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 PERIOD ENDED MARCH 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 |
Commission file number: 000-23649
ARTISAN COMPONENTS, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 77-0278185 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
141 Caspian Court
Sunnyvale, California 94089
(Address of principal executive offices)
Telephone number (408) 734-5600
(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).
Yes x No ¨
As of April 30, 2004, there were 23,008,380 shares of the Registrant’s Common Stock outstanding.
ARTISAN COMPONENTS, INC.
FORM 10-Q
| Page | ||||
| PART I—Financial Information | ||||
| i | ||||
| Item 1. |
Financial Statements (Unaudited) | |||
| Condensed Consolidated Balance Sheets as of March 31, 2004 and September 30, 2003 | 1 | |||
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2004 and 2003 | 2 | |||
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2004 and 2003 | 3 | |||
| Notes To Condensed Consolidated Financial Statements | 4 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||
| Factors Affecting Future Operating Results | 19 | |||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 32 | ||
| Item 4. |
Controls and Procedures | 32 | ||
| PART II—Other Information | ||||
| Item 1. |
Legal Proceedings | 33 | ||
| Item 2. |
Changes In Securities and Use of Proceeds | 33 | ||
| Item 3. |
Defaults Upon Senior Securities | 33 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 33 | ||
| Item 5. |
Other Information | 34 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 34 | ||
| Signatures | 35 | |||
i
| ITEM 1. | FINANCIAL STATEMENTS |
ARTISAN COMPONENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
| March 31, 2004 |
September 30, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 86,523 | $ | 98,841 | ||||
| Marketable securities |
18,185 | 9,921 | ||||||
| Accounts receivable, net |
22,699 | 18,398 | ||||||
| Prepaid expenses and other current assets |
3,541 | 2,197 | ||||||
| Total current assets |
130,948 | 129,357 | ||||||
| Long-term marketable securities |
24,625 | 5,504 | ||||||
| Property and equipment, net |
6,303 | 7,418 | ||||||
| Purchased intangible assets, net |
6,157 | 8,394 | ||||||
| Goodwill |
36,016 | 36,016 | ||||||
| Other assets |
496 | 414 | ||||||
| Total assets |
$ | 204,545 | $ | 187,103 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 531 | $ | 1,486 | ||||
| Accrued liabilities |
7,619 | 7,201 | ||||||
| Deferred revenue |
10,127 | 7,094 | ||||||
| Total current liabilities |
18,277 | 15,781 | ||||||
| Deferred revenue |
885 | 788 | ||||||
| Other liabilities |
900 | 1,146 | ||||||
| Deferred tax liability |
2,540 | 3,257 | ||||||
| Total liabilities |
22,602 | 20,972 | ||||||
| Commitments and contingencies (Note 8) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.001 par value: |
||||||||
| Authorized: 50,000; Issued and outstanding: 22,925 and 22,157 shares at March 31, 2004 and September 30, 2003, respectively |
23 | 22 | ||||||
| Additional paid in capital |
174,193 | 168,442 | ||||||
| Deferred stock-based compensation |
(195 | ) | (368 | ) | ||||
| Treasury stock |
— | (1,399 | ) | |||||
| Accumulated other comprehensive income |
111 | 118 | ||||||
| Retained earnings (accumulated deficit) |
7,811 | (684 | ) | |||||
| Total stockholders’ equity |
181,943 | 166,131 | ||||||
| Total liabilities and stockholders’ equity |
$ | 204,545 | $ | 187,103 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
ARTISAN COMPONENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Three months ended March 31, |
Six months ended March 31, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Revenue: |
||||||||||||
| License |
$ | 15,254 | $ | 13,945 | $ | 27,642 | $ | 25,914 | ||||
| Net royalty |
6,114 | 2,177 | 13,788 | 4,192 | ||||||||
| Total revenue |
21,368 | 16,122 | 41,430 | 30,106 | ||||||||
| Costs and expenses: |
||||||||||||
| Cost of revenue * |
5,018 | 3,581 | 9,417 | 7,487 | ||||||||
| Product development * |
4,723 | 4,756 | 9,879 | 7,691 | ||||||||
| Sales and marketing * |
3,920 | 3,226 | 7,664 | 6,330 | ||||||||
| General and administrative * |
1,886 | 1,838 | 3,549 | 3,233 | ||||||||
| In-process research and development |
— | 520 | — | 520 | ||||||||
| Amortization of purchased intangible assets |
896 | 907 | 2,237 | 1,399 | ||||||||
| Total costs and expenses |
16,443 | 14,828 | 32,746 | 26,660 | ||||||||
| Operating income |
4,925 | 1,294 | 8,684 | 3,446 | ||||||||
| Interest and other income, net |
357 | 175 | 682 | 378 | ||||||||
| Income before provision for income taxes |
5,282 | 1,469 | 9,366 | 3,824 | ||||||||
| Provision for income taxes |
496 | 263 | 871 | 453 | ||||||||
| Net income |
$ | 4,786 | $ | 1,206 | $ | 8,495 | $ | 3,371 | ||||
| Net income per share: |
||||||||||||
| Basic |
$ | 0.21 | $ | 0.07 | $ | 0.38 | $ | 0.19 | ||||
| Diluted |
$ | 0.19 | $ | 0.06 | $ | 0.34 | $ | 0.17 | ||||
| Shares used in computing net income per share: |
||||||||||||
| Basic |
22,752 | 17,831 | 22,583 | 17,792 | ||||||||
| Diluted |
24,720 | 19,896 | 24,635 | 19,803 | ||||||||
| * Includes stock-based compensation expense of: |
76 | 59 | 173 | 59 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ARTISAN COMPONENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Six months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 8,495 | $ | 3,371 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
3,837 | 2,196 | ||||||
| In-process research and development |
— | 520 | ||||||
| Compensation expense related to options |
173 | 59 | ||||||
| Tax benefit arising from disqualifying dispositions of stock options |
40 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
(4,301 | ) | (7,529 | ) | ||||
| Prepaid expenses and other current assets |
(1,344 | ) | 80 | |||||
| Other assets |
(82 | ) | (87 | ) | ||||
| Accounts payable |
(955 | ) | 433 | |||||
| Accrued liabilities and deferred income taxes |
(299 | ) | (1,931 | ) | ||||
| Deferred revenue |
3,130 | 4,673 | ||||||
| Other liabilities |
(246 | ) | (1,038 | ) | ||||
| Net cash provided by operating activities |
8,448 | 747 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(485 | ) | (1,785 | ) | ||||
| Purchases of marketable securities |
(40,699 | ) | (19,030 | ) | ||||
| Proceeds from sale and maturities of marketable securities |
13,307 | 19,609 | ||||||
| Acquisition of NurLogic, net of cash acquired |
— | 21 | ||||||
| Net cash used in investing activities |
(27,877 | ) | (1,185 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
7,111 | 4,569 | ||||||
| Net cash provided by financing activities |
7,111 | 4,569 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(12,318 | ) | 4,131 | |||||
| Cash and cash equivalents, beginning of period |
98,841 | 29,159 | ||||||
| Cash and cash equivalents, end of period |
$ | 86,523 | $ | 33,290 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ARTISAN COMPONENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Artisan Components, Inc. (“Artisan” or the “Company”) is a leading provider of physical intellectual property components for the design and manufacture of integrated circuits including those known as system-on-a-chip integrated circuits. The Company’s products include embedded memory, standard cell, communication, input/output components and analog and mixed-signal products which are designed to achieve the best combination of performance, density, power and yield for a given manufacturing process. The Company’s intellectual property components are pre-tested by producing them in silicon to ensure that they perform to specification. This enables designers to reduce the risk of design failure and gain valuable time to market. The Company licenses its products to customers for the design and manufacture of integrated circuits used in complex, high volume applications such as portable computing devices, cellular phones, consumer multimedia products, automotive electronics, personal computers and workstations.
Note 2. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Artisan and its wholly owned subsidiaries after elimination of all inter-company balances and transactions. The Company’s fiscal year ends September 30.
The accompanying unaudited condensed consolidated financial statements of Artisan have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of financial position as of March 31, 2004, and results of operations for the three and six months ended March 31, 2004 and 2003, and cash flows for the six months ended March 31, 2004 and 2003, as applicable, have been made. The September 30, 2003 balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Operating results for the three and six months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2004 or any other future period. The unaudited condensed consolidated interim financial statements contained herein should be read in conjunction with the audited financial statements and footnotes for the year ended September 30, 2003 included in the Company’s Annual Report on Form 10-K as filed with the SEC.
Use of Estimates
The preparation of financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates including those related to revenue recognition, allowance for doubtful accounts, goodwill and purchased intangible assets impairment, contingencies, restructuring costs and other special charges and taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
Net Income Per Share
Basic and diluted net income per share are computed in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“EPS”). Basic EPS is computed by dividing net income available to common stockholders by the weighted aver