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, 2002
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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
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PHOENIX TECHNOLOGIES LTD.
-------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-2685985
------------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
411 East Plumeria Drive, San Jose, California 95134
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(Address of principal executive offices, including zip code)
(408) 570-1000
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(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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.001 26,014,761
------------------------------------- ---------------------------------
Class Number of Shares Outstanding at
April 30, 2002
PHOENIX TECHNOLOGIES LTD.
FORM 10-Q
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2002 and September 30, 2001 ............................ 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended March 31, 2002 and 2001 ............... 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 2002 and 2001 ......................... 5
Notes to Condensed Consolidated Financial Statements ............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 30
Item 2. Changes in Securities ............................................ 30
Item 3. Defaults Upon Senior Securities .................................. 30
Item 4. Submission of Matters to a Vote of Security Holders .............. 30
Item 5. Other Information ................................................ 31
Item 6. Exhibits and Reports on Form 8-K
Exhibits ......................................................... 31
Reports on Form 8-K .............................................. 31
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
March 31, September 30,
2002 2001
----------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 47,455 $ 62,084
Short-term investments 6,014 2,950
Accounts receivable, net of allowances of $1,851 and $2,374
at March 31, 2002 and September 30, 2001 28,015 21,527
Prepaid royalties and maintenance 1,895 5,623
Deferred income taxes 5,176 5,186
Other current assets 5,866 6,572
----------- -------------
Total current assets 94,421 103,942
Property and equipment, net 9,920 10,793
Computer software costs, net 21,490 17,602
Goodwill and intangible assets, net 20,576 17,104
Deferred income taxes 8,735 8,743
Prepaid royalties - non current 7,645 -
Other assets 2,098 2,427
----------- -------------
Total assets $ 164,885 $ 160,611
=========== =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,458 $ 2,949
Accrued compensation and related liabilities 10,248 9,918
Deferred revenue 8,500 5,088
Accrued acquisition costs - 1,802
Income taxes payable 852 3,201
Other accrued liabilities 4,805 4,378
----------- -------------
Total current liabilities 27,863 27,336
Long-term obligations 807 638
----------- -------------
Total liabilities 28,670 27,974
Minority interest 12,909 12,941
----------- -------------
Stockholders' equity:
Preferred stock, $.10 par value, 500 shares authorized, - -
none issued
Common stock, $.001 par value, 60,000 shares authorized,
30,945 and 30,114 shares issued, 25,961 and 25,239 shares
outstanding at March 31, 2002 and September 30, 2001 31 30
Additional paid-in capital 174,468 165,396
Retained earnings 31,678 35,888
Accumulated other comprehensive income (loss) (2,125) (1,878)
Less: Cost of treasury stock (4,984 and 4,875 shares at
March 31, 2002 and September 30, 2001) (80,746) (79,740)
----------- -------------
Total stockholders' equity 123,306 119,696
----------- -------------
Total liabilities and stockholders' equity $ 164,885 $ 160,611
=========== =============
See notes to condensed consolidated financial statements
Page 3
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three months ended March 31, Six months ended March 31,
---------------------------- ----------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Revenues:
License fees $ 26,768 $ 21,423 $ 52,808 $ 55,300
Services 3,808 4,338 7,370 9,236
---------- ---------- ---------- ----------
Total revenues 30,576 25,761 60,178 64,536
---------- ---------- ---------- ----------
Cost of revenues:
License fees 1,234 715 2,670 1,132
Services 1,327 3,758 3,237 7,391
Amortization of purchased technology 1,565 322 2,525 636
Restructuring related write-off of purchased technologies - - 847 -
---------- ---------- ---------- ----------
Total cost of revenues 4,126 4,795 9,279 9,159
---------- ---------- ---------- ----------
Gross Margin 26,450 20,966 50,899 55,377
Operating expenses:
Research and development 8,773 11,510 17,838 22,444
Sales and marketing 10,139 10,023 19,545 19,786
General and administrative 5,518 6,350 11,500 11,840
Amortization of goodwill and acquired intangible assets 1,393 1,085 2,522 1,640
Stock-based compensation 457 181 682 625
Restructuring and related charges - - 5,142 -
---------- ---------- ---------- ----------
Total operating expenses 26,280 29,149 57,229 56,335
---------- ---------- ---------- ----------
Income (loss) from operations 170 (8,183) (6,330) (958)
Interest and other income, net (19) 746 245 1,336
Gain (loss) on investment - - 161 -
Minority interest 463 661 1,769 769
---------- ---------- ---------- ----------
Income (loss) before income taxes 614 (6,776) (4,155) 1,147
Income tax expense (credit) 600 (2,380) 55 32
---------- ---------- ---------- ----------
Net Income (loss) $ 14 $ (4,396) $ (4,210) $ 1,115
========== ========== ========== ==========
Earnings (loss) per share:
Basic $ 0.00 $ (0.17) $ (0.17) $ 0.04
Diluted $ 0.00 $ (0.17) $ (0.17) $ 0.04
Shares used in earnings (loss) per share calculation:
Basic 25,809 25,172 25,505 25,119
Diluted 26,528 25,172 25,505 26,536
See notes to condensed consolidated financial statements
Page 4
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended March 31,
--------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (4,210) $ 1,115
Reconciliation to net cash provided by operating activities:
Depreciation and amortization 7,683 5,156
Stock-based compensation 682 625
Loss on disposal of fixed assets 258 -
Restructing related impairment of assets 662 -
Restructing related impairment of purchased technologies 847 -
Minority interest (1,769) (769)
Deferred income tax - (588)
Change in operating assets and liabilities:
Accounts receivable (5,662) 11,648
Other assets (406) (1,106)
Prepaid royalties and maintenance (4,214) (419)
Accounts payable 452 (405)
Accrued compensation and related liabilities 705 (2,376)
Other accrued liabilities (1,004) (2,518)
Deferred revenue 3,147 1,466
Income taxes (1,094) (3,611)
---------- ----------
Net cash used in operating activities (3,923) 8,218
---------- ----------
Cash flows from investing activities:
Proceeds from sale of investments 69,945 224,959
Purchases of investments (72,686) (203,547)
Purchases of property and equipment (2,063) (2,962)
Additions to computer software (259) (2,041)
Acquisition of businesses, net of cash acquired (7,349) (23,687)
---------- ----------
Net cash used in investing activities (12,412) (7,278)
---------- ----------
Cash flows from financing activities:
Proceeds from stock purchases under stock option and stock purchase plan 2,959 6,298
Repurchase of common stock (1,006) (15,895)
Repurchase of warrant - (2,900)
---------- ----------
Net cash provided by (used in) financing activities 1,953 (12,497)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (247) (800)
---------- ----------
Net increase in cash and cash equivalents (14,629) (12,357)
Cash and cash equivalents at beginning of period 62,084 55,017
---------- ----------
Cash and cash equivalents at end of period $ 47,455 $ 42,660
========== ==========
See notes to condensed consolidated financial statements
Page 5
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Description of Business
Phoenix Technologies Ltd. ("Phoenix" or the "Company") is a global leader
in device-enabling and management software solutions for Personal Computers
(PCs) and connected digital devices. Phoenix provides its products primarily to
platform and peripheral manufacturers (collectively, "OEMs") that range from
large PC, Information Appliance manufacturers, and digital trust service
providers to small system integrators and value-added resellers. Phoenix also
provides training, consulting, maintenance, and engineering services to its
customers. The Company markets and licenses its products and services through a
direct sales force as well as through regional distributors and sales
representatives. The Company has two business units, one of which, inSilicon
Corporation ("inSilicon"), is a majority-owned subsidiary.
The Company believes that its products and services enable customers who
specify, develop, and manufacture PCs, information appliances, and
semiconductors to bring leading-edge products to market more quickly while
reducing their costs, providing high value-added features to their customers
and, hence, increasing their competitiveness.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements as of March
31, 2002 and for the three and six months ended March 31, 2002 and 2001 have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). All
significant intercompany accounts and transactions have been eliminated. 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 consolidated
balance sheet as of September 30, 2001 was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. These condensed 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, 2001.
