XML 59 R11.htm IDEA: XBRL DOCUMENT
v2.4.0.8

Balance Sheet Accounts | 9 Months Ended
--- | ---
Mar. 31, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Balance Sheet Accounts | Balance Sheet Accounts Cash, Cash Equivalents, Short-Term Investments and Marketable Securities Summary of Cash and Available-for-Sale Securities (in thousands)
| March 31, 2014 |  | June 30, 2013
Cash | $ | 70,668 |  |  | $ | 41,518 |
Cash equivalents | $ | 687 |  |  | $ | 54,285 |
Short-term investments | 34,700 |  |  | 43,034 |
Marketable securities | — |  |  | 66,776 |
Total available-for-sale | $ | 35,387 |  |  | $ | 164,095 |
Total cash, cash equivalents and available for sale securities | $ | 106,055 |  |  | $ | 205,613 |
Available-for-Sale Securities The following is a summary of available-for-sale securities (in thousands):
| Amortized Cost |  | Fair Value |  | Unrealized Holding Gains |  | Unrealized Holding Losses
March 31, 2014 |  |  |  |  |  |  |
Money market funds | $ | 687 |  |  | $ | 687 |  |  | $ | — |  |  | $ | — |
U.S. corporate debt securities | 34,579 |  |  | 34,700 |  |  | 121 |  |  | — |
| $ | 35,266 |  |  | $ | 35,387 |  |  | $ | 121 |  |  | $ | — |
Classified as: |  |  |  |  |  |  |
Cash equivalents | $ | 687 |  |  | $ | 687 |  |  | $ | — |  |  | $ | — |
Short-term investments | 34,579 |  |  | 34,700 |  |  | 121 |  |  | — |
| $ | 35,266 |  |  | $ | 35,387 |  |  | $ | 121 |  |  | $ | — |
June 30, 2013 |  |  |  |  |  |  |
Money market funds | $ | 54,285 |  |  | $ | 54,285 |  |  | $ | — |  |  | $ | — |
U.S. corporate debt securities | 110,078 |  |  | 109,810 |  |  | 126 |  |  | (394 | )
| $ | 164,363 |  |  | $ | 164,095 |  |  | $ | 126 |  |  | $ | (394 | )
Classified as: |  |  |  |  |  |  |
Cash equivalents | $ | 54,285 |  |  | $ | 54,285 |  |  | $ | — |  |  | $ | — |
Short-term investments | 42,994 |  |  | 43,034 |  |  | 44 |  |  | (4 | )
Marketable securities | 67,084 |  |  | 66,776 |  |  | 82 |  |  | (390 | )
| $ | 164,363 |  |  | $ | 164,095 |  |  | $ | 126 |  |  | $ | (394 | )
The amortized cost and estimated fair value of available-for-sale investments in debt securities at March 31, 2014, by contractual maturity, were as follows (in thousands):
| Amortized Cost |  | Fair Value
Due in 1 year or less | $ | 24,697 |  |  | $ | 24,803 |
Due in 1-2 years | 7,553 |  |  | 7,568 |
Due in 2-5 years | 3,016 |  |  | 3,016 |
Total investments in available for sale debt securities | $ | 35,266 |  |  | $ | 35,387 |
The Company considers highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Investments with original maturities of greater than three months, but less than one year at the balance sheet date are classified as Short Term Investments. Investments with maturities of greater than one year at balance sheet date which the Company intends to hold for longer than one year are classified as Marketable Securities. Except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market funds, the Company diversifies its investments by limiting its holdings with any individual issuer. Investments include available-for-sale investment-grade debt securities that the Company carries at fair value. The Company accumulates unrealized gains and losses on the Company's available-for-sale debt securities, net of tax, in accumulated other comprehensive income (loss) in the stockholders' equity section of its balance sheets. Such an unrealized gain or loss does not reduce net income for the applicable accounting period. If the fair value of an available-for-sale debt instrument is less than its amortized cost basis, an other-than-temporary impairment is triggered in circumstances where (1) the Company intends to sell the instrument, (2) it is more likely than not that the Company will be required to sell the instrument before recovery of its amortized cost basis, or (3) the Company does not expect to recover the entire amortized cost basis of the instrument (that is, a credit loss exists). If the Company intends to sell or it is more likely than not that the Company will be required to sell the available-for-sale debt instrument before recovery of its amortized cost basis, the Company recognizes an other-than-temporary impairment in