SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended September 30, 2002 | ||
| or | ||
|
o
|
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: 0-20558
Networks Associates, Inc.
|
Delaware
|
77-0316593 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
|
3965 Freedom Circle Santa Clara, California (Address of principal executive offices) |
95054 (Zip Code) |
|
Registrant’s telephone number, including area code: (408) 988-3832
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
156,430,549 shares of the registrant’s common stock, $0.01 par value, were outstanding as of September 30, 2002.
This document contains 63 pages.
NETWORKS ASSOCIATES, INC.
FORM 10-Q, SEPTEMBER 30, 2002
CONTENTS
| Item | ||||||
| Number | Page | |||||
| PART I: FINANCIAL INFORMATION | ||||||
|
Item 1.
|
Financial Statements (Unaudited) | |||||
| Condensed Consolidated Balance Sheets: | ||||||
| September 30, 2002 and December 31, 2001 (As restated) | 2 | |||||
| Condensed Consolidated Statements of Operations and Comprehensive Income (Loss): | ||||||
| Three and nine months ended September 30, 2002 and 2001 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows: | ||||||
| Nine months ended September 30, 2002 and 2001 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||||
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk | 40 | ||||
|
Item 4.
|
Controls and Procedures | 54 | ||||
| PART II: OTHER INFORMATION | ||||||
|
Item 1.
|
Legal Proceedings | 55 | ||||
|
Item 2.
|
Changes in Securities | 55 | ||||
|
Item 3.
|
Defaults in Securities | 55 | ||||
|
Item 4.
|
Submission of Matters to a Vote of Security Holders | 55 | ||||
|
Item 5.
|
Other Information | 55 | ||||
|
Item 6.
|
Exhibits and Reports on Form 8-K | 55 | ||||
| SIGNATURES | 56 | |||||
| CERTIFICATIONS | 57 | |||||
| EXHIBIT INDEX | 60 | |||||
1
NETWORKS ASSOCIATES, INC.
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (As Restated | ||||||||||
| See Note 2) | ||||||||||
| (In thousands, except share | ||||||||||
| and par value data) | ||||||||||
| ASSETS | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 633,952 | $ | 612,832 | ||||||
|
Short-term marketable securities
|
180,920 | 135,761 | ||||||||
|
Accounts receivable, net
|
114,727 | 136,366 | ||||||||
|
Prepaid expenses, income taxes and other current
assets
|
44,451 | 54,959 | ||||||||
|
Deferred taxes
|
148,694 | 142,869 | ||||||||
|
Total current assets
|
1,122,744 | 1,082,787 | ||||||||
|
Long-term marketable securities
|
163,869 | 194,357 | ||||||||
|
Restricted cash
|
20,229 | — | ||||||||
|
Property, equipment and leasehold improvements,
net
|
74,670 | 64,040 | ||||||||
|
Land
|
4,414 | 4,414 | ||||||||
|
Deferred taxes
|
129,825 | 84,399 | ||||||||
|
Intangible assets, net
|
89,608 | 28,124 | ||||||||
|
Goodwill
|
302,523 | 156,930 | ||||||||
|
Other assets
|
25,181 | 18,853 | ||||||||
|
Total assets
|
$ | 1,933,063 | $ | 1,633,904 | ||||||
| LIABILITIES | ||||||||||
|
Current liabilities:
|
||||||||||
|
Accounts payable
|
$ | 22,474 | $ | 26,368 | ||||||
|
Accrued liabilities
|
357,818 | 293,583 | ||||||||
|
Deferred revenue
|
253,923 | 250,048 | ||||||||
|
Current portion of convertible debt
|
174,203 | — | ||||||||
|
Total current liabilities
|
808,418 | 569,999 | ||||||||
|
Deferred taxes
|
39,786 | 20,445 | ||||||||
|
Deferred revenue, less current portion
|
28,548 | 24,312 | ||||||||
|
Convertible debt, less current portion
|
356,266 | 578,850 | ||||||||
|
Other long term debt and liabilities
|
434 | 393 | ||||||||
|
Total liabilities
|
1,233,452 | 1,193,999 | ||||||||
|
Contingencies (Note 12)
|
||||||||||
|
Minority interest
|
— | 17,311 | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||
|
Preferred stock, $0.01 par value:
|
||||||||||
|
Authorized: 5,000,000 shares; Issued and
outstanding: none at September 30, 2002 and
December 31, 2001
|
— | — | ||||||||
|
Common stock, $0.01 par value:
|
||||||||||
|
Authorized: 300,000,000 shares; Issued and
Outstanding: 156,430,549 shares at September 30, 2002
and 140,699,222 shares at December 31, 2001
|
1,564 | 1,406 | ||||||||
|
Additional paid-in capital
|
975,763 | 742,315 | ||||||||
|
Deferred Compensation
|
(7,721 | ) | — | |||||||
|
Accumulated other comprehensive loss
|
(25,256 | ) | (30,345 | ) | ||||||
|
Accumulated deficit
|
(244,739 | ) | (290,782 | ) | ||||||
|
Total stockholders’ equity
|
699,611 | 422,594 | ||||||||
|
Total liabilities, minority interest and
stockholders’ equity
|
$ | 1,933,063 | $ | 1,633,904 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
NETWORKS ASSOCIATES, INC.
| Three Months | ||||||||||||||||||
| Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||
|
Net revenue:
|
||||||||||||||||||
|
Product
|
$ | 152,523 | $ | 134,888 | $ | 441,373 | $ | 359,757 | ||||||||||
|
Services and support
|
79,667 | 70,757 | 244,488 | 194,597 | ||||||||||||||
|
Total net revenue
|
232,190 | 205,645 | 685,861 | 554,354 | ||||||||||||||
|
Cost of net revenue:
|
||||||||||||||||||
|
Product
|
23,541 | 28,304 | 73,764 | 77,185 | ||||||||||||||
|
Services and support
|
15,172 | 14,490 | 45,370 | 42,501 | ||||||||||||||
|
Total cost of net revenue
|
38,713 | 42,794 | 119,134 | 119,686 | ||||||||||||||
|
Operating costs and expenses:
|
||||||||||||||||||
|
Research and development(1)
|
37,824 | 33,882 | 105,881 | 108,741 | ||||||||||||||
|
Marketing and sales(2)
|
98,719 | 100,121 | 307,919 | 303,365 | ||||||||||||||
|
General and administrative(3)
|
35,489 | 23,282 | 83,559 | 79,136 | ||||||||||||||
|
Acquisition related costs not subject to
capitalization
|
13,627 | — | 16,026 | — | ||||||||||||||
|
Recovery from doubtful accounts
|
(784 | ) | (1,072 | ) | (1,141 | ) | (7,904 | ) | ||||||||||
|
Amortization of intangibles
|
3,091 | 15,479 | 8,458 | 47,996 | ||||||||||||||
|
Restructuring charge
|
— | — | 1,116 | — | ||||||||||||||
|
Total operating costs and expenses
|
187,966 | 171,692 | 521,818 | 531,334 | ||||||||||||||
|
Income (loss) from operations
|
5,511 | (8,841 | ) | 44,909 | (96,666 | ) | ||||||||||||
|
Interest and other income
|
9,126 | 8,856 | 23,425 | 27,801 | ||||||||||||||
|
Interest expense
|
(6,990 | ) | (7,163 | ) | (22,579 | ) | (16,578 | ) | ||||||||||
|
Gain on sale of assets and technology
|
2,584 | — | 9,301 | — | ||||||||||||||
|
Write-down of strategic and other investments
|
(198 | ) | (1,000 | ) | (198 | ) | (19,138 | ) | ||||||||||
|
Income (loss) before provision for income
tax, minority interest and extraordinary item
|
10,033 | (8,148 | ) | 54,858 | (104,581 | ) | ||||||||||||
|
Provision for (benefit from) income taxes
|
