-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EsLCwzR6LUV6rANrtx0gn7WOYyDS7d2+CWQq0p7gbPiCWRI/7eKPVDNDH4kLVsii t/jWIAvfw469NkFGnn62Ow== 0001047469-99-002736.txt : 19990201 0001047469-99-002736.hdr.sgml : 19990201 ACCESSION NUMBER: 0001047469-99-002736 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED SYSTEMS INC CENTRAL INDEX KEY: 0000775163 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942658153 STATE OF INCORPORATION: CA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-18268 FILM NUMBER: 99517007 BUSINESS ADDRESS: STREET 1: 201 MOFFETT PARK DIRVE CITY: SUNNYVALE STATE: CA ZIP: 95054-3309 BUSINESS PHONE: 4085421500 MAIL ADDRESS: STREET 1: 201 MOFFETT PARK DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089 10-Q/A 1 FORM 10-Q/A-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-Q/A-1 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1998 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 0-18268 ----------------------- INTEGRATED SYSTEMS, INC. (Exact name of Registrant as specified in its charter) CALIFORNIA 94-2658153 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) ----------------------- 201 MOFFETT PARK DRIVE SUNNYVALE, CA 94089 (408) 542-1500 (Address, including zip code, of Registrant's principal executive offices and 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 / / The number of shares outstanding of Registrant's Common Stock on December 31, 1998 was 22,647,952 shares. INTEGRATED SYSTEMS, INC. FORM 10-Q QUARTER ENDED NOVEMBER 30, 1998 INDEX
PAGE ---- PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets as of November 30, 1998 and February 28, 1998 4 Condensed Consolidated Statements of Income for the Three and Nine Months Ended November 30, 1998 and 1997 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 1998 and 1997 6 Notes to Condensed Consolidated Financial Statements 7 SIGNATURES 10
This Form 10Q/A-1 is filed to correct a typographical error on the Deferred Revenue line item of the November 30, 1998 Balance Sheet. The previously filed number was $16,533. The correct number is $16,553. PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The condensed consolidated interim financial statements included herein have been prepared by Integrated Systems, Inc. ("the Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures made are adequate to make the information presented not misleading. It is suggested that the condensed consolidated interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended February 28, 1998. The February 28, 1998 condensed consolidated balance sheet data was derived from the audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The accompanying condensed consolidated interim financial statements have been prepared in all material respects in comformity with the standards of accounting measurements set forth in Accounting Principles Board Opinion No. 28 and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the financial position, results of operations, and cash flows for the periods indicated. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. 3 INTEGRATED SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
NOVEMBER 30, FEBRUARY 28, 1998 1998 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 16,700 $ 14,454 Marketable securities 9,904 6,670 Accounts receivable, net 25,714 29,455 Deferred income taxes 840 1,603 Prepaid expenses and other 4,656 4,548 ------- ------- Total current assets 57,814 56,730 Marketable securities 49,299 46,322 Property and equipment, net 18,588 18,428 Intangible assets, net 2,970 2,867 Deferred income taxes 4,763 2,363 Other assets 1,106 1,410 ------- ------- Total assets $134,540 $128,120 -------- -------- -------- -------- LIABILITIES Current liabilities: Accounts payable $ 4,260 $ 5,073 Accrued payroll and related expenses 5,038 4,321 Other accrued liabilities 6,529 5,372 Income taxes payable 3,018 2,747 Deferred revenue 16,553 16,181 ------- ------- Total current liabilities 35,398 33,694 SHAREHOLDERS' EQUITY Common Stock, no par value, 50,000 shares authorized: 22,623 and 23,339 shares issued and outstanding at November 30, 1998 and February 28, 1998; respectively 58,016 63,647 Accumulated other comprehensive income (loss), net (513) (1,290) Retained earnings 41,639 32,069 ------- ------- Total shareholders' equity 99,142 94,426 ------- ------- Total liabilities and shareholders' equity $134,540 $128,120 -------- -------- -------- --------
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 INTEGRATED SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED NOVEMBER 30, NOVEMBER 30, -------------------- -------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Revenue: Product $ 20,604 $ 17,637 $ 55,488 $ 46,897 Services 14,358 12,265 42,961 39,763 --------- --------- --------- --------- Total revenue 34,962 29,902 98,449 86,660 --------- --------- --------- --------- Costs and expenses: Cost of product revenue 5,034 3,208 12,167 9,458 Cost of services revenue 5,723 6,590 17,201 21,711 Marketing and sales 12,142 11,313 35,505 31,594 Research and development 4,399 4,672 14,498 14,221 General and administrative 4,354 2,767 12,109 8,346 --------- --------- --------- --------- Total costs and expenses 31,652 28,550 91,480 85,330 --------- --------- --------- --------- Income from operations 3,310 1,352 6,969 1,330 Interest and other income 1,354 1,090 3,575 2,864 --------- --------- --------- --------- Income before income taxes 4,664 2,442 10,544 4,194 Provision for income taxes 1,492 830 974 1,426 --------- --------- --------- --------- Net income $ 3,172 $ 1,612 $ 9,570 $ 2,768 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share--basic $ 0.14 $ 0.07 $ 0.41 $ 0.12 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share--diluted $ 0.14 $ 0.07 $ 0.40 $ 0.12 --------- --------- --------- --------- --------- --------- --------- --------- Shares used in per share calculations--basic 22,969 23,291 23,299 23,198 --------- --------- --------- --------- --------- --------- --------- --------- Shares used in per share calculations--diluted 23,241 24,349 23,984 24,057 --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 INTEGRATED SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
NINE MONTHS ENDED NOVEMBER 30, ---------------------- 1998 1997 ---------- ---------- Cash flows from operating activities: Net income $ 9,570 $ 2,768 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,309 4,255 Provision for (release of) doubtful accounts receivable (25) 1,619 Deferred income taxes (1,924) (354) Changes in assets and liabilities: Accounts receivable 3,760 444 Prepaid expenses and other (108) (756) Accounts payable, accrued payroll and other accrued liabilities 1,061 1,730 Income taxes payable 271 (458) Deferred revenue 372 1,213 Other assets and liabilities 241 (3) ---------- ---------- Net cash provided by operating activities 17,527 10,458 ---------- ---------- Cash flows from investing activities: Purchases of marketable securities, net (5,493) (21,647) Additions to property and equipment (3,104) (3,816) Capitalized software development costs (1,405) (825) ---------- ---------- Net cash used in investing activities (10,002) (26,288) ---------- ---------- Cash flows from financing activities: Repurchase of common stock (8,739) (187) Proceeds from exercise of common stock options and purchases under the Employee Stock Purchase Plan 3,108 2,679 Tax benefit from disqualifying dispositions of common stock -- 918 ---------- ---------- Net cash (used in) provided by financing activities (5,631) 3,410 ---------- ---------- Effect of exchange rate fluctuations on cash and cash equivalents 352 (220) Net increase (decrease) in cash and cash equivalents 2,246 (12,640) Cash and cash equivalents at beginning of period 14,454 25,585 ---------- ---------- Cash and cash equivalents at end of period $ 16,700 $ 12,945 ---------- ---------- ---------- ---------- Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 2,340 $ 1,353 Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on marketable securities $ 718 $ (97)
The accompanying notes are an integral part of these condensed consolidated financial statements 6 INTEGRATED SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information for the three and nine months ended November 30, 1998 and 1997 is unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements include the accounts of Integrated Systems, Inc. and its wholly owned subsidiaries, after elimination of all significant intercompany accounts and transactions, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended February 28, 1998. These condensed consolidated financial statements do not include all disclosures normally required by generally accepted accounting principles. Certain amounts in the fiscal year 1998 condensed consolidated financial statements have been reclassified to conform to the fiscal year 1999 presentation. These reclassifications had no effect on previously reported results of operations or shareholder's equity. 2. EARNINGS PER SHARE Earnings per share is computed in accordance with the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares result from the assumed exercise of outstanding stock options that have a dilutive effect when applying the treasury stock method. The following table sets forth the calculations of earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED NOVEMBER 30, NOVEMBER 30, ------------------- ----------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997 ------- ------- ------- ------ Basic: Net income $ 3,172 $ 1,612 $ 9,570 $ 2,768 ------- ------- ------- ------- ------- ------- ------- ------- Number of shares: Weighted average number of common shares outstanding 22,969 23,291 23,299 23,198 ------- ------- ------- ------- ------- ------- ------- ------- Earnings per share - basic $ 0.14 $ 0.07 $ 0.41 $ 0.12 ------- ------- ------- ------- ------- ------- ------- ------- Diluted: Net income $ 3,172 $ 1,612 $ 9,570 $ 2,768 ------- ------- ------- ------- ------- ------- ------- ------- Number of shares: Weighted average number of common shares outstanding 22,969 23,291 23,399 23,198 Dilutive effect of stock options, net 272 1,058 685 859 ------- ------- ------- ------- Weighted average number of common and common equivalent shares outstanding 23,241 24,349 23,964 24,957 ------- ------- ------- ------- ------- ------- ------- ------- Earnings per share - diluted $ 0.14 $ 0.07 $ 0.40 $ 0.12 ------- ------- ------- ------- ------- ------- ------- -------
Certain options to purchase common stock were not included in the above calculations as their exercise prices were greater than the average market price of common stock in each respective period and their inclusion would be antidilutive. The number of such options excluded was approximately 2.2 million and 0.2 million in the three months ended November 30, 1998 and 1997, respectively, and 0.9 million and 0.4 million in the nine months ended November 30, 1998, and 1997, respectively. 3. COMPREHENSIVE INCOME In March 1998, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income." Comprehensive income is defined as the change in equity from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. For the Company, the primary difference between net income and comprehensive income results from foreign currency translation adjustments and unrealized gains and losses on available-for-sale marketable securities. 7 Comprehensive income for the three and nine months ended November 30, 1998 and 1997 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED NOVEMBER 30, NOVEMBER 30, ----------------- ------------------ (in thousands) 1998 1997 1998 1997 ------ ------ ------- ------ Net income $3,172 $1,612 $ 9,570 $2,768 Other comprehensive income, net of tax: Foreign currency translation adjustments 364 28 346 (325) Unrealized gain (loss) on marketable securities 135 (183) 431 (64) ------ ------ ------- ------ Other comprehensive income (loss) 499 (155) 777 (389) ------ ------ ------- ------ Total comprehensive income $3,671 $1,457 $10,347 $2,379 ------ ------ ------- ------ ------ ------ ------- ------
The accumulated balances of other comprehensive income as of November 30, 1998 and 1997 are as follows:
NOVEMBER 30, 1998 NOVEMBER 30, 1997 ------------------------------------ ------------------------------------ FOREIGN FOREIGN CURRENCY UNREALIZED CURRENCY UNREALIZED TRANSLATION GAINS/ TOTAL TRANSLATION GAINS/ TOTAL ADJUSTMENTS (LOSSES) OTHER ADJUSTMENTS (LOSSES) OTHER ----------- ---------- -------- ----------- ---------- -------- Beginning balance $(1,438) $148 $(1,290) $(1,130) $148 $ (982) Current-period change 346 431 777 (325) (64) (389) ----------- ---------- -------- ----------- ---------- -------- Ending balance $(1,092) $579 $ (513) $(1,455) $ 84 $(1,371) ----------- ---------- -------- ----------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
4. DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency forward exchange contracts to reduce the impact of currency exchange rate fluctuations on monetary assets and liability positions. The objective of these contracts is to minimize the impact of exchange rate fluctuations on the Company's operating results. Gains and losses associated with exchange rate fluctuations on foreign currency forward exchange contracts are recorded in income as they offset corresponding gains and losses on the foreign currency denominated assets and liabilities being hedged. The costs of the foreign currency forward exchange contracts are also recorded in income. All foreign currency forward exchange contracts entered into by the Company have maturities of less than one year. At November 30, 1998, the Company had approximately $2.3 million of foreign currency forward exchange contracts outstanding, all in Japanese yen. There were no foreign currency forward exchange contracts at February 28, 1998. Unrealized losses on foreign currency forward exchange contracts at November 30, 1998 were approximately $210,000. Other than the use of foreign currency forward exchange contracts discussed above, the Company does not currently invest in or hold any other derivative financial instruments. 5. INCOME TAXES In May 1998, the Company made an election with the Internal Revenue Service to treat the Company's Austrian subsidiary, TakeFive Software GmbH, as a foreign branch of the Company in the United States tax return. For financial statement purposes, this election resulted in a one-time tax benefit of $2.4 million in the first quarter of fiscal year 1999. 6. CONTINGENCIES In October 1997, Greenhills Software, Inc. ("Greenhills"), a supplier, filed a demand for arbitration against the Company, alleging among other things, breach of contract, fraud, negligent misrepresentation and misappropriation of trade name. In December 1997, the Company responded to the arbitration demand, and filed a counter-claim against Greenhills. The Company believes it has meritorious defenses to all claims against the Company and intends to defend the claims vigorously. The arbitration hearings were completed in early January, 1999, and a decision is pending. No accrual has been made in the accompanying consolidated financial statements related to this dispute, as the ultimate outcome is presently not determinable. The dispute, however, is subject to inherent uncertainties and thus, there can be no assurance that it will be resolved favorably to the Company or that it will not have a material adverse effect on the Company's consolidated financial position or results of operations. 8 The Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While management does not believe that the outcome of any of the legal matters will have a material adverse effect on the Company's consolidated financial position, legal matters are subject to inherent uncertainties and thus, there can be no assurance that these matters will be resolved favorably to the Company. 7. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information," which specifies disclosure requirements for segment reporting. The statement supersedes SFAS 14 and SFAS 18, is effective for fiscal years beginning after December 15, 1997, and requires earlier periods to be restated if practicable. The impact of the adoption of this statement, if any, on the financial statements of the Company has not yet been determined. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance for determining whether computer software is internal-use software and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company has not yet determined the impact, if any, of adopting this statement. The disclosures prescribed by SOP 98-1 will be effective for the Company's fiscal year ending February 28, 2000. Also in April 1998, the AICPA issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires such costs to be expensed as incurred. This statement will be effective for the Company's fiscal year ending February 28, 2000. The Company has not yet determined the impact, if any, of adopting SOP 98-5. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", which supercedes and amends a number of existing standards. The statement is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted. The impact of the adoption of this statement, if any, on the financial statements of the Company has not yet been determined. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 29, 1999 INTEGRATED SYSTEMS, INC. (Registrant) /S/ CHARLES M. BOESENBERG ------------------------------------- CHARLES M. BOESENBERG President and Chief Executive Officer /S/ WILLIAM C. SMITH ------------------------------------- WILLIAM C. SMITH Vice President, Finance and Chief Financial Officer 10 -----END PRIVACY-ENHANCED MESSAGE-----