<PAGE> 1
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 MARCH 31, 1996.
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: 0-26976
PIXAR
(Exact name of registrant as specified in its charter)
California 68-0086179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 West Cutting Boulevard, Richmond, California 94804
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (510) 236-4000
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 the registrant's Common Stock as of May 8,
1996 was 38,286,500.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIXAR
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 86,304 $ 97,286
Short-term investments 61,013 47,002
Trade accounts receivable, net of allowance for returns and doubtful
accounts of $269 and $256, respectively 923 784
Other receivables 2,429 1,969
Prepaid expenses and other current assets 279 309
Capitalized film production costs 2,195 1,446
--------- ---------
Total current assets 153,143 148,796
Property and equipment, net 1,613 1,552
Capitalized film production costs, net of current portion 1,472 2,170
Other assets 1,002 497
--------- ---------
Total assets $ 157,230 $ 153,015
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 481 $ 742
Note payable to the majority shareholder and accrued interest -- 2,373
Income taxes payable 329 --
Film production costs payable 3,248 3,324
Accrued liabilities 2,906 3,400
Unearned revenue 751 269
--------- ---------
Total current liabilities 7,715 10,108
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized and no
shares issued and outstanding -- --
Common stock, no par value; 100,000,000 shares authorized and
38,286,500 shares issued and outstanding 185,845 185,845
Unrealized gain (loss) on investments (11) 49
Deferred compensation (1,872) (2,261)
Accumulated deficit (34,447) (40,726)
--------- ---------
Total shareholders' equity 149,515 142,907
--------- ---------
Total liabilities and shareholders' equity $ 157,230 $ 153,015
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PIXAR
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- ----------
<S> <C> <C>
Revenues:
Software $ 911 $ 983
Commercials 785 528
Film 76 --
Patent licensing 6,495 --
------- --------
Total revenues 8,267 1,511
------- --------
Cost of revenues:
Software 54 249
Commercials 716 385
Film 9 --
------- --------
Total cost of revenues 779 634
------- --------
Gross margin 7,488 877
------- --------
Operating expenses:
Research and development 1,123 733
Sales and marketing 447 537
General and administrative 1,178 246
------- --------
Total operating expenses 2,748 1,516
------- --------
Income (loss) from operations 4,740 (639)
------- --------
Other income (expense) 1,868 (36)
------- --------
Income (loss) before income taxes 6,608 (675)
Income taxes 329 --
------- --------
Net income (loss) $ 6,279 $ (675)
======= ========
Net income (loss) per share (see Note 1) $ 0.13 $ (0.02)
======= ========
Shares used in computing net income (loss) per share 47,051 39,669
======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PIXAR
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 6,279 (675)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred compensation 372 --
Provision for returns and doubtful accounts 13 --
Depreciation and amortization 122 94
Amortization of capitalized film production costs 9 --
Accrued interest payable -- 40
Changes in operating assets and liabilities:
Trade accounts receivable (152) (81)
Other receivables (460) (101)
Prepaid expenses and other current assets 30 27
Accounts payable (261) (312)
Income tax payable 329 --
Film production costs payable (76) --
Accrued liabilities (494) 83
Unearned revenue 482 19
-------- -------
Net cash provided by (used in) operating activities 6,193 (906)
-------- -------
Cash flows from investing activities:
Purchase of property and equipment (183) (68)
Maturities of investments in short-term securities 4,930 --
Purchases of short-term securities, net of unrealized losses (19,001) --
Capitalized film production costs (43) (9)
Change in other assets (505) --
-------- -------
Net cash used in investing activities (14,802) (77)
-------- -------
Cash flows from financing activities:
Repayment of note payable to shareholder (2,373) --
Proceeds from capital infusion -- 1,175
-------- -------
Net cash provided by (used in) financing activities (2,373) 1,175
-------- -------
Net increase (decrease) in cash and cash equivalents (10,982) 192
Cash and cash equivalents at beginning of period 97,286 41
-------- -------
Cash and cash equivalents at end of period $ 86,304 $ 233
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 25 $ --
======== =======
Noncash film production costs capitalized $ 17 $ --
======== =======
Unrealized gain (loss) on investments $ (60) $ 12
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PIXAR
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of Pixar's financial condition,
results of operations, and cash flows for the periods presented. These financial
statements should be read in conjunction with Pixar's audited financial
statements as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, including notes thereto, included in
Pixar's Annual Report on Form 10-K for the year ended December 31, 1995.
