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 June 30, 2009
OR
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
Commission File Number: 001-15473
OPENTV CORP.
(Exact name of registrant as specified in its
charter)
|
|
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British Virgin Islands
|
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98-0212376
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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|
|
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275 Sacramento Street
San Francisco, California
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94111
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(Address of principal executive offices)
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(Zip Code)
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(415) 962-5000
(Registrants telephone number, including area code)
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
¨
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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|
|
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Large accelerated filer
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¨
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Accelerated filer
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x
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|
|
Non-accelerated filer
|
|
¨
(Do not check if a smaller reporting company)
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|
Smaller Reporting Company
|
|
¨
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
¨
No
x
As of June 30, 2009, the Registrant had outstanding:
107,915,234 Class A ordinary shares, no par value; and
30,206,154 Class B ordinary shares, no par
value.
Table of Contents
OpenTV, the OpenTV logo and our product and service names are trademarks, service marks or registered
trademarks or service marks of OpenTV Corp. or its subsidiaries in the United States and other countries. Other product and service names mentioned herein may be trademarks, service marks or registered trademarks or service marks of their respective
owners.
2
Part I. Financial Information
Item 1.
|
Financial Statements
|
OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
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June 30,
2009
|
|
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December 31,
2008 *
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ASSETS
|
|
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|
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|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
92,734
|
|
|
$
|
93,887
|
|
Short-term marketable debt securities
|
|
|
18,601
|
|
|
|
7,768
|
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Accounts receivable, net of allowance for doubtful accounts of $753 and $1,076 at June 30, 2009 and December 31, 2008, respectively
|
|
|
25,640
|
|
|
|
27,275
|
|
Prepaid expenses and other current assets
|
|
|
4,616
|
|
|
|
4,628
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
141,591
|
|
|
|
133,558
|
|
Long-term marketable debt securities
|
|
|
|
|
|
|
1,178
|
|
Property and equipment, net
|
|
|
7,215
|
|
|
|
7,974
|
|
Goodwill
|
|
|
95,424
|
|
|
|
95,250
|
|
Intangible assets, net
|
|
|
7,839
|
|
|
|
8,519
|
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Other assets
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|
|
2,244
|
|
|
|
2,471
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
254,313
|
|
|
$
|
248,950
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,919
|
|
|
$
|
2,287
|
|
Accrued liabilities
|
|
|
14,353
|
|
|
|
17,602
|
|
Accrued restructuring
|
|
|
213
|
|
|
|
238
|
|
Deferred revenue
|
|
|
22,966
|
|
|
|
16,130
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
39,451
|
|
|
|
36,257
|
|
Accrued liabilities, net of current portion
|
|
|
699
|
|
|
|
1,160
|
|
Accrued restructuring, net of current portion
|
|
|
1,141
|
|
|
|
1,146
|
|
Deferred revenue, net of current portion
|
|
|
15,703
|
|
|
|
17,092
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
56,994
|
|
|
|
55,655
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
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OpenTV Shareholders equity:
|
|
|
|
|
|
|
|
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Preference shares, no par value, 500,000,000 shares authorized; none issued and outstanding
|
|
|
|
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Class A ordinary shares, no par value, 500,000,000 shares authorized; 107,915,234 and 108,385,176 shares issued and outstanding,
including treasury shares, at June 30, 2009 and December 31, 2008, respectively
|
|
|
2,234,230
|
|
|
|
2,234,687
|
|
Class B ordinary shares, no par value, 200,000,000 shares authorized; 30,206,154 shares issued and outstanding at June 30, 2009 and
December 31, 2008
|
|
|
35,953
|
|
|
|
35,953
|
|
Additional paid-in capital
|
|
|
516,120
|
|
|
|
515,506
|
|
Treasury shares at cost, zero and 523,647 shares at June 30, 2009 and December 31, 2008, respectively
|
|
|
|
|
|
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(623
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,803
|
)
|
|
|
(2,163
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)
|
Accumulated deficit
|
|
|
(2,587,607
|
)
|
|
|
(2,590,496
|
)
|
|
|
|
|
|
|
|
|
|
Total OpenTV shareholders equity
|
|
|
196,893
|
|
|
|
192,864
|
|
Noncontrolling interest
|
|
|
426
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
197,319
|
|
|
|
193,295
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
254,313
|
|
|
$
|
248,950
|
|
|
|
|
|
|
|
|
|
|
*
|
The condensed consolidated balance sheet at December 31, 2008 has been derived from the companys audited consolidated financial statements at that date.
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
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|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties and licenses
|
|
$
|
19,527
|
|
|
$
|
18,196
|
|
|
$
|
41,154
|
|
|
$
|
40,417
|
|
Services and other
|
|
|
8,075
|
|
|
|
8,627
|
|
|
|
15,859
|
|
|
|
20,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
27,602
|
|
|
|
26,823
|
|
|
|
57,013
|
|
|
|
60,628
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties and licenses
|
|
|
964
|
|
|
|
1,323
|
|
|
|
1,933
|
|
|
|
2,746
|
|
Services and other
|
|
|
10,122
|
|
|
|
10,018
|
|
|
|
20,169
|
|
|
|
20,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
11,086
|
|
|
|
11,341
|
|
|
|
22,102
|
|
|
|
22,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,516
|
|
|
|
15,482
|
|
|
|
34,911
|
|
|
|
37,791
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,534
|
|
|
|
8,447
|
|
|
|
17,170
|
|
|
|
17,739
|
|
Sales and marketing
|
|
|
1,823
|
|
|
|
2,332
|
|
|
|
3,718
|
|
|
|
4,685
|
|
General and administrative
|
|
|
3,783
|
|
|
|
4,539
|
|
|
|
9,506
|
|
|
|
10,910
|
|
Restructuring and impairment
|
|
|
|
|
|
|
581
|
|
|
|
(7
|
)
|
|
|
581
|
|
Amortization of intangible assets
|
|
|
69
|
|
|
|
185
|
|
|
|
138
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
14,209
|
|
|
|
16,084
|
|
|
|
30,525
|
|
|
|
34,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) from operations
|
|
|
2,307
|
|
|
|
(602
|
)
|
|
|
4,386
|
|
|
|
3,506
|
|
Interest income
|
|
|
84
|
|
|
|
637
|
|
|
|
190
|
|
|
|
1,353
|
|
Other income (expense)
|
|
|
(424
|
)
|
|
|
392
|
|
|
|
(957
|
)
|
|
|
2,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income taxes
|
|
|
1,967
|
|
|
|
427
|
|
|
|
3,619
|
|
|
|
7,105
|
|
Income tax expense
|
|
|
265
|
|
|
|
406
|
|
|
|
730
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,702
|
|
|
|
21
|
|
|
|
2,889
|
|
|
|
6,336
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV
|
|
$
|
1,700
|
|
|
$
|
13
|
|
|
$
|
2,884
|
|
|
$
|
6,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV per share, basic
|
|
$
|
0.01
|
|
|
$
|
|
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV per share, diluted
|
|
$
|
0.01
|
|
|
$
|
|
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculation, basic
|
|
|
138,123,332
|
|
|
|
139,632,228
|
|
|
|
138,094,171
|
|
|
|
139,710,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculation, diluted
|
|
|
138,823,107
|
|
|
|
140,340,755
|
|
|
|
138,813,619
|
|
|
|
140,425,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,889
|
|
|
$
|
6,336
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
(5
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV
|
|
|
2,884
|
|
|
|
6,320
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
2,214
|
|
|
|
2,076
|
|
Amortization of intangible assets
|
|
|
680
|
|
|
|
2,050
|
|
Share-based compensation
|
|
|
819
|
|
|
|
1,841
|
|
Non-cash employee compensation
|
|
|
2
|
|
|
|
8
|
|
Provision for doubtful accounts
|
|
|
360
|
|
|
|
(95
|
)
|
Gain on sale of cost investment
|
|
|
|
|
|
|
(143
|
)
|
Gain on disposal of fixed assets
|
|
|
23
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
957
|
|
|
|
(10,600
|
)
|
Prepaid expenses and other current assets
|
|
|
12
|
|
|
|
(411
|
)
|
Other assets
|
|
|
227
|
|
|
|
(336
|
)
|
Accounts payable
|
|
|
(140
|
)
|
|
|
204
|
|
Accrued liabilities
|
|
|
(3,847
|
)
|
|
|
(2,283
|
)
|
Accrued restructuring
|
|
|
(30
|
)
|
|
|
(335
|
)
|
Deferred revenue
|
|
|
5,765
|
|
|
|
6,839
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
9,926
|
|
|
|
5,135
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,445
|
)
|
|
|
(2,030
|
)
|
Proceeds from sale of cost investment
|
|
|
|
|
|
|
1,882
|
|
Proceeds from disposal of property and equipment
|
|
|
2
|
|
|
|
|
|
Proceeds from sale of marketable debt securities
|
|
|
3,967
|
|
|
|
16,009
|
|
Purchase of marketable debt securities
|
|
|
(13,843
|
)
|
|
|
(3,644
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities of continuing operations
|
|
|
(11,319
|
)
|
|
|
12,217
|
|
Net cash provided by investing activities of discontinued operations
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(11,319
|
)
|
|
|
12,442
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repurchase of restricted shares
|
|
|
(99
|
)
|
|
|
(454
|
)
|
Repurchase of treasury shares
|
|
|
(228
|
)
|
|
|
|
|
Capital contribution from the former controlling shareholder
|
|
|
|
|
|
|
14,333
|
|
Proceeds from issuance of ordinary shares
|
|
|
21
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(306
|
)
|
|
|
13,890
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
546
|
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,153
|
)
|
|
|
31,120
|
|
Cash and cash equivalents, beginning of period
|
|
|
93,887
|
|
|
|
58,599
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
92,734
|
|
|
$
|
89,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
(441
|
)
|
|
$
|
(1,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion of exchangeable shares
|
|
$
|
18
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Retirement of treasury shares
|
|
$
|
623
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
In the opinion of
management, these unaudited condensed consolidated interim financial statements (interim financial statements) have been prepared on the same basis as our December 31, 2008 audited consolidated financial statements and include all adjustments,
consisting of only normal closing adjustments, necessary to fairly state the information set forth within. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for interim period financial statements. These interim financial statements
should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.
Management has evaluated subsequent events through the date the interim financial statements were issued, which was August 7, 2009.
Principles of Consolidation
The accompanying interim financial statements include the accounts of OpenTV Corp., sometimes referred to herein as OpenTV, together with its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the 2009 presentation, primarily to account for a noncontrolling interest.
Use of Estimates
The
preparation of the accompanying interim financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. Significant estimates and assumptions include matters
related to revenue recognition, valuation allowances, impairments, restructuring costs and share-based compensation.
Note 2. Summary of Significant
Accounting Policies
Business Combinations
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141(Revised 2007),
Business Combinations
(SFAS
141(R))
.
Under SFAS 141(R), an acquiring entity is required to recognize all of the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) significantly changes the
accounting for business combinations. SFAS 141(R) also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after commencement of the first
annual reporting period beginning on or after December 15, 2008.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS
141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
(FSP FAS 141R-1). FSP FAS 141R-1 amends the guidance in SFAS 141(R) to address application issues associated
with initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS 141R-1 is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or after commencement of the first annual reporting period beginning on or after December 15, 2008.
The adoption of SFAS 141(R) and FSP FAS 141R-1 did not have a material impact on our financial statements. However, the adoption of SFAS 141(R) and FSP
FAS 141R-1 may cause any future business combinations into which we enter to have a significant impact on our financial statements as compared to our prior acquisitions which were accounted for according to the prior rules under GAAP.
6
Intangible Assets
In April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP FAS 142-3). FSP FAS 142-3
amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. The intent of FSP FAS 142-3 is to improve the consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other related rules under GAAP. FSP FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The adoption of FSP FAS 142-3 did not have a material impact on our financial statements.
Noncontrolling Interest
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51
(SFAS 160)
.
SFAS 160 establishes new accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years. The adoption of SFAS 160
did not have a material impact on our financial statements. Upon adoption of SFAS 160, we reclassified a noncontrolling interest as a separate component of equity and noncontrolling interest income to net income attributable to noncontrolling
interest in our financial statements. In addition, we disclosed the noncontrolling interest component in the comprehensive income footnote as required by SFAS 160.
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS
No. 168,
The FASB Accounting Standards Codification
TM
and the Hierarchy of
Generally Accepted Accounting Principles - A Replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 identifies the FASB Accounting Standards Codification as the authoritative source of
GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. We do not expect SFAS 168 to have a material impact on our financial statements.
In April 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS 165). SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. SFAS 165 is effective for financial statements issued for interim and annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on our financial
statements. Management has evaluated subsequent events through the date the interim financial statements were issued, which was August 7, 2009.
