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1. BASIS OF PRESENTATION
The accompanying unaudited financial statements, consisting of the condensed consolidated balance sheets as of June 30, 2014, the condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013, the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2014 and 2013, and the condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013, have been prepared in accordance with accounting principles generally accepted in the United States of America in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. In addition, the condensed consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements as of that date. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K of Polycom, Inc. and its subsidiaries (the “Company”). In the opinion of management, the accompanying unaudited financial statements have been prepared on a basis consistent with the Company’s December 31, 2013 audited financial statements and all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates and operating results for the three and six months ended June 30, 2014 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
Revision of Prior Period Financial Statements
During the three months ended December 31, 2013, the Company discovered an error that impacted the Company’s previously issued interim and annual consolidated statements of cash flows. The error was related to the net amortization of discounts and premiums on investments not being properly reported, which resulted in understated cash flows provided by operating activities and understated or overstated cash provided by or used in investing activities in the first three quarters of 2013 and full fiscal years 2012 and 2011.
In evaluating whether the Company’s previously issued condensed consolidated statements of cash flows were materially misstated, the Company considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1, Assessing Materiality, and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. The Company concluded that this error was not material to any of the prior reporting periods, and therefore, amendments of previously filed reports were not required. However, the consolidated statements of cash flow correction would impact comparisons to prior periods. As such, the revision for the correction is reflected in the financial information of the applicable prior periods and will be reflected in future filings containing such financial information.
The following table sets forth a summary of the revision to the condensed consolidated statement of cash flows for the following period (in thousands):
|
Six Months Ended June 30, 2013 |
|
|||||||||
|
As Previously Reported |
|
|
Adjustment |
|
|
As Revised |
|
|||
Condensed Consolidated Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of discounts and premiums on investments, net |
$ |
— |
|
|
$ |
794 |
|
|
$ |
794 |
|
Net cash provided by operating activities |
$ |
81,264 |
|
|
$ |
794 |
|
|
$ |
82,058 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
$ |
(136,196 |
) |
|
$ |
(794 |
) |
|
$ |
(136,990 |
) |
Net cash used in investing activities |
$ |
(17,987 |
) |
|
$ |
(794 |
) |
|
$ |
(18,781 |
) |
|
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update which provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The guidance is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company has not yet selected a transition method nor has it determined the impact of adoption on its consolidated financial statements.
In July 2013, the FASB issued an accounting standard update which clarifies that an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance is effective prospectively for reporting periods beginning after December 15, 2013. The Company adopted the guidance in the three months ended March 31, 2014, and such adoption did not have a material impact on the Company’s condensed consolidated financial statements.
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3. DISCONTINUED OPERATIONS
On December 4, 2012, the Company completed the disposition of the net assets of its enterprise wireless voice solutions (“EWS”) business to Mobile Devices Holdings, LLC, a Delaware limited liability corporation. The Company received cash consideration of approximately $50.7 million, resulting in a gain on sale of the discontinued operations, net of taxes, of $35.4 million, as reflected in its consolidated financial statements for the year ended December 31, 2012. In the six months ended June 30, 2013, the Company recorded an additional gain on sale of discontinued operations, net of taxes, of approximately $0.5 million as a result of the final net working capital adjustment in accordance with the purchase agreement. Additional cash consideration of up to $37.5 million is payable to Polycom over the next three years subject to certain conditions, including meeting certain agreed-upon EBITDA-based milestones for the fiscal years ending December 31, 2014, 2015 and 2016. These conditions were not met for the fiscal year ended December 31, 2013. Such additional cash consideration will be accounted for as a gain on sale of discontinued operations, net of taxes, when it is realized or realizable. For the six months ended June 30, 2014, there was no realized gain on sale of discontinued operations.
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4. BUSINESS COMBINATIONS
On March 1, 2013 the Company completed its acquisition of certain assets of Sentri, Inc. (“Sentri”), a privately-held services company with expertise in Microsoft technologies, for approximately $8.0 million in cash, net of approximately $0.4 million cash released from an escrow account in September 2013, as a result of a net working capital adjustment. The total purchase price was allocated to the net tangible and intangible assets based upon their fair values at March 1, 2013, with the excess amount recorded as goodwill. The goodwill is primarily attributable to the expertise of former Sentri employees in Microsoft technologies and expected synergies from the combined company. The Company has included the financial results of Sentri in its condensed consolidated financial statements from the date of acquisition. Pro forma and actual results of operations of the acquisition were not material to the Company’s condensed consolidated financial statements.
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5. ACCOUNTS RECEIVABLE FINANCING
In 2012, the Company launched a customer financing program and entered into a financing agreement (the “Financing Agreement”) with an unrelated third party financing company. The program offers distributors and resellers direct or indirect financing on their purchases of the Company’s products and services. In return, the Company agrees to pay the financing company a fee based on a pre-defined percentage of the transaction amount financed. In certain instances, these financing arrangements result in a transfer of our receivables, without recourse, to the financing company. If the transaction meets the applicable criteria under ASC 860 and is accounted for as a sale of financial assets, the accounts receivable are excluded from the balance sheet upon the third party financing company’s payment remittance to the Company. In certain legal jurisdictions, the arrangement fees that involve maintenance services or products bundled with maintenance at one price do not qualify as a sale of financial assets in accordance with the authoritative guidance. Accordingly, accounts receivable related to these arrangements are accounted for as a secured borrowing in accordance with ASC 860, and the Company records a liability for any cash received, while maintaining the associated accounts receivable balance until the distributor or reseller remits payment to the third-party financing company.
In the three months ended June 30, 2014, total transactions entered pursuant to the terms of the Financing Agreement were approximately $51.7 million, of which $37.5 million was related to the transfer of the financial assets arrangement. In the three months ended June 30, 2013, total transactions entered were approximately $25.7 million, of which $23.0 million was related to the transfer of the financial assets arrangement. In the six months ended June 30, 2014, total transactions entered pursuant to the terms of the Financing Agreement were approximately $83.7 million, of which $68.6 million was related to the transfer of the financial assets arrangement. In the six months ended June 30, 2013, total transactions entered were approximately $50.6 million, of which $45.2 million was related to the transfer of the financial assets arrangement. The financing of these receivables accelerated the collection of the Company’s cash and reduced its credit exposure. The amount due from the financing company as of June 30, 2014 and December 31, 2013 was approximately $29.0 million and $22.9 million, respectively, of which $23.0 million and $21.6 million, respectively, was related to the accounts receivable transferred, and is included in “Trade receivables” in the Company’s condensed consolidated balance sheets. Fees incurred pursuant to the Financing Agreement were approximately $0.6 million and $0.4 million for the three months ended June 30, 2014 and 2013, respectively, and were approximately $1.1 million and $0.7 million for the six months ended June 30, 2014 and 2013, respectively. Those fees were recorded as reductions to revenues.
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6. GOODWILL, PURCHASED INTANGIBLES, AND SOFTWARE DEVELOPMENT COSTS
Goodwill
The following table presents the changes to the Company’s goodwill by segment during the six months ended June 30, 2014 (in thousands):
|
Americas |
|
|
EMEA |
|
|
APAC |
|
|
Total |
|
||||
Balance at December 31, 2013 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
149,419 |
|
|
$ |
559,460 |
|
Foreign currency translation |
|
— |
|
|
|
— |
|
|
|
(214 |
) |
|
|
(214 |
) |
Balance at June 30, 2014 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
149,205 |
|
|
$ |
559,246 |
|
Purchased Intangible Assets and Software Development Costs
The following table presents details of the Company’s total purchased intangible assets and capitalized software development costs for products to be sold as of the following periods (in thousands):
|
June 30, 2014 |
|
|
December 31, 2013 |
|
||||||||||||||||||
|
Gross Value |
|
|
Accumulated Amortization & Impairment |
|
|
Net Value |
|
|
Gross Value |
|
|
Accumulated Amortization & Impairment |
|
|
Net Value |
|
||||||
Core and developed technology |
$ |
81,178 |
|
|
$ |
(78,525 |
) |
|
$ |
2,653 |
|
|
$ |
81,178 |
|
|
$ |
(76,952 |
) |
|
$ |
4,226 |
|
Customer and partner relationships |
|
79,525 |
|
|
|
(53,498 |
) |
|
|
26,027 |
|
|
|
79,525 |
|
|
|
(48,941 |
) |
|
|
30,584 |
|
Non-compete agreements |
|
1,800 |
|
|
|
(800 |
) |
|
|
1,000 |
|
|
|
1,800 |
|
|
|
(500 |
) |
|
|
1,300 |
|
Trade name |
|
3,400 |
|
|
|
(3,159 |
) |
|
|
241 |
|
|
|
3,400 |
|
|
|
(3,089 |
) |
|
|
311 |
|
Other |
|
4,462 |
|
|
|
(4,381 |
) |
|
|
81 |
|
|
|
4,462 |
|
|
|
(4,343 |
) |
|
|
119 |
|
Finite-lived intangible assets |
|
170,365 |
|
|
|
(140,363 |
) |
|
|
30,002 |
|
|
|
170,365 |
|
|
|
(133,825 |
) |
|
|
36,540 |
|
Indefinite-lived trade name |
|
918 |
|
|
|
— |
|
|
|
918 |
|
|
|
918 |
|
|
|
— |
|
|
|
918 |
|
Total acquired intangible assets |
$ |
171,283 |
|
|
$ |
(140,363 |
) |
|
$ |
30,920 |
|
|
$ |
171,283 |
|
|
$ |
(133,825 |
) |
|
$ |
37,458 |
|
Capitalized software development costs for products to be sold |
$ |
4,923 |
|
|
$ |
(898 |
) |
|
$ |
4,025 |
|
|
$ |
2,365 |
|
|
$ |
(196 |
) |
|
$ |
2,169 |
|
Purchased intangibles include a purchased trade name of $0.9 million with an indefinite life as the Company expects to generate cash flows related to this asset indefinitely. Consequently, this trade name is not amortized but is reviewed for impairment annually or sooner when indicators of potential impairment exist.
The following table summarizes the amortization expenses recorded in the following periods (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Amortization of purchased intangibles in revenues |
$ |
19 |
|
|
$ |
18 |
|
|
$ |
38 |
|
|
$ |
38 |
|
Amortization of purchased intangibles in cost of product revenues |
|
731 |
|
|
|
1,248 |
|
|
|
1,572 |
|
|
|
2,496 |
|
Amortization of purchased intangibles in operating expenses |
|
2,436 |
|
|
|
2,545 |
|
|
|
4,928 |
|
|
|
5,047 |
|
Total amortization expenses of purchased intangibles |
$ |
3,186 |
|
|
$ |
3,811 |
|
|
$ |
6,538 |
|
|
$ |
7,581 |
|
Amortization of purchased intangibles is not allocated to the Company’s segments.
The estimated future amortization expense as of June 30, 2014 is as follows (in thousands):
Year ending December 31, |
|
Amount |
|
|
Remainder of 2014 |
|
$ |
6,353 |
|
2015 |
|
|
10,495 |
|
2016 |
|
|
8,484 |
|
2017 |
|
|
4,670 |
|
2018 |
|
|
— |
|
Total |
|
$ |
30,002 |
|
In the six months ended June 30, 2014, the Company capitalized approximately $2.6 million of software development costs for internally developed software products to be marketed and sold to customers after the point that technological feasibility has been reached and before the products are available for general release. There were no such costs capitalized in the six months ended June 30, 2013 as the development costs qualifying for capitalization were insignificant. The capitalized costs are being amortized over the estimated product useful life, generally three years, beginning when the products are available for general release. Management expects that the capitalized software development costs are recoverable from future gross profits generated by these products and services.
