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 December 31, 2000
-----------------
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
----------------------------------------------------
(Address of principal executive offices, including zip code)
(408) 570-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate 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 25,146,051
----------------------------------- ---------------------------------
Class Number of Shares Outstanding at
January 31, 2001
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
December 31, 2000 and September 30, 2000.....................................................3
Condensed Consolidated Statements of Income for the
Three Months Ended December 31, 2000 and 1999................................................4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 2000 and 1999................................................5
Notes to Condensed Consolidated Financial Statements.........................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................14
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
Exhibits....................................................................................15
Reports on Form 8-K.........................................................................15
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31, September 30,
2000 2000
----------------- -----------------
Assets (unaudited)
Current Assets:
Cash and cash equivalents $ 58,883 $ 55,017
Short-term investments 35,126 52,701
Accounts receivable, net of allowance of $931 at
December 31, 2000 and $790 at September 30, 2000 37,172 39,868
Deferred income taxes 3,926 3,926
Other current assets 5,738 4,494
-------------- --------------
Total current assets 140,845 156,006
Investments 4,973 4,473
Property and equipment, net 12,871 13,272
Computer software cost, net 6,967 5,385
Goodwill and other intangible assets, net 18,713 7,937
Other assets 11,894 11,687
-------------- --------------
Total assets $ 196,263 $ 198,760
============== ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 3,867 $ 3,945
Accrued compensation and related liabilities 8,835 10,554
Deferred revenue 4,771 4,733
Other accrued liabilities 5,882 6,988
Income taxes payable 5,037 5,254
-------------- -------------
Total current liabilities 28,392 31,474
Long-term obligations 1,368 1,449
Long-term deferred tax liabilities 4,181 3,865
-------------- -------------
Total liabilities 33,941 36,788
Minority Interest 15,889 13,672
Stockholders' equity:
Preferred stock, $.10 par value, 500 shares
authorized, none issued or outstanding -- --
Common stock, $.001 par value, 60,000 shares authorized, 24,863 and
25,608 issued and outstanding at December 31, 2000 and September 30, 2000 25 26
Additional paid-in capital 163,019 153,534
Retained earnings 59,401 53,890
Accumulated other comprehensive loss (1,347) (380)
Less: Cost of treasury stock (4,405 shares at December 31, 2000 and
3,377 shares at September 30, 2000) (74,665) (58,770)
-------------- --------------
Total shareholders' equity 146,433 148,300
-------------- --------------
Total liabilities and shareholders' equity $ 196,263 $ 198,760
============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 3
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Three months ended
December 31,
-----------------------------------
2000 1999
------------- -------------
Revenue:
License fees $ 33,877 $ 27,382
Services 4,898 4,989
------------- -------------
Total revenue 38,775 32,371
Cost of revenue:
License fees 417 1,478
Services 3,633 4,022
Amortization of purchased technology 314 314
------------- -------------
Total cost of revenue 4,364 5,814
------------- -------------
Gross margin 34,411 26,557
Operating expenses:
Research and development 10,934 10,504
Sales and marketing 9,763 6,957
General and administrative 5,490 4,709
Amortization of goodwill and acquired intangible assets 555 555
Stock-based compensation 444 327
------------- -------------
Total operating expenses 27,186 23,052
------------- -------------
Income from operations 7,225 3,505
Interest and other income, net 590 535
Minority interest 108 --
------------- -------------
Income before income taxes 7,923 4,040
Provision for income taxes 2,412 1,291
------------- -------------
Net income $ 5,511 $ 2,749
============= =============
Earnings per share:
Basic $ 0.22 $ 0.11
============= =============
Diluted $ 0.21 $ 0.10
============= =============
Weighted average number of shares used in computations:
Basic 25,096 24,128
============= =============
Diluted 26,636 26,332
============= =============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 4
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
December 31,
-----------------------------------------------
2000 1999
------------------ --------------------
Cash flows from operating activities:
Net income $ 5,511 $ 2,749
Reconciliation to net cash provided by operating activities:
Depreciation and amortization 2,103 2,912
Minority interest (108) --
Deferred income tax 316 --
Change in operating assets and liabilities:
Accounts receivable 2,696 2,271
Other assets (1,451) (537)
Accounts payable (78) (591)
Accrued compensation and related liabilities (1,719) (1,625)
Other accrued liabilities (1,068) (1,516)
Income taxes payable (217) 280
------------------ -----------------
Net cash provided by operating activities 5,985 3,943
Cash flows from investing activities:
Proceeds from sales of investments 109,740 16,234
Purchases of investments (92,665) (4,277)
Purchases of property and equipment (1,008) (527)
Additions to computer software costs (1,898) (144)
Acquisition of Xentec, Inc., net of cash acquired (2,933) --
------------------ -----------------
Net cash provided by investing activities 11,236 11,286
Cash flows from financing activities:
Proceeds from common stock issuance under stock option and
stock purchase plans 3,554 4,005
Repurchases of common stock (15,895) (6,289)
Repayment of notes payable (47) --
------------------ -----------------
Net cash used in financing activities (12,388) (2,284)
------------------ -----------------
Effect of exchange rate changes on cash and cash equivalents (967) 237
------------------ -----------------
Net increase in cash and cash equivalents 3,866 13,182
Cash and cash equivalents at beginning of period 55,017 24,873
------------------ -----------------
Cash and cash equivalents at end of period $ 58,883 $ 38,055
================== =================
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. (together with its subsidiaries, "Phoenix" or
the "Company") is a global leader in system-enabling software solutions for PCs
and connected digital devices. Its software provides compatibility,
connectivity, security and manageability of the various components and
technologies used in such devices. Phoenix provides these products primarily to
platform and peripheral manufacturers (collectively, "OEMs") that range from
large PC manufacturers to small system integrators. Phoenix also provides
training, consulting, maintenance and engineering services to its customers. It
markets and licenses its products and services primarily through a direct sales
force, as well as through regional distributors and sales representatives. The
Company has three business units (one of which, inSilicon Corporation
("inSilicon"), is a majority-owned subsidiary), each of which delivers leading
products and professional services that enable connected computing.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements as of
December 31, 2000 and for the three months ended December 31, 2000 and 1999 have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). All
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, 2000 was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. 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 fiscal year ended September 30, 2000.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary to summarize fairly the Company's
financial position, results of operations and cash flows for the interim periods
presented. The operating results for the three months period ended December 31,
2000 are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2001, or for any other future period.
EARNINGS PER SHARE
Basic earnings 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
common-equivalent shares outstanding during the period. Dilutive
common-equivalent shares primarily consist of employee stock options,
computed using the treasury stock method.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Page 6
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
NEW ACCOUNTING PRONOUNCEMENTS
In the first quarter of fiscal year 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by Statement of
Financial Accounting Standards No. 138, (the Statements) which establish
accounting and reporting standards for derivative instruments and for hedging
activities. The Statements require that an entity recognize all derivatives
as either assets or liabilities on the balance sheet and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. The Company does not hold any derivative financial instrument
and does not engage in hedging activities. Accordingly, the adoption of the
Statements does not have a material impact on the Company's financial
position, results of operations or cash flows.
NOTE 3 PURCHASE COMBINATIONS
In December 2000, inSilicon Corporation ("inSilicon"), a majority
owned subsidiary of the Company acquired Xentec, Inc. and HD Lab, K.K. for a
total purchase price of $12.6 million, paid in inSilicon common stock and
cash.
The condensed consolidated financial statements include the operating
results of each business from the date of acquisition. Pro forma results of
operations have not been presented because the effects of these acquisitions
were not material on either an individual or an aggregate basis.
NOTE 4. EARNINGS PER SHARE
The following table presents the calculations of basic and diluted
earnings per share under Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share" (in thousands, except per share amounts):
Three Months Ended
December 31,
------------------------------
2000 1999
------------- ------------
Net income $ 5,511 $ 2,749
============= ============
Weighted average common shares
outstanding 25,096 24,128
Effect of dilutive securities (using the treasury
stock method):
Stock options 1,366 2,002
Warrants 174 202
------------- ------------
Total dilutive securities 1,540 2,204
------------- ------------
Weighted average diluted common and
equivalent shares outstanding 26,636 26,332
============= ============
Earnings per share:
Basic $ 0.22 $ 0.11
============= ============
Diluted $ 0.21 $ 0.10
============= ============
Page 7
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
NOTE 5. COMPREHENSIVE INCOME
Following are the components of comprehensive income (in thousands):
Three Months Ended
December 31,
------------------------------------
2000 1999
---------------- ----------------
Net income $ 5,511 $ 2,749
Change in accumulated translation and foreign
currency adjustments (967) 410
---------------- ----------------
Comprehensive income $ 4,544 $ 3,159
================ ================
NOTE 6. SEGMENT REPORTING
Segment information is presented in accordance with Statement of
Financial Account Standards No. 131 ("SFAS 131"), "Disclosures about Segments of
an Enterprise and Related Information." This standard requires segmentation
based upon the Company's internal organization and disclosure of revenue and
operating income based upon internal accounting methods. The Company has three
reportable segments: Platform Enabling, inSilicon and PhoenixNet-TM-.
PLATFORM ENABLING: Provides system-enabling software that is used in the
design, deployment and ongoing operation of PCs, internet appliances, embedded
systems, and other connected digital devices. The Platform Enabling's flagship
software products provide support for current technologies and industry
standards, allowing systems and device manufacturers to base new product designs
on a range of microprocessors, chipsets and operating systems combinations.
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 digital devices. 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 cellular phones.
PHOENIXNET-TM-: Provides worldwide PC users with a solution to
configure their web browsers and desktops, directs users to web destinations,
offers software download tools through a graphical launch screen, and
provides the licensing of machine profile data.
Page 8
PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
The Company evaluates operating segment performance based on revenue and
operating income (in thousands):
Three Months Ended
December 31,
-------------------------------
2000 1999
------------- --------------
Revenue:
Platform Enabling $32,858 $27,114
inSilicon 5,055 5,257
PhoenixNet 862 --
------------- --------------
Total $38,775 $ 32,371
============= ==============
Three Months Ended
December 31,
-------------------------------
2000 1999
------------- ---------------
Income (loss) from operations before restructuring charges:
Platform Enabling $11,023 $7,640
inSilicon (937) (1,058)
PhoenixNet (2,861) (3,077)
------------- ---------------
Total $ 7,225 $ 3,505
============= ===============
The Company also reports revenue by geographic area, which is
categorized into three regions: North America, Asia and Europe (in thousands):
Three Months Ended
December 31,
-------------------------------
2000 1999
------------- ---------------
Revenue:
North America $10,381 $ 7,616
Asia 26,626 22,108
Europe 1,768 2,647
------------- ---------------
Total $38,775 $32,371
============= ===============
NOTE 7. STOCK REPURCHASE PROGRAM
In fiscal 2000, the Board of Directors authorized a program to utilize
approximately $30 million of the Company's cash to repurchase outstanding shares
of its common stock over a 24-month period. Under this program, the Company
repurchased approximately 1,011,000 shares during fiscal 2000 at a cost of $16.6
million. The Company has repurchased an additional 1,028,400 shares during the
three months ended December 31, 2000 at a cost of $15.9 million. As of December
31, 2000, the fiscal 2000 repurchase program was completed and terminated.
NOTE 8. SUBSEQUENT EVENT
In February 2001, the Board of Directors authorized a program to
repurchase up to $30 million of outstanding shares of common stock over a
12-month period.
Page 9
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 21 (E) of the
Securities Exchange Act 1934, as amended. These statements include, but are
not limited to, statements concerning increases in research and development
activities, future liquidity and financing requirements, expected price
erosion, plans to make acquisitions, dispositions or strategic investments,
expectation of increased sales to original equipment manufacturers, and plans
to improve and enhance existing products and develop new products.
These 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 Phoenix's products, increased competition, lower prices and
margins, failure to successfully develop and market new product 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, and failure to retain and recruit key employees. For a more detailed
discussion of certain risks associated with the Company's business, see the
"Business Risks" section of the Company's Annual Report on Form 10-K for the
year ended September 30, 2000.
COMPANY OVERVIEW
Phoenix Technologies Ltd. (together with its subsidiaries, "Phoenix" or
the "Company") is a global leader in system-enabling software solutions for PCs
and connected digital devices. Its software provides compatibility,
connectivity, security and manageability of the various components and
technologies used in such devices. Phoenix provides these products primarily to
platform and peripheral manufacturers (collectively, "OEMs") that range from
large PC manufacturers to small system integrators. Phoenix also provides
training, consulting, maintenance and engineering services to its customers. It
markets and licenses its products and services primarily through a direct sales
force, as well as through regional distributors and sales representatives. The
Company has three business units (one of which, inSilicon Corporation
("inSilicon"), is a majority-owned subsidiary), each of which delivers leading
products and professional services that enable connected computing.
The Company's operations include the following:
PLATFORM ENABLING: Provides system-enabling software that is used in the
design, deployment and ongoing operation of PCs, internet appliances, embedded
systems, and other connected digital devices. The Platform Enabling's flagship
software products provide support for current technologies and industry
standards, allowing systems and device manufacturers to base new product designs
on a range of microprocessors, chipsets and operating systems combinations.
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 digital devices. 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 cellular phones.
PHOENIXNET-TM-: Provides worldwide PC users with a solution to
configure their web browsers and desktops, directs users to web destinations,
offers software download tools through a graphical launch screen, and
provides the licensing of machine profile data.
Page 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVENUE
The Company's products are generally designed into personal computer
systems, information appliances and semiconductors. License fee and service
revenue by segment for the three month periods ended December 31, 2000 and 1999,
were as follows (dollars in thousands):
% of Consolidated
Amount Revenue
--------------------------- -------------------------
Three months ended December 31: 2000 1999 % CHANGE 2000 1999
------------- ------------- -------------- ------------ -----------
Platform Enabling $32,858 $27,114 21.2% 84.7% 83.8%
inSilicon 5,055 5,257 -3.8% 13.1% 16.2%
PhoenixNet 862 -- N/A 2.2% --
------------- ------------- ------------ -----------
Total revenue $38,775 $32,371 19.8% 100% 100%
============= ============= ============ ===========
The increase in Platform Enabling revenue in the first quarter of
fiscal 2001 of 21.2% over the comparable period of fiscal 2000 was primarily
due to increased sales of system enabling software used primarily in personal
computers. inSilicon revenue, net of intercompany transactions, declined due
largely to a decrease in non-recurring engineering work for a significant
customer. PhoenixNet first generated revenues in the second quarter of fiscal
2000.
Revenue by geographic region for the quarter ended December 31, 2000 and
1999, was as follows (dollars in thousands):
% of Consolidated
Amount Revenue
--------------------------- -------------------------
Three months ended December 31: 2000 1999 % CHANGE 2000 1999
------------- ------------- -------------- ------------ -----------
North America $10,381 $7,616 36.3% 26.8% 23.5%
Asia 26,626 22,108 20.4% 68.7% 68.3%
Europe 1,768 2,647 -33.2% 4.5% 8.2%
------------- ------------- ------------ -----------
Total revenue $38,775 $32,371 19.8% 100% 100%
============= ============= ============ ===========
During the three months ended December 31, 2000, North American and
Asian revenue increased while European revenue declined. This was due primarily
to the outsourcing of system design and manufacturing to Asian personal computer
and motherboard manufacturers, growth in Japanese personal computer shipments in
the Platform enabling segment and a shift in revenue from the European market to
the Asian market.
One customer accounted for 20% of total revenue during the three-month
period ended December 31, 2000. One customer accounted for more than 11% of
revenue during the three-month period ended December 31, 1999.
GROSS MARGIN
Gross margin as a percentage of revenue for the three-month period
ended December 31, 2000 increased to 88.7% from 82.0% in the comparable
period of fiscal 2000. Included in the costs of revenue was $0.3 million of
amortization of purchased technology arising from the acquisition of Sand
Microelectronics, Inc. for both three-month periods ended December 31, 2000
and 1999. Also included in the costs of revenue in the quarter ended December
31, 1999 was $0.6 million of non-recurring Year 2000 ("Y2K") support cost.