In April 2009, the FASB issued FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
(FSP FAS 157-4). FSP FAS 157-4 provides additional guidance on factors to consider in estimating fair value when there has been a significant decrease in market activity for a financial asset. FSP FAS 157-4 applies prospectively; retrospective
application is not permitted. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 157-4 did not have a material impact on our financial statements.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments
(FSP FAS
115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 changes the method for determining whether an other-than-temporary impairment exists for debt securities and the requirements for measurement and presentation of such impairment. FSP FAS 115-2 and
FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact on our financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments
(FSP FAS
107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 requires an entity to provide disclosures about the fair value of its financial instruments in interim reporting periods and annual reporting periods. FSP FAS 107-1 and APB 28-1 is effective for
interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on our financial statements.
7
Note 3. Net Income Per Share
Basic net income per share is computed using the weighted average number of ordinary shares outstanding during the periods presented. Diluted net income per share is computed using the weighted average number of
common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consists of incremental ordinary shares issuable upon the exercise of stock options (using the treasury stock method) and ordinary shares
issuable in exchange for shares of common stock (using the if-converted method) of OpenTV, Inc., our subsidiary.
The following table sets
forth the computation of basic and diluted net income per share (in thousands, except for share and per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,702
|
|
|
$
|
21
|
|
|
$
|
2,889
|
|
|
$
|
6,336
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV
|
|
$
|
1,700
|
|
|
$
|
13
|
|
|
$
|
2,884
|
|
|
$
|
6,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
138,123,332
|
|
|
|
139,632,228
|
|
|
|
138,094,171
|
|
|
|
139,710,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
138,123,332
|
|
|
|
139,632,228
|
|
|
|
138,094,171
|
|
|
|
139,710,747
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A ordinary shares issuable upon exercise of stock options
|
|
|
62,598
|
|
|
|
54,961
|
|
|
|
74,076
|
|
|
|
58,807
|
|
Class A ordinary shares issuable for shares of OpenTV, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock (including shares of OpenTV, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock issuable upon exercise of stock options)
|
|
|
637,177
|
|
|
|
653,566
|
|
|
|
645,372
|
|
|
|
655,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
138,823,107
|
|
|
|
140,340,755
|
|
|
|
138,813,619
|
|
|
|
140,425,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV per share, basic
|
|
$
|
0.01
|
|
|
$
|
|
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV per share, diluted
|
|
$
|
0.01
|
|
|
$
|
|
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following weighted average items as of June 30, 2009 and 2008 were not included in the
computation of diluted net income per share because the effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Class A ordinary shares issuable upon exercise of stock options
|
|
4,826,723
|
|
5,569,798
|
|
4,848,286
|
|
5,582,744
|
8
Note 4. Balance Sheet Components (in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
|
December 31,
2008
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Value added tax
|
|
$
|
351
|
|
|
$
|
555
|
|
Current deferred tax asset
|
|
|
313
|
|
|
|
312
|
|
Prepaid rent
|
|
|
430
|
|
|
|
572
|
|
Deferred contract costs
|
|
|
1,105
|
|
|
|
719
|
|
Other
|
|
|
2,417
|
|
|
|
2,470
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,616
|
|
|
$
|
4,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Computers and equipment
|
|
$
|
16,142
|
|
|
$
|
15,383
|
|
Software
|
|
|
3,713
|
|
|
|
2,845
|
|
Furniture and fixtures
|
|
|
1,613
|
|
|
|
1,768
|
|
Leasehold improvements
|
|
|
2,994
|
|
|
|
2,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,462
|
|
|
|
22,965
|
|
Less: Accumulated depreciation and amortization
|
|
|
(17,247
|
)
|
|
|
(15,228
|
)
|
Add: Construction in progress
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,215
|
|
|
$
|
7,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,243
|
|
|
$
|
1,240
|
|
Deferred contract costs
|
|
|
737
|
|
|
|
958
|
|
Long-term deferred tax asset
|
|
|
248
|
|
|
|
258
|
|
Other
|
|
|
16
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,244
|
|
|
$
|
2,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities (current and non-current):
|
|
|
|
|
|
|
|
|
Accrued payroll and related liabilities
|
|
$
|
7,911
|
|
|
$
|
11,251
|
|
Accrued professional fees
|
|
|
1,113
|
|
|
|
1,286
|
|
Accrued income taxes
|
|
|
1,857
|
|
|
|
1,799
|
|
Deferred rent
|
|
|
617
|
|
|
|
1,043
|
|
Other
|
|
|
3,554
|
|
|
|
3,383
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,052
|
|
|
$
|
18,762
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 and December 31, 2008, accounts receivable included approximately
$1.5 million and $0.3 million, respectively, of unbilled receivables.
Note 5. Goodwill
As of June 30, 2009, our goodwill balance related to (i) our acquisitions of Wink Communications, Inc., ACTV Inc., BettingCorp, substantially
all of the assets of CAM Systems, LLC, and Ruzz TV Pty Ltd, and (ii) our acquisition of noncontrolling interests upon the conversions of OpenTV, Inc. shares to OpenTV Corp. shares.
We acquired Ruzz TV in September 2008 for an up-front cash payment of $0.2 million. During the three months ended June 30, 2009, we recorded
approximately $0.2 million of additional goodwill related to contingent consideration earned by Ruzz TV in June 2009 upon achievement of a specified revenue target.
Minority stockholders of OpenTV, Inc., which is a subsidiary of ours that is not publicly traded, have the ability, under certain arrangements, to exchange their shares of OpenTV, Inc. for our Class A ordinary
shares, generally on a one-for-one basis. As the shares are exchanged, they are accounted for at fair value. This accounting effectively provides that at each exchange date, the exchange is accounted for as a purchase by us of a noncontrolling
interest in OpenTV, Inc., valued at the number of our Class A ordinary shares issued to effect the exchange multiplied by the market price of a Class A ordinary share on that date, as such price is reported on The NASDAQ Stock Market.
9
Note 6. Intangible Assets
The components of intangible assets, net, excluding goodwill, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
Useful
Life in
Years
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Net Carrying
Amount
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
13
|
|
$
|
14,102
|
|
$
|
(6,508
|
)
|
|
$
|
7,594
|
|
$
|
8,136
|
Contracts and relationships
|
|
5
|
|
|
1,000
|
|
|
(767
|
)
|
|
|
233
|
|
|
333
|
Trademarks
|
|
4
|
|
|
300
|
|
|
(288
|
)
|
|
|
12
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,402
|
|
$
|
(7,563
|
)
|
|
$
|
7,839
|
|
$
|
8,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intangible assets are being amortized on a straight-line basis over their estimated useful
lives. Aggregate amortization of intangible assets was $0.4 million and $1.0 million for the three months ended June 30, 2009 and 2008, respectively, and $0.7 million and $2.0 million for the six months ended June 30, 2009 and
2008, respectively. Of the aggregate amount, $0.3 million and $0.8 million were reported in cost of revenues (royalties and licenses) in the statement of operations for the three months ended June 30, 2009 and 2008, respectively, and
$0.5 million and $1.6 million for the six months ended June 30, 2009 and 2008, respectively.
The future annual amortization expense
is expected to be as follows (in thousands):
|
|
|
|
Year Ending December 31,
|
|
Amortization
Expense
|
2009 (remaining six months)
|
|
$
|
655
|
2010
|
|
|
1,218
|
2011
|
|
|
1,085
|
2012
|
|
|
1,085
|
2013
|
|
|
1,085
|
2014
|
|
|
1,085
|
Thereafter
|
|
|
1,626
|
|
|
|
|
|
|
$
|
7,839
|
|
|
|
|
Note 7. Restructuring and Impairment Costs
We continuously monitor our organizational structure and associated operating expenses. Depending upon events and circumstances, actions may be taken to
restructure the business. Restructuring activities could include terminating employees, abandoning excess leased space and incurring other exit costs. Restructuring costs are recorded in accordance with SFAS No. 146,
Accounting for
Costs Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 requires that a liability for the cost associated with an exit or disposal activity be recognized when the liability is incurred. Any resulting restructuring costs
depend on numerous estimates made by us based on our knowledge of the activity being affected, the cost to exit existing commitments and fair value estimates. These estimates could differ from actual results. We monitor the initial estimates
periodically and record an adjustment for any significant changes in estimates.
10
The following sets forth the restructuring activity during the three and six months ended June 30,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance
and Benefits
|
|
|
Excess
Facilities
|
|
|
Total
|
|
Balance, December 31, 2008
|
|
$
|
14
|
|
|
$
|
1,370
|
|
|
$
|
1,384
|
|
Reversal
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Cash payments
|
|
|
(7
|
)
|
|
|
(12
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
|
|
|
|
1,358
|
|
|
|
1,358
|
|
Cash payments
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$
|
|
|
|
$
|
1,354
|
|
|
$
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding accrual for excess facilities relates to operating lease obligations that expire
in 2016.
Note 8. Comprehensive Income
The components of comprehensive income, net of tax, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Reported net income
|
|
$
|
1,702
|
|
|
$
|
21
|
|
|
$
|
2,889
|
|
|
$
|
6,336
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains (losses)
|
|
|
799
|
|
|
|
(64
|
)
|
|
|
581
|
|
|
|
(262
|
)
|
Unrealized losses on available-for-sale investments, net of income taxes
|
|
|
(158
|
)
|
|
|
(29
|
)
|
|
|
(221
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,343
|
|
|
$
|
(72
|
)
|
|
$
|
3,249
|
|
|
$
|
5,942
|
|
Comprehensive income attributable to the noncontrolling interest
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to OpenTV
|
|
$
|
2,341
|
|
|
$
|
(80
|
)
|
|
$
|
3,244
|
|
|
$
|
5,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. Share-based Compensation Plans
Employee Stock Purchase Plan
We have an Amended and Restated 1999 Employee Stock Purchase Plan, or ESPP. Our board of directors suspended the ESPP in 2003, and no options or purchase rights are currently outstanding under the ESPP. The ESPP terminates on
December 31, 2009.
Option Plans
Options are currently outstanding under the following plans: (i) the Amended and Restated OpenTV Corp. 1999 Share Option/Share Issuance Plan (1999 Plan); (ii) the Amended and Restated OpenTV, Inc. 1998
Option/Stock Issuance Plan (1998 Plan); (iii) the OpenTV Corp. 2001 Nonstatutory Stock Option Plan (2001 Plan); (iv) the OpenTV Corp. 2003 Incentive Plan (2003 Plan); (v) the OpenTV Corp. 2005 Incentive Plan (2005 Plan);
(vi) option plans relating to outstanding options assumed in connection with the Spyglass merger (collectively, the Assumed Spyglass Plan); and (vii) option plans relating to outstanding options assumed in connection with the ACTV merger
(collectively, the Assumed ACTV Plan).
As a result of our shareholders approval of the 2005 Plan on November 10, 2005, no
further awards will be granted under the 1999 Plan, 2001 Plan or 2003 Plan. The 1999 Plan, 2001 Plan and 2003 Plan remain in existence for the sole purpose of governing outstanding options issued thereunder until such time as such options expire or
have been exercised or cancelled. Options issued under the 1999 Plan, 2001 Plan and 2003 Plan that are forfeited or cancelled are no longer available for future issuance.
2005 Plan.
We currently issue options and restricted share awards under the 2005 Plan. The compensation and nominating committee of our board of directors administers the 2005 Plan. The compensation and
nominating committee has the discretion to determine grant recipients, the number and exercise price of stock options, and the number of stock appreciation rights, share awards or share units issued under the 2005 Plan. The options may be incentive
stock options or nonstatutory stock options. Options under the 2005 Plan are granted at an exercise price equal to the fair market value of the underlying shares on the date of grant and typically vest 25% after one year from the date of grant and
1/48th over each of the next 36 months. The term of the options generally is 10 years from the date of grant. Unexercised options generally expire 90 days after termination of employment and are then returned to the pool available for
reissuance. A total of 7,955,896 Class A ordinary shares have been reserved for issuance under the 2005 Plan since its inception. As of June 30, 2009, options to purchase 2,291,104 Class A ordinary shares were outstanding under the
2005 Plan, and 2,328,627 shares were available for future grant.
11
2003 Plan.
Options that were issued under the 2003 Plan were generally granted at an exercise
price equal to the fair market value of the underlying shares on the date of grant and, for grants made through the end of 2004, vested 25% after two years from the date of grant and 25% yearly thereafter for the following three years. In 2005, we
revised the vesting schedule to be consistent with the schedule generally applicable under the 1999 and 2001 Plans. The term of the options generally was 10 years from the date of grant. Unexercised options generally expire 90 days after
termination of employment. A total of 5,000,000 Class A ordinary shares were reserved for issuance under the 2003 Plan. As of June 30, 2009, options to purchase 1,083,257 Class A ordinary shares were outstanding under the 2003 Plan.
2001 Plan.
Options that were issued under the 2001 Plan were generally granted at an exercise price equal to the fair market value
of the underlying shares on the date of grant and vested 25% after one year from the date of grant and 1/48th over each of the next 36 months. The term of the options generally was 10 years from the date of grant. Unexercised options
generally expire 90 days after termination of employment with us. A total of 500,000 Class A ordinary shares were reserved for issuance under the 2001 Plan. As of June 30, 2009, options to purchase 135,034 Class A ordinary shares were
outstanding under the 2001 Plan.
1999 Plan.
Options that were issued under the 1999 Plan were generally granted at an exercise
price equal to the fair market value of the underlying shares on the date of grant and vested 25% after one year from the date of grant and 1/48th over each of the next 36 months. The term of the options generally was 10 years from the
date of grant. Unexercised options generally expire three months after termination of employment. A total of 8,980,000 Class A ordinary shares were reserved for issuance under the 1999 Plan. As of June 30, 2009, options to purchase
1,295,960 Class A ordinary shares were outstanding under the 1999 Plan.
1998 Plan.
Effective as of October 23, 1999,
options to purchase 5,141,114 shares of Class A common stock of OpenTV, Inc. under the 1998 Plan were assigned to and assumed by us, and these options thereafter represented the right to purchase under the 1999 Plan an identical number of our
Class A ordinary shares. The remainder of the options then outstanding under the 1998 Plan were not assigned to and assumed by us. OpenTV, Inc. no longer issues options from the 1998 Plan. The 1998 Plan remains in existence for the sole purpose
of governing those remaining outstanding options until such time as such options expire or have been exercised or cancelled and the underlying shares have become transferable by the holders. Options or shares awarded under the 1998 Plan that are
forfeited or cancelled will no longer be available for issuance. As of June 30, 2009, options to purchase 42,000 shares of OpenTV, Inc.s Class A common stock were outstanding under the 1998 Plan.
Assumed Plans.
Options outstanding under the Assumed Spyglass Plan were converted as a result of the Spyglass acquisition into options to purchase
our Class A ordinary shares. As of June 30, 2009, options to purchase 92,734 Class A ordinary shares were outstanding under the Assumed Spyglass Plan.
Options outstanding under the Assumed ACTV Plan were converted as a result of the ACTV acquisition into options to purchase our Class A ordinary shares. As of June 30, 2009, options to purchase 1,060
Class A ordinary shares were outstanding under the Assumed ACTV Plan.
Options outstanding under the Assumed Spyglass Plan and Assumed
ACTV Plan that are forfeited or cancelled will no longer be available for reissuance. No new options will be granted under either the Assumed Spyglass Plan or the Assumed ACTV Plan.
Restricted Shares Issued to Employees
In December 2007, we issued 1,211,250 restricted Class A ordinary shares under our 2005 Plan to employees in lieu of an annual stock option grant (2007 Restricted Shares). The 2007 Restricted Shares are restricted from sale or
transfer and subject to forfeiture for a period of time that is equivalent to the normal vesting schedule applied to stock options granted under the 2005 Plan. In the event that an employee holding 2007 Restricted Shares is terminated, whether
voluntarily or otherwise, then any 2007 Restricted Shares that have not vested as of the termination date will be forfeited and cancelled, except that our Chief Executive Officer has the right, in certain cases as set forth in his employment
agreement (such as his termination without cause or resignation for good reason), to accelerated lapsing of restrictions on a portion of his 2007 Restricted Shares.
12
As of June 30, 2009, an aggregate of 191,658 of such 2007 Restricted Shares had been forfeited and
cancelled as a result of employee terminations. In accordance with the 2005 Plan, such cancelled shares were returned to the pool available for reissuance.
Restrictions on the sale or transfer of the 2007 Restricted Shares lapsed as to 25% of such shares in December 2008, and thereafter lapse as to 1/48th of such shares over each of the remaining 36 months. As of
June 30, 2009, restrictions as to an aggregate of 387,848 of the 2007 Restricted Shares had lapsed and we had withheld an aggregate of 131,681 of such shares to satisfy applicable withholding tax liabilities. As of June 30, 2009, 631,787
of the 2007 Restricted Shares were outstanding and subject to restrictions.
In March 2008, we issued 100,000 restricted Class A
ordinary shares under our 2005 Plan to our Executive Chairman. Such shares are restricted as to sale or transfer for a period of four years from the date of grant.
In November 2008, we issued 100,000 restricted Class A ordinary shares under our 2005 Plan to our Chief Executive Officer pursuant to the terms of his employment agreement. The restrictions as to sale or transfer
of such shares lapse with respect to one-third of the restricted shares on each of March 5, 2009, 2010 and 2011. As of June 30, 2009, restrictions as to 33,333 of such shares had lapsed and we withheld 12,864 of such shares to satisfy
applicable withholding tax liabilities.
In March 2009, we issued 100,000 restricted Class A ordinary shares under our 2005 Plan to
our Chief Executive Officer pursuant to the terms of his employment agreement. The restrictions as to sale or transfer of such shares lapse with respect to one-third of the restricted shares on each of January 1, 2010, 2011 and 2012.
2007 Management Bonus and Equity Issuance Plan (2007 Plan)
In August 2007, our board of directors approved the adoption of the 2007 Plan, which was a special bonus plan designed both to better align management
with certain profitability targets established by our board of directors and as a management retention mechanism following the change in control of our company in January 2007. The profitability targets were based on cumulative net income of the
company, as measured over any four consecutive fiscal quarters during the period commencing April 1, 2007 and ending December 31, 2009, with cumulative net income being based on net income as publicly reported in the financial statements
of the company, subject to certain exclusions. The plan provided for bonus awards, comprised of a combination of a cash amount and a grant of restricted Class A ordinary shares pursuant to our 2005 Incentive Plan. The 2007 Plan provided for the
vesting of the restricted shares and the right to receive the cash component, in each case on a pro rata basis, in accordance with the following schedule: (i) 62.5% upon our achievement of cumulative net income equal to or greater than zero,
(ii) 12.5% upon our achievement of cumulative net income equal to or greater than $4,000,000, and (iii) 25% upon our achievement of cumulative net income equal to or greater than $6,000,000.
As defined by SFAS No. 123 (revised 2004),
Share-based Payment,
(SFAS 123(R)), the 2007 Plan allows for both performance and
service elements. Accordingly, once vesting is considered probable, we recognize expense on a straight-line basis over the remaining requisite service period. Final compensation cost is recognized only for awards that ultimately vest. As part of the
2007 Plan, 1,020,232 Class A ordinary shares were issued in August 2007 as 2007 Management Restricted Shares.
All of the
profitability targets under the 2007 Plan were achieved in May 2008. At such time, restrictions as to an aggregate of 929,767 of the 2007 Management Restricted Shares lapsed. We withheld an aggregate of 332,258 shares to satisfy applicable
withholding tax liabilities.
We recorded approximately $0.1 million and $0.9 million of share-based compensation expense related to
achievement of performance targets during the three and six months ended June 30, 2008, respectively.
13
Share-based Compensation Expenses
The impact on our results of operations of recording share-based compensation for the three and six months ended June 30, 2009 and 2008 was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Cost of revenues - services and other
|
|
$
|
70
|
|
$
|
91
|
|
$
|
152
|
|
$
|
329
|
Research and development
|
|
|
107
|
|
|
132
|
|
|
314
|
|
|
636
|
Sales and marketing
|
|
|
33
|
|
|
46
|
|
|
121
|
|
|
209
|
General and administrative
|
|
|
61
|
|
|
163
|
|
|
232
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
271
|
|
$
|
432
|
|
$
|
819
|
|
$
|
1,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No options were exercised during the three months ended June 30, 2009. Cash received from
option exercises under all share-based compensation plans was not significant for the six months ended June 30, 2009. Cash received from option exercises under all share-based compensation plans was not significant for the three and six months
ended June 30, 2008. No income tax benefit was recognized in the statement of operations for share-based compensation costs for the three and six months ended June 30, 2009 and 2008. No share-based compensation costs were capitalized for
the three and six months ended June 30, 2009 and 2008.
Valuation Assumptions
We calculated the fair value of each stock option award on the date of grant using the Black-Scholes valuation model. The assumptions used for our
calculations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Risk-free interest rates
|
|
1.74% - 2.79%
|
|
2.73% - 3.76%
|
|
1.38% - 2.79%
|
|
2.73% - 3.76%
|
Average expected lives (months)
|
|
61
|
|
63
|
|
61
|
|
63
|
Dividend yield
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
71%
|
|
62%
|
|
71%
|
|
62%
|
Our computations of expected volatility for the three and six months ended June 30, 2009 and
2008 were based on historical volatility of our share price. Our computations of expected life for the three and six months ended June 30, 2009 and 2008 were determined based on historical experience of similar awards, giving consideration to
the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior. The interest rates for periods within the contractual life of the awards are based on the similar United States Treasury yield curve in
effect at the time of grant. While we believe that these assumptions are reasonable, actual experience may differ materially from these assumptions.
We calculated the fair value of restricted shares based on the closing price of our Class A ordinary shares on the date of grant, as such price was quoted on The NASDAQ Stock Market.
Option Award Activity
The
following table summarizes stock option activity under our equity incentive plans during the three and six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
Outstanding
|
|
|
Exercise Price
|
|
Weighted
Average
Exercise Price
|
Balance, December 31, 2008
|
|
5,185,075
|
|
|
|
|
$
|
4.84
|
Options granted
|
|
77,200
|
|
|
$ 1.09 - $ 1.34
|
|
$
|
1.19
|
Options exercised
|
|
(20,100
|
)
|
|
$ 1.05
|
|
$
|
1.05
|
Options forfeited
|
|
(119,471
|
)
|
|
$ 1.03 - $ 3.16
|
|
$
|
2.19
|
Options expired
|
|
(147,250
|
)
|
|
$ 1.05 - $ 9.90
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
4,975,454
|
|
|
|
|
$
|
4.95
|
Options granted
|
|
74,400
|
|
|
$ 1.30 - $ 1.53
|
|
$
|
1.45
|
Options forfeited
|
|
(31,126
|
)
|
|
$ 1.07 - $ 2.99
|
|
$
|
1.72
|
Options expired
|
|
(77,579
|
)
|
|
$ 0.33 - $ 13.87
|
|
$
|
3.14
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
4,941,149
|
|
|
|
|
$
|
4.94
|
|
|
|
|
|
|
|
|
|
14
The following table summarizes information with respect to options outstanding at June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Currently Exercisable
|
Exercise Price
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Life
|
|
Weighted
Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise Price
|
$ 0.33 - $ 1.33
|
|
494,360
|
|
8.98
|
|
$
|
1.16
|
|
87,129
|
|
$
|
1.14
|
$ 1.34 - $ 2.16
|
|
517,995
|
|
8.21
|
|
$
|
1.57
|
|
154,555
|
|
$
|
1.64
|
$ 2.19 - $ 2.69
|
|
361,219
|
|
6.46
|
|
$
|
2.41
|
|
271,062
|
|
$
|
2.40
|
$ 2.70 - $ 2.70
|
|
871,600
|
|
5.48
|
|
$
|
2.70
|
|
871,600
|
|
$
|
2.70
|
$ 2.73 - $ 2.82
|
|
251,400
|
|
6.08
|
|
$
|
2.78
|
|
243,672
|
|
$
|
2.79
|
$ 2.84 - $ 2.84
|
|
1,007,190
|
|
6.43
|
|
$
|
2.84
|
|
853,887
|
|
$
|
2.84
|
$ 2.85 - $ 3.23
|
|
541,157
|
|
5.66
|
|
$
|
3.01
|
|
477,279
|
|
$
|
3.01
|
$ 3.35 - $ 9.72
|
|
565,147
|
|
2.90
|
|
$
|
6.60
|
|
537,164
|
|
$
|
6.75
|
$ 9.90 - $ 82.06
|
|
330,081
|
|
0.95
|
|
$
|
32.75
|
|
330,081
|
|
$
|
32.75
|
$ 88.00 - $ 88.00
|
|
1,000
|
|
0.42
|
|
$
|
88.00
|
|
1,000
|
|
$
|
88.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,941,149
|
|
5.83
|
|
$
|
4.94
|
|
3,827,429
|
|
$
|
5.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic Value
The aggregate intrinsic value of an option is calculated as the excess, if any, of the closing price of our Class A ordinary shares over the exercise
price of the option. Aggregate intrinsic value is not equivalent to the value determined by the Black-Scholes valuation model.
Options
Exercised.
The aggregate intrinsic value of options exercised under our stock option plans, determined as of the date of option exercise, was not significant for the six months ended June 30, 2009. The aggregate intrinsic value of options
exercised under our stock option plans, determined as of the date of option exercise, was not significant for the three and six months ended June 30, 2009 and 2008.
Vested and Unvested Options.
The aggregate intrinsic value of all vested and unvested options outstanding as of June 30, 2009 was approximately $0.1 million, based on the closing price of our
Class A ordinary shares on June 30, 2009, which was $1.33.
Exercisable Options.
The aggregate intrinsic value of options
currently exercisable as of June 30, 2009 was not significant, based on the closing price of our Class A ordinary shares on June 30, 2009, which was $1.33. The weighted average remaining contractual life of currently exercisable
options, calculated at June 30, 2009, was 5.07 years.
Vested and Expected-to-Vest Options.
The number of options vested
and expected-to-vest as of June 30, 2009 was 4,678,843, the weighted-average exercise price of which was $5.13. The aggregate intrinsic value of options vested and expected-to-vest as of June 30, 2009 was approximately $0.1 million,
based on the closing price of our Class A ordinary shares on June 30, 2009, which was $1.33. The weighted average remaining contractual life of options vested and expected-to-vest as of June 30, 2009 was 5.67 years.
Weighted Average Grant-date Fair Value.
The weighted average grant-date fair value of options granted was $0.87 and $0.82 per share for grants
in the three months ended June 30, 2009 and 2008, respectively. The weighted average grant-date fair value of options granted was $0.79 and $0.76 per share for grants in the six months ended June 30, 2009 and 2008, respectively.
15
Restricted Shares Activity
The following table summarizes activity relating to restricted shares during the three and six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date
Fair
Value
|
Unvested shares balance, December 31, 2008
|
|
980,347
|
|
|
$
|
1.07
|
Unvested restricted shares granted
|
|
100,000
|
|
|
$
|
1.34
|
Unvested restricted shares forfeited and cancelled
|
|
(17,957
|
)
|
|
$
|
1.04
|
Restricted shares vested
|
|
(97,307
|
)
|
|
$
|
1.08
|
|
|
|
|
|
|
|
Unvested shares balance, March 31, 2009
|
|
965,083
|
|
|
$
|
1.09
|
Unvested restricted shares forfeited and cancelled
|
|
(3,334
|
)
|
|
$
|
1.04
|
Restricted shares vested
|
|
(63,295
|
)
|
|
$
|
1.04
|
|
|
|
|
|
|
|
Unvested shares balance, June 30, 2009
|
|
898,454
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
Unrecognized Compensation Expense
As of June 30, 2009, there was approximately $0.8 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested
share-based compensation arrangements granted under our option plans. That cost is expected to be recognized over a weighted-average period of 2.44 years.
As of June 30, 2009, there was approximately $0.5 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted shares granted. That cost is expected to be
recognized over a weighted-average period of 2.41 years.
Note 10. Employee Bonus
During the three months ended June 30, 2009, we paid approximately $6.4 million in cash to our employees as a bonus for achievement of company and
individual performance objectives in 2008. The amount of the bonus awards was fully accrued as of December 31, 2008.
In August 2007,
our board of directors approved the adoption of the 2007 Plan, which was comprised of a combination of a cash amount and a grant of restricted Class A ordinary shares, subject to achievement of specified profitability targets. We recorded
approximately $0.3 million and $1.6 million of bonus expense for the cash component of the 2007 Plan related to achievement of performance targets during the three and six months ended June 30, 2008, respectively, and approximately
$0.1 million and $0.9 million of share-based compensation expense for the restricted Class A ordinary shares component of the 2007 Plan related to achievement of performance targets during the three and six months ended June 30, 2008,
respectively. All of the profitability targets under the 2007 Plan were achieved in May 2008.
Note 11. Income Taxes
We are subject to U.S. federal income tax as well as income tax of multiple foreign and state jurisdictions. We have substantially concluded all U.S.
federal income tax matters for years through 1998. We have substantially concluded all material state, local and foreign income tax matters for years through 1999.
We have significant net operating loss carryforwards that are subject to certain Section 382 limitations as a result of past changes in ownership as defined by federal and state law. Certain of these attributes
will never be utilized, and we have therefore removed them from our disclosures and our deferred tax assets.
We classify interest and
penalties associated with our uncertain tax positions as a component of income tax expense. For the three and six months ended June 30, 2009 and 2008, the interest and penalties that we recognized as part of income tax expense were not
material.
California enacted a new tax law during the first quarter of 2009 that gives corporations subject to California income tax the
option, beginning in 2011, to elect single factor apportionment and assign corporate income to California based solely on sales made within the state as opposed to a combination of sales, payroll and property. We currently anticipate that we will
elect single factor apportionment but have determined that the resulting change in our tax rate will not impact our deferred tax assets since we maintain a full valuation allowance on our U.S. deferred tax assets.
16
Note 12. Fair Value Measurement
We adopted SFAS No. 157,
Fair Value Measures
(SFAS 157) as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial
liabilities. Non-recurring nonfinancial assets and nonfinancial liabilities for which we have not applied the provisions of SFAS 157 include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at
fair value for impairment testing, and those initially measured at fair value in a business combination.
Valuation Hierarchy
SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or
inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used
to measure assets and liabilities at fair value. A financial assets or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2009 Using
|
|
|
Carrying
Amount at
June 30, 2009
|
|
Quoted prices in
active markets
(Level 1)
|
|
Significant other
observable inputs
(Level 2)
|
|
Significant
unobservable inputs
(Level 3)
|
Available for sale short-term marketable debt securities
|
|
$
|
18,601
|
|
$
|
|
|
$
|
18,601
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,601
|
|
$
|
|
|
$
|
18,601
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques
Available for sale marketable debt securities are measured at fair value using Level 2 inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Note 13. Commitments and
Contingencies
Operating Leases
We lease our facilities from third parties under operating lease agreements or sublease agreements in the United States, Europe and Asia Pacific. As of June 30, 2009, the terms of these leases were set to expire
between July 2009 and March 2015. Total rent expense was approximately $1.2 million and $1.5 million for the three months ended June 30, 2009 and 2008, respectively. Total rent expense was approximately $2.5 million and $2.7 million for
the six months ended June 30, 2009 and 2008, respectively. Sublease income was approximately $0.2 million and $0.3 million for the three and six months ended June 30, 2009, respectively. There was no sublease income for the three and six
months ended June 30, 2008.
17
Future minimum payments, net of future minimum sublease income, under non-cancelable operating leases as
of June 30, 2009 were as follows (in thousands):
|
|
|
|
Year ending December 31,
|
|
Minimum
Commitments
|
2009 (remaining six months)
|
|
$
|
2,355
|
2010
|
|
|
4,536
|
2011
|
|
|
3,968
|
2012
|
|
|
2,493
|
2013
|
|
|
2,382
|
Thereafter
|
|
|
2,703
|
|
|
|
|
|
|
$
|
18,437
|
|
|
|
|
Other Commitments
In the ordinary course of business we enter into various arrangements with vendors and other business partners for marketing and other services. Future
minimum commitments under these arrangements as of June 30, 2009 were $0.2 million for the remaining six months of 2009, and insignificant for the years ending December 31, 2010 and 2011. In addition, we also have arrangements with certain
parties that provide for revenue sharing payments.
As of June 30, 2009, we had three standby letters of credit aggregating
approximately $1.2 million, two of which were issued to landlords of our leased properties, and one of which was issued to a sublessee at our New York facility, which we vacated in the second quarter of 2005. As of June 30, 2009, the two
certificates of deposit that we had previously pledged as collateral in respect of these standby letters of credit had expired. However, in July 2009, we pledged approximately $1.2 million deposited in a savings account as collateral for these
letters of credit.
Contingencies
Claims by Former Chief Executive Officer
. In November 2007, we received a demand from attorneys for Alan A. Guggenheim, our former Chief Executive Officer, claiming that the company was withholding severance
and certain other benefits due him under his employment agreement following termination of his employment in August 2007. We responded that we intended to provide Mr. Guggenheim with all pay and benefits due him under the employment agreement.
Thereafter, in December 2007, we were notified by the Occupational Safety and Health Administration (OSHA) of the United States Department of Labor that we had been named in an administrative complaint filed by Mr. Guggenheim alleging
violations of Section 806 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A (Sarbanes-Oxley). In the complaint, Mr. Guggenheim claims that the company terminated him for reporting conduct that he alleged to be illegal or
unethical and seeks money damages, fees and costs, reinstatement and any other available relief. On May 1, 2009, we entered into a settlement agreement with Mr. Guggenheim that resolves all issues between us to our mutual satisfaction and
without any admission of liability. On May 7, 2009, the Department of Labor approved the terms of the settlement agreement pertaining to Sarbanes-Oxley and officially closed its investigation of the complaint filed by Mr. Guggenheim. The
settlement agreement, together with the Department of Labors approval thereof, constitutes full and final resolution of all issues between us and Mr. Guggenheim.
Initial Public Offering Securities Litigation.
In July 2001, the first of a series of putative securities class actions was filed in the
United States District Court for the Southern District of New York against certain investment banks which acted as underwriters for our initial public offering, us and various of our officers and directors. In November 2001, a similar
securities class action was filed in the United States District Court for the Southern District of New York against Wink Communications and two of its officers and directors and certain investment banks which acted as underwriters for Wink
Communications initial public offering. We acquired Wink Communications in October 2002. The complaints allege undisclosed and improper practices concerning the allocation of initial public offering shares, in violation of the federal
securities laws, and seek unspecified damages on behalf of persons who purchased our Class A ordinary shares during the period from November 23, 1999 through December 6, 2000 and Wink Communications common stock during the
period from August 19, 1999 through December 6, 2000. Other actions have been filed making similar allegations regarding the initial public offerings of more than 300 other companies. All of these lawsuits have been coordinated for
pretrial purposes as
In re Initial Public Offering Securities Litigation
, 21 MC 92 (SAS). Defendants in these cases filed an omnibus motion to dismiss on common pleading issues. All claims against our officers and directors have been
dismissed
18
without prejudice in this litigation pursuant to the parties stipulation approved by the Court on October 9, 2002. On February 19, 2003, the
Court denied in part and granted in part the omnibus motion to dismiss filed on behalf of defendants, including us and Wink Communications. The Courts order dismissed all claims against us and Wink Communications except for a claim brought
under Section 11 of the Securities Act of 1933.
In 2007, a settlement that had been pending with the Court since 2004 was
terminated by stipulation of the parties, after a ruling by the Second Circuit Court of Appeals in six focus cases in the IPO litigation (neither OpenTV nor Wink Communications is a focus case) made it unlikely that the
settlement would receive final Court approval. Plaintiffs filed amended master allegations and amended complaints in the six focus cases. In 2008, the Court largely denied the defendants motion
to dismiss the amended complaints.
Earlier this year, the parties reached a global settlement of the litigation, and
on April 2, 2009, a motion for preliminary approval of the settlement was filed with the Court. Under the settlement, which remains subject to final Court approval, the insurers would pay the full amount of settlement share
allocated to us and to Wink Communications, and we would bear no financial liability. We, as well as the officer and director defendants (including the OpenTV officer and director defendants who were previously dismissed
from the action pursuant to tolling agreements), would receive complete dismissals from the case. On June 9, 2009, the Court entered an order granting preliminary approval of the settlement. It is uncertain whether the settlement
will receive final Court approval. If the settlement does not receive final Court approval and litigation against us and Wink Communications continues, we believe we have meritorious defenses and intend to defend ourselves vigorously.
No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.
Broadcast Innovation Matter.
On November 30, 2001, a suit was filed in the United States District Court for the District of Colorado by
Broadcast Innovation, L.L.C., or BI, alleging that DIRECTV, Inc., EchoStar Communications Corporation, Hughes Electronics Corporation, Thomson Multimedia, Inc., Dotcast, Inc. and Pegasus Satellite Television, Inc. are infringing certain claims of
United States patent no. 6,076,094, assigned to or licensed by BI. DIRECTV and certain other defendants settled with BI on July 17, 2003. We are unaware of the specific terms of that settlement. Though we are not currently a defendant in the
suit, BI may allege that certain of our products, possibly in combination with the products provided by some of the defendants, infringe BIs patent. The agreement between OpenTV, Inc. and EchoStar includes indemnification obligations that may
be triggered by the litigation. If liability is found against EchoStar in this matter, and if such a decision implicates our technology or products, EchoStar has notified OpenTV, Inc. of its expectation of indemnification, in which case our business
performance, financial position, results of operations or cash flows may be adversely affected. Likewise, if OpenTV, Inc. were to be named as a defendant and it is determined that the products of OpenTV, Inc. infringe any of the asserted claims,
and/or it is determined that OpenTV, Inc. is obligated to defend EchoStar in this matter, our business performance, financial position, results of operations or cash flows may be adversely affected. On November 7, 2003, BI filed suit against
Charter Communications, Inc. and Comcast Corporation in United States District Court for the District of Colorado, alleging that Charter and Comcast also infringe the 094 patent. The agreements between Wink Communications and Charter
Communications include indemnification obligations of Wink Communications that may be triggered by the litigation. While reserving all of our rights in respect of this matter, we have conditionally reimbursed Charter for certain reasonable legal
expenses that it incurred in connection with this litigation. On August 4, 2004, the District Court found the 094 patent invalid. After various procedural matters, including interim appeals, in November 2005, the United States Court
of Appeals for the Federal Circuit remanded the case back to the District Court for disposition. On March 8, 2006, the defendants filed a writ of certiorari in this matter with the Supreme Court of the United States to review the decision of
the United States Court of Appeals for the Federal Circuit, which had overturned the District Courts order for summary judgment in favor of the defendants. That writ of certiorari was denied. Charter filed a request with the United States
Patent and Trademark Office on June 8, 2006 to re-examine the patent based on prior art references. On July 11, 2006, the District Court ordered a stay of the proceedings pending notice as to whether the re-examination request is accepted
by the United States Patent and Trademark Office. On June 21, 2006, Charter filed a motion to stay the litigation pending completion of the Patent Offices reexamination of the 094 patent. On July 11, 2006, the Court granted
Charters motion and entered an order staying the case. On August 5, 2006, the United States Patent and Trademark Office ordered a re-examination of all of the patents claims. The case remains stayed. Based on the information
available to us, we have established a reserve for costs and fees that may be incurred in connection with this matter. That reserve is an estimate only and actual costs may be materially different.
19
Indemnification
In the ordinary course of our business, we provide indemnification to customers, subject to limitations, against claims of intellectual property
infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant. We are not, however, able to estimate the maximum potential impact of these
indemnification provisions on our future results of operations since the liabilities associated with those types of claims are dependent on various factors that are not known until an action is commenced.
As permitted under the laws of the British Virgin Islands, we have agreed to indemnify our officers and directors for certain events or occurrences while
the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer
insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is not material.
Note 14. Related Party Transactions
On January 16, 2007, Kudelski SA completed a stock purchase transaction with Liberty Media Corporation (Liberty Media), pursuant to which Kudelski acquired substantially all of our Class A and Class B ordinary shares owned by
Liberty Media. As of June 30, 2009, Kudelskis total ownership represented approximately 32.3% of the economic interest and approximately 77.2% of the voting interest of our ordinary shares on an undiluted basis. We were not a direct party
to that transaction. However, we received a total of approximately $19.7 million in cash from Liberty Media in connection with that transaction, which represents the total capital contribution due to us pursuant to an agreement we previously entered
into with Liberty Media in February 2006 that provided for us to receive a portion of any premium received by Liberty Media in any sale of its stake in OpenTV. We also received approximately $0.1 million during the six months ended June 30,
2008, in interest income related to the capital contribution. No further amounts are due to us under the terms of the agreement between us and Liberty Media.
We offer products and services that are complementary to some of the products and services offered by Kudelski, our controlling shareholder, and some of its affiliates, including Nagravision S.A. and its subsidiaries.
As a result, we have many of the same customers as Kudelski and its other affiliates. Historically, even prior to Kudelski becoming our controlling shareholder, we sold products and professional services to Nagravision in support of its efforts to
sell conditional access products to network operator customers who had deployed or wished to deploy OpenTVs middleware products.
In
February 2008, we signed a multi-year license and distribution agreement with Nagravision, a subsidiary of Kudelski, which enables Nagravision to market and sublicense our middleware products, services and maintenance and support programs to cable,
satellite and telecommunications network operators around the world. The agreement specifies the applicable license, support and professional services fees that are payable by Nagravision to us in connection with the license and distribution of
our middleware products under the agreement. The terms and conditions set forth in the agreement, including the fees payable by Nagravision, are generally consistent with the terms and conditions we offer to other distributors, including other
conditional access providers. The total amount of license, support and services fees payable to us under this agreement is dependent upon the number of network operator customers sublicensed by Nagravision, the number of set-top boxes containing our
middleware deployed by such customers and the amount of professional services requested by Nagravision. As of June 30, 2009, Nagravision has sublicensed our products under the terms of this agreement to Reliance Communications in India,
Portugal Telecom and TV Cabo in Portugal and Canal Digitaal in the Netherlands. In March 2008, we also signed a master services agreement with Nagravision, which includes the specific terms and conditions that apply to professional services we may
provide to Nagravision from time to time. Unless otherwise agreed, professional services we perform will be billed on a time and materials basis at a daily rate that is competitive with the rates we charge our other customers.
During the three months ended June 30, 2009, we recognized under these arrangements $2.0 million of royalties and licenses revenues and $0.1 million
of services and other revenues from Nagravision, and $0.4 million and $0.1 million of royalties and licenses revenues from Nagra Trading S.A. and Nagra France SAS, respectively, both of which are subsidiaries of Nagravision.
20
During the six months ended June 30, 2009, we recognized $3.0 million of royalties and licenses
revenues and $0.1 million of services and other revenues from Nagravision S.A., and $1.2 million and $0.1 million of royalties and licenses revenues from Nagra Trading S.A. and Nagra France SAS, respectively.
During the three and six months ended June 30, 2008, we recognized an aggregate of $3.4 million and $4.6 million, respectively, of royalties and
licenses and services and other revenues under these arrangements with Nagravision S.A.
As of June 30, 2009, our accounts receivable
included $3.1 million from Nagravision S.A., $0.4 million from Nagra Trading S.A. and $0.1 million from Nagra France SAS.
As of
December 31, 2008, our accounts receivable included $3.2 million from Nagravision S.A., $0.7 million from Nagra Trading S.A, and $0.1 million from Nagra France SAS.
On February 27, 2009, we received a non-binding proposal from Kudelski SA to acquire all of our Class A ordinary shares that were not owned by Kudelski or its affiliates for $1.35 per share in cash. On
March 4, 2009, our board of directors appointed a special committee consisting of three independent directors to review the proposal. On June 2, 2009, the special committee issued a press release announcing its rejection of the proposal
from Kudelski SA. The special committee was subsequently dissolved by our board of directors.
Note 15. Segment Information
In March 2008, Nigel (Ben) Bennett was appointed as Chief Executive Officer after having served as Chief Operating Officer and Acting Chief
Executive Officer since August 2007. Accordingly, Mr. Bennett is our chief operating decision maker, or CODM. Our CODM currently assesses our results and financial performance and reviews our internal budgeting reports on the basis of two
segments: middleware solutions and advertising solutions. We have prepared this segment analysis in accordance with SFAS 131,
Disclosure about Segments of an Enterprise and Related Information.
Middleware solutions is composed of set-top box middleware and embedded browser technologies, such as OpenTV Spyglass, as well as software components
that are deployed at the network operators headend.
Advertising solutions includes our OpenTV Eclipse
Plus
, Eclipse and
Participate products.
Our management reviews and assesses the contribution margin of each of these segments, which is not a
financial measure calculated in accordance with GAAP. We define contribution margin for these purposes as segment revenues less related direct or indirect allocable costs, including personnel and personnel-related support costs, communications,
facilities, maintenance and support, consulting and subcontractor costs, travel, marketing and network infrastructure and bandwidth costs. There are significant judgments management makes with respect to the direct and indirect allocation of costs
that may affect the calculation of contribution margins. While management believes these and other related judgments are reasonable and appropriate, others could assess such matters differently.
Contribution margin is a non-GAAP financial measure that excludes unallocated corporate support, interest, taxes, depreciation and amortization,
amortization of intangible assets, share-based compensation, impairment of goodwill, impairment of intangibles, other income, noncontrolling interest, restructuring provisions, and unusual items such as contract amendments that mitigate potential
loss positions. These exclusions reflect costs not considered directly allocable to individual business segments and result in a definition of contribution margin that does not take into account some of the substantial costs of doing business.
Management believes that segment contribution margin is a helpful measure in evaluating the performance of our business segments. While our management may consider contribution margin to be an important measure of comparative operating performance,
this measure should be considered in addition to, but not as a substitute for, profit from operations, net income, cash flow and other measures of financial performance prepared in accordance with GAAP that are presented in our financial statements.
In addition, our calculation of contribution margin may be different from, and not comparable to, the calculation used by other companies.
Because these segments reflect the manner in which management reviews our business, they necessarily involve judgments that management believes are reasonable in light of the circumstances under which they are made. These judgments may
change over time or may be modified to reflect new facts or circumstances. Segments may also be changed or modified to reflect technologies and applications that are newly created, or that change over time, or other business conditions that evolve,
each of which may result in reassessing specific segments and the elements included within each of those segments. Recent events may affect the manner in which we present segments in the future.
21
Summarized information by segment was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middleware solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties and licenses
|
|
$
|
18,821
|
|
|
$
|
16,676
|
|
|
$
|
39,892
|
|
|
$
|
37,209
|
|
Services and other
|
|
|
5,969
|
|
|
|
6,866
|
|
|
|
11,909
|
|
|
|
16,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal - Middleware solutions
|
|
|
24,790
|
|
|
|
23,542
|
|
|
|
51,801
|
|
|
|
53,605
|
|
Advertising solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties and licenses
|
|
|
706
|
|
|
|
1,520
|
|
|
|
1,262
|
|
|
|
3,208
|
|
Services and other
|
|
|
2,106
|
|
|
|
1,761
|
|
|
|
3,950
|
|
|
|
3,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal - Advertising solutions
|
|
|
2,812
|
|
|
|
3,281
|
|
|
|
5,212
|
|
|
|
7,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
27,602
|
|
|
$
|
26,823
|
|
|
$
|
57,013
|
|
|
$
|
60,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution margin (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middleware solutions
|
|
$
|
8,510
|
|
|
$
|
7,940
|
|
|
$
|
19,347
|
|
|
$
|
21,608
|
|
Advertising solutions
|
|
|
210
|
|
|
|
233
|
|
|
|
(58
|
)
|
|
|
919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contribution margin
|
|
|
8,720
|
|
|
|
8,173
|
|
|
|
19,289
|
|
|
|
22,527
|
|
Unallocated corporate support
|
|
|
(4,699
|
)
|
|
|
(5,693
|
)
|
|
|
(11,195
|
)
|
|
|
(12,465
|
)
|
Restructuring and impairment
|
|
|
|
|
|
|
(581
|
)
|
|
|
7
|
|
|
|
(581
|
)
|
Depreciation and amortization
|
|
|
(1,103
|
)
|
|
|
(1,042
|
)
|
|
|
(2,214
|
)
|
|
|
(2,076
|
)
|
Amortization of intangible assets
|
|
|
(340
|
)
|
|
|
(1,025
|
)
|
|
|
(680
|
)
|
|
|
(2,050
|
)
|
Share-based and non-cash compensation
|
|
|
(271
|
)
|
|
|
(434
|
)
|
|
|
(821
|
)
|
|
|
(1,849
|
)
|
Interest income
|
|
|
84
|
|
|
|
637
|
|
|
|
190
|
|
|
|
1,353
|
|
Other income (expense)
|
|
|
(424
|
)
|
|
|
392
|
|
|
|
(957
|
)
|
|
|
2,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income taxes
|
|
|
1,967
|
|
|
|
427
|
|
|
|
3,619
|
|
|
|
7,105
|
|
Income tax expense
|
|
|
265
|
|
|
|
406
|
|
|
|
730
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,702
|
|
|
|
21
|
|
|
|
2,889
|
|
|
|
6,336
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV
|
|
$
|
1,700
|
|
|
$
|
13
|
|
|
$
|
2,884
|
|
|
$
|
6,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues by geographic area, based on the location of network operators who are deploying our
products, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
%
|
|
|
2008
|
|
%
|
|
|
2009
|
|
%
|
|
|
2008
|
|
%
|
|
Europe, Africa and Middle East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
$
|
5,065
|
|
18
|
%
|
|
$
|
5,023
|
|
19
|
%
|
|
$
|
10,629
|
|
19
|
%
|
|
$
|
11,217
|
|
19
|
%
|
South Africa
|
|
|
1,886
|
|
7
|
%
|
|
|
2,149
|
|
8
|
%
|
|
|
4,795
|
|
8
|
%
|
|
|
4,944
|
|
8
|
%
|
Italy
|
|
|
1,646
|
|
6
|
%
|
|
|
1,117
|
|
4
|
%
|
|
|
3,311
|
|
6
|
%
|
|
|
3,141
|
|
5
|
%
|
Other countries
|
|
|
5,719
|
|
21
|
%
|
|
|
3,293
|
|
12
|
%
|
|
|
11,248
|
|
20
|
%
|
|
|
9,033
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
14,316
|
|
52
|
%
|
|
|
11,582
|
|
43
|
%
|
|
|
29,983
|
|
53
|
%
|
|
|
28,335
|
|
47
|
%
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
4,473
|
|
16
|
%
|
|
|
5,307
|
|
20
|
%
|
|
|
9,732
|
|
17
|
%
|
|
|
11,574
|
|
19
|
%
|
Brazil
|
|
|
1,439
|
|
5
|
%
|
|
|
1,928
|
|
7
|
%
|
|
|
3,430
|
|
6
|
%
|
|
|
4,047
|
|
7
|
%
|
Other countries
|
|
|
1,293
|
|
5
|
%
|
|
|
529
|
|
2
|
%
|
|
|
1,550
|
|
2
|
%
|
|
|
798
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
7,205
|
|
26
|
%
|
|
|
7,764
|
|
29
|
%
|
|
|
14,712
|
|
25
|
%
|
|
|
16,419
|
|
27
|
%
|
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
India
|
|
|
1,466
|
|
5
|
%
|
|
|
3,176
|
|
12
|
%
|
|
|
2,039
|
|
4
|
%
|
|
|
4,085
|
|
7
|
%
|
Australia
|
|
|
1,942
|
|
7
|
%
|
|
|
1,684
|
|
6
|
%
|
|
|
3,723
|
|
7
|
%
|
|
|
6,019
|
|
10
|
%
|
Japan
|
|
|
1,519
|
|
6
|
%
|
|
|
1,500
|
|
6
|
%
|
|
|
3,673
|
|
6
|
%
|
|
|
3,384
|
|
6
|
%
|
Other countries
|
|
|
1,154
|
|
4
|
%
|
|
|
1,117
|
|
4
|
%
|
|
|
2,883
|
|
5
|
%
|
|
|
2,386
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
6,081
|
|
22
|
%
|
|
|
7,477
|
|
28
|
%
|
|
|
12,318
|
|
22
|
%
|
|
|
15,874
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,602
|
|
100
|
%
|
|
$
|
26,823
|
|
100
|
%
|
|
$
|
57,013
|
|
100
|
%
|
|
$
|
60,628
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Two major customers accounted for the following percentages of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Nagravision
|
|
8
|
%
|
|
12
|
%
|
|
5
|
%
|
|
7
|
%
|
Thomson
|
|
4
|
%
|
|
7
|
%
|
|
8
|
%
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
19
|
%
|
|
13
|
%
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Another major customer, British Sky Broadcasting, or BSkyB, directly and indirectly accounted for
17% and 18% of total revenues for the three months ended June 30, 2009 and 2008, respectively, and 18% of total revenues for the six months ended June 30, 2009 and 2008, taking into account the royalties which are paid by four
manufacturers who sell set-top boxes to BSkyB, including Thomson.