The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results expected for the current year or any
other period.
(2) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Pixar considers all highly-liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash equivalents
include commercial paper, U.S. Treasury Bills, demand notes, and government
agency bonds.
Pixar adopted the provisions of SFAS No. 115 for investments held as of
January 1, 1994. Under SFAS No, 115, such investments are considered "available
for sale", and recorded at fair value with unrealized gains and losses recorded
as a separate component of equity until realized. Interest income is recorded
using the effective interest rate, with associated premium or discount amortized
to interest income. An unrealized loss of $11,000 has been reflected in
shareholders' equity as of March 31, 1996.
(3) INITIAL PUBLIC OFFERING
In November 1995, Pixar completed an initial public offering ("IPO") of
6.9 million shares of common stock for $22 per share, which resulted in proceeds
to Pixar of approximately $139.7 million, net of issuance costs of approximately
$1.9 million.
(4) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using net income (loss), and is
based on the weighted average number of shares of common stock outstanding and
common equivalent shares from stock options (under the treasury stock method, if
dilutive). In accordance with SEC Staff Accounting Bulletins, such computations
include all common and common equivalent shares issued within 12 months of the
IPO for all periods presented prior to November 1995. Net loss for the three
months ended March 31, 1995 is presented on a pro forma basis, and assumes C
corporation income tax expense.
(5) PATENT LICENSING ARRANGEMENTS
For the three months ended March 31, 1996, fees of $6,495,000 were
recognized with respect to the licensing of certain patents. Pixar received
$6,000,000 in cash and $5,000,000 in the form of credits for products to be
purchased from the licensee by Pixar over the next four years. Pixar has
recognized as revenue the $6,000,000 cash payment received, plus $495,000 that
represents the portion of the credits Pixar reasonably expects to use in the
next twelve months.
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(6) FEATURE FILM AND CD-ROM PRODUCTION
FEATURE FILM AGREEMENT
In 1991, Pixar entered into an agreement with a film entertainment company
to develop and produce a computer animated feature film. The film entertainment
company has two successive options to extend the term of the agreement for up to
two additional feature films. Pixar is entitled to receive compensation based on
revenue from the distribution of animated feature films and related products.
The first feature film was in production as of December 31, 1994 and released in
November 1995, and the film entertainment company exercised the option in July
1995 for the development and production of a second feature film.
Pixar incurs film production costs that are reimbursed by the film
entertainment company, inclusive of salaries and overhead. All payments to Pixar
from the film entertainment company for costs of feature film production have
been recorded as cost reimbursements; accordingly, no revenues have been
recorded for such reimbursements; rather, Pixar has netted the reimbursements
against the related costs. Total film production costs reimbursed to Pixar for
the three months ended March 31, 1995 and March 31, 1996, were $797,000 and
$46,000, respectively, for the first motion picture, and $43,000 and $1,808,000,
respectively, for the second motion picture. The reimbursements receivable from
the film entertainment company for the first motion picture and the second
motion picture were $15,000 and $776,000, respectively, as of March 31, 1996.
CD-ROM AGREEMENT
Pixar has entered into an agreement with the above-mentioned film
entertainment company to develop and produce interactive CD-ROM titles based on
the first motion picture. The film entertainment company pays Pixar a
development fee for the development of the titles and Pixar is entitled to
receive a per-unit royalty on sales of the CD-ROM titles after a certain minimum
number of units has been sold. Amounts required to develop the titles in excess
of the development fees are funded by Pixar, unless the film entertainment
company agrees to provide additional fees. Total development fees recorded as an
offset in research and development pursuant to this agreement were $907,000 for
the three months ended March 31, 1996. No development fees were recorded for the
three months ended March 31, 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's operating performance each quarter is subject to various
risks and uncertainties as discussed in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (the "Form 10-K"). The following discussion
should be read in conjunction with the sections entitled "Certain Factors
Affecting Business, Operating Results and Financial Condition" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Form 10-K. In particular, the factors set forth below in "Factors Affecting
Operating Results" could affect the Company's operating results.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased 447% to $8.3 million in the three months ended
March 31, 1996 from $1.5 million in the same period of the prior year. The
increase in total revenues over the same period of the prior year was primarily
attributable to one time patent licensing revenues of $6.5 million.
Software revenues, which include software license revenue, principally
from RenderMan, and software development contract revenues, decreased 7% to
$911,000 in the three months ended March 31, 1996 from $983,000 in the same
period of the prior year. The decrease in software revenues over the same period
of the prior year resulted from a decline in revenue from software development
contracts and prepackaged software products other than RenderMan, which more
than offset an increase in software license revenue from RenderMan. In January
1996, Pixar raised the list price of RenderMan, which could adversely affect
sales of RenderMan. Further, due to Pixar's focus on content creation for
animated feature films and related products, Pixar expects that revenue derived
from software licenses may decline. In addition, in 1995, Pixar completed work
under all of the software development contracts that generated revenues in 1995,
and Pixar does not expect to recognize any further revenues under these
agreements nor does Pixar intend to pursue future software development work for
third parties.
Revenue attributable to animated television commercials increased 49%
to $785,000 in the three months ended March 31, 1996 from $528,000 in the same
period of the prior year. Fees for animated television commercials, which are
fixed in advance, depend on the relative complexity and length of each
commercial as well as the market and competitive conditions. The increase in
commercial revenue over the same period of the prior year was due to an increase
in the average fee charged due to the increased complexity of the commercials
produced, which more than offset the decrease in the number of commercials
produced due to the increased emphasis on content creation for feature films. As
Pixar continues to focus on animated feature films and related products, Pixar
expects that revenue and gross margin from the commercial business may remain
flat, decrease or even be eliminated in the foreseeable future.
Patent licensing revenues of $6.5 million in the three months ended
March 31, 1996 were attributable to a patent license with Silicon Graphics
whereby Pixar granted to Silicon Graphics and its subsidiaries a non-exclusive
license to use certain of Pixar's patents covering techniques for creating
computer-generated photorealistic images. Under the agreement, Silicon Graphics
will pay Pixar total compensation of $11 million, of which $6 million is to be
paid in cash and $5 million is to be paid in the form of purchase credits for
Silicon Graphics hardware and software over the next four years. Pixar
recognized the $6 million cash payment from Silicon Graphics in the three months
ended March 31, 1996. Recognition of the remaining $5 million will depend upon
forecasted purchases and usage of the hardware and software to be obtained from
Silicon Graphics in lieu of payment. In the three months ended March 31, 1996,
Pixar recognized revenue of $495,000 which represents that portion of the $5
million in hardware and software credits reasonably expected to be used in the
next twelve months. The remainder will be recognized as revenue in future years
as hardware and software credits are used.
As anticipated, based on the terms of the feature film agreement ("the
Feature Film Agreement") between Pixar and Walt Disney Pictures, a subsidiary of
The Walt Disney Company (along with its subsidiaries hereinafter referred to as
"Disney"), film revenues for the three months ended March 31, 1996 include only
insignificant revenues from the theatrical release of Pixar's first computer
animated feature film, Toy Story. Pixar expects that revenues from Toy Story
will have a more significant impact on its financial results during the
remainder of the year.
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In the three months ended March 31, 1995, Foote, Cone and Belding and
Macromedia accounted for 13% and 11%, respectively of Pixar's total revenues.
In the three months ended March 31, 1996, Silicon Graphics accounted for 79% of
Pixar's total revenues. The revenues from Silicon Graphics were attributable to
a patent license. Pixar does not expect any of these companies to account for a
significant portion of revenues for the remainder of the year.
COST OF REVENUES
Cost of software revenues consists of the direct costs and
manufacturing overhead required to reproduce and package software products and
the cost of salaries and overhead associated with the software development
contracts. Cost of software revenues as a percentage of the related revenues
decreased to 6% in the three months ended March 31, 1996 from 25% in the same
period of the prior year due to a substantial reduction in revenue from software
development contracts, which have higher associated costs relative to
commercialized software costs, and to increased licensing of RenderMan, which
carries a higher gross margin than other software products. Cost of software
revenues includes no amortization of capitalized software development expenses.
Cost of commercial revenues consists of costs of production of
commercials, primarily salaries and benefits and, to a lesser extent, facility
expenses and department overhead costs. Cost of commercial revenues as a
percentage of the related revenues increased to 91% in the three months ended
March 31, 1996 from 73% in the same period of the prior year as Pixar produced
more complex commercials at a higher cost.
Cost of film revenues consists primarily of the amortization of certain
film budget overages capitalized by Pixar. See "Capitalized Film Production
Costs." Cost of film revenues as a percentage of the related revenues was 12%
for the three months ended March 31, 1996.
There were no costs of revenue associated with patent licensing, which
resulted in an abnormally high overall gross margin.
OPERATING EXPENSES
Pixar intends to increase operating expenses in a number of areas.
First, as a result of intense competition for animators, creative personnel and
technical directors, Pixar expects compensation for such personnel to increase
substantially. Pixar also plans to fund greater levels of research and
development, expand its administrative staff and facilities, expand other
operations and incur other significant costs related to being a public company.
To the extent that such expenses precede or are not subsequently followed by an
increase in revenues, Pixar's business, operating results and financial
condition will be materially adversely affected.
RESEARCH AND DEVELOPMENT.
Research and development expenses consist primarily of salaries and
support for personnel conducting research and development for licensed software
products, primarily the RenderMan product, for Pixar's proprietary Marionette
and Ringmaster software and for Pixar's interactive products. Research and
development expenses increased 53% in the three months ended March 31, 1996 to
$1.1 million from $733,000 in the same period of the prior year. The increase
primarily resulted from an increase in personnel, as well as a deferred
compensation charge of $150,000 recorded in the three months ended March 31,
1996 in connection with stock option grants. To date, all software development
costs have been expensed as incurred.
With respect to CD-ROM development, under the non-exclusive CD-ROM
development and publishing agreement with Disney Interactive, Inc., a
wholly-owned subsidiary of Disney, ("CD-ROM Argreement"), development costs in
excess of the budgeted maximum amounts, unless reimbursed, will be recorded as
research and development expenses. Pixar has incurred over-budget amounts in
the development of the first CD-ROM title, a portion of which Disney has
reimbursed. Pixar believes that research and development expenses will increase
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substantially in absolute dollars in future periods, particularly in the areas
of development of CD-ROM titles and CD-ROM tools as well as the improvement and
upgrading of Pixar's Marionette, Ringmaster and RenderMan software systems.
SALES AND MARKETING.
Sales and marketing expenses consist primarily of salaries and related
overhead, as well as advertising, technical support and trade show costs
required to support the software segment. Sales and marketing expenses decreased
17% in the three months ended March 31, 1996 to $447,000 from $537,000 in the
same period of the prior year. The decrease was due to a reduction in salaries
and advertising costs as Pixar focused on content creation, primarily for
animated feature films. Pixar believes that sales and marketing expenses may
increase in absolute dollars in future periods, particularly in the areas of
corporate marketing and public relations.
GENERAL AND ADMINISTRATIVE.
General and administrative expenses consist primarily of salaries of
management and administrative personnel, insurance costs and professional fees.
All or a portion of the salaries of certain of Pixar's executives are charged as
film production costs and are reimbursed by Disney and are not included in
general and administrative expenses. General and administrative expenses
increased 379% in the three months ended March 31, 1996 to $1.2 million from
$246,000 in the same period of the prior year. The increase was primarily due to
deferred compensation expense recorded in connection with stock option grants,
increased staffing, increased professional fees associated with the protection
of intellectual property and increased costs associated with being a public
company (such as expenses related to directors' and officers' insurance, and
increased professional fees). Pixar expects general and administrative expenses
to increase in absolute dollars in future periods as Pixar incurs additional
costs related to being a public company, continues amortization of deferred
compensation expense and expands its administrative staff and facilities.
OTHER INCOME (EXPENSE), NET
Other expense, net was $36,000 in the three months ended March 31, 1995
and was primarily attributable to net interest expense consisting primarily of
interest accrued on a promissory note issued by Pixar to the majority
shareholder. Other income, net was $1.9 million in the three months ended March
31, 1996 consisting primarily of interest income from a greater level of
investments due to Pixar's IPO in November 1995.
INCOME TAXES
Pixar elected to be treated as an S corporation for federal income tax
purposes as of January 1, 1992, whereby income was taxed to the individual
shareholder. No income tax expense was recorded in the three months ending March
31, 1995.
In April 1995, the S corporation status was terminated as a result of a
recapitalization of Pixar. Accordingly, Pixar was taxed as a C corporation for
the three months ended March 31, 1996 and the income tax expense reflects the
alternative minimum tax liability after utilization of available net operating
loss carryforwards.
FACTORS AFFECTING OPERATING RESULTS
Pixar intends to generate a substantial majority of its future revenue
from the development and production of animated feature films and related
products. Pixar's annual and quarterly revenue will depend upon the timing and
market acceptance of the animated feature films and related products and upon
the costs to distribute and promote such films and products. The revenues
derived from the production and distribution of an animated feature film depend
primarily on the film's acceptance by the public, which cannot be predicted
and does not necessarily bear a direct correlation to the production or
distribution costs incurred. The commercial success of a motion picture also
depends upon promotion and marketing, production costs, the availability of
alternative forms of entertainment and leisure time activities, critical
reviews, unpredictable public taste, the success of films released by
competitors, general economic conditions, and other tangible and intangible
factors, all of which change and cannot be predicted with certainty. Further,
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the theatrical success of a feature film can be a significant factor in
determining the amount of revenues generated from the sale of the related
products. Accordingly, Pixar's annual and quarterly revenues are and will
continue to be extremely difficult to forecast. Moreover, Pixar's expense levels
are based in part on expectations regarding future revenues and are, to a large
extent, fixed. Pixar may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenue from Pixar's feature films and related products in relation
to Pixar's expectations would have an immediate material adverse effect on
Pixar's business, operating results and financial condition. Pixar plans to
increase its operating expenses to fund greater levels of research and
development, CD-ROM development and to expand operations. In addition, as a
result of intense competition for animators, creative personnel and technical
directors, Pixar expects compensation for such personnel to increase
substantially, along with corresponding increases in Pixar's operating expenses
and film production budgets. Since compensation for a substantial number of
Pixar's employees is reimbursed by Disney (within approved budgets) under the
Feature Film Agreement, if Pixar was not reimbursed or if the budget for a
project funded by Disney was exceeded, Pixar would experience a further
significant increase in operating expenses. To the extent that such expenses
precede or are not subsequently followed by increased revenues, Pixar's
business, operating results and financial condition will be materially adversely
affected.
Pixar expects to experience significant fluctuations in its future
annual and quarterly operating results that may be caused by many factors,
including the timing of the domestic and international releases of the animated
feature films, the success of the animated feature films (which can fluctuate
significantly from film to film), the timing of the release of related products
into their respective markets, the demand for the related products (which is
often a function of the success of the related animated feature film), Disney's
costs to distribute and promote the feature films and related products, Disney's
success at marketing the films and related products, the timing of receipt of
proceeds from the animated feature film and related products by Disney, the
timing of revenue recognition under the Feature Film Agreement, the timing of
revenue recognition under any distribution agreements for related products, the
introduction of new feature films or products by Pixar's competitors, the timing
of significant operating expenses and capital expenditures, the level of
unreimbursed film production costs in excess of budgeted maximum amounts and
general economic conditions. In particular, since Pixar's compensation rate
under the Feature Film Agreement escalates as the revenues from each animated
feature film and the related products increase, Pixar's operating results are
likely to fluctuate depending on the level of success of its animated feature
films and related products. As a result, Pixar believes that period-to-period
comparisons of its results of operations are not necessarily meaningful, and its
annual and quarterly results of operations should not be relied upon as any
indication of future performance. Due to all of the foregoing factors, it is
likely that in some future period Pixar's operating results will be below the
expectations of public market analysts or investors. In such event, the price of
Pixar's Common Stock would likely be materially adversely affected.
Under the Feature Film Agreement, Pixar's compensation rate for Toy
Story and its related products escalates as the revenues from Toy Story and the
related products increase. Under this formula, Pixar's compensation will be
insignificant until such time as the revenues earned by Disney from distribution
of Toy Story and the related products are sufficient to cover specified costs
and distribution fees to Disney associated with Toy Story and the related
products. Once such costs and distribution fees have been covered, Pixar's
compensation rate escalates substantially. In particular, the production costs,
the general level of marketing and distribution costs and the timing of the
international theatrical and home video releases affect Pixar's compensation,
and many of these factors are controlled by and determined solely by Disney. As
of March 31, 1996, Disney's marketing and distribution costs for Toy Story are
higher than originally anticipated by Pixar which would have the effect of
delaying the time at which Pixar's compensation rate escalates, and potentially
reducing Pixar's compensation. Since other factors could offset this, such as
higher than anticipated home video sales, it is difficult to estimate the impact
of this on Pixar's overall compensation from Toy Story revenues. Also as of
March 31, 1996, Disney has announced that, due to the box office success of the
film, it will wait until December of this year to release the Toy Story home
video. There can be no assurance that the marketing and distribution costs
incurred by Disney or the decision to delay the release of the Toy Story home
video will not materially adversely affect Pixar's operating results or
financial condition.
Because Pixar expects that software revenue and television commercial
revenue may not grow and may even decline and that patent licensing revenues
will not be generated on an on-going and regular basis, if Pixar does not
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receive significant compensation under the Feature Film Agreement and the CD-ROM
Agreement, Pixar's revenues and net income may decline from historical levels,
and Pixar's business, operating results and financial condition will be
materially adversely affected.
CAPITALIZED FILM PRODUCTION COSTS
Although Disney funded the entire production of Toy Story, Pixar
contractually guaranteed certain of the film budget overages and is liable to
Disney for these amounts under the Feature Film Agreement. Because these are
"production costs" under Statement of Financial Accounting Standards (SFAS) No.
53, "Financial Reporting by Producers and Distributors of Motion Picture Films,"
the costs are capitalized and will be amortized against future film revenue. In
the quarter ended March 31, 1996, an insignificant portion of these costs were
amortized against film revenues. As of March 31, 1996, Pixar had approximately
$3.7 million of capitalized film production costs, with approximately $3.2
million recorded as an accrued liability. Any Pixar-related overages paid by
Disney will be deducted from Pixar's compensation or otherwise remitted to
Disney. Pixar is entitled to recover any overages that it has funded, through
its compensation under the Feature Film Agreement, if Toy Story meets certain
predefined criteria.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased $3.0 million to $147.3
million at March 31, 1996 from $144.3 million at December 31, 1995. Working
capital increased $6.7 million to $145.4 million at March 31, 1996 from $138.7
million at December 31, 1995. The increase was due primarily to cash received of
$6.0 million from a technology license.
Net cash provided by operations in the three months ended March 31,
1996 was primarily attributable to net income resulting from patent licensing
revenue of $6.5 million. Net cash used in investing activities in the three
months ended March 31, 1996 was due primarily to the purchase of short-term
investments. Net cash used in financing activities in the three months ended
March 31, 1996 was attributable to the repayment of the note payable to Pixar's
majority shareholder.
As of March 31, 1996, Pixar's principal source of liquidity was
approximately $147.3 million in cash and short-term investments. Pixar believes
that these funds together with cash flows expected to be generated from
operations will be sufficient to meet the Company's operating requirements
through 1996. Thereafter, if cash generated by operations is insufficient to
satisfy Pixar's liquidity requirements, Pixar may sell additional equity or debt
securities or obtain credit facilities. The sale of additional equity or
convertible debt securities will result in additional dilution to Pixar's
shareholders. There can be no assurance that financing will be available to
Pixar in an amount and on terms acceptable to Pixar.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11.1 Statement of Computation of Net Income (Loss) Per Share.
27 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Pixar during the quarter
ended March 31, 1996.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
-13-
<PAGE> 13
SIGNATURE
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.
PIXAR
Date: May 13, 1996 By: /s/ Lawrence B. Levy
---------------------- --------------------
Lawrence B. Levy,
Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer and Duly Authorized Officer)
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<PAGE> 14
EXHIBIT INDEX
Exhibit 11.1 Statement of Computation of Net Income (Loss) Per Share
Exhibit 27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
PIXAR
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- ---------
<S> <C> <C>
Weighted average number of shares outstanding:
Preferred stock -- 20,000
Common stock 38,286 10,000
Common stock equivalents using the treasury stock method 8,765 --
Number of common shares issued in accordance with
Staff Accounting Bulletin No. 83 -- 9,669
------- --------
Total shares used in computing net income (loss) per share 47,051 39,669
======= ========
Net income (loss) $ 6,279 $ (675)
======= ========
Net income (loss) per share $ 0.13 $ (0.02)
======= ========
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 86,304
<SECURITIES> 61,013
<RECEIVABLES> 1,192
<ALLOWANCES> 269
<INVENTORY> 0
<CURRENT-ASSETS> 153,143
<PP&E> 3,737
<DEPRECIATION> 2,124
<TOTAL-ASSETS> 157,230
<CURRENT-LIABILITIES> 7,715
<BONDS> 0
0
0
<COMMON> 185,845
<OTHER-SE> (36,330)
<TOTAL-LIABILITY-AND-EQUITY> 157,230
<SALES> 1,772
<TOTAL-REVENUES> 8,267
<CGS> 779
<TOTAL-COSTS> 779
<OTHER-EXPENSES> 2,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,608
<INCOME-TAX> 329
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,279
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