earnings equal to the entire difference between the debt instruments' amortized cost basis and its fair value. For available-for-sale debt instruments that are considered other-than-temporarily impaired due to the existence of a credit loss, if the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the instrument before recovery of its remaining amortized cost basis (amortized cost basis less any current-period credit loss), the Company separates the amount of the impairment into the amount that is credit related and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the debt instrument's amortized cost basis and the present value of its expected future cash flows. The remaining difference between the debt instrument's fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income. The Company determines the basis of the cost of a security sold or the amount reclassified out of accumulated other comprehensive income (loss) into earnings using the specific identification method. As of March 31, 2014, five out of twenty investment securities had unrealized losses. For investments that were in an unrealized loss position as of March 31, 2014, the Company recorded an other-than-temporary impairment loss of $10,000 during the three months ended March 31, 2014 as the Company intends to sell such securities. The Company had previously recorded an other-than-temporary impairment loss of $148,000 during the six months ended December 31, 2013, accordingly the total impairments recorded during the nine months ended March 31, 2014 is $158,000 as compared to none for the nine months ended March 31, 2013. Long-Lived Assets On September 11, 2012, the Company completed the sale of its corporate campus and accompanying 16 acres of land in Santa Clara, California for net cash proceeds of approximately $44.7 million and realized a gain of approximately $11.5 million. Goodwill and Intangibles As part of the acquisition of Enterasys, the Company acquired $64.5 million in goodwill which has been allocated to the Company's only reportable segment, the development and marketing of network infrastructure equipment. The following table reflects the changes in the carrying amount of goodwill (in thousands):
|  | Total
Balance as of September 30, 2013 |  | $ | — |
Addition due to acquisition of Enterasys (Note 4) |  | 57,922 |
Balance as of December 31, 2013 |  | $ | 57,922 |
Purchase price allocation adjustments |  | 6,615 |
Balance as of March 31, 2014 |  | $ | 64,537 |
The following tables present details of the Company’s intangible assets (in thousands):
March 31, 2014 |  | Weighted average remaining amortization period |  | Gross |  | Accumulated amortization |  | Net
Intangible assets with finite lives: |  |  |  |  |  |  |  |
Developed technology |  | 2.4 years |  | $ | 45,000 |  |  | $ | 6,736 |  |  | $ | 38,264 |
Customer relationships |  | 2.6 years |  | 37,000 |  |  | 5,139 |  |  | 31,861 |
Maintenance contracts |  | 4.6 years |  | 17,000 |  |  | 1,417 |  |  | 15,583 |
Trademarks |  | 2.6 years |  | 2,500 |  |  | 347 |  |  | 2,153 |
Order backlog |  | 1.0 year |  | 7,400 |  |  | 4,542 |  |  | 2,858 |
License agreements |  | 10.9 years |  | 10,447 |  |  | 7,971 |  |  | 2,476 |
Other intangibles |  | 5.2 years |  | 2,459 |  |  | 1,449 |  |  | 1,010 |
Total intangible assets with finite lives |  |  |  | 121,806 |  |  | 27,601 |  |  | 94,205 |
In-process research and development, with indefinite life |  |  |  | 3,000 |  |  | — |  |  | 3,000 |
Total |  |  |  | $ | 124,806 |  |  | $ | 27,601 |  |  | $ | 97,205 |
June 30, 2013 |  | Weighted average remaining amortization period |  | Gross |  | Accumulated amortization |  | Net
Intangible assets with finite lives: |  |  |  |  |  |  |  |
License agreements |  | 10.3 years |  | 10,447 |  |  | 7,407 |  |  | 3,040 |
Other intangibles |  | 5.8 years |  | 2,459 |  |  | 1,256 |  |  | 1,203 |
Total intangible assets with finite lives |  |  |  | 12,906 |  |  | 8,663 |  |  | 4,243 |
Amortization expense was $11.9 million and $18.9 million respectively, for the three and nine months ended March 31, 2014. Amortization expense was $0.4 million and $1.2 million respectively, for the three and nine months ended March 31, 2013. Of the total amount recognized, $4.4 million and $7.3 million for the three and nine months ended March 31, 2014 and $0.3 million and $1.0 million respectively for the three and nine months ended March 31, 2013, is included in "Cost of revenues for products" on the condensed consolidated statements of operations, while the remainder of the amortization expense is included in "Amortization of intangibles" on the condensed consolidated statement of operations. The amortization expense for developed technology, patents, license agreements and other intangibles is recognized in "Cost of revenues for products" on the condensed consolidated statement of operations. The estimated future amortization expense for finite lived intangibles to be recorded for each of the next five years is as follows (in thousands):
Fiscal year |  | Amount
2014 (remaining 3 months) |  | $ | 9,540 |
2015 |  | 34,648 |
2016 |  | 31,286 |
2017 |  | 12,379 |
2018 |  | 3,682 |
2019 |  | 1,415 |
Thereafter |  | 1,255 |
Total |  | $ | 94,205 |
Deferred Revenue, Net Deferred revenue, net represents amounts for (i) deferred services revenue (support arrangements, professional services and training), and (ii) deferred product revenue net of the related cost of revenue when the revenue recognition criteria have not been met. The following table summarizes deferred revenue, net at March 31, 2014 and June 30, 2013, respectively (in thousands):
| March 31, 2014 |  | June 30, 2013
Deferred services | $ | 84,206 |  |  | $ | 38,003 |
Deferred product and other revenue | 6,644 |  |  | 3,451 |
Total deferred revenue | 90,850 |  |  | 41,454 |
Less: current portion | 71,183 |  |  | 33,184 |
Non-current deferred revenue, net | $ | 19,667 |  |  | $ | 8,270 |
The Company offers for sale to its customers, renewable support arrangements, including extended warranty contracts that range from one to five years. Deferred support revenue is included within deferred revenue, net within the services category above. The change in the Company’s deferred support revenue balance in relation to these arrangements was as follows (in thousands):
| Three Months Ended |  | Nine Months Ended
| March 31, 2014 |  | March 31, 2013 |  | March 31, 2014 |  | March 31, 2013
Balance beginning of period | $ | 81,485 |  |  | $ | 35,797 |  |  | $ | 38,003 |  |  | $ | 37,461 |
Assumed from acquisition | — |  |  | — |  |  | 35,879 |  |  | — |
New support arrangements | 30,986 |  |  | 14,431 |  |  | 77,475 |  |  | 41,745 |
Recognition of support revenue | (28,265 | ) |  | (13,420 | ) |  | (67,151 | ) |  | (42,398 | )
Balance end of period | 84,206 |  |  | 36,808 |  |  | 84,206 |  |  | 36,808 |
Less: current portion | 64,539 |  |  | 28,801 |  |  | 64,539 |  |  | 28,801 |
Non-current deferred revenue | $ | 19,667 |  |  | $ | 8,007 |  |  | $ | 19,667 |  |  | $ | 8,007 |
Deferred Distributors Revenue, Net of Cost of Sales to Distributors The Company records revenue from its distributors on a sell-through basis, recording deferred revenue and deferred cost of sales associated with all sales transactions to its distributors in “Deferred distributors revenue, net of cost of sales to distributors” in the liability section of its condensed consolidated balance sheet. When the Company ships products to its distributors, legal title to the products passes to its distributors, and a legally enforceable obligation is created for the distributors to pay on a current basis. Therefore, the Company records a trade receivable at the contractual discount to the list selling price and relieves inventory for the cost of goods shipped to the distributor. The amount shown as “Deferred distributors revenue, net of cost of sales to distributors” represents the deferred gross margin on sales to distributors based on contractual pricing. Distributors purchase products from the Company at a contractual discount based on geographic region and resell the Company's products at a very broad range of individually negotiated price points depending on competitive factors and other market conditions. A portion of the deferred revenue balance represents an amount of the distributors' original purchase price