e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2007
OR
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o |
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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: 0-17972
DIGI INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
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41-1532464
(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
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11001 Bren Road East |
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Minnetonka, Minnesota
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55343 |
(Address of principal executive offices)
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(Zip Code) |
(952) 912-3444
(Registrants telephone number, including area code)
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, and
(2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
On April 30, 2007, there were 25,250,712 shares of the registrants $.01 par value Common Stock
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three months ended March 31, |
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Six months ended March 31, |
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2007 |
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2006 |
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2007 |
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2006 |
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(in thousands, except per common share data) |
Net sales |
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$ |
42,855 |
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$ |
34,380 |
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$ |
84,666 |
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$ |
67,756 |
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Cost of sales (exclusive of amortization of purchased
and core technology shown separately below) |
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19,215 |
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14,894 |
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37,865 |
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28,904 |
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Amortization of purchased and core technology |
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1,129 |
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1,168 |
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2,277 |
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2,336 |
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Gross profit |
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22,511 |
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18,318 |
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44,524 |
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36,516 |
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Operating expenses: |
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Sales and marketing |
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8,427 |
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6,802 |
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16,585 |
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13,553 |
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Research and development |
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6,068 |
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5,011 |
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12,040 |
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9,825 |
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General and administrative |
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3,302 |
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3,293 |
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6,880 |
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7,047 |
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Total operating expenses |
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17,797 |
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15,106 |
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35,505 |
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30,425 |
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Operating income |
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4,714 |
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3,212 |
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9,019 |
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6,091 |
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Other income (expense): |
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Interest income |
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777 |
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643 |
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1,573 |
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1,059 |
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Interest expense |
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(18 |
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(27 |
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(43 |
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(68 |
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Other expense |
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(62 |
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(105 |
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Total other income, net |
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759 |
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554 |
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1,530 |
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886 |
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Income before income taxes |
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5,473 |
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3,766 |
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10,549 |
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6,977 |
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Income tax provision |
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1,876 |
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1,199 |
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3,150 |
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2,227 |
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Net income |
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$ |
3,597 |
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$ |
2,567 |
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$ |
7,399 |
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$ |
4,750 |
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Net income per common share: |
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Basic |
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$ |
0.14 |
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$ |
0.11 |
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$ |
0.29 |
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$ |
0.21 |
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Diluted |
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$ |
0.14 |
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$ |
0.11 |
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$ |
0.28 |
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$ |
0.20 |
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Weighted average common shares, basic |
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25,186 |
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23,001 |
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25,131 |
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22,890 |
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Weighted average common shares, diluted |
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25,959 |
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23,687 |
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25,976 |
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23,609 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
3
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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March 31, |
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September 30, |
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2007 |
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2006 |
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(in thousands, except share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
17,186 |
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$ |
15,674 |
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Marketable securities |
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52,702 |
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43,207 |
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Accounts receivable, net |
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20,772 |
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20,305 |
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Inventories |
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23,472 |
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21,911 |
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Other |
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4,951 |
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5,528 |
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Total current assets |
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119,083 |
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106,625 |
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Property, equipment and improvements, net |
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19,702 |
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19,488 |
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Identifiable intangible assets, net |
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27,759 |
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31,341 |
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Goodwill |
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65,610 |
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65,841 |
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Other |
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2,119 |
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2,026 |
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Total assets |
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$ |
234,273 |
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$ |
225,321 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Capital lease obligations, current portion |
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$ |
376 |
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$ |
381 |
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Accounts payable |
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5,800 |
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6,748 |
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Income taxes payable |
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6,555 |
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4,712 |
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Accrued expenses: |
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Compensation |
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5,309 |
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5,851 |
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Other |
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3,726 |
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5,592 |
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Total current liabilities |
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21,766 |
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23,284 |
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Capital lease obligations, net of current portion |
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532 |
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|
725 |
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Net deferred tax liabilities |
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6,812 |
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7,482 |
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Total liabilities |
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29,110 |
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31,491 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock, $.01 par value; 2,000,000 shares
authorized;
none issued and outstanding |
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Common stock, $.01 par value; 60,000,000 shares authorized;
27,894,836 and 27,748,640 shares issued and outstanding |
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279 |
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277 |
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Additional paid-in capital |
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167,762 |
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164,782 |
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Retained earnings |
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54,408 |
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47,009 |
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Accumulated other comprehensive income |
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1,580 |
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|
940 |
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Treasury stock, at cost, 2,667,367 and 2,711,496 shares |
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(18,866 |
) |
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(19,178 |
) |
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Total stockholders equity |
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205,163 |
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193,830 |
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Total liabilities and stockholders equity |
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$ |
234,273 |
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$ |
225,321 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Six months ended March 31, |
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2007 |
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2006 |
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(in thousands) |
Operating activities: |
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Net income |
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$ |
7,399 |
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|
$ |
4,750 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation of property, equipment and improvements |
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1,263 |
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1,272 |
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Amortization of identifiable intangible assets and other assets |
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3,867 |
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3,825 |
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Excess tax benefits from stock-based compensation |
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(155 |
) |
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(406 |
) |
Stock-based compensation expense |
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1,504 |
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|
1,163 |
|
Deferred income taxes |
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(722 |
) |
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(1,256 |
) |
Other |
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164 |
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(533 |
) |
Changes in operating assets and liabilities: |
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Accounts receivable |
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(162 |
) |
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(507 |
) |
Inventories |
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(1,737 |
) |
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(685 |
) |
Other assets |
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572 |
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(157 |
) |
Accounts payable and accrued expenses |
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(3,022 |
) |
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(2,375 |
) |
Income taxes payable |
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2,298 |
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|
3,004 |
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Net cash provided by operating activities |
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11,269 |
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|
8,095 |
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Investing activities: |
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Purchase of held-to-maturity marketable securities |
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(40,387 |
) |
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(26,347 |
) |
Proceeds from maturities of held-to-maturity marketable securities |
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30,892 |
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|
19,214 |
|
Contingent purchase price payments related to business acquisitions |
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(781 |
) |
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Proceeds from the sale of property, equipment, improvements |
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4 |
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Purchase of property, equipment, improvements and certain
other intangible assets |
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(1,486 |
) |
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(894 |
) |
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Net cash used in investing activities |
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(11,758 |
) |
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(8,027 |
) |
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Financing activities: |
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Payments on capital lease obligations and long-term debt |
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(198 |
) |
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(256 |
) |
Excess tax benefits from stock-based compensation |
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155 |
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|
406 |
|
Proceeds from stock option plan transactions |
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1,201 |
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|
2,673 |
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Proceeds from employee stock purchase plan transactions |
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|
493 |
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|
359 |
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Net cash provided by financing activities |
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1,651 |
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|
3,182 |
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Effect of exchange rate changes on cash and cash equivalents |
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350 |
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|
(550 |
) |
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Net increase in cash and cash equivalents |
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|
1,512 |
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|
|
2,700 |
|
Cash and cash equivalents, beginning of period |
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|
15,674 |
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|
12,990 |
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Cash and cash equivalents, end of period |
|
$ |
17,186 |
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$ |
15,690 |
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|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
DIGI INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. |
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BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The interim unaudited condensed consolidated financial statements included in this Form 10-Q
have been prepared by Digi International Inc. (the Company, Digi, we, our, or us)
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures, normally included in consolidated financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America, have been condensed or omitted, pursuant to such rules and regulations.
These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto, including the summary of
significant accounting policies, presented in our 2006 Annual Report on Form 10-K as filed
with the SEC.
The condensed consolidated financial statements presented herein reflect, in the opinion of
management, all adjustments which consist only of normal, recurring adjustments necessary for
a fair statement of the condensed consolidated financial position and the condensed
consolidated results of operations and cash flows for the periods presented. The condensed
consolidated results of operations for any interim period are not necessarily indicative of
results for the full year. The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by accounting principles
generally accepted in the United States of America.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value measurements. The
provisions of FAS 157 are effective for the fiscal year beginning October 1, 2008. We are
currently evaluating the impact of the provisions of FAS 157 on our consolidated financial
statements and do not believe the impact of the adoption will be material.
In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS
159). This Statement provides companies with an option to measure, at specified election
dates, many financial instruments and certain other items at fair value that are not currently
measured at fair value. A company that adopts SFAS 159 will report unrealized gains and
losses on items for which the fair value option has been elected in earnings at each
subsequent reporting date. This Statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. This Statement is
effective for fiscal years beginning after November 15, 2007, which for us is the first
quarter of fiscal 2009. We are currently evaluating the impact that SFAS 159 could have on
our consolidated financial statements.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a
recognition threshold and measurement process for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Additionally,
FIN 48 provides guidance on the derecognition, classification, accounting in interim periods
and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48
will be effective for us beginning October 1, 2007. We are in the process
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. |
|
BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
of determining the effect, if any, that the adoption of FIN 48 will have on our consolidated
financial statements. However, we expect to reclassify a portion of our unrecognized tax
benefits from current to non-current liabilities because payment of cash is not anticipated
within one year of the balance sheet date.
2. NET INCOME PER COMMON SHARE
Basic net income per common share is calculated based on the weighted average number of common
shares outstanding during the period. Diluted net income per common share is computed by
dividing net income by the weighted average number of common and potentially dilutive common
shares outstanding during the period. Potentially dilutive common shares of our stock result
from dilutive common stock options and shares purchased through the employee stock purchase
plan.
The following table is a reconciliation of the numerators and denominators in the net income
per common share calculations (in thousands, except per common share data):
|
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|
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|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Six months ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,597 |
|
|
$ |
2,567 |
|
|
$ |
7,399 |
|
|
$ |
4,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Denominator: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per common
share weighted average shares outstanding |
|
|
25,186 |
|
|
|
23,001 |
|
|
|
25,131 |
|
|
|
22,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and employee
stock purchase plan |
|
|
773 |
|
|
|
686 |
|
|
|
845 |
|
|
|
719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per common
share adjusted weighted average shares |
|
|
25,959 |
|
|
|
23,687 |
|
|
|
25,976 |
|
|
|
23,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, basic |
|
$ |
0.14 |
|
|
$ |
0.11 |
|
|
$ |
0.29 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, diluted |
|
$ |
0.14 |
|
|
$ |
0.11 |
|
|
$ |
0.28 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive shares related to stock options to purchase 1,545,505 and 1,105,834
common shares for the three and six month periods ended March 31, 2007, respectively, and
potentially dilutive shares related to stock options to purchase 1,354,782 common shares for both
the three and six month periods ended March 31, 2006, respectively, were not included in the
computation of diluted earnings per common share because the options exercise prices were greater
than the average market price of common shares and, therefore, their effect would be anti-dilutive.
3. COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and foreign currency translation adjustments.
Foreign currency translation adjustments are charged or credited to accumulated other
comprehensive income
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COMPREHENSIVE INCOME (CONTINUED)
within stockholders equity. Comprehensive income was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
3,597 |
|
|
$ |
2,567 |
|
|
$ |
7,399 |
|
|
$ |
4,750 |
|
Foreign currency translation gain (loss) |
|
|
261 |
|
|
|
(74 |
) |
|
|
640 |
|
|
|
(328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
3,858 |
|
|
$ |
2,493 |
|
|
$ |
8,039 |
|
|
$ |
4,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. STOCK-BASED COMPENSATION
Stock-based awards are granted under the terms of the 2000 Omnibus Stock Plan as Amended and
Restated as of November 27, 2006 (the Omnibus Plan) which was ratified on January 22, 2007 at
the Annual Meeting of Stockholders, as well as our Stock Option Plan as Amended and Restated
as of November 27, 2006 (the Stock Option Plan) and Non-Officer Stock Option Plan as Amended
and Restated as of November 27, 2006 (the Non-Officer Plan), both of which expired during the
first quarter of fiscal 2007. Additional awards cannot be made under the Stock Option Plan or
the Non-Officer Plan. The authority to grant options under all of our plans and set other
terms and conditions rests with the Compensation Committee of the Board of Directors.
The Stock Option Plan and the Non-Officer Plan include nonstatutory stock options (NSOs) and
the Stock Option Plan also includes incentive stock options (ISOs) to employees and others who
provide services to us, including consultants, advisers and directors. Options granted under
these plans generally vest over a four year service period and will expire if unexercised
after ten years from the date of grant. The exercise price for ISOs and non-employee director
options granted under the Stock Option Plan is set at the fair market value of our common
stock based on the closing price on the date of grant. The exercise price for NSOs granted
under the Stock Option Plan or the Non-Officer Plan is set by the Compensation Committee of
the Board of Directors and is not less than 50% of the fair market value based on the closing
price on the date of grant.
The Omnibus Plan authorizes the issuance of up to 3,250,000 common shares in connection with awards
of stock options, stock appreciation rights, restricted stock, performance units or stock awards.
Eligible participants include our employees, non-employee directors, consultants and advisors.
Awards may be granted under the Omnibus Plan until November 27, 2016. Options under the Omnibus
Plan can be granted as either ISOs or NSOs. The exercise price shall be determined by our
Compensation Committee but shall not be less than the fair market value of our common stock based
on the closing price on the date of grant.
Additionally, we have outstanding stock options for shares of our stock under various plans
assumed in connection with its prior acquisition of NetSilicon, Inc. (the Assumed Plans).
Additional awards cannot be made by us under the Assumed Plans.
Also, we sponsor an Employee Stock Purchase Plan as Amended and Restated as of November 27,
2006 (the Purchase Plan), covering all domestic employees with at least 90 days of continuous
service and who
are customarily employed at least 20 hours per week. The Purchase Plan allows eligible
participants the right to purchase common stock on a quarterly basis at the lower of 85% of
the market price at the beginning or end of each three-month offering period. The Purchase
Plan was ratified on January 22, 2007
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK-BASED COMPENSATION (CONTINUED)
at the Annual Meeting of Stockholders and provides for the issuance of up to 1,750,000 shares
of our Common Stock that may be purchased under the plan.
Effective October 1, 2005 we adopted Statement of Financial Accounting Standard No. 123 as
amended, (FAS No. 123R), using the modified prospective method of application. Under this
method, compensation expense is recognized both for (i) awards granted, modified or settled
subsequent to September 30, 2005 and (ii) the nonvested portion of awards granted prior to
October 1, 2005.
Stock-based compensation expense (pre-tax) is included in the consolidated results of
operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Six months ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Cost of sales |
|
$ |
36 |
|
|
$ |
23 |
|
|
$ |
67 |
|
|
$ |
43 |
|
Sales and marketing |
|
|
267 |
|
|
|
193 |
|
|
|
486 |
|
|
|
319 |
|
Research and development |
|
|
182 |
|
|
|
142 |
|
|
|
331 |
|
|
|
269 |
|
General and administrative |
|
|
254 |
|
|
|
274 |
|
|
|
620 |
|
|
|
532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
739 |
|
|
$ |
632 |
|
|
$ |
1,504 |
|
|
$ |
1,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of option activity under the Plans as of March 31, 2007 and changes during the
six months then ended is presented below (in thousands, except per common share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Available |
|
|
Options |
|
|
Exercise Price per |
|
|
|
for Grant |
|
|
Outstanding |
|
|
Common Share |
|
Balances, September 30, 2006 |
|
|
597 |
|
|
|
4,240 |
|
|
$ |
10.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares approved for grant |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
(564 |
) |
|
|
564 |
|
|
|
13.29 |
|
Exercised |
|
|
|
|
|
|
(146 |
) |
|
|
8.21 |
|
Cancelled |
|
|
49 |
|
|
|
(49 |
) |
|
|
11.32 |
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2007 |
|
|
2,582 |
|
|
|
4,609 |
|
|
$ |
10.94 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2007 |
|
|
|
|
|
|
3,454 |
|
|
$ |
10.32 |
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of an option is the amount by which the fair value of the underlying
stock exceeds its exercise price. The total intrinsic value of all options exercised during
the six months ended March 31, 2007 was $0.8 million. The weighted average fair value of
options granted during the six months ended March 31, 2007 and 2006 was $5.66 and $5.80,
respectively, and was determined based upon the fair value of each option on the grant date,
utilizing the Black-Scholes option-pricing model and the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Six months ended March 31, |
|
|
2007 |
|
2006 |
Risk free interest rate |
|
|
4.44% - 4.80 |
% |
|
|
4.28% - 4.52 |
% |
Expect option holding period |
|
3 - 5 years |
|
3 - 5 years |
Expected volatility |
|
|
38% - 52% |
|
|
|
50% - 60% |
|
Weighted average volatility |
|
|
48% |
|
|
|
55% |
|
Expected dividend yield |
|
|
0 |
|
|
|
0 |
|
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK-BASED COMPENSATION (CONTINUED)
We use historical data to estimate pre-vesting forfeiture rates. The pre-vesting forfeiture
rate used in the second quarter of fiscal 2007 was 2.5%. As of March 31, 2007 the total
unrecognized compensation cost related to nonvested stock-based compensation arrangements net
of expected forfeitures was $6.5 million and the related weighted average period over which it
is expected to be recognized is approximately 2.7 years.
5. ACQUISITIONS
MaxStream, Inc.
On July 27, 2006, we acquired MaxStream, Inc. (MaxStream), a privately held corporation and a
leader in the wireless device networking market. The total purchase price of $40.5 million
included $19.8 million in cash (excluding cash acquired of $3.7 million) and $20.7 million in
common stock, in exchange for all outstanding shares of MaxStreams preferred and common stock
and outstanding stock options. This purchase consideration includes an adjustment of $0.6
million pertaining to the closing working capital of MaxStream as of July 27, 2006. We did
not replace MaxStreams outstanding options with Digi options. The value of our common stock
was based on a per share value of $12.35, calculated as the average market price of the common
stock during the two business days immediately preceding July 27, 2006 when the parties
reached agreement on terms and announced the acquisition.
Cash in the amount of $1.925 million and 165,090 shares of common stock have been deposited to
an escrow fund established at Wells Fargo Bank, National Association. These amounts will be
held in escrow for a period not to exceed one year from the date of closing to satisfy
possible claims that may arise pursuant to specific representation and warranty sections of
the merger agreement. The escrowed amounts of cash and stock have been included in the
determination of the purchase consideration on the date of acquisition because our management
believes the outcome of the representation and warranty matters is reasonably determinable.
The purchase price was allocated to the estimated fair value of assets acquired and
liabilities assumed. The purchase price allocation was adjusted by $0.4 million in March 2007
resulting in an increase in working capital and a reduction in goodwill due to the filing of
an amended final tax return for MaxStream. The adjusted purchase price allocation resulted in
goodwill of $26.0 million and a charge of $2.0 million for acquired in-process research and
development. We believe that the acquisition resulted in the recognition of goodwill
primarily because MaxStreams wireless technologies and products significantly expand our
wireless offering, covering both short and medium range distances using embedded modules and
boxed/packaged solutions and provide the capability to provide our customers end-to-end
wireless solutions.
The following unaudited pro forma condensed consolidated results of operations have been prepared
as if the acquisition of MaxStream had occurred as of October 1, 2005. Pro forma adjustments
include amortization of identifiable intangible assets associated with the MaxStream acquisition.
Had we acquired MaxStream as of October 1, 2005, net sales, net income and net income per share
would have changed to the pro forma amounts below (in thousands, except per common share amounts):
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITIONS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2006 |
|
Six months ended March 31, 2006 |
|
|
Pro forma |
|
As Reported |
|
Pro forma |
|
As Reported |
Net sales |
|
$ |
37,471 |
|
|
$ |
34,380 |
|
|
$ |
74,080 |
|
|
$ |
67,756 |
|
Net income |
|
$ |
2,461 |
|
|
$ |
2,567 |
|
|
$ |
4,670 |
|
|
$ |
4,750 |
|
Net income per common share, basic |
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.19 |
|
|
$ |
0.21 |
|
Net income per common share, diluted |
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.18 |
|
|
$ |
0.20 |
|
The unaudited pro forma condensed consolidated results of operations are not necessarily
indicative of results that would have occurred had the acquisition occurred as of the
beginning of fiscal 2006, nor are they necessarily indicative of the results that will be
obtained in the future.
6. SELECTED BALANCE SHEET DATA (in thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
|
September 30, 2006 |
|
Accounts receivable, net: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
21,251 |
|
|
$ |
20,800 |
|
Less allowance for doubtful accounts |
|
|
479 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
$ |
20,772 |
|
|
$ |
20,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
17,874 |
|
|
$ |
16,491 |
|
Work in process |
|
|
1,074 |
|
|
|
606 |
|
Finished goods |
|
|
4,524 |
|
|
|
4,814 |
|
|
|
|
|
|
|
|
|
|
$ |
23,472 |
|
|
$ |
21,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued expenses: |
|
|
|
|
|
|
|
|
Product warranty accrual |
|
$ |
1,006 |
|
|
$ |
1,104 |
|
Accrued professional fees |
|
|
539 |
|
|
|
879 |
|
Other accrued expenses |
|
|
2,181 |
|
|
|
3,609 |
|
|
|
|
|
|
|
|
|
|
$ |
3,726 |
|
|
$ |
5,592 |
|
|
|
|
|
|
|
|
Inventories are stated at the lower of cost or market value, with cost determined using the
first-in, first-out method.
7. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Amortized identifiable intangible assets were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
|
September 30, 2006 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
carrying |
|
|
Accum. |
|
|
|
|
|
|
carrying |
|
|
Accum. |
|
|
|
|
|
|
amount |
|
|
amort. |
|
|
Net |
|
|
amount |
|
|
amort. |
|
|
Net |
|
|
|
|
|
|
Purchased and core technology |
|
$ |
48,057 |
|
|
$ |
(33,790 |
) |
|
$ |
14,267 |
|
|
$ |
48,022 |
|
|
$ |
(31,492 |
) |
|
$ |
16,530 |
|
License agreements |
|
|
2,440 |
|
|
|
(2,090 |
) |
|
|
350 |
|
|
|
2,440 |
|
|
|
(1,890 |
) |
|
|
550 |
|
Patents and trademarks |
|
|
7,786 |
|
|
|
(3,365 |
) |
|
|
4,421 |
|
|
|
7,608 |
|
|
|
(2,837 |
) |
|
|
4,771 |
|
Customer maintenance contracts |
|
|
700 |
|
|
|
(359 |
) |
|
|
341 |
|
|
|
700 |
|
|
|
(324 |
) |
|
|
376 |
|
Customer relationships |
|
|
11,531 |
|
|
|
(3,151 |
) |
|
|
8,380 |
|
|
|
11,470 |
|
|
|
(2,356 |
) |
|
|
9,114 |
|
|
|
|
|
|
Total |
|
$ |
70,514 |
|
|
$ |
(42,755 |
) |
|
$ |
27,759 |
|
|
$ |
70,240 |
|
|
$ |
(38,899 |
) |
|
$ |
31,341 |
|
|
|
|
|
|
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS (CONTINUED)
Amortization expense was $1.9 million and $1.8 million for the three months ended March 31,
2007 and 2006, respectively, and $3.8 million and $3.6 million for the six months ended March
31, 2007 and 2006, respectively.
Estimated amortization expense related to identifiable intangible assets for the remainder of
fiscal 2007 and the five succeeding fiscal years is as follows (in thousands):
|
|
|
|
|
2007 (six months) |
|
$ |
3,769 |
|
2008 |
|
|
5,375 |
|
2009 |
|
|
4,036 |
|
2010 |
|
|
3,640 |
|
2011 |
|
|
3,070 |
|
2012 |
|
|
2,514 |
|
The changes in the carrying amount of goodwill were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six months ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Beginning balance, October 1 |
|
$ |
65,841 |
|
|
$ |
38,675 |
|
Purchase price adjustment MaxStream |
|
|
(374 |
) |
|
|
|
|
Purchase price adjustment FS Forth |
|
|
|
|
|
|
(147 |
) |
Foreign currency translation adjustment |
|
|
143 |
|
|
|
2 |
|
|
|
|
|
|
|
|
Ending balance, March 31 |
|
$ |
65,610 |
|
|
$ |
38,530 |
|
|
|
|
|
|
|
|
During the six months ended March 31, 2007, goodwill related to the purchase of
MaxStream, acquired during fiscal 2006, was reduced by $0.4 million to reflect additional
working capital associated with the filing of an amended final tax return. During the six
months ended March 31, 2006, the purchase price of FS Forth, acquired in fiscal year 2005, was
reduced as a result of a change in certain tax liabilities, as defined in the purchase
agreement. An accrued liability was recorded in September 2006 for $0.8 million as contingent
consideration based on the achievement of the milestones identified in the merger agreement.
The payment of $0.8 million was made in October 2006. Future contingent consideration of up
to $1.2 million may be payable to FS Forth based upon the achievement of certain milestones
(see Note 10).
8. INCOME TAXES
Income taxes have been provided for at an effective rate of 29.9% for the six month period
ended March 31, 2007 compared to an effective rate of 31.9% for the six month period ended
March 31, 2006. On December 9, 2006, Congress passed H.R. 6111, the Tax Relief and Health
Care Act of 2006, which included an extension of the research credit that previously expired
on December 31, 2005. As a result of the extension, we recorded a benefit of $0.5 million in
the first quarter of fiscal 2007 for research and development credits earned during the last
three fiscal quarters of 2006. The additional research and development credits were accounted
for as a discrete event in the first quarter of fiscal 2007. The effective tax rates for both
the first six months of fiscal 2007 and 2006 are lower than the U.S. statutory rate of
35.0% primarily due to the utilization of income tax credits and the combined phase-out of the
extraterritorial income exclusion and the phase-in of the U.S. domestic production activities
deduction.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
We expect our annualized 2007 income tax rate to be in a range of 33% to 33.5%, which includes
the additional benefit related to the research and development credit.
9. FINANCIAL GUARANTEES
In general, we warrant our products to be free from defects in material and workmanship under
normal use and service for a period of up to five years from the date of receipt. We have the
option to repair or replace products we deem defective with regard to material or workmanship.
Estimated warranty costs are accrued in the period that the related revenue is recognized
based upon an estimated average per unit repair or replacement cost applied to the estimated
number of units under warranty. These estimates are based upon historical warranty incidence
and are evaluated on an ongoing basis to ensure the adequacy of the warranty reserve. The
following table summarizes the activity associated with the product warranty accrual (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Balance at |
|
Warranties |
|
Settlements |
|
Balance at |
|
|
January 1 |
|
issued (1) |
|
made |
|
March 31 |
2007 |
|
$ |
964 |
|
|
$ |
224 |
|
|
$ |
(182 |
) |
|
$ |
1,006 |
|
2006 |
|
$ |
1,068 |
|
|
$ |
109 |
|
|
$ |
(127 |
) |
|
$ |
1,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended March 31, |
|
|
Balance at |
|
Warranties |
|
Settlements |
|
Balance at |
|
|
October 1 |
|
issued (1) |
|
made |
|
March 31 |
2007 |
|
$ |
1,104 |
|
|
$ |
309 |
|
|
$ |
(407 |
) |
|
$ |
1,006 |
|
2006 |
|
$ |
1,187 |
|
|
$ |
108 |
|
|
$ |
(245 |
) |
|
$ |
1,050 |
|
|
|
|
(1) |
|
Warranties issued includes a decrease in estimate adjustment of $132,000 and $117,000 in the
first quarter of fiscal 2007 and 2006, respectively. |
We are not responsible and do not warrant that custom software versions created by
original equipment manufacturer (OEM) customers based upon our software source code will
function in a particular way, will conform to any specifications or are fit for any particular
purpose and do not indemnify these customers from any third-party liability as it relates to
or arises from any customization or modifications made by the OEM customer.
10. CONTINGENCIES
Contingent obligations
Effective April 1, 2005, we acquired FS Forth-Systeme GmbH/Sistemas Embebidos S.A.
(collectively referred to as FS Forth) from Embedded Solutions AG of Germany. The purchase
price of $5.6 million in cash includes $0.8 million of contingent consideration paid in
October 2006, based on the achievement of milestones identified in the merger agreement.
Additional contingent consideration of up to $1.2 million is payable on October 1, 2007 if FS
Forth achieves certain future milestones.
Legal Proceedings
On April 19, 2002, a consolidated amended class action complaint was filed in the United
States District Court for the Southern District of New York asserting claims relating to the
initial public offering (IPO) of
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CONTINGENCIES (CONTINUED)
NetSilicon and approximately 300 other public companies. The complaint names us as defendants
along with NetSilicon, certain of its officers and certain underwriters involved in
NetSilicons IPO, among numerous others, and asserts, among other things, that NetSilicons
IPO prospectus and registration statement violated federal securities laws because they
contained material misrepresentations and/or omissions regarding the conduct of NetSilicons
IPO underwriters in allocating shares in NetSilicons IPO to the underwriters customers. We
believe that the claims against the NetSilicon defendants are without merit and have defended
the litigation vigorously. Pursuant to a stipulation between the parties, the two named
officers were dismissed from the lawsuit, without prejudice, on October 9, 2002.
In June 2003, we elected to participate in a proposed settlement agreement with the plaintiffs
in this litigation. If ultimately approved by the Court, this proposed settlement would
result in a dismissal, with prejudice, of all claims in the litigation against us and against
any of the other issuer defendants who elect to participate in the proposed settlement,
together with the current or former officers and directors of participating issuers who were
named as individual defendants.
Consummation of the proposed settlement remains conditioned upon obtaining approval by the
Court. On September 1, 2005, the Court preliminarily approved the proposed settlement and
directed that notice of the terms of the proposed settlement be provided to class members.
Thereafter, the Court held a fairness hearing on April 24, 2006, at which objections to the
proposed settlement were heard. After the fairness hearing, the Court took under advisement
whether to grant final approval to the proposed settlement.
On December 5, 2006, the U.S. Court of Appeals for the Second Circuit issued a decision in
In re Initial Public Offering Securities Litigation that six purported class action
lawsuits containing allegations substantially similar to those asserted against us may not be
certified as class actions due, in part, to the Appeals Courts determination that individual
issues of reliance and knowledge would predominate over issues common to the proposed classes.
