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Pixelworks Revises Second Quarter 2003 Tax Provision As a Result of Termination of Merger Agreement With Genesis Microchip
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TUALATIN, Ore.--(BUSINESS WIRE)--Aug. 14, 2003--Pixelworks, Inc. (Nasdaq:PXLW), a leading provider of system-on-a-chip ICs for the advanced display industry, today announced that it has revised its second quarter 2003 tax provision from the amount reported on July 16, 2003 in the Company's second quarter earnings release. The revision is due to merger-related expenses that became deductible for tax purposes upon the termination of the merger agreement with Genesis Microchip.
Relative to previously announced financial results for the second quarter of 2003, the Company's tax provision decreased to $351,000 from $970,000. Accordingly, net income in accordance with accounting principles generally accepted in the United States of America (GAAP) in the second quarter of 2003 was $420,000, or $0.01 per basic and diluted share, which compared to a previously reported net loss of ($199,000), or ($0.00) per basic and diluted share. There was no change to pro forma financial results for the second quarter.
The Company also announced that it will enter into a contract with its subsidiary in Canada that will enable the Company to benefit on a tax basis from research and development expenses incurred in Canada. Implementation of this contract had been delayed as a result of the pending merger. Upon termination of the merger agreement, the business reasons for entering into the contract again became appropriate. This contract will result in a one-time tax provision charge of approximately $1.0 million in the third quarter, but will offer long-term benefits by reducing the Company's effective tax rate in future periods.
Because merger-related expenses are now deductible for tax purposes, the Company expects to have tax provisions that are different for GAAP and pro forma purposes for the remainder of 2003. The Company expects the tax provision on a GAAP basis to be approximately 23 to 27 percent of income before taxes in 2003, before the one-time approximately $1.0 million tax provision charge in the third quarter. On a pro forma basis, the Company expects the tax provision to be approximately 34 to 38 percent of pro forma income before income taxes, before the one-time $1.0 million tax provision charge in the third quarter.
Pro forma income (loss) before income taxes represents income (loss) before income taxes excluding merger-related expenses and non-cash expenses for the amortization of developed technology, amortization of assembled workforce, in-process research and development expense, and amortization of deferred stock compensation. Pro forma income (loss) before income taxes excluding these expenses differs from income (loss) before income taxes in accordance with GAAP.
The GAAP and pro forma financial statements for the second quarter of 2003, as well as a detailed reconciliation between GAAP and pro forma net income (loss), is included in this press release.
About Pixelworks, Inc.
Pixelworks, headquartered in Tualatin, Oregon, is a leading provider of system-on-a-chip ICs for the advanced display market. Pixelworks' solutions process and optimize video, computer graphics and Web information for display on a wide variety of devices used in business and consumer markets, including flat-panel monitors, digital televisions and multimedia projectors. Our broad IC product line is used by the world's leading manufacturers of consumer electronics and computer display products to enhance image quality and ease of use. For more information, please visit the Company's Web site at www.pixelworks.com.
Pixelworks is a trademark of Pixelworks, Inc. All other trademarks and registration marks are the property of their respective corporations.
Safe Harbor Statement
This press release contains statements, including statements regarding the Company's expectations as to its income tax provision for 2003 that are forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Such statements are based on current expectations, estimates and projections about the company's business. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including those described above and the following: business and economic conditions, changes in growth in the flat panel monitor, multimedia projector, and advanced television industries, changes in customer ordering patterns, competitive factors, such as rival chip architectures, pricing pressures, insufficient, excess or obsolete inventory and variations in inventory valuation, continued success in technological advances, shortages of manufacturing capacity from our third-party foundries, litigation involving antitrust and intellectual property, the non-acceptance of the combined technologies by leading manufacturers, and other risk factors listed from time to time in the company's Securities and Exchange Commission filings. In addition, such statements are subject to the risks inherent in investments in and acquisitions of technologies and businesses, including the timing and successful completion of technology and product development through volume production, integration issues, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, potential contractual, intellectual property or employment issues, accounting treatment and charges, and the risks that the investment or acquisition cannot be completed successfully or that anticipated benefits are not realized. The forward-looking statements contained in this press release speak only as of the date on which they are made, and the company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this news release. If the company does update one or more forward-looking statements, investors and others should not conclude that the company will make additional updates with respect thereto or with respect to other forward-looking statements.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(GAAP BASIS)
