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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 000-26401
GlobeSpan, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2658218
(State of incorporation) (IRS Employer Identification No.)
100 Schulz Drive, Red Bank, New
Jersey 07701 (Address of principal executive
offices, including ZIP code)
(732) 345-7500
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
The number of shares outstanding of the Registrant's Common Stock as
of August 2, 2000 was 70,553,156.
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<PAGE>
GlobeSpan, Inc.
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999...........................................1
Consolidated Statements of Operations for the Three Months
and Six Months Ended June 30, 2000 and 1999.....................2
Consolidated Statements of Cash Flows for Six Months
Ended June 30, 2000 and 1999....................................3
Notes to Consolidated Financial Statements...........................4
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations...............9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....13
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds......................14
Item 4. Submission of Matters to a Vote of Security Holders............14
Item 6. Exhibits and Reports on Form 8-K...............................15
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
GlobeSpan, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 62,330 $ 24,657
Short-term investments............................................... 10,967 12,011
Accounts receivable, less allowance for doubtful account of $1,346 and
$337, respectively................................................. 24,564 9,160
Accounts receivable from affiliates.................................. 4,056 146
Inventories.......................................................... 19,824 10,656
Prepaid expenses and other current assets............................ 2,929 3,101
---------- ------------
Total current assets............................................ 124,670 59,731
Property and equipment, net.......................................... 15,101 5,853
Intangible assets, net............................................... 667,689 --
Other assets......................................................... 6,480 5,407
---------- ------------
Total assets................................................... $813,940 $ 70,991
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit ..................................... $ 188 $ --
Accounts payable..................................................... 18,532 4,333
Accounts payable to affiliates....................................... 164 80
Accrued expenses and other liabilities............................... 27,942 2,049
Payroll and benefit related liabilities.............................. 12,104 7,688
Current portion of capital lease obligations......................... 3,392 965
---------- ------------
Total current liabilities....................................... 62,322 15,115
Subordinated redeemable convertible note payable..................... 75,694 --
Other long-term liabilities.......................................... 1,352 --
Capital lease obligations, less current portion...................... 2,904 443
---------- ------------
Total liabilities............................................... 142,272 15,558
---------- ------------
Commitments and contingencies.............................................
Stockholders' equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized; none
issued and outstanding.......................................... -- --
Common stock, par value $0.001; 400,000,000 shares authorized;
69,146,906 and 58,134,678 shares issued and outstanding, respectively 69 58
Stock purchase warrant.............................................. 1 1
Additional paid-in capital.......................................... 883,150 77,378
Notes receivable from stock sales................................... (7,144) (7,412)
Deferred stock compensation......................................... (79,453) (1,218)
Accumulated other comprehensive loss................................ (4) (22)
Accumulated deficit................................................. (124,951) (13,352)
---------- ------------
Total stockholders' equity....................................... 671,668 55,433
---------- ------------
Total liabilities and stockholders' equity....................... $ 813,940 $ 70,991
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
GlobeSpan, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
For three months ended For six months ended
---------------------------------------------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenues.............................. $ 75,901 $ 9,434 $ 106,961 $ 18,075
Cost of sales.......................... 29,353 3,236 40,833 6,137
Cost of sales related to termination
charge............................... -- -- -- 1,119
--------------- --------------- --------------- ---------------
Gross profit.............................. 46,548 6,198 66,128 10,819
--------------- --------------- --------------- ---------------
Operating expenses
Research and development (exclusive
of non-cash compensation expense of
$3,560 and $5,440).................... 23,212 5,494 34,092 10,874
Selling, general and administrative
(exclusive of non-cash compensation
expense of $2,972 and $4,541)......... 11,134 2,950 17,375 5,878
Amortization of intangible assets....... 27,009 -- 38,319 --
Non-cash compensation expense........... 6,532 -- 9,981 --
In process research and
development........................... 43,511 -- 44,854 --
--------------- --------------- --------------- ---------------
Total operating expenses.................. 111,398 8,444 144,621 16,752
--------------- --------------- --------------- ---------------
Loss from operations...................... (64,850) (2,246) (78,493) (5,933)
Foreign exchange gain 4 -- 4 --
Interest income 1,018 -- 1,625 --
Interest expense (1,202) (118) (1,700) (300)
Interest expense, non-cash.............. (23,670) -- (33,035) --
--------------- --------------- --------------- ---------------
Net loss.................................. (88,700) (2,364) (111,599) (6,233)
Preferred stock deemed dividend and
accretion................................. -- (3,466) -- (3,466)
--------------- --------------- --------------- ---------------
Net loss attributable to common
stockholders.............................. $ (88,700) $ (5,830) $ (111,599) $ (9,699)
============== ============== ============== ==============
Basic and diluted net loss per
share attributable to common
stockholders........................... $ (1.42) $ (0.15) $ (1.84) $ (0.25)
============== ============== ============== ==============
Weighted average shares of
common stock outstanding
used in computing basic
and diluted net loss per share......... 62,633,620 40,221,363 60,514,616 38,150,250
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GlobeSpan, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
2000 1999
-------- --------
<S> <C> <C>
Cash flow provided by (used in) operating activities:
Net loss ............................................................................. $ (111,599) $ (6,233)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Provision for bad debts.......................................................... 1,009 50
Non-cash interest expense........................................................ 33,035 ---
Non-cash compensation expense.................................................... 9,981 ---
Depreciation and amortization.................................................... 4,676 1,584
Amortization of intangible assets................................................ 38,319 ---
Interest on convertible note payable............................................. 1,566 ---
In-process research and development.............................................. 44,854 ---
Changes in assets and liabilities:
(Increase) decrease in accounts receivables.................................... (19,542) (973)
(Increase) in inventories...................................................... (9,077) (2,234)
(Increase) decrease in prepaid expenses and other assets....................... 247 (2,283)
Increase in accounts payable................................................... 9,260 1,689
Increase in accrued expenses and other
current liabilities.......................................................... 12,617 4,493
---------- ----------
Net cash provided by (used in) operating activities.............................. 15,346 (3,907)
---------- ----------
Cash flows provided by (used in) investing activities:
Purchases of property and equipment................................................... (6,870) (568)
Net cash received from acquisition of businesses (See Note 3)......................... 22,135 ---
Purchases of marketable securities.................................................... (7,365) ---
Proceeds from sale/maturity of marketable securities.................................. 13,294 ---
---------- ----------
Net cash provided by (used in) investing activities.............................. 21,194 (568)
---------- ----------
Cash flows provided by (used in) financing activities:
Repayment of subordinated note payable................................................ --- (5,000)
Borrowings (repayments) under line of credit.......................................... (200) (2,464)
Proceeds from issuance of common stock................................................ 1,967 42,945
Proceeds from issuance of preferred stock............................................. --- 11,150
Proceeds from repayment of notes receivable........................................... 268 ---
Repayments of capital lease obligations............................................... (902) 98
---------- ----------
Net cash provided by (used in) financing activities.............................. 1,133 46,729
---------- ----------
Net increase in cash and cash equivalents............................................. 37,673 42,254
Cash and cash equivalents at beginning of period...................................... 24,657 12
---------- ----------
Cash and cash equivalents at end of period............................................ $ 62,330 $ 42,266
========== ==========
Supplemental non cash financing activities:
Capital lease borrowings......................................................... $ 2,039 $ ---
========== ==========
Notes receivable for sales of common stock....................................... $ --- $ 6,728
========== ==========
Forgiveness of subordinated note payable......................................... $ --- $ 100
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GlobeSpan, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Basis of Presentation
GlobeSpan, Inc. ("GlobeSpan" or the "Company") is a leading worldwide
developer of advanced digital subscriber line (DSL) integrated circuits which
enable high-speed data transmission over the existing network of copper
telephone wires known as the local loop. GlobeSpan sells integrated circuits as
chip sets to manufacturers of DSL equipment for incorporation into products
which are sold to telecommunications service providers and end users.
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared by the Company and reflect all adjustments, consisting only of normal
recurring adjustments, which in the opinion of management are necessary to
present fairly the financial position and the results of operations for the
interim periods. The balance sheet at December 31, 1999 has been derived from
audited financial statements at that date. The financial statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission, but omit certain information and footnote disclosure necessary to
present the statements in accordance with generally accepted accounting
principles. For further information, refer to the financial statements and notes
thereto included in GlobeSpan's Annual Report on Form 10K, filed with the
Securities and Exchange Commission on March 30, 2000. Results for the interim
periods are not necessarily indicative of results for the entire fiscal year.
Stock Split
On January 21, 2000, the Company's board of directors approved a
3-for-1 stock split applicable to all issued and outstanding shares of our
common stock, par value $0.001. This 3-for-1 stock split was effected in the
form of a stock dividend and became effective on February 25, 2000, when
stockholders of record received two additional shares of common stock for each
outstanding share of common stock held as of the record date.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
No. 128, Earnings per Share ("FAS 128"), which requires the presentation of
basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted
EPS") by all entities that have publicly traded common stock or potential common
stock. Basic EPS is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding
during the period.
As of June 30, 2000 and 1999, the Company had outstanding options and
warrants to purchase an aggregate of 15,632,293 and 3,747,786 shares of common
stock, respectively, which were not included in the calculation of earnings per
share for such periods, due to the anti-dilutive nature of these instruments.
Revenue Recognition
Revenue from product sales is recognized upon shipment to the
customer, when no significant vendor obligations exist and collection of the
resulting receivable is probable. Substantially all of our revenue is from
product sales.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 ("SAB 101"), as amended in June 2000, which summarizes
the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company will adopt SAB 101
during the fourth quarter of 2000. The adoption will not have a significant
effect on our consolidated results of operations or financial position.
4
<PAGE>
Revenue Concentration
Three customers accounted for 26.9%, 20.6% and 10.7% of net revenues
in the three months ended June 30, 2000. For the three months ended June 30,
1999, three customers accounted for 47.1%, 11.6% and 6.5% of net revenues,
respectively. For the six months ended June 30, 2000, three customers accounted
for 27.7%, 18.9% and 9.3% of net revenues, respectively. For the six months
ended June 30, 1999, three customers accounted for 43.4%, 10.3% and 6.4% of net
revenues, respectively.
Revenues by geographic region for the three and six months ended June
30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues:
North America $ 54,337 $ 6,295 $ 70,469 $ 11,278
Europe 1,420 1,426 2,895 2,499
Mexico/Latin America 9,545 62 14,165 1,570
Asia 10,593 1,607 19,394 2,586
Australia 6 44 38 142
---------- ---------- ---------- ----------
$ 75,901 $ 9,434 $ 106,961 $ 18,075
========== ========== ========== ==========
</TABLE>
2. Acquisitions
On January 31, 2000, the Company acquired all of the issued and
outstanding shares of Ficon Technology, Inc. ("Ficon"), a leading provider of
solutions in the areas of IP, ATM and Voice over Packet, which enable service
providers to build next generation communications infrastructure. The
acquisition was accounted for as a purchase transaction. The Company acquired
such Ficon shares for $5 million in cash and the right for Ficon shareholders to
receive up to a maximum of 1,959,999 shares of the Company's common stock (the
"Shares"). The Shares may be issued in the future based upon the continued
employment of certain Ficon shareholders and the completion of development
milestones mutually agreed to by the parties.
On February 24, 2000, the Company acquired certain technology and
employees of the Microelectronics Group of PairGain Technologies, Inc.
("PairGain"), designers of integrated circuits and software for DSL
applications. The acquisition was accounted for as a purchase transaction. The
Company paid 3,243,591 shares of its common stock and issued to PairGain a $90.0
million subordinated redeemable convertible note (the "Note"). The Note may,
within the first six months after its issue, be redeemed at the option of the
Company in cash, or thereafter, be converted at the option of PairGain, into
2,919,237 shares of the Company's common stock. The Note matures in seven years
and bears interest at an annual rate of 5.0%, accrued and payable at the earlier
of maturity or redemption. The Company has recorded a beneficial conversion
feature relating to the Note of $47.3 million reflecting the intrinsic value of
the beneficial conversion feature. Such amount is being amortized as interest
expense over the period the beneficial conversion feature is first available.
For the six-month period ended June 30, 2000, $33.0 million was recorded as
interest expense, non-cash.
On April 27, 2000, we acquired all the issued and outstanding shares
of T.sqware, Inc. ("T.sqware"), a provider of fully programmable scalable
network processors supporting high-speed data communications. The transaction
was accounted for as a purchase transaction. We paid for these shares by issuing
2,022,182 shares of our own common stock and assuming the outstanding T.sqware
options for the equivalent of 177,569 options to purchase our common stock.
On June 30, 2000, we acquired all of the issued and outstanding shares
of iCompression, Inc. ("iCompression"), a supplier of advanced signal processing
technology for delivering voice, video and data for the broadband infrastructure
in applications such as broadband video conferencing. The transaction was
accounted for as a purchase transaction. We paid for these shares by issuing
3,470,152 shares of our common stock and assuming the outstanding iCompression
options for the equivalent of approximately 529,727 options to purchase our
common stock.
5
<PAGE>
The following is a summary of all consideration paid for the
acquisitions of Ficon, PairGain, T.sqware and iCompression during the six months
ended June 30, 2000:
<TABLE>
<S> <C>
Fair value of common stock issued and employee stock options $ 679,614
Subordinated redeemable convertible note issued 90,000
Cash paid 5,000
Transaction costs 6,570
---------
Total purchase price $ 781,184
=========
</TABLE>
The assets and liabilities of the acquired entities were recorded based
upon preliminary third party valuation as of the dates of acquisition. The
allocations were as follows:
<TABLE>
<S> <C>
Cash $ 31,805
Short-term investments 4,488
Account receivable 782
Prepaid and other assets 1,617
Property and equipment 4,113
Goodwill and intangibles 722,619
---------
765,424
In process research and development 44,854
Liabilities assumed (29,094)
---------
Total purchase price $ 781,184
=========
</TABLE>
The amounts allocated to in process research and development ("IPR&D")
total $44.9 million and were expensed upon acquisition, as it was determined
that the underlying project had not reached technical feasibility, had no
alternative future use and successful development was uncertain. In the
allocation of the acquisition purchase price to IPR&D, consideration was given
to the following for each of the projects at the time of the acquisition:
- the present value of the forecasted cash flows and income that were
expected to result from the project;
- the status of each projects;
- completion costs;
- project risks;
- the value of core technology; and
- the stage of completion of the project
In valuing core technology, the relative allocations to core
technology and IPR&D were consistent with the relative contribution of the
project. The determination of the value of IPR&D was based on efforts completed
as of the date the respective entities were acquired.
As of the acquisition dates of T.sqware, and iCompression, development
projects were in process. In order to develop these projects into commercially
viable products, the Company had to complete all designing and testing
activities necessary to establish that products could be produced to meet their
design requirements. The projects are still in development stages as of
June 30, 2000, consistent with the initial estimates used in the valuations of
these projects.
Certain shares of common stock issued to the principals of Ficon are
subject to forfeiture if their employment ceases with the Company, and is
recorded as deferred stock compensation. The deferred stock compensation
recorded was $28.8 million and is being amortized over the three-year vesting
period on a straight-line basis.
The Company also granted stock options to the employees, including
those of acquired entities, at various discounts to fair market value as
long-term retention strategy and recorded additional deferred stock compensation
of $58.5 million. This amount is being amortized over a four year vesting period
on a straight-line basis.
6
<PAGE>
The following unaudited pro forma information represents a summary of
the results of operations as if the Ficon, T.sqware and iCompression
acquisitions occurred on January 1, 1999.
<TABLE>
<CAPTION>
For the six months ended For the year ended
June 30, 2000 June 30, 1999 December 31, 1999
--------------- --------------- ------------------
<S> <C> <C> <C>
Revenue $ 108,419 $ 20,920 $ 61,908
=============== =============== ===============
Net loss $ (189,676) $ (152,877) $ (253,999)
=============== =============== ===============
Net loss per common share $ (3.13) $ (3.63) $ (4.90)
=============== =============== ===============
</TABLE>
The pro forma results are based on various assumptions and are not
necessarily indicative of what would have occurred had this transaction been
consummated on January 1, 1999. The $44.9 million of IPR&D are included in all
periods presented.
3. Supplemental Cash Flow Data:
The Company acquired cash of approximately $28.7 million in connection
with the acquisitions of T.sqware and iCompression completed during the second
quarter of 2000 and used cash of approximately $6.6 million in connection with
the purchase Ficon Technology Inc. and for the purchase of certain technology
and employees of the Microelectronics Group of PairGain Technologies, Inc
completed during the first quarter of 2000, resulting in net cash received from
acquisition of businesses of $22.1 million during the six month period ended
June 30, 2000 as follows:
Purchase price $ 781,184
Common stock issued (679,614)
Subordinated redeemable
convertible note payable (90,000)
Accrued transaction costs (1,900)
---------
Cash paid 9,670
Less: net cash acquired (31,805)
---------
Net cash received from
acquisition of businesses $ (22,135)
=========
4. Related Party Transactions
In March 1999, the Company and Paradyne Corporation agreed to
terminate the Cooperative Development Agreement. In connection with such
termination agreement, the Company agreed to pay Paradyne an aggregate of $1.5
million, less the amounts previously paid of approximately $0.3 million (or
approximately $1.2 million) to terminate the July discount pricing arrangement
with Paradyne Corporation. Such payment was made in July 1999 and was charged to
cost of sales during the three months ended March 31, 1999. In addition,
GlobeSpan and Paradyne Corporation as part of the Termination Agreement affirmed
that the earlier technology license provisions of the Cooperative Development
Agreement were never implemented. In conjunction with the signing of the
Termination Agreement, GlobeSpan and Paradyne Corporation also entered into a
four-year Supply Agreement, which gave Paradyne Corporation preferential pricing
and other terms in connection with the sale by GlobeSpan of products to Paradyne
Corporation. In addition, under the terms of the Supply Agreement, GlobeSpan is
required to honor Paradyne Corporation's orders for GlobeSpan's products in
quantities at least consistent with Paradyne Corporation's past ordering
practices and must afford Paradyne Corporation at least the same priority for
Paradyne Corporation's orders as GlobeSpan affords its other similarly situated
customers. GlobeSpan also granted Paradyne Corporation a standard customer
immunity under GlobeSpan's intellectual property rights with respect to any of
Paradyne Corporation's products, which incorporate GlobeSpan's products. Net
revenues for the three months ended June 30, 2000 and 1999 were $8.1 million and
$0.5 million, respectively. Net revenues for the six months ended June 30, 2000
and 1999 were $10.0 million and $1.1 million, respectively.