that will be remitted back to the distributors after resale transactions are reported to the Company. Therefore, the amount of gross margin the Company will recognize in future periods from distributor sales will be less than the deferred amount recorded for the original sale to the distributor as a result of the price concessions negotiated at the time of sell-through. The wide range and variability of negotiated price credits granted to distributors do not allow the Company to accurately estimate the portion of the balance in the deferred revenue that will be credited to the distributors in the future. Therefore, the Company does not reduce deferred revenue by anticipated future price credits; instead, price credits are recorded against revenue and accounts receivable when incurred, which is generally at the time the distributor sells the product. The following table summarizes deferred distributors revenue, net of cost of sales to distributors at March 31, 2014 and June 30, 2013, respectively (in thousands):
| March 31, 2014 |  | June 30, 2013
Deferred distributors revenue | $ | 31,070 |  |  | $ | 22,411 |
Deferred cost of sales to distributors | (6,853 | ) |  | (5,023 | )
Deferred distributors revenue, net of cost of sales to distributors | $ | 24,217 |  |  | $ | 17,388 |
Debt The Company's debt is comprised of the following:
|  | March 31, 2014
Current portion of long-term debt: |  |
Term Loan |  | 4,875 |
Revolving Facility |  | 24,000 |
Current portion of long-term debt |  | 28,875 |
Long-term debt, less current portion: |  |
Term Loan |  | 58,500 |
Revolving Facility |  | 35,000 |
Total long-term debt, less current portion |  | 93,500 |
Total debt |  | 122,375 |
On October 31, 2013, the Company entered into a Credit Agreement (the “Credit Agreement”) which provides for a $60 million five-year revolving credit facility (the “Revolving Facility”) and a $65 million five-year term loan (the “Term Loan”) and together with the Revolving Facility (the “Senior Secured Credit Facilities”). The proceeds from the Term Loan were used to pay a portion of the purchase price in the acquisition of all of the issued and outstanding capital stock of Enterasys. The company also drew $35 million of the Revolving Facility to pay a portion of the purchase price and subsequently drew $24 million in the third quarter of fiscal 2014 to fund working capital requirements. Such additional draw of $24 million was repaid as of the filing date of this Form 10-Q. Borrowings under the Senior Secured Credit Facilities bear interest, at the Company's election, at a rate per annum equal to an agreed to applicable margin plus (a) the higher of (x) the prime rate in effect on such day or (y) the federal funds effective rate in effect on such day plus 0.50%, or (b) an adjusted Libor rate. In addition, the Company is required to pay a commitment fee of between 0.375% and 0.50% quarterly (currently 0.50%) on the unused portion of the Revolving Facility, also based on the Company’s Consolidated Leverage Ratio. Principal installments are payable on the Term Loan in varying percentages quarterly starting December 31, 2013 and to the extent not previously paid, all outstanding balance to be paid at maturity. If not repaid before maturity, the draws on the Revolving Facility shall be repaid on the maturity date. The Senior Secured Credit Facilities are secured by substantially all of the Company’s assets and are jointly and severally guaranteed by the Company and certain of its subsidiaries. The Credit Agreement contains financial covenants that require the Company to maintain a minimum Consolidated Fixed Charge Coverage Ratio and a Consolidated Quick Ratio and a maximum Consolidated Leverage Ratio as well as several other covenants and restrictions that limit the Company’s ability to incur additional indebtedness, create liens upon any of its property, merge, consolidate or sell all or substantially all of its assets, etc. These covenants, which are described more fully in the Credit Agreement, to which reference is made for a complete statement of the covenants, are subject to certain exceptions. The Company currently is in compliance with its covenants. The Credit Agreement also includes customary events of default, including failure to pay principal, interest or fees when due, failure to comply with covenants, if any representation or warranty made by the Company is false or misleading in any material respect, certain insolvency or receivership events affecting the Company and its subsidiaries, the occurrence of certain material judgments, the occurrence of certain ERISA events, the invalidity of the loan documents or a change in control of the Company. The amounts outstanding under the Senior Secured Credit Facilities may be accelerated upon certain events of default. Guarantees and Product Warranties Upon issuance of a standard product warranty, the Company discloses and recognizes a liability for the obligation it assumes under the warranty. The following table summarizes the activity related to the Company’s product warranty liability during the three and nine months ended March 31, 2014 and 2013:
| Three Months Ended |  | Nine Months Ended
| March 31, 2014 |  | March 31, 2013 |  | March 31, 2014 |  | March 31, 2013
Balance beginning of period | $ | 7,479 |  |  | $ | 2,971 |  |  | $ | 3,296 |  |  | $ | 2,871 |
Assumed from acquisition | — |  |  | — |  |  | 3,732 |  |  | — |
New warranties issued | 1,824 |  |  | 1,257 |  |  | 4,782 |  |  | 4,761 |
Warranty expenditures | (1,478 | ) |  | (1,332 | ) |  | (3,985 | ) |  | (4,736 | )
Balance end of period | $ | 7,825 |  |  | $ | 2,896 |  |  | $ | 7,825 |  |  | $ | 2,896 |
The Company’s standard hardware warranty period is typically 12 months from the date of shipment to end-users and 90 days for software. For certain access products, the Company offers a limited lifetime hardware warranty commencing on the date of shipment from the Company and ending five (5) years following the Company’s announcement of the end of sale of such product. Upon shipment of products to its customers, the Company estimates expenses for the cost to repair or replace products that may be returned under warranty and accrues a liability in cost of product revenue for this amount. The determination of the Company’s warranty requirements is based on actual historical experience with the product or product family, estimates of repair and replacement costs and any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance with changes in these factors. In the normal course of business to facilitate sales of its products, the Company indemnifies its resellers and end-user customers with respect to certain matters. The Company has agreed to hold the customer harmless against losses arising from a breach of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. It is not possible to estimate the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on its operating results or financial position. Concentrations The Company may be subject to concentration of credit risk as a result of certain financial instruments consisting principally of marketable investments and accounts receivable. The Company has placed its investments with high-credit quality issuers. The Company does not invest an amount exceeding 10% of its combined cash, cash equivalents, short-term investments and marketable securities in the securities of any one obligor or maker, except for obligations of the United States government, obligations of United States government agencies and money market accounts. The following table sets forth major customers accounting for 10% or more of our net revenue:
|  | Three Months Ended |  | Nine Months Ended
|  | March 31, 2014 |  | March 31, 2013 |  | March 31, 2014 |  | March 31, 2013
Tech Data |  | 16 | % |  | 11 | % |  | 12 | % |  | * |
Westcon Group Inc. |  | 14 | % |  | 19 | % |  | 13 | % |  | 10 | %
Scansource, Inc. |  | * |  |  | 10 | % |  | * |  |  | * |
* Less than 10% of revenue |  |  |  |  |  |  |  |

X
- Details
Name: | us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for supplemental balance sheet disclosures, including descriptions and amounts for assets, liabilities, and equity. + References No definition available. + Details
Name: | us-gaap_SupplementalBalanceSheetDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration