Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. SONUS NETWORKS INC (1105472) 10-Q published on Oct 26, 2017 at 7:48 pm
Reporting Period: Sep 29, 2017
On August 17, 2017, Holdings filed a Motion for Expedited Discovery. On August 18, 2017, the Company filed its Answer and Motion to Compel Arbitration and Stay Proceedings, requesting the Texas state court stay the proceedings in favor of arbitration, as provided by the terms of the Earn-Out Agreement. On August 22, 2017, Holdings filed its Opposition to the Company's Motion to Compel Arbitration and Stay Proceedings. Also on August 22, 2017, the Company filed its Response to Holdings' Motion for Expedited Discovery. On August 24, 2017, the Company filed a Reply in Support of its Motion to Compel Arbitration and Stay Proceedings. On August 25, 2017, a hearing was held on: (i) Holdings' Motion for Expedited Discovery and (ii) the Company's Motion to Compel Arbitration and Stay Proceedings. On August 29, 2017, the Texas state court denied Holdings' Motion for Expedited Discovery and granted the Company's Motion to Compel Arbitration and Stay Proceedings. Therefore, as of August 29, 2017, this lawsuit is stayed until further order of the court. Pursuant to the Membership Interest Purchase Agreement between the parties, dated September 26, 2016, the Company and Holdings have initiated non-binding mediation in an attempt to resolve this dispute. The Company does not expect the results of this suit to have a material adverse effect on its business or consolidated financial statements.
The Company is fully cooperating with an SEC inquiry regarding the development and issuance of the Company's first quarter 2015 revenue and earnings guidance. Based on recent communications with the SEC's Division of Enforcement (the "Staff"), the Company currently expects the Staff to seek approval of the SEC commissioners to initiate proceedings alleging securities law violations, including violations of Section 10(b) and 17(a) of the Exchange Act with respect to the development and issuance of the Company's first quarter 2015 revenue and earnings guidance which the Staff believes, based on its assessment of the matter, would warrant a $3.1 million fine against the Company. The Company believes the allegations are without merit and intends to vigorously contest the matter and the Staff's view. The Company recorded $1.6 million in the three months ended September 30, 2017 for potential fines in connection with this investigation.
Our operating expenses were $50.6 million in the three months ended September 30, 2017 and $47.9 million in the three months ended September 30, 2016. Our operating expenses were $144.3 million in the nine months ended September 30, 2017 and $133.1 million in the nine months ended September 30, 2016. Operating expenses for the three months ended September 30, 2017 included $1.5 million of acquisition-related expense and $0.2 million of merger integration expense, both in connection with the pending merger with GENBAND. Operating expenses for the nine months ended September 30, 2017 included $1.1 million of restructuring expense as described above, $6.3 million of acquisition-related expense and $0.2 million of merger integration expense. The acquisition-related expense for the nine months ended September 30, 2017 is comprised of $6.2 million in connection with the pending merger with GENBAND and $0.1 million in connection with our acquisition of Taqua. The merger integration expense relates to the pending merger with GENBAND. The merger integration expense in both the three and nine months ended September 30, 2017 is included as a component of General and Administrative expense. We recorded $1.6 million of restructuring expense in both the three and nine months ended September 30, 2016, comprised of $1.2 million related to our 2016 Restructuring Initiative and $0.4 million related our Taqua Restructuring Initiative. We recorded $1.0 million of acquisition-related expense in both the three and nine months ended September 30, 2016 for professional fees, primarily legal fees, in connection with the acquisition of Taqua.
We recorded stock-based compensation expense of $3.9 million in the three months ended September 30, 2017 and $6.4 million in the three months ended September 30, 2016. We recorded stock-based compensation expense of $11.4 million in the nine months ended September 30, 2017 and $15.5 million in the nine months ended September 30, 2016. These amounts are included as components of both Cost of revenue and Operating expenses in our condensed consolidated statements of operations. In connection with the pending merger with GENBAND, we accelerated the vesting of all outstanding stock options and certain outstanding RSAs, RSUs and PSUs. As a result, we expect to record incremental stock-based compensation expense in the fourth quarter of 2017 related to these accelerations. Upon consummation of the merger, the shares underlying the accelerated portion of the RSAs, RSUs and PSUs will be issued and the vesting schedules for the remaining unvested RSAs, RSUs and PSUs will be adjusted to reflect this acceleration. Option holders had an opportunity to exercise their stock options, including the accelerated options, from October 20, 2017 through October 24, 2017, after which date all remaining outstanding stock options, with certain exceptions, were canceled.
Based on our current expectations, we believe our current cash, cash equivalents, marketable securities and long-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months, including any future stock repurchases under the aforementioned stock buyback program and any cash paid in connection with the pending merger with GENBAND. We expect that NewCo will have in place (through GENBAND, following the Mergers) a $50 million revolving credit facility, with potential further increases available for a total revolving line of credit of up to $125 million, at the time of the consummation of the pending merger with GENBAND (the "GENBAND facility"). At October 26, 2017, the GENBAND facility had $29.1 million available for future borrowings, including letters of credit. At October 26, 2017, outstanding borrowings and letters of credit totaled $18.0 million and $2.9 million, respectively. The outstanding borrowings of $18.0 million under the GENBAND facility had an average interest rate of 4.67% at October 26, 2017. GENBAND has advised us that it was in compliance with all covenants related to the GENBAND facility at September 30, 2017. It is difficult to predict future liquidity requirements with certainty. The rate at which we will consume cash will be dependent on the cash needs of future operations, including changes in working capital, which will, in turn, be directly affected by the successful implementation of our cost reduction initiatives, the levels of demand for our products, the timing and rate of expansion of our business, the timing of consummation of the GENBAND merger, the resources we devote to developing our products and any settlements of legal proceedings. We anticipate devoting substantial capital resources to continue our research and development efforts, to maintain our sales, support and marketing, to improve our controls environment, for other general corporate activities and to vigorously defend against existing and potential litigation. See Note 15 to our condensed consolidated financial statements for a description of our contingencies.
From time to time, we are subject to claims and litigation regarding intellectual property rights or other claims, which could seriously harm our business and require us to incur significant costs. In the past, we have also been named as a defendant in other securities class action and derivative lawsuits. We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these lawsuits. Defending against litigation may require significant attention and resources of management. Regardless of the outcome, such litigation could result in significant legal expenses. We are fully cooperating with an SEC inquiry regarding the development and issuance of our first quarter 2015 revenue and earnings guidance. Based on recent communications with the SEC's Division of Enforcement (which we refer to as the "Staff"), we currently expect the Staff to seek approval of the SEC Commissioners to initiate proceedings alleging securities laws violations, including violations of Section 10(b) and 17(a) of the Exchange Act with respect to the development and issuance of our first quarter 2015 revenue and earnings guidance which the Staff believes, based on its assessment of the matter, would warrant a $3.1 million fine against us. We believe the allegations are without merit and intend to vigorously contest the matter and the Staff's view. We recorded $1.6 million in the three months ended September 30, 2017 for potential fines in connection with this investigation.