In the opinion of the management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present the Company's
financial position, results of operations, and cash flows for the interim
periods presented.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. On an on-going basis, the
Company evaluates its estimates, including but not limited to, its allowance for
uncollectible accounts receivable, accruals for royalty revenues, useful lives
for property and equipment, goodwill, and intangibles, employee benefits,
restructuring and related costs, sales allowances, and taxes. Actual results
could differ from those estimates. The operating results for the three and six
months ended March 31, 2002 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 30, 2002, or for any other
future period.
Page 6
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenue Recognition
The Company licenses software under non-cancelable license agreements and
provides services including non-recurring engineering efforts, maintenance
consisting of product support services and rights to unspecified upgrades on a
when-and-if available basis, and training.
Revenues from software license agreements are recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collectibility is probable. The Company uses the residual
method to recognize revenue when an agreement includes one or more elements to
be delivered at a future date and vendor specific objective evidence of the fair
value of all the undelivered elements exists. Under the residual method, the
fair value of the undelivered elements is deferred and the remaining portion of
the arrangement fee is recognized as revenues. If evidence of fair value of one
or more undelivered elements does not exist, revenues are deferred and
recognized when delivery of those elements occurs or when fair value can be
established. Revenue from non-refundable up front fee arrangements including
services and other elements to be delivered over time for which vendor specific
objective evidence of fair value does not exist is recognized ratably over the
initial term of the respective agreement. When the Company provides the customer
with significant customization of the software products, revenues are recognized
in accordance with AICPA Statement of Position 81-1 ("Accounting for Performance
of Construction-Type and Certain Production-Type Contracts") which requires
revenues to be recognized using the percentage-of-completion method based on
time and materials or when services are complete. Revenues from arrangements
with distributors or resellers are recognized on a sell-through basis.
Royalty revenues from OEMs are generally recorded in each period based on
estimates of shipments by the OEMs of products containing the Company's software
during the period. Revenues from OEMs for up front, non-refundable royalties are
recorded when the above revenue recognition criteria have been met.
Non-recurring engineering service revenues are recognized on a time and
materials basis or when contractual milestones are met. Contractual milestones
involve the use of estimates and approximate the percentage-of-completion
method. Software maintenance revenues are recognized ratably over the
maintenance period which is typically one year. Training and other service
revenues are recognized as the services are performed. Amounts paid in advance
for licenses and services that are in excess of revenues recognized are recorded
as deferred revenues.
Provisions are made for doubtful accounts and estimated sales allowances.
Reclassification
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year presentation.
Computation of Earnings (Loss) per Share
Basic earnings (loss) per share is computed using the weighted-average
number of common shares outstanding during each period. Diluted earnings per
share is computed using the weighted-average number of common and dilutive
potential common shares outstanding during the period. Dilutive
common-equivalent shares primarily consist of employee stock options, computed
using the treasury stock method. The Company included outstanding options in the
diluted earings per share computation for the three months ended March 31, 2002.
However, for the six months ended March 31,
Page 7
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2002, the Company reported net losses and did not include the outstanding
options in the calculation of diluted loss per share, as their inclusion would
be anti-dilutive.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, and written-off when impaired, rather
than being amortized as previous standards required. Furthermore, SFAS 142
requires purchased intangible assets to be amortized over their estimated useful
lives unless these lives are determined to be indefinite. SFAS 142 is effective
for fiscal years beginning after December 15, 2001. Upon the adoption of SFAS
142, the Company is required to make any necessary reclassifications in order to
comply with the new criteria in SFAS 142 for recognition of intangible assets,
and to then evaluate goodwill and intangible assets for impairment in accordance
with the new rules of SFAS 142. Any impairment charge recognized upon adoption
of SFAS 142 will be recorded in the statement of operations as a cumulative
effect of a change in accounting principle. Since any potential impairment
charge upon adoption is dependent on the fair value of the Company on the date
of adoption, the amount of a charge, if any, will not be known until the date of
adoption. The Company will adopt SFAS 142 on October 1, 2002 when its new fiscal
year begins. The unamortized goodwill was $19.2 million and $15.9 million as of
March 31, 2002 and September 30, 2001, respectively. The amortization of
goodwill was $1.3 million and $2.1 million for the three and six months ended
March 31, 2002, respectively.
On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), that is applicable to financial statements issued for
fiscal years beginning after December 15, 2001. The FASB's new rules on asset
impairment supersede SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and portions of Accounting
Principles Board Opinion 30, "Reporting the Results of Operations." This
Standard provides a single accounting model for long-lived assets to be disposed
of and significantly changes the criteria that would have to be met to classify
an asset as held-for-sale. This Standard also requires expected future operating
losses from discontinued operations to be displayed in the period(s) in which
the losses are incurred, rather than as of the measurement date as presently
required. The Company expects to adopt SFAS 144 on October 1, 2002 when its new
fiscal year begins and does not expect the adoption will have a material effect
on the Company's operating results or financial condition.
Page 8
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3. Earnings (Loss) per Share
The following table presents the calculations of basic and diluted earnings
(loss) per share required under Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"):
Three months ended Six months ended
March 31, March 31,
------------------------- ---------------------------
2002 2001 2002 2001
--------- --------- ---------- -----------
(in thousands, except per share amounts)
Net income (loss) $ 14 $ (4,396) $ (4,210) $ 1,115
======== ======== ========= =========
Weighted average common shares
outstanding 25,809 25,172 25,505 25,119
Effect of dilutive securities (using the
treasury stock method):
Stock options 719 - - 1,417
-------- -------- --------- ---------
Total dilutive securities 719 - - 1,417
-------- -------- --------- ---------
Weighted average diluted common and
equivalent shares outstanding 26,528 25,172 25,505 26,536
======== ======== ========= =========
Earnings (loss) per share:
Basic $ 0.00 $ (0.17) $ (0.17) $ 0.04
======== ======== ========= =========
Diluted $ 0.00 $ (0.17) $ (0.17) $ 0.04
======== ======== ========= =========
Note 4. Business Combinations
Phoenix
-------
In January 2002, Phoenix acquired certain assets of a privately-held
company, StorageSoft, Inc. ("StorageSoft"), a developer of drive diagnostic
utilities and hard drive imaging software that reduces the cost to own, deploy,
and manage multiple PCs, pursuant to an Asset Acquisition Agreement dated
December 21, 2001. With the acquisition, Phoenix further expands its
next-generation FirstWareTM product line and distribution channels in the "White
Box" manufacturing, PC system builder, and corporate markets.
This acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired business are included in
the Consolidated Balance Sheets as of March 31, 2002. The results of operations
from the date of acquisitions through March 31, 2002 are included in the
accompanying Consolidated Statement of Operations for the three and six months
ended March 31, 2002.
The amounts allocated to Purchased Intangible Assets are being amortized
over six years on a straight-line basis. The amounts allocated to Other
Intangible Assets (comprised of the trade name of the purchased products) are
being amortized over nine years. The estimated asset lives are determined based
on projected future economic benefits and expected life cycles of the
technologies. The amounts allocated to Goodwill are not being amortized but will
be tested for impairment under certain circumstances, and written-off when
impaired.
Page 9
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following is a summary of purchased considerations for the acquisition
(in millions):
Form of consideration Fair Value
--------------------- ------------
Cash $ 6.9
505,646 shares of Phoenix common stock 6.0
Transaction costs 0.4
------------
Total $ 13.3
============
The total purchase consideration of approximately $13.3 million was
allocated to the fair value of the net assets acquired as follows (in millions):
Amount
----------
Tangible assets $ 0.8
Purchased technologies 7.0
Goodwill 4.9
Other intangible assets 0.6
----------
Total consideration $ 13.3
==========
The following unaudited pro forma information shows the results of
operations of the Company for the six months ended March 31, 2002 and 2001, as
if the business combinations had occurred at the beginning of each period. This
data is not indicative of the results of operations that would have arisen if
the business combinations had occurred at the beginning of the respective
periods. Moreover, this data is not intended to be indicative of future results
of operations.
Six months ended March 31,
-----------------------------
2002 2001
-------------- --------------
(in thousands, except per share
amounts)
Revenue $ 61,813 $ 67,473
Net Income (Loss) $ (4,322) $ 1,199
Earnings (Loss) per share:
Basic $ (0.17) $ 0.05
Diluted $ (0.17) $ 0.05
inSilicon
---------
In January 2002, inSilicon issued 324,500 shares of exchangeable preferred
stock, valued at $0.8 million, in connection with the earn-out provisions of its
merger agreement dated December 2000 with former Xentec employees. This amount
has been recorded as goodwill, and is being amortized on straight-line basis
over a five-year period.
