UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 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 0-21342
WIND RIVER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
94-2873391 (I.R.S. Employer Identification Number) |
500 Wind River Way, Alameda, California 94501
(Address of principal executive offices, including zip code)
(510) 748-4100
(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. ý Yes o No
As of December 10, 2002, there were 79,125,888 shares of the registrant's common stock outstanding.
WIND RIVER SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2002
INDEX
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Page |
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Part I. |
Financial Information |
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Item 1. |
Financial Statements |
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a) |
Condensed Consolidated Statements of Operations for the three and nine months ended October 31, 2002 and 2001 |
1 |
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b) |
Condensed Consolidated Balance Sheets at October 31, 2002 and January 31, 2002 |
2 |
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c) |
Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, 2002 and 2001 |
3 |
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d) |
Notes to Condensed Consolidated Financial Statements |
4 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
42 |
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Item 4. |
Controls and Procedures |
43 |
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Part II. |
Other Information |
44 |
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Item 1. |
Legal Proceedings |
44 |
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Item 2. |
Changes in Securities and Use of Proceeds |
44 |
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Item 3. |
Defaults Upon Senior Securities |
44 |
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Item 4. |
Submission of Matters to a Vote of Security Holders |
44 |
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Item 5. |
Other Information |
44 |
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Item 6. |
Exhibits and Reports on Form 8-K |
44 |
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Signature |
45 |
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Certifications |
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WIND RIVER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| |
Three Months Ended October 31, |
Nine Months Ended October 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2002 |
2001 |
2002 |
2001 |
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| Revenues, net: | ||||||||||||||||
| Products | $ | 37,319 | $ | 53,000 | $ | 123,345 | $ | 181,220 | ||||||||
| Services | 20,962 | 27,145 | 64,877 | 89,347 | ||||||||||||
| Total revenues | 58,281 | 80,145 | 188,222 | 270,567 | ||||||||||||
| Cost of revenues: | ||||||||||||||||
| Products | 4,033 | 6,140 | 14,215 | 19,906 | ||||||||||||
| Services | 12,514 | 13,842 | 39,494 | 47,160 | ||||||||||||
| Total cost of revenues | 16,547 | 19,982 | 53,709 | 67,066 | ||||||||||||
| Gross profit | 41,734 | 60,163 | 134,513 | 203,501 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | 27,431 | 35,104 | 93,993 | 118,299 | ||||||||||||
| Product development and engineering | 18,049 | 21,640 | 56,463 | 68,667 | ||||||||||||
| General and administrative | 8,749 | 8,802 | 26,430 | 28,642 | ||||||||||||
| Amortization of goodwill and purchased intangibles | 2,259 | 13,554 | 6,777 | 69,361 | ||||||||||||
| Impairment of goodwill and purchased intangibles | — | — | — | 225,418 | ||||||||||||
| Restructuring and other nonrecurring charges | — | — | 17,665 | 28,615 | ||||||||||||
| Total operating expenses | 56,488 | 79,100 | 201,328 | 539,002 | ||||||||||||
| Loss from operations | (14,754 | ) | (18,937 | ) | (66,815 | ) | (335,501 | ) | ||||||||
Other income (expense) |
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| Interest income | 2,943 | 3,364 | 9,482 | 12,652 | ||||||||||||
| Interest expense | (1,717 | ) | (1,495 | ) | (5,277 | ) | (5,701 | ) | ||||||||
| Other expense, net | (815 | ) | (4,576 | ) | (5,950 | ) | (5,492 | ) | ||||||||
| Total other income (expense) | 411 | (2,707 | ) | (1,745 | ) | 1,459 | ||||||||||
| Loss before provision for (benefit from) income taxes and extraordinary gain | (14,343 | ) | (21,644 | ) | (68,560 | ) | (334,042 | ) | ||||||||
| Provision for (benefit from) income taxes | — | (1,843 | ) | 775 | (7,841 | ) | ||||||||||
| Loss before extraordinary gain | (14,343 | ) | (19,801 | ) | (69,335 | ) | (326,201 | ) | ||||||||
| Extraordinary gain, net of income taxes | — | 568 | — | 568 | ||||||||||||
| Net loss | $ | (14,343 | ) | $ | (19,233 | ) | $ | (69,335 | ) | $ | (325,633 | ) | ||||
| Extraordinary gain per share | $ | — | $ | 0.01 | $ | — | $ | 0.01 | ||||||||
| Basic and diluted net loss per share | $ | (0.18 | ) | $ | (0.25 | ) | $ | (0.88 | ) | $ | (4.21 | ) | ||||
| Shares used in basic and diluted per share calculation | 79,089 | 77,820 | 78,965 | 77,320 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
WIND RIVER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
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October 31, 2002 |
January 31, 2002 |
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|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 45,462 | $ | 131,067 | ||||||
| Short-term investments | 29,571 | 22,364 | ||||||||
| Accounts receivable, net | 42,179 | 61,109 | ||||||||
| Prepaid and other current assets | 12,787 | 18,404 | ||||||||
| Total current assets | 129,999 | 232,944 | ||||||||
Investments |
157,577 |
123,136 |
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| Property and equipment, net | 48,303 | 59,804 | ||||||||
| Intangibles, net | 102,448 | 108,409 | ||||||||
| Other assets | 15,026 | 19,644 | ||||||||
| Restricted cash | 63,683 | 63,683 | ||||||||
| Total assets | $ | 517,036 | $ | 607,620 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 5,196 | $ | 7,191 | ||||||
| Line of credit | — | 14,988 | ||||||||
| Accrued liabilities | 22,679 | 19,346 | ||||||||
| Accrued restructuring costs | 2,983 | 5,243 | ||||||||
| Accrued compensation | 14,976 | 17,575 | ||||||||
| Income taxes payable | 4,515 | 7,485 | ||||||||
| Deferred revenues | 29,429 | 34,656 | ||||||||
| Total current liabilities | 79,778 | 106,484 | ||||||||
Convertible subordinated debt |
150,000 |
150,000 |
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| Other long-term liabilities | 4,957 | 2,995 | ||||||||
| Total liabilities | 234,735 | 259,479 | ||||||||
Stockholders' equity: |
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| Common stock, par value $0.001; 325,000 shares authorized; 81,301 and 79,863 shares issued at October 31, 2002 and January 31, 2002, respectively; 79,066 and 78,586 shares outstanding at October 31, 2002 and January 31, 2002, respectively | 81 | 80 | ||||||||
| Additional paid-in-capital | 745,915 | 737,595 | ||||||||
| Loan to stockholder | (1,977 | ) | (1,893 | ) | ||||||
| Treasury stock, 2,235 and 1,277 shares at cost at October 31, 2002 and January 31, 2002, respectively | (34,185 | ) | (29,488 | ) | ||||||
| Accumulated other comprehensive loss | (4,810 | ) | (4,765 | ) | ||||||
| Accumulated deficit | (422,723 | ) | (353,388 | ) | ||||||
| Total stockholders' equity | 282,301 | 348,141 | ||||||||
| Total liabilities and stockholders' equity | $ | 517,036 | $ | 607,620 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| |
Nine Months Ended October 31, |
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2002 |
2001 |
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| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (69,335 | ) | $ | (325,633 | ) | |||||
| Adjustments to reconcile net loss to net cash (used in) provided by operations: | |||||||||||
| Depreciation and amortization | 22,401 | 83,676 | |||||||||
| Non-cash charge for other-than-temporary decline in investments | 4,467 | 11,146 | |||||||||
| Non-cash restructuring charge | 1,545 | 1,411 | |||||||||
| Non-cash compensation, including 401(k) match | 2,002 | 2,208 | |||||||||
| Impairment of capitalized internal use software | — | 1,204 | |||||||||
| Interest on loan to stockholder | (84 | ) | (79 | ) | |||||||
| Impairment of goodwill and purchased intangibles | — | 225,418 | |||||||||
| Loss on asset dispositions | 353 | — | |||||||||
| Realized gain on repurchase of convertible subordinated notes | — | (1,202 | ) | ||||||||
| Deferred income taxes | 69 | (4,919 | ) | ||||||||
| Changes in assets and liabilities, net of acquired businesses: | |||||||||||
| Accounts receivable, net | 18,930 | 40,264 | |||||||||
| Accounts payable | (1,995 | ) | (8,447 | ) | |||||||
| Accrued restructuring costs | (2,227 | ) | 14,969 | ||||||||
| Accrued liabilities | 3,151 | (11,878 | ) | ||||||||
| Accrued compensation | (2,599 | ) | (4,148 | ) | |||||||
| Income taxes payable | (3,785 | ) | (2,159 | ) | |||||||
| Deferred revenue | (5,227 | ) | (16,496 | ) | |||||||
| Other assets & liabilities | 5,308 | 13,682 | |||||||||
| Net cash (used in) provided by operating activities | (27,026 | ) | 19,017 | ||||||||
Cash flows from investing activities: |
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| Acquisition of property and equipment | (4,921 | ) | (14,169 | ) | |||||||
| Capitalized software development costs | (969 | ) | (801 | ) | |||||||
| Purchase of investments | (204,528 | ) | (217,247 | ) | |||||||
| Sales of investments | 116,081 | 223,035 | |||||||||
| Maturities of investments | 48,060 | 76,995 | |||||||||
| Acquisition, net of cash | (175 | ) | (43,427 | ) | |||||||
| Restricted cash | — | (1,982 | ) | ||||||||
| Net cash (used in) provided by investing activities | (46,452 | ) | 22,404 | ||||||||
| Cash flows from financing activities: | |||||||||||
| Issuance of common stock | 6,346 | 12,200 | |||||||||
| Repurchase of convertible subordinated notes | — | (74,458 | ) | ||||||||
| Acquisition of treasury stock | (4,697 | ) | — | ||||||||
| Borrowings (repayment) of line of credit | (14,988 | ) | 1,870 | ||||||||
| Net cash used in financing activities | (13,339 | ) | (60,388 | ) | |||||||
| Effect of exchange rate changes on cash and cash equivalents | 1,212 | (1,339 | ) | ||||||||
| Net decrease in cash and cash equivalents | (85,605 | ) | (20,306 | ) | |||||||
Cash and cash equivalents at beginning of period |
131,067 |
92,431 |
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| Cash and cash equivalents at end of period | $ | 45,462 | $ | 72,125 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying condensed consolidated financial statements and related notes of Wind River Systems, Inc. ("Wind River") are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the financial position as of October 31, 2002 and January 31, 2002, the results of operations for the three and nine months ended October 31, 2002 and 2001, and cash flows for the nine months ended October 31, 2002 and 2001 have been included. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Wind River's Annual Report on Form 10-K for the fiscal year ended January 31, 2002 filed with the Securities and Exchange Commission on April 30, 2002 ("2002 Form 10-K"). The results of operations for the three and nine months ended October 31, 2002 are not necessarily indicative of results to be expected for the entire fiscal year, which ends on January 31, 2003, or for any future period.
In accordance with the rules and regulations of the Securities and Exchange Commission, unaudited condensed consolidated financial statements may omit or condense certain information and disclosures normally required for a complete set of financial statements prepared in accordance with generally accepted accounting principles ("GAAP"). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at January 31, 2002 was derived from audited financial statements, but does not include all disclosures required by GAAP. Wind River's management believes that the notes to the condensed consolidated financial statements contain disclosures adequate to make the information presented not misleading.
The condensed consolidated financial statements include the financial information of Wind River and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. Wind River has a reporting year ending January 31 while, through December 31, 2001, its international subsidiaries (outside of North America) had reporting years ending December 31; thus, the condensed consolidated financial statements for the three and nine months ended October 31, 2001 include such subsidiaries' results for the three and nine months ended September 30, 2001. Effective January 31, 2002, each of Wind River's international subsidiaries (outside of North America) changed its reporting year to end on January 31 rather than December 31; thus, the condensed consolidated financial statements for the three and nine months ended October 31, 2002 include such subsidiaries' results for the three and nine months ended October 31, 2002.
Certain amounts have been reclassified to conform to the presentation for the current period.
Note 2: Acquisitions
Wind River has completed a number of acquisitions accounted for as purchase transactions. The condensed consolidated financial statements include the operating results of each business from the date of acquisition. The purchase price for each acquisition is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of the estimated fair values on the effective date of the acquisition.
On April 18, 2001, Wind River purchased certain identified software products, including an operating system for digital signal processors from Eonic Systems, Inc. ("Eonic"). The total purchase price of $15.5 million consisted of $15.0 million in cash and approximately $542,000 in acquisition-related costs.
4
On May 4, 2001, Wind River purchased from Berkeley Software Design, Inc. ("BSDI") certain identified software assets, including the BSDI operating system, a UNIX-based code suitable for various Internet applications, for a total purchase price of $23.4 million, consisting of approximately $22.9 million in cash and $507,000 in acquisition-related costs. Prior to the closing of the transaction, Wind River lent $7.5 million to BSDI to repay BSDI creditors. The loan was repaid in full in connection with the closing of the asset sale.
On October 10, 2001, Wind River purchased the assets of Telenetworks, a business unit of Next Level Communications, Inc. The assets acquired in the transaction included software stacks that implement the signaling and control mechanisms used in voice-over-IP networks, customer lists and other assets. The total net purchase price of $5.6 million consisted of approximately $5.5 million in net cash and $100,000 in acquisition-related costs.
Pro forma results of the Eonic, BSDI and Telenetworks purchases have not been presented because the effects were not material to the condensed consolidated financial statements of Wind River.
Refer to Note 3 of Notes to Consolidated Financial Statements in Wind River's 2002 Form 10-K for further details of acquisitions completed during the fiscal years ended January 31, 2002, 2001 and 2000.
5
The table below sets forth the amortization expense, foreign currency translation and other adjustments for the nine months ended October 31, 2002 and the net book value of goodwill and purchased intangibles as of October 31, 2002 for certain acquisitions completed during fiscal years ended January 31, 2002, 2001 and 2000:
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Acquisitions |
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| (In thousands) |
Telenetworks |
BSDI |
Eonic |
Rapid |
ICESoft |
AudeSi |
Embedded Support Tools |
Software Development Systems |
Other |
Total |
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| Total at acquisition | |||||||||||||||||||||||||||||||
| Goodwill | $ | 2,354 | $ | 20,073 | $ | 11,664 | $ | 49,028 | $ | 23,961 | $ | 50,180 | $ | 317,393 | $ | 23,018 | $ | 8,964 | $ | 506,635 | |||||||||||
| Purchased intangibles | 2,875 | 3,410 | 3,870 | 7,000 | 750 | 1,100 | 15,800 | 12,100 | 655 | 47,560 | |||||||||||||||||||||
| 5,229 | 23,483 | 15,534 | 56,028 | 24,711 | 51,280 | 333,193 | 35,118 | 9,619 | 554,195 | ||||||||||||||||||||||
| Disposition as of Jan. 31, 2002 | |||||||||||||||||||||||||||||||
| Goodwill | — | 215 | — | — | 3,062 | — | — | — | — | 3,277 | |||||||||||||||||||||
| Purchased Technology | — | — | — | — | 468 | — | — | — | — | 468 | |||||||||||||||||||||
| — | 215 | — | — | 3,530 | — | — | — | — | 3,745 | ||||||||||||||||||||||
| Impairment as of Jan. 31, 2002 | |||||||||||||||||||||||||||||||
| Goodwill | — | — | — | 24,024 | 15,255 | 35,397 | 167,481 | 13,811 | — | 255,968 | |||||||||||||||||||||
| Purchased intangibles | — | — | — | — | — | 440 | — | 977 | — | 1,417 | |||||||||||||||||||||
| — | — | — | 24,024 | 15,255 | 35,837 | 167,481 | 14,788 | — | 257,385 | ||||||||||||||||||||||
| Accumulated amortization, foreign translation and other adjustments as of Jan. 31, 2002 | |||||||||||||||||||||||||||||||
| Goodwill | — | 3,764 | 2,187 | 14,841 | 5,644 | ||||||||||||||||||||||||||