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 June 30, 2002. | ||
OR |
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o |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from __________ to __________. |
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Commission File Number 0-15325
ASCENTIAL SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
94-3011736 (I.R.S. Employer Identification No.) |
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| 50 Washington Street, Westborough, MA (Address of principal executive office) |
01581 (zip code) |
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| Registrant’s telephone number, including area code: | (508) 366-3888 | |||
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
At July 31, 2002, 248,165,550 shares of the registrant’s common stock were outstanding.
ASCENTIAL SOFTWARE CORPORATION
FORM 10-Q
Quarterly Period Ended June 30, 2002
Table of Contents
PART I. Financial Information
| Page | ||
| Item 1. | Financial Statements | 3 |
| Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 (Unaudited) | 3 | |
| Condensed Consolidated Balance Sheets as of June 30, 2002 (Unaudited) and December 31, 2001 | 4 | |
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (Unaudited) | 5 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| PART II. Other Information | ||
| Item 1. | Legal Proceedings | 38 |
| Item 2. | Changes in Securities and Use of Proceeds | 38 |
| Item 3. | Defaults Upon Senior Securities | 38 |
| Item 4. | Submission of Matters to a Vote of Security Holders | 38 |
| Item 5. | Other Information | 38 |
| Item 6. | Exhibits and Reports on Form 8-K | 38 |
| Signature | 40 |
FORWARD–LOOKING STATEMENTS
This report contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results. These risks and uncertainties include, but are not limited to, those set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Affect Future Results” and included elsewhere in this report. Readers of this report should review carefully these factors as well as the description of risks and uncertainties, which, together with other detailed information about the Company, is contained in other documents and periodic reports that the Company files from time to time with the Securities and Exchange Commission. These forward-looking statements reflect management’s opinions only and only as of the date of this report, and the Company disclaims any obligation to update or revise these statements.
Ascential, DataStage, MetaRecon, INTEGRITY, and Media360 are trademarks of Ascential Software Corporation or its affiliates and may be registered in the U.S. and other jurisdictions. Other marks are the property of the owners of those marks.
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ASCENTIAL SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
| Three Months Ended | Six Months Ended | ||||||||||||||
| June 30, | June 30, | ||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||
| NET REVENUES | |||||||||||||||
| Licenses | $ | 15,116 | $ | 87,204 | $ | 25,867 | $ | 184,404 | |||||||
| Services | 12,846 | 121,394 | 22,888 | 241,251 | |||||||||||
| 27,962 | 208,598 | 48,755 | 425,655 | ||||||||||||
| COSTS AND EXPENSES | |||||||||||||||
| Cost of software | 3,446 | 12,569 | 6,595 | 25,822 | |||||||||||
| Cost of services | 8,567 | 44,020 | 16,577 | 85,563 | |||||||||||
| Sales and marketing | 20,247 | 81,627 | 38,931 | 164,068 | |||||||||||
| Research and development | 6,674 | 36,169 | 13,107 | 71,854 | |||||||||||
| General and administrative | 7,989 | 28,112 | 22,534 | 54,637 | |||||||||||
| Merger, realignment and other charges | 11,462 | 1,389 | 16,141 | 5,607 | |||||||||||
| Write-off of acquired in-process research and development | 1,170 | — | 1,170 | — | |||||||||||
| 59,555 | 203,886 | 115,055 | 407,551 | ||||||||||||
| Operating income (loss) | (31,593 | ) | 4,712 | (66,300 | ) | 18,104 | |||||||||
| OTHER INCOME (EXPENSE) | |||||||||||||||
| Interest income | 5,228 | 2,173 | 11,461 | 4,814 | |||||||||||
| Interest expense | (18 | ) | (54 | ) | (39 | ) | (88 | ) | |||||||
| Adjustment to gain on sale of database business | — | — | 7,634 | — | |||||||||||
| IBM transaction costs | — | (5,597 | ) | — | (5,597 | ) | |||||||||
| Impairment of long-term investments | — | (9,308 | ) | — | (9,308 | ) | |||||||||
| Other income, net | 2,095 | 320 | 929 | 1,247 | |||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (24,288 | ) | (7,754 | ) | (46,315 | ) | 9,172 | ||||||||
| Income tax expense (benefit) | (3,660 | ) | 1,525 | (9,167 | ) | 4,402 | |||||||||
| NET INCOME (LOSS) | (20,628 | ) | (9,279 | ) | (37,148 | ) | 4,770 | ||||||||
| NET INCOME (LOSS) PER COMMON SHARE | |||||||||||||||
| Basic | $ | (0.08 | ) | $ | (0.03 | ) | $ | (0.15 | ) | $ | 0.02 | ||||
| Diluted | $ | (0.08 | ) | $ | (0.03 | ) | $ | (0.15 | ) | $ | 0.02 | ||||
| SHARES USED IN PER SHARE CALCULATIONS | |||||||||||||||
| Basic | 252,374 | 286,018 | 254,440 | 286,613 | |||||||||||
| Diluted | 252,374 | 286,018 | 254,440 | 297,775 | |||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
ASCENTIAL SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| June 30, | December 31, | |||||
| 2002 | 2001 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents | $ | 312,529 | $ | 489,307 | ||
| Short-term investments | 253,999 | 269,336 | ||||
| Accounts receivable, net | 27,260 | 29,871 | ||||
| Receivable from sale of database business | 106,000 | — | ||||
| Recoverable income taxes | 19,014 | 19,261 | ||||
| Deferred income taxes | — | 20,832 | ||||
| Other current assets | 19,130 | 30,690 | ||||
| Total current assets | 737,932 | 859,297 | ||||
| Property and equipment, net | 11,280 | 11,687 | ||||
| Software costs, net | 13,268 | 14,919 | ||||
| Long-term investments | 1,181 | 1,782 | ||||
| Goodwill | 157,654 | 67,769 | ||||
| Intangible assets, net | 14,148 | 7,636 | ||||
| Deferred income taxes | 5,708 | — | ||||
| Receivable from sale of database business | — | 103,000 | ||||
| Other assets | 13,389 | 13,933 | ||||
| Total assets | $ | 954,560 | $ | 1,080,023 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities | ||||||
| Accounts payable | $ | 10,113 | $ | 11,681 | ||
| Accrued expenses | 32,200 | 52,344 | ||||
| Accrued employee compensation | 16,275 | 19,527 | ||||
| Income taxes payable | 73,720 | 93,482 | ||||
| Deferred revenue | 16,244 | 12,338 | ||||
| Accrued merger, realignment and other charges | 22,863 | 35,066 | ||||
| Deferred income taxes | 23,119 | — | ||||
| Other current liabilities | 400 | 7,079 | ||||
| Total current liabilities | 194,934 | 231,517 | ||||
| Deferred income taxes — noncurrent | — | 28,710 | ||||
| Commitments and contingencies | ||||||
| Stockholders’ equity | ||||||
| Common stock | 2,573 | 2,564 | ||||
| Additional paid-in capital | 598,913 | 596,402 | ||||
| Treasury stock | (54,466 | ) | (25,464 | ) | ||
| Retained earnings | 228,668 | 265,816 | ||||
| Deferred compensation | (312 | ) | (549 | ) | ||
| Accumulated other comprehensive loss | (15,750 | ) | (18,973 | ) | ||
| Total stockholders’ equity | 759,626 | 819,796 | ||||
| Total liabilities and stockholders' equity | $ | 954,560 | $ | 1,080,023 | ||
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
ASCENTIAL SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| Six
Months Ended June 30, |
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| 2002 | 2001 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
| Net income (loss) | $ | (37,148 | ) | $ | 4,770 | ||
| Adjustments to reconcile net income (loss) to net cash and cash equivalents | |||||||
| provided by (used in) operating activities: | |||||||
| License fees received in advance | — | (6,725 | ) | ||||
| Depreciation and amortization | 4,859 | 19,634 | |||||
| Amortization of capitalized software | 3,288 | 10,622 | |||||
| Impairment of long-term investments | — | 9,308 | |||||
| Write-off of capitalized software | 528 | — | |||||
| Write-off of acquired in process research and development | 1,170 | — | |||||
| Foreign currency transaction losses | 2,071 | 4,574 | |||||
| Loss on disposal of property and equipment | 740 | 340 | |||||
| Deferred tax expense | 9,533 | — | |||||
| Provisions for losses on accounts receivable | 2,083 | 5,313 | |||||
| Merger, realignment and other charges | 16,141 | 5,607 | |||||
| Gain on sale of database business | (7,634 | ) | — | ||||
| Stock-based employee compensation | — | 39 | |||||
| Changes in operating assets and liabilities, net of impact of acquisition: | |||||||
| Accounts receivable | 1,530 | 38,079 | |||||
| Other current and non-current assets | 5,809 | (2,563 | ) | ||||
| Accounts payable, accrued expenses and other liabilities | (74,590 | ) | (46,466 | ) | |||
| Deferred revenue | 2,211 | 4,605 | |||||
| Net cash and cash equivalents provided by (used in) operating activities | (69,409 | ) | 47,137 | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
| Investments of excess cash: | |||||||
| Purchases of available-for-sale securities | (183,325 | ) | (50,118 | ) | |||
| Maturities of available-for-sale securities | 129,479 | 38,791 | |||||
| Sales of available-for-sale securities | 69,649 | 20,831 | |||||
| Business combination, net of cash acquired | (99,767 | ) | — | ||||
| Purchases of property and equipment | (2,554 | ) | (16,162 | ) | |||
| Proceeds from disposal of property and equipment | — | 136 | |||||
| Additions to software costs | (6,640 | ) | (6,842 | ) | |||
| Proceeds from the sale of the database business | 11,000 | — | |||||
| Other | 907 | 1,512 | |||||
| Net cash and cash equivalents used in investing activities | (81,251 | ) | (11,852 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||