7
<PAGE>
5. Subsequent Events
On August 2, 2000, we completed a follow-on public offering of
7,500,000 shares of common stock at a price of $100.00 per share. The closing of
the offering occurred on August 7, 2000. Of the 7,500,000 shares of common
stock, 1,406,250 shares were offered by the Company, resulting in proceeds from
the offering of $132.7 million, net of underwriting commissions and estimated
offering expenses, and 6,093,750 shares were offered by selling shareholders.
The Company did not receive any of the proceeds from the sales of shares by the
selling shareholders. On August 10, 2000, the Company used a portion of the
proceeds from this offering to repay the subordinated redeemable convertible
note of $90.0 million (plus interest of $2.1 million) issued by us in connection
with our acquisition of PairGain. The Company intends to use the balance of the
proceeds from the offering for general corporate purposes, including working
capital, sales and marketing expenditures, development of new products and
services and possible acquisitions.
In connection with the repayment of the subordinated redeemable
convertible note issued by us to PairGain, the Company recognized the redemption
of the original beneficial conversion feature recorded for $47.3 million and the
gain on the associated redemption of the amortized amount.
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934, as amended. Such statements are based upon
current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. GlobeSpan's actual results and the timing of certain
events may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a discrepancy include,
but are not limited to, overall economic conditions, the impact of competition
and pricing, the loss of one or more key customers, our ability to obtain
sufficient quantities of our chipsets from our manufacturers, our ability to
retain and recruit qualified personnel, ability to manage our growth, and other
risk factors described herein, and the Risk Factors included in other reports
and filings made with the Securities and Exchange Commission. All
forward-looking statements in this document are based on information available
to GlobeSpan as of the date hereof and GlobeSpan assumes no obligation to update
any such forward-looking statements.
The following table presents our unaudited results as a percentage of
revenues for the three and six months ended June 30, 2000 and 1999. Our results
of operations are reported as a single business segment.
<TABLE>
<CAPTION>
For Three Months For Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 38.7 34.3 38.2 34.0
Cost of sales related to termination charge........ -- -- -- 6.2
--------- --------- --------- ---------
Gross profit................................... 61.3 65.7 61.8 59.8
Operating expenses:
Research and development....................... 30.6 58.2 31.9 60.2
Selling, general and administrative............ 14.6 31.3 16.3 32.5
Amortization of intangible assets.............. 35.6 -- 35.8 --
Non-cash compensation expense 8.6 -- 9.3 --
In process research and development............ 57.3 -- 41.9 --
--------- --------- --------- ---------
Total operating expenses.................. 146.7 89.5 135.2 92.7
--------- --------- --------- ---------
Loss from operations............................... (85.4) (23.8) (73.4) (32.9)
Foreign exchange gain.............................. -- -- -- --
Interest Income.................................... 1.3 (1.3) 1.6 (1.7)
Interest expense................................... (1.6) -- (1.6) --
Interest expense non-cash.......................... (31.2) -- (30.9) --
--------- --------- --------- ---------
Net loss .......................................... (116.9)% (25.1)% (104.3)% (34.6)%
========= ========= ========= =========
</TABLE>
Results of Operations for the three months ended June 30, 2000 and 1999
Net Revenues. Our net revenues were $75.9 million and $9.4 million in the three
months ended June 30, 2000 and 1999, respectively. This amounts to an increase
of 704.5%. This increase in net revenues was primarily due to the increase in
unit volume shipments to existing customers, expansion of our customer base,
introduction of new products and, to a lesser extent, net revenues from acquired
businesses.
9
<PAGE>
Cost of Sales and Gross Profit. Our gross profit was $46.5 million and $6.2
million in the three months ended June 30, 2000 and 1999, respectively. This
amount represents an increase of 650.0%. Our gross margin was 61.3% and 65.7% in
the three months ended June 30, 2000 and 1999, respectively. The decrease in
gross margin was related to lower average selling prices due to increased unit
volume shipped. The increase in gross profit dollars was the result of higher
net revenues. We expect gross margins may decrease in the future due to a number
of factors, including pressures on average selling prices, product mix and
customer mix.
Research and Development. Our research and development expenses were $23.2
million and $5.5 million in the three months June 30, 2000 and 1999,
respectively. This amount represents an increase of 321.8%. Research and
development expenses represented 30.6% and 58.2% of net revenues for the three
months ended June 30, 2000 and 1999, respectively. The increase in dollars is
the result of the inclusion of an acquisition completed during the three months
ended June 30, 2000 and from an increase in development efforts in advance of
anticipated revenues from such efforts. In addition, we added new personnel and
related support from acquisitions and new hiring and incurred higher amounts of
non-recurring engineering expenses and one-time licensing fees related to new
products. The decrease in research and development expense as a percentage of
net revenues was due to higher net revenues. Our research and development
expense may increase due to planned additional increases in personnel and
related support expenses, prototyping costs and depreciation resulting from
increased capital investment.
Selling, General and Administrative. Our selling, general and administrative
expense was $11.1 and $3.0 million for the three months ended June 30, 2000 and
1999, respectively. This amount represents an increase of 277.4%. Selling,
general and administrative expense represented 14.6% and 31.3% of net revenues
for the three months ended June 30, 2000 and 1999, respectively. The increase in
dollars resulted from the increase in sales, marketing and administrative
personnel and related expenses including expenses from our acquisition,
increased commissions and administrative costs. This decrease in the percentage
of selling, general and administrative expense as a percentage of net revenues
was due to higher net revenues. Our selling, general and administrative expense
may increase due to increases in personnel, higher commissions and
administrative costs.
Amortization of Intangible Assets. During the three months ended June 30, 2000,
we completed the acquisitions of T.sqware, Inc. on April 27, 2000 and
iCompression, Inc. on June 30, 2000. The increase in dollar amount and
percentage of amortization expense is the result of our amortizing the
intangible assets acquired.
Non-cash Compensation. During the three months ended June 30, 2000, we granted
certain employees stock options at less than fair market value. The deferred
stock recorded is being amortized over the respective vesting period of four
years. The increase in the dollar amount and percentage of non-cash compensation
is the result of our amortizing the deferred compensation.
In Process Research and Development. During the three months ended June 30,
2000, our acquisitions, T.sqware and iCompression, each had development projects
not yet complete. The increase in dollars and percentage of IPR&D is the result
of our expensing the IPR&D acquired.
Interest Income and Expense. Interest expense for the three months ended June
30, 2000 was $1.2 million, offset by interest income of $1.0 million. The
increase in interest expense was the result of higher borrowings and interest on
our convertible note. The increase in interest income was the result of
investment of excess cash balances. Interest expense for the three months ended
June 30, 1999 was $0.1 million and was the result of interest on borrowings.
Interest Expense Non-cash. We are amortizing the beneficial conversion feature
of approximately $48.0 million, over our call period through August 2000. The
increase in the dollar amount and percentage of interest expense non-cash is the
result of our amortization.
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Results of Operations for the six months ended June 30, 2000 and 1999
Net Revenues. Our net revenues were $107.0 million and $18.1 million in the six
months ended June 30, 2000 and 1999, respectively. This amounts to an increase
of 491.8%. This increase in net revenues was primarily due to the increase in
unit volume shipments to existing customers, expansion of our customer base,
introduction of new products and, to a lesser extent, net revenues from acquired
businesses.
Cost of Sales and Gross Profit. Our gross profit was $66.1 million and $10.8
million in the six months ended June 30, 2000 and 1999, respectively. This
amount represents an increase of 511.2%. Our gross margin was 61.8% and 59.9% in
the six months ended June 30, 2000 and 1999, respectively. The increase in gross
margin was due to a one-time termination charge related to the termination of a
royalty agreement with Paradyne Corporation in the six months ended June 30,
1999. Without this termination charge, our gross margins would have decreased
from 66.0% to 61.8%. The decrease in gross margin was related to lower average
selling prices due to increased unit volume shipped. The increase in gross
profit dollars was the result of higher net revenues. We expect gross margins
may decrease in the future due to a number of factors, including pressures on
average selling prices, product mix and customer mix.
