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 ACTS OF 1934. |
FOR THE QUARTERLY PERIOD ENDED September 30, 2004
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 000-24487
MIPS Technologies, Inc.
(Exact name of registrant as specified in its charter)
| DELAWARE | 77-0322161 | |
|---|---|---|
| (State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification Number) |
1225 CHARLESTON ROAD, MOUNTAIN VIEW, CA 94043-1353
(Address
of principal executive offices)
Registrant's telephone number, including area code: (650) 567-5000
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 Exchange Act). Yes [X ] No [ ]
As of October 29, 2004, the number of outstanding shares of the Registrant’s common stock, $.001 par value, was 41,576,273.
2
MIPS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| September 30, 2004 |
June 30, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 74,106 | $ | 78,335 | ||||
| Short-term investments | 19,990 | 15,041 | ||||||
| Accounts receivable | 3,250 | 2,488 | ||||||
| Prepaid expenses and other current assets | 2,008 | 3,159 | ||||||
| Total current assets | 99,354 | 99,023 | ||||||
| Equipment and furniture, net | 3,177 | 3,578 | ||||||
| Intangible assets, net | 3,028 | 3,176 | ||||||
| Other assets | 2,800 | 2,926 | ||||||
| $ | 108,359 | $ | 108,703 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,025 | $ | 1,255 | ||||
| Accrued liabilities | 8,701 | 12,344 | ||||||
| Deferred revenue | 3,056 | 3,407 | ||||||
| Total current liabilities | 12,782 | 17,006 | ||||||
| Long-term liabilities | 2,515 | 2,038 | ||||||
| 15,297 | 19,044 | |||||||
| Stockholders' equity: | ||||||||
| Common stock | 41 | 40 | ||||||
| Additional paid-in capital | 182,339 | 181,511 | ||||||
| Accumulated other comprehensive income | 881 | 867 | ||||||
| Deferred compensation | (1,256 | ) | (695 | ) | ||||
| Accumulated deficit | (88,943 | ) | (92,064 | ) | ||||
| Total stockholders' equity | 93,062 | 89,659 | ||||||
| $ | 108,359 | $ | 108,703 | |||||
See accompanying notes.
3
MIPS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share data)
| Three Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 | |||||||
| Revenue: | ||||||||
| Royalties | $ | 6,721 | $ | 5,088 | ||||
| Contract revenue | 7,885 | 5,325 | ||||||
| Total revenue | 14,606 | 10,413 | ||||||
| Costs and expenses: | ||||||||
| Research and development | 5,207 | 8,144 | ||||||
| Sales and marketing | 3,045 | 2,796 | ||||||
| General and administrative | 2,321 | 1,644 | ||||||
| Restructuring | 277 | 3,233 | ||||||
| Total costs and expenses | 10,850 | 15,817 | ||||||
| Operating income (loss) | 3,756 | (5,404 | ) | |||||
| Other income, net | 245 | 208 | ||||||
| Income (loss) before income taxes | 4,001 | (5,196 | ) | |||||
| Provision for income taxes | 880 | 567 | ||||||
| Net income (loss) | $ | 3,121 | $ | (5,763 | ) | |||
| Net income (loss) per basic share | $ | 0.08 | $ | (0.14 | ) | |||
| Net income (loss) per diluted share | $ | 0.07 | $ | (0.14 | ) | |||
| Shares used in computing net income (loss) per basic share | 40,695 | 40,172 | ||||||
| Shares used in computing net income (loss) per diluted share | 42,384 | 40,172 | ||||||
See accompanying notes.
4
MIPS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
| Three Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 | |||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | 3,121 | $ | (5,763 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Depreciation | 490 | 1,002 | ||||||
| Amortization of intangibles | 334 | 308 | ||||||
| Other non-cash charges | 1 | (3 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (762 | ) | 752 | |||||
| Prepaid expenses | 1,151 | 1,045 | ||||||
| Other assets | 126 | 1,539 | ||||||
| Accounts payable | (230 | ) | 19 | |||||
| Accrued compensation | (973 | ) | (724 | ) | ||||
| Other current accrued liabilities | (3,297 | ) | (1,255 | ) | ||||
| Income tax payable | 576 | 48 | ||||||
| Deferred revenue | (386 | ) | (344 | ) | ||||
| Long-term liabilities | 513 | 596 | ||||||
| Net cash provided by (used in) operating activities | 664 | (2,780 | ) | |||||
| Investing activities: | ||||||||
| Purchases of short-term investments | (14,884 | ) | (4,975 | ) | ||||
| Maturities of short-term investments | 10,000 | — | ||||||
| Capital expenditures | (88 | ) | (2,410 | ) | ||||
| Net cash used in investing activities | (4,972 | ) | (7,385 | ) | ||||
| Financing activities: | ||||||||
| Net proceeds from issuance of common stock | 74 | 15 | ||||||
| Net cash provided by financing activities | 74 | 15 | ||||||
| Effect of exchange rate on cash and cash equivalents | 5 | 3 | ||||||
| Net decrease in cash and cash equivalents | (4,229 | ) | (10,147 | ) | ||||
| Cash and cash equivalents, beginning of period | 78,335 | 83,839 | ||||||
| Cash and cash equivalents, end of period | $ | 74,106 | $ | 73,692 | ||||
See accompanying notes.
