Financial Data
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
March 31, September 30,
2008 2007
Assets
Current assets:
Cash and cash equivalents $78,985 $62,705
Accounts receivable, net of allowances 4,018 6,383
Other assets - current 1,894 3,496
Total current assets 84,897 72,584
Property and equipment, net 2,709 2,791
Purchased technology and intangible assets,
net 3,500 3,571
Goodwill 14,497 14,497
Other assets - noncurrent 3,132 1,037
Total assets $108,735 $94,480
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $1,182 $1,186
Accrued compensation and related
liabilities 3,646 3,922
Deferred revenue 14,383 11,805
Income taxes payable 3,177 11,733
Accrued restructuring charges - current 813 1,905
Other liabilities - current 2,393 1,744
Total current liabilities 25,594 32,295
Accrued restructuring charges - noncurrent 37 358
Income taxes payable - noncurrent 12,163 -
Other liabilities - noncurrent 2,328 2,055
Total liabilities 40,122 34,708
Stockholders' equity:
Preferred stock - -
Common stock 28 28
Additional paid-in capital 215,037 206,800
Accumulated deficit (54,436) (55,311)
Accumulated other comprehensive loss (338) (67)
Less: Cost of treasury stock (91,678) (91,678)
Total stockholders' equity 68,613 59,772
Total liabilities and stockholders'
equity $108,735 $94,480
See notes to unaudited condensed consolidated financial statements
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three months ended Six months ended
March 31, March 31,
2008 2007 2008 2007
Revenues:
License fees $14,818 $7,475 $30,227 $15,399
Service fees 2,242 1,573 4,197 3,373
Total revenues 17,060 9,048 34,424 18,772
Cost of revenues:
License fees 83 227 242 492
Service fees 1,719 1,960 3,517 3,957
Amortization of purchased
technology - 291 71 583
Total cost of revenues 1,802 2,478 3,830 5,032
Gross margin 15,258 6,570 30,594 13,740
Operating expenses:
Research and development 6,569 4,306 11,672 8,852
Sales and marketing 2,769 2,705 5,640 6,845
General and administrative 5,586 4,411 9,513 8,639
Restructuring 44 885 113 3,096
Total operating expenses 14,968 12,307 26,938 27,432
Income (loss) from operations 290 (5,737) 3,656 (13,692)
Interest and other income (expenses),
net (403) 462 274 1,035
Income (loss) before income taxes (113) (5,275) 3,930 (12,657)
Income tax expense 1,252 681 2,803 1,310
Net income (loss) $(1,365) $(5,956) $1,127 $(13,967)
Earnings (loss) per share:
Basic $(0.05) $(0.23) $0.04 $(0.55)
Diluted $(0.05) $(0.23) $0.04 $(0.55)
Shares used in earnings (loss) per
share calculation:
Basic 27,431 25,686 27,291 25,580
Diluted 27,431 25,686 29,114 25,580
See notes to unaudited condensed consolidated financial statements
PHOENIX TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended Six months ended
March 31, Dec. 31, March 31, March 31,
2008 2007 2007 2008 2007
Cash flows from operating
activities:
Net income (loss) $(1,365) $2,492 $(5,956) $1,127 $(13,967)
Reconciliation to net
cash provided by (used
in) operating
activities:
Depreciation and
amortization 501 550 827 1,051 1,712
Stock-based compensation 3,665 1,022 1,604 4,687 2,755
Loss from disposal of
fixed assets - 33 (1) 33 27
Change in operating
assets and liabilities:
Accounts receivable 942 1,319 (889) 2,261 1,603
Prepaid royalties and
maintenance 3 29 25 32 68
Other assets (882) 332 1,001 (550) 1,090
Accounts payable (177) 174 55 (3) (1,559)
Accrued compensation
and related
liabilities 645 (933) (235) (288) (1,036)
Deferred revenue 2,267 197 4,673 2,464 2,224
Income taxes 1,755 1,452 271 3,207 343
Accrued restructuring
charges (246) (1,230) (1,206) (1,476) (2,276)
Other accrued
liabilities 348 530 (707) 878 (1,756)
Net cash provided by
(used in) operating
activities 7,456 5,967 (538) 13,423 (10,772)
Cash flows from investing
activities:
Proceeds from sales of
marketable securities - - 55,306 - 103,435
Proceeds from maturities
of marketable securities - - 8,500 - 8,500
Purchases of marketable
securities - - (41,100) - (89,125)
Purchases of property and
equipment (316) (615) (12) (931) (100)
Purchases of technology - - - - -
Net cash provided by
investing activities (316) (615) 22,694 (931) 22,710
Cash flows from financing
activities:
Proceeds from stock
purchases under stock
option and stock
purchase plans 1,355 2,195 1,007 3,550 1,572
Net cash provided by
financing activities 1,355 2,195 1,007 3,550 1,572
Effect of changes in
exchange rates 191 47 4 238 40
Net increase in cash and
cash equivalents 8,686 7,594 23,167 16,280 13,550
Cash and cash equivalents
at beginning of period 70,299 62,705 25,126 62,705 34,743
Cash and cash equivalents
at end of period $78,985 $70,299 $48,293 $78,985 $48,293
See notes to unaudited condensed consolidated financial statements
PHOENIX TECHNOLOGIES LTD.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME (LOSS) AND
NET EARNINGS (LOSS) PER SHARE
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
March 31, Dec. 31, March 31, March 31,
2008 2007 2007 2008 2007
GAAP net income (loss) $(1,365) $2,492 $(5,956) $1,127 $(13,967)
Equity-based compensation
expense under SFAS
No. 123(R) (1) 3,665 1,022 1,568 4,687 2,703
Restructuring (2) 44 69 885 113 3,096
Amortization of purchased
technology (3) - 71 291 71 583
Non-GAAP net income
(loss) $2,344 $3,654 $(3,212) $5,998 $(7,585)
Non-GAAP earnings (loss)
per share:
Basic $0.09 $0.13 $(0.13) $0.22 $(0.30)
Diluted $0.08 $0.13 $(0.13) $0.21 $(0.30)
Shares used in earnings
(loss) per share
calculation:
Basic 27,431 27,149 25,686 27,291 25,580
Diluted 29,514 28,961 25,686 29,114 25,580
These adjustments reconcile the Company's GAAP net income (loss) to the
reported non-GAAP net income (loss). The Company believes that
presentation of net income and net income per share excluding
equity-based compensation, restructuring cost, and amortization of
purchase technology provides meaningful supplemental information to
investors, as well as management, that is indicative of the Company's
core operating results and facilitates comparison of operating results
across reporting periods as well as comparison with other companies. The
Company uses these non-GAAP measures when evaluating its financial
results as well as for internal planning and budgeting purposes.
Equity-based compensation and restructuring costs are excluded from
non-GAAP financial results since they may not be considered directly
related to our on-going business operations. Amortization of purchased
technology is excluded from non-GAAP financial results since it generally
cannot be changed by management after an acquisition of technology has
occurred. These non-GAAP measures should not be viewed as a substitute
for the Company's GAAP results, and may be different than non-GAAP
measures used by other companies.
(1) This number represents equity-based compensation expense related to
the Company's adoption of SFAS No. 123(R) beginning October 1, 2005.
For the three months ended March 31, 2008, equity-based
compensation was $3.7 million, allocated as follows: $0.1 million
to cost of goods sold, $1.0 million to research and development,
$0.4 million to sales and marketing and $2.2 million to general and
administrative. For the three months ended December 31, 2007,
equity-based compensation was $1.0 million, allocated as follows:
$0.1 million to cost of goods sold, $0.2 million to research and
development, $0.2 million to sales and marketing and $0.5 million to
general and administrative. For the three months ended March 31,
2007, equity-based compensation was $1.6 million, allocated as
follows: $0.1 million to cost of goods sold, $0.3 million to
research and development, $0.2 million to sales and marketing and
$1.0 million to general and administrative. For the six months
ending March 31, 2008, equity-based compensation was $4.7 million,
allocated as follows: $0.2 million to cost of goods sold,
$1.1 million to research and development, $0.6 million to sales and
marketing and $2.8 million to general and administrative. For the
six months ending March 31, 2007, equity-based compensation was
$2.7 million, allocated as follows: $0.1 million to cost of goods
sold, $0.6 million to research and development, $0.5 million to
sales and marketing and $1.5 million to general and administrative.
Management believes that it is useful to investors to understand how
the expenses associated with the adoption of SFAS No. 123(R) are
reflected in net income.
The quarter ended March 31, 2008 is the first quarter during in
which the Company reported equity-based compensation expense under
SFAS No. 123(R) in respect of stock options granted to the Company's
four most senior executives as approved by the Company's
stockholders on January 2, 2008 (the "Performance Options"). Of the
$3.7 million of equity-based compensation for the three moths ended
March 31, 2008, $2.0 million was due to equity-based compensation
expense which resulted from the grant of the Performance Options.
(2) The Company has incurred restructuring expenses, included in its
GAAP presentation of operating expense, primarily due to workforce
related charges such as payments for severance and benefits and
estimated costs of exiting and terminating facility lease
commitments related to formal restructuring plans approved by the
Board of Directors in June 2006, in September 2006, November 2006
and September 2007. For the three months ended March 31, 2008, cost
related to exiting and terminating 2 facility leases totaled
approximately $47,000 and severance and benefits decreased for over
accrued employer taxes of approximately $3,000. For the three
months ended December 31, 2007, severance and benefits totaled
$0.1 million and cost related to exiting and terminating 2 facility
leases totaled $0.1 million. These costs were partly offset when
the Company decreased its fiscal year 2003 restructuring reserve for
the Irvine facility by $0.1 million due to projected income from the
signing of a new sublease over the remaining term of the lease. For
the three months ending March 31, 2007, restructuring costs were
$0.9 million. The Company decreased the September and November 2006
restructuring reserves by $0.1 million due to a revised projection
of outplacement and health insurance benefits liability. Also,
costs related to terminating facility leases totaled $1.0 million.
For the six months ending March 31, 2008, restructuring costs were
$0.1 million. The severance and benefits costs totaled
approximately $80,000. The facilities lease costs totaled
approximately $30,000. For the six months ending March 31, 2007,
restructuring costs were $3.1 million. The severance and benefits
costs totaled $1.8 million. Included as part of the total severance
and benefits cost, the Company decreased the September and November
2006 restructuring reserves by $0.1 million due to a revised
projection of outplacement and health insurance benefits liability.
Costs related to terminating facility leases totaled $1.3 million.
Included as part of the total lease termination cost, the Company
decreased the fiscal year 2003 restructuring reserve for the Irvine
facility by $0.1 million due to a revised projection of the
liability over the remaining term of the lease. The Company believes
that these items do not reflect expected future operating expenses
nor does the Company believe that they provide a meaningful
evaluation of current versus past operational performance.
(3) This number represents amortization of purchase technology in
accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144") and SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed" ("SFAS No. 86"). For the three months ended
March 31, 2008, there was no amortization of purchased technology.
For the six months ending March 31, 2008, amortization of purchase
technology was $0.1 million allocated to cost of goods sold. Future
acquisitions may cause amortization expenses to be higher than these
amounts. For the three months ended December 31, 2007,
amortization of purchase technology was $0.1 million allocated to
cost of goods sold. For the three months ended March 31, 2007,
amortization of purchase technology was $0.3 million allocated to
cost of goods sold. For the six months ending March 31, 2007,
amortization of purchase technology was $0.6 million allocated to
cost of goods sold.
