INET TECHNOLOGIES INC - 10-Q Quarterly Report

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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 March 31, 2003

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number 0-24707

INET TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

75-2269056

(State or other jurisdiction

of incorporation or organization)

(I.R.S. employer

identification no.)

1500 North Greenville Avenue

Richardson, Texas 75081

(Address of principal executive offices, including zip code)

(469) 330-4000

(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 þ No ¨

Indicate by check mark whether the registrant is an “accelerated filer” (as defined in Exchange Act Rule 12b-2). Yes þ No ¨

Number of shares of common stock outstanding at April 25, 2003: 38,361,954

Page 1 of 34

Inet Technologies, Inc.

Index


			Page No.
Part I – Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets	3

		Consolidated Statements of Income	4

		Consolidated Statement of Stockholders’ Equity	5

		Consolidated Statements of Cash Flows	6

		Notes to Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

	Item 4.	Controls and Procedures	30

Part II – Other Information

	Item 2.	Changes in Securities and Use of Proceeds	30

	Item 6.	Exhibits and Reports on Form 8-K	31

Signatures			31

Certifications			32

Page 2 of 34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INET TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	March 31, 2003			December 31, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	163,139		$	189,076
Trade accounts receivable, net of allowance for doubtful accounts of $507 at March 31, 2003 and $484 at December 31, 2002		11,738			10,211
Unbilled receivables		180			155
Inventories		8,425			7,458
Deferred income taxes		850			850
Other current assets		4,747			4,654

Total current assets		189,079			212,404
Property and equipment, net		13,844			15,215
Other assets		602			300

Total assets	$	203,525		$	227,919


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,473		$	1,078
Accrued compensation and benefits		2,811			4,113
Deferred revenues		24,011			18,323
Income taxes payable		3,195			1,953
Other accrued liabilities		5,393			4,478

Total current liabilities		36,883			29,945
Deferred income taxes		18			18
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value:
Authorized shares — 25,000,000 Issued shares — None		—			—
Common stock, $.001 par value:
Authorized shares — 175,000,000 Issued shares — 47,158,643 at March 31, 2003 and 47,157,543 at December 31, 2002		47			47
Additional paid-in capital		75,095			75,075
Unearned compensation		(266	)		(407	)
Retained earnings		126,496			123,241
Treasury stock, 8,796,939 common shares at March 31, 2003 and no common shares at December 31, 2002, at cost		(34,748	)		—

Total stockholders’ equity		166,624			197,956

Total liabilities and stockholders’ equity	$	203,525		$	227,919

See accompanying notes to consolidated financial statements.

Page 3 of 34

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

	Three months ended March 31,
	2003		2002
Revenues:
Product and license fees	$	17,518	$	21,003
Services		7,524		6,492

Total revenues		25,042		27,495

Cost of revenues:
Product and license fees		2,902		6,232
Services		4,167		3,158

Total cost of revenues		7,069		9,390


Gross profit		17,973		18,105
Operating expenses:
Research and development		7,685		8,456
Sales and marketing		3,515		4,107
General and administrative		2,419		2,020

		13,619		14,583

Income from operations		4,354		3,522
Other income (expense):
Interest income		426		690
Other income (expense)		16		(180	)

		442		510

Income before provision for income taxes		4,796		4,032
Provision for income taxes		1,541		1,292

Net income	$	3,255	$	2,740


Earnings per common share:
Basic	$	0.08	$	0.06

Diluted	$	0.08	$	0.06

Weighted-average shares outstanding:
Basic		40,395		46,838

Diluted		40,563		47,194

See accompanying notes to consolidated financial statements.

Page 4 of 34

INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)

	Common Stock			Additional Paid-in Capital		Unearned Compensation			Retained Earnings		Treasury Stock					Total Stockholders’ Equity
	Shares	Amount		Additional Paid-in Capital		Unearned Compensation			Retained Earnings		Shares		Amount			Total Stockholders’ Equity
Balance at December 31, 2002	47,157,543	$	47	$	75,075	$	(407	)	$	123,241	—		$	—		$	197,956
Repurchase of common stock	—		—		—		—			—	8,969,984			(35,431	)		(35,431	)
Issuance of common stock under employee stock option and stock purchase plans, including tax benefit of $87	1,100		—		20		—			—	(173,045	)		683			703
Net income	—		—		—		—			3,255	—			—			3,255
Amortization of restricted stock awards	—		—		—		141			—	—			—

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