PIXAR \CA\ - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 28, 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: 0-26976

Pixar

(Exact name of registrant as specified in its charter)


California		68-0086179
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

1200 Park Avenue, Emeryville, California		94608
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (510) 752-3000

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

The number of shares outstanding of the registrant’s Common Stock as of November 4, 2002 was 51,443,576.

TABLE OF CONTENTS


PART I -- FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II -- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS
EXHIBIT INDEX
EXHIBIT 99.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PIXAR

BALANCE SHEETS


			September 28,		December 29,
			2002		2001


			(In thousands,
			except share data)
ASSETS
Cash and cash equivalents			$	48,007	$	56,289
Short-term investments				291,241		222,310
Trade receivables, net				1,073		1,516
Receivable from Disney				93,091		13,512
Other receivables				3,659		5,632
Prepaid expenses and other assets				2,558		3,528
Deferred income taxes				21,342		21,673
Property and equipment, net				108,644		111,995
Capitalized film production costs				88,312		86,839

		Total assets	$	657,927	$	523,294

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable			$	443	$	4,843
Income taxes payable				12,208		1,808
Accrued liabilities				9,081		8,844
Unearned revenue				6,657		2,113

		Total liabilities		28,389		17,608

Shareholders’ equity:
	Preferred stock; no par value; 5,000,000 shares authorized and no shares issued and outstanding			—		—
	Common stock; no par value; 100,000,000 shares authorized; 51,192,224 and 49,445,956 issued and outstanding as of September 28, 2002 and December 29, 2001, respectively			375,740		325,362
	Accumulated other comprehensive income			2,333		1,845
	Retained earnings			251,465		178,479

		Total shareholders’ equity		629,538		505,686

		Total liabilities and shareholders’ equity	$	657,927	$	523,294

See accompanying notes to financial statements.

PIXAR

STATEMENTS OF INCOME



			Quarter Ended				Nine Months Ended

			September 28,		September 29,		September 28,		September 29,
			2002		2001		2002		2001


			(In thousands, except per share data)
Revenue:
	Film and animation services		$	100,475	$	9,836	$	155,711	$	38,643
	Software			1,981		1,481		6,629		5,490

		Total revenue		102,456		11,317		162,340		44,133

Cost of revenue:
	Film and animation services			21,304		1,989		33,231		6,520
	Software			137		131		410		422

		Total cost of revenue		21,441		2,120		33,641		6,942

		Gross profit		81,015		9,197		128,699		37,191

Operating expenses:
	Research and development			2,039		1,840		6,623		4,948
	Sales and marketing			411		541		865		1,350
	General and administrative			2,347		2,101		6,354		6,039

		Total operating expenses		4,797		4,482		13,842		12,337

		Income from operations		76,218		4,715		114,857		24,854
Other income, net				2,584		5,093		7,685		12,034

		Income before income taxes		78,802		9,808		122,542		36,888
Income tax expense				31,867		3,643		49,556		13,704

		Net Income	$	46,935	$	6,165	$	72,986	$	23,184

Basic net income per share			$	0.93	$	0.13	$	1.46	$	0.48

Shares used in computing basic net income per share				50,643		48,328		50,001		48,002

Diluted net income per share			$	0.87	$	0.12	$	1.39	$	0.45

Shares used in computing diluted net income per share				53,746		52,090		52,691		51,400

See accompanying notes to financial statements.

PIXAR

STATEMENTS OF CASH FLOWS



					Nine Months Ended

					September 28,			September 29,
					2002			2001


					(In thousands)
Cash flows from operating activities:
	Net income				$	72,986		$	23,184
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				6,064			5,988
		Amortization of capitalized film production costs				31,753			6,347
		Tax benefit from option exercises				13,817			5,835
		Deferred income tax				331			1,110
		Changes in operating assets and liabilities:
			Trade and other receivables, net			2,416			(2,251	)
			Receivable from Disney			(79,579	)		71,138
			Prepaid expenses and other assets			610			1,309
			Accounts payable			(4,400	)		(1,262	)
			Income taxes payable			10,400			(5,520	)
			Accrued liabilities			237			(2,855	)
			Unearned revenue			4,544			6,564

				Net cash provided by operating activities		59,179			109,587

Cash flows from investing activities:
	Purchase of property and equipment					(3,178	)		(7,179	)
	Proceeds from sale of equipment					55			—
	Proceeds from sale of short-term securities					89,564			156,595
	Investments in short-term securities					(158,007	)		(265,232	)
	Capitalized film production costs					(32,456	)		(31,766	)

				Net cash used in investing activities		(104,022	)		(147,582	)

Cash flows from financing activities:
	Proceeds from exercised stock options					36,561			14,781

				Net cash provided by financing activities		36,561			14,781

Net decrease in cash and cash equivalents						(8,282	)		(23,214	)
Cash and cash equivalents at beginning of period						56,289			63,241

Cash and cash equivalents at end of period					$	48,007		$	40,027

Supplemental disclosure of cash flow information:
	Cash paid during the period for income taxes				$	25,850		$	13,800

Supplemental disclosure of non-cash investing and financing activities:
	Loss on equipment disposals capitalized as film production costs				$	770		$	21

	Unrealized gain on investments, net of taxes				$	488		$	1,878

See accompanying notes to financial statements.

PIXAR

NOTES TO FINANCIAL STATEMENTS

(1) Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the financial condition, results of operations, and cash flows of Pixar (or the “Company”) for the periods presented. These financial statements should be read in conjunction with the audited financial statements as of December 29, 2001 and for each of the years in the three-year period ended December 29, 2001, including notes thereto.

The results of operations for the three and nine months ended September 28, 2002 are not necessarily indicative of the results expected for the current year or any other period.

Certain amounts reported in previous periods have been reclassified to conform to the 2002 financial statement presentation.

(2) Fiscal Year

Pixar operates on a 52- or 53-week fiscal year, whereby the year ends on the Saturday nearest December 31. Fiscal year 2002 will end on December 28, 2002 and will consist of 52 weeks.

(3) Net Income per Share

Basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period, using the treasury stock method for options and warrants. Of the outstanding options to purchase shares of common stock, for the three and nine months ended September 28, 2002, options to purchase approximately 52,000 shares and 382,000 shares, respectively, of common stock were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares. Options to purchase approximately 345,000 shares and 545,000 shares of common stock were excluded for the corresponding prior year periods.

Reconciliation of basic and diluted net income per share (in thousands, except per share amounts):



		Quarter Ended


		September 28, 2002						September 29, 2001

		Net						Net
		Income		Shares		EPS		Income		Shares		EPS

Basic net income per share		$	46,935		50,643	$	0.93	$	6,165		48,328	$	0.13
Effect of dilutive shares:
	Warrants/options		—		3,103				—		3,762

Diluted net income per share		$	46,935		53,746	$	0.87	$	6,165		52,090	$	0.12

PIXAR

NOTES TO FINANCIAL STATEMENTS — (Continued)



		Nine Months Ended


		September 28, 2002						September 29, 2001

		Net						Net
		Income		Shares		EPS		Income		Shares		EPS

Basic net income per share		$	72,986		50,001	$	1.46	$	23,184		48,002	$	0.48
Effect of dilutive shares:
	Warrants/options		—		2,690				—		3,398

Diluted net income per share		$	72,986		52,691	$	1.39	$	23,184		51,400	$	0.45

(4) Comprehensive Income

Other comprehensive income consists of unrealized holding gains or losses on the company’s short-term investments. The following table sets forth the calculation of comprehensive income, net of income taxes (in thousands):



	Quarter Ended

	September 28,		September 29,
	2002		2001

Net income	$	46,935	$	6,165
Unrealized holding gains on short-term investments, net of taxes		488		1,629

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents