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 December 31, 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 No. 0-24784
PINNACLE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| California | 94-3003809 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 280 N. Bernardo Ave. Mountain View, CA |
94043 | |
| (Address of principal executive offices) | (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨
The number of shares of the registrant’s common stock outstanding as of February 3, 2004 was 67,931,545.
1
| Page | ||
| PART I—FINANCIAL INFORMATION |
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| ITEM 1—Condensed Consolidated Financial Statements |
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| Condensed Consolidated Balance Sheets - December 31, 2003 and June 30, 2003 |
3 | |
| 4 | ||
| Condensed Consolidated Statements of Cash Flows - Six Months Ended December 31, 2003 and 2002 |
5 | |
| 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 |
45 | |
| ITEM 4 - Controls and Procedures |
45 | |
| PART II—OTHER INFORMATION |
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| ITEM 1 - Legal Proceedings |
46 | |
| 47 | ||
| ITEM 4 - Submission of Matters to a Vote of Security Holders |
47 | |
| ITEM 6 - Exhibits and Reports on Form 8-K |
48 | |
| 49 | ||
| 50 |
2
PART 1—FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
| December 31, 2003 |
June 30, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 53,402 | $ | 62,617 | ||||
| Marketable securities |
17,905 | 18,804 | ||||||
| Accounts receivable, less allowances for doubtful accounts and returns of $4,741 and $9,993 as of December 31, 2003, and $5,204 and $6,602 as of June 30, 2003, respectively |
48,653 | 55,958 | ||||||
| Inventories |
43,667 | 36,775 | ||||||
| Prepaid expenses and other current assets |
9,662 | 9,197 | ||||||
| Total current assets |
173,289 | 183,351 | ||||||
| Restricted cash |
16,850 | 16,890 | ||||||
| Property and equipment, net |
16,898 | 15,351 | ||||||
| Goodwill |
82,755 | 60,632 | ||||||
| Other intangible assets, net |
21,057 | 29,341 | ||||||
| Other assets |
6,635 | 5,311 | ||||||
| $ | 317,484 | $ | 310,876 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 13,870 | $ | 17,146 | ||||
| Accrued and other liabilities |
64,487 | 49,489 | ||||||
| Deferred revenue and customer deposits |
17,249 | 10,100 | ||||||
| Total current liabilities |
95,606 | 76,735 | ||||||
| Deferred income taxes |
4,222 | 7,826 | ||||||
| Long-term liabilities |
759 | 158 | ||||||
| Total liabilities |
100,587 | 84,719 | ||||||
| Shareholders’ equity: |
||||||||
| Preferred stock, no par value; authorized 5,000 shares; none issued and outstanding |
— | — | ||||||
| Common stock, no par value; authorized 120,000 shares; 67,866 and 63,388 issued and outstanding as of December 31, 2003 and June 30, 2003, respectively |
367,657 | 337,593 | ||||||
| Accumulated deficit |
(158,129 | ) | (115,294 | ) | ||||
| Accumulated other comprehensive income |
7,369 | 3,858 | ||||||
| Total shareholders’ equity |
216,897 | 226,157 | ||||||
| $ | 317,484 | $ | 310,876 | |||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
| Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Net sales |
$ | 89,342 | $ | 84,501 | $ | 160,269 | $ | 153,075 | ||||||||
| Costs and expenses: |
||||||||||||||||
| Cost of sales |
53,457 | 38,582 | 90,480 | 69,563 | ||||||||||||
| Engineering and product development |
9,825 | 9,283 | 20,375 | 17,546 | ||||||||||||
| Sales, marketing and service |
27,742 | 22,531 | 53,007 | 42,199 | ||||||||||||
| General and administrative |
5,498 | 4,795 | 11,477 | 9,605 | ||||||||||||
| Amortization of other intangible assets |
2,762 | 3,379 | 5,582 | 6,750 | ||||||||||||
| Impairment of goodwill and other intangible assets |
16,244 | — | 16,244 | — | ||||||||||||
| Restructuring costs |
5,018 | — | 5,018 | — | ||||||||||||
| In-process research and development |
— | — | 2,193 | — | ||||||||||||
| Legal judgment |
— | 11,300 | — | 11,300 | ||||||||||||
| Total costs and expenses |
120,546 | 89,870 | 204,376 | 156,963 | ||||||||||||
| Operating loss |
(31,204 | ) | (5,369 | ) | (44,107 | ) | (3,888 | ) | ||||||||
| Interest and other income (expense), net |
(1,781 | ) | 148 | (1,455 | ) | 538 | ||||||||||
| Loss before income taxes and cumulative effect of change in accounting principle |
(32,985 | ) | (5,221 | ) | (45,562 | ) | (3,350 | ) | ||||||||
| Income tax expense (benefit) |
(3,130 | ) | 1,600 | (2,727 | ) | 2,050 | ||||||||||
| Loss before cumulative effect of change in accounting principle |
(29,855 | ) | (6,821 | ) | (42,835 | ) | (5,400 | ) | ||||||||
| Cumulative effect of change in accounting principle |
— | — | — | (19,291 | ) | |||||||||||
| Net loss |
$ | (29,855 | ) | $ | (6,821 | ) | $ | (42,835 | ) | $ | (24,691 | ) | ||||
| Loss per share before cumulative effect of change in accounting principle: |
||||||||||||||||
| Basic and diluted |
$ | (0.45 | ) | $ | (0.11 | ) | $ | (0.65 | ) | $ | (0.09 | ) | ||||
| Cumulative effect per share of change in accounting principle: |
||||||||||||||||
| Basic and diluted |
$ | — | $ | — | $ | — | $ | (0.32 | ) | |||||||
| Net loss per share: |
||||||||||||||||
| Basic and diluted |
$ | (0.45 | ) | $ | (0.11 | ) | $ | (0.65 | ) | $ | (0.41 | ) | ||||
| Shares used to compute net loss per share: |
||||||||||||||||
| Basic and diluted |
66,401 | 60,451 | 65,744 | 59,789 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
| Six Months Ended December 31, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (42,835 | ) | $ | (24,691 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
9,967 | 9,836 | ||||||
| Provision for doubtful accounts |
38 | 513 | ||||||
| Deferred taxes |
(4,807 | ) | — | |||||
| Cumulative effect of change in accounting principle |
— | 19,291 | ||||||
| Impairment of goodwill and other intangible assets |
16,244 | |||||||
| In-process research and development |
2,193 | — | ||||||
| Loss on disposal of property and equipment |
436 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
10,838 | (956 | ) | |||||
| Inventories |
(988 | ) | (1,855 | ) | ||||
| Prepaid expenses and other assets |
81 | (2,579 | ) | |||||
| Accounts payable |
(5,663 | ) | (451 | ) | ||||
| Accrued and other liabilities |
11,506 | 13,766 | ||||||
| Deferred revenue and customer deposits |
6,774 | 1,125 | ||||||
| Long-term liabilities |
(234 | ) | — | |||||
| Net cash provided by operating activities |
3,550 | 13,999 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(5,736 | ) | (2,128 | ) | ||||
| Acquisitions, net of cash acquired |
(13,222 | ) | (3,910 | ) | ||||
| Proceeds from maturity of marketable securities |
1,255 | 3,926 | ||||||
| Purchases of marketable securities |
(355 | ) | (8,185 | ) | ||||
| Net cash used in investing activities |
(18,058 | ) | (10,297 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
5,050 | 10,259 | ||||||
| Net cash provided by financing activities |
5,050 | 10,259 | ||||||
| Effects of exchange rate changes on cash and cash equivalents |
243 | 2,121 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(9,215 | ) | 16,082 | |||||
| Cash and cash equivalents at beginning of period |
62,617 | 80,575 | ||||||
| Cash and cash equivalents at end of period |
$ | |||||||