Research and Development. Our research and development expenses were $34.1
million and $10.9 million in the six months June 30, 2000 and 1999,
respectively. This amount represents an increase of 213.5%. Research and
development expense represented 31.9% and 60.2% of net revenues for the six
months ended June 30, 2000 and 1999, respectively. The increase in dollars is
the result of the inclusion of acquisitions completed during the six months
ended June 30, 2000 and from an increase in development efforts in advance of
anticipated revenues from such efforts. In addition, we added new personnel and
related support from acquisitions and new hiring and incurred higher amounts of
non-recurring engineering expenses and one-time licensing fees related to new
products. The decrease in research and development expense as a percentage of
net revenues was due to higher net revenues. Our research and development
expense may increase due to planned additional increases in personnel and
related support expenses, prototyping costs and depreciation resulting from
increased capital investment.
Selling, General and Administrative. Our selling, general and administrative
expense was $17.4 and $5.9 million for the six months ended June 30, 2000 and
1999, respectively. This amount represents an increase of 195.6%. Selling,
general and administrative expense represented 16.3% and 32.5% of net revenues
for the six months ended June 30, 2000 and 1999, respectively. The increase in
dollars resulted from the increase in sales, marketing and administrative
personnel and related expenses including expenses from our acquisitions,
increased commissions and administrative costs. The decrease in the percentage
of selling, general and administrative expense as a percentage of net revenues
was due to higher net revenues. Our selling, general and administrative expense
may increase due to increases in personnel, higher commissions and
administrative costs.
Amortization of Intangible Assets. During the six month period ended June 30,
2000, we completed an acquisition of Ficon Technologies, Inc. on January 31,
2000, an asset purchase of the Microelectronics Group of PairGain Technologies,
Inc. on February 24, 2000, and acquisitions of T.sqware, Inc. on April 27, 2000
and iCompression, Inc. on June 30, 2000. The increase in dollar amount and
percentage of amortization expense is the result of our amortizing the
intangible assets acquired during the six months ended June 30, 2000.
Non-cash Compensation. During the six months ended June 30, 2000, we exchanged
our common stock with employee principals of an acquisition which was considered
compensation and we granted certain employees stock options at less than fair
market value. The deferred stock recorded is being amortized over the respective
vesting periods of three and four years. The increase in the dollar amount and
percentage in non-cash compensation is the result of our amortizing deferred
compensation.
In Process Research and Development. During the six months ended June 30, 2000,
our acquisitions of Ficon Technologies, Inc., T.sqware, Inc. and iCompression,
Inc., each had development projects not yet complete. The increase in dollars
and percentage of IPR&D is the result of our expensing the IPR&D acquired.
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Interest Income and Expense. Interest expense for the six months ended June 30,
2000 was $1.7 million, offset by interest income of $1.6 million. The increase
in interest expense was the result of higher borrowings and interest on our
convertible note. The increase in interest income was the result of investment
of excess cash balances. Interest expense for the six months ended June 30, 1999
was $0.3 million and was the result of interest on borrowings.
Interest Expense Non-cash. We are amortizing the beneficial conversion feature
of approximately $48.0 million, over our call period through August 2000. The
increase in the dollar amount and percentage of interest expense non-cash is the
result of our amortization.
Liquidity and Capital Resources
As of June 30, 2000, we had working capital of $62.3 million, cash and
cash equivalents of $62.3 million and short-term investments of $11.0 million.
Net cash provided by operating activities was $15.3 million in the six
months ended June 30, 2000, compared to net cash used in operating activities of
$3.9 million during the six months ended June 30, 1999. The increase was
primarily due to higher revenues during the six month period ended June 30,
2000, compared to the six month period ended June 30, 1999.
Investing activities, which primarily consisted of net cash received
from the acquisition of businesses of $22.1 million, amounted to $21.2 million
during the six months ended June 30, 2000. Purchases of property and equipment
and marketable securities of $14.2 million were mostly offset by proceeds from
maturities of marketable securities of $13.3 million during the six months ended
June 30, 2000.
Cash flows provided by financing activities of $1.1 million during the
six month period ended June 30, 2000 primarily consisted of proceeds from the
issuance of common stock of $2.0 million, which were partially offset by
repayments of capital lease obligations of $0.9 million. Cash flows provided by
financing activities of $46.7 million during the six month period ended June 30,
1999 primarily consisted of proceeds from the issuance of common stock of $42.9
million, which resulted from the completion of an initial public offering of the
Company's common stock. The remaining net source of cash of $3.8 million was
primarily generated from the issuance of preferred stock of $11.5 million that
was mostly offset by repayments of a subordinated note payable and a line of
credit totaling $7.5 million.
On August 2, 2000, we completed a follow-on public offering of
7,500,000 shares of common stock at a price of $100.00 per share. The closing of
the offering occurred on August 7, 2000. Of the 7,500,000 shares of common
stock, 1,406,250 shares were offered by us, resulting in proceeds from the
offering of $132.7 million, net of underwriting commissions and estimated
offering expenses, and 6,093,750 shares were offered by selling shareholders. We
did not receive any of the proceeds from the sales of shares by the selling
shareholders. On August 9, 2000, the Underwriters of the offering exercised
their option to purchase an additional 1,125,000 shares of common stock to cover
over-allotments. All of these shares were sold by the selling shareholders and
none were sold by us. On August 10, 2000, we used a portion of the proceeds from
the offering to repay the subordinated redeemable convertible note of $90.0
million (plus interest of $2.1 million) issued by us in connection with our
acquisition of PairGain. The Company intends to use the balance of the proceeds
from the offering for general corporate purposes, including working capital,
sales and marketing expenditures, development of new products and services and
possible acquisitions.
We believe that our sources of capital, including internally generated
funds and the net proceeds from our recently completed public offering, after
the repayment of subordinated redeemable convertible note, will be adequate to
satisfy our anticipated working capital and capital expenditure needs for at
least one year. After that, we may need to raise additional funds, and we cannot
be certain that we will be able to obtain additional financing on favorable
terms, if at all. We may also require additional capital for the acquisition of
businesses, products and technologies that are complementary to ours. Further,
if we issue equity securities, the ownership percentage of our stockholders
would be reduced, and the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our common stock. If we cannot
raise needed funds on acceptable terms, we may not be able to develop or enhance
our products, take advantage of future
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opportunities or respond to competitive pressures or unanticipated requirements,
which could seriously harm our business, operating results and financial
condition.
Although We Experienced No Significant Year 2000 Disruptions We Will Continue to
Monitor Developments
The "Year 2000 Issue" refers generally to the problems that some
software may have in determining the correct century of the year. In late 1999,
we completed our Year 2000 compliance project. As a result of our efforts, we
experienced no significant disruptions related to Year 2000. We are not aware of
any material problems resulting from Year 2000 issues, either with our products,
our internal systems, or the products and services of supplies. The incremental
costs related to the Year 2000 project were not material to our results of
operations, financial position or cash flows. We have not experienced any
significant issues and will continue to monitor throughout Year 2000 our
critical computer applications, and those of our suppliers, to ensure that any
latest Year 2000 matters that may arise are addressed promptly.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may invest
in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and
certificates of deposit. As of June 30, 2000, all of our investments were in
money market funds, certificates of deposits, or high quality commercial paper.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On April 27, 2000, the Company issued 2,022,182 shares of its Common Stock in
exchange for all of the issued and outstanding shares of T.Sqware. The issuance
was effected in reliance on the exemption from registration provided by Section
4(2) of the Securities Act. On June 30, 2000, the Company issued 3,470,152
shares of its Common Stock for all of the issued and outstanding shares of
iCompression. The issuance was effected on June 30, 2000 in reliance on the
exemption from registration provided by Section 3(a)(10) of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
On June 13, 2000, the Company held the Annual Meeting of Stockholders, whereby
the stockholders approved (i) the election of nine (9) directors; (ii) the
approval of an amendment to the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of common stock, par
value $.001 per share; and (iii) the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's independent public accountants for
the fiscal year ending December 31, 2000. At the date of record, April 25, 2000,
there were 63,474,032 shares outstanding. The vote on such matters was as
follows:
1. Election of Directors:
Total Vote for Total Vote Withheld
Each Nominee From Each Nominee
-------------- -------------------
Armando Geday 45,449,915 21,528
Barbara Connor 45,449,915 21,528
James Coulter 45,449,915 21,528
Dipanjan Deb 45,449,915 21,528
Thomas Epley 45,449,915 21,528
Federico Faggin 45,449,915 21,528
Keith Geeslin 45,449,915 21,528
David Stanton 45,449,915 21,528
John Marren 45,449,915 21,528
2. The approval of the amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 100,000,000 to 400,000,000 :
For 37,279,023
Against 8,061,750
Abstaining 130,670
3. Appointment of PricewaterhouseCoopers LLP as the Company's independent public
accountants:
For 45,413,993
Against 39,917
Abstaining 17,533
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed three reports on Form 8-K during the quarter ended June
30, 2000. Information regarding the items reported is as follows:
Report Date Item Reported On
-------------- -------------------------------------------------
April 14, 2000 Financial Statements of Ficon Technology, Inc.
May 12, 2000 Acquisition of T.sqware, Inc.
May 17, 2000 Company's agreement to acquire iCompression, Inc.
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GLOBESPAN, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBESPAN, INC.
Date: August 11, 2000 By: /s/ Robert McMullan
-----------------------------
Robert McMullan
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit
No. Description
--- -----------
27 Financial Data Schedule
17