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenue $32,559 $24,644 $64,564 $46,649
Cost of revenue (1) 17,880 12,266 35,172 22,810
-------- -------- -------- --------
Gross profit 14,679 12,378 29,392 23,839
Operating expenses:
Research and development 6,250 5,275 12,344 10,727
Selling, general and
administrative 6,093 5,839 12,134 11,027
Amortization of assembled
workforce 242 - 485 -
In-process research and
development - - - 4,200
Amortization of deferred
stock-based compensation 226 170 388 1,191
Merger-related expenses 1,398 - 2,977 -
-------- -------- -------- --------
Total operating
expenses 14,209 11,284 28,328 27,145
-------- -------- -------- --------
Income (loss) from
operations 470 1,094 1,064 (3,306)
Interest income, net 301 594 680 1,238
-------- -------- -------- --------
Income (loss) before
income taxes 771 1,688 1,744 (2,068)
Provision for income taxes 351 327 1,076 478
-------- -------- -------- --------
Net income (loss) $420 $1,361 $668 $(2,546)
======== ======== ======== ========
Net income (loss) per share:
Basic $0.01 $0.03 $0.01 $(0.06)
======== ======== ======== ========
Diluted $0.01 $0.03 $0.01 $(0.06)
======== ======== ======== ========
Weighted average shares:
Basic 45,184 42,804 45,106 42,613
Diluted 46,390 44,298 46,364 42,613
(1) Includes amortization of acquired developed technology of $132
for each of the three months ended June 30, 2003 and 2002, and $264
and $220 for the six months ended June 30, 2003 and 2002,
respectively.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (PRO FORMA BASIS)
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenue $32,559 $24,644 $64,564 $46,649
Cost of revenue 17,748 12,134 34,908 22,590
-------- -------- -------- --------
Pro forma gross profit 14,811 12,510 29,656 24,059
Operating expenses:
Research and development 6,250 5,275 12,344 10,727
Selling, general and
administrative 6,093 5,839 12,134 11,027
-------- -------- -------- --------
Total operating expenses 12,343 11,114 24,478 21,754
-------- -------- -------- --------
Pro forma income from
operations 2,468 1,396 5,178 2,305
Interest income, net 301 594 680 1,238
-------- -------- -------- --------
Pro forma income before
income taxes 2,769 1,990 5,858 3,543
Provision for income taxes 970 327 1,695 478
-------- -------- -------- --------
Pro forma net income $1,799 $1,663 $4,163 $3,065
======== ======== ======== ========
Pro forma net income per share:
Basic $0.04 $0.04 $0.09 $0.07
======== ======== ======== ========
Diluted $0.04 $0.04 $0.09 $0.07
======== ======== ======== ========
Weighted average shares:
Basic 45,184 42,804 45,106 42,613
Diluted 46,390 44,298 46,364 44,349
The above pro forma financial statements are presented for
informational purposes only. Our presentation of pro forma financial
information excludes non-cash expenses resulting from acquisitions and
the issuance of stock options, as well as unusual or infrequent
expenses that are not directly attributable to our ongoing operations
and are expected to be incurred over a limited period of time.
Because of these exclusions, our presentation is not in accordance
with accounting principles generally accepted in the United States of
America (GAAP). Additionally, our presentation of pro forma financial
information may not be consistent with that of other companies.
We believe that the exclusion of intangible non-cash charges may
help the investor better understand our liquidity position and the use
of tangible resources in our operations, and the exclusion of unusual
or infrequent items provides an alternative measure which may help the
investor evaluate our underlying operating performance. Pro forma
information is not, and should not be considered, a substitute for
financial information prepared in accordance with GAAP.
PIXELWORKS, INC.
RECONCILIATION OF GAAP TO PRO FORMA BASIS
(In thousands, except per share data)
(Unaudited)
Three Months Three Months
Ended Ended
June 30, 2003 June 30, 2002
------------------- --------------------
GAAP Adjust- Pro GAAP Adjustments Pro
ments forma forma
------- ------- ------- ------- ------- --------
Revenue $32,559 $- $32,559 $24,644 $- $24,644
Cost of revenue 17,880 (132)(1) 17,748 12,266 (132)(1) 12,134
------- ------- ------- ------- ------- -------
Gross
profit 14,679 132 14,811 12,378 132 12,510
Operating expenses:
Research and
development 6,250 - 6,250 5,275 - 5,275
Selling, general
and
administra-
tive 6,093 - 6,093 5,839 - 5,839
Amortization of
assembled
workforce 242 (242)(2) - - - -
Amortization of
deferred stock-
based
compensation 226 (226)(3) - 170 (170)(3) -
Merger-related
expenses 1,398(1,398)(4) - - - -
------- ------- ------- ------- ------- -------
Total
operating
expenses 14,209 (1,866) 12,343 11,284 (170) 11,114
------- ------- ------- ------- ------- -------
Income from
operations 470 1,998 2,468 1,094 302 1,396
Interest
income,
net 301 - 301 594 - 594
------- ------- ------- ------- ------- -------
Income
before
income
taxes 771 1,998 2,769 1,688 302 1,990
Provision for income
taxes 351 619(4) 970 327 - 327
------- ------- ------- ------- ------- -------
Net income $420 $1,379 $1,799 $1,361 $302 $1,663
======= ======= ======= ======= ======= =======
Net income per share:
Basic $0.01 $0.04 $0.03 $0.04
======= ======= ======= =======
Diluted $0.01 $0.04 $0.03 $0.04
======= ======= ======= =======
Weighted average
shares:
Basic 45,184 45,184 42,804 42,804
Diluted 46,390 46,390 44,298 44,298
(1) Non-cash expenses for amortization of value assigned to an
acquired company's developed and other core technology at time of
acquisition.
(2) Non-cash expenses for amortization of intangible assets,
consisting of assembled workforce recorded in connection with the
asset acquisition of Jaldi Semiconductor.
(3) Non-cash expenses associated with certain stock options issued
to employees prior to the company's Initial Public Offering and to
employees of acquired companies.
(4) Expenses related to the proposed merger with Genesis Microchip
and related tax effect.
PIXELWORKS, INC.
RECONCILIATION OF GAAP TO PRO FORMA BASIS
(In thousands, except per share data)
(Unaudited)
Six Months Ended Six Months Ended
June 30, 2003 June 30, 2002
---------------------------- ------------------------
GAAP Adjust- Pro GAAP Adjustments Pro
ments forma forma
------- ------- ------- ------- ------- --------
Revenue $64,564 $- $64,564 $46,649 $- $46,649
Cost of
revenue 35,172 (264)(1) 34,908 22,810 (220)(1) 22,590
------- -------- ------- ------- -------- -------
Gross
profit 29,392 264 29,656 23,839 220 24,059
Operating expenses:
Research and
development 12,344 - 12,344 10,727 - 10,727
Selling, general
and administra-
tive 12,134 - 12,134 11,027 - 11,027
Amortization of
assembled
workforce 485 (485)(2) - - - -
In-process
research and
development - - - 4,200 (4,200)(3) -
Amortization of
deferred stock-
based
compensation 388 (388)(4) - 1,191 (1,191)(4) -
Merger-related
expenses 2,977 (2,977)(5) - - - -
------- -------- ------- ------- -------- -------
Total
operating
expenses 28,328 (3,850) 24,478 27,145 (5,391) 21,754
------- -------- ------- ------- -------- -------
Income (loss)
from
operations 1,064 4,114 5,178 (3,306) 5,611 2,305
Interest
income,
net 680 - 680 1,238 - 1,238
------- -------- ------- ------- -------- -------
Income (loss)
before income
taxes 1,744 4,114 5,858 (2,068) 5,611 3,543
Provision for income
taxes 1,076 619(5) 1,695 478 - 478
------- -------- ------- ------- -------- -------
Net income
(loss) $668 $3,495 $4,163 $(2,546)$5,611 $3,065
==== ====== ====== ====== ===== =====
Net income (loss) per
share:
Basic $0.01 $0.09 $(0.06) $0.07
======== ======== ======== ========
Diluted $0.01 $0.09 $(0.06) $0.07
======== ======== ======== ========
Weighted average
shares:
Basic 45,106 45,106 42,613 42,613
Diluted 46,364 46,364 42,613 44,349
(1) Non-cash expenses for amortization of value assigned to an
acquired company's developed and other core technology at time of
acquisition.
(2) Non-cash expenses for amortization of intangible assets,
consisting of assembled workforce recorded in connection with the
asset acquisition of Jaldi Semiconductor.
(3) A one-time, non-cash expense for the value assigned to an
acquired company's existing research and development projects at time
of acquisition.
(4) Non-cash expenses associated with certain stock options issued
to employees prior to the company's Initial Public Offering and to
employees of acquired companies.
(5) Expenses related to the proposed merger with Genesis Microchip
and related tax effect.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, Dec. 31,
2003 2002
----------- ---------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $88,760 $62,152
Short-term marketable securities 13,051 24,915
Accounts receivable, net 10,230 10,421
Inventories, net 9,722 6,788
Prepaid expenses and other current assets 4,215 3,896
----------- ---------
Total current assets 125,978 108,172
Long-term marketable securities 4,089 14,500
Property and equipment, net 8,502 9,073
Goodwill 82,548 82,548
Acquired intangible assets 5,133 5,882
Other assets, net 6,518 7,037
----------- ---------
Total assets $232,768 $227,212
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $7,030 $5,084
Accrued liabilities and current portion of
long-term debt 9,154 7,312
----------- ---------
Total current liabilities 16,184 12,396
Shareholders' equity 216,584 214,816
----------- ---------
Total liabilities and
shareholders' equity $232,768 $227,212
=========== =========
CONTACT: Pixelworks, Inc.
Investor Inquiries
Jeff Bouchard
503/454-1750 ext. 604
jeffb@pixelworks.com www.pixelworks.com
or
Pixelworks, Inc.
Media Inquiries
Chris Bright
503/454-1750 ext. 594
cbright@pixelworks.com
SOURCE: Pixelworks, Inc.