Three customers accounted for 15%, 11% and 10% of net accounts
receivable as of June 30, 2009. Three customers respectively accounted for 18%, 14% and 11% of net accounts receivable as of December 31, 2008.
Capital expenditures by geographic area were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
United States
|
|
$
|
481
|
|
$
|
1,137
|
|
$
|
822
|
|
$
|
1,891
|
Other countries
|
|
|
229
|
|
|
43
|
|
|
623
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
710
|
|
$
|
1,180
|
|
$
|
1,445
|
|
$
|
2,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets by geographic area were as follows (in thousands):
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
December 31, 2008
|
Property and equipment:
|
|
|
|
|
|
|
United States
|
|
$
|
4,125
|
|
$
|
4,494
|
Other countries
|
|
|
3,090
|
|
|
3,480
|
|
|
|
|
|
|
|
|
|
$
|
7,215
|
|
$
|
7,974
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
United States
|
|
$
|
806
|
|
$
|
1,034
|
Other countries
|
|
|
1,438
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
$
|
2,244
|
|
$
|
2,471
|
|
|
|
|
|
|
|
23
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they
never materialize or prove incorrect, could cause the results of OpenTV Corp. and its consolidated subsidiaries to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, expenses, earnings or losses from operations; any statements of the plans, strategies and objectives of management for future
operations; any statements concerning developments, performance or market conditions relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of
assumptions underlying any of the foregoing. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. These forward-looking statements are based on
information available to us at this time, and we assume no obligation to update any of these statements. Actual results could differ materially from those projected in these forward-looking statements as a result of many factors, including those
identified in the section titled Risk Factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as such section may be updated in our subsequent Quarterly Reports on
Form 10-Q and elsewhere. We urge you to review and consider the various disclosures made by us from time to time in our filings with the Securities and Exchange Commission that attempt to advise you of the risks and factors that may affect our
future results.
The following discussion should be read together with the unaudited condensed consolidated financial statements and
the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements, the notes thereto and the section titled Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange Commission.
Overview of Our Business
We are one of the worlds leading providers of advanced digital
television solutions dedicated to creating and delivering compelling viewing experiences to consumers of digital content worldwide. Our software enables cable, satellite, telecommunications and digital terrestrial operators, which we refer to as
network operators, to offer enhanced television experiences to their viewers.
The majority of our revenue typically comes from one-time
royalty fees paid by network operators or manufacturers of set-top boxes once a set-top box, which incorporates our software, has been shipped to or activated by the network operator. We also derive revenue from the licensing of related software and
interactive content and applications associated with the delivery of digital and interactive television, as well as from licensing products that enable advanced advertising solutions. In addition, we receive professional services fees from
consulting, systems integration and training engagements, fees for the maintenance and support of our products, and fees from revenue sharing arrangements related to the use of our interactive content and applications.
Our revenue model may change over time. For example, we have signed subscription-based licensing agreements under which we receive monthly payments for
each set-top box that includes our software that our customers deploy, for so long as those set-top boxes remain active. In addition, our technology and services are provided indirectly through distribution arrangements with key partners other than
network operators and set-top box manufacturers, such as conditional access vendors, and we expect revenues generated from such distribution arrangements to increase over time.
Kudelski SA, directly and indirectly through its subsidiaries, beneficially owns Class A and Class B ordinary shares of our company collectively
representing approximately 32.3% of the economic interest and approximately 77.2% of the voting interest in our company, based on the number of our ordinary shares outstanding as of June 30, 2009.
Recent Events
On February 27, 2009, we received
a non-binding proposal from Kudelski SA to acquire all of our Class A ordinary shares that were not owned by Kudelski or its affiliates for $1.35 per share in cash. On March 4, 2009, our board of directors appointed a special committee
consisting of three independent directors to review the proposal. On June 2, 2009, the special committee issued a press release announcing its rejection of the proposal from Kudelski SA. The special committee was subsequently dissolved by our
board of directors.
24
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our interim financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States, which we refer to as GAAP, as applicable to financial statements for interim reporting periods. The preparation of these interim financial statements requires us to
make estimates and judgments 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. In preparing these interim financial
statements, we made our best estimates and judgments, which are normally based on knowledge and experience with regard to past and current events and assumptions about future events, giving due consideration to materiality. Actual results could
differ materially from these estimates under different assumptions or conditions.
We believe the following critical accounting policies
and estimates have the greatest potential impact on our interim financial statements: revenue recognition, valuation allowances (specifically the allowance for doubtful accounts and deferred tax assets), impairment of goodwill and long-lived assets,
restructuring costs, share-based compensation and fair value measurements. All of these accounting policies and estimates, together with their underlying assumptions, and their impact on our financial statements, have been discussed with the audit
committee of our board of directors.
As discussed below and in Note 2 to the interim financial statements, we adopted Statement of
Financial Accounting Standards (SFAS) No. 141(Revised 2007),
Business Combinations
(SFAS 141(R)), and FASB Staff Position (FSP) FAS 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies
(FSP FAS 141R-1), as of January 1, 2009. The adoption of SFAS 141(R) and FSP FAS 141R-1 did not have a material impact on our financial statements.
We adopted FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
as of January 1, 2009 without a material impact
on our financial statements.
We adopted SFAS No. 160,
Noncontrolling Interests in Consolidated Financial StatementsAn
Amendment of ARB No. 51
as of January 1, 2009 without a material impact on our financial statements.
Other than the
above changes, there have been no significant changes in our critical accounting policies and estimates during the three and six months ended June 30, 2009 as compared to the critical accounting policies and estimates disclosed in the section
entitled
Managements Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended December 31, 2008.
Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted Accounting Principles - A Replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 identifies the FASB Accounting
Standards Codification as the authoritative source of GAAP. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. We do not expect SFAS 168 to have a material impact on our financial statements.
In April 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS 165). SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or available to be issued. SFAS 165 is effective for financial statements issued for interim and annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact
on our financial statements.
In April 2009, the FASB issued FSP FAS 157-4,
Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
(FSP FAS 157-4). FSP FAS 157-4 provides additional guidance on factors to consider in estimating fair value when there
has been a significant decrease in market activity for a financial asset. FSP FAS 157-4 applies prospectively; retrospective application is not permitted. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The
adoption of FSP FAS 157-4 did not have a material impact on our financial statements.
In April 2009, the FASB issued FSP FAS 115-2 and FAS
124-2,
Recognition and Presentation of Other-Than-Temporary Impairments
(FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 changes the method for determining whether an other-than-temporary impairment exists for debt
securities and the requirements for measurement and presentation of such impairment. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a
material impact on our financial statements.
25
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value
of Financial Instruments
(FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 requires an entity to provide disclosures about the fair value of its financial instruments in interim reporting periods and annual reporting periods. FSP
FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on our financial statements.
Results of Operations for the Three and Six Months Ended June 30, 2009 and 2008
Revenues
We have entered into commercial arrangements involving both product licenses and
service elements that are bundled together. Under GAAP, revenues from such bundled offerings have been allocated to the
Royalties and licenses
and
Services and other
revenue line items based on the relative fair
values of the product and service elements in each of the contracts. Our determination of the relative fair values of these elements is based on the relative amounts of the fees we charge our customers for the product licenses and service elements,
as set forth in each of the applicable contracts.
Revenues for the three months ended June 30, 2009 were $27.6 million, an increase
of $0.8 million, or 3%, from $26.8 million for the same period in 2008. Revenues for the six months ended June 30, 2009 were $57.0 million, a decrease of $3.6 million, or 6%, from $60.6 million for the same period in 2008.
Revenues by line item were as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2009
|
|
2008
|
|
2009 versus 2008
|
|
|
2009
|
|
2008
|
|
2009 versus 2008
|
|
Royalties and licenses
|
|
$
|
19.5
|
|
$
|
18.2
|
|
$
|
1.3
|
|
|
7
|
%
|
|
$
|
41.1
|
|
$
|
40.4
|
|
$
|
0.7
|
|
|
2
|
%
|
Services and other
|
|
|
8.1
|
|
|
8.6
|
|
|
(0.5
|
)
|
|
(6
|
)%
|
|
|
15.9
|
|
|
20.2
|
|
|
(4.3
|
)
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
27.6
|
|
$
|
26.8
|
|
$
|
0.8
|
|
|
3
|
%
|
|
$
|
57.0
|
|
$
|
60.6
|
|
$
|
(3.6
|
)
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties and licenses
We generally derive royalties from the sale of set-top boxes and other products that incorporate our software. Royalties are typically paid by either the network operator or the set-top box manufacturer depending upon
our payment arrangements with those customers, and we have historically recognized revenues through one-time royalty payments or ongoing license fees. We recognize royalties upon receipt of royalty reports reflecting unit shipments or activation of
our software by network operators or manufacturers. Royalty reports are generally received one quarter in arrears. For non-refundable prepaid royalties, we recognize revenues upon initial delivery of the software to our customers. We also license
our technology and services indirectly through distribution arrangements with key partners other than network operators and set-top box manufacturers, such as conditional access vendors, who pay the applicable license and royalty fees directly to us
on behalf of the network operator or set-top box manufacturer. In addition, we have entered into license agreements with network operators who pay us under a subscription-based model pursuant to which we are paid a monthly fee for each set-top box
that is shipped or deployed commercially by the network operator for so long as that box remains in use by the network operator. We expect to continue offering this licensing model in the future and expect to derive a greater percentage of our
revenues from subscriber-based fees over time.
The aggregate amount of royalties we receive from our customers during a quarterly period
is influenced by a number of factors. In the case of our set-top box software, these include: initial deployments by new customers, the activation of new subscribers by existing customers, the shipment of additional set-top boxes as replacements for
older or defective set-top boxes or for purposes of simply upgrading existing set-top boxes, and sales of new products or services by the network operators that require new or updated set-top boxes. We have historically provided various types of
prospective volume discounts on optional future deployments of our licensed middleware products based on the volume of the customers previous deployments of the particular licensed products, and we expect to continue to do so in the future.
Unless we are able to offset anticipated discounts through a change in product mix, shipment volume increases, upgrades to our software or other methods which enable us to charge higher fees, we may experience slower royalty growth as discounting is
triggered.
26
A significant portion of our revenues is dependent upon our customers subscriber base, the growth
in their subscriber base, and the related quantities of set-top boxes deployed with our software. Specific royalty trends associated with set-top box deployments by our customers are difficult to discern in many cases as we do not control or
directly influence actual deployment schedules of our customers. However, our general experience in the past suggests that set-top box deployments by our customers tend to be stronger in the third and fourth quarters of the calendar year, though
many factors, such as the general economic climate and the specific financial condition of our customers, can influence the actual level of set-top box deployments at any given time. Because we receive most of our royalty reports one quarter in
arrears, our royalty revenues in the past have generally been higher in the first and fourth quarters of the calendar year, though our revenues in 2009 and beyond may be negatively impacted if our customers reduce deployments of our products due to
the general deterioration in economic conditions worldwide.
We also derive fees from the licensing of other products, such as OpenTV
Streamer, our campaign management solution known as Eclipse
Plus
and OpenTV Participate. These license fees can be in the form of one-time, upfront payments by our customers, the total of which can vary significantly from quarter to quarter,
or can be in the form of a recurring license fee, the total of which is less likely to vary significantly from quarter to quarter.
Royalties and licenses revenues by region were as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Europe, Middle East and Africa
|
|
$
|
10.9
|
|
|
$
|
7.6
|
|
|
$
|
3.3
|
|
|
43
|
%
|
|
$
|
23.6
|
|
|
$
|
19.4
|
|
|
$
|
4.2
|
|
|
22
|
%
|
Americas
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
|
|
|
|
%
|
|
|
9.7
|
|
|
|
10.2
|
|
|
|
(0.5
|
)
|
|
(5
|
)%
|
Asia Pacific
|
|
|
3.8
|
|
|
|
5.8
|
|
|
|
(2.0
|
)
|
|
(34
|
)%
|
|
|
7.8
|
|
|
|
10.8
|
|
|
|
(3.0
|
)
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total royalties and licenses revenues
|
|
$
|
19.5
|
|
|
$
|
18.2
|
|
|
$
|
1.3
|
|
|
7
|
%
|
|
$
|
41.1
|
|
|
$
|
40.4
|
|
|
$
|
0.7
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As percentage of total revenues
|
|
|
71
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
72
|
%
|
|
|
67
|
%
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Royalties and licenses revenues for the three months ended June 30, 2009 increased $1.3 million, or 7%, to $19.5 million.
|
|
|
Europe, Middle East and Africa accounted for $10.9 million in royalties and licenses revenues for the three months ended June 30, 2009, an increase of $3.3
million, or 43%, compared to the same period in 2008.
|
British Sky Broadcasting (BSkyB), directly and indirectly through
our set-top box manufacturer customers who sell set-top boxes to BSkyB, accounted for $4.4 million, or 23%, of our total worldwide royalties and licenses revenues for the three months ended June 30, 2009. BSkyB royalties and licenses
revenues for the three months ended June 30, 2009 increased by $0.5 million compared to the same period in 2008, primarily as a result of increased deployments of set-top boxes containing our software, which was partially offset by a
volume-based price reduction that became effective as of January 1, 2009. This volume-based price reduction may negatively impact the overall level of revenues that we generate from BSkyB in the future unless we are able to offset the effect of
such reduction through increased deployments of our products, an upgrade to a new version of our product that is not subject to the price reduction, or some other means. Royalties and licenses revenues from TV Cabo and Portugal Telecom, which we
receive through our license and distribution agreement with Nagravision S.A., collectively accounted for an increase of $0.9 million in the three months ended June 30, 2009 compared to the same period in 2008. Royalties and licenses revenues
from UPC Broadband (UGC), Sky Italia, HOT Telecom and Multichoice Africa increased $1.1 million, $0.5 million, $0.4 million and $0.1 million, respectively, for the three months ended June 30, 2009 compared to the same period in 2008, primarily
due to increased deployments of set-top boxes containing our software. Royalties and licenses revenues from other customers in the region accounted for a net decrease of $0.2 million compared to the same period in 2008 due to lower volumes of
set-top box shipments by those customers.
|
|
|
The Americas region accounted for $4.8 million in royalties and licenses revenues for the three months ended June 30, 2009, consistent with the same period in
2008.
|
EchoStar, including DISH Network and EchoStar Technologies LLC, accounted for $1.5 million, or 7%, of our
total worldwide royalties and licenses revenues for the three months ended June 30, 2009. Royalties and licenses revenues from EchoStar for the three months ended June 30, 2009 decreased $0.1 million compared to the same period in 2008.
27
Royalties and licenses revenues from Time Warner Cable and Comcast decreased $0.6 million and $0.2 million, respectively, compared to the same period in
2008, primarily due to a new pricing model that became effective as of January 1, 2009 as part of an upgrade sold to those customers for our latest Eclipse
Plus
product. This pricing model includes a one-time, upfront license fee that is
typically recognized over the term of the contract as compared to our prior pricing model under which we recognized recurring monthly license fees as received. Royalties and licenses revenues from Bell TV and Star Choice Communications increased
$0.5 million and $0.3 million, respectively, for the three months ended June 30, 2009 compared to the same period in 2008 due to increased deployments of set-top boxes containing our software. Royalties and licenses revenues from
other customers in the region accounted for a net increase of $0.1 million compared to the same period in 2008, primarily due to higher volumes of set-top box shipments by those customers.
|
|
|
The Asia Pacific region accounted for $3.8 million in royalties and licenses revenues for the three months ended June 30, 2009, a decrease of $2.0 million, or
34%, compared to the same period in 2008.
|
Royalties and licenses revenues from Reliance, received through our license and
distribution agreement with Nagravision, decreased $1.6 million during the three months ended June 30, 2009 compared to the same period in 2008, primarily due to the one-time license fee for enterprise software received in the three months
ended June 30, 2008. Royalties and licenses revenues from Panasonic decreased $0.6 million for the three months ended June 30, 2009 compared to the same period in 2008, primarily due to decreased deployments by that customer of our OpenTV
Integrated Browser product. Royalties and licenses revenues from Sky Network Television Ltd. and FOXTEL increased $0.2 million and $0.1 million, respectively, for the three months ended June 30, 2009 compared to the same period in 2008,
primarily due to increased deployments of set-top boxes containing our software. Royalties and licenses revenues from other customers in the region accounted for a net decrease of $0.1 million compared to the same period in 2008, primarily due to
lower volumes of set-top box shipments by those customers.
Six Months ended June 30, 2009 versus Six Months ended June 30,
2008.
Royalties and licenses revenues for the six months ended June 30, 2009 increased $0.7 million, or 2%, to $41.1 million.
|
|
|
Europe, Middle East and Africa accounted for $23.6 million in royalties and licenses revenues for the six months ended June 30, 2009, an increase of $4.2
million, or 22%, compared to the same period in 2008.
|
BSkyB, directly and indirectly through our set-top box manufacturer
customers who sell set-top boxes to BSkyB, accounted for $9.6 million, or 23%, of our total worldwide royalties and licenses revenues for the six months ended June 30, 2009. BSkyB royalties and licenses revenues for the six months ended
June 30, 2009 decreased by $0.1 million compared to the same period in 2008, primarily due to a volume-based price reduction that became effective as of January 1, 2009, which was partially offset by increased deployments of our
products. As described above, this volume-based price reduction may negatively impact the overall level of revenues that we generate from BSkyB in the future. Royalties and licenses revenues from Portugal Telecom and TV Cabo, which we receive
through our license and distribution agreement with Nagravision, collectively accounted for an increase of $2.2 million in the six months ended June 30, 2009 compared to the same period in 2008. Royalties and licenses revenues from UGC, HOT
Telecom, Multichoice Africa and Sky Italia increased $1.3 million, $0.7 million, $0.7 million and $0.1 million, respectively, for the six months ended June 30, 2009 compared to the same period in 2008, primarily due to increased deployments of
set-top boxes containing our software. Royalties and licenses revenues from other customers in the region accounted for a net decrease of $0.6 million compared to the same period in 2008, primarily due to lower volumes of set-top box shipments by
those customers.
|
|
|
The Americas region accounted for $9.7 million in royalties and licenses revenues for the six months ended June 30, 2009, a decrease of $0.5 million, or 5%,
compared to the same period in 2008.
|
EchoStar, including DISH Network and EchoStar Technologies LLC, accounted for
$4.0 million, or 10%, of our total worldwide royalties and licenses revenues for the six months ended June 30, 2009. Royalties and licenses revenues from EchoStar for the six months ended June 30, 2009 increased $0.9 million compared
to the same period in 2008, primarily due to the receipt of a late royalty report for set-top boxes that were shipped during 2008 but not reported to us until the first quarter of 2009. Royalties and licenses revenues from Time Warner Cable and
Comcast decreased $1.2 million and $0.6 million, respectively, compared to the same period in 2008, primarily due a new pricing model that became effective as of January 1, 2009 as part of an upgrade sold to those customers for our latest
Eclipse
Plus
product. This pricing model includes a one-time, upfront license fee that is typically recognized over the term of the contract as compared to our prior pricing model under which we recognized recurring monthly license fees as
received. Royalties and licenses revenues from Star Choice Communications increased $0.3 million for the six months ended June 30, 2009 compared to the same period in 2008 due to increased deployments of set-top boxes containing our software.
Royalties and licenses revenues from other customers in the region accounted for a net increase of $0.1 million compared to the same period in 2008 due to higher volumes of set-top box shipments by those customers.
28
|
|
|
The Asia Pacific region accounted for $7.8 million in royalties and licenses revenues for the six months ended June 30, 2009, a decrease of $3.0 million, or
28%, compared to the same period in 2008.
|
Royalties and licenses revenues from Reliance, received through our license and
distribution agreement with Nagravision, decreased $1.4 million in the six months ended June 30, 2009 compared to the same period in 2008, primarily due to the one-time license fee for enterprise software received in the three months ended
June 30, 2008. Royalties and licenses revenues from Panasonic and Austar Entertainment decreased $1.2 million and $1.0 million, respectively, compared to the same period in 2008 due to decreased deployments of our products. Royalties and
licenses revenues from Sky Network Television and FOXTEL increased $0.5 million and $0.2 million, respectively, for the six months ended June 30, 2009 compared to the same period in 2008, primarily due to increased deployments of set-top boxes
containing our software. Royalties and licenses revenues from other customers in the region accounted for a net decrease of $0.1 million compared to the same period in 2008, primarily due to lower volumes of set-top box shipments by those customers.
Services and other
Services and other
revenues are primarily generated from professional services, maintenance and support, training, service usage fees, revenue sharing arrangements and programming fees. Professional services revenues are generally derived from deployment and
integration consulting engagements for network operators, set-top box manufacturers and systems integrators. The professional services engagements we enter into with our customers are generally discrete projects that are tailored to meet our
customers specific project requirements. The project scope, term and fees in respect of our professional services engagements are dependent upon these customer requirements and generally vary from project to project based on the products
involved, the level of customization and integration required and other project-specific variables.
Maintenance and support and training
revenues are generally realized as services are provided to network operators and set-top box manufacturers. A set-top box manufacturers decision to purchase maintenance and support from us depends largely on whether such manufacturer is
actively shipping set-top boxes with our software or reasonably expects to do so in quantities large enough to justify payment of these amounts which, in both cases, is dependent upon such manufacturers supply contracts with network operators
and set-top box demand by the network operator.
Services and other revenues were as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Total services and other revenues
|
|
$
|
8.1
|
|
|
$
|
8.6
|
|
|
$
|
(0.5
|
)
|
|
(6
|
)%
|
|
$
|
15.9
|
|
|
$
|
20.2
|
|
|
$
|
(4.3
|
)
|
|
(21
|
)%
|
As percentage of total revenues
|
|
|
29
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
28
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Services and other revenues for the three months ended June 30, 2009 decreased $0.5 million, or 6%, to $8.1 million compared to the same period in 2008.
Services and other revenues from BSkyB, Multichoice Africa, Net Servicos de Comunicacao, S.A. (NET), Numericable SAS and Comcast decreased $0.6 million, $0.4 million, $0.4 million, $0.2 million and $0.1 million,
respectively, primarily due to a decrease in professional services engagements with those customers in the three months ended June 30, 2009 compared to the same period in 2008. The decreases were partially offset by increases of $0.6 million,
$0.6 million and $0.2 million in services and other revenues from SKY Perfect JSAT Corporation (SKY Perfect), Cisco and Time Warner Cable, respectively, which were primarily the result of an increase in professional services engagements with those
customers during the three months ended June 30, 2009 compared to the same period in 2008. Services and other revenues from other customers during the three months ended June 30, 2009 accounted for a net decrease of $0.2 million as
compared to the same period in 2008.
Six Months ended June 30, 2009 versus Six Months ended June 30, 2008.
Services and
other revenues for the six months ended June 30, 2009 decreased $4.3 million, or 21%, to $15.9 million compared to the same period in 2008.
29
Services and other revenues from Numericable, Austar, Multichoice Africa, Reliance, Digiturk, BSkyB, NET
and Comcast decreased $1.7 million, $1.0 million, $0.8 million, $0.7 million, $0.7 million, $0.6 million, $0.4 million and $0.4 million, respectively, primarily due to a decrease in professional services engagements with those customers in the six
months ended June 30, 2009 compared to the same period in 2008. The decreases were partially offset by increases of $1.6 million, $0.6 million and $0.2 million in services and other revenues from SKY Perfect, Cisco and Time Warner Cable,
respectively, which were primarily the result of an increase in professional services engagements with those customers. Services and other revenues from other customers during the six months ended June 30, 2009 accounted for a net decrease of
$0.4 million compared to the same period in 2008.