Gross margin as a percentage of revenue before the amortization of purchased
technology and Y2K support costs was 89.6% and 84.8% for the three months
ended December 31, 2000 and 1999, respectively. The increase in gross margin
was due primarily to shifts in license revenue mix.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three-month period ended
December 31, 2000 increased by $0.4 million over the prior year quarter, but as
a percentage of revenue fell to 28.2% from
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
32.4%. The percentage decrease was primarily due to improvement in product and
resource management resulting in lower headcount and the relocation of research
and development centers to Asia and Japan where costs are lower.
SALES AND MARKETING EXPENSES
Sales and marketing expenses for the three-month period ended
December 31, 2000 increased by $2.8 million from the comparable period in
fiscal 2000. As a percentage of revenue, sales and marketing expenses
increased from 21.5% in the three-month period ended December 31, 1999 to
25.2% in the current quarter. The increase in sales and marketing expense was
principally due to an increase in the size of the Company's direct sales
force and related commissions and the expansion of our distribution channels
to position the Company for growth in markets beyond the PC market.
Management has made a conscious effort to increase sales and marketing
efforts through the reallocation of resources.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three-month period ended
December 31, 2000, increased by $0.8 million from the comparable period in
fiscal 2000. As a percentage of revenue, general and administrative expenses
decreased from 14.5% to 14.2% in the three-month period ended December 31,
2000 compared to the quarter ended December 31, 1999. The slight percentage
decrease was due to efficiency improvement in infrastructure costs.
AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS
Amortization of goodwill and acquired intangible assets included in
operating expense was $0.6 million for both the first quarters of fiscal 2001
and 2000. Amortization of goodwill and acquired intangible asset relates
primarily to the acquisition of Sand Microelectronics, Inc. in September 1998.
STOCK-BASED COMPENSATION
The stock-based compensation charges in both quarters presented were
mostly due to the granting of options to purchase inSilicon stock at exercise
prices less than the fair market value of inSilicon common stock on the grant
date.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, for the three month period ended
December 31, 2000 increased 10.3% from the comparable period in fiscal 2000
primarily due to improved interest income related to higher cash balances as a
result of the proceeds inSilicon received from the initial public offering of
inSilicon stock in the second quarter of fiscal 2000, offset by foreign currency
exchange losses.
Page 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PROVISION FOR INCOME TAXES
The Company recorded an income tax provision of $2.4 million for
three-month period ended December 31, 2000, as compared to $1.3 million in the
comparable period in fiscal 2000. The provisions for income taxes reflect
effective tax rates of 30.9% and 32.0%, respectively. The decrease in the
effective tax rate is immaterial. For federal income tax purposes, the Company
does not file a consolidated return with inSilicon as the Company owns less than
80% of the voting stock issued and outstanding as of December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company' principal source of liquidity
consisted of cash and cash equivalents, and short-term investments totaling $94
million. Cash and cash equivalents of $58.9 million as of December 31, 2000
included $12.4 million restricted and owned by inSilicon. The primary sources of
cash during the first three months of fiscal 2001 were $6.0 million from
operating activities, net sales of short-term investments of $17.1 million and
proceeds from issuance of stock under various stock plans of $3.6 million. The
primary uses of cash during the first three months of fiscal 2001 were $15.9
million for the repurchase of common stock, $2.9 million for the purchase of
property, equipment and computer software and $2.9 million for the acquisition
of Xentec, Inc.
The Company believes that current cash, short-term investment balances
and cash flow from operations will be sufficient to meet its operating and
capital requirements on a short-term and long-term basis.
Page 13
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, 2000.
Page 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) None
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter
ended December 31, 2000.
Page 15
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOENIX TECHNOLOGIES LTD.
Date: February 14, 2001
By: /s/ JOHN M. GREELEY
---------------------------
John M. Greeley
Senior Vice President
and Chief Financial Officer
Page 16