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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

For the quarterly period ended September 27, 2003.

Or

For the transition period from                      to                     

Commission File Number: 0-26976

Pixar

(510) 752-3000
(Registrant’s 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 (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 o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

     The number of shares outstanding of the registrant’s Common Stock as of November 3, 2003 was 55,275,493.

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Pixar
FORM 10-Q
Index

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PIXAR

BALANCE SHEETS

See accompanying notes to financial statements.

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PIXAR

STATEMENTS OF INCOME

See accompanying notes to financial statements.

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PIXAR

STATEMENTS OF CASH FLOWS

See accompanying notes to financial statements.

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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 28, 2002 and for each of the years in the three-year period ended December 28, 2002, including notes thereto, which are included in Pixar’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

     The results of operations for the quarter and nine month periods ended September 27, 2003 are not necessarily indicative of the results to be expected for the entire year.

     Certain amounts reported in previous periods have been reclassified to conform to the 2003 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 2003 will end on January 3, 2004 and will consist of 53 weeks.

(3) Stock Option Accounting

     The Company has elected to continue using the intrinsic-value method of accounting for stock-based compensation plans in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company has adopted those provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which require disclosure of the pro forma effects on net income and net income per share as if compensation cost had been recognized based upon the fair value-based method at the date of grant of options awarded.

     The following table reflects pro forma net income and net income per share had the Company elected to adopt the fair value-based method (in thousands, except per share data):

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     These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The pro forma amounts assume that the Company had been following the fair value-based method since the beginning of 1996.

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average fair value of options granted was $31.19 and $25.89 for the quarter and nine months ended September 27, 2003, respectively, and $20.72 and $17.34 for the quarter and nine months ended September 28, 2002, respectively. Values were estimated using zero dividend yield for all years; expected volatility of 50% and 51% for the quarter and nine months ended September 27, 2003, respectively, and 52% for the corresponding prior year periods; risk-free interest rates of 3.31% and 2.95% for the quarter and nine months ended September 27, 2003, respectively, and 3.03% and 4.21% for the corresponding prior year periods; and weighted-average expected lives for all periods of 5.0 years.

(4) 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. Of the outstanding options to purchase shares of common stock, for the quarter and nine months ended September 27, 2003, options to purchase approximately 6,000 shares and 85,000 shares, respectively, of common stock were not included in the computation of diluted net income per share because the options’ exercise price was greater than the average market price of the common shares. Options to purchase approximately 52,000 shares and 382,000 shares, respectively, of common stock were excluded for the quarter and nine months ended September 28, 2002.

     The reconciliation of basic and diluted net income per share is as follows (in thousands, except per share amounts):