-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UVtEHav9MB1P4EHbrhUj3Xpzfk9FCiw1RMUaVB3oRqCBfadp0DokE4xeBBIYJrSs +oBPsSrXZ2/Z2Jyspo56Xg== /in/edgar/work/0000912057-00-051591/0000912057-00-051591.txt : 20001130 0000912057-00-051591.hdr.sgml : 20001130 ACCESSION NUMBER: 0000912057-00-051591 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETSCOUT SYSTEMS INC CENTRAL INDEX KEY: 0001078075 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 042837575 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-26251 FILM NUMBER: 779960 BUSINESS ADDRESS: STREET 1: 4 TECHNOLOGY PARK DR CITY: WESTFORD STATE: MA ZIP: 01886 BUSINESS PHONE: 9786144000 MAIL ADDRESS: STREET 1: 4 TECHNOLOGY PARK DRIVE CITY: WESTFORD STATE: MA ZIP: 01886 10-Q/A 1 a2031919z10-qa.txt FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 TO FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 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 0000-26251 ------------------------------ NETSCOUT SYSTEMS, INC. (Exact name of registrant as specified in charter) Delaware 04-2837575 (State or other jurisdiction of incorporation (IRS Employer Identification No.) or organization) 4 Technology Park Drive, Westford, MA 01886 (978) 614-4000 ------------------------------ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value --------------------------- 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 November 7, 2000 was 29,303,706. This Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000 (the "Report") is being filed to make certain typographical corrections and other technical changes to the information listed in Item 1 of the Report. The information appearing in Item 1 below amends and restates the information appearing in Item 1 of the Report. PART 1: FINANCIAL INFORMATION Item 1. Financial Statements NetScout Systems, Inc. Consolidated Balance Sheets (In thousands, except share and per share data) (Unaudited)
September 30, March 31, 2000 2000 ---- ---- Assets Current assets: Cash and cash equivalents ............................................................................... $37,204 $48,515 Marketable securities ................................................................................... 17,785 21,807 Accounts receivable, net of allowance for doubtful accounts and returns of $809 and $754 at September 30, 2000 and March 31, 2000, respectively ................................................................. 13,237 10,390 Inventories ............................................................................................. 3,634 3,131 Refundable income taxes ................................................................................. 274 1,899 Deferred income taxes ................................................................................... 1,164 1,022 Prepaids and other current assets ....................................................................... 3,878 3,728 ---------------------- Total current assets ............................................................................. 77,176 90,492 Fixed assets, net ....................................................................................... 6,887 5,657 Intangible assets, net .................................................................................. 46,442 -- Deferred income taxes ................................................................................... 4,652 599 ---------------------- Total assets ..................................................................................... $135,157 $96,748 ====================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable ........................................................................................ $3,417 $2,789 Accrued compensation .................................................................................... 3,631 3,673 Accrued other ........................................................................................... 2,295 2,448 Customer deposits ....................................................................................... 24 78 Deferred revenue ........................................................................................ 8,608 6,638 ---------------------- Total current liabilities ........................................................................ 17,975 15,626 ---------------------- Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value: 5,000,000 shares authorized, no shares issued or outstanding at September 30, 2000 and March 31, 2000 ............................................................... -- -- Common stock, $0.001 par value: 150,000,000 shares authorized, 33,173,765 shares issued and 29,196,511 shares outstanding at September 30, 2000; 30,697,697 shares issued and 26,720,443 shares outstanding at March 31, 2000 ................................................................ 33 31 Additional paid-in capital .............................................................................. 104,045 67,366 Deferred compensation ................................................................................... (4,800) (636) Treasury stock .......................................................................................... (25,306) (25,306) Retained earnings ....................................................................................... 43,210 39,667 ---------------------- Total stockholders' equity ....................................................................... 117,182 81,122 ---------------------- Total liabilities and stockholders' equity ....................................................... $135,157 $96,748 ======================
