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, 2004
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to .
Commission file number 0-17111
PHOENIX TECHNOLOGIES LTD.
(Exact name of Registrant as specified in its charter)
| Delaware | 04-2685985 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
915 Murphy Ranch Road, Milpitas, CA 95035
(Address of principal executive offices, including zip code)
(408) 570-1000
(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 Exchange Act).
YES x NO ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Number of Shares Outstanding at April 30, 2004 | |
| Common Stock, par value $0.001 | 24,436,115 |
PHOENIX TECHNOLOGIES LTD.
FORM 10-Q
| Page | ||||
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | |||
| Consolidated Balance Sheets as of March 31, 2004 and September 30, 2003 | 3 | |||
| Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2004 and 2003 | 4 | |||
| Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2004 and 2003 | 5 | |||
| Notes to Consolidated Financial Statements | 6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 28 | ||
| Item 4. | Controls and Procedures | 29 | ||
| PART II. | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 30 | ||
| Item 4. | Submission of Matters to A Vote of Security Holders | 30 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 31 | ||
| Exhibits | 31 | |||
| Reports on Form 8-K | 31 | |||
| Signature | 32 | |||
Page 2
PART – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
PHOENIX TECHNOLOGIES LTD.
(in thousands, except par value)
(Unaudited)
| March 31, 2004 |
September 30, 2003 |
|||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 38,192 | $ | 26,601 | ||||
| Short-term investments |
17,651 | 20,645 | ||||||
| Accounts receivable, net of allowances of $1,469 and $1,496 at March 31, 2004 and September 30, 2003, respectively |
27,511 | 22,761 | ||||||
| Prepaid royalties and maintenance |
2,278 | 2,528 | ||||||
| Deferred income taxes |
546 | 537 | ||||||
| Other current assets |
4,522 | 4,708 | ||||||
| Total current assets |
90,700 | 77,780 | ||||||
| Property and equipment, net |
5,247 | 7,131 | ||||||
| Computer software costs, net |
9,598 | 11,275 | ||||||
| Goodwill, net |
12,933 | 12,933 | ||||||
| Intangible assets, net |
473 | 507 | ||||||
| Prepaid royalties - non current |
3,326 | 4,437 | ||||||
| Other assets |
2,463 | 2,400 | ||||||
| Total assets |
$ | 124,740 | $ | 116,463 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 729 | $ | 1,392 | ||||
| Accrued compensation and related liabilities |
5,617 | 7,669 | ||||||
| Deferred revenue |
18,779 | 3,296 | ||||||
| Income taxes payable |
3,152 | 4,185 | ||||||
| Accrued restructuring charges - current |
992 | 1,910 | ||||||
| Other accrued liabilities |
3,139 | 4,156 | ||||||
| Total current liabilities |
32,408 | 22,608 | ||||||
| Accrued restructuring charges - noncurrent |
1,692 | 1,410 | ||||||
| Other liabilities |
1,406 | 1,054 | ||||||
| Total liabilities |
35,506 | 25,072 | ||||||
| Contingencies (Note 6) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.100 par value, 500 shares authorized, none issued or outstanding |
— | — | ||||||
| Common stock, $0.001 par value, 60,000 shares authorized, 31,632 and 31,477 shares issued, 24,436 and 24,281 shares outstanding at March 31, 2004 and September 30, 2003, respectively |
31 | 31 | ||||||
| Additional paid-in capital |
180,279 | 179,730 | ||||||
| Deferred compensation |
(480 | ) | (675 | ) | ||||
| Retained earnings |
1,299 | 4,344 | ||||||
| Accumulated other comprehensive loss |
(1,452 | ) | (1,596 | ) | ||||
| Less: Cost of treasury stock (7,196 shares at March 31, 2004 and September 30, 2003) |
(90,443 | ) | (90,443 | ) | ||||
| Total stockholders’ equity |
89,234 | 91,391 | ||||||
| Total liabilities and stockholders’ equity |
$ | 124,740 | $ | 116,463 | ||||
See notes to unaudited consolidated financial statements
Page 3
PHOENIX TECHNOLOGIES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three months ended March 31, |
Six months ended March 31, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenues |
$ | 20,672 | $ | 21,717 | $ | 39,172 | $ | 43,611 | ||||||||
| Cost of revenues |
4,048 | 4,339 | 7,757 | 8,721 | ||||||||||||
| Gross Margin |
16,624 | 17,378 | 31,415 | 34,890 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
5,606 | 6,572 | 11,291 | 14,202 | ||||||||||||
| Sales and marketing |
7,296 | 8,329 | 15,532 | 16,966 | ||||||||||||
| General and administrative |
3,108 | 3,413 | 6,058 | 6,766 | ||||||||||||
| Amortization of acquired intangible assets |
17 | 17 | 34 | 35 | ||||||||||||
| Stock-based compensation |
53 | 48 | 105 | 131 | ||||||||||||
| Restructuring and related charges |
(60 | ) | 549 | (60 | ) | 6,014 | ||||||||||
| Total operating expenses |
16,020 | 18,928 | 32,960 | 44,114 | ||||||||||||
| Income (loss) from operations |
604 | (1,550 | ) | (1,545 | ) | (9,224 | ) | |||||||||
| Interest and other income, net |
(528 | ) | 133 | (367 | ) | 222 | ||||||||||
| Income (loss) before income taxes |
76 | (1,417 | ) | (1,912 | ) | (9,002 | ) | |||||||||
| Income tax expense (benefit) |
683 | (496 | ) | 1,133 | (3,151 | ) | ||||||||||
| Net loss |
$ | (607 | ) | $ | (921 | ) | $ | (3,045 | ) | $ | (5,851 | ) | ||||
| Loss per share: |
||||||||||||||||
| Basic and diluted |
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.12 | ) | $ | (0.24 | ) | ||||
| Shares used in loss per share calculation: |
||||||||||||||||
| Basic and diluted |
24,435 | 24,432 | 24,384 | 24,692 | ||||||||||||
See notes to unaudited consolidated financial statements
Page 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| Six Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (3,045 | ) | $ | (5,851 | ) | ||
| Reconciliation to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
3,882 | 3,975 | ||||||
| Stock-based compensation |
105 | 131 | ||||||
| Loss from disposal of fixed assets |
268 | 41 | ||||||
| Deferred income tax |
(9 | ) | — | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(4,750 | ) | (5,385 | ) | ||||
| Other assets |
123 | (533 | ) | |||||
| Prepaid royalties and maintenance |
1,361 | 1,043 | ||||||
| Accounts payable |
(663 | ) | 326 | |||||
| Accrued compensation and related liabilities |
(2,052 | ) | (695 | ) | ||||
| Accrued restructuring charges |
(613 | ) | 2,153 | |||||
| Other accrued liabilities |
(690 | ) | (140 | ) | ||||
| Deferred revenue |
15,483 | 1,200 | ||||||
| Income taxes |
(1,033 | ) | (7,183 | ) | ||||
| Net cash provided by (used in) operating activities |
8,367 | (10,918 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Proceeds from sale of investments |
86,939 | 224,503 | ||||||
| Purchases of investments |
(83,945 | ) | (201,684 | ) | ||||
| Purchases of property and equipment |
(593 | ) | (1,880 | ) | ||||
| Proceeds from the sale of fixed assets |
38 | — | ||||||
| Net cash provided by investing activities |
2,439 | 20,939 | ||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from stock purchases under stock option and stock purchase plans |
641 | 720 | ||||||
| Repurchase of common stock |
— | (9,627 | ) | |||||
| Net cash provided by (used in) financing activities |
641 | (8,907 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
144 | (7 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
11,591 | 1,107 | ||||||
| Cash and cash equivalents at beginning of period |
26,601 | 25,156 | ||||||
| Cash and cash equivalents at end of period |
$ | 38,192 | $ | 26,263 | ||||
See notes to unaudited consolidated financial statements
Page 5
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements as of March 31, 2004 and for the three and six months ended March 31, 2004 and 2003 have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in accordance with the Company’s accounting policies as described in its latest Annual Report on Form 10-K filed with the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The consolidated balance sheet as of September 30, 2003 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2003.
In the opinion of the management, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the interim periods presented, and financ