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MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note 1. Description of Business and Basis of Presentation
We are a leading provider of industry-standard processor architectures and cores for digital consumer and business applications. We design and license high performance 32- and 64-bit architectures and cores, which offer smaller dimensions and greater energy efficiency in embedded processors. Our technology is utilized in many high-growth embedded markets including digital set-top boxes, digital televisions, DVD recordable devices, broadband access devices, digital cameras, laser printers and network routers.
Basis of Presentation. The unaudited results of operations for the interim periods shown in these financial statements are not necessarily indicative of operating results for the entire fiscal year. In our opinion, the condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for each interim period shown.
The condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements as allowed by such SEC rules and regulations. The balance sheet at June 30, 2004 has been derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. However, we believe that the disclosures are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended June 30, 2004, included in our 2004 Annual Report on Form 10-K.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
Stock-Based Compensation. We have adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-based Compensation, as amended by SFAS No. 148 — Accounting for Stock-Based Compensation — Transition and Disclosure. As allowed by SFAS No. 123, we account for stock-based employee compensation arrangements under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). As a result, no expense was recognized for options to purchase our common stock that were granted with an exercise price equal to fair market value at the date of grants and no expense was recognized in connection with purchases under our employee stock purchase plan. For restricted common stock issued at discounted prices, we recognize compensation expense over the vesting period for the difference between the exercise or purchase price and the fair market value on the measurement date. Total compensation expense recognized in our financial statements for stock-based awards under APB 25 was $186,000 for the three-month period ended September 30, 2004 compared to $160,000 for the three-month period ended September 30, 2003.
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Pro forma information regarding net income (loss) and net income (loss) per share has been determined as if we had accounted for our employee stock options and employee stock purchase plans under the fair value method prescribed by SFAS No. 123. For purposes of pro forma disclosures, the estimated fair value of the stock awards is amortized to expense over the vesting periods of such awards.
Our pro forma information is as follows (in thousands, except per share data):
| Three Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 | |||||||
| Net income (loss), as reported | $ | 3,121 | $ | (5,763 | ) | |||
| Add: Stock-based employee compensation expense included in | ||||||||
| reported net income (loss), net of related tax effects | 145 | 160 | ||||||
| Deduct: Total stock-based employee compensation expense | ||||||||
| determined under fair value method, net of tax related effects | 3,679 | 2,365 | ||||||
| Pro forma net income (loss) | $ | (413 | ) | $ | (7,968 | ) | ||
| Basic net income (loss) per share: | ||||||||
| As reported | $ | 0.08 | $ | (0.14 | ) | |||
| Pro forma | $ | (0.01 | ) | $ | (0.20 | ) | ||
| Diluted net income (loss) per share: | ||||||||
| As reported | $ | 0.07 | $ | (0.14 | ) | |||
| Pro forma | $ | (0.01 | ) | $ | (0.20 | ) | ||
The historical pro forma impact of applying the fair value method prescribed by SFAS No. 123 is not representative of the impact that may be expected in the future due to changes resulting from additional grants in future years.
On March 31, 2004, the Financial Accounting Standards Board (FASB) issued an Exposure Draft (ED), “Share-Based Payment — An Amendment of FASB Statements No. 123 and 95.” The proposed Statement addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB 25, and generally would require instead that such transactions be accounted for using a fair-value based method. As proposed, companies would be required to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. As proposed, the new rules would be applied on a modified prospective basis as defined in the ED, and would be effective for us beginning July 1, 2005. We are currently evaluating option valuation methodologies and assumptions in light of the evolving accounting standards related to employee stock options. Current estimates of option values using the Black-Scholes method (as shown above) may not be indicative of results from valuation methodologies ultimately adopted in the final rules.
7
Note 2. Computation of Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| Three Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | 3,121 | $ | (5,763 | ) | |||
| Denominator: | ||||||||
| Weighted-average shares of common stock outstanding | 41,028 | 40,558 | ||||||
| Less: Weighted-average shares subject to repurchase | (333 | ) | (386 | ) | ||||
| Shares used in computing net income (loss) per basic share | 40,695 | 40,172 | ||||||
| Effect of dilutive securities-employee stock options and shares subject to repurchase | 1,689 | — | ||||||
| Shares used in computing net income (loss) per diluted share | 42,384 | 40,172 | ||||||
| Net income (loss) per basic share | $ | 0.08 | $ | (0.14 | ) | |||
| Net income (loss) per diluted share | $ | 0.07 | $ | (0.14 | ) | |||
| Potentially dilutive securities excluded from net income per diluted share because they are anti-dilutive | 6,175 | 7,339 | ||||||
Note 3. Comprehensive Income (Loss)
Total comprehensive income (loss) includes net income (loss) and other comprehensive income, which for us primarily comprises unrealized gains and losses from foreign currency adjustments. Total comprehensive income for the first three months of fiscal 2004 was $3.1 million and total comprehensive loss for the comparable period in the prior year was $5.8 million.
Note 4. Purchased Intangible Assets
All of our purchased intangible assets, except goodwill, are subject to amortization. Purchased intangible assets subject to amortization consisted of the following as of September 30, 2004 and June 30, 2004 (in thousands):
| September 30, 2004 |
June 30, 2004 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value | |||||||||||||||
| Developed technology | $ | 86 | $ | (86 | ) | $ | — | $ | 86 | $ | (83 | |||||||||