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7. RESTRUCTURING COSTS
The Company recorded restructuring costs of $9.2 million and $4.3 million during the three months ended June 30, 2014 and 2013, respectively, and $39.5 million and $9.8 million during the six months ended June 30, 2014 and 2013, respectively. Pursuant to the announcement in January 2014, management completed certain actions designed to better align expenses to the Company’s revenue and gross margin profile and position the Company for improved operating performance. These actions included the elimination of approximately six percent of the global workforce and reduction or elimination of certain leased facilities. The Company has recorded approximately $35.7 million in restructuring costs as of June 30, 2014 in connection with these actions announced in January 2014 and does not expect any remaining charges to be material.
The following table summarizes the changes in the Company’s restructuring reserves during the six months ended June 30, 2014 (in thousands):
|
Severance/Other |
|
|
Facilities |
|
|
Total |
|
|||
Balance at December 31, 2013 |
$ |
1,143 |
|
|
$ |
33,786 |
|
|
$ |
34,929 |
|
Additions to the reserve |
|
11,454 |
|
|
|
28,064 |
|
|
|
39,518 |
|
Non-cash write-offs |
|
— |
|
|
|
(2,515 |
) |
|
|
(2,515 |
) |
Cash payments and other usage |
|
(9,687 |
) |
|
|
(11,385 |
) |
|
|
(21,072 |
) |
Balance at June 30, 2014 |
$ |
2,910 |
|
|
$ |
47,950 |
|
|
$ |
50,860 |
|
As of June 30, 2014, the restructuring reserve is primarily comprised of facilities-related liabilities. The Company calculated the fair value of its facilities-related liabilities based on the discounted future lease payments less sublease assumptions. This fair value measurement is classified as a Level 3 measurement under ASC 820. The key assumptions used in the valuation model include discount rates, cash flow projections, and estimated sublease income. These assumptions involve significant judgment, are based on management’s estimate of current and forecasted market conditions and are sensitive and susceptible to change.
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8. BALANCE SHEET DETAILS
Trade receivables, net consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Gross accounts receivables |
$ |
221,123 |
|
|
$ |
225,134 |
|
Returns and related reserves |
|
(40,651 |
) |
|
|
(38,938 |
) |
Allowance for doubtful accounts |
|
(3,398 |
) |
|
|
(2,827 |
) |
Total |
$ |
177,074 |
|
|
$ |
183,369 |
|
Inventories consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Raw materials |
$ |
3,654 |
|
|
$ |
2,740 |
|
Work in process |
|
568 |
|
|
|
840 |
|
Finished goods |
|
101,682 |
|
|
|
99,729 |
|
Total |
$ |
105,904 |
|
|
$ |
103,309 |
|
Prepaid expenses and other current assets consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Non-trade receivables |
$ |
6,317 |
|
|
$ |
9,251 |
|
Prepaid expenses |
|
39,831 |
|
|
|
31,164 |
|
Derivative assets |
|
4,788 |
|
|
|
6,748 |
|
Other current assets |
|
4,715 |
|
|
|
3,189 |
|
Total |
$ |
55,651 |
|
|
$ |
50,352 |
|
Deferred revenue consists of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Short-term: |
|
|
|
|
|
|
|
Service |
$ |
172,514 |
|
|
$ |
170,701 |
|
Product |
|
112 |
|
|
|
307 |
|
License |
|
1,626 |
|
|
|
1,400 |
|
Total |
$ |
174,252 |
|
|
$ |
172,408 |
|
Long-term: |
|
|
|
|
|
|
|
Service |
$ |
80,481 |
|
|
$ |
83,092 |
|
Product |
|
9 |
|
|
|
— |
|
License |
|
3,848 |
|
|
|
4,375 |
|
Total |
$ |
84,338 |
|
|
$ |
87,467 |
|
Changes in the deferred service revenue are as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Balance at beginning of period |
$ |
253,044 |
|
|
$ |
246,019 |
|
|
$ |
253,793 |
|
|
$ |
241,773 |
|
Additions to deferred service revenue |
|
84,565 |
|
|
|
92,647 |
|
|
|
170,459 |
|
|
|
180,399 |
|
Amortization of deferred service revenue |
|
(84,614 |
) |
|
|
(86,575 |
) |
|
|
(171,257 |
) |
|
|
(170,081 |
) |
Balance at end of period |
$ |
252,995 |
|
|
$ |
252,091 |
|
|
$ |
252,995 |
|
|
$ |
252,091 |
|
Other accrued liabilities consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Accrued expenses |
$ |
23,333 |
|
|
$ |
22,515 |
|
Accrued co-op expenses |
|
4,262 |
|
|
|
4,629 |
|
Restructuring reserves |
|
19,579 |
|
|
|
11,238 |
|
Warranty obligations |
|
10,350 |
|
|
|
9,475 |
|
Derivative liabilities |
|
5,402 |
|
|
|
6,780 |
|
Employee stock purchase plan withholdings |
|
9,141 |
|
|
|
10,883 |
|
Other accrued liabilities |
|
11,219 |
|
|
|
12,224 |
|
Total |
$ |
83,286 |
|
|
$ |
77,744 |
|
Changes in the warranty obligation are as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Balance at beginning of period |
$ |
10,006 |
|
|
$ |
9,715 |
|
|
$ |
9,475 |
|
|
$ |
10,475 |
|
Accruals for warranties issued during the period |
|
3,966 |
|
|
|
4,493 |
|
|
|
8,131 |
|
|
|
8,112 |
|
Actual charges against warranty reserve during the period |
|
(3,622 |
) |
|
|
(4,522 |
) |
|
|
(7,256 |
) |
|
|
(8,901 |
) |
Balance at end of period |
$ |
10,350 |
|
|
$ |
9,686 |
|
|
$ |
10,350 |
|
|
$ |
9,686 |
|
|
9. COMMITMENTS AND CONTINGENCIES
Litigation and SEC Investigation
From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. The Company expects that the number and significance of these matters will increase as business expands. In particular, the Company expects to face an increasing number of patent and other intellectual property claims as the number of products and competitors in Polycom’s industry grows and the functionality of video, voice, data and web conferencing products overlap. Any claims or proceedings against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require the Company to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to the Company or at all. If management believes that a loss arising from these matters is probable and can be reasonably estimated, the Company will record a reserve for the loss. As additional information becomes available, any potential liability related to these matters is assessed and the estimates revised. Based on currently available information, management does not believe that the ultimate outcomes of these unresolved matters, individually and in the aggregate, are likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, litigation is subject to inherent uncertainties, and the Company’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position and results of operations or liquidity for the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.
Following the July 23, 2013 announcement regarding the departure of the Company’s former CEO, the SEC initiated an investigation, a class action lawsuit was filed, and derivative lawsuits were filed, all as described below.
SEC Investigation. In July 2013, the Company was informed that the SEC was investigating the Audit Committee’s review of Mr. Miller’s expenses and his resignation. The investigation is ongoing, and the SEC has requested information from the Company. The Company is cooperating with the investigation and recently engaged in preliminary discussions to resolve the matter with the SEC.
Class Action Lawsuit. On July 26, 2013, a purported shareholder class action, initially captioned Neal v. Polycom Inc., et al., Case No. 3:13-cv-03476-SC, and presently captioned Nathanson v. Polycom, Inc., et al., Case No. 3:13-cv-03476-SC, was filed in the United States District Court for the Northern District of California against the Company and certain of its current and former officers and directors. On December 13, 2013, the Court appointed a lead plaintiff and approved lead and liaison counsel. On February 24, 2014, the lead plaintiff filed a first amended complaint. The amended complaint alleges that, between January 20, 2011 and July 23, 2013, the Company issued materially false and misleading statements or failed to disclose information regarding the Company’s business, operational and compliance policies, including with respect to its former Chief Executive Officer’s expense submissions and the Company’s internal controls. The lawsuit further alleges that the Company’s financial statements were materially false and misleading. The amended complaint alleges violations of the federal securities laws and seeks unspecified compensatory damages and other relief. The defendants filed motions to dismiss the amended complaint. At this time, we are unable to estimate any range of reasonably possible loss relating to the securities class action.
Derivative Lawsuits. On August 21, 2013 and October 16, 2013, two purported shareholder derivative suits, captioned Saraceni v. Miller, et al., Case No. 5:13-cv-03880, and Donnelly v. Miller, et al., Case No. 5:13-cv-04810, respectively, were filed in the United States District Court for the Northern District of California against certain of the Company’s current and former officers and directors. On October 31, 2013, these two federal derivative actions were consolidated into In re Polycom, Inc. Derivative Litigation, Lead Case No. 3:13-cv-03880. Plaintiffs filed an amended complaint on April 4, 2014. The defendants filed motions to dismiss the amended complaint.
On November 22, 2013 and December 13, 2013, two purported shareholder derivative suits, captioned Ware v. Miller, et al., Case No. 1-13-cv-256608, and Clem v. Miller, et al., Case No. 1-13-cv-257664, respectively, were filed in the Superior Court of California, County of Santa Clara, against certain of the Company’s current and former officers and directors. On January 31, 2014, these two California state derivative actions were consolidated into In re Polycom, Inc. Derivative Shareholder Litigation, Lead Case No. 1-13-cv-256608. The Company has filed a motion to stay the California state derivative litigation pending resolution of both the federal derivative lawsuit and the federal securities class action.
The Federal and California state consolidated derivative lawsuits purport to assert claims on behalf of the Company, which is named as a nominal defendant in the actions. The complaints allege claims for breach of fiduciary duty, unjust enrichment, and corporate waste, and allege certain defendants failed to maintain adequate internal controls and issued, or authorized the issuance of, materially false and misleading statements, including with respect to the Company’s former Chief Executive Officer’s expense submissions and the Company’s internal controls. The complaints further allege that certain defendants approved an unjustified separation agreement and caused the Company to repurchase its own stock at artificially inflated prices. The complaints seek unspecified compensatory damages, corporate governance reforms, and other relief. At this time, we are unable to estimate any range of reasonably possible loss relating to the derivative actions.
Officer and Director Indemnifications
As permitted or required under Delaware law and to the maximum extent allowable under that law, the Company has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited; however, the Company has a director and officer insurance policy that mitigates the Company’s exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification obligations is not material.
Other Indemnifications
As is customary in the Company’s industry, as provided for in local law in the U.S. and other jurisdictions, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of its products. From time to time, the Company indemnifies customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of its products and services. In addition, from time to time, the Company also provides protection to customers against claims related to undiscovered liabilities, additional product liability or environmental obligations.
|
10. DEBT
On September 13, 2013, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, certain of its subsidiaries from time to time party thereto as guarantors, the lenders from time to time party thereto and Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent. The Credit Agreement provides for a $250.0 million term loan (the “Term Loan”) maturing on September 13, 2018 (the “Maturity Date”) and bears interest at the Company’s option at either a base rate plus a spread of 0.50% to 1.00%, or a reserve adjusted LIBOR rate plus a spread of 1.50% to 2.00% based on the Company’s consolidated leverage ratio for the preceding four fiscal quarters.
The Company entered into the Credit Agreement in conjunction with and for purposes of funding purchases of the Company’s common stock pursuant to a $250.0 million modified “Dutch Auction” self-tender offer announced in September 2013. See Note 14 for further details. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the reserve adjusted LIBOR rate. The Term Loan is payable in quarterly installments of principal equal to $1.6 million which began on December 31, 2013, with the remaining outstanding principal amount of the Term Loan being due and payable on the Maturity Date. The Company may prepay the Term Loan, in whole or in part, at any time without premium or penalty. Amounts repaid or prepaid may not be reborrowed. The Term Loan is secured by substantially all the assets of certain domestic subsidiaries of the Company, subject to certain exceptions and limitations. The Company is also obligated to pay other customary closing fees, arrangement fees, and administration fees for a credit facility of this size and type. Total debt issuance costs incurred on the Term Loan were approximately $2.7 million and were recorded in “Prepaid expenses and other current assets” and “Other assets” in the Company’s condensed consolidated balance sheet and are being amortized over the life of the Term Loan.
The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company’s and its subsidiaries’ ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock, enter into transactions with affiliates and enter into restrictive agreements, in each case subject to customary exceptions for a credit facility of this size and type. The Company is also required to maintain compliance with a consolidated fixed charge coverage ratio and a consolidated secured leverage ratio. The Company was in compliance with these covenants as of June 30, 2014.
The Credit Agreement includes customary events of default that include, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, ERISA defaults and a change of control default. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts.
At June 30, 2014, the weighted average interest rate on the Term Loan was 1.96%, the accrued interest on the Term Loan was $0.1 million, and the current and noncurrent portion of the outstanding Term Loan was $6.3 million and $239.1 million, respectively.
The following table sets forth total interest expense recognized on the Term Loan (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Contractual interest expense |
$ |
1,225 |
|
|
$ |
— |
|
|
$ |
2,454 |
|
|
$ |
— |
|
Amortization of debt issuance costs |
|
133 |
|
|
|
— |
|
|
|
267 |
|
|
|
— |
|
Total |
$ |
1,358 |
|
|
$ |
— |
|
|
$ |
2,721 |
|
|
$ |
— |
|
|
11. INVESTMENTS
The Company had cash and cash equivalents of $413.1 million and $392.6 million at June 30, 2014 and December 31, 2013, respectively. Cash and cash equivalents consist of cash in banks, as well as highly liquid investments in money market funds, time deposits, savings accounts, commercial paper, U.S. government and agency securities, municipal securities and corporate debt securities. At June 30, 2014, the Company’s long-term investments had contractual maturities of one to two years.
In addition, the Company has short-term and long-term investments in debt securities which are summarized as follows (in thousands):
|
Cost Basis |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Balances at June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments-Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
30,609 |
|
|
$ |
18 |
|
|
$ |
— |
|
|
$ |
30,627 |
|
U.S. government agency securities |
|
40,007 |
|
|
|
15 |
|
|
|
(2 |
) |
|
|
40,020 |
|
Non-U.S. government securities |
|
8,567 |
|
|
|
6 |
|
|
|
— |
|
|
|
8,573 |
|
Corporate debt securities |
|
57,080 |
|
|
|
24 |
|
|
|
(4 |
) |
|
|
57,100 |
|
Total investments - short-term |
$ |
136,263 |
|
|
$ |
63 |
|
|
$ |
(6 |
) |
|
$ |
136,320 |
|
Investments-Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
30,224 |
|
|
$ |
23 |
|
|
$ |
— |
|
|
$ |
30,247 |
|
U.S. government agency securities |
|
31,002 |
|
|
|
6 |
|
|
|
(7 |
) |
|
|
31,001 |
|
Non-U.S. government securities |
|
1,167 |
|
|
|
1 |
|
|
|
— |
|
|
|
1,168 |
|
Corporate debt securities |
|
28,499 |
|
|
|
12 |
|
|
|
(12 |
) |
|
|
28,499 |
|
Total investments - long-term |
$ |
90,892 |
|
|
$ |
42 |
|
|
$ |
(19 |
) |
|
$ |
90,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments-Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
19,792 |
|
|
$ |
9 |
|
|
$ |
— |
|
|
$ |
19,801 |
|
U.S. government agency securities |
|
38,388 |
|
|
|
16 |
|
|
|
(3 |
) |
|
|
38,401 |
|
Non-U.S. government securities |
|
13,734 |
|
|
|
10 |
|
|
|
— |
|
|
|
13,744 |
|
Corporate debt securities |
|
62,720 |
|
|
|
22 |
|
|
|
(4 |
) |
|
|
62,738 |
|
Total investments - short-term |
$ |
134,634 |
|
|
$ |
57 |
|
|
$ |
(7 |
) |
|
$ |
134,684 |
|
Investments-Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
12,252 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
12,260 |
|
U.S. government agency securities |
|
30,627 |
|
|
|
12 |
|
|
|
(3 |
) |
|
|
30,636 |
|
Non-U.S. government securities |
|
2,305 |
|
|
|
4 |
|
|
|
— |
|
|
|
2,309 |
|
Corporate debt securities |
|
11,152 |
|
|
|
15 |
|
|
|
— |
|
|
|
11,167 |
|
Total investments - long-term |
$ |
56,336 |
|
|
$ |
39 |
|
|
$ |
(3 |
) |
|
$ |
56,372 |
|
Unrealized Losses
The following table summarizes the fair value and gross unrealized losses of the Company’s investments, including those that are categorized as cash equivalents, with unrealized losses aggregated by type of investment instrument and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2014 and December 31, 2013 (in thousands):
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|||||||||||||||
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities |
$ |
22,132 |
|
|
$ |
(9 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
22,132 |
|
|
$ |
(9 |
) |
Corporate debt securities |
|
21,874 |
|
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
|
|
21,874 |
|
|
|
(16 |
) |
Total investments |
$ |
44,006 |
|
|
$ |
(25 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
44,006 |
|
|
$ |
(25 |
) |
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities |
$ |
5,533 |
|
|
$ |
(6 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,533 |
|
|
$ |
(6 |
) |
Corporate debt securities |
|
9,837 |
|
|
|
(3 |
) |
|
|
1,504 |
|
|
|
(1 |
) |
|
|
11,341 |
|
|
|
(4 |
) |
Total investments |
$ |
15,370 |
|
|
$ |
(9 |
) |
|
$ |
1,504 |
|
|
$ |
(1 |
) |
|
$ |
16,874 |
|
|
$ |
(10 |
) |
The Company reviews the individual securities in its portfolio to determine whether a decline in a security’s fair value below the amortized cost basis is other-than-temporary. If the decline in fair value is considered to be other-than-temporary, the cost basis of the individual security is written down to its fair value as a new cost basis and the amount of the write-down is accounted for as a realized loss and included in earnings. During the six months ended June 30, 2014 and 2013, the Company determined that there were no investments in its portfolio that were other-than temporarily impaired.
Private Company Investments
The Company has made various strategic investments in private companies. The private company investments are carried at cost and written down to their estimated net realizable value when indications exist that these investments have been impaired. The Company did not record such impairment charges during the six months ended June 30, 2014 and 2013. The cost of these investments at both June 30, 2014 and December 31, 2013 was $2.0 million, and has been recorded in “Other assets” in the Company’s condensed consolidated balance sheets.
|
12. FAIR VALUE MEASUREMENTS
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As the basis for considering such assumptions, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including its marketable securities and foreign currency contracts.
The Company’s cash and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using inputs such as quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices for identical assets in active markets include money market funds and are generally classified within Level 1 of the fair value hierarchy.
The types of instruments valued based on other observable inputs include U.S. Treasury securities and other government agencies, corporate bonds and commercial paper. Such instruments are generally classified within Level 2 of the fair value hierarchy. Level 2 instruments are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. There have been no transfers between Level 1 and Level 2 during the three and six months ended June 30, 2014 and 2013. The Company does not hold any investments classified as Level 3 as of June 30, 2014 and December 31, 2013.
As of June 30, 2014, the Company’s fixed income available-for-sale securities include U.S. Treasury obligations and other government agency instruments (54%), corporate bonds (24%), commercial paper (15%), non-U.S. Government securities (5%), and money market funds (2%). Included in available-for-sale securities is approximately $22.3 million of cash equivalents, which consist of investments with original maturities of three months or less and include money market funds.
The principal market where the Company executes its foreign currency contracts is the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants and the Company’s counterparties are large money center banks and regional banks. The Company’s foreign currency contracts valuation inputs are based on quoted prices and quoted pricing intervals from public data sources such as spot rates, interest rate differentials and credit default rates, which do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.
The Company’s Term Loan under its Credit Agreement is classified within Level 2 instruments as the borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities. See Note 10. The Company has elected not to record its Term Loan at fair value, but has measured it at fair value for the disclosure purpose. At June 30, 2014 and December 31, 2013, the estimated fair value of the Term Loan was approximately $240.4 million and $247.5 million, respectively, based on observable market inputs.
The fair value of the Company’s marketable securities and foreign currency contracts was determined using the following inputs (in thousands):
|
|
|
|
|
|
Fair Value Measurements at June 30, 2014 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities (a) |
|
$ |
249,535 |
|
|
$ |
5,615 |
|
|
$ |
243,920 |
|
Foreign currency forward contracts (b) |
|
$ |
4,788 |
|
|
$ |
— |
|
|
$ |
4,788 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (c) |
|
$ |
5,402 |
|
|
$ |
— |
|
|
$ |
5,402 |
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities (a) |
|
$ |
211,151 |
|
|
$ |
17,596 |
|
|
$ |
193,555 |
|
Foreign currency forward contracts (b) |
|
$ |
6,748 |
|
|
$ |
— |
|
|
$ |
6,748 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (c) |
|
$ |
6,780 |
|
|
$ |
— |
|
|
$ |
6,780 |
|
(a) |
Included in cash and cash equivalents, and short and long-term investments in the Company’s condensed consolidated balance sheets. |
(b) |
Included in short-term derivative assets as prepaid expenses and other current assets in the Company’s condensed consolidated balance sheets. |
(c) |
Included in short-term derivative liabilities as other accrued liabilities in the Company’s condensed consolidated balance sheets. |
The Company’s current accounting policy and practice is not to offset derivative assets and liabilities in its condensed consolidated balance sheets. See Note 13.
|
13. FOREIGN CURRENCY DERIVATIVES
The Company maintains a foreign currency risk management program that is designed to reduce the volatility of the Company’s economic value from the effects of unanticipated currency fluctuations. International operations generate both revenues and costs denominated in foreign currencies. The Company’s policy is to hedge significant foreign currency revenues and costs to improve margin visibility and reduce earnings volatility associated with unexpected changes in currency.
Non-Designated Hedges
The Company hedges its net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated revenues and expenses with foreign exchange forward contracts to reduce the risk that the Company’s earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative instruments are carried at fair value with changes in the fair value recorded as interest and other income (expense), net. These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset remeasurement gains and losses on the hedged assets and liabilities. The Company executes non-designated foreign exchange forward contracts primarily denominated in Euros, British Pounds, Israeli Shekels, Brazilian Reals, Chinese Yuan, Japanese Yen and Mexican Pesos.
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding non-designated hedges at June 30, 2014 (in thousands):
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
||||||||||||||||
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
||||
Brazilian Real |
|
2,669 |
|
|
$ |
1,212 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Brazilian Real |
|
4,914 |
|
|
$ |
2,192 |
|
|
Sell |
|
|
— |
|
|
|
— |
|
|
— |
Chinese Yuan |
|
90,205 |
|
|
$ |
14,745 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Chinese Yuan |
|
83,527 |
|
|
$ |
13,441 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Euro |
|
21,142 |
|
|
$ |
28,945 |
|
|
Buy |
|
|
9,572 |
|
|
$ |
12,665 |
|
|
Buy |
Euro |
|
42,346 |
|
|
$ |
57,854 |
|
|
Sell |
|
|
27,315 |
|
|
$ |
36,405 |
|
|
Sell |
British Pound |
|
17,141 |
|
|
$ |
29,032 |
|
|
Buy |
|
|
8,877 |
|
|
$ |
13,809 |
|
|
Buy |
British Pound |
|
10,263 |
|
|
$ |
17,486 |
|
|
Sell |
|
|
16,500 |
|
|
$ |
25,903 |
|
|
Sell |
Israeli Shekel |
|
10,130 |
|
|
$ |
2,953 |
|
|
Buy |
|
|
32,074 |
|
|
$ |
8,850 |
|
|
Buy |
Israeli Shekel |
|
30,208 |
|
|
$ |
8,767 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
314,425 |
|
|
$ |
3,105 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
830,837 |
|
|
$ |
8,191 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
10,541 |
|
|
$ |
813 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
19,690 |
|
|
$ |
1,522 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
The following table shows the effect of the Company’s non-designated hedges in the condensed consolidated statements of operations for the following periods (in thousands):
Derivatives Not Designated as Hedging Instruments |
|
Location of Gain or (Loss) Recognized in Income on Derivative |
|
Amount of Gain or (Loss) Recognized in Income on Derivative |
|
|||||
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
(35 |
) |
|
$ |
(732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
299 |
|
|
$ |
1,601 |
|
Cash Flow Hedges
The Company’s foreign exchange risk management program objective is to reduce volatility in the Company’s economic value from unanticipated foreign currency fluctuations. The Company designates forward contracts as cash flow hedges of foreign currency revenues and expenses, primarily the Chinese Yuan, Euros, British Pounds and Israeli Shekels. All foreign exchange contracts are carried at fair value on the condensed consolidated balance sheets and the maximum duration of foreign exchange forward contracts does not exceed thirteen months. Speculation is prohibited by policy.
To receive hedge accounting treatment under ASC 815, Derivatives and Hedging, all cash flow hedging relationships are formally designated at hedge inception, and tested both prospectively and retrospectively to ensure the forward contracts are highly effective in offsetting changes to future cash flows on the hedged transactions. The Company records effective spot to spot changes in these cash flow hedges in cumulative other comprehensive income until they are reclassified to revenue, cost of revenue or operating expenses together with the hedged transaction. The time value on forward contracts is excluded from effectiveness testing and recorded to interest and other income (expense), net over the life of the contract together with any ineffective portion of the hedge.
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding cash flow hedges at June 30, 2014 (in thousands):
|
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
|
||||||||||||||||
|
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
||||
Chinese Yuan |
|
|
120,695 |
|
|
$ |
19,228 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
|
Euro |
|
|
18,500 |
|
|
$ |
25,277 |
|
|
Buy |
|
|
6,828 |
|
|
$ |
9,195 |
|
|
Buy |
|
Euro |
|
|
51,100 |
|
|
$ |
69,928 |
|
|
Sell |
|
|
10,285 |
|
|
$ |
13,866 |
|
|
Sell |
|
British Pound |
|
|
17,000 |
|
|
$ |
28,345 |
|
|
Buy |
|
|
4,723 |
|
|
$ |
7,551 |
|
|
Buy |
|
British Pound |
|
|
23,917 |
|
|
$ |
39,883 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
|
Israeli Shekel |
|
|
54,200 |
|
|
$ |
15,629 |
|
|
Buy |
|
|
27,826 |
|
|
$ |
7,839 |
|
|
Buy |
|
The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges in the condensed consolidated statements of operations for the following periods (in thousands):
|
|
Gain or (Loss) Recognized in OCI-Effective Portion |
|
|
Location of Gain or (Loss) Reclassified from OCI into Income-Effective Portion |
|
Gain or (Loss) Reclassified from OCI into Income-Effective Portion |
|
|
Location of Gain or (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing |
|
Gain or (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing (a) |
|
|||||||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|||||||||||||||
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||||
Foreign exchange contracts |
|
$ |
422 |
|
|
$ |
(594 |
) |
|
Product revenues |
|
$ |
(1,409 |
) |
|
$ |
(153 |
) |
|
Interest and other income (expense), net |
|
$ |
(127 |
) |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
330 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
717 |
|
|
|
(285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
277 |
|
|
|
755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
194 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
422 |
|
|
$ |
(594 |
) |
|
|
|
$ |
109 |
|
|
$ |
412 |
|
|
|
|
$ |
(127 |
) |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|||||||||||||||
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||||
Foreign exchange contracts |
|
$ |
1 |
|
|
$ |
2,363 |
|
|
Product revenues |
|
$ |
(4,274 |
) |
|
$ |
474 |
|
|
Interest and other income (expense), net |
|
$ |
(52 |
) |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
862 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
1,797 |
|
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
692 |
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
366 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1 |
|
|
$ |
2,363 |
|
|
|
|
$ |
(557 |
) |
|
$ |
1,126 |
|
|
|
|
$ |
(52 |
) |
|
$ |
160 |
|
|
(a)There were no gains or losses recognized in income due to ineffectiveness in the periods presented.
As of June 30, 2014, the Company estimated that all values reported in accumulated other comprehensive income (loss) will be reclassified to income within the next twelve months.
In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge would be immediately reclassified to interest and other income (expense), net on the consolidated statements of operations. For the six months ended June 30, 2014 and 2013, there were no such gains or losses.
The estimates of fair value are based on applicable and commonly quoted prices and prevailing financial market information as of June 30, 2014 and December 31, 2013. See Note 12 for additional information on the fair value measurements for all financial assets and liabilities, including derivative assets and derivative liabilities that are measured at fair value in the condensed consolidated financial statements on a recurring basis.
The following table shows the Company’s derivative instruments measured at gross fair value as reflected in the condensed consolidated balance sheets as of the periods presented (in thousands):
|
Fair Value of Derivatives Designated as Hedge Instruments |
|
|
Fair Value of Derivatives Not Designated as Hedge Instruments |
|
||||||||||
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
||||
Derivative assets (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
2,089 |
|
|
$ |
4,457 |
|
|
$ |
2,699 |
|
|
$ |
2,291 |
|
Derivative liabilities (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
1,525 |
|
|
$ |
4,235 |
|
|
$ |
3,877 |
|
|
$ |
2,545 |
|
|
(a) |
All derivative assets are recorded in “Prepaid and other current assets” in the condensed consolidated balance sheets. |
(b) |
All derivative liabilities are recorded in “Other accrued liabilities” in the condensed consolidated balance sheets. |
Offsetting Derivative Assets and Liabilities
The Company has entered into master netting arrangements with each of its derivative counterparties. These arrangements afford the right to net derivative assets against liabilities with the same counterparty. Under certain default provisions, the Company has the right to setoff any other amounts payable to the payee whether or not arising under this agreement. As a result of the netting provisions, the Company’s maximum amount of loss under derivative transactions due to credit risk is limited to the net amounts due from the counterparties under the derivative contracts. Although netting is permitted, it is currently the Company’s policy and practice to record all derivative assets and liabilities on a gross basis in the condensed consolidated balance sheets.
The following table sets forth the offsetting of derivative assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Assets |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts Of Assets Presented In the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
4,788 |
|
|
$ |
— |
|
|
$ |
4,788 |
|
|
$ |
(4,191 |
) |
|
$ |
— |
|
|
$ |
597 |
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,748 |
|
|
$ |
— |
|
|
$ |
6,748 |
|
|
$ |
(5,643 |
) |
|
$ |
— |
|
|
$ |
1,105 |
|
The following table sets forth the offsetting of derivative liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Liabilities |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts Of Liabilities Presented In the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
5,402 |
|
|
$ |
— |
|
|
$ |
5,402 |
|
|
$ |
(4,191 |
) |
|
$ |
— |
|
|
$ |
1,211 |
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,780 |
|
|
$ |
— |
|
|
$ |
6,780 |
|
|
$ |
(5,643 |
) |
|
$ |
— |
|
|
$ |
1,137 |
|
|
14. STOCKHOLDERS’ EQUITY
Share Repurchase Program
From time to time, the Company’s Board of Directors has approved plans under which the Company may at its discretion purchase shares of its common stock in the open market or via privately negotiated transactions. During the three and six months ended June 30, 2014, the Company did not directly make open market purchases, however, the Company received 1.5 million shares under its accelerated share repurchase program as discussed below. During the three and six months ended June 30, 2013, the Company purchased approximately 4.7 million and 8.1 million shares of common stock, respectively, in the open market for $50.3 million and $84.5 million of cash, respectively. The purchase price for the shares of the Company’s stock repurchased is recorded as a reduction to stockholders’ equity. The excess of the cost of treasury stock that is retired over the fair value based on the calculated average price in equity is recorded as a charge to retained earnings. In July 2014, the Company announced that its Board of Directors had approved a new share repurchase plan under which the Company may at its discretion purchase shares in the open market with an aggregate value of up to $200.0 million. The Company expects to execute this new authorization over the next two years and to fund the share repurchases through cash on hand and future cash flow from operations.
In September 2013, the Company announced that its Board of Directors had authorized the repurchase of $400.0 million, or approximately 20 percent, of the Company’s outstanding common stock (“Return of Capital Program”), through a $250.0 million modified “Dutch Auction” self-tender offer (the “Tender Offer”) and subsequent open market purchases or privately negotiated transactions. The Company funded the program with $150.0 million in cash and its $250.0 million Term Loan (see Note 10).
Modified “Dutch Auction” Self-Tender Offer
The Tender Offer expired on October 30, 2013. The Company accepted for payment an aggregate of 27.4 million shares of its common stock at a purchase price of $10.40 per share, for an aggregate cost of approximately $285.4 million, excluding fees and expenses relating to the Tender Offer. The excess of the purchase price over the fair value on the date the shares were tendered was not material and no charge was recorded in the Company’s consolidated statements of operations. The costs associated with the Tender Offer were accounted for as an adjustment to the stockholders’ equity.
Accelerated Share Repurchase Agreements
On December 4, 2013, the Company entered into separate accelerated share repurchase (“ASR”) agreements with two financial institutions to repurchase an aggregate of $114.6 million of common stock as part of the last phase of the Company’s $400.0 million Return of Capital Program. Under the terms of the ASR agreements, the Company paid an aggregate $114.6 million of cash and received an initial delivery of approximately 8.0 million shares in December 2013. The ASR contracts were settled in June 2014, whereby the Company received an additional 1.5 million shares upon settlement. The aggregate 9.5 million shares ultimately purchased under the ASR program was determined based on the Company’s volume-weighted average stock price (“VWAP”) less an agreed upon discount during the term of the transactions. Total shares repurchased were immediately retired upon delivery and accounted for as a reduction to stockholders’ equity. The costs associated with the ASR transactions were recorded as an adjustment to the stockholders’ equity. Additionally, the Company accounted for the ASR transactions as repurchases of common stock for the purpose of calculating its earnings per share when the shares were received.
Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated other comprehensive income, net of tax, by component for the three months ended June 30, 2014 (in thousands). The tax effects were not shown separately, as the impacts were not material.
Six Months Ended June 30, 2014 |
|
Unrealized Gains and Losses on Cash Flow Hedges |
|
|
Unrealized Gains and Losses on Available-for- Sale Securities |
|
|
Foreign Currency Translation |
|
|
Total |
|
||||
Balance as of December 31, 2013 |
|
$ |
80 |
|
|
$ |
73 |
|
|
$ |
4,219 |
|
|
$ |
4,372 |
|
Other comprehensive income (loss) before reclassifications |
|
|
1 |
|
|
|
— |
|
|
|
(1,086 |
) |
|
|
(1,085 |
) |
Amounts reclassified from accumulated other comprehensive income (a) |
|
|
557 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
555 |
|
Net current-period other comprehensive income (loss) |
|
|
558 |
|
|
|
(2 |
) |
|
|
(1,086 |
) |
|
|
(530 |
) |
Balance as of June 30, 2014 |
|
$ |
638 |
|
|
$ |
71 |
|
|
$ |
3,133 |
|
|
$ |
3,842 |
|
|
(a) |
See Note 13 of Notes to Condensed Consolidated Financial Statements for details of gains and losses, net of taxes, reclassified out of accumulated other comprehensive income into net income related to cash flow hedges and each line item of net income affected by the reclassification. Gains and losses related to available-for-sale securities were reclassified into “Other income (expense)” in the condensed consolidated statement of operations for the six months ended June 30, 2014, net of taxes. |
|
15. STOCK-BASED COMPENSATION
The following table summarizes stock-based compensation expense recorded for the periods presented and its allocation within the condensed consolidated statements of operations (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Cost of sales - product |
$ |
520 |
|
|
$ |
705 |
|
|
$ |
1,160 |
|
|
$ |
1,566 |
|
Cost of sales - service |
|
1,101 |
|
|
|
1,645 |
|
|
|
2,062 |
|
|
|
3,121 |
|
Stock-based compensation expense included in cost of sales |
|
1,621 |
|
|
|
2,350 |
|
|
|
3,222 |
|
|
|
4,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
5,333 |
|
|
|
7,218 |
|
|
|
5,724 |
|
|
|
13,854 |
|
Research and development |
|
3,059 |
|
|
|
4,189 |
|
|
|
4,101 |
|
|
|
8,910 |
|
General and administrative |
|
3,750 |
|
|
|
4,572 |
|
|
|
6,363 |
|
|
|
8,649 |
|
Stock-based compensation expense included in operating expenses |
|
12,142 |
|
|
|
15,979 |
|
|
|
16,188 |
|
|
|
31,413 |
|
Stock-based compensation expense related to employee equity awards and employee stock purchases |
|
13,763 |
|
|
|
18,329 |
|
|
|
19,410 |
|
|
|
36,100 |
|
Tax benefit |
|
2,777 |
|
|
|
6,014 |
|
|
|
3,762 |
|
|
|
13,003 |
|
Stock-based compensation expense related to employee equity awards and employee stock purchases, net of tax |
$ |
10,986 |
|
|
$ |
12,315 |
|
|
$ |
15,648 |
|
|
$ |
23,097 |
|
Stock-based compensation expense is not allocated to segments because it is centrally managed at the corporate level.
Stock Options
There were no stock options granted in the six months ended June 30, 2014 and 2013.
Performance Shares and Restricted Stock Units
During the six months ended June 30, 2014 and 2013, the Company granted 556,550 and 1,290,209, respectively, of performance shares to certain employees and executives, at a weighted average fair value of $13.76 and $8.82 per share, respectively. The 2014 and 2013 grants are generally divided evenly over three annual performance periods commencing with calendar year 2014 and 2013, respectively.
During the six months ended June 30, 2014 and 2013, the Company granted 2,702,115 and 4,326,746, respectively, of restricted stock units at a weighted average fair value of $12.95 and $10.14 per share, respectively.
During the six months ended June 30, 2014 and 2013, the Company granted non-employee directors 140,000 and 100,000, respectively, of restricted stock units at a weighted average fair value of $12.87 and $11.14 per share, respectively.
Employee Stock Purchase Plan
During the six months ended June 30, 2014 and 2013, 1,696,177 and 1,634,299 shares were purchased under the Company’s employee stock purchase plan (“ESPP”), respectively. As of June 30, 2014, there were 12,562,959 shares available to be issued under ESPP.
Valuation Assumptions
For purchase rights granted pursuant to the ESPP, the estimated fair value per share of employee stock purchase rights for the two-year offering period commencing on February 3, 2014 ranged from $2.82 to $4.48, compared to the estimated fair value per share from $2.93 to $4.57 for the two-year offering period commencing on February 1, 2013.
The fair value of each employee stock purchase right grant is estimated on the date of grant using the Black-Scholes option valuation model and is recognized as expense using the graded vesting method using the following assumptions:
|
Three and Six Months Ended |
||
|
June 30, |
|
June 30, |
Expected volatility |
32.30-42.11% |
|
44.76-52.57% |
Risk-free interest rate |
0.07-0.30% |
|
0.11-0.27% |
Expected dividends |
0.0% |
|
0.0% |
Expected life (yrs) |
0.5-2.0 |
|
0.5-2.0 |
The Company computed its expected volatility assumption based on blended volatility (50% historical volatility and 50% implied volatility). The selection of the blended volatility assumption was based upon the Company’s assessment that blended volatility is more representative of the Company’s future stock price trends as it weighs in the longer term historical volatility with the near term future implied volatility.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company’s employee stock purchases.
The dividend yield assumption is based on the Company’s history of not paying dividends and future expectation of dividend payouts.
The expected life of employee stock purchase rights represents the contractual terms of the underlying program.
During the three months ended March 31, 2014, the Company performed its annual review of assumptions, which resulted in an increase in the forfeiture rate. The effect of the change in the forfeiture rate decreased stock-based compensation expense by approximately $1.8 million which decreased the Company’s net loss by approximately $1.4 million or $0.01 per share in the three months ended March 31, 2014. There was no material impact in the three months ended June 30, 2014. Additionally, during the three months ended March 31, 2014, the Company recorded a benefit of $2.1 million related to actual forfeitures of awards granted to former officers, and there was no such benefit recorded in the three months ended June 30, 2014.
|
17. BUSINESS SEGMENT INFORMATION
The Company conducts its business globally and is managed geographically in three segments: (1) Americas, which consist of North America and Caribbean and Latin America (“CALA”) reporting units, (2) Europe, Middle East and Africa (“EMEA”) and (3) Asia Pacific (“APAC”). The segments are determined in accordance with how management views and evaluates the Company’s business and allocates its resources, and based on the criteria as outlined in the authoritative guidance.
Segment Revenue and Profit
Segment revenues consist of product and service revenues. Product revenues are attributed to a segment based on the ordering location of the customer. For internal reporting purposes and determination of segment contribution margins, geographic segment product revenues may differ slightly from actual geographic revenues due to internal revenue allocations between the Company’s segments. Service revenues are generally attributed to a segment based on the end-user’s location where services are performed. A significant portion of each segment’s expenses arise from shared services and infrastructure that Polycom has historically allocated to the segments in order to realize economies of scale and to use resources efficiently.
Segment contribution margin includes all geographic segment revenues less the related cost of sales and direct sales and marketing expenses. Management allocates some infrastructure costs, such as facilities and IT costs, in determining segment contribution margins. Contribution margin is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated costs include corporate manufacturing costs, sales and marketing costs other than direct sales and marketing expenses, research and development expenses, general and administrative costs, such as legal and accounting, stock-based compensation costs, transaction-related costs, amortization of purchased intangibles, restructuring costs and interest and other income (expense), net.
Segment Data
The results of the reportable segments are derived directly from Polycom’s management reporting system. The results are based on Polycom’s method of internal reporting and are not reported in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution margin as defined above. Asset data, with the exception of gross accounts receivable, is not reviewed by management at the segment level.
Financial information for each reportable geographical segment as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013, based on the Company’s internal management reporting system and as utilized by the Company’s Chief Executive Officer who is its Chief Operating Decision Maker (“CODM”), is as follows (in thousands):
|
Americas |
|
|
EMEA |
|
|
APAC |
|
|
Total |
|
||||
For the three months ended June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
167,806 |
|
|
$ |
83,067 |
|
|
$ |
81,146 |
|
|
$ |
332,019 |
|
% of total revenue |
|
51 |
% |
|
|
25 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
|
69,155 |
|
|
|
35,108 |
|
|
|
33,366 |
|
|
|
137,629 |
|
% of segment revenue |
|
41 |
% |
|
|
42 |
% |
|
|
41 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
175,629 |
|
|
$ |
79,727 |
|
|
$ |
89,878 |
|
|
$ |
345,234 |
|
% of total revenue |
|
51 |
% |
|
|
23 |
% |
|
|
26 |
% |
|
|
100 |
% |
Contribution margin |
|
68,748 |
|
|
|
32,049 |
|
|
|
37,238 |
|
|
|
138,035 |
|
% of segment revenue |
|
39 |
% |
|
|
40 |
% |
|
|
41 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
330,875 |
|
|
$ |
172,104 |
|
|
$ |
157,564 |
|
|
$ |
660,543 |
|
% of total revenue |
|
50 |
% |
|
|
26 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
|
139,128 |
|
|
|
72,774 |
|
|
|
65,020 |
|
|
|
276,922 |
|
% of segment revenue |
|
42 |
% |
|
|
42 |
% |
|
|
41 |
% |
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
346,610 |
|
|
$ |
168,819 |
|
|
$ |
168,557 |
|
|
$ |
683,986 |
|
% of total revenue |
|
51 |
% |
|
|
25 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
|
137,977 |
|
|
|
69,609 |
|
|
|
68,083 |
|
|
|
275,669 |
|
% of segment revenue |
|
40 |
% |
|
|
41 |
% |
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014: Gross accounts receivable |
$ |
86,945 |
|
|
$ |
68,878 |
|
|
$ |
65,300 |
|
|
$ |
221,123 |
|
% of total gross accounts receivable |
|
39 |
% |
|
|
31 |
% |
|
|
30 |
% |
|
|
100 |
% |
As of December 31, 2013: Gross accounts receivable |
|
86,243 |
|
|
|
71,970 |
|
|
|
66,921 |
|
|
|
225,134 |
|
% of total gross accounts receivable |
|
38 |
% |
|
|
32 |
% |
|
|
30 |
% |
|
|
100 |
% |
During the three and six months ended June 30, 2014, one customer from the Americas segment, ScanSource Communications (“ScanSource”), accounted for 18% of the Company’s revenues. During the three and six months ended 2013, ScanSource accounted for 16% of the Company’s revenues. At June 30, 2014 and December 31, 2013, ScanSource accounted for 14% and 11%, respectively, of total gross accounts receivable.
The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Segment contribution margin |
$ |
137,629 |
|
|
$ |
138,035 |
|
|
$ |
276,922 |
|
|
$ |
275,669 |
|
Corporate and unallocated costs |
|
(99,339 |
) |
|
|
(105,300 |
) |
|
|
(205,938 |
) |
|
|
(213,005 |
) |
Stock-based compensation |
|
(13,763 |
) |
|
|
(18,329 |
) |
|
|
(19,410 |
) |
|
|
(36,100 |
) |
Effect of stock-based compensation cost on warranty expense |
|
(77 |
) |
|
|
(144 |
) |
|
|
(206 |
) |
|
|
(301 |
) |
Transaction-related costs |
|
— |
|
|
|
(49 |
) |
|
|
(156 |
) |
|
|
(3,372 |
) |
Amortization of purchased intangibles |
|
(3,167 |
) |
|
|
(3,793 |
) |
|
|
(6,500 |
) |
|
|
(7,543 |
) |
Restructuring costs |
|
(9,175 |
) |
|
|
(4,329 |
) |
|
|
(39,518 |
) |
|
|
(9,752 |
) |
Interest and other income (expense), net |
|
(1,696 |
) |
|
|
(384 |
) |
|
|
(2,391 |
) |
|
|
(1,143 |
) |
Income from continuing operations before benefit from income taxes |
$ |
10,412 |
|
|
$ |
5,707 |
|
|
$ |
2,803 |
|
|
$ |
4,453 |
|
The following table summarizes the Company’s revenues by groups of similar products and services as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UC group systems |
$ |
218,448 |
|
|
$ |
232,998 |
|
|
$ |
431,820 |
|
|
$ |
465,425 |
|
UC personal devices |
|
53,639 |
|
|
|
50,849 |
|
|
|
110,113 |
|
|
|
100,095 |
|
UC platform |
|
59,932 |
|
|
|
61,387 |
|
|
|
118,610 |
|
|
|
118,466 |
|
Total |
$ |
332,019 |
|
|
$ |
345,234 |
|
|
$ |
660,543 |
|
|
$ |
683,986 |
|
|
18. INCOME TAXES
The following table presents the income tax expense (benefit) from continuing operations and the effective tax rates (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Income tax expense (benefit) from continuing operations |
$ |
1,855 |
|
|
$ |
412 |
|
|
$ |
(1,763 |
) |
|
$ |
(2,959 |
) |
Effective tax rate |
|
17.8 |
% |
|
|
7.2 |
% |
|
|
(62.9 |
)% |
|
|
(66.4 |
)% |
The effective tax rates for the three and six months ended June 30, 2014 and 2013 differ from the U.S. federal statutory rate of 35% primarily due to impacts associated with proportional earnings from the Company’s operations in lower tax jurisdictions, recurring permanent adjustments, and discrete benefits recorded during the quarters. For the three and six months ended June 30, 2014, discrete benefits of $0.2 million and $1.5 million were recorded for tax benefits realized on disqualifying dispositions of stock from the Company’s employee stock purchase plan. In addition, included in the tax rate for the six months ended June 30, 2014 is a discrete tax benefit recorded in the first quarter of $0.9 million related to stock-based compensation expense adjustments for certain terminated employees. Discrete benefits recorded during the three and six months ended June 30, 2013 include $2.2 million recorded in the first quarter of 2013 related to the reinstatement of the federal research and development tax credit signed into law on January 2, 2013, but retroactive to 2012, and $1.0 million recorded in the second quarter of 2013 related to previously non-deductible acquisition-related expenses that became deductible in the quarter. In addition, $0.8 million and $0.3 million of tax benefits realized on disqualifying dispositions of stock from the Company’s employee stock purchase plan were recorded in the first and second quarters of 2013, respectively.
As of June 30, 2014, the amount of gross unrecognized tax benefits was $22.1 million, all of which would affect the Company’s effective tax rate if realized. The Company recognizes interest income and interest expense and penalties on tax overpayments and underpayments within income tax expense. As of June 30, 2014 and December 31, 2013, the Company had approximately $1.6 million and $1.5 million, respectively, of accrued interest and penalties related to uncertain tax positions. The Company anticipates that, except for $0.9 million in uncertain tax positions that may be reduced related to the lapse of various statutes of limitation, there will be no material changes in uncertain tax positions in the next 12 months.
The Company regularly assesses the ability to realize deferred tax assets recorded in all entities based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income. If the Company’s future business profits do not support the realization of deferred tax assets, a valuation allowance could be recorded in the foreseeable future. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
|
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update which provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The guidance is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The Company has not yet selected a transition method nor has it determined the impact of adoption on its consolidated financial statements.
In July 2013, the FASB issued an accounting standard update which clarifies that an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance is effective prospectively for reporting periods beginning after December 15, 2013. The Company adopted the guidance in the three months ended March 31, 2014, and such adoption did not have a material impact on the Company’s condensed consolidated financial statements.
|
The following table sets forth a summary of the revision to the condensed consolidated statement of cash flows for the following period (in thousands):
|
Six Months Ended June 30, 2013 |
|
|||||||||
|
As Previously Reported |
|
|
Adjustment |
|
|
As Revised |
|
|||
Condensed Consolidated Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of discounts and premiums on investments, net |
$ |
— |
|
|
$ |
794 |
|
|
$ |
794 |
|
Net cash provided by operating activities |
$ |
81,264 |
|
|
$ |
794 |
|
|
$ |
82,058 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
$ |
(136,196 |
) |
|
$ |
(794 |
) |
|
$ |
(136,990 |
) |
Net cash used in investing activities |
$ |
(17,987 |
) |
|
$ |
(794 |
) |
|
$ |
(18,781 |
) |
|
The following table presents the changes to the Company’s goodwill by segment during the six months ended June 30, 2014 (in thousands):
|
Americas |
|
|
EMEA |
|
|
APAC |
|
|
Total |
|
||||
Balance at December 31, 2013 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
149,419 |
|
|
$ |
559,460 |
|
Foreign currency translation |
|
— |
|
|
|
— |
|
|
|
(214 |
) |
|
|
(214 |
) |
Balance at June 30, 2014 |
$ |
308,159 |
|
|
$ |
101,882 |
|
|
$ |
149,205 |
|
|
$ |
559,246 |
|
The following table presents details of the Company’s total purchased intangible assets and capitalized software development costs for products to be sold as of the following periods (in thousands):
|
June 30, 2014 |
|
|
December 31, 2013 |
|
||||||||||||||||||
|
Gross Value |
|
|
Accumulated Amortization & Impairment |
|
|
Net Value |
|
|
Gross Value |
|
|
Accumulated Amortization & Impairment |
|
|
Net Value |
|
||||||
Core and developed technology |
$ |
81,178 |
|
|
$ |
(78,525 |
) |
|
$ |
2,653 |
|
|
$ |
81,178 |
|
|
$ |
(76,952 |
) |
|
$ |
4,226 |
|
Customer and partner relationships |
|
79,525 |
|
|
|
(53,498 |
) |
|
|
26,027 |
|
|
|
79,525 |
|
|
|
(48,941 |
) |
|
|
30,584 |
|
Non-compete agreements |
|
1,800 |
|
|
|
(800 |
) |
|
|
1,000 |
|
|
|
1,800 |
|
|
|
(500 |
) |
|
|
1,300 |
|
Trade name |
|
3,400 |
|
|
|
(3,159 |
) |
|
|
241 |
|
|
|
3,400 |
|
|
|
(3,089 |
) |
|
|
311 |
|
Other |
|
4,462 |
|
|
|
(4,381 |
) |
|
|
81 |
|
|
|
4,462 |
|
|
|
(4,343 |
) |
|
|
119 |
|
Finite-lived intangible assets |
|
170,365 |
|
|
|
(140,363 |
) |
|
|
30,002 |
|
|
|
170,365 |
|
|
|
(133,825 |
) |
|
|
36,540 |
|
Indefinite-lived trade name |
|
918 |
|
|
|
— |
|
|
|
918 |
|
|
|
918 |
|
|
|
— |
|
|
|
918 |
|
Total acquired intangible assets |
$ |
171,283 |
|
|
$ |
(140,363 |
) |
|
$ |
30,920 |
|
|
$ |
171,283 |
|
|
$ |
(133,825 |
) |
|
$ |
37,458 |
|
Capitalized software development costs for products to be sold |
$ |
4,923 |
|
|
$ |
(898 |
) |
|
$ |
4,025 |
|
|
$ |
2,365 |
|
|
$ |
(196 |
) |
|
$ |
2,169 |
|
The following table summarizes the amortization expenses recorded in the following periods (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Amortization of purchased intangibles in revenues |
$ |
19 |
|
|
$ |
18 |
|
|
$ |
38 |
|
|
$ |
38 |
|
Amortization of purchased intangibles in cost of product revenues |
|
731 |
|
|
|
1,248 |
|
|
|
1,572 |
|
|
|
2,496 |
|
Amortization of purchased intangibles in operating expenses |
|
2,436 |
|
|
|
2,545 |
|
|
|
4,928 |
|
|
|
5,047 |
|
Total amortization expenses of purchased intangibles |
$ |
3,186 |
|
|
$ |
3,811 |
|
|
$ |
6,538 |
|
|
$ |
7,581 |
|
The estimated future amortization expense as of June 30, 2014 is as follows (in thousands):
Year ending December 31, |
|
Amount |
|
|
Remainder of 2014 |
|
$ |
6,353 |
|
2015 |
|
|
10,495 |
|
2016 |
|
|
8,484 |
|
2017 |
|
|
4,670 |
|
2018 |
|
|
— |
|
Total |
|
$ |
30,002 |
|
|
The following table summarizes the changes in the Company’s restructuring reserves during the six months ended June 30, 2014 (in thousands):
|
Severance/Other |
|
|
Facilities |
|
|
Total |
|
|||
Balance at December 31, 2013 |
$ |
1,143 |
|
|
$ |
33,786 |
|
|
$ |
34,929 |
|
Additions to the reserve |
|
11,454 |
|
|
|
28,064 |
|
|
|
39,518 |
|
Non-cash write-offs |
|
— |
|
|
|
(2,515 |
) |
|
|
(2,515 |
) |
Cash payments and other usage |
|
(9,687 |
) |
|
|
(11,385 |
) |
|
|
(21,072 |
) |
Balance at June 30, 2014 |
$ |
2,910 |
|
|
$ |
47,950 |
|
|
$ |
50,860 |
|
|
Trade receivables, net consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Gross accounts receivables |
$ |
221,123 |
|
|
$ |
225,134 |
|
Returns and related reserves |
|
(40,651 |
) |
|
|
(38,938 |
) |
Allowance for doubtful accounts |
|
(3,398 |
) |
|
|
(2,827 |
) |
Total |
$ |
177,074 |
|
|
$ |
183,369 |
|
Inventories consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Raw materials |
$ |
3,654 |
|
|
$ |
2,740 |
|
Work in process |
|
568 |
|
|
|
840 |
|
Finished goods |
|
101,682 |
|
|
|
99,729 |
|
Total |
$ |
105,904 |
|
|
$ |
103,309 |
|
Prepaid expenses and other current assets consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Non-trade receivables |
$ |
6,317 |
|
|
$ |
9,251 |
|
Prepaid expenses |
|
39,831 |
|
|
|
31,164 |
|
Derivative assets |
|
4,788 |
|
|
|
6,748 |
|
Other current assets |
|
4,715 |
|
|
|
3,189 |
|
Total |
$ |
55,651 |
|
|
$ |
50,352 |
|
Deferred revenue consists of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Short-term: |
|
|
|
|
|
|
|
Service |
$ |
172,514 |
|
|
$ |
170,701 |
|
Product |
|
112 |
|
|
|
307 |
|
License |
|
1,626 |
|
|
|
1,400 |
|
Total |
$ |
174,252 |
|
|
$ |
172,408 |
|
Long-term: |
|
|
|
|
|
|
|
Service |
$ |
80,481 |
|
|
$ |
83,092 |
|
Product |
|
9 |
|
|
|
— |
|
License |
|
3,848 |
|
|
|
4,375 |
|
Total |
$ |
84,338 |
|
|
$ |
87,467 |
|
Changes in the deferred service revenue are as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Balance at beginning of period |
$ |
253,044 |
|
|
$ |
246,019 |
|
|
$ |
253,793 |
|
|
$ |
241,773 |
|
Additions to deferred service revenue |
|
84,565 |
|
|
|
92,647 |
|
|
|
170,459 |
|
|
|
180,399 |
|
Amortization of deferred service revenue |
|
(84,614 |
) |
|
|
(86,575 |
) |
|
|
(171,257 |
) |
|
|
(170,081 |
) |
Balance at end of period |
$ |
252,995 |
|
|
$ |
252,091 |
|
|
$ |
252,995 |
|
|
$ |
252,091 |
|
Other accrued liabilities consist of the following (in thousands):
|
June 30, |
|
|
December 31, |
|
||
Accrued expenses |
$ |
23,333 |
|
|
$ |
22,515 |
|
Accrued co-op expenses |
|
4,262 |
|
|
|
4,629 |
|
Restructuring reserves |
|
19,579 |
|
|
|
11,238 |
|
Warranty obligations |
|
10,350 |
|
|
|
9,475 |
|
Derivative liabilities |
|
5,402 |
|
|
|
6,780 |
|
Employee stock purchase plan withholdings |
|
9,141 |
|
|
|
10,883 |
|
Other accrued liabilities |
|
11,219 |
|
|
|
12,224 |
|
Total |
$ |
83,286 |
|
|
$ |
77,744 |
|
Changes in the warranty obligation are as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Balance at beginning of period |
$ |
10,006 |
|
|
$ |
9,715 |
|
|
$ |
9,475 |
|
|
$ |
10,475 |
|
Accruals for warranties issued during the period |
|
3,966 |
|
|
|
4,493 |
|
|
|
8,131 |
|
|
|
8,112 |
|
Actual charges against warranty reserve during the period |
|
(3,622 |
) |
|
|
(4,522 |
) |
|
|
(7,256 |
) |
|
|
(8,901 |
) |
Balance at end of period |
$ |
10,350 |
|
|
$ |
9,686 |
|
|
$ |
10,350 |
|
|
$ |
9,686 |
|
|
The following table sets forth total interest expense recognized on the Term Loan (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Contractual interest expense |
$ |
1,225 |
|
|
$ |
— |
|
|
$ |
2,454 |
|
|
$ |
— |
|
Amortization of debt issuance costs |
|
133 |
|
|
|
— |
|
|
|
267 |
|
|
|
— |
|
Total |
$ |
1,358 |
|
|
$ |
— |
|
|
$ |
2,721 |
|
|
$ |
— |
|
|
In addition, the Company has short-term and long-term investments in debt securities which are summarized as follows (in thousands):
|
Cost Basis |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
Balances at June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments-Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
30,609 |
|
|
$ |
18 |
|
|
$ |
— |
|
|
$ |
30,627 |
|
U.S. government agency securities |
|
40,007 |
|
|
|
15 |
|
|
|
(2 |
) |
|
|
40,020 |
|
Non-U.S. government securities |
|
8,567 |
|
|
|
6 |
|
|
|
— |
|
|
|
8,573 |
|
Corporate debt securities |
|
57,080 |
|
|
|
24 |
|
|
|
(4 |
) |
|
|
57,100 |
|
Total investments - short-term |
$ |
136,263 |
|
|
$ |
63 |
|
|
$ |
(6 |
) |
|
$ |
136,320 |
|
Investments-Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
30,224 |
|
|
$ |
23 |
|
|
$ |
— |
|
|
$ |
30,247 |
|
U.S. government agency securities |
|
31,002 |
|
|
|
6 |
|
|
|
(7 |
) |
|
|
31,001 |
|
Non-U.S. government securities |
|
1,167 |
|
|
|
1 |
|
|
|
— |
|
|
|
1,168 |
|
Corporate debt securities |
|
28,499 |
|
|
|
12 |
|
|
|
(12 |
) |
|
|
28,499 |
|
Total investments - long-term |
$ |
90,892 |
|
|
$ |
42 |
|
|
$ |
(19 |
) |
|
$ |
90,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments-Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
19,792 |
|
|
$ |
9 |
|
|
$ |
— |
|
|
$ |
19,801 |
|
U.S. government agency securities |
|
38,388 |
|
|
|
16 |
|
|
|
(3 |
) |
|
|
38,401 |
|
Non-U.S. government securities |
|
13,734 |
|
|
|
10 |
|
|
|
— |
|
|
|
13,744 |
|
Corporate debt securities |
|
62,720 |
|
|
|
22 |
|
|
|
(4 |
) |
|
|
62,738 |
|
Total investments - short-term |
$ |
134,634 |
|
|
$ |
57 |
|
|
$ |
(7 |
) |
|
$ |
134,684 |
|
Investments-Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
$ |
12,252 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
12,260 |
|
U.S. government agency securities |
|
30,627 |
|
|
|
12 |
|
|
|
(3 |
) |
|
|
30,636 |
|
Non-U.S. government securities |
|
2,305 |
|
|
|
4 |
|
|
|
— |
|
|
|
2,309 |
|
Corporate debt securities |
|
11,152 |
|
|
|
15 |
|
|
|
— |
|
|
|
11,167 |
|
Total investments - long-term |
$ |
56,336 |
|
|
$ |
39 |
|
|
$ |
(3 |
) |
|
$ |
56,372 |
|
The following table summarizes the fair value and gross unrealized losses of the Company’s investments, including those that are categorized as cash equivalents, with unrealized losses aggregated by type of investment instrument and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2014 and December 31, 2013 (in thousands):
|
Less than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|||||||||||||||
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities |
$ |
22,132 |
|
|
$ |
(9 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
22,132 |
|
|
$ |
(9 |
) |
Corporate debt securities |
|
21,874 |
|
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
|
|
21,874 |
|
|
|
(16 |
) |
Total investments |
$ |
44,006 |
|
|
$ |
(25 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
44,006 |
|
|
$ |
(25 |
) |
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities |
$ |
5,533 |
|
|
$ |
(6 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,533 |
|
|
$ |
(6 |
) |
Corporate debt securities |
|
9,837 |
|
|
|
(3 |
) |
|
|
1,504 |
|
|
|
(1 |
) |
|
|
11,341 |
|
|
|
(4 |
) |
Total investments |
$ |
15,370 |
|
|
$ |
(9 |
) |
|
$ |
1,504 |
|
|
$ |
(1 |
) |
|
$ |
16,874 |
|
|
$ |
(10 |
) |
|
The fair value of the Company’s marketable securities and foreign currency contracts was determined using the following inputs (in thousands):
|
|
|
|
|
|
Fair Value Measurements at June 30, 2014 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities (a) |
|
$ |
249,535 |
|
|
$ |
5,615 |
|
|
$ |
243,920 |
|
Foreign currency forward contracts (b) |
|
$ |
4,788 |
|
|
$ |
— |
|
|
$ |
4,788 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (c) |
|
$ |
5,402 |
|
|
$ |
— |
|
|
$ |
5,402 |
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013 Using |
|
|||||
Description |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets |
|
|
Significant Other Observable Inputs |
|
|||
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income available-for-sale securities (a) |
|
$ |
211,151 |
|
|
$ |
17,596 |
|
|
$ |
193,555 |
|
Foreign currency forward contracts (b) |
|
$ |
6,748 |
|
|
$ |
— |
|
|
$ |
6,748 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (c) |
|
$ |
6,780 |
|
|
$ |
— |
|
|
$ |
6,780 |
|
(a) |
Included in cash and cash equivalents, and short and long-term investments in the Company’s condensed consolidated balance sheets. |
(b) |
Included in short-term derivative assets as prepaid expenses and other current assets in the Company’s condensed consolidated balance sheets. |
(c) |
Included in short-term derivative liabilities as other accrued liabilities in the Company’s condensed consolidated balance sheets. |
|
The following table shows the Company’s derivative instruments measured at gross fair value as reflected in the condensed consolidated balance sheets as of the periods presented (in thousands):
|
Fair Value of Derivatives Designated as Hedge Instruments |
|
|
Fair Value of Derivatives Not Designated as Hedge Instruments |
|
||||||||||
|
June 30, 2014 |
|
|
December 31, 2013 |
|
|
June 30, 2014 |
|
|
December 31, 2013 |
|
||||
Derivative assets (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
2,089 |
|
|
$ |
4,457 |
|
|
$ |
2,699 |
|
|
$ |
2,291 |
|
Derivative liabilities (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
1,525 |
|
|
$ |
4,235 |
|
|
$ |
3,877 |
|
|
$ |
2,545 |
|
|
(a) |
All derivative assets are recorded in “Prepaid and other current assets” in the condensed consolidated balance sheets. |
(b) |
All derivative liabilities are recorded in “Other accrued liabilities” in the condensed consolidated balance sheets. |
The following table sets forth the offsetting of derivative assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Assets |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts Of Assets Presented In the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
4,788 |
|
|
$ |
— |
|
|
$ |
4,788 |
|
|
$ |
(4,191 |
) |
|
$ |
— |
|
|
$ |
597 |
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,748 |
|
|
$ |
— |
|
|
$ |
6,748 |
|
|
$ |
(5,643 |
) |
|
$ |
— |
|
|
$ |
1,105 |
|
The following table sets forth the offsetting of derivative liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
|
|||||||||
|
|
Gross Amounts of Recognized Liabilities |
|
|
Gross Amounts Offset in the Condensed Consolidated Balance Sheets |
|
|
Net Amounts Of Liabilities Presented In the Condensed Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
As of June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
5,402 |
|
|
$ |
— |
|
|
$ |
5,402 |
|
|
$ |
(4,191 |
) |
|
$ |
— |
|
|
$ |
1,211 |
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
6,780 |
|
|
$ |
— |
|
|
$ |
6,780 |
|
|
$ |
(5,643 |
) |
|
$ |
— |
|
|
$ |
1,137 |
|
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding non-designated hedges at June 30, 2014 (in thousands):
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
||||||||||||||||
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
||||
Brazilian Real |
|
2,669 |
|
|
$ |
1,212 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Brazilian Real |
|
4,914 |
|
|
$ |
2,192 |
|
|
Sell |
|
|
— |
|
|
|
— |
|
|
— |
Chinese Yuan |
|
90,205 |
|
|
$ |
14,745 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Chinese Yuan |
|
83,527 |
|
|
$ |
13,441 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Euro |
|
21,142 |
|
|
$ |
28,945 |
|
|
Buy |
|
|
9,572 |
|
|
$ |
12,665 |
|
|
Buy |
Euro |
|
42,346 |
|
|
$ |
57,854 |
|
|
Sell |
|
|
27,315 |
|
|
$ |
36,405 |
|
|
Sell |
British Pound |
|
17,141 |
|
|
$ |
29,032 |
|
|
Buy |
|
|
8,877 |
|
|
$ |
13,809 |
|
|
Buy |
British Pound |
|
10,263 |
|
|
$ |
17,486 |
|
|
Sell |
|
|
16,500 |
|
|
$ |
25,903 |
|
|
Sell |
Israeli Shekel |
|
10,130 |
|
|
$ |
2,953 |
|
|
Buy |
|
|
32,074 |
|
|
$ |
8,850 |
|
|
Buy |
Israeli Shekel |
|
30,208 |
|
|
$ |
8,767 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
314,425 |
|
|
$ |
3,105 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Japanese Yen |
|
830,837 |
|
|
$ |
8,191 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
10,541 |
|
|
$ |
813 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
Mexican Peso |
|
19,690 |
|
|
$ |
1,522 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
The following table shows the effect of the Company’s non-designated hedges in the condensed consolidated statements of operations for the following periods (in thousands):
Derivatives Not Designated as Hedging Instruments |
|
Location of Gain or (Loss) Recognized in Income on Derivative |
|
Amount of Gain or (Loss) Recognized in Income on Derivative |
|
|||||
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
(35 |
) |
|
$ |
(732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||
Foreign exchange contracts |
|
Interest and other income (expense), net |
|
$ |
299 |
|
|
$ |
1,601 |
|
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding cash flow hedges at June 30, 2014 (in thousands):
|
|
Original Maturities of 360 Days or Less |
|
Original Maturities of Greater than 360 Days |
|
||||||||||||||||
|
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
Foreign Currency |
|
|
USD Equivalent |
|
|
Positions |
|
||||
Chinese Yuan |
|
|
120,695 |
|
|
$ |
19,228 |
|
|
Buy |
|
|
— |
|
|
$ |
— |
|
|
— |
|
Euro |
|
|
18,500 |
|
|
$ |
25,277 |
|
|
Buy |
|
|
6,828 |
|
|
$ |
9,195 |
|
|
Buy |
|
Euro |
|
|
51,100 |
|
|
$ |
69,928 |
|
|
Sell |
|
|
10,285 |
|
|
$ |
13,866 |
|
|
Sell |
|
British Pound |
|
|
17,000 |
|
|
$ |
28,345 |
|
|
Buy |
|
|
4,723 |
|
|
$ |
7,551 |
|
|
Buy |
|
British Pound |
|
|
23,917 |
|
|
$ |
39,883 |
|
|
Sell |
|
|
— |
|
|
$ |
— |
|
|
— |
|
Israeli Shekel |
|
|
54,200 |
|
|
$ |
15,629 |
|
|
Buy |
|
|
27,826 |
|
|
$ |
7,839 |
|
|
Buy |
|
The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges in the condensed consolidated statements of operations for the following periods (in thousands):
|
|
Gain or (Loss) Recognized in OCI-Effective Portion |
|
|
Location of Gain or (Loss) Reclassified from OCI into Income-Effective Portion |
|
Gain or (Loss) Reclassified from OCI into Income-Effective Portion |
|
|
Location of Gain or (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing |
|
Gain or (Loss) Recognized-Ineffective Portion and Amount Excluded from Effectiveness Testing (a) |
|
|||||||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|||||||||||||||
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||||
Foreign exchange contracts |
|
$ |
422 |
|
|
$ |
(594 |
) |
|
Product revenues |
|
$ |
(1,409 |
) |
|
$ |
(153 |
) |
|
Interest and other income (expense), net |
|
$ |
(127 |
) |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
330 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
717 |
|
|
|
(285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
277 |
|
|
|
755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
194 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
422 |
|
|
$ |
(594 |
) |
|
|
|
$ |
109 |
|
|
$ |
412 |
|
|
|
|
$ |
(127 |
) |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|
|
|
Six Months Ended |
|
|||||||||||||||
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||||
Foreign exchange contracts |
|
$ |
1 |
|
|
$ |
2,363 |
|
|
Product revenues |
|
$ |
(4,274 |
) |
|
$ |
474 |
|
|
Interest and other income (expense), net |
|
$ |
(52 |
) |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
862 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
1,797 |
|
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
692 |
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
366 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1 |
|
|
$ |
2,363 |
|
|
|
|
$ |
(557 |
) |
|
$ |
1,126 |
|
|
|
|
$ |
(52 |
) |
|
$ |
160 |
|
|
(a)There were no gains or losses recognized in income due to ineffectiveness in the periods presented.
|
The following table summarizes the changes in accumulated other comprehensive income, net of tax, by component for the three months ended June 30, 2014 (in thousands). The tax effects were not shown separately, as the impacts were not material.
Six Months Ended June 30, 2014 |
|
Unrealized Gains and Losses on Cash Flow Hedges |
|
|
Unrealized Gains and Losses on Available-for- Sale Securities |
|
|
Foreign Currency Translation |
|
|
Total |
|
||||
Balance as of December 31, 2013 |
|
$ |
80 |
|
|
$ |
73 |
|
|
$ |
4,219 |
|
|
$ |
4,372 |
|
Other comprehensive income (loss) before reclassifications |
|
|
1 |
|
|
|
— |
|
|
|
(1,086 |
) |
|
|
(1,085 |
) |
Amounts reclassified from accumulated other comprehensive income (a) |
|
|
557 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
555 |
|
Net current-period other comprehensive income (loss) |
|
|
558 |
|
|
|
(2 |
) |
|
|
(1,086 |
) |
|
|
(530 |
) |
Balance as of June 30, 2014 |
|
$ |
638 |
|
|
$ |
71 |
|
|
$ |
3,133 |
|
|
$ |
3,842 |
|
|
(a) |
See Note 13 of Notes to Condensed Consolidated Financial Statements for details of gains and losses, net of taxes, reclassified out of accumulated other comprehensive income into net income related to cash flow hedges and each line item of net income affected by the reclassification. Gains and losses related to available-for-sale securities were reclassified into “Other income (expense)” in the condensed consolidated statement of operations for the six months ended June 30, 2014, net of taxes. |
|
The following table summarizes stock-based compensation expense recorded for the periods presented and its allocation within the condensed consolidated statements of operations (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
||||
Cost of sales - product |
$ |
520 |
|
|
$ |
705 |
|
|
$ |
1,160 |
|
|
$ |
1,566 |
|
Cost of sales - service |
|
1,101 |
|
|
|
1,645 |
|
|
|
2,062 |
|
|
|
3,121 |
|
Stock-based compensation expense included in cost of sales |
|
1,621 |
|
|
|
2,350 |
|
|
|
3,222 |
|
|
|
4,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
5,333 |
|
|
|
7,218 |
|
|
|
5,724 |
|
|
|
13,854 |
|
Research and development |
|
3,059 |
|
|
|
4,189 |
|
|
|
4,101 |
|
|
|
8,910 |
|
General and administrative |
|
3,750 |
|
|
|
4,572 |
|
|
|
6,363 |
|
|
|
8,649 |
|
Stock-based compensation expense included in operating expenses |
|
12,142 |
|
|
|
15,979 |
|
|
|
16,188 |
|
|
|
31,413 |
|
Stock-based compensation expense related to employee equity awards and employee stock purchases |
|
13,763 |
|
|
|
18,329 |
|
|
|
19,410 |
|
|
|
36,100 |
|
Tax benefit |
|
2,777 |
|
|
|
6,014 |
|
|
|
3,762 |
|
|
|
13,003 |
|
Stock-based compensation expense related to employee equity awards and employee stock purchases, net of tax |
$ |
10,986 |
|
|
$ |
12,315 |
|
|
$ |
15,648 |
|
|
$ |
23,097 |
|
The fair value of each employee stock purchase right grant is estimated on the date of grant using the Black-Scholes option valuation model and is recognized as expense using the graded vesting method using the following assumptions:
|
Three and Six Months Ended |
||
|
June 30, |
|
June 30, |
Expected volatility |
32.30-42.11% |
|
44.76-52.57% |
Risk-free interest rate |
0.07-0.30% |
|
0.11-0.27% |
Expected dividends |
0.0% |
|
0.0% |
Expected life (yrs) |
0.5-2.0 |
|
0.5-2.0 |
|
Financial information for each reportable geographical segment as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013, based on the Company’s internal management reporting system and as utilized by the Company’s Chief Executive Officer who is its Chief Operating Decision Maker (“CODM”), is as follows (in thousands):
|
Americas |
|
|
EMEA |
|
|
APAC |
|
|
Total |
|
||||
For the three months ended June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
167,806 |
|
|
$ |
83,067 |
|
|
$ |
81,146 |
|
|
$ |
332,019 |
|
% of total revenue |
|
51 |
% |
|
|
25 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
|
69,155 |
|
|
|
35,108 |
|
|
|
33,366 |
|
|
|
137,629 |
|
% of segment revenue |
|
41 |
% |
|
|
42 |
% |
|
|
41 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
175,629 |
|
|
$ |
79,727 |
|
|
$ |
89,878 |
|
|
$ |
345,234 |
|
% of total revenue |
|
51 |
% |
|
|
23 |
% |
|
|
26 |
% |
|
|
100 |
% |
Contribution margin |
|
68,748 |
|
|
|
32,049 |
|
|
|
37,238 |
|
|
|
138,035 |
|
% of segment revenue |
|
39 |
% |
|
|
40 |
% |
|
|
41 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
330,875 |
|
|
$ |
172,104 |
|
|
$ |
157,564 |
|
|
$ |
660,543 |
|
% of total revenue |
|
50 |
% |
|
|
26 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
|
139,128 |
|
|
|
72,774 |
|
|
|
65,020 |
|
|
|
276,922 |
|
% of segment revenue |
|
42 |
% |
|
|
42 |
% |
|
|
41 |
% |
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
346,610 |
|
|
$ |
168,819 |
|
|
$ |
168,557 |
|
|
$ |
683,986 |
|
% of total revenue |
|
51 |
% |
|
|
25 |
% |
|
|
24 |
% |
|
|
100 |
% |
Contribution margin |
|
137,977 |
|
|
|
69,609 |
|
|
|
68,083 |
|
|
|
275,669 |
|
% of segment revenue |
|
40 |
% |
|
|
41 |
% |
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014: Gross accounts receivable |
$ |
86,945 |
|
|
$ |
68,878 |
|
|
$ |
65,300 |
|
|
$ |
221,123 |
|
% of total gross accounts receivable |
|
39 |
% |
|
|
31 |
% |
|
|
30 |
% |
|
|
100 |
% |
As of December 31, 2013: Gross accounts receivable |
|
86,243 |
|
|
|
71,970 |
|
|
|
66,921 |
|
|
|
225,134 |
|
% of total gross accounts receivable |
|
38 |
% |
|
|
32 |
% |
|
|
30 |
% |
|
|
100 |
% |
The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Segment contribution margin |
$ |
137,629 |
|
|
$ |
138,035 |
|
|
$ |
276,922 |
|
|
$ |
275,669 |
|
Corporate and unallocated costs |
|
(99,339 |
) |
|
|
(105,300 |
) |
|
|
(205,938 |
) |
|
|
(213,005 |
) |
Stock-based compensation |
|
(13,763 |
) |
|
|
(18,329 |
) |
|
|
(19,410 |
) |
|
|
(36,100 |
) |
Effect of stock-based compensation cost on warranty expense |
|
(77 |
) |
|
|
(144 |
) |
|
|
(206 |
) |
|
|
(301 |
) |
Transaction-related costs |
|
— |
|
|
|
(49 |
) |
|
|
(156 |
) |
|
|
(3,372 |
) |
Amortization of purchased intangibles |
|
(3,167 |
) |
|
|
(3,793 |
) |
|
|
(6,500 |
) |
|
|
(7,543 |
) |
Restructuring costs |
|
(9,175 |
) |
|
|
(4,329 |
) |
|
|
(39,518 |
) |
|
|
(9,752 |
) |
Interest and other income (expense), net |
|
(1,696 |
) |
|
|
(384 |
) |
|
|
(2,391 |
) |
|
|
(1,143 |
) |
Income from continuing operations before benefit from income taxes |
$ |
10,412 |
|
|
$ |
5,707 |
|
|
$ |
2,803 |
|
|
$ |
4,453 |
|
The following table summarizes the Company’s revenues by groups of similar products and services as follows (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UC group systems |
$ |
218,448 |
|
|
$ |
232,998 |
|
|
$ |
431,820 |
|
|
$ |
465,425 |
|
UC personal devices |
|
53,639 |
|
|
|
50,849 |
|
|
|
110,113 |
|
|
|
100,095 |
|
UC platform |
|
59,932 |
|
|
|
61,387 |
|
|
|
118,610 |
|
|
|
118,466 |
|
Total |
$ |
332,019 |
|
|
$ |
345,234 |
|
|
$ |
660,543 |
|
|
$ |
683,986 |
|
|
The following table presents the income tax expense (benefit) from continuing operations and the effective tax rates (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2014 |
|
|
June 30, 2013 |
|
|
June 30, 2014 |
|
|
June 30, 2013 |
|
||||
Income tax expense (benefit) from continuing operations |
$ |
1,855 |
|
|
$ |
412 |
|
|
$ |
(1,763 |
) |
|
$ |
(2,959 |
) |
Effective tax rate |
|
17.8 |
% |
|
|
7.2 |
% |
|
|
(62.9 |
)% |
|
|
(66.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
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