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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 quarterly period ended September 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 
Commission File No. 0-24784
 

 
PINNACLE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
 
California
(State or other jurisdiction of
incorporation or organization)
 
94-3003809
(I.R.S. Employer
Identification No.)
280 N. Bernardo Ave.
Mountain View, CA
(Address of principal executive offices)
 
94043
(Zip Code)
 
(650) 526-1600
(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        
 
The number of shares of the registrant’s common stock outstanding as of November 8, 2002 was approximately 60,468,491.
 


Table of Contents
INDEX
 
PART I—FINANCIAL INFORMATION
    
ITEM 1—Condensed Consolidated Financial Statements
    
  
3
  
4
  
5
  
6
  
7
  
13
  
32
  
33
PART II—OTHER INFORMATION
    
  
34
  
34
  
34
  
35
  
36

2


Table of Contents
PART 1—FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands; unaudited)
 
    
September 30,
2002

    
June 30,
2002

 
ASSETS

                 
Current assets:
                 
Cash and cash equivalents
  
$
92,115
 
  
$
80,575
 
Marketable securities
  
 
7,854
 
  
 
7,854
 
Accounts receivable, less allowance for doubtful accounts and returns of $4,349 and $7,583 as of September 30, 2002, and $4,065 and $6,337 as of June 30, 2002, respectively
  
 
32,841
 
  
 
32,462
 
Inventories
  
 
42,827
 
  
 
40,328
 
Deferred income taxes
  
 
3,854
 
  
 
3,854
 
Prepaid expenses and other assets
  
 
6,505
 
  
 
6,470
 
    


  


Total current assets
  
 
185,996
 
  
 
171,543
 
Property and equipment, net
  
 
11,525
 
  
 
12,256
 
Goodwill and other intangibles, net
  
 
52,516
 
  
 
75,136
 
Other assets
  
 
620
 
  
 
622
 
    


  


    
$
250,657
 
  
$
259,557
 
    


  


LIABILITIES AND SHAREHOLDERS’ EQUITY

                 
Current liabilities:
                 
Accounts payable
  
$
15,741
 
  
$
12,441
 
Accrued expenses
  
 
27,019
 
  
 
25,177
 
Deferred revenue
  
 
14,969
 
  
 
11,477
 
    


  


Total current liabilities
  
 
57,729
 
  
 
49,095
 
Deferred income taxes
  
 
4,554
 
  
 
4,554
 
    


  


Total liabilities
  
 
62,283
 
  
 
53,649
 
    


  


Shareholders’ equity:
                 
Preferred stock, no par value; authorized 5,000 shares; none issued and outstanding
  
 
 
  
 
 
Common stock, no par value; authorized 120,000 shares; 59,208 and 59,101 issued and outstanding as of September 30, 2002 and June 30, 2002, respectively
  
 
311,459
 
  
 
310,874
 
Treasury shares at cost; 793 shares
  
 
(6,508
)
  
 
(6,508
)
Accumulated deficit
  
 
(111,303
)
  
 
(93,433
)
Accumulated other comprehensive loss
  
 
(5,274
)
  
 
(5,025
)
    


  


Total shareholders’ equity
  
 
188,374
 
  
 
205,908
 
    


  


    
$
250,657
 
  
$
259,557
 
    


  


 
See accompanying notes to unaudited condensed consolidated financial statements.

3


Table of Contents
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(In thousands, except per share data; unaudited)
 
    
Three Months Ended
September 30,

 
    
2002

    
2001

 
Net sales
  
$
68,574
 
  
$
46,968
 
Cost of sales
  
 
30,981
 
  
 
26,526
 
    


  


Gross profit
  
 
37,593
 
  
 
20,442
 
    


  


Operating expenses:
                 
Engineering and product development
  
 
8,263
 
  
 
7,323
 
Sales and marketing
  
 
19,668
 
  
 
15,540
 
General and administrative
  
 
4,810
 
  
 
4,372
 
Amortization of goodwill
  
 
 
  
 
4,522
 
Amortization of other intangible assets
  
 
3,371
 
  
 
4,205
 
    


  


Total operating expenses
  
 
36,112
 
  
 
35,962
 
    


  


Operating income (loss)
  
 
1,481
 
  
 
(15,520
)
Interest and other income, net
  
 
390
 
  
 
203
 
    


  


Income (loss) before income taxes and cumulative effect of change in accounting principle
  
 
1,871
 
  
 
(15,317
)
Income tax expense
  
 
450
 
  
 
175
 
    


  


Income (loss) before cumulative effect of change in accounting principle
  
 
1,421
 
  
 
(15,492
)
Cumulative effect of change in accounting principle
  
 
(19,291
)
  
 
 
    


  


Net loss
  
$
(17,870
)
  
$
(15,492
)
    


  


Net income (loss) per share before cumulative effect of change in accounting principle:
                 
Basic and diluted
  
$
0.02
 
  
$
(0.28
)
    


  


Cumulative effect per share of change in accounting principle:
                 
Basic
  
$
(0.32
)
  
$
 
    


  


Diluted
  
$
(0.31
)
  
$
 
    


  


Net loss per share:
                 
Basic
  
$
(0.30
)
  
$
(0.28
)
    


  


Diluted
  
$
(0.29
)
  
$
(0.28
)
    


  


Shares used to compute net loss per share:
                 
Basic
  
 
59,128
 
  
 
54,892
 
    


  


Diluted
  
 
62,018
 
  
 
54,892
 
    


  


 
See accompanying notes to unaudited condensed consolidated financial statements.

4


Table of Contents
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 
(In thousands; unaudited)
 
    
Three Months Ended
September 30,

 
    
2002

    
2001

 
Net loss
  
$
(17,870
)
  
$
(15,492
)
Foreign currency translation adjustment
  
 
(249
)
  
 
3,535
 
    


  


Comprehensive loss
  
$
(18,119
)
  
$
(11,957
)
    


  


 
See accompanying notes to unaudited condensed consolidated financial statements.

5


Table of Contents
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands; unaudited)
 
    
Three Months Ended
September 30,

 
    
2002

    
2001

 
Cash flows from operating activities:
                 
Net loss
  
$
(17,870
)
  
$
(15,492
)
Adjustments to reconcile net loss to net cash provided by operating activities:
                 
Depreciation and amortization
  
 
5,036
 
  
 
10,373
 
Provision for doubtful accounts
  
 
386
 
  
 
640
 
Cumulative effect of change in accounting principle
  
 
19,291
 
  
 
 
Changes in operating assets and liabilities:
                 
Accounts receivable
  
 
(873
)
  
 
10,699
 
Inventories
  
 
(2,648
)
  
 
614
 
Accounts payable
  
 
3,367
 
  
 
(3,471
)
Accrued expenses
  
 
1,731
 
  
 
(2,384
)
Accrued income taxes
  
 
207
 
  
 
(273
)
Deferred revenue
  
 
3,502
 
  
 
5,688
 
Prepaid expenses and other assets
  
 
16
 
  
 
(1,247
)
    


  


Net cash provided by operating activities
  
 
12,145
 
  
 
5,147
 
    


  


Cash flows from investing activities:
                 
Purchases of property and equipment
  
 
(1,019
)
  
 
(492
)
    


  


Net cash used in investing activities
  
 
(1,019
)
  
 
(492
)
    


  


Cash flows from financing activities:
                 
Proceeds from issuance of common stock
  
 
585
 
  
 
98
 
    


  


Net cash provided by financing activities
  
 
585
 
  
 
98
 
    


  


Effects of exchange rate changes on cash
  
 
(171
)
  
 
1,219
 
    


  


Net increase in cash and cash equivalents
  
 
11,540
 
  
 
5,972
 
Cash and cash equivalents at beginning of period
  
 
80,575
 
  
 
47,751
 
    


  


Cash and cash equivalents at end of period
  
$
92,115
 
  
$
53,723
 
    


  


Supplemental disclosures of cash paid during the period for: