ) | (10.6 | )% | ||||||||||
Gross margin | 86.2 | 90.5 | (4.8 | )% | 83.9 | 7.9 | % | |||||||||||||
% of revenue | 24.1 | % | 29.1 | % | 25.4 | % |
2006/2005 | 2005/2004 | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
Increase/ | Increase/ | |||||||||||||||||||
2006 | 2005 | (Decrease) | 2004 | (Decrease) | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Engineering, selling and administrative expenses | $ | 102.3 | $ | 87.8 | 16.5 | % | $ | 97.1 | (9.6 | )% | ||||||||||
% of revenue | 28.6 | % | 28.3 | % | 29.4 | % |
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2006/2005 | 2005/2004 | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
Increase/ | Increase/ | |||||||||||||||||||
2006 | 2005 | (Decrease) | 2004 | (Decrease) | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Loss before income taxes | $ | (29.1 | ) | $ | (3.5 | ) | 723.4 | % | $ | (20.1 | ) | 82.5 | % | |||||||
Income tax expense | 6.8 | 0.2 | 2,658.8 | % | 0.1 | 184.9 | % | |||||||||||||
% of loss before income taxes | (23.2 | )% | (6.9 | )% | 0.4 | % |
2006/2005 | 2005/2004 | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
Increase/ | Increase/ | |||||||||||||||||||
2006 | 2005 | (Decrease) | 2004 | (Decrease) | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Revenue | $ | 168.1 | $ | 159.8 | 5.2 | % | $ | 154.1 | 3.7 | % | ||||||||||
Segment operating income | 16.9 | 10.3 | 64.9 | % | 3.6 | 182.7 | % | |||||||||||||
% of revenue | 10.1 | % | 6.4 | % | 2.4 | % |
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2006/2005 | 2005/2004 | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
Increase/ | Increase/ | |||||||||||||||||||
2006 | 2005 | (Decrease) | 2004 | (Decrease) | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Revenue | $ | 172.3 | $ | 127.2 | 35.4 | % | $ | 156.3 | (18.6 | )% | ||||||||||
Segment operating loss | (34.1 | ) | (11.9 | ) | 185.6 | % | (17.5 | ) | (31.9 | )% | ||||||||||
% of revenue | (19.8 | )% | (9.4 | )% | (11.2 | )% |
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2006/2005 | 2005/2004 | |||||||||||||||||||
Percent | Percent | |||||||||||||||||||
Increase/ | Increase/ | |||||||||||||||||||
2006 | 2005 | (Decrease) | 2004 | (Decrease) | ||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||
Revenue | $ | 17.1 | $ | 23.4 | (26.9 | )% | $ | 19.4 | 20.3 | % | ||||||||||
Segment operating income | 1.1 | 4.4 | (75.9 | )% | 0.7 | 570.4 | % | |||||||||||||
% of revenue | 6.2 | % | 18.8 | % | 3.4 | % |
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Fiscal Years Ended | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in millions) | ||||||||||||
Net cash provided by (used in) operating activities | $ | 19.5 | $ | (4.3 | ) | $ | 38.6 | |||||
Net cash used in investing activities | (8.2 | ) | (19.4 | ) | (14.7 | ) | ||||||
Net cash provided by (used in) financing activities | (5.9 | ) | 24.9 | (28.6 | ) | |||||||
Effect of foreign exchange rate changes on cash | 0.6 | 1.3 | (1.1 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | $ | 6.0 | $ | 2.5 | $ | (5.8 | ) | |||||
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Obligations Due by Fiscal Year | ||||||||||||||||||||
2008 | 2010 | |||||||||||||||||||
and | and | After | ||||||||||||||||||
Total | 2007 | 2009 | 2011 | 2011 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Purchase obligations(1) | $ | 3.3 | $ | 3.3 | $ | — | $ | — | $ | — | ||||||||||
Operating lease commitments | 6.6 | 3.7 | 2.9 | — | — | |||||||||||||||
Total contractual cash obligations | $ | 9.9 | $ | 7.0 | $ | 2.9 | $ | — | $ | — | ||||||||||
(1) | Amounts do not include pension contributions and payments for various welfare and benefit plans as such amounts have not been determined beyond fiscal 2006. In addition, amounts due to or from Harris are not included as there is no obligation of Harris Stratex to pay those amounts after the closing of the merger and the contribution transaction. |
• | Any obligation under certain guarantee contracts; | ||
• | A retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets; | ||
• | Any obligation, including a contingent obligation, under certain derivative instruments; and | ||
• | Any obligation, including a contingent obligation, under a material variable interest held by the registrant in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant. |
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Expiration of Commitments by Fiscal Year | ||||||||||||||||||||
After | ||||||||||||||||||||
Total | 2007 | 2008 | 2009 | 2009 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Standby letters of credit used for: | ||||||||||||||||||||
Bids | $ | 0.7 | $ | 0.6 | $ | 0.1 | $ | — | $ | — | ||||||||||
Down payments | 5.7 | 4.6 | 1.1 | — | — | |||||||||||||||
Performance | 5.0 | 3.0 | 1.7 | 0.3 | — | |||||||||||||||
Warranty | 0.2 | 0.2 | — | — | — | |||||||||||||||
11.6 | 8.4 | 2.9 | 0.3 | — | ||||||||||||||||
Surety bonds used for: | ||||||||||||||||||||
Bids | 3.5 | 3.5 | — | — | — | |||||||||||||||
Performance | 15.9 | 2.2 | 13.7 | — | — | |||||||||||||||
19.4 | 5.7 | 13.7 | — | — | ||||||||||||||||
Guarantees | 0.4 | 0.4 | — | — | — | |||||||||||||||
Total commitments | $ | 31.4 | $ | 14.5 | $ | 16.6 | $ | 0.3 | $ | — | ||||||||||
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34
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STRATEX
Q2 FY 2007 | Q1 FY 2007 | Q4 FY 2006 | Q3 FY 2006 | Q2 FY 2006 | Q1 FY 2006 | |||||||||||||||||||
Gross margin | 30.9 | % | 30.0 | % | 30.7 | % | 29.2 | % | 26.8 | % | 23.0 | % |
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• | a customer’s ability to meet and sustain its financial commitments; | ||
• | a customer’s current and projected financial condition; and | ||
• | the positive or negative effects of the customer’s current and projected industry outlook. |
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Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||
2006 | Total | 2005 | Total | 2006 | Total | 2005 | Total | |||||||||||||||||||||||||
United States | $ | 2,000 | 3 | % | $ | 3,820 | 7 | % | $ | 4,159 | 3 | % | $ | 6,194 | 6 | % | ||||||||||||||||
Other Americas | 4,602 | 7 | % | 6,831 | 12 | % | 9,228 | 7 | % | 13,564 | 12 | % | ||||||||||||||||||||
Poland | 4,607 | 7 | % | 6,743 | 12 | % | 5,677 | 4 | % | 11,800 | 10 | % | ||||||||||||||||||||
Other Europe | 14,745 | 22 | % | 8,052 | 14 | % | 33,613 | 25 | % | 25,089 | 22 | % | ||||||||||||||||||||
Middle East | 1,167 | 2 | % | 5,168 | 9 | % | 10,018 | 8 | % | 8,589 | 8 | % | ||||||||||||||||||||
Thailand | 3,324 | 5 | % | 4,053 | 7 | % | 4,770 | 4 | % | 11,724 | 11 | % | ||||||||||||||||||||
Bangladesh | 1,823 | 3 | % | 9,123 | 16 | % | 2,896 | 2 | % | 13,258 | 12 | % | ||||||||||||||||||||
Other Asia/Pacific | 7,145 | 10 | % | 4,263 | 8 | % | 19,238 | 14 | % | 9,178 | 8 | % | ||||||||||||||||||||
Ghana | 10,880 | 16 | % | 1,166 | 2 | % | 17,335 | 13 | % | 2,994 | 3 | % | ||||||||||||||||||||
Tanzania | 6,760 | 10 | % | 54 | 0 | % | 9,976 | 8 | % | 65 | 0 | % | ||||||||||||||||||||
Other Africa | 10,226 | 15 | % | 7,281 | 13 | % | 16,606 | 12 | % | 8,971 | 8 | % | ||||||||||||||||||||
Total Revenues | $ | 67,279 | 100 | % | $ | 56,554 | 100 | % | $ | 133,516 | 100 | % | $ | 111,426 | 100 | % |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||
2006 | Total | 2005 | Total | 2006 | Total | 2005 | Total | |||||||||||||||||||||||||
Eclipse | $ | 49,161 | 85 | % | $ | 30,798 | 65 | % | $ | 100,121 | 86 | % | $ | 55,547 | 58 | % | ||||||||||||||||
Velox | 1,874 | 3 | % | 2,184 | 4 | % | 3,404 | 3 | % | 3,145 | 3 | % | ||||||||||||||||||||
DXR | 1,500 | 3 | % | 4,663 | 10 | % | 3,207 | 3 | % | 11,253 | 12 | % | ||||||||||||||||||||
XP4 | 3,092 | 5 | % | 3,192 | 7 | % | 4,992 | 4 | % | 12,705 | 13 | % | ||||||||||||||||||||
Other products | 2,103 | 4 | % | 6,430 | 14 | % | 5,194 | 4 | % | 12,979 | 14 | % | ||||||||||||||||||||
Total revenue | $ | 57,730 | 100 | % | $ | 47,267 | 100 | % | $ | 116,918 | 100 | % | $ | 95,629 | 100 | % | ||||||||||||||||
Operating income (loss) | $ | 138 | (0 | )% | $ | (2,153 | ) | (5 | )% | $ | 1,292 | 1 | % | $ | (6,153 | ) | (6 | )% | ||||||||||||||
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Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||
2006 | Revenue | 2005 | Revenue | 2006 | Revenue | 2005 | Revenue | |||||||||||||||||||||||||
Field service revenue | $ | 6,746 | $ | 6,301 | $ | 10,916 | $ | 9,623 | ||||||||||||||||||||||||
Operating income | 814 | 12 | % | 423 | 7 | % | 1,098 | 10 | % | 193 | 2 | % | ||||||||||||||||||||
Repair revenue | 2,803 | 2,986 | 5,682 | 6,174 | ||||||||||||||||||||||||||||
Operating income | 891 | 32 | % | 1,013 | 34 | % | 1,766 | 31 | % | 2,149 | 35 | % | ||||||||||||||||||||
Total service revenue | $ | 9,549 | $ | 9,287 | $ | 16,598 | $ | 15,797 | ||||||||||||||||||||||||
Total operating income | $ | 1,705 | 18 | % | $ | 1,436 | 15 | % | $ | 2,864 | 17 | % | $ | 2,342 | 15 | % |
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||||||||
% of Net | % of Net | % of Net | % of Net | |||||||||||||||||||||||||||||
2006 | Sales | 2005 | Sales | 2006 | Sales | 2005 | Sales | |||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Net sales | $ | 67,279 | 100 | % | $ | 56,554 | 100 | % | $ | 133,516 | 100 | % | $ | 111,426 | 100 | % | ||||||||||||||||
Cost of sales | 46,512 | 69 | % | 41,386 | 73 | % | 92,877 | 70 | % | 83,657 | 75 | % | ||||||||||||||||||||
Gross profit | $ | 20,767 | 31 | % | $ | 15,168 | 27 | % | $ | 40,639 | 30 | % | $ | 27,769 | 25 | % |
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(in thousands) | ||||||||||||||||
Research and development | $ | 4,299 | $ | 3,703 | $ | 8,883 | $ | 7,404 | ||||||||
% of net sales | 6.4 | % | 6.5 | % | 6.7 | % | 6.6 | % |
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Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(in thousands) | ||||||||||||||||
Selling, general and administrative | $ | 14,625 | $ | 12,182 | $ | 27,600 | $ | 24,176 | ||||||||
% of net sales | 22.0 | % | 21.5 | % | 21.0 | % | 21.7 | % |
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(in thousands) | ||||||||||||||||
Interest income | $ | 693 | $ | 261 | $ | 1,350 | $ | 481 | ||||||||
Interest expense | (601 | ) | (757 | ) | (1,179 | ) | (1,257 | ) | ||||||||
Other expenses, net | (360 | ) | (552 | ) | (695 | ) | (1,067 | ) |
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(in thousands) | ||||||||||||||||
Provision for income taxes | $ | 23 | $ | 496 | $ | 257 | $ | 773 |
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• | Accounts receivable increased by $9.3 million in the first half of fiscal 2007 compared to a decrease of $2.3 million in the first half of fiscal 2006 mainly due to day sales outstanding, or DSO, increasing from 59 days as of March 31, 2006 to 69 days as of September 30, 2006. The increase in DSO resulted primarily from the timing of shipments and payment terms. | ||
• | Accounts payable increased by $1.6 million in the first half of fiscal 2007 compared to a decrease of $0.9 million in the first half of fiscal 2006 primarily because of higher inventory purchases to support higher levels of backlog. | ||
• | Inventories decreased in the first half of fiscal 2007 by $5.1 million compared to a decrease of $2.4 million in the first half of fiscal 2006. | ||
• | Other accrued liabilities and long term liabilities decreased in the first half of fiscal 2007 primarily because of revenue deferred at March 31, 2006 was recognized during the period and restructuring payments. |
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Years Ended March 31, | ||||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
2006 | Total | 2005 | Total | 2004 | Total | |||||||||||||||||||
United States | $ | 11,235 | 5 | % | $ | 11,446 | 6 | % | $ | 6,314 | 4 | % | ||||||||||||
Other Americas | 23,676 | 10 | % | 23,839 | 13 | % | 18,870 | 12 | % | |||||||||||||||
Russia | 15,684 | 7 | % | 35,456 | 20 | % | 14,689 | 9 | % | |||||||||||||||
Poland | 25,905 | 11 | % | 10,811 | 6 | % | 5,896 | 4 | % | |||||||||||||||
Other Europe | 32,766 | 14 | % | 22,144 | 12 | % | 30,269 | 19 | % | |||||||||||||||
Middle East | 26,498 | 12 | % | 17,520 | 10 | % | 16,416 | 11 | % | |||||||||||||||
Nigeria | 19,090 | 8 | % | 10,081 | 6 | % | 25,705 | 16 | % | |||||||||||||||
Other Africa | 18,034 | 8 | % | 16,963 | 9 | % | 9,824 | 6 | % | |||||||||||||||
Bangladesh | 22,301 | 10 | % | 1,637 | 1 | % | — | — | ||||||||||||||||
Other Asia/Pacific | 35,703 | 15 | % | 30,405 | 17 | % | 29,365 | 19 | % | |||||||||||||||
Total Revenues | $ | 230,892 | 100 | % | $ | 180,302 | 100 | % | $ | 157,348 | 100 | % |
Years Ended March 31, | ||||||||
2006 | 2005 | |||||||
Number of customers | 3 | 2 | ||||||
Percentage of Backlog | 12%, 11%, 10 | % | 13%, 12 | % |
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Years Ended March 31, | ||||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
2006 | Total | 2005 | Total | 2004 | Total | |||||||||||||||||||
Eclipse | $ | 134,479 | 68 | % | $ | 39,599 | 26 | % | $ | 3,348 | 3 | % | ||||||||||||
XP4 | 19,417 | 10 | % | 64,125 | 42 | % | 57,497 | 44 | % | |||||||||||||||
DXR | 14,777 | 7 | % | 16,120 | 11 | % | 23,917 | 18 | % | |||||||||||||||
Altium | 19,730 | 10 | % | 23,985 | 16 | % | 39,613 | 31 | % | |||||||||||||||
Other products | 9,785 | 5 | % | 7,787 | 5 | % | 4,718 | 4 | % | |||||||||||||||
Total revenue | $ | 198,188 | $ | 151,616 | $ | 129,093 | ||||||||||||||||||
Operating loss | $ | (3,692 | ) | (1.9 | )% | $ | (47,064 | ) | (31 | )% | $ | (39,987 | ) | (31 | )% |
Years Ended March 31, | ||||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
2006 | Revenue | 2005 | Revenue | 2004 | Revenue | |||||||||||||||||||
Field Service revenue | $ | 20,545 | $ | 16,605 | $ | 15,404 | ||||||||||||||||||
Operating income/(loss) | 1,116 | 5 | % | (516 | ) | (3 | )% | 665 | 4 | % | ||||||||||||||
Repair revenue | 12,159 | 12,081 | 12,851 | |||||||||||||||||||||
Operating income | 4,898 | 40 | % | 3,859 | 32 | % | 4,777 | 37 | % | |||||||||||||||
Total service revenue | $ | 32,704 | $ | 28,686 | $ | 28,255 | ||||||||||||||||||
Total operating income | $ | 6,014 | 18 | % | $ | 3,343 | 12 | % | $ | 5,442 | 19 | % |
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Years Ended March 31, | ||||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
2006 | Net Sales | 2005 | Net Sales | 2004 | Net Sales | |||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Net sales | $ | 230,892 | 100 | % | $ | 180,302 | 100 | % | $ | 157,348 | 100 | % | ||||||||||||
Cost of sales | 167,303 | 72.5 | % | 151,398 | 84.0 | % | 129,689 | 82.4 | % | |||||||||||||||
Inventory valuation charges (benefits) | — | — | 2,581 | 1.4 | % | (498 | ) | (0.3 | )% | |||||||||||||||
Gross profit | $ | 63,589 | 27.5 | % | $ | 26,323 | 14.6 | % | $ | 28,157 | 17.9 | % |
Years Ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands, except percentages) | ||||||||||||
Research and development | $ | 14,475 | $ | 16,661 | $ | 17,151 | ||||||
% of net sales | 6.3 | % | 9.2 | % | 10.9 | % |
Years Ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands, except percentages) | ||||||||||||
Selling, general and administrative | $ | 46,792 | $ | 44,379 | $ | 39,273 | ||||||
% of net sales | 20.3 | % | 24.6 | % | 25.0 | % |
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Years Ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands, except percentages) | ||||||||||||
Restructuring charges | $ | — | $ | 7,423 | $ | 5,488 | ||||||
% of net sales | — | 4.1 | % | 3.5 | % |
Severance | Facilities | |||||||||||
and Benefits | and Other | Total | ||||||||||
Balance as of March 31, 2003 | $ | 1.5 | $ | 22.7 | $ | 24.2 | ||||||
Provision in fiscal 2004 | 0.9 | 4.6 | 5.5 | |||||||||
Cash payments | (1.3 | ) | (5.6 | ) | (6.9 | ) | ||||||
Balance as of March 31, 2004 | 1.1 | 21.7 | 22.8 | |||||||||
Provision in fiscal 2005 | 3.8 | 3.6 | 7.4 | |||||||||
Cash payments | (3.8 | ) | (4.0 | ) | (7.8 | ) | ||||||
Non-cash expense | — | (0.6 | ) | (0.6 | ) | |||||||
Reclassification of related rent accruals | — | 1.2 | 1.2 | |||||||||
Balance as of March 31, 2005 | 1.1 | 21.9 | 23.0 | |||||||||
Provision in fiscal 2006 | — | — | — | |||||||||
Cash payments | (1.2 | ) | (3.6 | ) | (4.8 | ) | ||||||
Reclassification | 0.3 | (0.6 | ) | (0.3 | ) | |||||||
Balance as of March 31, 2006 | $ | 0.2 | $ | 17.7 | $ | 17.9 | ||||||
Current portion | $ | 0.2 | $ | 3.2 | $ | 3.4 | ||||||
Long-term portion | — | 14.5 | 14.5 |
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Years Ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Interest income | $ | 1,111 | $ | 737 | $ | 886 | ||||||
Interest expense | 2,227 | 1,662 | 160 | |||||||||
Other expenses, net | 1,927 | 845 | 1,116 |
Years Ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Provision for income taxes | $ | 1,576 | $ | 455 | $ | 2,133 |
• | operations; | ||
• | research and development; | ||
• | restructuring payments; | ||
• | capital expenditures; |
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• | repayment of long-term debt; and | ||
• | acquisitions. |
Payments Due | ||||||||||||||||||||||||
Periods ending March 31, | ||||||||||||||||||||||||
2011 & | Total | |||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | Beyond | Obligations | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Operating leases(a) | $ | 3,273 | (d) | $ | 6,673 | $ | 6,805 | $ | 6,929 | $ | 6,614 | $ | 30,924 | |||||||||||
Unconditional purchase obligations(b) | $ | 28,958 | — | — | — | — | $ | 28,958 | ||||||||||||||||
Long-term debt(c) | $ | 6,494 | (d) | $ | 12,427 | $ | 6,579 | $ | 5,167 | — | $ | 30,667 |
(a) | Contractual cash obligations include $15.9 million of lease obligations that have been accrued as restructuring charges as of September 30, 2006. | |
(b) | Stratex has firm purchase commitments with various suppliers as of the end of September 2006. Actual expenditures will vary based upon the volume of the transactions and length of contractual service provided. In addition, the amounts paid under these arrangements may be less in the event that the arrangements are renegotiated or cancelled. Certain agreements provide for potential cancellation penalties. Stratex’s policy with respect to all purchase commitments is to record losses, if any, when they are probable and reasonably estimable. Stratex believes it has made adequate provision for potential exposure related to inventory for orders which may go unused. | |
(c) | See discussion of “Repayment of Long-Term Debt” below. | |
(d) | Payments due are for six months ending March 31, 2007. |
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Years Ending | ||||||||
March 31 | ||||||||
2007 | 2008 | |||||||
(in thousands, except | ||||||||
percentages) | ||||||||
Cash equivalents and short-term investments(a) | $ | 52,291 | $ | 2,404 | ||||
Weighted average interest rate | 4.9 | % | 5.3 | % |
(a) | Does not include cash of $6.5 million held in bank checking and deposit accounts including those held by our foreign subsidiaries. |
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• | expanded the review of the consolidated financial statements of Stratex and related financial close and reporting processes, including additional site visits and testing of internal controls; and |
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• | addressed staffing needs in the accounting and finance areas by increasing staff in corporate finance at Stratex’s headquarters in San Jose, California and at foreign subsidiary offices located in France, Poland and South Africa. |
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• | Increase in Global Wireless Subscribers and Minutes of Use.The number of global wireless subscribers and minutes of use per subscriber are expected to continue to increase. The primary drivers include increased subscription, increased voice minutes of use per subscriber and the growing use by subscribers of data applications. Third generation data applications have been introduced in the developed countries and this has fueled an increase in minutes of data use. Harris Stratex believes that growth as a result of new data services will continue for the next several years. | ||
• | Increased establishment of mobile and fixed wireless telecommunications infrastructures in developing countries.In parts of the world, telecommunications services are inadequate or unreliable because of the lack of existing infrastructures. To service providers in developing countries seeking to increase the availability and quality of telecommunications and internet access services, wireless solutions are an attractive alternative to the construction or leasing of wireline networks, given their relatively low cost and ease of deployment. As a result, there has been an increased establishment of mobile and fixed wireless telecommunications infrastructures in developing countries. Emerging telecommunications markets in Africa, Asia, the Middle East, Latin America and Eastern Europe are characterized by a need to build out basic telecommunications systems. | ||
• | Technological advances, particularly in the wireless telecommunications market.The demand for cellular telephone and other wireless services and devices continues to increase due to technological advances and increasing consumer demand for connectivity to data and voice services. New mobile-based services based upon what is commonly referred to as “third-generation” technology is also creating additional demand and growth in mobile networks and their associated infrastructure. The demand for fixed broadband access networks has also increased due to data transmission requirements resulting from Internet access demand. Similar to cellular telephone networks, wireless broadband access is typically less expensive to install and can be installed more rapidly than a wireline or fiber alternative. New and emerging services such as WiMAX are expected to expand over the next several years. Both WiMAX and new high-speed mobile-based technology can be used for a number of applications, including “last mile” broadband connections, hotspots and cellular backhaul, and high-speed enterprise connectivity for business. | ||
• | Global deregulation of telecommunications market and allocation of radio frequencies for broadband wireless access.Regulatory authorities in different jurisdictions allocate different portions of the radio frequency spectrum for various telecommunications services. Many countries have privatized the state-owned telecommunications monopoly and opened their markets to competitive network service providers. Often these providers choose a wireless transmission service, which causes an increase in the demand for transmission solutions. Such global deregulation of the telecommunications market and the related allocation of radio frequencies for broadband wireless access transmission have led to increased competition to supply wireless-based transmission systems. |
• | Continuing fixed-line to mobile-line substitution; | ||
• | Private networks and public telecommunications operators building high-reliability, high-bandwidth networks that are more secure and better protected against natural and man-made disasters; | ||
• | Continuing global mobile operator consolidation; and | ||
• | The Federal Communications Commission, or FCC, mandated a 2 GHz relocation project designed to resolve a public safety interference problem. The project includes the relocation of 12 federal agencies and a significant amount of microwave radio content. The FCC has mandated that most television broadcasters, fixed link service users and others who operate within the 1990 — 2110 MHz spectrum band replace and/or upgrade their 2 GHz transmission facilities by September 7, 2007 to operate within the 2025 — 2110 MHz spectrum band. In exchange, the FCC will relinquish spectrum at 700 and 800 MHz and pay them cash. |
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• | TRuepoint™ family of microwave radios. This is Harris Stratex’s next-generation microwave point-to-point radio platform which provides Synchronous Digital Hierarchy, or SDH, and Plesiochronous Digital Hierarchy, or PDH, in a single platform and is designed to meet the current and future needs of network operators, including mobile, private network, government and access service providers. The unique architecture of the core platform reduces both capital expenditures and life cycle costs, while meeting international and North American standards. The software-based architecture enables transition between traditional microwave access applications and higher-capacity transport interconnections. The wide range of capacities, interfaces, modulation schemes, frequency and channel plans, and power levels are made available to meet the requirements of networks around the world. The TRuepoint product family delivers service from 4 to 180 megabits-per-second capacity at frequencies ranging from 6 to 38 GHz; | ||
• | Constellation(R) medium-to-high-capacity family of point-to-point digital radios operating in the 6, 7/8 and 10/11 GHz frequencies, which are designed for network applications and support both PDH and Synchronous Optical Network, or SONET, the standard for digital transport over optical fiber in North American applications. Constellation radios are suited for wireless mobile carriers and private operators, including critical public safety networks; and | ||
• | MegaStar(R) high-capacity, carrier-class digital point-to-point radios, which operate in the 5, 6, 7/8 and 11 GHz frequencies, and are designed to eliminate test equipment requirements, reduce network installation and operation costs, and conform to PDH, SONET and SDH standards. |
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Approximate Sq. Ft. | Approximate Sq. Ft. | |||||||||||
Location | Major Activities | Total Owned | Total Leased | |||||||||
• San Antonio, Texas | Office/Manufacturing | 130,000 | — | |||||||||
• Montreal, Canada | Office/Manufacturing | — | 113,846 | |||||||||
• Morrisville, North Carolina | Office | — | 60,033 | |||||||||
• Melbourne, Florida | Office | — | 29,270 | |||||||||
• Shenzhen, China | Office/Manufacturing | — | 27,706 | |||||||||
• Redwood Shores, California | Office/Manufacturing | — | 25,000 | |||||||||
• Chatenay-Malabry, France | Office | — | 12,379 | |||||||||
• 17 other locations | Office | — | 26,546 | |||||||||
130,000 | 294,780 |
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Class of Director: Class B Director
Appointed By: Harris Corporation
Class of Director: Class B Director
Appointed By: Harris Corporation
Class of Director: Class A Director
Appointed By: Stratex Networks, Inc.
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Class of Director: Class A Director
Appointed By: Stratex Networks, Inc.
Class of Director: Class A Director
Appointed By: Stratex Networks, Inc.
Class of Director: Class B Director
Appointed By: Harris Corporation
Class of Director: Class B Director
Appointed By: Harris Corporation
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Class of Director: Class B Director
Appointed By: Harris Corporation
Class of Director: Class A Director
Appointed By: Stratex Networks, Inc.
Position at Harris Stratex: Chief Executive Officer
Previous Position: President, Microwave Communications Division, Harris Corporation
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Position at Harris Stratex: Chief Financial Officer
Previous Position: Vice President and Controller, Microwave Communications Division,
Harris Corporation
Position at Harris Stratex: Corporate Controller
Previous Position: Corporate Controller, Stratex Networks, Inc.
Position at Harris Stratex: Chief Technical Officer
Previous Position: Vice President Products and Chief Technology Officer, Stratex Networks, Inc.
Position at Harris Stratex: Chief Operating Officer
Previous Position: Chief Executive Officer, Stratex Networks, Inc.
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• | Nonstatutory stock options and incentive stock options, or stock options, are rights to purchase Harris Stratex Class A common stock. A stock option may be immediately exercisable or become exercisable in such installments, cumulative or non-cumulative, as the committee may determine. A stock option may be exercised by the recipient giving written notice to Harris |
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Stratex, specifying the number of shares with respect to which the stock option is then being exercised, and accompanied by payment of an amount equal to the exercise price of the shares to be purchased. The purchase price may be paid by cash, check, by delivery to Harris Stratex (or attestation of ownership) of shares of Harris Stratex Class A common stock (with some restrictions), or through and under the terms and conditions of any formal cashless exercise program authorized by Harris Stratex. | |||
• | Incentive stock options may be granted only to eligible employees of Harris Stratex or any parent or subsidiary corporation and must have an exercise price of not less than 100% of the fair market value of the Harris Stratex Class A common stock on the date of grant (110% for incentive stock options granted to any 10% stockholder of Harris Stratex). In addition, the term of an incentive stock option may not exceed seven years (five years, if granted to any 10% stockholder). Nonstatutory stock options must have an exercise price of not less than 100% of the fair market value of the Harris Stratex Class A common stock on the date of grant and the term of any nonstatutory stock option may not exceed seven years. In the case of an incentive stock option, the amount of the aggregate fair market value of Harris Stratex Class A common stock (determined at the time of grant) with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under all such plans of his or her employer corporation and its parent and subsidiary corporations) may not exceed $100,000. | ||
• | Stock appreciation rights, or SARs, are rights to receive (without payment to Harris Stratex) cash, property or other forms of payment, or any combination thereof, as determined by the committee, based on the increase in the value of the number of shares of Harris Stratex Class A common stock specified in the SAR. The base price (above which any appreciation is measured) will in no event be less than 100% of the fair market value of Harris Stratex Class A stock on the date of grant of the SAR or, if the SAR is granted in tandem with a stock option (that is, so that the recipient has the opportunity to exercise either the stock option or the SAR, but not both), the exercise price under the associated stock option. | ||
• | Awards of restricted stock are grants or sales of Harris Stratex Class A common stock which are subject to a risk of forfeiture, such as a requirement of the continued performance of services for stated term or the achievement of individual or Harris Stratex performance goals. Awards of restricted stock include the right to any dividends on the shares pending vesting (or forfeiture), although the committee may determine, at the time of the award, that dividends will be deferred and, if dividends are deferred, the committee may determine that the deferred dividends will be reinvested in additional restricted stock. | ||
• | Awards of restricted stock units and performance units are grants of rights to receive either shares of Harris Stratex Class A common stock (in the case of restricted stock units) or the appreciation over a base value (as specified by the committee) of a number of shares of Harris Stratex Class A common stock (in the case of performance stock units) subject to satisfaction of service or performance requirements established by the committee in connection with the award. Such awards may include the right to the equivalent to any dividends on the shares covered by the award, which amount may in the discretion of the committee be deferred and paid if and when the award vests. | ||
• | Qualified performance-based awards are awards which include performance criteria intended to satisfy Section 162(m) of the code. Section 162(m) of the code limits Harris Stratex’s federal income tax deduction for compensation to certain specified senior executives to $1 million dollars, but excludes from that limit “performance-based compensation.” Qualified performance-based awards may be in the form of stock options, restricted stock, restricted stock units or performance units, but in each case will be subject to satisfaction of one of the following criteria, either individually, alternatively or in any combination, applied to either Harris Stratex as a whole or to a business unit or affiliate, either individually, alternatively, or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre- established target, to previous years’ results or to a designated comparison group, in each case as specified by the committee in the award: |
stock price
stockholder return or total stockholder return
return on investment
market capitalization
debt leverage (debt to capital)
sales or net sales
income, pre-tax income or net income
operating profit, net operating profit or economic profit
return on operating revenue or return on operating assets
operating ratios
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market share improvement customer service
earnings per share (including, without limitation, earnings before stock based compensation,
profitsharing, interest, taxes, depreciation and amortization)
return on equity
return on capital (including without limitation return on total capital or return on invested capital)
return on assets or net assets
economic value added
revenue
backlog
operating income, pre-tax income, or net income
gross margin, operating margin or profit margin
cash from operations
patent applications and patent awards
general and administrative expenses
• | A stock grant is a grant of shares of Harris Stratex Class A common stock not subject to restrictions or other forfeiture conditions. Stock grants may be awarded only in recognition of significant contributions to the success of Harris Stratex or its affiliates, in lieu of compensation otherwise already due, or in other limited circumstances which the committee deems appropriate. |
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• | The Combination Agreement |
• | any breach by Harris Stratex or any of its subsidiaries of any covenants of Harris Stratex contained in the combination agreement to be performed following the closing; however, any action or inaction approved by the board of directors of Harris Stratex will not be subject to indemnity under this paragraph if a majority of the directors of Harris Stratex at the time of such action or inaction were the initial Harris directors or otherwise elected or appointed by Harris or the directors of Harris Stratex appointed or elected by Harris; | ||
• | any liability assumed by Harris Stratex under the combination agreement; or | ||
• | any liability arising out of or relating to the operation of the businesses or properties or liabilities of (1) Stratex prior to the closing or (2) Harris Stratex and/or any of its subsidiaries on or after the closing. |
• | any breach of the covenants contained in the combination agreement to be performed by Harris or any of its subsidiaries following the closing; or | ||
• | any asset or liability of Harris or its subsidiaries that is not transferred to or assumed by Harris Stratex as provided by the combination agreement. |
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• | The Investor Agreement |
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• | pursuant to preemptive rights provided to Harris Stratex further described in “Description of Harris Stratex Capital Stock — Preemptive Rights”; | ||
• | unless approved in advance by a majority of the non-Harris directors; and | ||
• | as a result of actions taken by Harris Stratex that do not increase or decrease Harris’ percentage of total voting power which Harris and its affiliates are entitled to cast in respect of all classes of capital stock or securities of Harris Stratex then outstanding and entitled to vote generally in the election of Class A directors (including the holders of Harris Stratex Class B common stock) beneficially owned by Harris. |
• | The Non-Competition Agreement |
• | engage, directly or indirectly, in the restricted business (as defined below); | ||
• | form any person other than Harris Stratex and its subsidiaries, any such person a “covered person”, or change or extend the current business activities of any existing covered person for the purpose of engaging, directly or indirectly, in the restricted business; or | ||
• | invest, directly or indirectly, in any covered person engaged, directly or indirectly, in the restricted business in any material respect; |
• | collectively own less than 20% of the total equity interests in any covered person engaged in the restricted business as long as none of the employees of Harris or any of its subsidiaries is involved in the management of such covered person; | ||
• | participate as a passive investor with no management rights in any investment fund that holds an ownership interest in covered persons engaged in the restricted business that is managed by persons that are not affiliates of Harris (1) with any employee benefit or retirement plan funds and (2) with any other funds subject, in the case of this clause (2) only, to a maximum interest in such investment fund of 15%; and | ||
• | acquire a covered person or business unit of a covered person engaged in the restricted business if (1) the restricted business contributed less than 20% of such covered person’s or business unit’s, as applicable, total revenues (based on its latest annual audited financial statements, if available) and (2) such covered person or Harris, as applicable, divests or ceases to conduct the restricted business within 18 months after the acquisition date. |
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• | purchasing and reselling products produced by, and marked with the brands of, an unaffiliated person in connection with the sale, service, design or maintenance of a system that contains or uses microwave radios or related components, systems or services; or | ||
• | developing, manufacturing, distributing or selling microwave radios or related components, systems or services for use by government entities. |
• | Intellectual Property Agreement |
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• | Trademark and Trade Name License Agreement |
• | With respect to the packaging, marketing, sale, licensing, distribution and support of the products of the MCD business (including products that have been partially manufactured) existing as of the closing date, with certain limitations, for one year from the closing date of the combination of the Microwave Communications Division and Stratex, Harris Stratex will be permitted to use the licensed trademark and the stylized mark in the same manner as they were used in the MCD business by Harris and its subsidiaries immediately prior to the closing date of the combination of the Microwave Communications Division and Stratex; and | ||
• | With respect to any Harris Stratex business products and marketing and promotional material and packaging produced after the closing of the combination of the Microwave Communications Division and Stratex, Harris Stratex may only use the licensed trademark if the licensed trademark is used as part of the “HARRIS” portion of a combined “HARRIS STRATEX” trademark as provided in the trademark and trade name agreement. |
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• | Harris Stratex and its subsidiaries materially default in performing any of the terms and conditions of the trademark and trade name license agreement and fail to remedy the material default within 30 days of written notice, subject to additional provisions relating to Harris Stratex’s efforts and ability to remedy any material breach; | ||
• | Upon written notice to Harris Stratex in the event that Harris Stratex or any of its subsidiaries are adjudged bankrupt, become insolvent, make an assignment for the benefit of creditors, have a receiver or trustee appointed, file a petition for bankruptcy, or initiate reorganization proceedings or take steps toward liquidation of a substantial part of its property or assets; or | ||
• | Upon six months written notice to Harris Stratex at any time Harris no longer is entitled to cast majority of the total number of votes then entitled to be cast generally in the election of Class A directors of Harris Stratex. |
• | Transition Services Agreement |
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• | all internal costs allocated to the maximum extent reasonably practicable to providing the service on a fully allocated basis consistent with the charges in effect at the time of the combination of the Microwave Communications Division and Stratex, and | ||
• | any additional out-of-pocket costs or expenses incurred by Harris in connection with providing the service, including without limitation, payments or costs for an ongoing license, grant or provision of rights or services. |
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• | Lease Agreement (Real Property) |
• | NetBoss® Service Agreement |
• | Registration Rights Agreement |
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• | Securities that may be registered under the agreement include (1) Harris Stratex Class A and Class B common stock or other securities acquired by Harris from Harris Stratex, (2) any securities issued or distributed regarding, or in exchange for, any such Class A or Class B common stock or securities (whether directly or indirectly or in one or a series of transactions) pursuant to any reclassification, merger, consolidation, reorganization or other transaction or procedure and (3) any securities issued or distributed regarding, or in exchange for, any securities described in clause (2) or this clause (3) (whether directly or indirectly or in one or a series of transactions) pursuant to any reclassification, merger, consolidation, reorganization or other transaction or procedure, other than, in the case of each of clauses (1), (2) and (3), any such securities that: |
• | have been offered and sold pursuant to a registration statement that has become effective under the Securities Act; | ||
• | have been transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto) under circumstances after which such registrable securities became freely transferable without registration under the Securities Act and any legend relating to transfer restrictions under the Securities Act has been removed; or | ||
• | are transferable pursuant to paragraph (k) of Rule 144 (or any successor provision thereto). |
• | Harris is permitted two shelf registrations upon request but solely for use in connection with delayed underwritten offerings; | |
• | Harris is permitted four non-shelf demand registration statements relating to underwritten offerings that have become effective and that covered all the registrable securities requested to be included; | |
• | Any demand for registration must be in respect of securities with a market value of at least $50 million based on the then prevailing market price, represent at least 5% of the outstanding Harris Stratex common stock or represent all of the securities that can be registered under the agreement by a holder and its affiliates; | |
• | Harris is entitled to customary piggyback registration rights; and | |
• | Harris Stratex has the right to postpone (or, if necessary or advisable, withdraw) the filing, or delay the effectiveness of a registration statement or offers and sales of applicable securities registered under a shelf demand registration statement if its board of directors determines in good faith that such registration would interfere with any pending financing, acquisition, corporate reorganization or other corporate transaction involving Harris Stratex or any of its subsidiaries, or would otherwise be seriously detrimental to Harris Stratex and its subsidiaries, taken as a whole, and furnishes to the electing holders of registrable shares a copy of a resolution of its board of directors setting forth such determination;provided, however, that Harris Stratex may not postpone a demand registration or offers and sales of applicable securities under a shelf demand registration statement more than once in any twelve-month period and that no single postponement shall exceed 90 days in the aggregate. |
• | Lease Agreement (Equipment and Machinery) |
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• | Tax Sharing Agreement |
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• | each person that will be a beneficial owner of more than 5% of Harris Stratex common stock; | ||
• | each of the named executive officers of Harris Stratex; | ||
• | each director or prospective director of Harris Stratex; and | ||
• | all directors and named executive officers of Harris Stratex, taken together. |
Percentage of | ||||||||||||||||
Number of Shares | Number of Shares | Voting Power of | Percentage of | |||||||||||||
of Class A | of Class B | Class of | Voting Power of | |||||||||||||
Name and Address of Beneficial Owner | Common Stock | Common Stock | Common Stock | Common Stock | ||||||||||||
Stockholders Owning Approximately 5% or more: | ||||||||||||||||
Harris Corporation | — | 32,773,176 | 100 | % | 57.12 | % | ||||||||||
1025 West NASA Blvd | ||||||||||||||||
Melbourne, Florida 32919 | ||||||||||||||||
Kopp Investment Advisors, Inc. | 3,229,785 | (1) | — | 13.13 | % | 5.63 | % | |||||||||
7701 France Avenue South, | ||||||||||||||||
Suite 500 | ||||||||||||||||
Edina, Minnesota 55435 | ||||||||||||||||
State of Wisconsin Investment Board | 2,136,533 | (2) | — | 8.68 | % | 3.72 | % | |||||||||
P.O. Box 7842 | ||||||||||||||||
Madison, WI 53707 | ||||||||||||||||
Perkins, Wolf, McDonnell and | ||||||||||||||||
Company, LLC | 1,551,275 | (3) | — | 6.3 | % | 2.7 | % | |||||||||
310 South Michigan Avenue, | ||||||||||||||||
Suite 2600 | ||||||||||||||||
Chicago, IL 60604 | ||||||||||||||||
Sheila Baird | 1,388,634 | (4) | — | 5.64 | % | 2.42 | % | |||||||||
Michael Kimelman | ||||||||||||||||
100 Park Avenue | ||||||||||||||||
New York, NY 10017 | ||||||||||||||||
Directors: | ||||||||||||||||
Guy M. Campbell | — | — | — | — | ||||||||||||
Howard L. Lance | — | — | — | — | ||||||||||||
Prospective Directors: | ||||||||||||||||
Eric Evans | — | — | — | — | ||||||||||||
William A. Hasler | 16,189 | (5) | — | * | * | |||||||||||
Clifford H. Higgerson | 138,545 | (5) | — | * | * | |||||||||||
Charles D. Kissner | 609,943 | (5) | — | 2.42 | % | 1.1 | % | |||||||||
Dr. Mohsen Sohi | — | — | — | — | ||||||||||||
Dr. James C. Stoffel | — | — | — | — | ||||||||||||
Edward F. Thompson | 15,000 | (5) | — | * | * | |||||||||||
Non-Director Officers: |
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Percentage of | ||||||||||||||||
Number of Shares | Number of Shares | Voting Power of | Percentage of | |||||||||||||
of Class A | of Class B | Class of | Voting Power of | |||||||||||||
Name and Address of Beneficial Owner | Common Stock | Common Stock | Common Stock | Common Stock | ||||||||||||
Thomas H. Waechter | 21,884 | (5) | — | * | * | |||||||||||
Sarah A. Dudash | — | — | — | — | ||||||||||||
Robert Kamenski | 2,514 | (5) | — | * | * | |||||||||||
Paul A. Kennard | 156,454 | (5) | — | * | * | |||||||||||
All directors and executive officers as a group (13 individuals in total) | 990,529 | (5) | — | 3.87 | % | 1.7 | % |
* | Less than 1% | |
(1) | The number of shares of Harris Stratex Class A common stock beneficially owned was calculated based on the number of shares of Stratex common stock beneficially owned as reported in the Schedule 13G filed with the Securities and Exchange Commission on January 27, 2006, as adjusted for the one-for-four conversion ratio in the merger. | |
(2) | The number of shares of Harris Stratex Class A common stock beneficially owned was calculated based on the number of shares of Stratex common stock beneficially owned as reported in the Schedule 13G/A filed with the Securities and Exchange Commission on March 9, 2006, as adjusted for the one-for-four conversion ratio in the merger. | |
(3) | The number of shares of Harris Stratex Class A common stock beneficially owned was calculated based on the number of shares of Stratex common stock beneficially owned as reported in the Schedule 13G/A filed with the Securities and Exchange Commission on February 15, 2006, as adjusted for the one-for-four conversion ratio in the merger. | |
(4) | The number of shares of Harris Stratex Class A common stock beneficially owned was calculated based on the number of shares of Stratex common stock beneficially owned as reported in the Schedule 13G filed with the Securities and Exchange Commission on February 1, 2006, as adjusted for the one-for-four conversion ratio in the merger. | |
(5) | The number of shares of Harris Stratex Class A common stock beneficially owned was calculated based on the number of shares of Stratex common stock beneficially owned including shares subject to options exercisable within 60 days of December 27, 2006, as adjusted for the one-for-four conversion ratio in the merger. |
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• | any outstanding shares of Class A common stock held by the holder for an equal number of shares of Class B common stock or | ||
• | any outstanding shares of Class B common stock held by the holder for an equal number of shares of Class A common stock. |
• | the holders of all of the outstanding shares of Class B common stock (assuming that all of the outstanding shares of Class A common stock which are then exchangeable for shares of Class B common stock have been exchanged as described under “— Exchange Rights — Voluntary” above) are collectively entitled to cast less than 10% of the total voting power; or | ||
• | such Class B common stock is transferred by a holder to any person who is not an affiliate of the holder or nominee of the holder or one of its affiliates unless such transfer is part of a transfer by the holder and its affiliates of all of the shares of Class B common stock then owned by them. |
• | there will be nine directors of Harris Stratex; | ||
• | the holders of Class B common stock are permitted to elect five of the Harris Stratex directors separately as a class; and | ||
• | the quorum for action by the board of directors of Harris Stratex is a majority of the board of directors of Harris Stratex, which majority must include at least four Class B directors. |
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• | engage in the same or similar activities or lines of business as Harris Stratex or any of its subsidiaries or develop or market any products or services that compete, directly or indirectly, with those of Harris Stratex or any of its subsidiaries; | ||
• | invest or own any interest in, or develop a business relationship with, any entity or person engaged in the same or similar activities or lines of business as, or otherwise in competition with, Harris Stratex or any of its subsidiaries; | ||
• | do business with any client or customer of Harris Stratex or any of its subsidiaries; or | ||
• | employ or otherwise engage any former officer or employee of Harris Stratex or any of its subsidiaries. |
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• | will have any duty to communicate, offer or present the corporate opportunity to Harris Stratex or any of its subsidiaries, directors, officers or employees; | ||
• | will have any liability to Harris Stratex, any of its subsidiaries or any of their stockholders for breach of any fiduciary duty or other duty, as a stockholder, director, officer or employee of Harris Stratex or any of its subsidiaries or in any other capacity; or | ||
• | will be deemed to have acted (1) in bad faith, (2) in a manner inconsistent with the best interests of Harris Stratex, any of its subsidiaries or any of their stockholders or (3) in a manner inconsistent with, or opposed to, any fiduciary duty owed by them to Harris Stratex, any of its subsidiaries or any of their stockholders because any person or entity who has a relationship with the Class B holder and Harris Stratex as described above pursues or acquires the corporate opportunity for itself, directs the corporate opportunity to any of its affiliates or any third party, or does not communicate information regarding the corporate opportunity to Harris Stratex or any of its subsidiaries, directors, officers or employees. |
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87
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THE MICROWAVE COMMUNICATIONS DIVISION OF HARRIS CORPORATION AND SUBSIDIARIES | ||||
F-2 | ||||
Combined Financial Statements of the Microwave Communications Division of Harris Corporation and Subsidiaries | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-30 | ||||
Condensed Combined Financial Statements of The Microwave Communications Division of Harris Corporation and Subsidiaries (unaudited) | ||||
F-22 | ||||
F-23 | ||||
F-24 | ||||
F-25 | ||||
F-26 | ||||
F-31 | ||||
F-33 | ||||
F-35 | ||||
STRATEX NETWORKS, INC. AND SUBSIDIARIES | ||||
F-37 | ||||
F-41 | ||||
F-42 | ||||
F-43 | ||||
F-44 | ||||
F-46 | ||||
F-64 | ||||
Condensed Consolidated Financial Statements of Stratex Networks, Inc. and Subsidiaries (unaudited) | ||||
F-65 | ||||
F-66 | ||||
F-67 | ||||
F-68 |
F-1
Table of Contents
Certified Public Accountants
November 21, 2006
F-2
Table of Contents
and Subsidiaries
Fiscal Years Ended | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Revenue from product sales and services | ||||||||||||
Revenue from external product sales | $ | 299,052 | $ | 260,205 | $ | 282,383 | ||||||
Revenue from product sales with parent | 6,546 | 3,138 | 238 | |||||||||
Total revenue from product sales | 305,598 | 263,343 | 282,621 | |||||||||
Revenue from services | 51,902 | 47,084 | 47,195 | |||||||||
357,500 | 310,427 | 329,816 | ||||||||||
Cost of product sales and services | ||||||||||||
Cost of external product sales | (221,549 | ) | (180,639 | ) | (214,119 | ) | ||||||
Cost of product sales with parent | (7,407 | ) | (3,700 | ) | (1,565 | ) | ||||||
Total cost of product sales | (228,956 | ) | (184,339 | ) | (215,684 | ) | ||||||
Cost of services | (37,132 | ) | (31,314 | ) | (26,352 | ) | ||||||
Cost of sales billed from parent | (5,252 | ) | (4,293 | ) | (3,897 | ) | ||||||
(271,340 | ) | (219,946 | ) | (245,933 | ) | |||||||
Engineering, selling and administrative expenses | (96,658 | ) | (81,747 | ) | (90,537 | ) | ||||||
Engineering, selling and administrative expenses with parent | (5,622 | ) | (6,017 | ) | (6,583 | ) | ||||||
Total engineering, selling and administrative expenses | (102,280 | ) | (87,764 | ) | (97,120 | ) | ||||||
Corporate allocations expense | (12,425 | ) | (6,189 | ) | (6,770 | ) | ||||||
Interest income | 431 | 905 | — | |||||||||
Interest expense | (975 | ) | (966 | ) | (140 | ) | ||||||
Loss before income taxes | (29,089 | ) | (3,533 | ) | (20,147 | ) | ||||||
Income tax expense | (6,759 | ) | (245 | ) | (86 | ) | ||||||
Net loss | $ | (35,848 | ) | $ | (3,778 | ) | $ | (20,233 | ) | |||
F-3
Table of Contents
and Subsidiaries
June 30, | July 1, | |||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 13,834 | $ | 7,803 | ||||
Receivables | 123,939 | 114,544 | ||||||
Unbilled costs | 25,504 | 17,565 | ||||||
Inventories | 71,858 | 91,051 | ||||||
Total current assets | 235,135 | 230,963 | ||||||
Other Assets: | ||||||||
Plant and equipment | 51,770 | 57,010 | ||||||
Goodwill | 28,260 | 26,100 | ||||||
Identifiable intangible assets | 6,388 | 6,225 | ||||||
Capitalized software | 9,171 | 7,855 | ||||||
Non-current notes receivable | 3,800 | 8,097 | ||||||
Non-current deferred income taxes | 9,616 | 15,296 | ||||||
Other assets | 8,509 | 11,423 | ||||||
117,514 | 132,006 | |||||||
$ | 352,649 | $ | 362,969 | |||||
Liabilities and Division Equity | ||||||||
Current Liabilities: | ||||||||
Short-term debt | $ | 160 | $ | 1,021 | ||||
Accounts payable | 42,135 | 33,057 | ||||||
Compensation and benefits | 17,428 | 13,920 | ||||||
Other accrued items | 19,057 | 13,687 | ||||||
Advance payments and unearned income | 9,207 | 6,791 | ||||||
Total current liabilities | 87,987 | 68,476 | ||||||
Other Liabilities: | ||||||||
Due to Harris Corporation | 12,642 | 14,180 | ||||||
Total liabilities | 100,629 | 82,656 | ||||||
Division Equity: | ||||||||
Division equity | 253,400 | 294,229 | ||||||
Accumulated other comprehensive income (loss) | (1,380 | ) | (13,916 | ) | ||||
Total division equity | 252,020 | 280,313 | ||||||
$ | 352,649 | $ | 362,969 | |||||
F-4
Table of Contents
and Subsidiaries
Fiscal Years Ended | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Operating Activities | ||||||||||||
Net loss | $ | (35,848 | ) | $ | (3,778 | ) | $ | (20,233 | ) | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 15,689 | 14,607 | 13,782 | |||||||||
Provision for uncollectable amounts | 4,161 | 1,023 | 3,178 | |||||||||
Provision for excess and obsolete inventory | 38,512 | (1,074 | ) | 12,601 | ||||||||
Gain on sale of land and building | (1,844 | ) | — | — | ||||||||
Non-current deferred income taxes | 5,680 | — | — | |||||||||
(Increase) decrease in: | ||||||||||||
Receivables | (9,258 | ) | (861 | ) | 7,513 | |||||||
Unbilled costs and inventories | (27,259 | ) | (14,929 | ) | 2,197 | |||||||
Increase (decrease) in: | ||||||||||||
Accounts payable and accrued expenses | 17,956 | (4,473 | ) | 5,212 | ||||||||
Advance payments and unearned income | 2,416 | (4,973 | ) | (11,963 | ) | |||||||
Due to Harris Corporation | (1,538 | ) | (797 | ) | 3,078 | |||||||
Other | 10,816 | 11,014 | 23,227 | |||||||||
Net cash provided by (used in) operating activities | 19,483 | (4,241 | ) | 38,592 | ||||||||
Investing Activities | ||||||||||||
Proceeds from sale of land and building | 4,598 | — | — | |||||||||
Additions of plant and equipment | (9,563 | ) | (9,310 | ) | (11,830 | ) | ||||||
Additions of capitalized software | (3,240 | ) | (10,107 | ) | (2,849 | ) | ||||||
Net cash used in investing activities | (8,205 | ) | (19,417 | ) | (14,679 | ) | ||||||
Financing Activities | ||||||||||||
Proceeds from short-term borrowings | 9,352 | 4,381 | 2,895 | |||||||||
Repayments of short-term borrowings | (10,213 | ) | (9,147 | ) | (27,478 | ) | ||||||
Net cash and other transfers (to) from Harris Corporation | (4,981 | ) | 29,655 | (3,993 | ) | |||||||
Net cash provided by (used in) financing activities | (5,842 | ) | 24,889 | (28,576 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 595 | 1,275 | (1,138 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | 6,031 | 2,506 | (5,801 | ) | ||||||||
Cash and cash equivalents, beginning of year | 7,803 | 5,297 | 11,098 | |||||||||
Cash and cash equivalents, end of year | $ | 13,834 | $ | 7,803 | $ | 5,297 | ||||||
F-5
Table of Contents
AND DIVISION EQUITY
Accumulated Other | ||||||||||||||||
Comprehensive Income | ||||||||||||||||
(Loss) — Net Unrealized | ||||||||||||||||
Gain (Loss) From | ||||||||||||||||
Foreign | ||||||||||||||||
Division | Hedging | Currency | ||||||||||||||
Equity | Derivatives | Translation | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance at June 27, 2003 | $ | 292,578 | $ | — | $ | (20,228 | ) | $ | 272,350 | |||||||
Net loss | (20,233 | ) | — | — | (20,233 | ) | ||||||||||
Foreign currency translation | — | — | (1,687 | ) | (1,687 | ) | ||||||||||
Net unrealized gain on hedging activities, net of $0 tax | — | 80 | — | 80 | ||||||||||||
Comprehensive loss | (21,840 | ) | ||||||||||||||
Net decrease in investment from Harris Corporation | (3,993 | ) | — | — | (3,993 | ) | ||||||||||
Balance at July 2, 2004 | 268,352 | 80 | (21,915 | ) | 246,517 | |||||||||||
Net income | (3,778 | ) | — | — | (3,778 | ) | ||||||||||
Foreign currency translation | — | — | 7,728 | 7,728 | ||||||||||||
Net unrealized gain on hedging activities, net of $0 tax | — | 191 | — | 191 | ||||||||||||
Comprehensive income | 4,141 | |||||||||||||||
Net increase in investment from Harris Corporation | 29,655 | — | — | 29,655 | ||||||||||||
Balance at July 1, 2005 | 294,229 | 271 | (14,187 | ) | 280,313 | |||||||||||
Net loss | (35,848 | ) | — | — | (35,848 | ) | ||||||||||
Foreign currency translation | — | — | 12,740 | 12,740 | ||||||||||||
Net unrealized loss on hedging activities, net of $0 tax | — | (204 | ) | — | (204 | ) | ||||||||||
Comprehensive loss | (23,312 | ) | ||||||||||||||
Net decrease in investment from Harris Corporation | (4,981 | ) | — | — | (4,981 | ) | ||||||||||
Balance at June 30, 2006 | $ | 253,400 | $ | 67 | $ | (1,447 | ) | $ | 252,020 | |||||||
F-6
Table of Contents
At June 30, 2006 and July 1, 2005 and
For Each of the Three years in the Period Ended June 30, 2006
F-7
Table of Contents
F-8
Table of Contents
F-9
Table of Contents
F-10
Table of Contents
F-11
Table of Contents
F-12
Table of Contents
2006 | 2005 | |||||||
(In thousands) | ||||||||
Accounts receivable | $ | 122,208 | $ | 115,080 | ||||
Notes receivable due within one year — net | 9,784 | 6,770 | ||||||
131,992 | 121,850 | |||||||
Less allowances for collection losses | (8,053 | ) | (7,306 | ) | ||||
$ | 123,939 | $ | 114,544 | |||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Finished products | $ | 17,111 | $ | 15,311 | ||||
Work in process | 34,385 | 21,243 | ||||||
Raw materials and supplies | 38,646 | 87,353 | ||||||
90,142 | 123,907 | |||||||
Inventory reserves | (18,284 | ) | (32,856 | ) | ||||
$ | 71,858 | $ | 91,051 | |||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Land | $ | 585 | $ | 1,578 | ||||
Buildings | 21,947 | 26,003 | ||||||
Machinery and equipment | 91,660 | 109,735 | ||||||
114,192 | 137,316 | |||||||
Less allowances for depreciation | (62,422 | ) | (80,306 | ) | ||||
$ | 51,770 | $ | 57,010 | |||||
F-13
Table of Contents
2006 | 2005 | |||||||
(in thousands) | ||||||||
Balance at beginning of year | $ | 26,100 | $ | 24,472 | ||||
Translation adjustments | 2,160 | 1,628 | ||||||
$ | 28,260 | $ | 26,100 | |||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Balance as of the beginning of the year | $ | 3,796 | $ | 4,165 | ||||
Warranty provision for sales made during the year | 3,560 | 3,757 | ||||||
Settlements made during the year | (3,631 | ) | (4,325 | ) | ||||
Other adjustments to the liability including foreign currency translation during the year | 196 | 199 | ||||||
Balance as of the end of the year | $ | 3,921 | $ | 3,796 | ||||
F-14
Table of Contents
Severance | Facilities | |||||||||||
and | and | |||||||||||
Benefits | Other | Total | ||||||||||
(in thousands) | ||||||||||||
Balance at June 27, 2003 | $ | 1,317 | $ | 478 | $ | 1,795 | ||||||
Provision in fiscal 2004 | 5,439 | 1,303 | 6,742 | |||||||||
Cash payments in fiscal 2004 | (1,459 | ) | (478 | ) | (1,937 | ) | ||||||
Balance at July 2, 2004 | 5,297 | 1,303 | 6,600 | |||||||||
Provision in fiscal 2005 | — | — | — | |||||||||
Cash payments in fiscal 2005 | (4,979 | ) | (1,303 | ) | (6,282 | ) | ||||||
Balance at July 1, 2005 | 318 | — | 318 | |||||||||
Provision in fiscal 2006 | 2,262 | 1,429 | 3,691 | |||||||||
Cash payments in fiscal 2006 | (724 | ) | (1,123 | ) | (1,847 | ) | ||||||
Balance at June 30, 2006 | $ | 1,856 | $ | 306 | $ | 2,162 | ||||||
2005 | 2004 | |||||||
(in thousands) | ||||||||
Net loss, as reported | $ | (3,778 | ) | $ | (20,233 | ) | ||
The share-based employee compensation cost included in net income (loss) as reported, net of $0 tax benefit | 780 | 161 | ||||||
Deduct: Total share-based employee compensation expense determined under the fair value based method for all awards, net of $0 related tax benefit | (1,154 | ) | (739 | ) | ||||
Pro forma net loss | $ | (4,152 | ) | $ | (20,811 | ) | ||
2006 | ||||
(in thousands) | ||||
Net loss, as reported | $ | (35,848 | ) | |
The share-based employee compensation cost included in net loss as reported, net of $0 related tax benefit | 1,678 | |||
Deduct: Total share-based employee compensation cost determined under the provisions of APB 25, net of $0 related tax benefit | (1,604 | ) | ||
Pro forma net loss | $ | (35,774 | ) | |
F-15
Table of Contents
2006 | 2005 | 2004 | ||||||||||
Expected dividends | 0.9 | % | 0.7 | % | 1.0 | % | ||||||
Expected volatility | 36.1 | % | 35.2 | % | 37.1 | % | ||||||
Risk-free interest rates | 4.1 | % | 3.0 | % | 1.9 | % | ||||||
Expected term (years) | 3.35 | 4.00 | 4.00 |
2006 | 2005 | 2004 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Stock options outstanding at the beginning of the year | 399,006 | $ | 17.88 | 491,084 | $ | 15.29 | 713,506 | $ | 12.66 | |||||||||||||||
Stock options forfeited or expired | (13,024 | ) | $ | 29.54 | (48,532 | ) | $ | 15.93 | (29,396 | ) | $ | 15.87 | ||||||||||||
Stock options granted | 87,500 | $ | 37.16 | 96,258 | $ | 24.53 | 169,700 | $ | 17.70 | |||||||||||||||
Stock options exercised | (79,598 | ) | $ | 16.19 | (139,804 | ) | $ | 14.03 | (362,726 | ) | $ | 12.48 | ||||||||||||
Stock options outstanding at the end of the year | 393,884 | $ | 22.12 | 399,006 | $ | 17.88 | 491,084 | $ | 15.29 | |||||||||||||||
Stock options exercisable at the end of the year | 278,440 | $ | 20.08 | 265,546 | $ | 16.75 | 254,098 | $ | 13.67 |
Weighted-Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested stock options at July 2, 2005 | 133,460 | $ | 6.11 | |||||
Stock options granted | 87,500 | $ | 10.27 | |||||
Stock options vested | (105,516 | ) | $ | 7.84 | ||||
Nonvested stock options at June 30, 2006 | 115,444 | $ | 7.68 | |||||
F-16
Table of Contents
Weighted-Average | ||||||||
Shares | Grant Price | |||||||
Restricted stock outstanding at July 2, 2005 | 34,000 | $ | 18.30 | |||||
Restricted stock granted | 6,000 | $ | 37.19 | |||||
Restricted stock vested | — | $ | — | |||||
Restricted stock forfeited | — | $ | — | |||||
Restricted stock outstanding at June 30, 2006 | 40,000 | $ | 21.13 | |||||
Weighted-Average | ||||||||
Shares | Grant Price | |||||||
Performance shares outstanding at July 2, 2005 | 37,000 | $ | 22.71 | |||||
Performance shares granted | 20,900 | $ | 31.71 | |||||
Performance shares vested | — | $ | — | |||||
Performance shares forfeited | (5,600 | ) | $ | 25.01 | ||||
Performance shares outstanding at June 30, 2006 | 52,300 | $ | 26.06 | |||||
F-17
Table of Contents
F-18
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Current expense: | ||||||||||||
United States (federal, state, and local) | $ | — | $ | — | $ | — | ||||||
International | 1,079 | 245 | 86 | |||||||||
1,079 | 245 | 86 | ||||||||||
Deferred expense: | ||||||||||||
United States (federal, state, and local) | — | — | — | |||||||||
International | 5,680 | — | — | |||||||||
5,680 | — | — | ||||||||||
$ | 6,759 | $ | 245 | $ | 86 | |||||||
2006 | 2005 | |||||||||||||||
Current | Non-Current | Current | Non-Current | |||||||||||||
(in thousands) | ||||||||||||||||
Inventory valuations | $ | 6,029 | $ | — | $ | 5,088 | $ | — | ||||||||
Accruals | 2,650 | — | 2,920 | — | ||||||||||||
Depreciation | — | 726 | — | (419 | ) | |||||||||||
International research and development expense deferrals | — | 17,700 | — | 17,700 | ||||||||||||
Tax credit carryforwards | — | 17,306 | — | 14,754 | ||||||||||||
Tax loss carryforwards | — | 36,159 | — | 28,205 | ||||||||||||
All other — net | (1,771 | ) | — | (2,544 | ) | — | ||||||||||
6,908 | 71,891 | 5,464 | 60,240 | |||||||||||||
Valuation allowance | (6,908 | ) | (62,275 | ) | (5,464 | ) | (44,944 | ) | ||||||||
$ | — | $ | 9,616 | $ | — | $ | 15,296 | |||||||||
2006 | 2005 | 2004 | ||||||||||
Statutory U.S. income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
U.S. valuation allowances | (35.0 | ) | (35.0 | ) | (35.0 | ) | ||||||
State taxes | — | — | — | |||||||||
International income (loss) | (23.2 | ) | (6.9 | ) | (0.4 | ) | ||||||
Effective income tax rate | (23.2 | )% | (6.9 | )% | (0.4 | )% | ||||||
F-19
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Revenue | ||||||||||||
North America | $ | 168,094 | $ | 159,829 | $ | 154,133 | ||||||
International | 172,313 | 127,221 | 156,251 | |||||||||
NetBoss® | 17,093 | 23,377 | 19,432 | |||||||||
$ | 357,500 | $ | 310,427 | $ | 329,816 | |||||||
2006(1) | 2005 | 2004(2) | ||||||||||
(in thousands) | ||||||||||||
Loss Before Income Taxes | ||||||||||||
Segment Operating Income (Loss): | ||||||||||||
North America microwave | $ | 16,912 | $ | 10,257 | $ | 3,628 | ||||||
International microwave | (34,090 | ) | (11,938 | ) | (17,521 | ) | ||||||
NetBoss® | 1,058 | 4,398 | 656 | |||||||||
Corporate allocations expense | (12,425 | ) | (6,189 | ) | (6,770 | ) | ||||||
Net interest expense | (544 | ) | (61 | ) | (140 | ) | ||||||
Loss before income taxes | $ | (29,089 | ) | $ | (3,533 | ) | $ | (20,147 | ) | |||
(1) | The operating loss in the International microwave segment in fiscal 2006 included $39,641 thousand in inventory write-downs and other charges associated with decisions made in fiscal 2006 regarding product discontinuances and the planned shutdown of manufacturing activities at our Montreal, Canada plant. | |
(2) | North America microwave’s operating income and International microwave’s operating loss includes $2,758 thousand and $4,490 thousand, respectively, of expenses related to cost-reduction measures and fixed asset write downs. |
% of | % of | % of | ||||||||||||||||||||||
2006 | Total | 2005 | Total | 2004 | Total | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
United States | $ | 143,882 | 40.2 | % | $ | 154,484 | 49.8 | % | $ | 141,638 | 42.9 | % | ||||||||||||
Canada | 29,891 | 8.4 | % | 15,475 | 5.0 | % | 17,365 | 5.3 | % | |||||||||||||||
Nigeria | 81,326 | 22.8 | % | 36,136 | 11.6 | % | 77,457 | 23.5 | % | |||||||||||||||
Other | 102,401 | 28.6 | % | 104,332 | 33.6 | % | 93,356 | 28.3 | % | |||||||||||||||
Total | $ | 357,500 | 100.0 | % | $ | 310,427 | 100.0 | % | $ | 329,816 | 100.0 | % | ||||||||||||
F-20
Table of Contents
2006 | 2005 | |||||||
(in thousands) | ||||||||
United States | $ | 48,320 | $ | 51,675 | ||||
Canada | 48,750 | 51,884 | ||||||
Brazil | 4,985 | 5,586 | ||||||
France | 3,798 | 4,257 | ||||||
Other | 2,032 | 3,249 | ||||||
Total | $ | 107,885 | $ | 116,651 | ||||
F-21
Table of Contents
and Subsidiaries
Three Months Ended | ||||||||
September 29, | September 30, | |||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Revenue from product sales and services | ||||||||
Revenue from external product sales and services | $ | 93,067 | $ | 74,895 | ||||
Revenue from product sales and services with parent | 488 | 429 | ||||||
Total revenue from product sales and services | 93,555 | 75,324 | ||||||
Cost of product sales and services | ||||||||
Cost of external product sales and services | (59,122 | ) | (50,854 | ) | ||||
Cost of product sales and services with parent | (2,889 | ) | (1,742 | ) | ||||
Total cost of product sales and services | (62,011 | ) | (52,596 | ) | ||||
Engineering, selling and administrative external expenses | (22,811 | ) | (18,134 | ) | ||||
Engineering, selling and administrative expenses with parent | (1,581 | ) | (1,406 | ) | ||||
Total engineering, selling and administrative expenses | (24,392 | ) | (19,540 | ) | ||||
Corporate allocations expense | (1,621 | ) | (1,536 | ) | ||||
Interest income | 138 | 174 | ||||||
Interest expense | (130 | ) | (161 | ) | ||||
Income before income taxes | 5,539 | 1,665 | ||||||
Income tax expense | (408 | ) | (268 | ) | ||||
Net income | $ | 5,131 | $ | 1,397 | ||||
F-22
Table of Contents
and Subsidiaries
September 29, | September 30, | |||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 14,386 | $ | 6,542 | ||||
Receivables | 123,815 | 117,077 | ||||||
Unbilled costs | 22,049 | 23,002 | ||||||
Inventories | 76,221 | 92,928 | ||||||
Total Current Assets | 236,471 | 239,549 | ||||||
Other Assets | ||||||||
Plant and equipment | 49,493 | 52,807 | ||||||
Goodwill | 28,285 | 27,030 | ||||||
Identifiable intangible assets | 6,078 | 7,047 | ||||||
Non-current notes receivable | 5,542 | 5,852 | ||||||
Non-current deferred income taxes | 9,616 | 15,296 | ||||||
Other assets | 18,428 | 19,737 | ||||||
117,442 | 127,769 | |||||||
$ | 353,913 | $ | 367,318 | |||||
Liabilities and Division Equity | ||||||||
Current Liabilities: | ||||||||
Short-term debt | $ | 100 | $ | 75 | ||||
Accounts payable | 47,196 | 36,296 | ||||||
Compensation and benefits | 11,410 | 9,137 | ||||||
Other accrued items | 18,764 | 17,444 | ||||||
Advance payments and unearned income | 13,235 | 7,239 | ||||||
Total current liabilities | 90,705 | 70,191 | ||||||
Other Liabilities | ||||||||
Due to Harris Corporation | 3,074 | 6,749 | ||||||
Total Liabilities | 93,779 | 76,940 | ||||||
Division Equity: | ||||||||
Division equity | 261,285 | 298,473 | ||||||
Accumulated other comprehensive loss | (1,151 | ) | (8,095 | ) | ||||
Total division equity | 260,134 | 290,378 | ||||||
$ | 353,913 | $ | 367,318 | |||||
F-23
Table of Contents
Three Months Ended | ||||||||
September 29, | September 30, | |||||||
2006 | 2005 | |||||||
Operating Activities | ||||||||
Net income | $ | 5,131 | $ | 1,397 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 3,299 | 1,385 | ||||||
Gain on sale of land and building | — | (1,844 | ) | |||||
(Increase) decrease in: | ||||||||
Receivables | (1,619 | ) | (287 | ) | ||||
Unbilled costs and inventories | (907 | ) | (7,314 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expenses | (1,250 | ) | 2,213 | |||||
Advance payments and unearned income | 4,028 | 448 | ||||||
Due to Harris Corporation | (9,568 | ) | (7,431 | ) | ||||
Other | (96 | ) | 4,022 | |||||
Net cash (used in) operating activities | (982 | ) | (7,411 | ) | ||||
Investing Activities | ||||||||
Proceeds from sale of land and building | — | 4,598 | ||||||
Additions of plant and equipment | (237 | ) | (441 | ) | ||||
Additions of capitalized software | (1,117 | ) | (910 | ) | ||||
Net cash (used in) provided by investing activities | (1,354 | ) | 3,247 | |||||
Financing Activities | ||||||||
Decrease in short term debt | (60 | ) | (946 | ) | ||||
Net cash and other transfers from Harris Corporation | 2,677 | 2,847 | ||||||
Net cash provided by financing activities | 2,617 | 1,901 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 271 | 1,002 | ||||||
Net increase (decrease) in cash and cash equivalents | 552 | (1,261 | ) | |||||
Cash and cash equivalents, beginning of period | 13,834 | 7,803 | ||||||
Cash and cash equivalents, end of period | $ | 14,386 | $ | 6,542 | ||||
F-24
Table of Contents
AND DIVISION EQUITY (unaudited)
Accumulated Other | ||||||||||||||||
Comprehensive Income | ||||||||||||||||
(Loss) — Net Unrealized | ||||||||||||||||
Gain (Loss) From | ||||||||||||||||
Foreign | ||||||||||||||||
Division | Hedging | Currency | ||||||||||||||
Equity | Derivatives | Translation | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Balance at July 1, 2005 | $ | 294,229 | $ | 271 | $ | (14,187 | ) | $ | 280,313 | |||||||
Net income | 1,397 | — | — | 1,397 | ||||||||||||
Foreign currency translation | — | — | 6,116 | 6,116 | ||||||||||||
Net unrealized loss on hedging activities, net of $0 tax | — | (295 | ) | — | (295 | ) | ||||||||||
Comprehensive income | 7,218 | |||||||||||||||
Net increase in investment from Harris Corporation | 2,847 | — | — | 2,847 | ||||||||||||
Balance at September 30, 2005 | $ | 298,473 | $ | (24 | ) | $ | (8,071 | ) | $ | 290,378 | ||||||
Balance at June 30, 2006 | $ | 253,400 | $ | 67 | $ | (1,447 | ) | $ | 252,020 | |||||||
Net income | 5,131 | — | — | 5,131 | ||||||||||||
Foreign currency translation | — | — | 267 | 267 | ||||||||||||
Net unrealized loss on hedging activities, net of $0 tax | — | (38 | ) | — | (38 | ) | ||||||||||
Comprehensive income | 5,360 | |||||||||||||||
Net increase in investment from Harris Corporation | 2,754 | — | — | 2,754 | ||||||||||||
Balance at September 29, 2006 | $ | 261,285 | $ | 29 | $ | (1,180 | ) | $ | 260,134 | |||||||
F-25
Table of Contents
At September 29, 2006 and September 30, 2005 and
For the Three Months Ended September 29, 2006 and September 30, 2005
F-26
Table of Contents
September 29, | September 30, | |||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Accounts receivable | $ | 125,148 | $ | 114,918 | ||||
Notes receivable due within one year — net | 6,428 | 8,873 | ||||||
131,576 | 123,791 | |||||||
Less allowances for collection losses | (7,761 | ) | (6,714 | ) | ||||
$ | 123,815 | $ | 117,077 | |||||
F-27
Table of Contents
September 29, | September 30, | |||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Finished products | $ | 13,350 | $ | 11,061 | ||||
Work in process | 34,792 | 21,231 | ||||||
Raw materials and supplies | 43,954 | 93,786 | ||||||
92,096 | 126,078 | |||||||
Inventory reserves | (15,875 | ) | (33,150 | ) | ||||
$ | 76,221 | $ | 92,928 | |||||
September 29, | September 30, | |||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Land | $ | 585 | $ | 585 | ||||
Buildings | 21,948 | 22,373 | ||||||
Machinery and equipment | 91,390 | 110,986 | ||||||
113,923 | 133,944 | |||||||
Less allowances for depreciation | (64,430 | ) | (81,137 | ) | ||||
$ | 49,493 | $ | 52,807 | |||||
Three Months Ended | ||||||||
September 29, | September 30, | |||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Balance as of the beginning of the period | $ | 3,921 | $ | 3,796 | ||||
Warranty provision for sales made during the period | 455 | 822 | ||||||
Settlements made during the period | (498 | ) | (816 | ) | ||||
Other adjustments to the liability including foreign currency translation during the period | — | 72 | ||||||
Balance as of the end of the period | $ | 3,878 | $ | 3,874 | ||||
F-28
Table of Contents
Three Months Ended | ||||||||
September 29, 2006 | September 30, 2005 | |||||||
(in thousands) | ||||||||
Revenue | ||||||||
North America | $ | 49,829 | $ | 45,580 | ||||
International | 39,271 | 25,749 | ||||||
NetBoss | 4,455 | 3,995 | ||||||
$ | 93,555 | $ | 75,324 | |||||
Income Before Income Taxes | ||||||||
Segment Operating Income (Loss): | ||||||||
North America microwave | $ | 1,912 | $ | 6,442 | ||||
International microwave | 4,964 | (3,311 | ) | |||||
NetBoss | 276 | 57 | ||||||
Corporate allocations expense | (1,621 | ) | (1,536 | ) | ||||
Net interest income | 8 | 13 | ||||||
Income before income taxes | $ | 5,539 | $ | 1,665 | ||||
F-29
Table of Contents
HARRIS CORPORATION AND SUBSIDIARIES
Col. A | Col. B | Col. C | Col. D | Col. E | ||||||||||||||||
Additions | ||||||||||||||||||||
(2) | ||||||||||||||||||||
(1) | Charged to | |||||||||||||||||||
Balance at | Charged to | Other | Balance at | |||||||||||||||||
Beginning | Costs and | Accounts | Deductions — | End of | ||||||||||||||||
Description | of Period | Expenses | Describe | Describe | Period | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Year ended June 30, 2006: | ||||||||||||||||||||
Amounts Deducted From | $ | (279 | )(A) | |||||||||||||||||
Respective Asset Accounts: | 3,693 | (B) | ||||||||||||||||||
Allowances for collection losses | $ | 7,306 | $ | 4,161 | $ | — | $ | 3,414 | $ | 8,053 | ||||||||||
$ | (567 | )(A) | ||||||||||||||||||
53,651 | (C) | |||||||||||||||||||
Allowances for inventory valuation | $ | 32,856 | $ | 38,512 | $ | — | $ | 53,084 | $ | 18,284 | ||||||||||
Allowances for deferred tax assets | $ | 50,408 | $ | 18,775 | $ | — | $ | — | $ | 69,183 | ||||||||||
Year ended July 1, 2005: | ||||||||||||||||||||
Amounts Deducted From | $ | (482 | )(A) | |||||||||||||||||
Respective Asset Accounts: | 500 | (B) | ||||||||||||||||||
Allowances for collection losses | $ | 6,301 | $ | 1,023 | $ | — | $ | 18 | $ | 7,306 | ||||||||||
$ | 1,915 | (A) | ||||||||||||||||||
(2,075 | )(C) | |||||||||||||||||||
Allowances for inventory valuation | $ | 33,770 | $ | (1,074 | ) | $ | — | $ | (160 | ) | $ | 32,856 | ||||||||
Allowances for deferred tax assets | $ | 35,948 | $ | 14,100 | $ | — | $ | — | $ | 50,048 | ||||||||||
Year ended July 2, 2004: | ||||||||||||||||||||
Amounts Deducted From | $ | (26 | )(A) | |||||||||||||||||
Respective Asset Accounts: | 2,906 | (B) | ||||||||||||||||||
Allowances for collection losses | $ | 6,003 | $ | 3,178 | $ | — | $ | 2,880 | $ | 6,301 | ||||||||||
$ | (9 | )(A) | ||||||||||||||||||
(1,092 | )(C) | |||||||||||||||||||
Allowances for inventory valuation | $ | 20,068 | $ | 12,601 | $ | — | $ | (1,101 | ) | $ | 33,770 | |||||||||
Allowances for deferred tax assets | $ | 29,562 | $ | 6,386 | $ | — | $ | — | $ | 35,948 | ||||||||||
F-30
Table of Contents
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
F-31
Table of Contents
F-32
Table of Contents
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
Historical | Historical MCD as | Harris Stratex | ||||||||||||||
Stratex at | of September 29, | Pro Forma | Networks, Inc. | |||||||||||||
September 30, 2006 | 2006 | Adjustments | Pro Forma | |||||||||||||
(in thousands) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents and short-term investments | $ | 55,715 | $ | 14,386 | $ | 17,714 | (A) | $ | 87,815 | |||||||
Receivables | 51,369 | 123,815 | — | 175,184 | ||||||||||||
Inventories and unbilled costs | 38,980 | 98,270 | 11,137 | (B) | 148,387 | |||||||||||
Other current assets | 13,821 | — | — | 13,821 | ||||||||||||
Total current assets | 159,885 | 236,471 | 28,851 | 425,207 | ||||||||||||
Other Assets | ||||||||||||||||
Plant and equipment | 23,479 | 49,493 | — | 72,972 | ||||||||||||
Goodwill | — | 28,285 | 235,676 | (C) | 263,961 | |||||||||||
Identifiable intangible assets | — | 6,078 | 130,200 | (C) | 136,278 | |||||||||||
Non-current deferred taxes | — | 9,616 | (9,616 | )(D) | — | |||||||||||
Other assets | 790 | 23,970 | — | 24,760 | ||||||||||||
24,269 | 117,442 | 356,260 | 497,971 | |||||||||||||
$ | 184,154 | $ | 353,913 | $ | 385,111 | $ | 923,178 | |||||||||
LIABILITIES AND STOCKHOLDERS’ AND DIVISION EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Short-term debt | $ | 11,250 | $ | 100 | $ | 1,420 | (E) | $ | 12,770 | |||||||
Accounts payable | 40,330 | 47,196 | — | 87,526 | ||||||||||||
Other accrued liabilities | 29,692 | 43,409 | 1,795 | (F) | 74,896 | |||||||||||
Total current liabilities | 81,272 | 90,705 | 3,215 | 175,192 | ||||||||||||
Other Liabilities | ||||||||||||||||
Non-current deferred income taxes | — | — | 39,060 | (G) | 39,060 | |||||||||||
Long-term debt | 16,667 | — | 5,680 | (D) | 22,347 | |||||||||||
Due to Harris Corporation | — | 3,074 | (3,074 | )(H) | — | |||||||||||
Restructuring and other long-term liabilities | 13,225 | — | — | 13,225 | ||||||||||||
Total liabilities | 111,164 | 93,779 | 44,881 | 249,824 | ||||||||||||
Stockholders’ and division equity | 72,990 | 260,134 | 340,230 | (I) | 673,354 | |||||||||||
$ | 184,154 | $ | 353,913 | $ | 385,111 | $ | 923,178 | |||||||||
(A) | Adjustment of $17.7 million made to bring balance of cash in the Microwave Communications Division to $32.1 million as of the transaction date per the terms of the combination agreement. | |
(B) | Step up Stratex finished goods inventory to fair market value assuming a gross margin rate of 30% of revenue and selling costs and related profit equal to 10% of revenue. | |
(C) | Allocation of the purchase price of Stratex determined as follows (amounts in thousands): |
Market price of Stratex stock(1) | $ | 400,148 | ||
Estimated acquisition costs | 9,000 | |||
Total purchase price to be allocated | $ | 409,148 |
F-33
Table of Contents
Estimated | ||||||||
Allocation of purchase price based on fair market value | Useful Life | |||||||
Identifiable intangible assets: | ||||||||
Developed technology non-legacy products | $ | 77,500 | 10 years | |||||
Developed technology legacy products | 1,900 | 2 years | ||||||
Customer relationships | 5,400 | 8 years | ||||||
Backlog | 900 | 1 year | ||||||
Tradename — Eclipse | 16,000 | 10 years | ||||||
Tradename — Legacy Products | 200 | 2 years | ||||||
Tradename — Stratex | 28,300 | Indefinite | ||||||
Total identifiable intangible assets | 130,200 | |||||||
Net tangible assets(2) | 43,272 | |||||||
Goodwill | 235,676 | |||||||
Total purchase price allocation | $ | 409,148 | ||||||
(D) | Adjustment is to eliminate deferred tax assets on the Microwave Communications Division’s historical Combined Balance Sheet because Harris will retain 100% of these assets at the time of the transaction and they will not become part of Harris Stratex. | |
(E) | Adjustment to record capital lease obligation related to the equipment lease between Harris Stratex Networks Canada ULC and Harris Canada, Inc. For more information regarding this lease obligation, see “Certain Relationships and Related Transactions — Lease Agreement (Equipment and Machinery)” beginning on page 77 of this prospectus. | |
(F) | Adjustment to reduce deferred revenue of Stratex, which is classified as other accrued liabilities on the Consolidated Balance Sheet, by $2.0 million because Harris Stratex is not expected to have future obligations to deliver product or perform services on the contracts or agreements related to this deferred revenue after the closing date of the transaction and increased by $3.8 million for payout of the single trigger employment agreements. No amount of excise tax reimbursement is included because the calculated amount was not available. | |
(G) | Adjustment is for the establishment of a deferred tax liability related to the future amortization of identifiable intangible assets in accordance with Statement of Financial Accounting Standard No. 109 “Accounting for Income Taxes.” | |
(H) | Elimination of due to Harris Corporation balance against stockholders’ and division equity. | |
(I) | Adjustment made to reflect the $17.7 million cash contribution made by Harris as discussed in footnote A. above; elimination of deferred taxes noted in D. above; adjustment to record capital lease obligation noted in E. above; elimination of due to Harris Corporation balance of $3.1 million noted in G. above; and $336.2 million to record the net assets of Stratex at fair value in accordance with FAS 141(3). |
(1) | Total market price of Stratex common stock equal to the price of a share of Stratex common stock as of September 19, 2006 ($4.00) X diluted shares of Stratex common stock outstanding per the Stratex September 30, 2006 Balance Sheet (100.0 million shares). | ||
(2) | Stratex net tangible assets are calculated as follows: |
Historical net assets reported | $ | 72,990 | ||
Inventory step-up | 11,137 | |||
Deferred revenue reduction | 2,039 | |||
Single trigger employment agreement payouts | (3,834 | ) | ||
Less deferred tax liability related to identifiable intangible assets | (39,060 | ) | ||
Adjusted net assets | $ | 43,272 | ||
(3) | Adjustment to stockholders’ equity to record the net assets of Stratex at fair value in accordance with FAS 141 is calculated as follows: |
Market price of Stratex common stock (see footnote 1 above) | $ | 400,148 | ||
Acquisition costs | 9,000 | |||
Less historical Stratex net assets reported | (72,990 | ) | ||
$ | 336,158 | |||
F-34
Table of Contents
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Historical Stratex | Historical | |||||||||||||||
for the | MCD for the | |||||||||||||||
Twelve Months | Twelve Months | |||||||||||||||
Ended | Ended | Harris Stratex | ||||||||||||||
June 30, | June 30, | Pro Forma | Networks, Inc. | |||||||||||||
2006 | 2006 | Adjustments | Pro Forma | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue from product sales and services | $ | 242,257 | $ | 357,500 | $ | — | $ | 599,757 | ||||||||
Cost of product sales and services | (171,397 | ) | (271,340 | ) | (8,700 | )(J) | (451,437 | ) | ||||||||
Engineering, selling and administrative expenses | (63,131 | ) | (102,280 | ) | (7,115 | )(K) | (172,526 | ) | ||||||||
Corporate allocations expense | — | (12,425 | ) | — | (L) | (12,425 | ) | |||||||||
Interest income | 1,548 | 431 | — | 1,979 | ||||||||||||
Interest expense | (2,304 | ) | (975 | ) | — | (3,279 | ) | |||||||||
Other expenses, net | (1,748 | ) | — | — | (1,748 | ) | ||||||||||
Income (loss) before provision for income taxes | 5,225 | (29,089 | ) | (15,815 | ) | (39,679 | ) | |||||||||
Provisions for income taxes | (1,534 | ) | (6,759 | ) | — | (8,293 | ) | |||||||||
Net income (loss) | $ | 3,691 | $ | (35,848 | ) | $ | (15,815 | ) | $ | (47,972 | ) | |||||
Net income (loss) per common share | ||||||||||||||||
Basic | $ | 0.04 | $ | (0.85 | ) | |||||||||||
Diluted | $ | 0.04 | $ | (0.85 | ) | |||||||||||
Basic weighted average shares outstanding | 95,725 | (M) | 56,569 | |||||||||||||
Diluted weighted average shares outstanding | 99,510 | (M) | 56,569 |
(J) | Adjustment made to reflect $8.7 million amortization of developed technology identifiable intangible assets. | |
(K) | Adjustment made to reflect $3.3 million amortization of identifiable intangible assets, other than developed technology, and $3.8 million of stock-based compensation expense, which represents the expense that would have been recognized by Stratex had they implemented the provisions of Statement of Financial Accounting Standard No. FAS 123R “Share-Based Payment”, or FAS 123R, as of July 1, 2005, which is when the Microwave Communications Division was required to implement FAS 123R. | |
(L) | The services related to these costs include audit fees, external legal fees, internal legal costs and CEO and staff costs. It is believed that the stand-alone financial results of Stratex currently include many of these costs, which makes a portion of these MCD costs redundant. It is also believed that some of the costs that are included in the stand-alone financial results of Stratex may increase for the combined company. | |
(M) | Adjustment to shares reflect one-to-four conversion of Stratex shares to Harris Stratex Networks, Inc. and the issuance of 32.7 million shares of Harris Stratex shares (calculated as 56% of all the outstanding stock of Harris Stratex) to Harris in return for net assets of the Microwave Communications Division. |
F-35
Table of Contents
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Historical Stratex | Historical MCD | |||||||||||||||
for the Three | for the Three | |||||||||||||||
Months Ended | Months Ended | Harris Stratex | ||||||||||||||
September 30, | September 29, | Pro Forma | Networks, Inc. | |||||||||||||
2006 | 2006 | Adjustments | Pro Forma | |||||||||||||
Revenue from product sales and services | $ | 67,279 | $ | 93,555 | $ | 160,834 | ||||||||||
Cost of product sales and services | (46,512 | ) | (62,011 | ) | $ | (2,175 | )(N) | (110,698 | ) | |||||||
Engineering, selling and administrative expenses | (18,924 | ) | (24,392 | ) | (594 | )(O) | (43,910 | ) | ||||||||
Corporate allocations expense | (1,621 | ) | (P) | (1,621 | ) | |||||||||||
Interest income | 693 | 138 | 831 | |||||||||||||
Interest expense | (601 | ) | (130 | ) | (731 | ) | ||||||||||
Other expenses, net | (360 | ) | — | (360 | ) | |||||||||||
Income (loss) before provision for income taxes | 1,575 | 5,539 | (2,769 | ) | 4,345 | |||||||||||
Provision for income taxes | (23 | ) | (408 | ) | — | (431 | ) | |||||||||
Net income (loss) | $ | 1,552 | $ | 5,131 | $ | (2,769 | ) | $ | 3,914 | |||||||
Basic net income per share | $ | 0.02 | $ | 0.07 | ||||||||||||
Diluted net income per share | $ | 0.02 | $ | 0.07 | ||||||||||||
Basic weighted average shares outstanding | 97,634 | (Q) | 57,046 | |||||||||||||
Diluted weighted average shares outstanding | 100,037 | (Q) | 57,046 |
(N) | Adjustment made to reflect $2.2 million amortization of developed technology identifiable intangible assets. | |
(O) | Adjustment made to reflect $0.6 million amortization of identifiable intangible assets, other than developed technology. | |
(P) | The services related to these costs include audit fees, external legal fees, internal legal costs, external reporting costs and CEO and staff costs. It is believed that the stand-alone financial results of Stratex currently include many of these costs, which makes a portion of these MCD costs redundant. It is also believed that some of the costs that are included in the stand-alone financial results of Stratex may increase for the combined company. | |
(Q) | Adjustment to shares reflect one-to-four conversion of Stratex shares to Harris Stratex and the issuance of 32.7 million shares of Harris Stratex (calculated as 56% of all outstanding stock of Harris Stratex) to Harris in return for net assets of the Microwave Communications Division. |
F-36
Table of Contents
San Jose, California
San Jose, California
June 14, 2006
F-37
Table of Contents
F-38
Table of Contents
The Company’s controls over the review of the financial statements of the foreign operations and the period-end financial closing and reporting process for the Company’s consolidated operations are inadequate and constitute a material weakness in the design of internal control over financial reporting. Specifically, the Company lacks sufficient resources with the appropriate level of technical accounting expertise within the accounting function and therefore was unable to accurately perform certain of the designed controls over the March 31, 2006 financial closing and reporting process, evidenced by a significant number of adjustments which were necessary to present the financial statements for the year ended March 31, 2006 in accordance with generally accepted accounting principles. Based on the misstatements identified and the significance of the financial closing and reporting process to the preparation of reliable financial statements, there is a more than remote likelihood that a material misstatement of the interim and annual financial statements would not have been prevented or detected.
F-39
Table of Contents
San Jose, California
June 14, 2006
F-40
Table of Contents
CONSOLIDATED BALANCE SHEETS
March 31, | ||||||||
2006 | 2005 | |||||||
(in thousands, except per share amounts) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 44,414 | $ | 32,860 | ||||
Short-term investments | 13,272 | 15,831 | ||||||
Accounts receivable, net of allowance of $2,140 in 2006 and $2,769 in 2005 | 42,003 | 35,084 | ||||||
Inventories | 43,867 | 36,780 | ||||||
Other current assets | 12,620 | 10,572 | ||||||
Total current assets | 156,176 | 131,127 | ||||||
Property and Equipment: | ||||||||
Machinery and equipment | 77,930 | 79,156 | ||||||
Land and buildings | 7,550 | 7,550 | ||||||
Furniture and fixtures | 6,686 | 5,575 | ||||||
Leasehold improvements | 1,556 | 1,537 | ||||||
93,722 | 93,818 | |||||||
Accumulated depreciation and amortization | (69,673 | ) | (65,590 | ) | ||||
Net property and equipment | 24,049 | 28,228 | ||||||
Other assets | 605 | 1,276 | ||||||
Total Assets | $ | 180,830 | $ | 160,631 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 38,725 | $ | 34,472 | ||||
Short-term debt | 11,250 | 6,250 | ||||||
Accrued liabilities | 31,136 | 27,701 | ||||||
Total current liabilities | 81,111 | 68,423 | ||||||
Long-term debt | 22,291 | 13,542 | ||||||
Restructuring and other long-term liabilities | 15,085 | 18,643 | ||||||
Total liabilities | 118,487 | 100,608 | ||||||
Commitments and Contingencies (Note 9) | ||||||||
Stockholders’ Equity: | ||||||||
Preferred stock, $.01 par value; 5,000 shares authorized; none outstanding | — | — | ||||||
Common stock, $.01 par value; 150,000 shares authorized, 96,931 and 94,918 shares issued and outstanding at March 31, 2006 and 2005, respectively | 969 | 948 | ||||||
Additional paid-in capital | 489,370 | 485,382 | ||||||
Accumulated deficit | (416,022 | ) | (413,725 | ) | ||||
Accumulated other comprehensive loss | (11,974 | ) | (12,582 | ) | ||||
Total stockholders’ equity | 62,343 | 60,023 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 180,830 | $ | 160,631 | ||||
F-41
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CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Net Sales | $ | 230,892 | $ | 180,302 | $ | 157,348 | ||||||
Cost of sales | 167,303 | 151,398 | 129,689 | |||||||||
Inventory and other valuation charges (benefit) | — | 2,581 | (498 | ) | ||||||||
Gross profit | 63,589 | 26,323 | 28,157 | |||||||||
Operating Expenses: | ||||||||||||
Research and development | 14,475 | 16,661 | 17,151 | |||||||||
Selling, general and administrative | 46,792 | 44,379 | 39,273 | |||||||||
Amortization of intangible assets | — | 1,581 | 790 | |||||||||
Restructuring charges | — | 7,423 | 5,488 | |||||||||
Total operating expenses | 61,267 | 70,044 | 62,702 | |||||||||
Income (loss) from operations | 2,322 | (43,721 | ) | (34,545 | ) | |||||||
Other Income (Expense): | ||||||||||||
Interest income | 1,111 | 737 | 886 | |||||||||
Interest expense | (2,227 | ) | (1,662 | ) | (160 | ) | ||||||
Other expenses, net | (1,927 | ) | (845 | ) | (1,116 | ) | ||||||
Total other expense, net | (3,043 | ) | (1,770 | ) | (390 | ) | ||||||
Loss before provision for income taxes | (721 | ) | (45,491 | ) | (34,935 | ) | ||||||
Provision for income taxes | 1,576 | 455 | 2,133 | |||||||||
Net Loss | $ | (2,297 | ) | $ | (45,946 | ) | $ | (37,068 | ) | |||
Basic and diluted net loss per share | $ | (0.02 | ) | $ | (0.51 | ) | $ | (0.44 | ) | |||
Shares used to compute basic and diluted net loss per share | 95,600 | 89,634 | 83,364 |
F-42
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended March 31, 2004, 2005 and 2006 | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common | Stock | Additional | Accumulated | Comprehensive | Total Stockholders’ | |||||||||||||||||||
Shares | Amount | Paid-In Capital | Deficit | Loss | Equity | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Balances March 31, 2003 | 82,748 | $ | 827 | $ | 457,147 | $ | (330,711 | ) | $ | (14,463 | ) | $ | 112,800 | |||||||||||
Components of comprehensive income: | ||||||||||||||||||||||||
Net loss | — | — | — | (37,068 | ) | — | (37,068 | ) | ||||||||||||||||
Change in unrealized holding gain | — | — | — | — | 20 | 20 | ||||||||||||||||||
Translation adjustment | — | — | — | — | 1,081 | 1,081 | ||||||||||||||||||
Total comprehensive loss | (35,967 | ) | ||||||||||||||||||||||
Shares issued to Tellumat (Pty) Ltd for acquisition of net assets of Plessey Broadband Wireless | 730 | 7 | 2,950 | — | — | 2,957 | ||||||||||||||||||
Stock issued for options and purchase plan | 570 | 6 | 1,386 | — | — | 1,392 | ||||||||||||||||||
Balances March 31, 2004 | 84,048 | $ | 840 | $ | 461,483 | $ | (367,779 | ) | $ | (13,362 | ) | $ | 81,182 | |||||||||||
Components of comprehensive income: | ||||||||||||||||||||||||
Net loss | — | — | — | ( 45,946 | ) | — | (45,946 | ) | ||||||||||||||||
Change in unrealized holding loss | — | — | — | — | (58 | ) | (58 | ) | ||||||||||||||||
Translation adjustment | — | — | — | — | 838 | 838 | ||||||||||||||||||
Total comprehensive loss | (45,166 | ) | ||||||||||||||||||||||
Sale of common stock, net of cash and non-cash (warrants) expenses of $1.4 million and $4.1 million, respectively (See note 11) | 10,327 | 103 | 22,850 | — | — | 22,953 | ||||||||||||||||||
Stock issued for options and purchase plan | 543 | 5 | 1,049 | — | — | 1,054 | ||||||||||||||||||
Balances March 31, 2005 | 94,918 | $ | 948 | $ | 485,382 | $ | (413,725 | ) | $ | (12,582 | ) | $ | 60,023 | |||||||||||
Components of comprehensive loss: | ||||||||||||||||||||||||
Net loss | — | — | — | (2,297 | ) | — | (2,297 | ) | ||||||||||||||||
Change in unrealized holding loss | — | — | — | — | 31 | 31 | ||||||||||||||||||
Translation adjustment | — | — | — | — | 577 | 577 | ||||||||||||||||||
Total comprehensive loss | (1,689 | ) | ||||||||||||||||||||||
Stock issued for options and purchase plan | 1,117 | 6 | 2,488 | — | — | 2,494 | ||||||||||||||||||
Restricted Stock Awards | 896 | 15 | 1,500 | — | — | 1,515 | ||||||||||||||||||
Balances March 31, 2006 | 96,931 | $ | 969 | $ | 489,370 | $ | (416,022 | ) | $ | (11,974 | ) | $ | 62,343 | |||||||||||
F-43
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Cash Flows From Operating Activities: | ||||||||||||
Net loss | $ | (2,297 | ) | $ | (45,946 | ) | $ | (37,068 | ) | |||
Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||||||
Non-cash stock compensation charges | 1,515 | — | — | |||||||||
Depreciation and amortization | 7,418 | 11,460 | 9,470 | |||||||||
Non-cash restructuring charges | — | 928 | — | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | (6,445 | ) | (530 | ) | (3,721 | ) | ||||||
Inventories | (6,385 | ) | (1,461 | ) | (6,662 | ) | ||||||
Other assets | (1,227 | ) | 1,176 | 2,035 | ||||||||
Accounts payable | 4,154 | (5,597 | ) | 14,960 | ||||||||
Accrued liabilities | 3,697 | 5,998 | (3,416 | ) | ||||||||
Long-term liabilities | (3,559 | ) | (1,662 | ) | (3,039 | ) | ||||||
Net cash used for operating activities | (3,129 | ) | (35,634 | ) | (27,441 | ) | ||||||
Cash Flows From Investing Activities: | ||||||||||||
Purchase of available-for-sale securities | (82,185 | ) | (83,275 | ) | (220,983 | ) | ||||||
Proceeds from sale of available-for-sale securities | 84,753 | 95,723 | 248,812 | |||||||||
Purchase of property and equipment | (3,532 | ) | (7,435 | ) | (10,532 | ) | ||||||
Purchase of net assets of Plessey Broadband Wireless, a division of Tellumat (Pty) Ltd. | — | — | (2,578 | ) | ||||||||
Net cash provided by (used for) investing activities | (964 | ) | 5,013 | 14,719 | ||||||||
Cash Flows From Financing Activities: | ||||||||||||
Borrowings from banks | 33,000 | 25,000 | — | |||||||||
Repayment of bank borrowings | (19,250 | ) | (5,208 | ) | — | |||||||
Proceeds from sale of common stock | 2,495 | 24,007 | 1,392 | |||||||||
Net cash provided by financing activities | 16,245 | 43,799 | 1,392 | |||||||||
Effect of exchange rate changes on cash | (598 | ) | (1,944 | ) | (1,080 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 11,554 | 11,234 | (12,410 | ) | ||||||||
Cash and cash equivalents at beginning of year | 32,860 | 21,626 | 34,036 | |||||||||
Cash and cash equivalents at end of year | $ | 44,414 | $ | 32,860 | $ | 21,626 | ||||||
F-44
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Interest paid | $ | 1,097 | $ | 1,781 | $ | 103 | ||||||
Income taxes paid | $ | 1,430 | $ | 199 | $ | 274 |
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Non-cash purchase consideration for the acquisition of Plessey Broadband Wireless, a division of Tellumat (Pty) Ltd. through the issuance of common stock | $ | — | $ | — | $ | 2,957 | ||||||
Issuance of common stock warrants (See Note 11) | $ | — | $ | 4,122 | $ | — |
F-45
Table of Contents
2006 | ||||||||||||
Unrealized | ||||||||||||
Cost | Fair Value | Holding Loss | ||||||||||
(in thousands) | ||||||||||||
Corporate notes | $ | 2,083 | $ | 2,083 | $ | — | ||||||
Corporate and Government bonds | 3,605 | 3,589 | (16 | ) | ||||||||
Auction rate preferred notes | 7,600 | 7,600 | — | |||||||||
Total | $ | 13,288 | $ | 13,272 | $ | (16 | ) |
F-46
Table of Contents
2005 | ||||||||||||
Unrealized | ||||||||||||
Cost | Fair Value | Holding Loss | ||||||||||
(in thousands) | ||||||||||||
Corporate notes | $ | 749 | $ | 749 | $ | — | ||||||
Corporate and Government bonds | 9,578 | 9,532 | (46 | ) | ||||||||
Auction rate preferred notes | 5,550 | 5,550 | — | |||||||||
Total | $ | 15,877 | $ | 15,831 | $ | (46 | ) | |||||
March 31, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Raw materials | $ | 9,012 | $ | 11,065 | ||||
Work-in-process | — | 488 | ||||||
Finished goods | 34,855 | 25,227 | ||||||
$ | 43,867 | $ | 36,780 | |||||
March 31, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Unrealized holding loss on available-for-sale-securities | $ | (16 | ) | $ | (46 | ) | ||
Cumulative foreign exchange translation adjustment | (11,958 | ) | (12,536 | ) | ||||
Accumulated other comprehensive loss | $ | (11,974 | ) | $ | (12,582 | ) | ||
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F-48
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Twelve | Twelve | |||||||
Months Ended | Months Ended | |||||||
March 31, 2006 | March 31, 2005 | |||||||
Gains/(Losses) | Gains/(Losses) | |||||||
Beginning balance as of April 1 | $ | 90 | $ | 23 | ||||
Net changes | (772 | ) | 644 | |||||
Reclassifications to revenue | 573 | (526 | ) | |||||
Reclassifications to cost of sales | 2 | (51 | ) | |||||
Ending balance as of March 31 | $ | (107 | ) | $ | 90 | |||
F-49
Table of Contents
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
Net loss – as reported | $ | (2,297 | ) | $ | (45,946 | ) | $ | (37,068 | ) | |||
Less: Stock-based compensation expense determined under fair value method for all awards, net of related tax effects | (4,954 | ) | (11,630 | ) | (9,961 | ) | ||||||
Net loss – pro forma | $ | (7,251 | ) | $ | (57,576 | ) | $ | (47,029 | ) | |||
Basic and diluted loss per share – as reported | $ | (0.02 | ) | $ | (0.51 | ) | $ | (0.44 | ) | |||
Basic and diluted loss per share – pro forma | $ | (0.08 | ) | $ | (0.64 | ) | $ | (0.56 | ) |
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
Expected stock volatility | 96.2 | % | 96.8 | % | 96.6 | % | ||||||
Risk-free interest rate | 3.9 – 4.6 | % | 2.7 – 3.9 | % | 2.2 – 3.3 | % | ||||||
Expected life of options from vest date | 1.8 years | 1.5 years | 1.7 years | |||||||||
Forfeiture rate | Actual | Actual | Actual |
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Expected stock volatility | 55.7 | % | 75.7 | % | 89.6 | % | ||||||
Risk-free interest rate | 2.9 | % | 1.6 | % | 1.0 | % | ||||||
Expected life of options from vest date | 0.3 years | 0.3 years | 0.2 years |
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F-51
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March 31, 2006 | March 31, 2005 | |||||||
Number of significant customers | 2 | — | ||||||
Percentage of accounts receivable balance | 12%,10 | % | — |
F-52
Table of Contents
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Number of significant customers | 1 | 1 | 1 | |||||||||
Percentage of net sales | 10 | % | 21 | % | 19 | % |
March 31, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Receivables from suppliers | $ | 3,074 | $ | 2,566 | ||||
Non-trade receivables | 947 | 851 | ||||||
Prepaid expenses | 4,165 | 3,529 | ||||||
Prepaid insurance | 395 | 340 | ||||||
Income tax and VAT refund | 3,795 | 2,976 | ||||||
Other | 244 | 310 | ||||||
$ | 12,620 | $ | 10,572 | |||||
March 31, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Customer deposits | $ | 2,103 | $ | 1,822 | ||||
Accrued payroll and benefits | 2,628 | 2,250 | ||||||
Accrued commissions | 4,660 | 2,117 | ||||||
Accrued warranty | 4,395 | 5,340 | ||||||
Accrued restructuring | 3,373 | 4,902 | ||||||
Accrual for customer discount | 4,359 | 3,688 | ||||||
Deferred revenue | 3,193 | 1,279 | ||||||
Other | 6,425 | 6,303 | ||||||
$ | 31,136 | $ | 27,701 | |||||
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Years ending March 31, | ||||
(in thousands) | ||||
2007 | $ | 11,250 | ||
2008 | 11,250 | |||
2009 | 6,041 | |||
2010 | 5,000 | |||
Total | $ | 33,541 | ||
F-54
Table of Contents
Severance | Facilities | |||||||||||
and Benefits | and Other | Total | ||||||||||
Balance as of March 31, 2003 | $ | 1.5 | $ | 22.7 | $ | 24.2 | ||||||
Provision in fiscal 2004 | 0.9 | 4.6 | 5.5 | |||||||||
Cash payments | (1.3 | ) | (5.6 | ) | (6.9 | ) | ||||||
Balance as of March 31, 2004 | 1.1 | 21.7 | 22.8 | |||||||||
Provision in fiscal 2005 | 3.8 | 3.6 | 7.4 | |||||||||
Cash payments | (3.8 | ) | (4.0 | ) | (7.8 | ) | ||||||
Non-cash expense | — | (0.6 | ) | (0.6 | ) | |||||||
Reclassification of related rent accruals | — | 1.2 | 1.2 | |||||||||
Balance as of March 31, 2005 | 1.1 | 21.9 | 23.0 | |||||||||
Provision in fiscal 2006 | — | — | — | |||||||||
Cash payments | (1.2 | ) | (3.6 | ) | (4.8 | ) | ||||||
Reclassification | 0.3 | (0.6 | ) | (0.3 | ) | |||||||
Balance as of March 31, 2006 | $ | 0.2 | $ | 17.7 | $ | 17.9 | ||||||
Current portion | $ | 0.2 | $ | 3.2 | $ | 3.4 | ||||||
Long-term portion | — | 14.5 | 14.5 |
Years ending March 31, | ||||
(in thousands) | ||||
2007 | $ | 6,403 | ||
2008 | 6,654 | |||
2009 | 6,787 | |||
2010 | 6,913 | |||
2011 | 5,766 | |||
2012 and beyond | 855 | |||
Future minimum lease payments (a) | $ | 33,378 | ||
(a) | Future minimum lease payments include $17.4 million of lease obligations that have been accrued as restructuring charges as of March 31, 2006. |
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Table of Contents
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Balance at the beginning of the year | $ | 5,340 | $ | 4,277 | $ | 4,219 | ||||||
Additions related to current period sales | 5,202 | 7,282 | 7,416 | |||||||||
Warranty costs incurred in the current period | (5,330 | ) | (5,227 | ) | (7,207 | ) | ||||||
Adjustments to accruals related to prior period sales | (817 | ) | (992 | ) | (151 | ) | ||||||
Balance at the end of the year | $ | 4,395 | $ | 5,340 | $ | 4,277 | ||||||
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Domestic | $ | (1,732 | ) | $ | (34,780 | ) | $ | (29,897 | ) | |||
Foreign | 1,011 | (10,711 | ) | (5,038 | ) | |||||||
$ | (721 | ) | $ | (45,491 | ) | $ | (34,935 | ) | ||||
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | — | $ | — | ||||||
State | 8 | 80 | 46 | |||||||||
Foreign | 1,568 | 375 | 344 | |||||||||
Total current | 1,576 | 455 | 390 | |||||||||
Deferred- foreign | — | — | 1,743 | |||||||||
$ | 1,576 | $ | 455 | $ | 2,133 | |||||||
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Table of Contents
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Expected tax benefit | $ | (252 | ) | $ | (15,808 | ) | $ | (12,227 | ) | |||
State taxes, net of Federal benefit | 8 | (565 | ) | 335 | ||||||||
Change in valuation allowance | (1,854 | ) | 10,202 | 16,775 | ||||||||
Foreign taxes | 1,568 | 375 | 344 | |||||||||
Other | 2,107 | 6,251 | (3,094 | ) | ||||||||
$ | 1,576 | $ | 455 | $ | 2,133 | |||||||
March 31, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Inventory write offs | $ | 13,469 | $ | 10,585 | ||||
Restructuring reserves | 6,810 | 8,610 | ||||||
Warranty reserves | 1,483 | 1,763 | ||||||
Bad debt reserves | 763 | 1,007 | ||||||
Net operating loss carry forwards | 151,821 | 147,370 | ||||||
Tax credits | 12,096 | 12,650 | ||||||
Impairment of investments | 1,128 | 8,404 | ||||||
Depreciation reserves | 426 | (300 | ) | |||||
Other | 11,166 | 5,137 | ||||||
199,162 | 195,226 | |||||||
Less: Valuation allowance | (199,162 | ) | (195,226 | ) | ||||
Net deferred tax asset | $ | — | $ | — | ||||
F-57
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F-58
Table of Contents
2006 | 2005 | 2004 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Shares | Exercise Price | Shares | Exercise Price | Shares | Exercise Price | |||||||||||||||||||
(shares in thousands) | ||||||||||||||||||||||||
Options outstanding at beginning of year | 11,819 | $ | 6.01 | 13,175 | $ | 5.85 | 12,258 | $ | 8.57 | |||||||||||||||
Granted | 1,473 | 2.04 | 192 | 2.43 | 4,581 | 4.60 | ||||||||||||||||||
Exercised | (823 | ) | 2.32 | (122 | ) | 2.06 | (189 | ) | 2.18 | |||||||||||||||
Expired or canceled | (1,111 | ) | 6.28 | (1,426 | ) | 4.40 | (3,475 | ) | 14.02 | |||||||||||||||
Options outstanding at end of year | 11,358 | $ | 5.74 | 11,819 | $ | 6.01 | 13,175 | $ | 5.85 | |||||||||||||||
Exercisable at end of year | 9,243 | 6,955 | 4,488 | |||||||||||||||||||||
Weighted average fair value of options granted | $ | 2.04 | $ | 1.53 | $ | 3.05 |
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | ||||||||||||||||||||
Average | ||||||||||||||||||||
Remaining | Weighted | Weighted | ||||||||||||||||||
Actual Range of | Number | Contractual Life | Average | Number | Average | |||||||||||||||
Exercise Prices | Outstanding | (years) | Exercise Price | Exercisable | Exercise Price | |||||||||||||||
(shares in thousands) | ||||||||||||||||||||
$0.23–1.72 | 1,117 | 6.07 | $ | 1.70 | 1,103 | $ | 1.71 | |||||||||||||
1.74 – 2.01 | 1,343 | 3.51 | 1.99 | 1,123 | 2.01 | |||||||||||||||
2.02 – 2.05 | 1,860 | 3.71 | 2.05 | �� | 1,479 | 2.05 | ||||||||||||||
2.11 – 4.38 | 2,976 | 4.80 | 4.13 | 1,579 | 4.07 | |||||||||||||||
4.51 – 5.36 | 1,149 | 2.88 | 5.20 | 1,046 | 5.22 | |||||||||||||||
5.38 – 7.25 | 1,485 | 4.35 | 6.44 | 1,485 | 6.44 | |||||||||||||||
9.00 – 21.69 | 810 | 2.06 | 12.79 | 809 | 12.79 | |||||||||||||||
30.06 – 37.00 | 618 | 4.11 | 30.15 | 618 | 30.15 | |||||||||||||||
$0.23–37.00 | 11,358 | 4.11 | $ | 5.74 | 9,243 | $ | 6.23 | |||||||||||||
F- 59
Table of Contents
Years ending | ||||
March 31, | ||||
(shares) | ||||
2000 | 93,189 | |||
2001 | 111,441 | |||
2002 | 318,227 | |||
2003 | 409,044 | |||
2004 | 343,222 | |||
2005 | 364,883 | |||
2006 | 293,627 | |||
1,933,633 | ||||
Three Months Ending, | ||||||||||||||||||||
(In thousands, except per share) | ||||||||||||||||||||
March 31, | December 31, | September 30, | June 30 | |||||||||||||||||
2006 | 2005 | 2005 | 2005 | Total | ||||||||||||||||
Number of shares vested | 35,293 | 178,435 | 543,945 | 133,838 | 891,511 | |||||||||||||||
Price per share at date of grant | $ | 1.70 | $ | 1.70 | $ | 1.70 | $ | 1.70 | $ | 1.70 | ||||||||||
Compensation expense | $ | 59 | $ | 303 | $ | 925 | $ | 228 | $ | 1,515 |
F- 60
Table of Contents
Years ended March 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Products | ||||||||||||
Revenues | $ | 198,188 | $ | 151,616 | $ | 129,093 | ||||||
Operating loss | (3,692 | ) | (47,064 | ) | (39,987 | ) | ||||||
Services and other | ||||||||||||
Revenues | 32,704 | 28,686 | 28,255 | |||||||||
Operating income | 6,014 | 3,343 | 5,442 | |||||||||
Total | ||||||||||||
Revenues | $ | 230,892 | $ | 180,302 | $ | 157,348 | ||||||
Operating income (loss) | 2,322 | (43,721 | ) | (34,545 | ) |
F- 61
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(in thousands) | ||||||||||||
Eclipse | $ | 134,479 | $ | 39,599 | $ | 3,348 | ||||||
XP4 | 19,417 | 64,125 | 57,497 | |||||||||
DXR | 14,777 | 16,120 | 23,917 | |||||||||
Altium | 19,730 | 23,985 | 39,613 | |||||||||
Other products | 9,785 | 7,787 | 4,718 | |||||||||
Total Products | $ | 198,188 | $ | 151,616 | $ | 129,093 | ||||||
Total Services and other | 32,704 | 28,686 | 28,255 | |||||||||
Total Revenue | $ | 230,892 | $ | 180,302 | $ | 157,348 | ||||||
Years ended March 31, | ||||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
2006 | Total | 2005 | Total | 2004 | Total | |||||||||||||||||||
United States | $ | 11,235 | 5 | % | $ | 11,446 | 6 | % | $ | 6,294 | 4 | % | ||||||||||||
Other Americas | 23,676 | 10 | % | 23,839 | 13 | % | 18,890 | 12 | % | |||||||||||||||
Russia | 15,684 | 7 | % | 35,456 | 20 | % | 14,689 | 9 | % | |||||||||||||||
Poland | 25,905 | 11 | % | 10,811 | 6 | % | 5,896 | 4 | % | |||||||||||||||
Other Europe | 32,766 | 14 | % | 22,144 | 12 | % | 30,269 | 19 | % | |||||||||||||||
Middle East | 26,498 | 12 | % | 17,520 | 10 | % | 16,416 | 11 | % | |||||||||||||||
Nigeria | 19,090 | 8 | % | 10,081 | 6 | % | 25,705 | 16 | % | |||||||||||||||
Other Africa | 18,034 | 8 | % | 16,963 | 9 | % | 9,824 | 6 | % | |||||||||||||||
Bangladesh | 22,301 | 10 | % | 1,637 | 1 | % | — | — | ||||||||||||||||
Other Asia/Pacific | 35,703 | 15 | % | 30,405 | 17 | % | 29,365 | 19 | % | |||||||||||||||
Total Revenues | $ | 230,892 | 100 | % | $ | 180,302 | 100 | % | $ | 157,348 | 100 | % |
2006 | 2005 | |||||||
(in thousands) | ||||||||
United States | $ | 3,698 | $ | 4,774 | ||||
United Kingdom | 14,193 | 15,778 | ||||||
New Zealand | 3,648 | 4,630 | ||||||
Other foreign countries | 2,510 | 3,046 | ||||||
Net property and equipment | $ | 24,049 | $ | 28,228 | ||||
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San Jose, California
June 14, 2006
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Balance at | Charged to | Deductions/ | Balance at | |||||||||||||
Description of Year | Beginning of Year | Costs and Expenses | Write-off | End of Year | ||||||||||||
(In thousands) | ||||||||||||||||
Year Ended March 31, 2006 | $ | 2,769 | $ | 548 | $ | (1,177 | ) | $ | 2,140 | |||||||
Year Ended March 31, 2005 | $ | 2,373 | $ | 1,067 | $ | (671 | ) | $ | 2,769 | |||||||
Year Ended March 31, 2004 | $ | 6,395 | $ | 33 | $ | (4,055 | ) | $ | 2,373 |
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CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
(Unaudited)
September 30, 2006 | March 31, 2006 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 32,167 | $ | 44,414 | ||||
Restricted cash | 2,608 | — | ||||||
Short-term investments | 20,940 | 13,272 | ||||||
Accounts receivable, net of allowance of $1,818 on September 30, 2006 and $2,140 on March 31, 2006 | 51,369 | 42,003 | ||||||
Inventories | 38,980 | 43,867 | ||||||
Other current assets | 13,821 | 12,620 | ||||||
Total current assets | 159,885 | 156,176 | ||||||
Property and equipment, net | 23,479 | 24,049 | ||||||
Other assets | 790 | 605 | ||||||
Total assets | $ | 184,154 | $ | 180,830 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 40,330 | $ | 38,725 | ||||
Short-term debt | 11,250 | 11,250 | ||||||
Accrued liabilities | 29,692 | 31,136 | ||||||
Total current liabilities | 81,272 | 81,111 | ||||||
Long-term debt (Note 3) | 16,667 | 22,291 | ||||||
Restructuring and other long-term liabilities | 13,225 | 15,085 | ||||||
Total liabilities | 111,164 | 118,487 | ||||||
Commitments and contingencies (Note 5) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $.01 par value; 5,000 shares authorized; none outstanding | — | — | ||||||
Common stock, $.01 par value; 150,000 shares authorized; 98,049 and 96,931 issued and outstanding at September 30, 2006 and March 31, 2006, respectively | 974 | 969 | ||||||
Additional paid-in-capital | 496,462 | 489,370 | ||||||
Accumulated deficit | (412,648 | ) | (416,022 | ) | ||||
Accumulated other comprehensive loss | (11,798 | ) | (11,974 | ) | ||||
Total stockholders’ equity | 72,990 | 62,343 | ||||||
Total liabilities and stockholders’ equity | $ | 184,154 | $ | 180,830 | ||||
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Six Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Net sales: | ||||||||
Product | $ | 116,918 | $ | 95,629 | ||||
Service | 16,598 | 15,797 | ||||||
Total Net Sales | 133,516 | 111,426 | ||||||
Cost of sales | ||||||||
Product | 79,143 | 70,202 | ||||||
Service | 13,734 | 13,455 | ||||||
Total Cost of Sales | 92,877 | 83,657 | ||||||
Gross profit | 40,639 | 27,769 | ||||||
Operating Expenses | ||||||||
Research and development | 8,883 | 7,404 | ||||||
Selling, general and administrative | 27,600 | 24,176 | ||||||
Total operating expenses | 36,483 | 31,580 | ||||||
Operating income (loss) | 4,156 | (3,811 | ) | |||||
Other income (expense): | ||||||||
Interest income | 1,350 | 481 | ||||||
Interest expense | (1,179 | ) | (1,257 | ) | ||||
Other expense, net | (695 | ) | (1,067 | ) | ||||
Total other expense | (524 | ) | (1,843 | ) | ||||
Income (loss) before provision for income taxes | 3,632 | (5,654 | ) | |||||
Provision for income taxes | 257 | 773 | ||||||
Net income (loss) | $ | 3,375 | $ | (6,427 | ) | |||
Basic income (loss) per share | $ | 0.03 | $ | (0.07 | ) | |||
Diluted income (loss) per share | 0.03 | (0.07 | ) | |||||
Basic weighted average shares outstanding | 97,405 | 95,059 | ||||||
Diluted weighted average shares outstanding | 100,537 | 95,059 | ||||||
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 3,375 | $ | (6,427 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Non-cash stock compensation charges | 5,572 | 1,152 | ||||||
Depreciation and amortization | 3,300 | 3,326 | ||||||
Changes in assets and liabilities | ||||||||
Restricted Cash | (2,608 | ) | — | |||||
Accounts receivable | (9,324 | ) | 2,320 | |||||
Inventories | 5,103 | 2,413 | ||||||
Other assets | (1,795 | ) | (1,070 | ) | ||||
Accounts payable | 1,588 | (890 | ) | |||||
Accrued liabilities | (1,393 | ) | 3,997 | |||||
Long term liabilities | (1,860 | ) | (1,727 | ) | ||||
Net cash provided by operating activities | 1,958 | 3,094 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of short-term investments | (67,062 | ) | (46,189 | ) | ||||
Proceeds from sale of short -term investments | 59,415 | 51,356 | ||||||
Purchase of property and equipment | (2,668 | ) | (1,699 | ) | ||||
Net cash provided by (used in) investing activities | (10,315 | ) | 3,468 | |||||
Cash flows from financing activities: | ||||||||
Repayment of bank borrowings | (5,625 | ) | (3,125 | ) | ||||
Proceeds from sales of common stock | 1,525 | 297 | ||||||
Net cash used in financing activities | (4,100 | ) | (2,828 | ) | ||||
Effect of exchange rate changes on cash | 210 | (800 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (12,247 | ) | 2,934 | |||||
Cash and cash equivalents at beginning of period | 44,414 | 32,860 | ||||||
Cash and cash equivalents at end of period | $ | 32,167 | $ | 35,794 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Interest paid | $ | 535 | $ | 599 | ||||
Income taxes paid | $ | 537 | $ | 494 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2006 | March 31, 2006 | |||||||
Raw materials | $ | 7,925 | $ | 9,012 | ||||
Finished goods | 31,055 | 34,855 | ||||||
$ | 38,980 | $ | 43,867 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2006 | March 31, 2006 | |||||||
Receivable from suppliers | $ | 2,012 | $ | 3,074 | ||||
Non-trade receivables | 855 | 947 | ||||||
Prepaid expenses | 2,755 | 2,987 | ||||||
Deferred costs | 2,304 | 1,178 | ||||||
Prepaid insurance | 1,056 | 395 | ||||||
Income tax and VAT refund | 4,627 | 3,795 | ||||||
Other | 212 | 244 | ||||||
$ | 13,821 | $ | 12,620 | |||||
September 30, 2006 | March 31, 2006 | |||||||
Customer deposits | $ | 1,800 | $ | 2,103 | ||||
Accrued payroll and benefits | 2,931 | 2,628 | ||||||
Accrued commissions | 4,560 | 4,660 | ||||||
Accrued warranty | 3,710 | 4,395 | ||||||
Accrued restructuring | 3,713 | 3,373 | ||||||
Customer discounts | 4,422 | 4,359 | ||||||
Deferred revenue | 2,039 | 3,193 | ||||||
Other | 6,517 | 6,425 | ||||||
$ | 29,692 | $ | 31,136 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended | Six Months Ended | |||||||
September 30, 2006 | September 30, 2005 | |||||||
Gains/ (Losses) | Gains/ (Losses) | |||||||
Beginning balance on April 1 | $ | (107 | ) | 90 | ||||
Net changes | (345 | ) | (1,082 | ) | ||||
Reclassifications to revenue | 425 | 782 | ||||||
Reclassifications to cost of sales | — | 2 | ||||||
Ending balance on September 30 | $ | (27 | ) | (208 | ) | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2006 | March 31, 2006 | |||||||
Number of significant customers | 2 | 2 | ||||||
Percentage of accounts receivable | 18%, 18% | 12%, 10% |
Six Months | Six Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2006 | 2005 | |||||||
Number of significant customers | 1 | 2 | ||||||
Percentage of net sales | 13 | % | 11%,10 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended September 30, | ||||||||
2006 | 2005 | |||||||
Weighted-average common shares for basic net income per share | 97,405 | 95,059 | ||||||
Weighted-average dilutive stock options outstanding under the treasury stock method | 3,132 | — | ||||||
Total | 100,537 | 95,059 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Net income (loss) | $ | 3,375 | $ | (6,427 | ) | |||
Other comprehensive income (loss): | ||||||||
Unrealized currency translation gain/ (loss) | 155 | 29 | ||||||
Unrealized holding gain (loss) on investments | 21 | 19 | ||||||
Comprehensive income (loss) | $ | 3,551 | $ | (6,379 | ) | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Years ending March 31, | ||||
(in thousands) | ||||
2007 | $ | 5,625 | ||
2008 | 11,250 | |||
2009 | 6,042 | |||
2010 | 5,000 | |||
Total | $ | 27,917 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At September 30, 2006, 10,377,616 shares remained available for grant under all of the Company’s stock option plans.
Weighted | ||||||||||||||||
Weighted | Average | Aggregate | ||||||||||||||
Number of | Average | remaining | Intrinsic | |||||||||||||
Shares | Exercise | contractual | Value (in | |||||||||||||
(in thousands) | Price | term in years | thousands) | |||||||||||||
Outstanding at March 31, 2006 | 11,358 | $ | 5.74 | |||||||||||||
Granted | 3,145 | 4.31 | ||||||||||||||
Exercised | (339 | ) | 3.17 | |||||||||||||
Forfeitures and cancellations | (79 | ) | 3.33 | |||||||||||||
Expired | (239 | ) | 9.50 | |||||||||||||
Outstanding at September 30, 2006 | 13,846 | $ | 5.43 | 4.42 | $ | 12,186 | ||||||||||
Vested and expected to vest at September 30, 2006 | 13,434 | $ | 5.47 | 4.35 | $ | 12,186 | ||||||||||
Exercisable at September 30, 2006 | 9,426 | $ | 6.00 | 3.57 | $ | 10,389 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Weighted Average | ||||||||
Grant Date Fair | ||||||||
Number of Shares | Value Per Share | |||||||
Nonvested stock at April 1, 2006 | 637 | $ | 6.15 | |||||
Granted | 130 | 6.08 | ||||||
Vested | (307 | ) | 6.14 | |||||
Nonvested stock at June 30, 2006 | 460 | $ | 6.14 | |||||
Granted | — | — | ||||||
Vested | (269 | ) | 6.02 | |||||
Nonvested stock at September 30, 2006 | 191 | $ | 6.31 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Expected stock volatility | 94.0 | % | 96.9 | % | ||||
Risk-free interest rate | 5.0 | % | 3.9 | % | ||||
Expected life in years(*) | 2.2 | 1.5 |
(*) | From vest date. |
Six Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Expected stock volatility | 71.9 | % | 50.7 | % | ||||
Risk-free interest rate | 5.0 | % | 2.9 | % | ||||
Expected life in years | 0.3 | 0.2 |
Six Months | ||||
Ended September | ||||
30, 2006 | ||||
Total stock-based compensation expense on adoption of FAS123R | $ | 2,103 | ||
Tax effect on stock-based compensation expense | — | |||
Net effect on stock compensation expense | $ | 2,103 | ||
Effect on loss per share: | ||||
Basic | $ | 0.02 | ||
Diluted | $ | 0.02 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months | ||||
Ended September | ||||
30, 2006 | ||||
Cost of sales | $ | 463 | ||
Research and development | 1,359 | |||
Selling, general and administrative | 3,750 | |||
$ | 5,572 | |||
Six months ended | ||||
September 30, | ||||
2005 | ||||
Net loss — as reported | $ | (6,427 | ) | |
Add: Stock-based compensation expense determined under fair value method for all awards, net of related tax effects | (2,522 | ) | ||
Net loss — pro forma | $ | (8,949 | ) | |
Basic and diluted loss per share — as reported | $ | (0.07 | ) | |
Basic and diluted loss per share — pro forma | $ | (0.09 | ) |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months | Six Months | |||||||
Ended | Ended | |||||||
September 30, | September 30 | |||||||
2006 | 2005 | |||||||
Balance at the beginning of period | $ | 4,539 | $ | 5,340 | ||||
Additions related to current period sales | 1,218 | 2,947 | ||||||
Warranty costs incurred in the current period | (2,173 | ) | (2,701 | ) | ||||
Adjustments to accruals related to prior period sales | 126 | (546 | ) | |||||
Balance at the end | $ | 3,710 | $ | 5,040 |
During fiscal 2002 to fiscal 2005, the Company announced several restructuring programs. These restructuring programs included the consolidation of excess facilities and reduction of workforce. Due to these actions, the Company recorded restructuring charges of $19.0 million in fiscal 2003 and $8.6 million in fiscal 2002 for vacated building lease obligations. In fiscal 2004 and fiscal 2005, we recorded $4.6 and $2.3 million of restructuring charges, respectively, for the building lease obligations, related to facilities which were vacated in fiscal 2002 and fiscal 2003, due to changes in estimated sub-lease income.
Severance | Facilities | |||||||||||
and Benefits | and Other | Total | ||||||||||
Balance as of March 31, 2005 | $ | 1.1 | $ | 21.9 | $ | 23.0 | ||||||
Cash payments | (1.2 | ) | (3.6 | ) | (4.8 | ) | ||||||
Reclassification | 0.3 | (0.6 | ) | (0.3 | ) | |||||||
Balance as of March 31, 2006 | $ | 0.2 | $ | 17.7 | $ | 17.9 | ||||||
Cash payments | — | (0.8 | ) | (0.8 | ) | |||||||
Balance as of June 30, 2006 | $ | 0.2 | $ | 16.9 | $ | 17.1 | ||||||
Provision | — | — | — | |||||||||
Cash payments | — | (0.7 | ) | (0.7 | ) | |||||||
Balance as of September 30, 2006 | $ | 0.2 | $ | 16.2 | $ | 16.4 | ||||||
Current portion | $ | 0.2 | $ | 3.5 | $ | 3.7 | ||||||
Long-term portion | $ | — | $ | 12.7 | $ | 12.7 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Products: | ||||||||
Revenues | $ | 116,918 | $ | 95,629 | ||||
Operating income (loss) | 1,292 | (6,153 | ) | |||||
Services: | ||||||||
Revenues | 16,598 | 15,797 | ||||||
Operating income | 2,864 | 2,342 | ||||||
Total: | ||||||||
Revenues | $ | 133,516 | $ | 111,426 | ||||
Operating income (loss) | 4,156 | (3,811 | ) |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended | ||||||||
September 30, | ||||||||
2006 | 2005 | |||||||
Eclipse | $ | 100,121 | $ | 55,547 | ||||
Velox | 3,404 | 3,145 | ||||||
DXR | 3,207 | 11,253 | ||||||
XP4 | 4,992 | 12,705 | ||||||
Other Products | 5,194 | 12,979 | ||||||
Total Products | 116,918 | 95,629 | ||||||
Total Services | 16,598 | 15,797 | ||||||
Total Revenues | $ | 133,516 | $ | 111,426 | ||||
Six Months Ended September 30 | ||||||||||||||||
% of | % of | |||||||||||||||
2006 | Total | 2005 | Total | |||||||||||||
United States | $ | 4,159 | 3 | % | $ | 6,194 | 6 | % | ||||||||
Other Americas | 9,228 | 7 | % | 13,564 | 12 | % | ||||||||||
Poland | 5,677 | 4 | % | 11,800 | 10 | % | ||||||||||
Other Europe | 33,613 | 25 | % | 25,089 | 22 | % | ||||||||||
Middle East | 10,018 | 8 | % | 8,589 | 8 | % | ||||||||||
Thailand | 4,770 | 4 | % | 11,724 | 11 | % | ||||||||||
Bangladesh | 2,896 | 2 | % | 13,258 | 12 | % | ||||||||||
Other Asia/Pacific | 19,238 | 14 | % | 9,178 | 8 | % | ||||||||||
Ghana | 17,335 | 13 | % | 2,994 | 3 | % | ||||||||||
Tanzania | 9,976 | 8 | % | 65 | 0 | % | ||||||||||
Other Africa | 16,606 | 12 | % | 8,971 | 8 | % | ||||||||||
Total Revenues | $ | 133,516 | 100 | % | $ | 111,426 | 100 | % | ||||||||
September 30, 2006 | March 31, 2006 | |||||||
United States | $ | 4,232 | $ | 3,698 | ||||
United Kingdom | 13,634 | 14,193 | ||||||
New Zealand | 3,122 | 3,648 | ||||||
Other foreign countries | 2,491 | 2,510 | ||||||
Total property and equipment, net | $ | 23,479 | $ | 24,049 | ||||
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SEC registration fee | $ | 681.00 | ||
Blue Sky fees and expenses | — | |||
Printing and engraving expenses | 20,000 | |||
Legal fees and expenses | 25,000 | |||
Accounting fees and expenses | 60,000 | |||
Miscellaneous expenses | 1,000 | |||
Total | $ | 106,681.00 | ||
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Table of Contents
Exhibit | ||
Number | Description | |
2.1 | Amended and Restated Formation, Contribution and Merger Agreement, dated as of December 18, 2006, among Harris Corporation, Stratex Networks, Inc., Harris Stratex Networks, Inc. and Stratex Merger Corp.* (incorporated by reference to Appendix A to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
3.1 | Amended and Restated Certificate of Incorporation of Harris Stratex Networks, Inc. (incorporated by reference to Appendix C to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
3.2 | Amended and Restated Bylaws of Harris Stratex Networks, Inc. (incorporated by reference to Appendix D to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
4.1 | Form of Common Stock Warrant Agreement, including form of Common Stock Warrant Certificate (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Stratex Networks, Inc. filed with the Securities and Exchange Commission on September 24, 2004) | |
5.1 | Opinion of Bingham McCutchen LLP regarding the legality of securities being registered |
II-2
Table of Contents
Exhibit | ||
Number | Description | |
10.1 | Form of Investor Agreement (incorporated by reference to Appendix E to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
10.2 | Form of Non-Competition Agreement (incorporated by reference to Appendix F to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
10.3 | Form of Registration Rights Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 7 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.4 | Form of Intellectual Property Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 8 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.5 | Form of Trademark and Trade Name License Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 9 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.6 | Form of Lease Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 10 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.7 | Form of Transition Services Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 11 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.8 | Form of Warrant Assumption Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 12 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.9 | Form of NetBoss Service Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 14 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.10 | Form of Lease Agreement between Harris Stratex Networks Canada ULC and Harris Canada, Inc. (incorporated by reference to Exhibit 10.24 to Amendment No. 2 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on December 18, 2006, File No. 333-137980) | |
10.11 | Form of Tax Sharing Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 10.25 to Amendment No. 3 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
10.12 | Harris Stratex Networks, Inc. 2007 Stock Equity Plan (incorporated by reference to Exhibit 10.26 to Amendment No. 3 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
21.1 | List of Subsidiaries of Harris Stratex Networks, Inc. (incorporated by reference to Exhibit 21.1 to Amendment No. 1 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on November 24, 2006, File No. 333-137980) | |
23.1 | Consent of Ernst & Young LLP, independent registered public accounting firm for the Microwave Communications Division of Harris Corporation | |
23.2 | Consent of Deloitte & Touche LLP, independent registered public accounting firm for Stratex Networks, Inc. | |
23.3 | Consent of Bingham McCutchen LLP (included in Exhibit 5.1) | |
24.1 | Power of Attorney (included on signature page to Registration Statement) | |
99.1 | Consent of Charles D. Kissner | |
99.2 | Consent of Eric C. Evans | |
99.3 | Consent of William A. Hasler | |
99.4 | Consent of Clifford H. Higgerson | |
99.5 | Consent of Dr. Mohsen Sohi |
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Exhibit | ||
Number | Description | |
99.6 | Consent of Dr. James C. Stoffel | |
99.7 | Consent of Edward F. Thompson |
* | Registrant hereby agrees to furnish supplementally a copy of the omitted schedules, disclosure letters and exhibits to the Securities and Exchange Commission upon its request. |
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HARRIS STRATEX NETWORKS, INC. | ||||
By: | /s/ Guy M. Campbell | |||
Name: | Guy M. Campbell | |||
Title: | Chief Executive Officer | |||
Signature | Title | Date | ||
/s/ Guy M. Campbell | Chief Executive Officer; Director (Principal | January 24, 2007 | ||
Guy M. Campbell | Executive Officer) | |||
/s/ Sarah A. Dudash | Chief Financial Officer | |||
Sarah A. Dudash | (Principal Financial and Accounting Officer) | January 24, 2007 | ||
/s/ Howard L. Lance | ||||
Howard L. Lance | Director | January 24, 2007 |
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Exhibit | ||
Number | Description | |
2.1 | Amended and Restated Formation, Contribution and Merger Agreement, dated as of December 18, 2006, among Harris Corporation, Stratex Networks, Inc., Harris Stratex Networks, Inc. and Stratex Merger Corp.* (incorporated by reference to Appendix A to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
3.1 | Amended and Restated Certificate of Incorporation of Harris Stratex Networks, Inc. (incorporated by reference to Appendix C to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
3.2 | Amended and Restated Bylaws of Harris Stratex Networks, Inc. (incorporated by reference to Appendix D to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
4.1 | Form of Common Stock Warrant Agreement, including form of Common Stock Warrant Certificate (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Stratex Networks, Inc. filed with the Securities and Exchange Commission on September 24, 2004) | |
5.1 | Opinion of Bingham McCutchen LLP regarding the legality of securities being registered | |
10.1 | Form of Investor Agreement (incorporated by reference to Appendix E to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
10.2 | Form of Non-Competition Agreement (incorporated by reference to Appendix F to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
10.3 | Form of Registration Rights Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 7 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.4 | Form of Intellectual Property Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 8 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.5 | Form of Trademark and Trade Name License Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 9 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.6 | Form of Lease Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 10 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.7 | Form of Transition Services Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 11 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.8 | Form of Warrant Assumption Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 12 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.9 | Form of NetBoss Service Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 14 to Exhibit 2.1 to the Current Report on Form 8-K of Harris Corporation filed with the Securities and Exchange Commission on September 8, 2006, File No. 001-03863) | |
10.10 | Form of Lease Agreement between Harris Stratex Networks Canada ULC and Harris Canada, Inc. (incorporated by reference to Exhibit 10.24 to Amendment No. 2 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on December 18, 2006, File No. 333-137980) | |
10.11 | Form of Tax Sharing Agreement between Harris Stratex Networks, Inc. and Harris Corporation (incorporated by reference to Exhibit 10.25 to Amendment No. 3 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
10.12 | Harris Stratex Networks, Inc. 2007 Stock Equity Plan (incorporated by reference to Exhibit 10.26 to Amendment No. 3 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on January 3, 2007, File No. 333-137980) | |
21.1 | List of Subsidiaries of Harris Stratex Networks, Inc. (incorporated by reference to Exhibit 21.1 to Amendment No. 1 to the Registration Statement on Form S-4 of Harris Stratex Networks, Inc. filed with the Securities and Exchange Commission on November 24, 2006, File No. 333-137980) | |
23.1 | Consent of Ernst & Young LLP, independent registered public accounting firm for the Microwave Communications Division of Harris Corporation | |
23.2 | Consent of Deloitte & Touche LLP, independent registered public accounting firm for Stratex Networks, Inc. | |
23.3 | Consent of Bingham McCutchen LLP (included in Exhibit 5.1) | |
24.1 | Power of Attorney (included on signature page to Registration Statement) | |
99.1 | Consent of Charles D. Kissner | |
99.2 | Consent of Eric C. Evans | |
99.3 | Consent of William A. Hasler | |
99.4 | Consent of Clifford H. Higgerson | |
99.5 | Consent of Dr. Mohsen Sohi | |
99.6 | Consent of Dr. James C. Stoffel | |
99.7 | Consent of Edward F. Thompson |