On January 8, 2007, the plaintiffs filed a petition seeking rehearing en banc of the
Second Circuit Court of Appeals December 5, 2006 ruling. U.S. District Judge Scheindlin has
ordered that all proceedings in the consolidated cases brought against us and against the
roughly 300 other issuers sued in substantially similar cases (including proceedings relating
to the proposed settlement) will be stayed pending the ruling by the Court of Appeals on
whether to entertain that petition for rehearing. As a result of that filing, the impact, if
any, of the Court of Appeals ruling on the viability of the proposed settlement cannot yet be
determined.
If the proposed settlement is not consummated, we intend to continue to defend the litigation
vigorously. The litigation process is inherently uncertain and unpredictable, however, there
can be no guarantee as to the ultimate outcome of this pending lawsuit. We maintain liability
insurance for such matters and expect that the liability insurance will be adequate to cover
any potential unfavorable outcome, less the applicable deductible amount of $250,000 per
claim. As of March 31, 2007, we have accrued a liability for the deductible amount of
$250,000 which we believe reflects the amount of loss that is probable. In the event we have
losses that exceed the limits of the liability insurance, such losses could have a material
effect on our business, or our consolidated results of operations or financial condition.
In the normal course of business, we are subject to various claims and litigation, including
patent infringement and intellectual property claims. Our management expects that these
various claims and litigation will not have a material adverse effect on our consolidated
results of operations or financial condition.
14
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q contains certain statements that are forward-looking statements as that term
is defined under the Private Securities Litigation Reform Act of 1995, and within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.
The words believe, anticipate, intend, estimate, target, may, will, expect,
plan, project, should, or continue or the negative thereof or other expressions, which
are predictions of or indicate future events and trends and which do not relate to historical
matters, identify forward-looking statements. Such statements are based on information
available to our management as of the time of such statements and relate to, among other
things, expectations of the business environment in which we operate, project our future
performance, perceived opportunities in the market and statements regarding our mission and
vision. Forward-looking statements involve known and unknown risks, uncertainties and other
factors, which may cause our actual results, performance or achievements to differ materially
from anticipated future results, performance or achievements expressed or implied by such
forward-looking statements. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events or otherwise.
Our future operating results and performance trends may be affected by a number of factors,
including, without limitation, those described under Item 1A, Risk Factors in our Annual
Report on Form 10-K for the year ended September 30, 2006. Those risk factors, and other
risks, uncertainties and assumptions identified from time to time in our filings with the
Securities and Exchange Commission, including without limitation, our quarterly reports on
Form 10-Q and our registration statements, could cause our actual future results to differ
from those projected in the forward-looking statements as a result of the factors set forth in
our various filings with the Securities and Exchange Commission and of changes in general
economic conditions, changes in interest rates and/or exchange rates and changes in the
assumptions used in making such forward-looking statements.
CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies was provided in the Managements Discussion
and Analysis of Financial Condition and Results of Operations section of the our Annual Report
on Form 10-K for the year ended September 30, 2006.
OVERVIEW
We operate in the communications technology industry, which is characterized by rapid
technological advances and evolving industry standards. The market can be significantly
affected by new product introductions and marketing activities of industry participants. We
place a high priority on development of innovative reliable products that provide
differentiated features and functions and allow for ease of integration with customers
applications. We compete for customers on the basis of existing and planned product features,
company reputation, brand recognition, technical support, relationships with partners, quality
and reliability, product development capabilities, price and availability.
15
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
We plan to extend our current product lines with next generation commercial grade device
networking products and technologies for targeted vertical markets, including but not limited
to point of sale, industrial automation, office automation, medical and building controls. We
believe that there is a market trend of device connectivity in these vertical commercial
applications that will require communications intelligence or connectivity to the network or
the Internet. These devices will be used for basic data communications, management,
monitoring and control, and maintenance. We believe that we are well positioned to leverage
our current products and technologies to take advantage of this market trend.
We anticipate that growth in the future will result from both products that are developed
internally as well as from acquired products, and that the growth rate from products developed
internally will increase as the multi-port serial adapters and the network interface cards
(NICs) near the end of their product life cycles. Following are the business highlights for
the three and six months ended March 31, 2007 and 2006:
Net sales of $42.9 million for the three months ended March 31, 2007 represented an
increase of $8.5 million, or 24.7%, compared to net sales of $34.4 million for the three
months ended March 31, 2006. Net sales of $84.7 million for the six months ended March 31,
2007, represented an increase of $16.9 million, or 25.0%, compared to net sales of $67.8
million for the six months ended March 31, 2006.
Gross profit margin decreased to 52.5% compared to 53.3% for the three months ended
March 31, 2007 and 2006, respectively. Gross profit margin decreased to 52.6% compared to
53.8% for the six months ended March 31, 2007 and 2006, respectively.
Operating expenses as a percent of net sales decreased by 2.5 and 3.0 percentage
points for the three months and six months ended March 31, 2007 compared to the same periods
in 2006 as we continue to focus on controlling expenses while increasing revenue. Total
operating expenses for the three months ended March 31, 2007 were $17.8 million, or 41.5% of
net sales, compared to $15.1 million, or 44.0% of net sales, for the three months ended
March 31, 2006, an increase of $2.7 million. Total operating expenses for the six months
ended March 31, 2007 were $35.5 million, or 41.9% of net sales, compared to $30.4 million,
or 44.9% of net sales, for the six months ended March 31, 2006, an increase of $5.1 million.
Net income increased $1.0 million to $3.6 million, or $0.14 per diluted share, for
the three months ended March 31, 2007, compared to $2.6 million, or $0.11 per diluted share,
for the three months ended March 31, 2006. Net income increased $2.6 million to $7.4
million, or $0.28 per diluted share, for the six months ended March 31, 2007, compared to
$4.8 million, or $0.20 per diluted share, for the six months ended March 31, 2006. As a
result of the extension of the research and development credit for two additional years
beyond calendar 2005, a benefit for research and development credits earned during the last
three quarters of fiscal 2006 was recorded during the first quarter of fiscal 2007,
resulting in an additional tax benefit of $0.5 million or $0.02 per diluted share.
Our net working capital position (total current assets less total current
liabilities) increased $14.0 million to $97.3 million during the six months ended March 31,
2007 and our current ratio was 5.5 to 1 as of that date. Cash and cash equivalents and
marketable securities increased $11.0 million to $69.9 million during the period. At March
31, 2007, we had no debt other than capital lease obligations.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth selected information derived from our interim condensed
consolidated statements of operations expressed in dollars, as a percentage of net sales and
as a percentage of change from period-to-period for the periods indicated (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
% increase |
|
|
Six months ended March 31, |
|
|
% increase |
|
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
Net sales |
|
$ |
42,855 |
|
|
|
100.0 |
% |
|
$ |
34,380 |
|
|
|
100.0 |
% |
|
|
24.7 |
% |
|
$ |
84,666 |
|
|
|
100.0 |
% |
|
$ |
67,756 |
|
|
|
100.0 |
% |
|
|
25.0 |
% |
Cost of sales (exclusive of amortiza-
tion of purchased and core technology
shown separately below) |
|
|
19,215 |
|
|
|
44.9 |
|
|
|
14,894 |
|
|
|
43.3 |
|
|
|
29.0 |
|
|
|
37,865 |
|
|
|
44.7 |
|
|
|
28,904 |
|
|
|
42.7 |
|
|
|
31.0 |
|
Amortization of purchased and
core technology |
|
|
1,129 |
|
|
|
2.6 |
|
|
|
1,168 |
|
|
|
3.4 |
|
|
|
(3.3 |
) |
|
|
2,277 |
|
|
|
2.7 |
|
|
|
2,336 |
|
|
|
3.5 |
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
22,511 |
|
|
|
52.5 |
|
|
|
18,318 |
|
|
|
53.3 |
|
|
|
22.9 |
|
|
|
44,524 |
|
|
|
52.6 |
|
|
|
36,516 |
|
|
|
53.8 |
|
|
|
21.9 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
8,427 |
|
|
|
19.7 |
|
|
|
6,802 |
|
|
|
19.8 |
|
|
|
23.9 |
|
|
|
16,585 |
|
|
|
19.6 |
|
|
|
13,553 |
|
|
|
20.0 |
|
|
|
22.4 |
|
Research and development |
|
|
6,068 |
|
|
|
14.1 |
|
|
|
5,011 |
|
|
|
14.6 |
|
|
|
21.1 |
|
|
|
12,040 |
|
|
|
14.2 |
|
|
|
9,825 |
|
|
|
14.5 |
|
|
|
22.5 |
|
General and administrative |
|
|
3,302 |
|
|
|
7.7 |
|
|
|
3,293 |
|
|
|
9.6 |
|
|
|
0.3 |
|
|
|
6,880 |
|
|
|
8.1 |
|
|
|
7,047 |
|
|
|
10.4 |
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
17,797 |
|
|
|
41.5 |
|
|
|
15,106 |
|
|
|
44.0 |
|
|
|
17.8 |
|
|
|
35,505 |
|
|
|
41.9 |
|
|
|
30,425 |
|
|
|
44.9 |
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4,714 |
|
|
|
11.0 |
|
|
|
3,212 |
|
|
|
9.3 |
|
|
|
46.8 |
|
|
|
9,019 |
|
|
|
10.7 |
|
|
|
6,091 |
|
|
|
8.9 |
|
|
|
48.1 |
|
Interest income and other, net |
|
|
759 |
|
|
|
1.8 |
|
|
|
554 |
|
|
|
1.7 |
|
|
|
37.0 |
|
|
|
1,530 |
|
|
|
1.8 |
|
|
|
886 |
|
|
|
1.4 |
|
|
|
72.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
5,473 |
|
|
|
12.8 |
|
|
|
3,766 |
|
|
|
11.0 |
|
|
|
45.3 |
|
|
|
10,549 |
|
|
|
12.5 |
|
|
|
6,977 |
|
|
|
10.3 |
|
|
|
51.2 |
|
Income tax provision |
|
|
1,876 |
|
|
|
4.4 |
|
|
|
1,199 |
|
|
|
3.5 |
|
|
|
56.5 |
|
|
|
3,150 |
|
|
|
3.8 |
|
|
|
2,227 |
|
|
|
3.3 |
|
|
|
41.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,597 |
|
|
|
8.4 |
% |
|
$ |
2,567 |
|
|
|
7.5 |
% |
|
|
40.1 |
% |
|
$ |
7,399 |
|
|
|
8.7 |
% |
|
$ |
4,750 |
|
|
|
7.0 |
% |
|
|
55.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
Net sales for the three and six months ended March 31, 2007 were $42.9 million and $84.7
million compared to net sales of $34.4 million and $67.8 million for the three and six months
ended March 31, 2006, or an increase of 24.7% and 25.0%, respectively. Net sales of products
acquired as a result of the MaxStream acquisition, which was acquired on July 27, 2006, were
$5.0 million and $9.6 million for the first three and six months of fiscal 2007.
The following summarizes our net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
% increase |
|
|
Six months ended March 31, |
|
|
% increase |
|
($ in thousands) |
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
Non-embedded |
|
$ |
24,445 |
|
|
|
57.0 |
% |
|
$ |
21,293 |
|
|
|
61.9 |
% |
|
|
14.8 |
% |
|
$ |
49,611 |
|
|
|
58.6 |
% |
|
$ |
40,628 |
|
|
|
60.0 |
% |
|
|
22.1 |
% |
Embedded |
|
|
18,410 |
|
|
|
43.0 |
|
|
|
13,087 |
|
|
|
38.1 |
|
|
|
40.7 |
|
|
|
35,055 |
|
|
|
41.4 |
|
|
|
27,128 |
|
|
|
40.0 |
|
|
|
29.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
42,855 |
|
|
|
100.0 |
% |
|
$ |
34,380 |
|
|
|
100.0 |
% |
|
|
24.7 |
% |
|
$ |
84,666 |
|
|
|
100.0 |
% |
|
$ |
67,756 |
|
|
|
100.0 |
% |
|
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Embedded
Net sales of network connected products, USB, cellular gateways and MaxStream non-embedded
products increased net sales by $5.0 million and $11.1 million for the three and six months
ended March 31, 2007 as
17
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET SALES (CONTINUED)
compared to the three and six months ended March 31, 2006, respectively. Multi-port serial
adapter products net sales declined by $1.8 million and $2.1 million for the three and six
months ended March 31, 2007 compared to the same periods in the prior year as this product
line continues to mature.
Embedded
Net sales of embedded modules and microprocessors increased by $5.8 million and $9.6 million
for the three and six months ended March 31, 2007 compared to the three and six months ended
March 31, 2006, respectively, due to market acceptance of embedded products and MaxStream
modules. This was offset by a decline of $0.5 million and $1.7 million of NIC net sales for
the three and six months ended March 31, 2007 as compared to the three and six months ended
March 31, 2006, respectively, as these NICs are near the end of their product life cycle.
Fluctuation in foreign currency rates compared to the same periods one year ago had a
favorable impact on net sales of $0.7 million and $1.2 million in the three and six month
periods ended March 31, 2007.
GROSS PROFIT
Gross profit margin for both the three and six months ended March 31, 2007 was 52.5% compared
to 53.3% and 53.8% for the three and six months ended March 31, 2006. The decrease in gross
profit margin was primarily due to lower sales of high gross profit margin mature products and
other product mix changes within both the embedded and non-embedded product categories.
We anticipate that our gross profit margins for the remainder of the fiscal year will be
consistent with current levels. Gross profit margins include estimated amortization of
purchased and core technology of 2.5 3.0 percentage points.
OPERATING EXPENSES
Total operating expenses for the three months ended March 31, 2007 were $17.8 million, or
41.5% of net sales, compared with $15.1 million, or 44.0% of net sales, for the three months
ended March 31, 2006. Total operating expenses for the six months ended March 31, 2007 were
$35.5 million, or 41.9% of net sales, compared with $30.4 million, or 44.9% of net sales, for
the six months ended March 31, 2006. The increase in operating expenses is primarily
attributable to the inclusion of operating expenses of $1.4 million pertaining to MaxStream
and $1.4 million of variable compensation expenses related to the increase in revenue,
partially offset by a $0.7 million reduction in professional fees compared to the second
quarter of fiscal 2006. Operating expenses as a percent of net sales decreased by 2.4 and 3.0
percentage points for the three months and six months ended March 31, 2007 compared to the
same periods in 2006 as we continue to focus on controlling expenses while increasing revenue.
Sales and marketing expenses for the three months ended March 31, 2007 were $8.5 million, or
19.7% of net sales, compared to $6.8 million, or 19.8% of net sales, for the three months
ended March 31, 2006. The increase of $1.7 million in sales and marketing expenses for the
three months ended March 31, 2007 compared to 2006 is primarily due to $0.7 million as a
result of the acquisition of MaxStream and an increase of $0.7 million of salaries and
incentive compensation related expenses associated with the increase in revenue. Sales and
marketing expenses for the six months ended March 31, 2007 were $16.6 million, or 19.6% of net
sales, compared to $13.6 million, or 20.0% of net sales, for the six months ended
18
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING EXPENSES (CONTINUED)
March 31, 2006. The net increase in sales and marketing expenses of $3.0 million is primarily
due to increased ongoing expenses of $1.4 million as the result of the acquisition of
MaxStream and an increase of $1.3 million for salaries and incentive compensation related
expenses.
Research and development expenses for the three months ended March 31, 2007 were $6.0 million,
or 14.1% of net sales, compared to $5.0 million, or 14.6% of net sales, for the three months
ended March 31, 2006. The increase in research and development expenses for the three months
ended March 31, 2007 compared to 2006 is primarily due to increases of $0.4 million as a
result of the MaxStream acquisition, an increase of $0.3 million for various chip development
projects, and an increase of $0.4 million for salaries and incentive compensation related
expenses. Research and development expenses for the six months ended March 31, 2007 were
$12.0 million, or 14.2% of net sales, compared to $9.8 million, or 14.5% of net sales, for the
six months ended March 31, 2006. The increase in research and development expenses of $2.2
million is due primarily to increased ongoing expenses of $0.8 million as a result of the
acquisition of MaxStream, an increase of $0.8 million in salaries and incentive compensation
related expenses and an increase of $0.6 million pertaining to various chip development
projects.
General and administrative expenses were $3.3 million, or 7.7% of net sales, for the three
months ended March 31, 2007 compared to $3.3 million, or 9.6% of net sales, for the three
months ended March 31, 2006. For the three months ended March 31, 2007 compared to 2006,
general and administrative expenses increased by $0.3 million due to primarily incentive
compensation related expenses and $0.3 million due to the MaxStream acquisition. These
increases were offset by a $0.7 million reduction in professional fees compared to the second
quarter of fiscal 2006. General and administrative expenses were $6.9 million, or 8.1% of net
sales, for the six months ended March 31, 2007 compared to $7.0 million, or 10.4% of net
sales, for the six months ended March 31, 2006. The net decrease in general and
administrative expenses of $0.1 million was due primarily to decreased professional fees of
$1.3 million compared to the six months ended March 31, 2006, offset by increased ongoing
expenses of $0.7 million as a result of the MaxStream acquisition and $0.3 million in
incentive compensation related expenses.
INTEREST INCOME AND OTHER, NET
Interest income and other, net was $0.7 million and $1.5 million for the three and six months
ended March 31, 2007 compared to $0.6 million and $0.9 million for the three and six months
ended March 31, 2006, respectively. We realized interest income on marketable securities and
cash and cash equivalents of $1.6 million and $1.1 million for the six month periods ended
March 31, 2007 and 2006, respectively, due to higher average interest rates and an increase in
the average invested balance. We earned an average interest rate of 5.1% for the six months
ended March 31, 2007 compared to 3.9% for the six months ended March 31, 2006. The average
invested balance for the six months ended March 31, 2007 and 2006 was $58.7 million and $49.3
million, respectively.
INCOME TAXES
Income taxes have been provided for at an effective rate of 29.9% for the six month period
ended March 31, 2007 compared to an effective rate of 31.9% for the six month period ended
March 31, 2006. On December 9, 2006, Congress passed H.R. 6111, the Tax Relief and Health
Care Act of 2006, which included an extension of the research credit that previously expired
on December 31, 2005. As a result of
19
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INCOME TAXES (CONTINUED)
the extension, we recorded a benefit of $0.5 million in the first quarter of fiscal 2007 for
research and development credits earned during the last three fiscal quarters of 2006. The
additional research and development credits were accounted for as a discrete event in the
first quarter of fiscal 2007. The effective tax rates for both the first six months of fiscal
2007 and 2006 are lower than the U.S. statutory rate of 35.0% primarily due to the utilization
of income tax credits and the combined phase-out of the extraterritorial income exclusion and
the phase-in of the U.S. domestic production activities deduction.
We expect our annualized 2007 income tax rate to be in a range of 33% to 33.5%, which includes
the additional benefit related to the research and development credit.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations principally with funds generated from operations. At March
31, 2007, we had cash, cash equivalents and marketable securities of $69.9 million compared to
$58.9 million at September 30, 2006. Our working capital (total current assets less total
current liabilities) increased $14.0 million to $97.3 million at March 31, 2007 compared to
$83.3 million at September 30, 2006.
Net cash provided by operating activities was $11.3 million and $8.1 million for the six
months ended March 31, 2007 and 2006, respectively, resulting in a net increase of $3.2
million. This net increase is primarily due to an increase of $2.6 million of net income and
$1.9 million for non-cash expenses, primarily related to stock-based compensation, deferred
income taxes, and provisions for bad debts and product returns. Cash of $1.1 million was used
as a result of additional material purchases and production builds in order to fulfill order
demand.
Net cash used in investing activities was $11.8 million during the six months ended March 31,
2007 compared to net cash used by investing activities of $8.0 million during the same period
in the prior fiscal year, resulting in $3.8 million of additional cash usage. This additional
cash usage is due to a $2.4 million increase in purchases of marketable securities, net of
settlements, $0.6 million related to purchases of property, equipment, improvements and
certain other intangible assets, and $0.8 million for contingent purchase price payments
related to the FS Forth acquisition (see Note 10 to Condensed Consolidated Financial
Statements). We anticipate total fiscal 2007 capital expenditures to approximate $2.6
million.
We generated $1.7 million from financing activities during the six months ended March 31, 2007
compared to $3.2 million during the same period a year ago, primarily as a result of proceeds
from stock option and employee stock purchase plan transactions in both periods, and the
reflection of cash provided by the excess tax benefits related to the exercise of stock
options.
The remaining increase in net cash of $0.9 million for the comparable six month periods ended
March 31, 2007 and 2006 is due to the effect of exchange rate changes in cash and cash
equivalents, primarily due to the strengthening of the Euro.
Management believes that current financial resources, cash generated from operations and our
potential capacity for additional debt and/or equity financing will be sufficient to fund
operations in the foreseeable future.
20
ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The following summarizes our contractual obligations at March 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by fiscal period |
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
Total |
|
1 year |
|
1-3 years |
|
3-5 years |
|
Thereafter |
|
|
|
Operating leases |
|
$ |
6,380 |
|
|
$ |
2,141 |
|
|
$ |
2,297 |
|
|
$ |
1,249 |
|
|
$ |
693 |
|
Capital leases |
|
|
1,064 |
|
|
|
448 |
|
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
7,444 |
|
|
$ |
2,589 |
|
|
$ |
2,913 |
|
|
$ |
1,249 |
|
|
$ |
693 |
|
|
|
|
The lease obligations summarized above relate to various operating lease agreements for
office space and equipment. The capital leases summarized above are for manufacturing
equipment located in Davis, California and Breisach, Germany. The table above excludes a
potential $1.2 million installment on October 1, 2007 of additional contingent purchase price
payments related to the FS Forth acquisition if certain future milestones are achieved (see
Note 10 to Condensed Consolidated Financial Statements).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value measurements. The
provisions of FAS 157 are effective for the fiscal year beginning October 1, 2008. We are
currently evaluating the impact of the provisions of FAS 157 on our consolidated financial
statements and do not believe the impact of the adoption will be material.
In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS
159). This Statement provides companies with an option to measure, at specified election
dates, many financial instruments and certain other items at fair value that are not currently
measured at fair value. A company that adopts SFAS 159 will report unrealized gains and
losses on items for which the fair value option has been elected in earnings at each
subsequent reporting date. This Statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. This Statement is
effective for fiscal years beginning after November 15, 2007, which for us is the first
quarter of fiscal 2009. We are currently evaluating the impact that SFAS 159 could have on
our consolidated financial statements.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a
recognition threshold and measurement process for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Additionally,
FIN 48 provides guidance on the derecognition, classification, accounting in interim periods
and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48
will be effective for us beginning October 1, 2007. We are in the process of determining the
effect, if any, that the adoption of FIN 48 will have on our consolidated financial
statements. However, we expect to reclassify a portion of our unrecognized tax benefits from
current to non-current liabilities because payment of cash is not anticipated within one year
of the balance sheet date.
21
ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RISK FACTORS
Multiple risk factors exist which could have a material effect on our operations, results of
operations, profitability, financial position, liquidity and capital resources. These risk
factors are more fully presented in our 2006 Annual Report on Form 10-K as filed with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Our exposure to interest rate risk relates primarily to our investment portfolio. Investments
are made in accordance with our investment policy and consist of high grade commercial paper
and corporate bonds. We do not use derivative financial instruments to hedge against interest
rate risk as all investments are held to maturity and the majority of our investments mature
in less than a year. A change in interest rates would not have a material effect on our
financial statements.
FOREIGN CURRENCY RISK
Our transactions are executed in the U.S. Dollar, Euro or Japanese Yen. As a result, we are
exposed to foreign currency transaction risk associated with certain sales transactions being
denominated in Euros or Japanese Yen, and foreign currency translation risk as the financial
position and operating results of our foreign subsidiaries are translated into U.S. Dollars
for consolidation. We have not implemented a hedging strategy to reduce foreign currency
risk.
For the six months ended March 31, 2007 and 2006, we had approximately $29.6 million and $27.4
million, respectively, of net sales to foreign customers including export sales, of which
$14.5 million and $10.8 million, respectively, were denominated in foreign currency,
predominantly Euros. In future periods, a significant portion of sales will continue to be
made in Euros.
The average monthly exchange rate for the Euro to the U.S. Dollar increased approximately 8.2%
from 1.2014 to 1.3000 and the average monthly exchange rate for the Japanese Yen to the U.S.
Dollar decreased from .0085 to .0084 for the first six months of fiscal year 2007 as compared
to the same period one year ago. A 10.0% change from the first quarter fiscal 2007 average
exchange rate for the Euro and Yen to the U.S. Dollar would have resulted in a 1.7% increase
or decrease in net sales and a 1.3% increase or decrease in stockholders equity. The above
analysis does not take into consideration any pricing adjustments we may need to consider in
response to changes in the exchange rate.
CREDIT RISK
We have some exposure to credit risk related to our accounts receivable portfolio. Exposure
to credit risk is controlled through regular monitoring of customer financial status, credit
limits and collaboration with sales management on customer contacts to facilitate payment.
22
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of the principal executive officer and principal
financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this
evaluation, the principal executive officer and principal financial officer concluded that our
disclosure controls and procedures were effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act was recorded,
processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms and is accumulated and communicated to our management,
including the principal executive and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
There was no change in our internal control over financial reporting during our most recently
completed fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The disclosures set forth in Note 10 to the Condensed Consolidated Financial Statements in
Part I, Item 1 of this Form 10-Q are incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors provided in Part I, Item 1A of our 2006
Annual Report on Form 10-K as filed with the SEC on December 6, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Stockholders was held on January 22, 2007. Of the 25,085,451 shares of Digi
common stock entitled to vote at the meeting, 18,293,381 shares were present at the meeting in
person or by proxy. The stockholders voted on the following:
|
a) |
|
The following individuals designated by our Board of Directors as nominees for
director were elected for a three-year term, with voting as follows: |
|
|
|
|
|
|
|
|
|
Nominee |
|
Total Votes For |
|
Withhold Authority |
Guy C. Jackson |
|
|
17,084,727 |
|
|
|
1,208,654 |
|
Ahmed Nawaz |
|
|
18,111,747 |
|
|
|
181,634 |
|
|
b) |
|
Proposal to approve the Digi International Inc. 2000 Omnibus Stock Plan, as
Amended and Restated as of November 27, 2006. The proposal passed on a vote of
12,648,703 in favor, 2,838,400 against, 28,802 abstentions and 2,777,476 broker
non-votes. |
|
|
c) |
|
Proposal to approve the Digi International Inc. Employee Stock Purchase Plan, as
Amended and Restated as of November 27, 2006. The proposal passed on a vote of
14,847,833 in favor, 646,568 against, 21,504 abstentions and 2,777,476 broker non-votes. |
|
|
d) |
|
Proposal to ratify the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for the fiscal year ended September 30,
2007. The proposal passed on a vote of 18,096,178 in favor, 170,512 against, 26,691
abstentions and no broker non-votes. |
ITEM 5. OTHER INFORMATION
None
24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
|
|
|
Exhibit No. |
|
Description |
3(a)
|
|
Restated Certificate of Incorporation of the Company, as amended (1) |
|
|
|
3(b)
|
|
Amended and Restated By-Laws of the Company |
|
|
|
4(a)
|
|
Form of Rights Agreement, dated as of June 10, 1998 between Digi International
Inc. and Wells Fargo Bank, National Association (formerly known as Norwest Bank
Minnesota, National Association), as Rights Agent (2) |
|
|
|
4(b)
|
|
Amendment dated January 26, 1999, to Share Rights Agreement, dated as of June
10, 1998 between Digi International Inc. and Wells Fargo Bank, National Association
(formerly known as Norwest Bank Minnesota, National Association), as Rights Agent
(3) |
|
|
|
31(a)
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
31(b)
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
32
|
|
Section 1350 Certification |
|
|
|
(1) |
|
Incorporated by reference to Exhibit 3(a) to the Companys Form 10-K for the year ended
September 30, 1993 (File No. 0-17972) |
|
(2) |
|
Incorporated by reference to Exhibit 1 to the Companys Registration Statement on Form 8-A
dated June 24, 1998 (File No. 0-17972) |
|
(3) |
|
Incorporated by reference to Exhibit 1 to Amendment 1 to the Companys Registration Statement
on Form 8-A dated February 5, 1999 (File No. 0-17972) |
25
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.
|
|
|
|
|
|
DIGI INTERNATIONAL INC.
|
|
Date: May 8, 2007 |
By: |
/s/ Subramanian Krishnan
|
|
|
|
Subramanian Krishnan |
|
|
|
Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial and
Accounting Officer) |
|
26
EXHIBIT INDEX
|
|
|
|
|
Exhibit Number |
|
Document Description |
|
Form of Filing |
3(a)
|
|
Restated Certificate of Incorporation
of the Company, as Amended (incorporated
by reference to the corresponding exhibit
number to the Companys Form 10-K for
the year ended September 30, 1993
(File No. 0-17972))
|
|
Incorporated by Reference |
|
|
|
|
|
3(b)
|
|
Amended and Restated By-Laws of the
Company
|
|
Filed Electronically |
|
|
|
|
|
4(a)
|
|
Form of Rights Agreement, dated as of
June 10, 1998 between Digi International Inc.
and Wells Fargo Bank, National
Association (formerly known as Norwest Bank
Minnesota, National Association), as Rights
Agent (incorporated by reference to Exhibit 1
to the Companys Registration Statement on
Form 8-A dated June 24, 1998
(File No. 0-17972))
|
|
Incorporated by Reference |
|
|
|
|
|
4(b)
|
|
Amendment dated January 26, 1999, to Share
Rights Agreement, dated June 10, 1998
between Digi International Inc. and Wells Fargo
Bank, National Association (formerly
known as Norwest Bank Minnesota, National
Association), as Rights Agent (incorporated
by reference to Exhibit 1 to Amendment No. 1
to the Companys Registration Statement on
Form 8-A dated February 5, 1999
(File No. 0-17972))
|
|
Incorporated by Reference |
|
|
|
|
|
31(a)
|
|
Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer
|
|
Filed Electronically |
|
|
|
|
|
31(b)
|
|
Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer
|
|
Filed Electronically |
|
|
|
|
|
32
|
|
Section 1350 Certification
|
|
Filed Electronically |
27