UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
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 Number: 000-26130
LEGATO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3077394 | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
2350 West El Camino Real, Mountain View, CA 94040
(Address of principal executive offices)
Registrant’s telephone number, including area code: (650) 210-7000
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act). Yes x No ¨
The number of shares outstanding of the Registrant’s Common Stock as of July 21, 2003 was 117,786,729.
1
LEGATO SYSTEMS, INC
| PART I—FINANCIAL INFORMATION | ||||
| Page No. | ||||
| Item 1 |
Financial Statements: | |||
| Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002—(unaudited) | 3 | |||
| Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002—(unaudited) | 4 | |||
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002—(unaudited) | 5 | |||
| Notes to Condensed Consolidated Financial Statements—(unaudited) | 6 | |||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||
| Item 3 |
Quantitative and Qualitative Disclosures about Market Risk | 30 | ||
| Item 4 |
Controls and Procedures | 30 | ||
| PART II—OTHER INFORMATION | ||||
| Item 1 |
Legal Proceedings | 31 | ||
| Item 2 |
Changes in Securities and Use of Proceeds | 31 | ||
| Item 3 |
Defaults upon Senior Securities | 31 | ||
| Item 4 |
Submission of Matters to a Vote of Security Holders | 31 | ||
| Item 5 |
Other Information | 31 | ||
| Item 6 |
Exhibits and Reports on Form 8-K | 32 | ||
| Signature | 32 | |||
2
PART I — FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
LEGATO SYSTEMS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
| June 30, 2003 |
December 31, 2002 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 62,659 | $ | 54,726 | ||||
| Investments |
9,315 | 15,318 | ||||||
| Accounts receivable, net |
42,752 | 51,501 | ||||||
| Other current assets |
9,707 | 7,487 | ||||||
| Total current assets |
124,433 | 129,032 | ||||||
| Property and equipment, net |
39,297 | 43,906 | ||||||
| Intangible assets, net |
25,196 | 30,586 | ||||||
| Goodwill |
270,709 | 270,709 | ||||||
| Other assets |
4,603 | 5,483 | ||||||
| $ | 464,238 | $ | 479,716 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Line of credit |
$ | 13,495 | $ | 10,550 | ||||
| Accounts payable |
11,224 | 12,294 | ||||||
| Accrued liabilities |
43,176 | 58,314 | ||||||
| Deferred revenue |
66,302 | 67,956 | ||||||
| Total current liabilities |
134,197 | 149,114 | ||||||
| Deferred revenue – net of current portion |
3,389 | 2,808 | ||||||
| 137,586 | 151,922 | |||||||
| Stockholders’ equity: |
||||||||
| Common stock and capital in excess of par, $0.0001 par value; 117,525 and 116,136 issued and outstanding, respectively |
631,882 | 627,067 | ||||||
| Deferred stock compensation |
(260 | ) | (416 | ) | ||||
| Accumulated other comprehensive income |
1,471 | 582 | ||||||
| Accumulated deficit |
(306,441 | ) | (299,439 | ) | ||||
| Total stockholders’ equity |
326,652 | 327,794 | ||||||
| $ | 464,238 | $ | 479,716 | |||||
See accompanying notes to these condensed consolidated financial statements.
3
LEGATO SYSTEMS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| (unaudited) | ||||||||||||||||
| Revenue: |
||||||||||||||||
| License |
$ | 34,845 | $ | 30,629 | $ | 69,233 | $ | 59,379 | ||||||||
| Service and support |
41,783 | 30,928 | 81,406 | 57,809 | ||||||||||||
| Total revenue |
76,628 | 61,557 | 150,639 | 117,188 | ||||||||||||
| Cost of revenue: |
||||||||||||||||
| License |
1,983 | 2,215 | 3,978 | 3,926 | ||||||||||||
| Service and support |
11,941 | 11,325 | 23,528 | 21,920 | ||||||||||||
| Cost of revenue |
13,924 | 13,540 | 27,506 | 25,846 | ||||||||||||
| Gross profit |
62,704 | 48,017 | 123,133 | 91,342 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing |
33,286 | 34,219 | 66,600 | 65,938 | ||||||||||||
| Research and development |
18,616 | 18,252 | 37,126 | 32,772 | ||||||||||||
| General and administrative |
8,014 | 9,606 | 16,168 | 16,675 | ||||||||||||
| Amortization of acquired intangibles |
2,695 | 2,166 | 5,390 | 3,598 | ||||||||||||
| Write-off of in-process research and development |
— | 33,200 | — | 33,200 | ||||||||||||
| Restructuring charges |
3,543 | — | 3,543 | — | ||||||||||||
| Litigation settlement charge |
— | — | — | 67,000 | ||||||||||||
| Total operating expenses |
66,154 | 97,443 | 128,827 | 219,183 | ||||||||||||
| Loss from operations |
(3,450 | ) | (49,426 | ) | (5,694 | ) | (127,841 | ) | ||||||||
| Interest and other income, net |
(536 | ) | 1,348 | (897 | ) | 1,862 | ||||||||||
| Loss before provision for/(benefit from) income taxes |
(3,986 | ) | (48,078 | ) | (6,591 | ) | (125,979 | ) | ||||||||
| Provision for/(benefit from) income taxes |
411 | (2,224 | ) | 411 | (33,384 | ) | ||||||||||
| Net loss |
$ | (4,397 | ) | $ | (45,854 | ) | $ | (7,002 | ) | $ | (92,595 | ) | ||||
| Net loss per share: |
||||||||||||||||
| Basic and diluted |
$ | (0.04 | ) | $ | (0.45 | ) | $ | (0.06 | ) | $ | (0.96 | ) | ||||
| Weighted average common shares outstanding |
117,011 | 102,643 | 116,595 | 96,540 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
LEGATO SYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
| Six Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (7,002 | ) | $ | (92,595 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Deferred taxes |
— | (37,422 | ) | |||||
| Depreciation and amortization |
14,572 | 12,193 | ||||||
| Write-off of in-process research and development |
— | 33,200 | ||||||
| Stock compensation expense |
424 | 289 | ||||||
| Provision for doubtful accounts and sales returns |
404 | 183 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
8,345 | (161 | ) | |||||
| Other assets |
(1,340 | ) | 1,100 | |||||
| Accounts payable |
(1,070 | ) | 8,893 | |||||
| Accrued liabilities |
(15,138 | ) | (12,295 | ) | ||||
| Deferred revenue |
(1,073 | ) | 2,346 | |||||
| Net cash used in operating activities |
(1,878 | ) | (84,269 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of available-for-sale securities |
(57 | ) | (17,239 | ) | ||||
| Maturities and sales of available-for-sale securities |
6,436 | 72,775 | ||||||
| Purchase of technology |
— | (3,250 | ) | |||||
| Acquisition of OTG Software, net of cash acquired |
— | (1,609 | ) | |||||
| Acquisition of property and equipment |
||||||||