3,121 | 4,028 | 7,766 | (7,144 | ) | |||||||||||||
|
Income (loss) before minority interest and
extraordinary item
|
6,912 | (12,176 | ) | 47,092 | (97,437 | ) | ||||||||||||
|
Minority interest in loss (income) of
consolidated subsidiaries
|
2,121 | (152 | ) | (1,075 | ) | 569 | ||||||||||||
|
Income (loss) before extraordinary item
|
9,033 | (12,328 | ) | 46,017 | (96,868 | ) | ||||||||||||
|
Extraordinary item — gain on repurchase
of debt, net of taxes
|
57 | 1,077 | 26 | 1,077 | ||||||||||||||
|
Net income (loss)
|
$ | 9,090 | $ | (11,251 | ) | $ | 46,043 | $ | (95,791 | ) | ||||||||
|
Other comprehensive income (loss):
|
||||||||||||||||||
|
Unrealized gain (loss) on investments, net
|
46 | 1,673 | (2,310 | ) | 1,968 | |||||||||||||
|
Foreign currency translation gain (loss)
|
(378 | ) | (1,136 | ) | 7,399 | (1,055 | ) | |||||||||||
|
Comprehensive income (loss)
|
$ | 8,758 | $ | (10,714 | ) | $ | 51,132 | $ | (94,878 | ) | ||||||||
|
Basic net income (loss) per share:
|
||||||||||||||||||
|
Income (loss) before extraordinary item
|
$ | 0.06 | $ | (0.09 | ) | $ | 0.31 | $ | (0.71 | ) | ||||||||
|
Extraordinary item — loss on repurchase
of debt, net of taxes
|
— | 0.01 | — | 0.01 | ||||||||||||||
|
Net income (loss) per share
|
$ | 0.06 | $ | (0.08 | ) | $ | 0.31 | $ | (0.70 | ) | ||||||||
|
Shares used in per share calculation —
basic
|
149,344 | 137,750 | 147,021 | 137,256 | ||||||||||||||
|
Diluted net income (loss) per share:
|
||||||||||||||||||
|
Income (loss) before extraordinary item
|
$ | 0.06 | $ | (0.09 | ) | $ | 0.30 | $ | (0.71 | ) | ||||||||
|
Extraordinary item — gain on repurchase
of debt, net of taxes
|
— | 0.01 | — | 0.01 | ||||||||||||||
|
Net income (loss) per share
|
$ | 0.06 | $ | (0.08 | ) | $ | 0.30 | $ | (0.70 | ) | ||||||||
|
Shares used in per share calculation —
diluted
|
154,822 | 137,750 | 154,952 | 137,256 | ||||||||||||||
| (1) | Includes stock-based compensation charges of $1,351 and $144 for the three months ended September 30, 2002 and 2001, respectively, and $236 and $342 for the nine months ended September 30, 2002 and 2001, respectively. |
| (2) | Includes stock-based compensation charges (credits) of $903 and $228 for the three months ended September 30, 2002 and 2001, respectively, and ($234) and $541 for the nine months ended September 30, 2002 and 2001, respectively. |
| (3) | Includes stock-based compensation charges of $9,456 and $448 or the three months ended September 30, 2002 and 2001, respectively, and $8,561 and $2,800 for the nine months ended September 30, 2002 and 2001, respectively. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NETWORKS ASSOCIATES, INC.
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
| (In thousands) | |||||||||||
|
Cash flows from operating activities:
|
|||||||||||
|
Net income (loss)
|
$ | 46,043 | $ | (95,791 | ) | ||||||
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|||||||||||
|
Depreciation and amortization
|
37,918 | 79,535 | |||||||||
|
Recovery from doubtful accounts
|
(1,141 | ) | (7,904 | ) | |||||||
|
Non cash interest expense on convertible notes
|
9,390 | 16,585 | |||||||||
|
Extraordinary item — gain on repurchase
of debt, net of tax
|
(26 | ) | (1,077 | ) | |||||||
|
Gain on sale of assets and technology
|
(9,301 | ) | — | ||||||||
|
| |||||||||||