The accompanying notes are an integral part of these consolidated financial statements. NetScout Systems, Inc. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenue: Product ................................ $20,790 $13,541 $38,551 $26,355 Service ................................ 4,427 3,099 8,404 5,564 License and royalty .................... 3,602 3,664 7,033 7,456 ----------------------------------------- Total revenue .................. 28,819 20,304 53,988 39,375 ----------------------------------------- Cost of revenue: Product (excluding stock-based compensation of $0, $1, $1 and $1, respectively, which is disclosed separately below)...................... 7,262 5,086 13,356 9,900 Service (excluding stock-based compensation of $1, $10, $1 and $19, respectively, which is disclosed separately below)...................... 857 397 1,451 801 ----------------------------------------- Total cost of revenue .......... 8,119 5,483 14,807 10,701 ----------------------------------------- Gross margin ................................ 20,700 14,821 39,181 28,674 ----------------------------------------- Operating expenses: Research and development (excluding stock-based compensation of $521, $73, $531 and $95, respectively, which is disclosed separately below)......... 3,818 2,386 6,380 4,604 Sales and marketing (excluding stock-based compensation of $52, $67, $112 and $123, respectively, which is disclosed separately below)......... 10,197 6,644 18,864 12,629 General and administrative (excluding stock-based compensation of $2, $4, $4 and $8, respectively, which is disclosed separately below)......... 2,347 1,146 3,939 2,079 Stock-based compensation ............... 576 155 649 246 Amortization of intangible assets ...... 2,666 -- 2,666 -- In-process research and development .... 268 -- 268 -- ----------------------------------------- Total operating expenses ....... 19,872 10,331 32,766 19,558 ----------------------------------------- Income from operations ...................... 828 4,490 6,415 9,116 Interest income, net ........................ 1,108 504 2,142 776 ----------------------------------------- Income before provision for income taxes .... 1,936 4,994 8,557 9,892 Provision for income taxes .................. 2,697 1,800 5,014 3,564 ----------------------------------------- Net income (loss) ........................... ($761) $3,194 $3,543 $6,328 ========================================= Basic net income (loss) per share ........... ($0.03) $0.16 $0.13 $0.36 Diluted net income (loss) per share ......... ($0.03) $0.12 $0.12 $0.25 Shares used in computing : Basic net income (loss) per share ...... 28,585 20,556 27,561 17,461 Diluted net income (loss) per share .... 28,585 26,575 28,955 25,749
The accompanying notes are an integral part of these consolidated financial statements. NetScout Systems, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended September 30, 2000 1999 ---- ---- Cash flows from operating activities: Net income ..................................................... $3,543 $6,328 Adjustments to reconcile net income to net cash provided by operating activities net of effects of acquisition of NextPoint: Depreciation and amortization ............................... 1,753 1,254 Amortization of intangible assets ........................... 2,666 -- In-process research and development ......................... 268 -- Loss on disposal of fixed assets ............................ 55 43 Compensation expense associated with equity awards .......... 649 246 Deferred income taxes ....................................... 431 -- Changes in assets and liabilities: Accounts receivable .................................... (1,635) (2,879) Inventories ............................................ (503) 386 Refundable income taxes ................................ 1,625 148 Prepaids and other current assets ...................... (33) (1,879) Accounts payable ....................................... 199 (417) Accrued expenses ....................................... (1,098) 245 Customer deposits ...................................... (54) -- Deferred revenue ....................................... 1,676 817 ------------------- Net cash provided by operating activities .............. 9,542 4,292 ------------------- Cash flows from investing activities: Purchase of marketable securities ................................ (18,577) (14,622) Proceeds from maturity of marketable securities .................. 22,599 -- Purchase of fixed assets ......................................... (2,397) (2,494) Cash paid for acquisition of NextPoint, net of cash received ..... (22,914) -- ------------------- Net cash used in investing activities ................... (21,289) (17,116) ------------------- Cash flows from financing activities: Proceeds from issuance of common stock ........................... 1,655 29,901 Purchase of treasury stock ....................................... -- 2,000 Repayment of notes payable ....................................... (1,219) -- ------------------- Net cash provided by financing activities................ 436 31,901 ------------------- Net increase (decrease) in cash and cash equivalents ............. (11,311) 19,077 Cash and cash equivalents, beginning of year ..................... 48,515 25,477 ------------------- Cash and cash equivalents, end of period ......................... $37,204 $44,554 =================== Supplemental disclosure of cash flow information: Cash paid for interest ........................................... $35 $3 Cash paid for income taxes ....................................... 2,400 3,429
The accompanying notes are an integral part of these consolidated financial statements. NetScout Systems, Inc. Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying consolidated financial statements as of September 30, 2000 and for the three and six months ended September 30, 2000 and 1999 are unaudited. In the opinion of NetScout's management, the September 30, 2000 and 1999 unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for that period. The results of operations for the three and six month periods ended September 30, 2000 are not necessarily indicative of the results of operations for the year ended March 31, 2001. The balance sheet at March 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information refer to the consolidated financial statements and footnotes thereto included in NetScout's Annual Report on Form 10-K for the year ended March 31, 2000, as filed with the Securities and Exchange Commission on June 23, 2000. 2. Cash, Cash Equivalents and Marketable Securities NetScout considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and those with maturities greater than three months are considered to be marketable securities. Cash equivalents and marketable securities are stated at amortized cost plus accrued interest, which approximates fair value. Cash equivalents and marketable securities consist primarily of money market instruments and U.S. Treasury bills. NetScout accounts for its investments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under the provision of SFAS No. 115, NetScout has classified its investments as "available-for-sale" and any associated unrealized gains or losses, if material, are recorded as a separate component of stockholders' equity until realized. At September 30, 2000 and March 31, 2000, any unrealized gains or losses were not significant. 3. Inventories Inventories consist of the following (in thousands): September 30, March 31, 2000 2000 ---- ---- Raw materials ...................... $2,668 $2,371 Work-in-process .................... 403 476 Finished goods ..................... 563 284 ----------------------------- $3,634 $3,131 ============================= 4. Goodwill and Other Intangible Assets Goodwill and other intangible assets consist of the following (in thousands): September 30, Estimated 2000 Lives ---- ----- Goodwill ................................. $45,142 5 Customer base ............................ 1,100 3 Assembled workforce....................... 700 2 Completed Technology ..................... 2,166 3 ------- 49,108 Less accumulated amortization ............ 2,666 ------- Total .................................... $46,442 ======= Goodwill and other intangible assets will be amortized as follows (in thousands): Six months ending March 31, 2001 ................... $5,185 2002 ............................................. 10,467 2003 ............................................. 10,204 2004 ............................................. 9,301 2005 ............................................. 9,028 2006 ............................................. 2,257 ------- Total ............................................ $46,442 ======= 5. Acquisition In July 2000, NetScout acquired all of the outstanding common and preferred stock of NextPoint Networks, Inc. ("NextPoint") in exchange for 1,831,518 shares of NetScout common stock and $19.6 million in cash. NetScout also issued options and warrants exercisable for 298,647 shares of NetScout common stock in exchange for all outstanding options and warrants exercisable for NextPoint common stock. The value of the acquisition was $53.1 million based on the fair value of the consideration paid plus direct acquisition costs. The acquisition was accounted for using the purchase method. In addition, 267,602 shares of NetScout common stock have been reserved and will be released during a two-year period subsequent to the acquisition to two founding shareholders of NextPoint as they continue employment by NetScout. NetScout recorded $4.0 million as deferred compensation related to these reserved shares, which will be amortized to stock-based compensation expense over the two-year period of employment. Accordingly, the results of operations of NextPoint subsequent to July 7, 2000 have been included in NetScout's statements of operations for the three and six months ended September 30, 2000. The preliminary purchase price allocation is as follows (in thousands): Tangible net assets $3,709 Intangible assets acquired: Goodwill 45,142 Completed technology 2,166 Customer base 1,100 Assembled workforce 700 In-process research and development 268 ------- Total purchase price allocation $53,085 ======= Tangible net assets acquired include cash, accounts receivable, fixed assets, prepaid expenses and other assets, accounts payable, accrued expenses, deferred revenue and notes payable, in addition to net deferred tax asset related to net operating losses carried forward from NextPoint, partially offset by deferred tax liabilities created with the acquisition of intangible assets other than goodwill, and deferred compensation related to unvested options exchanged as part of the acquisition. Goodwill and other intangible assets are being amortized on a straight-line basis over estimated useful lives of two to five years (Note 4). A portion of the purchase price was allocated to acquired in-process research and development ("IPR&D") and completed technology. Completed technology and IPR&D were identified and valued through interviews and analysis of data provided by management regarding products under development. Developmental projects that had reached technological feasibility were classified as completed technology and will be amortized over three years. Projects that had not reached technological feasibility and had no future alternative uses were classified as IPR&D and charged to expense on the day of the acquisition. The value of IPR&D was determined considering the project's stage of completion, the time and resources needed for completion, the contribution of core technology, and the projected discounted cash flows of completed products. The discount rate was determined considering weighted average cost of capital and the risk surrounding the successful completion of the projects under development. The summary table below, prepared on an unaudited pro forma basis, combines NetScout's results of operations with NextPoint's results of operations as if NextPoint had been acquired as of April 1, 1999 (in thousands, except per share data): Six Months Ended September 30, ------------- 2000 1999 ---- ---- Revenue ................................ $54,990 $39,971 Net income (loss) ...................... $358 $(392) Basic net income (loss)per share ....... $0.01 $(0.02) Diluted net income (loss) per share .... $0.01 $(0.02) The proforma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. Our effective tax rate before non-deductible costs related to the acquisition of NextPoint and stock-based compensation expense was 35.5% and 36% for the three months ended September 30, 2000 and 1999, respectively. 6. Contingencies On November 5, 1999, a former employee of NetScout filed an action against the Company and an employee stockholder of NetScout in the Massachusetts Superior Court Department of the Trial Court, Middlesex County, alleging claims of discrimination on the basis of sex and sexual harassment. On December 30, 1999, NetScout filed a Notice of Removal to the United States District Court for the District of Massachusetts, thereby removing the action to that Court. NetScout has filed an Answer denying these allegations and plans to vigorously defend this matter. NetScout has recorded an accrual to address this matter. However, since the matter is at a preliminary stage, NetScout is unable to predict the outcome or amount of related expense, or loss, if any. In addition to the matter noted above, from time to time NetScout is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any other current legal proceedings and claims will not have a material adverse effect on NetScout's financial position or results of operations. 7. Geographic Information Revenue was distributed geographically as follows (in thousands): Three Months Ended Six Months Ended September 30, September 30 2000 1999 2000 1999 ---- ---- ---- ---- North America .............. $26,255 $17,876 $49,481 $33,318 Other international ........ 2,564 2,428 4,507 6,057 ------------------------------------- $28,819 $20,304 $53,988 $39,375 ===================================== The North America revenue figures include sales made by NetScout to domestic resellers. These domestic resellers may sell NetScout product to international locations. NetScout still reports these shipments as North America revenue since NetScout ships the product to a domestic location. Substantially all of NetScout's identifiable assets are located in the United States. 8. Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133", which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. NetScout, to date has not engaged in derivative and hedging activities, and accordingly does not believe that the adoption of SFAS No. 133 will have a material impact on the financial reporting and related disclosures of the company. NetScout will adopt SFAS No. 133 as required by SFAS No. 137 in fiscal year 2002. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No.101 "Revenue Recognition in Financial Statements", as amended by SAB No.101A and 101B. SAB No.101 summarizes the SEC's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. The application of the guidance of SAB No. 101 will be required in the Company's fourth quarter of fiscal 2001. The Company is currently determining the impact, if any, that SAB No. 101 will have on its financial position and results of operations. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. NETSCOUT SYSTEMS, INC. Date: November 29, 2000 /s/ Anil K. Singhal ------------------------------------------- Name: Anil K. Singhal Title: Chief Executive Officer and Chairman of the Board(Principal Executive Officer) Date: November 29, 2000 /s/ David P. Sommers ------------------------------------------- Name: David P. Sommers Title: Vice President and Chief Financial Officer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----