Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 27, 2002

[   ] 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 000-31859

CRYSTAL DECISIONS, INC.
(Exact name of registrant as specified in its charter)

Telephone: (650) 838-7410
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common stock, par value of $0.001

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

	Yes [X]      No [   ]

On November 1, 2002, 75,952,097 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.

Table of Contents

CRYSTAL DECISIONS, INC.

INDEX

2

Table of Contents

Item 1. Financial Statements (Unaudited)

CRYSTAL DECISIONS, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

See accompanying notes.

3

Table of Contents

CRYSTAL DECISIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

See accompanying notes.

4

Table of Contents

CRYSTAL DECISIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying notes.

5

Table of Contents

CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

1. Description of Business and Basis of Presentation

     Crystal Decisions, Inc. (“Crystal Decisions” or the “Company”) is an information management company, which is incorporated in Delaware and is headquartered in Palo Alto, California, that creates software products and provides services for reporting, analysis and information delivery. Crystal Decisions develops, markets and supports an integrated, scalable suite of enterprise software products that enable businesses to access disparate data sources and distribute secure, interactive reports and analysis across and beyond these organizations. The Company’s products, commonly referred to as business intelligence software, provide employees, partners and customers with access to the information they need to make better business decisions and ultimately reduce costs and increase productivity.

     Crystal Decisions is a majority owned subsidiary of Seagate Software (Cayman) Holdings, a Cayman Islands limited corporation, which is a wholly owned subsidiary of New SAC, a Cayman Islands limited corporation (“New SAC”), whose predecessor was Seagate Technology, Inc. (“Seagate Technology”).

     The unaudited consolidated financial statements of Crystal Decisions have been prepared by the Company, in accordance with United States (“U.S.”) generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited interim financial statements should be read in conjunction with the annual audited consolidated and combined financial statements and related notes of the Company in the Annual Report on Form 10-K for the year ended June 28, 2002 as filed with the SEC on September 26, 2002.

     The consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for the fair presentation of the consolidated financial position, results of operations and cash flows. The results of operations for the three months ended September 27, 2002 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 27, 2003 or future operating periods. All information is stated in U.S. dollars unless otherwise stated.

     Crystal Decisions operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to the end of June. Accordingly, fiscal 2002 ended on June 28, 2002 and comprised 52 weeks. Fiscal 2003 will be a 52-week year and will end on June 27, 2003. The three-month periods ended September 27, 2002 and September 28, 2001 each comprised 13 weeks of activity. Certain comparative period figures have been reclassified to conform to the current basis of presentation. Such reclassifications had no effect on net income as previously reported.

2. Change in Control of Crystal Decisions, Inc.

     At the closing of the transactions under the terms of a stock purchase agreement, New SAC, through Seagate Software (Cayman) Holdings, acquired 75,001,000 shares, or 99.7%, of Crystal Decisions’ outstanding common stock at November 22, 2000. This transaction is referred to hereafter as the New SAC Transaction.

6

Table of Contents

CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

     The New SAC Transaction constituted a purchase transaction of Seagate Technology and resulted in a change in control of Crystal Decisions. Under rules and regulations promulgated by the SEC, because more than 95% of Crystal Decisions was acquired on November 22, 2000 and a change of ownership occurred, Crystal Decisions restated all its assets and liabilities in the financial statements as of November 22, 2000 on a “push down” accounting basis. Under purchase accounting rules, the net purchase price paid by New SAC was allocated to the assets and liabilities of Seagate Technology and its subsidiaries, including Crystal Decisions, based on their fair values at the date of the closing of the New SAC Transaction.

     The following summarizes the impact of push down accounting, resulting from the New SAC Transaction, on the Company’s financial statements specifically related to results for the three months ended September 27, 2002 and September 28, 2001:

•		Revenues. Deferred revenue was revalued at November 22, 2000 and was reduced by $1.3 million and revenues were reduced on a declining basis during the 12 months following the New SAC Transaction. Consequently, revenues were approximately $103,000 lower for the three months ended September 28, 2001 than they would have been had the push down adjustments not occurred. There was no impact during the three months ended September 27, 2002.
•		Depreciation. As a result of the push down accounting, the long-lived tangible assets were reduced by $4.3 million on November 22, 2000. Consequently, depreciation expense recorded was approximately $270,000 and $463,000 less for the three months ended September 27, 2002 and September 28, 2001, respectively, than would have been recorded had the push down adjustments not occurred.
•		Amortization. Additional amortization expense of approximately $1.4 million for the three months ended September 28, 2001 was recorded resulting from the incremental fair value of intangible assets pushed down to the Company’s consolidated financial statements on November 22, 2000. As a result of the application of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”), the net carrying values of the intangible assets pushed down to Crystal Decisions’ consolidated financial statements were reduced to zero at June 28, 2002 by a charge against additional paid-in capital on the statement of stockholders’ equity. Therefore, commencing in the first quarter of fiscal 2003, there was no amortization charged to the Company’s statement of operations related to intangible assets.

3. New Accounting Policies

     In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets.” Crystal Decisions adopted SFAS 142 effective June 29, 2002. Under SFAS 142, goodwill and indefinite life intangible assets are no longer amortized but are reviewed annually for impairment (or more frequently if impairment indicators arise). Separate intangible assets that are deemed to have definite lives continue to be amortized over their estimated useful lives. There was no goodwill or remaining intangible assets on the consolidated balance sheet as at June 28, 2002. Therefore, there was no amortization relating to developed technologies, a definite life intangible asset, for the three months ended September 27, 2002. Under SFAS 142, assembled workforce is not considered to be an intangible asset and, as such, is no longer amortized on adoption. The adoption did not have a material impact on the Company’s financial position or results of operations.

7

Table of Contents

CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

     Had the Company been accounting for its intangible assets under SFAS 142 for all periods presented, the Company’s net income and net income per share would have been as follows (in thousands, except per share amounts):

     In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Crystal Decisions adopted SFAS 144 effective June 29, 2002. SFAS 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (“SFAS 121”). SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss if the carrying amount of a long- lived asset is not recoverable from its undiscounted cash flows, and (b) measure an impairment loss as the difference between the carrying amount and the fair value of the asset. SFAS 144 removes goodwill from its scope. Upon adoption, the Company did not have any long-lived assets that were impaired. The adoption did not have a material impact on the Company’s financial position or results of operations.

4. Revenue Recognition

     Licensing revenues are derived from sales of software licenses. Maintenance, support and services revenues consist of technical support, training, consulting and maintenance.

     Crystal Decisions recognizes revenues in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by SOP 98-4 “Deferral of the Effective Date of a Provision of SOP 97-2” and by SOP 98-9 “Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.” These amendments deferred and then clarified, respectively, the specification of what is considered vendor specific objective evidence (“VSOE”) of fair value for the various elements in a multiple-element arrangement.

     SOP 97-2 requires that the total arrangement fee from software arrangements that include rights to multiple software products, post contract customer support and/or other services be allocated to each element of the arrangement based on their relative fair values. Under SOP 97-2, the determination of fair value is based on VSOE. When products are included in multiple-element arrangements, Crystal Decisions applies the residual method of accounting as specified in SOP 98-9 such that the total fair value of the undelivered elements as indicated by VSOE, is deferred and subsequently recognized in accordance with SOP 97-2 and the difference between the total arrangement fee and the amount deferred for the undelivered elements is accounted for as revenue related to the delivered elements.

8

Table of Contents

CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

     Some OEM arrangements contain end-user maintenance elements for which VSOE has not been established, as sufficient evidence of consistent pricing and renewal rates are not present. In such arrangements, Crystal Decisions recognizes the arrangement fee ratably over the maintenance period in accordance with the provisions set forth in SOP 97-2.

     Crystal Decisions generally recognizes licensing revenues, whether sold direct or through distributors or resellers, upon product delivery, provided persuasive evidence of an arrangement exists, fees are fixed or determinable and the resulting receivable is deemed collectible by management. In instances where payments are subject to extended payment terms, revenues are not recognized until the payments become due.

     Crystal Decisions’ policy is not to recognize revenues on sales to distributors or resellers if any resale contingencies exist. Some of the factors that are considered to determine the existence of such contingencies include payment terms, collectability and history with the distributor or reseller. Revenues are recognized when such contingencies are resolved and the criteria for revenue recognition in SOP 97-2 are met.

     Crystal Decisions recognizes revenues for sales to distributors and resellers with rights of return when the criteria for recognizing revenues, as outlined in SFAS No. 48, “Revenue Recognition When Right of Return Exists” (“SFAS 48”), are met. However, the Company makes estimates of future returns and reduces the revenues and related receivables accordingly by the amount of such estimates. Where rights of return exist and the criteria of SFAS 48 are not met, revenues are not recognized until such time that all of the criteria are met. The Company considers factors including historical experience, nature of the product, fixed or determinable fees, arms length contract terms, the level of inventory in the distribution channels and the ability to reasonably estimate returns.

     Revenues from technical support and maintenance are recognized ratably over the term of the arrangement, generally one year. Revenues from training and consulting are generally recognized as the services are performed.

     Where Crystal Decisions provides consulting services for significant production, modification, or customization of software, or where these services are essential to the functionality of the software, Crystal Decisions recognizes revenues in accordance with the provisions of SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” In these arrangements, both the licensing revenues and consulting services revenues are recognized using the percentage of completion method based on the cost of labor inputs.

     Deferred revenue represents amounts from customers under license, maintenance and service arrangements for which the revenue earnings process has not been completed. These amounts relate primarily to provisions of technical support and maintenance arrangements with future deliverables and arrangements where specified customer acceptance has not yet occurred. Deferred revenue classified as long-term in nature represents revenues which will not be realized for 12 months or more after the date of the consolidated balance sheet.

9

Table of Contents

CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

5. Investments in Debt Securities

     Crystal Decisions classifies its investments in debt securities as available-for-sale. Such securities are recorded at fair value based on quoted market prices, with unrealized gains or losses recorded as other comprehensive income (loss) until realized.

     Cash equivalents are investments that have maturity dates of 90 days or less at the time of purchase. Short-term investments are investments that generally have maturities greater than 90 days but less than one year at the time of purchase. Long-term investments are investments that generally have maturities greater than one year at the time of purchase.

     Available-for-sale securities held at September 27, 2002 and June 28, 2002 are as follows (in thousands):

     Unrealized holding gains for available-for-sale securities at September 27, 2002 and June 28, 2002 were insignificant.

6. Restricted Cash

     On September 26, 2002, the Company placed $2.0 million on deposit with The Bank of Nova Scotia (the “Bank”) as a general hypothecation to the overdraft credit facility currently in place. The monies held and the interest earned thereon are classified as restricted cash on Crystal Decisions’ consolidated balance sheet. This hypothecation replaces the guarantee previously provided by Seagate Technology International, an indirect subsidiary of New SAC, of present and future indebtedness or liability incurred by the Company to the Bank. The overdraft credit facility provides up to Cdn. $4.0 million credit for certain overdrafts. At September 27, 2002, there was no balance outstanding under this overdraft credit facility.

7. Related Party Transactions

     During the three months ended December 29, 2000, Crystal Decisions signed a software license agreement (the “License Agreement”) with Seagate Technology. Under the terms of the License Agreement, Crystal Decisions granted Seagate Technology a non-exclusive, non-transferable, perpetual license to use certain products of its business intelligence software and receive maintenance and support services related to these products for one year. The total value of the License Agreement was $1.6 million. The License

10

Table of Contents

CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

Agreement was priced at an approximate 50% discount to Crystal Decisions’ established list price. During the three months ended September 28, 2001, Crystal Decisions recognized approximately $91,000 of revenues from the License Agreement. At December 28, 2001, all of the revenues under the License Agreement had been recognized with no amounts remaining as deferred revenue. The maintenance and support services related to the License Agreement were renewed during the three months ended December 28, 2001. Revenues from maintenance and support services are being recognized over one year. Crystal Decisions recognized approximately $106,000 in the three months ended September 27, 2002 related to these maintenance and support services. As of September 27, 2002 and June 28, 2002, there were no amounts outstanding from Seagate Te