Page 10
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Comprehensive Income (Loss)
Following are the components of comprehensive income (loss):
Three months ended Six months ended
March 31, March 31,
---------------------- ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(in thousands)
Net income (loss) $ 14 $ (4,396) $ (4,210) $ 1,115
Change in accumulated foreign
currency translation adjustments (19) 167 (247) (800)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ (5) $ (4,229) $ (4,457) $ 315
========== ========== ========== ==========
Note 6. Restructuring and Related Charges and Impairments
The Company incurred $6.0 million of restructuring related charges and
impairment in the first quarter of fiscal 2002, consisting of $5.2 million in
restructuring related charges and $0.8 million of impairment of purchased
technology. Details of the charges are as follows:
. In October 2001, in light of continuing global economic downturn and
industry trends, Phoenix announced a restructuring program that
identified and eliminated approximately 140 positions across all
business functions from its global workforce. This restructuring
program was to align Phoenix's expense structure with current market
conditions with the objective of returning to profitability. This
reduction resulted in a charge of $3.9 million for severance expenses
in the first quarter of fiscal 2002. As of March 31, 2002,
approximately $2.6 million was paid and the remaining $1.3 million is
expected to be paid through the second quarter of fiscal 2003.
. In December 2001, in an effort to align its operating expenses with
the anticipated level of future revenues, inSilicon announced and
implemented a restructuring program. As a result, charges totaling
$2.1 million were recorded during the first quarter of fiscal 2002.
The charges included $0.3 million in severance costs related to the
termination of approximately 30 positions, $0.3 million in charges
related to exiting 2 facilities, $0.7 million of fixed asset and
intangible assets related to the acquisition of HD Lab in December
2000 that were impaired by the restructuring program, and $0.8 million
of impairment to the net realizable value of previously capitalized
software in the Bluetooth product line. As of March 31, 2002,
approximately $0.5 million was paid and the remaining $0.1 million is
expected to be paid through the end of fiscal 2002. All terminations
were completed by December 31, 2001.
As part of the restructuring program, inSilicon terminated the
development of its Bluetooth product line and focus on its core
communication products in the first quarter of fiscal 2002. As a
result, the net book value of $1.7 million for the capitalized
software of the Bluetooth technology was written down to the estimated
net realizable value of $0.9 million. Cash flow calculations are based
on management's best estimates, using appropriate assumptions
regarding projections of future product revenue and related expenses,
among other factors. If these estimates or the facts underlying the
related assumptions change in the future, additional charges for the
software may be required, if impaired.
Page 11
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 7. Segment Reporting
As part of the restructuring program announced in October 2001, Phoenix
also implemented a re-organization that aligned its corporate actions with
corporate strategy to improve customer focus, unify product marketing,
streamline engineering, and create a market driven development process. The new
organization is structured by function. The Chief Operating Decision Maker
assesses the Company's performance by regularly reviewing the operating results
for its two reportable segments: Phoenix and inSilicon. The two reportable
segments are comprised of the two revenue generating operating segments and were
established based on the criteria set forth in the Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), including evaluating the Company's internal
reporting structure by the Chief Operating Decision Maker and disclosure of
revenues and operating expenses. Results from the three and six months ended
March 31, 2001 were reclassified to conform with the fiscal 2002 presentation.
Phoenix. Provides leading device-enabling and management software solutions
for Personal Computers (PCs) and connected digital devices primarily to platform
and peripheral manufacturers (collectively, "OEMs") that range from large PC,
Information Appliance manufacturers, and digital trust service providers to
small system integrators and value-added resellers. Phoenix also provides
training, consulting, maintenance, and engineering services to its customers.
Phoenix's products and services enable customers who specify, develop, and
manufacture PCs, information appliances, and semiconductors to bring
leading-edge products to market more quickly while reducing their costs,
providing high value-added features to their customers and, hence, increasing
their competitiveness.
InSilicon. Provides communications technology that is used by semiconductor
and systems companies to design complex semiconductors called systems-on-a-chip
that are critical components of wired and wireless products. inSilicon provides
cores, related silicon subsystems and firmware to customers that use its
technologies in hundreds of different digital devices ranging from network
routers to handheld computers.
The Company evaluates operating segment performance based on revenue and
operating income or loss from operations:
Three months ended Six months ended
March 31, March 31,
---------------------- ----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(in thousands)
Revenues:
Phoenix $ 25,381 $ 20,472 $ 50,470 $ 54,192
inSilicon 5,195 5,289 9,708 10,344
---------- ---------- ---------- ----------
Total $ 30,576 $ 25,761 $ 60,178 $ 64,536
========== ========== ========== ==========
Income (loss) from operations:
Phoenix $ 1,617 $ (4,607) $ (693) $ 3,555
inSilicon (1,447) (3,576) (5,637) (4,513)
---------- ---------- ---------- ----------
Total $ 170 $ (8,183) $ (6,330) $ (958)
========== ========== ========== ==========
Page 12
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company also reports revenues by geographic area, which is categorized
into five major countries/regions: North America, Japan, Taiwan, Other Asian
countries, and Europe:
Three months ended Six months ended
March 31, March 31,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
(in thousands)
Revenues:
North America $ 12,455 $ 9,684 $ 19,360 $ 20,065
Japan 8,747 4,318 18,494 18,505
Taiwan 6,601 6,441 14,059 15,681
Other Asian Countries 976 2,203 4,077 5,402
Europe 1,797 3,115 4,188 4,883
------------- ------------- ------------- -------------
Total $ 30,576 $ 25,761 $ 60,178 $ 64,536
============= ============= ============= =============
One customer, Fujitsu, accounted for 14% and 12% of total revenues for the
three and six months ended March 31, 2002. Another customer, Sony, accounted for
13% of total revenues for the six months ended March 31, 2001. No other
customers accounted for more than 10% of total revenues during theses periods.
Note 8. Stock Repurchase Program
In February 2001, the Board of Directors authorized a program to repurchase
at market price up to $30 million of outstanding shares of common stock over a
Twelve-month period. In the first quarter of fiscal 2002, the Company
repurchased approximately 109,000 shares of its common stock at a cost of $1.0
million under the fiscal 2001 program. Also, in fiscal 2001, the Company
repurchased approximately 469,000 shares of its common stock at a cost of $5.1
million under the same fiscal 2001 program. The Company did not repurchase any
outstanding shares of common stock during the second quarter of fiscal 2002. As
of March 31, 2002, the fiscal 2001 program was completed and terminated.
Note 9. Stock Options Exchange Program
On December 6, 2001, the Company announced a voluntary stock option
exchange program for its eligible employees. Members of Phoenix's Board of
Directors, employees who are considered officers for the purposes of Section
16(b) of the Securities Exchange Act of 1934, as amended, and employees of
inSilicon were not eligible to participate in this program. Under the program,
Company employees were offered the opportunity, if they so chose, to cancel
certain outstanding stock options previously granted to them under Phoenix
Technologies Ltd. 1999 Stock Plan, in exchange for new options that will be
granted from the same stock plan. The new options will be three-fourths of the
number of shares (split-adjusted) cancelled. Based on the program, those
employees who chose to participate in the offer were required to tender all
options granted since June 6, 2001. Approximately 209,000 stock options from 67
eligible employees were accepted and cancelled on January 22, 2002. The new
options will be granted on July 23, 2002, six months and one day from the
cancellation date, which was January 22, 2002. The exercise price of these new
options will be equal to the closing price of the Company's common stock on the
last market trading day prior to the date of grant. This voluntary exchange
program complies with FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44") and, accordingly, is not
expected to result in any compensation charges.
Page 13
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 10. Subsequent Event
On April 9, 2002, the Company held a Special Meeting of its Shareholders at
which the Shareholders approved the amendment to the 1999 Stock Plan to increase
the number of shares of the Company's common stock reserved for issuance by
950,000 shares.
Page 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report on Form 10-Q, including without limitation the Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements may include, but are not limited to,
statements concerning future liquidity and financing requirements, expected
price erosion, plans to make acquisitions, dispositions or strategic
investments, expectation of sales volume to original equipment manufacturers (or
"OEM"), and plans to improve and enhance existing products and develop new
products.
Certain information and statements contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other sections of this report, including statements containing words such as
"could," "expects," "may," "anticipates," "believes," "estimates," "plans," and
similar expressions, are forward-looking statements. The forward-looking
statements of the Company are subject to risks and uncertainties. Some of the
factors that could cause future results to materially differ from the recent
results or those projected in the forward-looking statements include, but are
not limited to, significant increases or decreases in demand for our products,
increased competition, lower prices and margins, failure to successfully develop
and market new products and technologies, competitor introductions of superior
products, continued industry consolidation, instability and currency
fluctuations in international markets, product defects, failure to secure
intellectual property rights, results of litigation, failure to retain and
recruit key employees, acts of war or global terrorism, power shortage, and
unexpected natural disasters. For a more detailed discussion of certain risks
associated with our business, see the "Business Risks" section in our Annual
Report on Form 10-K for the year ended September 30, 2001.
Company Overview
Phoenix Technologies, Ltd. ("Phoenix") is a global leader in
device-enabling and management software solutions for Personal Computers (PCs)
and connected digital devices. We provide our products primarily to platform and
peripheral manufacturers (collectively, "OEMs") that range from large PC,
Information Appliance manufacturers, and digital trust service providers to
small system integrators and value-added resellers. We also provide training,
consulting, maintenance, and engineering services to our customers. Phoenix
markets and licenses its products and services through a direct sales force as
well as through regional distributors and sales representatives.
We believe that our products and services enable customers who specify,
develop, and manufacture PCs, information appliances, and semiconductors to
bring leading-edge products to market more quickly while reducing their costs,
providing high value-added features to their customers and, hence, increasing
their competitiveness.
Our operations include the following:
Phoenix. Provides leading device-enabling and management software solutions
for Personal Computers (PCs) and connected digital devices primarily to platform
and peripheral manufacturers (collectively, "OEMs") that range from large PC,
Information Appliance manufacturers, and digital trust service providers to
small system integrators and value-added resellers. Phoenix also provides
training, consulting, maintenance, and engineering services to its customers.
Phoenix's products and services enable customers who specify, develop, and
manufacture PCs, information appliances, and semiconductors to bring
leading-edge products to market more quickly while reducing their costs,
providing high value-added features to their customers and, hence, increasing
their competitiveness.
InSilicon. Provides communications technology that is used by semiconductor
and systems companies to design complex semiconductors called systems-on-a-chip
that are critical components of wired and wireless products. inSilicon provides
cores, related silicon subsystems and firmware to
Page 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
customers that use its technologies in hundreds of different digital devices
ranging from network routers to handheld computers.
Critical Accounting Policies and Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. On an on-going basis, we evaluate our
estimates, including but not limited to, our allowance for uncollectible
accounts receivable, accruals for royalty revenues, useful lives for property
and equipment, goodwill, and intangibles, employee benefits, restructuring and
related costs, sales allowances, and taxes. Actual results could differ from
those estimates. The operating results for the three and six months ended March
31, 2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending September 30, 2002, or for any other future period.
We believe the following critical accounting policies, among others, affect
our more significant judgments and estimates used in the preparation of our
consolidated financial statements.
Revenue Recognition. We license software under non-cancelable license
agreements and provide services including non-recurring engineering efforts,
maintenance consisting of product support services and rights to unspecified
upgrades on a when-and-if available basis, and training.
Revenues from software license agreements are recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or
determinable and collectibility is probable. We use the residual method to
recognize revenue when an agreement includes one or more elements to be
delivered at a future date and vendor specific objective evidence of the fair
value of all the undelivered elements exists. Under the residual method, the
fair value of the undelivered elements is deferred and the remaining portion of
the arrangement fee is recognized as revenues. If evidence of fair value of one
or more undelivered elements does not exist, revenues are deferred and
recognized when delivery of those elements occurs or when fair value can be
established. Revenue from non-refundable up front fee arrangements including
services and other elements to be delivered over time for which vendor specific
objective evidence of fair value does not exist is recognized ratably over the
initial term of the respective agreement. When we provide the customer with
significant customization of the software products, revenues are recognized in
accordance with AICPA Statement of Position 81-1 ("Accounting for Performance of
Construction-Type and Certain Production-Type Contracts") which requires
revenues to be recognized using the percentage-of-completion method based on
time and materials or when services are complete. Revenues from arrangements
with distributors or resellers are recognized on a sell-through basis.
Accrued royalty revenues from OEMs are generally recorded in each period
based on estimates of shipments by the OEMs of products containing our software
during the period. Revenues from OEMs for upfront, non-refundable royalties are
recorded when the above revenue recognition criteria have been met.
Non-recurring engineering service revenues are recognized on a time and
materials basis or when contractual milestones are met. Contractual milestones
involve the use of estimates and approximate the percentage-of-completion
method. Software maintenance revenues are recognized ratably over the
maintenance period which is typically one year. Training and other service
revenues are recognized as the services are performed. Amounts paid in advance
for licenses and services that are in excess of revenues recognized are recorded
as deferred revenues.
Page 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Provisions are made for doubtful accounts and estimated sales allowances.
Allowance for Sales and Doubtful Accounts. We record provisions for
estimated sales allowances against revenues in the same period as the related
revenues are recorded. Allowance for doubtful accounts are recorded against
general and administrative expenses. At March 31, 2002 and September 30, 2001,
these amounts were $1.9 million and $2.4 million, respectively. These estimates
are based on historical sales returns, analysis of credit memo data, bad debt
write-offs, specific identification of probable bad debts based on collection
efforts and other known factors. If economic or specific industry trends worsen
beyond our estimates, we would increase the allowances for sales and doubtful
accounts through revenue and expense, respectively, as appropriate.
Prepaid Royalties. Prepaid royalties are reclassified to cost of revenue
based on actual usage of the third party licenses. The forecasted usage is
reviewed quarterly for net realizable value based on unit projections and
historical sales trends to evaluate whether an impairment is required. The
portion of the prepaid royalty that is not anticipated to be used within one
year is classified as non-current.
Goodwill and Intangible Assets. At March 31, 2002 and September 30, 2001,
we had net goodwill and intangible assets of $20.6 million and $17.1 million,
respectively. In assessing the recoverability of our goodwill and intangibles
assets, we make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
or their related assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded.
Restructuring and Related charges. During the first quarter of fiscal year
2002, we recorded a restructuring reserve in connection with a workforce
reduction plan. This reserve was based on estimates pertaining to employee
separation costs and the settlement of contractual obligations resulting from
our actions. Although we do not anticipate significant changes, actual costs may
differ from estimates.
Also in the first quarter of fiscal 2002, inSilicon terminated the
development of its Bluetooth product line and focus on its core communication
products in fiscal 2002. As a result, current net book value of $1.7 million for
the capitalized software of the Bluetooth technology was written down to the
estimated net realizable value of $0.9 million. Cash flow calculations are based
on management's best estimates, using appropriate assumptions regarding
projections of future product revenue and related expenses, among other factors.
If these estimates or the facts underlying the related assumptions change in the
future, additional charges for the software may be required, if impaired.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, and written-off when impaired, rather
than being amortized as previous standards required. Furthermore, SFAS 142
requires purchased intangible assets to be amortized over their estimated useful
lives unless these lives are determined to be indefinite. SFAS 142 is effective
for fiscal years beginning after December 15, 2001. We will adopt SFAS 142 on
October 1, 2002 when our new fiscal year begins. Upon the adoption of SFAS 142,
we are required to make any necessary reclassifications in order to comply with
the new criteria in SFAS 142 for recognition of intangible assets, and to then
evaluate goodwill and intangible assets for impairment in accordance with the
new rules of SFAS 142. Any impairment charge recognized upon adoption of SFAS
142 will be recorded in the statement of operations as a cumulative effect of a
change in accounting principle. Since any potential impairment charge upon
adoption is dependent on the fair value of the Company on the date of
Page 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
adoption, the amount of a charge, if any, will not be known until the date of
adoption. The unamortized goodwill was $19.2 million and $15.9 million as of
March 31, 2002 and September 30, 2001, respectively. The amortization of
goodwill was $1.3 million and $2.1 million for the three and six months ended
March 31, 2002, respectively.
On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), that is applicable to financial statements issued for
fiscal years beginning after December 15, 2001. The FASB's new rules on asset
impairment supersede SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and portions of Accounting
Principles Board Opinion 30, "Reporting the Results of Operations." This
Standard provides a single accounting model for long-lived assets to be disposed
of and significantly changes the criteria that would have to be met to classify
an asset as held-for-sale. This Standard also requires expected future operating
losses from discontinued operations to be displayed in the period(s) in which
the losses are incurred, rather than as of the measurement date as presently
required. We expect to adopt SFAS 144 on October 1, 2002 when our new fiscal
year begins and does not expect the adoption will have a material effect on our
operating results or financial condition.
Business Combinations
Phoenix
-------
In January 2002, we acquired certain assets of a privately-held company,
StorageSoft, Inc. ("StorageSoft"), a developer of drive diagnostic utilities and
hard drive imaging software that reduces the cost to own, deploy, and manage
multiple PCs, pursuant to an Asset Acquisition Agreement dated December 21,
2001. With the acquisition, we further expand our next-generation FirstWareTM
product line and distribution channels in the "White Box" manufacturing, PC
system builder, and corporate markets.
This acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities of the acquired business are included in
the Consolidated Balance Sheets as of March 31, 2002. The results of operations
from the date of acquisitions through March 31, 2002 are included in the
accompanying Consolidated Statement of Operations for the three and six months
ended March 31, 2002.
The amounts allocated to Purchased Intangible Assets are being amortized
over six years on a straight-line basis. The amounts allocated to Other
Intangible Assets (comprised of the trade name of the purchased products) are
being amortized over nine years. The estimated asset lives are determined based
on projected future economic benefits and expected life cycles of the
technologies. The amounts allocated to Goodwill are not being amortized but will
be tested for impairment under certain circumstances, and written-off when
impaired.
Page 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a summary of purchased considerations for the acquisition
(in millions):
Form of consideration Fair Value
--------------------- ------------
Cash $ 6.9
505,646 shares of Phoenix common stock 6.0
Transaction costs 0.4
------------
Total $ 13.3
============
The total purchase consideration of approximately $13.3 million was
allocated to the fair value of the net assets acquired as follows (in millions):
Amount
---------
Tangible assets $ 0.8
Purchased technologies 7.0
Goodwill 4.9
Other intangible assets 0.6
--------
Total consideration $ 13.3
========
The following unaudited pro forma information shows the results of our
operations for the six months ended March 31, 2002 and 2001, as if the business
combinations had occurred at the beginning of each period. This data is not
indicative of the results of operations that would have arisen if the business
combinations had occurred at the beginning of the respective periods. Moreover,
this data is not intended to be indicative of future results of operations.
Six months ended March 31,
-------------------------------
2002 2001
---------- -----------
(in thousands, except per share
amounts)
Revenue $ 61,813 $ 67,473
Net Income (Loss) $ (4,322) $ 1,199
Earnings (Loss) per share:
Basic $ (0.17) $ 0.05
Diluted $ (0.17) $ 0.05
inSilicon
---------
In January 2002, inSilicon issued 324,500 shares of exchangeable preferred
stock, valued at $0.8 million, in connection with the earn-out provisions of its
merger agreement dated December 2000 with former Xentec employees. This amount
has been recorded as goodwill, and is being amortized on straight-line basis
over a five-year period.
Page 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenues
Our products are generally designed into personal computer systems,
information appliances and semiconductors. License fee and service revenues by
segment for the three and six months ended March 31, 2002 and 2001 were as
follows:
% of Consolidated
Amount Revenue
------------------------ -------------------------
2002 2001 % Change 2002 2001
----------- ----------- ------------ ------------ -----------
Three months ended March 31: (in thousands)
Phoenix $ 25,381 $ 20,472 24.0% 83.0% 79.5%
inSilicon 5,195 5,289 -1.8% 17.0% 20.5%
---------- ---------- ------------ -----------
Total revenues $ 30,576 $ 25,761 18.7% 100.0% 100.0%
========== ========== ============ ===========
Six months ended March 31:
Phoenix $ 50,470 $ 54,192 -6.9% 83.9% 84.0%
inSilicon 9,708 10,344 -6.1% 16.1% 16.0%
---------- ---------- ------------ -----------
Total revenues $ 60,178 $ 64,536 -6.8% 100.0% 100.0%
========== ========== ============ ===========
Total revenues in the second quarter of fiscal 2002 increased by 18.7% from
the comparable period in fiscal 2001 mainly due to improved revenues from
Phoenix. Total revenues for the first six months of fiscal 2002 decreased by
6.8% from the comparable period in fiscal 2001 primarily as a result of a strong
first quarter of fiscal 2001 and continued softness in the PC market which
started in the second quarter of fiscal 2001.
Phoenix revenues in the second quarter of fiscal 2002 increased by 24.0%
from the comparable period in fiscal 2001 mainly due to increased revenue from
notebook and server platforms. Phoenix revenues for the first six months of
fiscal 2002 decreased by 6.9% from the comparable period in fiscal 2001, mainly
due to a decrease in most product categories and all regions except for Europe.
This is the result of a strong first quarter of fiscal 2001 in the notebook
platform products.
inSilicon revenues in the second quarter of fiscal 2002 remained flat from
the comparable period in fiscal 2001. inSilicon revenues for the first six
months of fiscal 2002 declined by 6.1% from the comparable period in fiscal
2001, due primarily to cautious purchasing behavior of its customers,
particularly during the first quarter of fiscal 2002 as compared to the
comparable period in fiscal 2001.
Page 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Revenues by geographic region for the three and six months ended March 31,
2002 and 2001, were as follows:
% of Consolidated
Amount Revenue
-------------------------- ------------------------
2002 2001 % Change 2002 2001
---------- -------- --------- ---------- ----------
Three months ended March 31: (in thousands)
North America $ 12,455 $ 9,684 28.6% 40.7% 37.5%
Japan 8,747 4,318 102.6% 28.6% 16.8%
Taiwan 6,601 6,441 2.5% 21.6% 25.0%
Other Asian Countries 976 2,203 -55.7% 3.2% 8.6%
Europe 1,797 3,115 -42.3% 5.9% 12.1%
--------- -------- ------- -------
Total revenues $ 30,576 $ 25,761 18.7% 100.0% 100.0%
========= ======== ======= =======
Six months ended March 31:
North America $ 19,360 $ 20,065 -3.5% 32.1% 31.0%
Japan 18,494 18,505 -0.1% 30.7% 28.7%
Taiwan 14,059 15,681 -10.3% 23.4% 24.3%
Other Asian Countries 4,077 5,402 -24.5% 6.8% 8.4%
Europe 4,188 4,883 -14.2% 7.0% 7.6%
--------- -------- ------- -------
Total revenues $ 60,178 $ 64,536 -6.8% 100.0% 100.0%
========= ======== ======= =======
Revenues from North America, Japan and Taiwan increased by 28.6%, 102.6%
and 2.5%, respectively, due to increased sales in the notebook and server
platforms in the second quarter of fiscal 2002, as compared to the comparable
period in fiscal 2001. Compared to the same period a year ago, revenues in the
second quarter of fiscal 2002 for Other Asian Countries and Europe declined by
55.7% and 42.3%, respectively. The decrease was due to a slower economy
particularly in Korea, China and Europe.
Compared to the same period a year ago, revenues in the first six months of
fiscal 2002 declined by 6.8%. The decrease was due primarily to the continued
economic slowdown in the global economy that began in the second quarter of
fiscal 2001, which had a significant impact on the PC market, especially in
Taiwan, Other Asian Countries, and Europe.
We recorded $5.5 million of revenues from OEM customers relating to volume
royalty license agreements in the second quarter of fiscal 2002 compared to $5.7
million in the same quarter in fiscal 2001 and $10.7 million in the first
quarter of fiscal 2002. These agreements were non refundable and payable within
normal terms. If a customer decides not to enter into a volume royalty license
agreement in a future quarter, there could be a quarter in which revenue would
be delayed from that customer until they reported shipments.
We accrued $5.4 million of royalty revenues from our OEM customers in the
second fiscal quarter of 2002 compared with $3.6 million in the same period in
fiscal 2001. This increase is due primarily to higher revenue estimates from
certain customers in the Japan and North America regions. We have processes in
place to reasonably estimate the royalty revenues, including obtaining estimates
of production from our OEM customers, utilizing historical experience,
evaluating estimates based on the cyclical patterns, and other relevant current
information. Although Management believes that it has a reliable basis for
making reasonable estimates, the actual results could differ depending on
customer or market factors.
Page 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During the second quarter of fiscal 2002, we entered into multiple
agreements with VeriSign, Inc. to license and sell each party's respective
security products and to provide each party's respective maintenance and support
services, and to receive certain outsourced data hosting services from VeriSign.
Revenue from this arrangement is recorded for products and services sold to
VeriSign net of products and services purchased from VeriSign. Our net revenue
from the arrangement was approximately $2.2 million, of which approximately $0.4
million was recognized in the second quarter of fiscal 2002. The remaining net
revenues are to be recognized ratably through the first quarter of fiscal 2003.
One customer, Fujitsu, accounted for 14% and 12% of total revenues for the
three and six months ended March 31, 2002. Another customer, Sony, accounted for
13% of total revenues for the six months ended March 31, 2001. No other
customers accounted for more than 10% of total revenues during theses periods.
Gross Margin
Gross margin as a percentage of revenues for the three months ended March
31, 2002 increased to 86.5% from 81.4% in the comparable period of fiscal 2001.
The increase was due to higher revenues from license fees and lower
non-recurring engineering service costs. Included in the cost of revenues was
$1.6 million and $0.3 million of amortization of purchased technologies from
business combinations for the three months ended March 31, 2002 and 2001,
respectively. Excluding the amortization of purchased technologies, gross margin
as a percentage of revenues for the three months ended March 31, 2002 increased
to 91.6% from 82.6% in the comparable period of fiscal 2001.
Gross margin as a percentage of revenues for the six months ended March 31,
2002 decreased to 84.6% from 85.8% in the comparable period of fiscal 2001. The
decrease was due to lower revenues, increased amortization of purchase
technology, restructuring related impairment of capitalized software, and lower
margins on inSilicon product sales. Included in the cost of revenues was $2.5
million and $0.6 million of amortization of purchased technologies from business
combinations for the six months ended March 31, 2002 and 2001, respectively.
Also included in the cost of revenues for the six months ended March 31, 2002
was a $0.8 million restructuring related write-down of capitalized software to
its net realizable value by inSilicon. Excluding the amortization of purchased
technologies and write-down of purchased technologies, gross margin as a
percentage of revenues for the six months ended March 31, 2002 increased to
90.2% from 86.8% in the comparable period of fiscal 2001.
Research and Development Expenses
Research and development expenses were $8.8 million and $11.5 million for
the three months ended March 31, 2002 and 2001, respectively. As a percentage of
revenues, these expenses represented 28.7% and 44.7%, respectively. For the six
months ended March 31, 2002 and 2001, research and development expenses were
$17.8 million and $22.4 million, respectively. As a percentage of revenues,
these expenses represented 29.6% and 34.8%, respectively. The decrease in
research and development expenses was due primarily to reduced payroll and
related expenses, as a result of the restructuring program implemented during
the first quarter of fiscal 2002, re-allocation of resources to sales support
functions, implementation of a more disciplined market driven product
development process, offset by additional personnel from the StorageSoft
acquisition.
Page 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales and Marketing Expenses
Sales and marketing expenses were $10.1 million and $10.0 million for the
three months ended March 31, 2002 and 2001, respectively. As a percentage of
revenues, these expenses represented 33.2% and 38.9%, respectively. For the six
months ended March 31, 2002 and 2001, sales and marketing expenses were $19.5
million and $19.8 million, respectively. As a percentage of revenues, these
expenses represented 32.5% and 30.7%, respectively. Sales and marketing expenses
were relatively flat as a result of workforce reduction programs and disciplines
in discretionary spending, offset by re-distribution of resources to enhance
sales and marketing functions to be more customer-focused and additional
personnel from the StorageSoft acquisition.
General and Administrative Expenses
General and administrative expenses were $5.5 million and $6.4 million for
the three months ended March 31, 2002 and 2001, respectively. As a percentage of
revenues, these expenses represented 18.0% and 24.6%, respectively. For the six
months ended March 31, 2002 and 2001, general and administrative expenses were
$11.5 million and $11.8 million, respectively. As a percentage of revenues,
these expenses represented 19.1% and 18.3%, respectively. The decrease in
general and administrative expenditures was due primarily to reduced payroll and
related expenses, as a result of the restructuring program implemented during
the first quarter of fiscal 2002 and discipline in discretionary spending.
Amortization Expenses
Amortization of goodwill and acquired intangible assets were $1.4 million
and $1.1 million for the three months ended December 31, 2001 and 2000,
respectively. For the six months ended March 31, 2002 and 2001, amortization of
goodwill and acquired intangible assets was $2.5 million and $1.6 million,
respectively. The increase was due primarily to the business combinations
completed since February 2001. Beginning in fiscal year 2003, amortization of
intangible assets will be impacted by our adoption of SFAS No. 142 (See "New
Accounting Pronouncements").
Stock-Based Compensation
Stock-based compensation was $0.5 million and $0.2 million for the three
months ended March 31, 2002 and 2001, respectively. For the six months ended
March 31, 2002 and 2001, stock-based compensation was $0.7 million and $0.6
million, respectively. Charges in these periods were primarily due to the
amortization of granting of options to purchase Phoenix and inSilicon stock at
exercise prices less than the fair market value on the measurement date.
Restructuring and Related Charges
We incurred $6.0 million of restructuring related charges and impairments
in the first quarter of fiscal 2002, consisting of $5.2 million in restructuring
related charges and $0.8 million of impairment of purchased technology. Details
of the charges are as follows:
. In October 2001, in light of continuing global economic downturn and
industry trends, Phoenix announced a restructuring program that
identified and eliminated approximately 140 positions across all
business functions from its global workforce. This restructuring
program was to align Phoenix's expense structure with current market
conditions to return to profitability. This reduction resulted in a
charge of $3.9 million for severance expenses in the first quarter of
fiscal 2002. As of March 31, 2002, approximately $2.6 million was paid
and the remaining $1.3 million is expected to be paid through the
second quarter of fiscal 2003. As a result of the restructuring
program announced in October 2001, we expect pretax savings of $10.0
million on an annualized basis starting from the second quarter of
fiscal 2002.
Page 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
. In December 2001, in an effort to align its operating expenses with
the anticipated level of future revenues, inSilicon announced and
implemented a restructuring program. As a result, charges totaling
$2.1 million were recorded during the first quarter of fiscal 2002.
The charges included $0.3 million in severance costs related to the
termination of approximately 30 positions, $0.3 million in charges
related to exiting 2 facilities, $0.7 million of fixed asset and
intangible assets related to the acquisition of HD Lab in December
2000 that were impaired by the restructuring program, and $0.8 million
of impairment to the net realizable value of previously capitalized
software in the Bluetooth product line. As of March 31, 2002,
approximately $0.5 million was paid and the remaining $0.1 million is
expected to be paid through the end of fiscal 2002. All terminations
were completed by December 31, 2001. inSilicon anticipated annualized
cost savings of approximately $2.8 million at the date this
restructuring program was announced.
As part of the restructuring program, inSilicon terminated the
development of its Bluetooth product line and focus on its core
communication products in the first quarter of fiscal 2002. As a
result, the net book value of $1.7 million for the capitalized
software of the Bluetooth technology was written down to the estimated
net realizable value of $0.9 million. Cash flow calculations are based
on management's best estimates, using appropriate assumptions
regarding projections of future product revenue and related expenses,
among other factors. If these estimates or the facts underlying the
related assumptions change in the future, additional charges for the
software may be required, if impaired.
Interest and Other Income, Net
Interest and other income, net, were $nil and $0.7 million for the three
months ended March 31, 2002 and 2001, respectively. For the six month ended
March 31, 2002 and 2001, interest and other income, net, were $0.4 million and
$1.3 million, respectively. The decline was primarily due to lower yields from
decreased interest rates and lower cash and short-term investment balance due to
the funding of the stock repurchase program and acquisition in fiscal 2002,
partly offset by disposition of fixed assets.
Provision for Income Taxes
We recorded income tax provisions of $0.6 million and $0.1 million for the
three and six months ended March 31, 2002, respectively, as compared to an
income tax benefit of $2.4 million and income tax provision of $nil in the
comparable periods in fiscal 2001. The income tax provision for the second
quarter of fiscal 2002 differs from the expected provision at a statutory rate
primarily due to an increase in the valuation allowance related to inSilicon's
deferred tax assets and acquisition related expenses that are not deductible for
tax purposes, offset by the benefit of current year tax credits. The income tax
provision for the second quarter of 2001 differed from the expected provision at
a statutory rate primarily due to various federal and state tax credits and
lower tax rates imposed on earnings in certain foreign jurisdictions.
On a legal entity basis, Phoenix recorded an income tax provision of $0.5
million and an income tax benefit of $0.2 million for the three and six months
ended March 31, 2002, respectively, to reflect its anticipated effective tax
rate for the year. inSilicon recorded a tax provision of $0.1 million and $0.3
million for the three and six months ended March 31, 2002, respectively, related
primarily to foreign withholding taxes paid or accrued in relation to sales to
Asia that are not anticipated to be utilized in the U.S. tax return. inSilicon
is not expected to be consolidated for Federal income tax purposes, as Phoenix
expects to own less than 80% of inSilicon's outstanding voting stock during
2002.
Page 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
At March 31, 2002, our principal source of liquidity consisted of cash and
cash equivalents, and short-term investments totaling $53.5 million, of which
$27.5 million was owned by inSilicon. We presently have no lending arrangement
with banks or other potential creditors. The primary sources of cash during the
six months of fiscal 2002 were proceeds from issuance of stock under various
stock plans of $3.0 million. The primary uses of cash for the same period were
$3.9 million from operating activities, $7.4 million to fund the StorageSoft
acquisition, $1.0 million for the repurchase of common stock, and $2.4 million
for the purchase of property, equipment and computer software. The primary
sources of cash during the first six months of fiscal 2001 were $8.7 million
from operating activities and proceeds from issuance of stock under multiple
stock plans of $6.3 million. The primary uses of cash during the first six
months of fiscal 2001 were $23.4 million for funding various acquisitions, $18.8
million for the repurchase of common stock and warrants, and $5.3 million for
the purchase of property, equipment and computer software.
We believe that current cash and short-term investment balances and cash
flow from operations will be sufficient to meet our operating and capital
requirements for the next twelve months.
Stock Options Exchange Program
On December 6, 2001, we announced a voluntary stock option exchange program
for our eligible employees. Members of Phoenix's Board of Directors, employees
who are considered officers for the purposes of Section 16(b) of the Securities
Exchange Act of 1934, as amended, and employees of inSilicon were not eligible
to participate in this program. Under the program, our employees were offered
the opportunity, if they so chose, to cancel certain outstanding stock options
previously granted to them under Phoenix Technologies Ltd. 1999 Stock Plan, in
exchange for new options that will be granted from the same stock plan. The new
options will be three-fourths of the number of shares (split-adjusted)
cancelled. Based on the program, those employees who chose to participate in the
offer were required to tender all options granted since June 6, 2001.
Approximately 209,000 stock options from 67 eligible employees were accepted and
cancelled on January 22, 2002. The new options will be granted on July 23, 2002,
six months and one day from the cancellation date, which was January 22, 2002.
The exercise price of these new options will be equal to the closing price of
our common stock on the last market trading day prior to the date of grant. This
voluntary exchange program complies with FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN 44") and,
accordingly, is not expected to result in any compensation charges.
Business Risks
The additional following factors should be considered carefully when
evaluating our business.
Product Development
Our long-term success will depend on our ability to enhance existing
products and to introduce new products timely and cost-effectively that meet the
needs of customers in present and emerging markets. There can be no assurance
that we will be successful in developing new products or in enhancing existing
products or that new or enhanced products will meet market requirements. Delays
in introducing new products can adversely impact acceptance and revenues
generated from the sale of such products. We have, from time to time,
experienced such delays. Our software products and their enhancements contain
complex code that may contain undetected errors and/or bugs when first
introduced. There can be no assurance that new products or enhancements will not
contain errors or bugs that will adversely affect commercial acceptance of such
new products or enhancements. The introduction of new products depends on
acceptance of e-commerce and adoption of digital devices.
Page 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Protection of Intellectual Property
We rely on a combination of patent, trade secret, copyright, trademark, and
contractual provisions to protect our proprietary rights in our software
products. There can be no assurance that these protections will be adequate or
that competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. In addition, copyright
and trade secret protection for our products may be unavailable or unreliable in
certain foreign countries. On a worldwide basis, we have been issued forty-six
patents with respect to our current product offerings and have one hundred and
ninety-six patent applications pending with respect to certain products we
market. We maintain an active internal program designed to identify
internally developed inventions worthy of being patented. There can be no
assurance that any of the applications pending will be approved and patents
issued or that our engineers will be able to develop technologies capable of
being patented. Also, as the number of software patents increases, we believe
that companies that develop software products may become increasingly subject to
infringement claims.
There can be no assurance that a third party will not assert that our
patents or other proprietary rights are violated by products offered by us. Any
such claims, whether or not meritorious, may be time consuming and expensive to
defend, can trigger indemnity obligations owed by us to third parties, and may
have an adverse effect on our business, results of operations and financial
condition. Infringement of valid patents or copyrights or misappropriation of
valid trade secrets, whether alleged against us, or our customers, and
regardless of whether such claims have merit, could also have an adverse effect
on our business, results of operations and financial condition.
Importance of Microsoft and Intel
For a number of years, we have worked closely with leading software and
semiconductor companies in developing standards for the PC industry. We remain
optimistic regarding relationships with these industry leaders. However, there
can be no assurance that leading software and semiconductor companies will not
develop alternative product strategies that could conflict with our product
plans and marketing strategies. Action by such companies may adversely impact
our business and results of operations. Presently, there is little overlap or
conflict in our product offerings, although these companies now incorporate some
functionality that has traditionally resided in the BIOS. These leading software
and semiconductor companies, in their endeavors to add value, incorporate
features or functions provided by us either in the silicon or in the operating
system. Therefore, we must continuously create new features and functions to
sustain, as well as increase, our software's added value to OEMs. There can be
no assurances that we will be successful in these efforts.
Attraction and Retention of Key Personnel
Our ability to achieve our revenue and operating performance objectives
will depend in large part on our ability to attract and retain technically
qualified engineering, sales, marketing, and finance personnel. Semiconductors
IP and Internet products are based on new and emerging technologies that are
different from BIOS technologies. The available pool of engineering talent is
limited for all lines of businesses. Accordingly, failure to attract, retain and
grow our talents could adversely affect our business and operating results. All
of our executive officers and key personnel are employees at-will. We might not
be able to execute our business plan if we were to lose the services of any of
our key personnel. Some of our executives and key employees joined Phoenix only
recently and have had only a limited time to work together. Our management team
might not be able to work effectively together or with the rest of our employees
to develop our technology and manage our continuing operations.
Page 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Dependence on Key Customers; Concentration of Credit Risk
The loss of any key customer and our inability to replace revenues provided
by a key customer may have a material adverse effect on our business and
financial condition. Our customer base includes large OEMs in the PC,
semiconductor and Internet markets, system integrator value-added reseller, and
motherboard manufacturers. As a result, we maintain individually significant
receivable balances due from some of them. If these customers fail to meet
guaranteed minimum royalty payments and other payment obligations, our operating
results could be adversely affected. We maintain estimated accruals and
allowances for such exposures. As of March 31, 2002, our largest receivable from
any one customer represented approximately 16% of total accounts receivable.
Competition
The market for our BIOS products is very competitive, resulting in downward
pricing pressure. In marketing our BIOS products, we compete primarily with
in-house research and development departments of PC manufacturers that may have
significantly greater financial and technical resources than ours. These
companies include Acer Incorporated, Hewlett-Packard Company,Dell Computer
Corporation, IBM Corporation, and Toshiba Corporation. We also compete for
system software business with other independent suppliers, ranging from small,
privately held companies to Acer Softech, Inc., a division of Acer Laboratories,
Inc., a major Taiwan chip and motherboard supplier. There can be no assurance
that we will continue to compete successfully with our current competitors or
potential new competitors. There can be no assurance that intense competition in
the industry and particular actions of our competitors will not have an adverse
effect on our business, operating results and financial condition. Due to the
competitive nature of the business and the overall price pressures within the PC
market, we expect that prices on many of our products may decrease in the future
and that such price decreases could have an adverse impact on our results of
operations or financial condition.
The SIP industry is very competitive and is characterized by constant
technological change, rapid rates of product obsolescence, and frequently
emerging new suppliers. Our existing competitors include other merchant
semiconductor intellectual property (or "SIP") suppliers, such as the Inventra
Division of Mentor Graphics Corporation' Inventra Division, Synopsys Inc.,
Enthink, Inc., Gain Technology Corporation, and the VaAutomation subsidiary of
ARC Cores, Inc.; and suppliers of ASICs, such as LSI Logic Corporation, the ASIC
divisions of IBM Corporation, Lucent Technologies, Inc., Toshiba Corporation,
and NEC Corporation. We also compete with the internal development groups of
large, vertically integrated semiconductor and systems companies, such as Intel
Corporation, Motorola Inc., Cisco Systems, Inc., and Hewlett-Packard Company. In
these companies, SIP developed for an individual project sometimes is subject to
efforts by the company to be re-used the SIP in multiple projects. Companies
whose principal business is providing design services as work-for-hire, such as
Intrinsix Corporation, Sci-worxSican Corporation, Parthus Technologies plc, and
the Tality subsidiary of Cadence Design Systems, Inc., also provide competition.
In the FirstWare software area, we compete with individual component
software suppliers such as Symantec Corporation and other companies that develop
diagnostic and repair software, as well as in-house solutions.
In the Internet and securities business, there are many distribution
vehicles for our partners to reach PC end users, including PC OEM companies, PC
and hardware registration companies and Internet web sites. Many have greater
resources than Phoenix.
In the information appliance area, we compete primarily with research and
development departments of software developers that may have significantly
greater financial and technical resources than Phoenix. These companies include
OpenTV Corporation, Wind River Systems, Inc., Liberate
Page 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Technologies, and Microsoft Corporation. We also compete for software business
with other independent suppliers, ranging from small, privately-held companies
to in-house research and development departments of major OEMs.
International Sales and Activities
Revenues derived from the international operations of our BIOS product
family comprise a majority of total revenues. There can be no assurances that we
will not experience significant fluctuations in international revenues. While
the major portion of our license fee or royalty contracts are U.S. dollar
denominated, we are entering into a number of contracts denominated in local
currencies. We have international sales and engineering offices in Germany,
Hungary, Japan, Korea, Taiwan, and China. Our operations and financial results
may be adversely affected by factors associated with international operations,
such as changes in foreign currency exchange rates, uncertainties relative to
regional economic circumstances, political instability in emerging markets,
difficulties in attracting qualified employees, and language, cultural and other
difficulties managing foreign operations.
Volatile Market for Phoenix Stock
The market for our stock is highly volatile. The trading price of our
common stock has been, and will continue to be, subject to fluctuations in
response to operating and financial results, announcements of technological
innovations, new products or customer contracts by us or our competitors,
changes in our or our competitors' product mix or product direction, changes in
our revenue mix and revenue growth rates, changes in expectations of growth for
the PC industry, as well as other events or factors which we may not be able to
influence or control. Statements or changes in opinions, ratings or earnings
estimates made by brokerage firms and industry analysts relating to the market
in which we do business, companies with which we compete or relating to it
specifically could have an immediate and adverse effect on the market price of
our stock. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations that have particularly affected the market
price for many small capitalization, high-technology companies and have often
included factors other than the operating performance of these companies.
Certain Anti-Takeover Effects
Our Certificate of Incorporation, Bylaws and Stockholder Rights Plan and
the Delaware General Corporation Law include provisions that may be deemed to
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that stockholders might consider in their best interests. These include
provisions under which members of the Board of Directors are divided into three
classes and are elected to serve staggered three-year terms.
Business Disruptions
While we have not been the target of software viruses specifically
designed to impede the performance of its products, such viruses could be
created and deployed against its products in the future. Similarly, experienced
computer programmers or hackers may attempt to penetrate our network security or
the security of our web sites from time to time. A hacker who penetrates our
network or web sites could misappropriate proprietary information or cause
interruptions of our services. We might be required to expend significant
capital and resources to protect against, or to alleviate, problems caused by
virus creators and/or hackers.
Page 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rate, foreign
currency exchange rates, and investment, refer to Part II, Item 7A, Quantitative
and Qualitative Disclosures About Market Risk, in the Company's Annual Report on
Form 10-K for the year ended September 30, 2001.
Page 29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable
(b) Not applicable
(c) During the second quarter of fiscal 2002, the Company issued an
aggregate of 505,646 shares of its common stock to StorageSoft,
Inc. pursuant to an asset acquisition agreement whereby the
Company acquired substantially all of the assets of StorageSoft.
The shares were issued to StorageSoft pursuant to the exemption
from registration contained in Section 4(2) of the Securities Act
of 1933 and Regulation D promulgated thereunder. The sale was
made without any general solicitation or advertising. In
connection with the sale, StorageSoft represented that it was an
accredited investor. StorageSoft subsequently distributed the
shares to its stockholders in a transaction exempt from
registration under the Securities Act. The Company did not
receive any proceeds from the distribution of the shares by
StorageSoft, and will not receive any proceeds from any
subsequent sale of the shares.
(d) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of its Stockholders on February 5,
2002, at which the following occurred:
ELECTION OF TWO CLASS 3 DIRECTORS TO THE BOARD OF DIRECTORS OF THE
COMPANY: The stockholders elected Albert E. Sisto and Edmund P. Jensen
as Class 3 Directors. The vote on the matter was as follows:
Albert E. Sisto
FOR 20,946,057
WITHHOLD 2,787,482
Edmund P. Jensen
FOR 23,078,605
WITHHOLD 654,934
The following individuals continue their term as directors:
Taher Elgamal
George C. Huang
Anthony P. Morris
Anthony Sun
APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1999 STOCK PLAN: The
stockholders was against the amendment to the 1999 Stock Plan to
increase the number of shares of the Company's common stock ("Common
Stock") reserved for issuance thereunder by 1,800,000 shares. The vote
on the matter was as follows:
FOR 7,396,679
AGAINST 8,487,534
Page 30
PART II. OTHER INFORMATION
ABSTAIN 488,766
No Vote 7,360,560
APPROVAL OF THE AMENDMENT TO THE 1999 DIRECTOR OPTION PLAN: The
stockholders approved the amendment to the Company's 1999 Director
Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 90,000 shares. The vote on the matter was
as follows:
FOR 12,820,585
AGAINST 3,067,524
ABSTAIN 484,870
No Vote 7,360,560
APPROVAL OF THE ADOPTION OF THE 2001 EMPLOYEE STOCK PURCHASE PLAN: The
stockholders approved the adoption of the Company's 2001 Employee Stock
Purchase Plan and the reservation of 200,000 shares of Common Stock for
issuance thereunder. The vote on the matter was as follows:
FOR 14,833,463
AGAINST 748,321
ABSTAIN 791,195
No Vote 7,360,560
RATIFICATION OF THE SELECTION BY THE BOARD OF DIRECTORS OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS: The stockholders
ratified the selection by the Board of Directors of Ernst & Young LLP
as the Company's independent auditors for the 2002 fiscal year. The
vote on the matter was as follows:
FOR 23,613,926
AGAINST 103,897
ABSTAIN 15,716
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 1999 Stock Plan, as amended on April 9, 2002
10.2 2001 Employee Stock Purchase Plan
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter ended
March 31, 2002. Information regarding the items reported on is as
follows:
Date Item Reported On
---- ----------------
January 17, 2002 The Company announced the completion of the
acquisition of StorageSoft, Inc. and
financial results from the first quarter of
fiscal 2002.
Page 31
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.
PHOENIX TECHNOLOGIES LTD.
Date: May 14, 2002
------------
By: /s/ JOHN M. GREELEY
-------------------
John M. Greeley
Senior Vice President, Finance and
Chief Financial Officer
Page 32