Cost of Royalties and Licenses
Cost of royalties and licenses consists primarily of amortization of developed technology and patents, patent-related legal costs, materials and shipping
costs, and cost of revenue share payments. Cost of royalties and licenses was as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Cost of royalties and licenses
|
|
$
|
1.0
|
|
|
$
|
1.3
|
|
|
$
|
(0.3
|
)
|
|
(23
|
)%
|
|
$
|
1.9
|
|
|
$
|
2.7
|
|
|
$
|
(0.8
|
)
|
|
(30
|
)%
|
As percentage of total revenues
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Cost of
royalties and licenses for the three months ended June 30, 2009 decreased $0.3 million, or 23%, to $1.0 million. As a percentage of revenues, cost of royalties and licenses decreased to 4% for the three months ended June 30, 2009
compared to 5% in the same period in 2008. The amortization of developed technologies and patents decreased by $0.6 million for the three months ended June 30, 2009 compared to the same period in 2008, reflecting the full amortization of our
developed technologies from CAM Systems, which we acquired in the third quarter of 2005, and the full amortization of our developed technologies from BettingCorp, which we acquired in the third quarter of 2003. The decrease was partially offset by
the impact of a $0.2 million reversal of a previously accrued liability during the three months ended June 30, 2008, which related to a contract commitment that we assumed from our acquisition of Wink Communications in 2002. The accrual release
was recorded as a reduction to cost of royalties and licenses, where the accrual was originally charged.
Six Months ended June 30,
2009 versus Six Months ended June 30, 2008.
Cost of royalties and licenses for the six months ended June 30, 2009 decreased $0.8 million, or 30%, to $1.9 million. As a percentage of revenues, cost of royalties and licenses
decreased to 3% for the six months ended June 30, 2009 compared to 4% in the same period in 2008. The amortization of developed technologies and patents decreased by $1.1 million for the six months ended June 30, 2009 compared to the same
period in 2008, reflecting the full amortization of our developed technologies from CAM Systems, which we acquired in the third quarter of 2005, and the full amortization of our developed technologies from BettingCorp, which we acquired in the third
quarter of 2003. The decrease was partially offset by the impact of a $0.2 million reversal of a previously accrued liability during the three months ended June 30, 2008, which related to a contract commitment that we assumed from our
acquisition of Wink Communications in 2002. The accrual release was recorded as a reduction to cost of royalties and licenses, where the accrual was originally charged.
Cost of Services and Other
Cost of services and other consists primarily of personnel and
personnel-related support costs associated with maintenance and support, professional services engagements, consulting and subcontractor costs, third party material costs and depreciation. Cost of services and other was as follows (in millions,
except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Cost of services and other
|
|
$
|
10.1
|
|
|
$
|
10.0
|
|
|
$
|
0.1
|
|
1
|
%
|
|
$
|
20.2
|
|
|
$
|
20.1
|
|
|
$
|
0.1
|
|
|
%
|
As percentage of total revenues
|
|
|
37
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
35
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Cost of
services and other for the three months ended June 30, 2009 increased $0.1 million, or 1%, to $10.1 million. As a percentage of revenues, cost of services and other was 37% for the three months ended June 30, 2009, which is consistent
with the same period in 2008. Personnel and personnel-related support costs increased $0.1 million due to an overall increase in headcount, but this was partially offset by our general efforts to shift
30
our workforce to regions with lower costs and the impact of foreign currency translation on our costs denominated in foreign currencies that resulted from
the overall strengthening of the United States dollar during the three months ended June 30, 2009. In addition, we increased our provision for service contracts that are under loss position by $0.4 million as a result of changes in cost
estimates impacting some of our professional services engagements. The increases were offset by a $0.1 million decrease in consulting and subcontractor costs incurred to meet staffing requirements for our projects and a $0.4 million contribution we
received from our insurance company in connection with a customer settlement.
Six Months ended June 30, 2009 versus Six Months
ended June 30, 2008.
Cost of services and other for the six months ended June 30, 2009 increased $0.1 million, to $20.2 million. As a percentage of revenues, cost of services and other increased to 35% for the six months ended
June 30, 2009 compared to 33% in the same period in 2008. We increased our provision for service contracts that are under loss position by $0.7 million as a result of changes in cost estimates impacting some of our professional services
engagements. The increase was partially offset by a $0.4 million contribution we received from our insurance company in connection with a customer settlement, and a $0.2 million decrease in personnel and personnel-related support costs as a result
of a bonus expense of $0.3 million and share-based compensation expense of $0.2 million related to the 2007 Management Bonus and Equity Issuance Plan that was recorded during the six months ended June 30, 2008. The personnel and
personnel-related support costs also decreased due to our general efforts to shift our workforce to regions with lower costs and the impact of foreign currency translation on our costs denominated in foreign currencies that resulted from the overall
strengthening of the United States dollar during the six months ended June 30, 2009, but this was offset by an overall increase in headcount.
Research and Development
Research and development expenses consist primarily of personnel and personnel-related
support costs and consulting and subcontractor costs incurred for both new product development and enhancements to our existing software products and applications. Research and development remains important to our long-term growth strategy. We will
continue to focus on the timely development of new and enhanced interactive television and advanced advertising products for our customers, and we plan to continue investing at levels that we believe are sufficient to develop our technologies and
product offerings.
Research and development expenses were as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Research and development
|
|
$
|
8.5
|
|
|
$
|
8.4
|
|
|
$
|
0.1
|
|
1
|
%
|
|
$
|
17.2
|
|
|
$
|
17.7
|
|
|
$
|
(0.5
|
)
|
|
(3
|
)%
|
As percentage of total revenues
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Research and development expenses for the three months ended June 30, 2009 increased $0.1 million, or 1%, to $8.5 million. As a percentage of revenues, research and development expenses was 31% for the three months ended
June 30, 2009, which is consistent with the same period in 2008. Consulting and subcontractor costs for the three months ended June 30, 2009 increased $0.2 million compared to the same period in 2008 due to staffing requirements for our
research and development projects. The increase was partially offset by a $0.1 million decrease in personnel and personnel-related support costs as a result of a bonus expense of $0.1 million related to the 2007 Management Bonus and Equity Issuance
Plan that was recorded during the three months ended June 30, 2008. Personnel and personnel-related support costs also decreased due to our general efforts to shift our workforce to regions with lower costs, but this was partially offset by an
increase in headcount.
Six Months ended June 30, 2009 versus Six Months ended June 30, 2008.
Research and development
expenses for the six months ended June 30, 2009 decreased $0.5 million, or 3%, to $17.2 million. As a percentage of revenues, research and development expenses increased slightly to 30% for the six months ended June 30, 2009
compared to 29% in the same period in 2008. Personnel and personnel-related support costs for the six months ended June 30, 2009 decreased $1.0 million, primarily as a result of a bonus expense of $0.6 million and share-based compensation
expense of $0.3 million related to the 2007 Management Bonus and Equity Issuance Plan that was recorded during the three months ended June 30, 2008. The decrease in personnel and personnel-related support costs was also due to our general
efforts to shift our workforce to regions with lower costs, but this was partially offset by an increase in headcount and an increase of $0.4 million in consulting and subcontractor costs related to staffing requirements for our research and
development projects.
31
Sales and Marketing
Sales and marketing expenses consist primarily of personnel and personnel-related support costs, consulting and subcontractor costs, and marketing-related expenses. Sales and marketing expenses were as follows (in
millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Sales and marketing
|
|
$
|
1.8
|
|
|
$
|
2.3
|
|
|
$
|
(0.5
|
)
|
|
(22
|
)%
|
|
$
|
3.7
|
|
|
$
|
4.7
|
|
|
$
|
(1.0
|
)
|
|
(21
|
)%
|
As percentage of total revenues
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Sales
and marketing expenses for the three months ended June 30, 2009 decreased $0.5 million, or 22%, to $1.8 million. As a percentage of revenues, sales and marketing expenses decreased to 7% for the three months ended June 30, 2009 compared to
9% in the same period in 2008. Personnel and personnel-related support costs for the three months ended June 30, 2009 decreased $0.2 million compared to the same period in 2008 due to a decrease in headcount. In addition, marketing expenses
decreased $0.3 million as a result of lower spending on marketing activities during the three months ended June 30, 2009.
Six
Months ended June 30, 2009 versus Six Months ended June 30, 2008.
Sales and marketing expenses for the six months ended June 30, 2009 decreased $1.0 million, or 21%, to $3.7 million. As a percentage of revenues, sales
and marketing expenses decreased to 6% for the six months ended June 30, 2009 compared to 8% in the same period in 2008. Personnel and personnel-related support costs for the six months ended June 30, 2009 decreased $0.6 million as a
result of a bonus expense of $0.1 million and share-based compensation expense of $0.1 million related to the 2007 Management Bonus and Equity Issuance Plan that was recorded during the six months ended June 30, 2008. The decrease in personnel
and personnel-related support costs was also due to a decrease in headcount. In addition, marketing expenses decreased $0.3 million as a result of lower spending on marketing activities during the six months ended June 30, 2009.
General and Administrative
General and
administrative expenses consist primarily of personnel and personnel-related support costs, including for our executives and our board of directors, consulting and subcontractor costs, fees for professional services, including legal and accounting
fees, and provision for doubtful accounts. General and administrative expenses were as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
General and administrative
|
|
$
|
3.8
|
|
|
$
|
4.5
|
|
|
$
|
(0.7
|
)
|
|
(16
|
)%
|
|
$
|
9.5
|
|
|
$
|
10.9
|
|
|
$
|
(1.4
|
)
|
|
(13
|
)%
|
As percentage of total revenues
|
|
|
14
|
%
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
17
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
General
and administrative expenses for the three months ended June 30, 2009 decreased $0.7 million, or 16%, to $3.8 million. As a percentage of revenues, general and administrative expenses decreased to 14% for the three months ended
June 30, 2009 compared to 17% in the same period in 2008. Personnel and personnel-related support costs for the three months ended June 30, 2009 decreased $1.1 million, $0.6 million of which was attributable to our reversal of the
remaining accrual for severance and other costs relating to a former senior executive officer and the effect of an insurance contribution we received in connection with a settlement reached with such former executive officer. We also recorded a
bonus expense of $0.1 million related to the 2007 Management Bonus and Equity Issuance Plan during the three months ended June 30, 2008 which did not recur during the three months ended June 30, 2009. In addition, consulting and
subcontractor costs during the three months ended June 30, 2009 decreased $0.4 million compared to the same period in 2008 due to our cost control efforts. The decreases were partially offset by $0.4 million in fees incurred during the three
months ended June 30, 2009 by the financial and legal advisors appointed by the special committee of our board of directors in connection with its review of the non-binding proposal from Kudelski SA to acquire all of our Class A ordinary
shares they do not own. Finally, bad debt expense was $0.3 million higher during the three months ended June 30, 2009 compared to the same period in 2008, primarily due to a reversal of a provision for bad debt that occurred in the prior year
period.
32
Six Months ended June 30, 2009 versus Six Months ended June 30, 2008.
General and
administrative expenses for the six months ended June 30, 2009 decreased $1.4 million, or 13%, to $9.5 million. As a percentage of revenues, general and administrative expenses decreased slightly to 17% for the six months ended
June 30, 2009 compared to 18% in the same period in 2008. Personnel and personnel-related support costs for the six months ended June 30, 2009 decreased $2.2 million as a result of a bonus expense of $0.5 million and share-based
compensation expense of $0.3 million related to the 2007 Management Bonus and Equity Issuance Plan that was recorded during the three months ended June 30, 2008. In addition, personnel and personnel-related support costs decreased by $0.6
million due to our reversal of the remaining accrual for severance and other costs relating to a former senior executive officer and the effect of an insurance contribution we received in connection with a settlement reached with such former
executive officer. In addition, consulting and subcontractor costs during the six months ended June 30, 2009 decreased $0.5 million compared to the same period in 2008 due to our cost control efforts. The decreases were partially offset by $0.9
million in fees incurred during the six months ended June 30, 2009 by the financial and legal advisors appointed by the special committee of our board of directors in connection with its review of the non-binding proposal from Kudelski SA to
acquire all of our Class A ordinary shares they do not own and an increase in expense resulting from a credit provision for bad debt recorded in the prior year period. Finally, bad debt expense was $0.5 million higher during the six months
ended June 30, 2009 compared to the same period in 2008, primarily due to a reversal of a provision for bad debt that occurred in the prior year period.
Amortization of Intangible Assets
Intangible assets are amortized on a straight-line basis over their estimated
useful lives of four to 13 years. As noted above, cost of royalties and licenses includes amounts relating to the amortization of developed technologies and patents. Amortization of intangible assets, excluding these developed technologies and
patents, was as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Amortization of intangible assets
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
$
|
(0.1
|
)
|
|
(50
|
)%
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
$
|
(0.2
|
)
|
|
(50
|
)%
|
As percentage of total revenues
|
|
|
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
Amortization of intangible assets for the three months ended June 30, 2009 decreased
$0.1 million, or 50%, to $0.1 million, and amortization of intangible assets for the six months ended June 30, 2009 decreased $0.2 million, or 50%, to $0.2 million. The decreases were due to our impairment during the fourth quarter of
2008 of the unamortized value of one of the customer contracts we assumed as part of our acquisition of substantially all of the assets of CAM Systems in September 2005.
Interest Income
Interest income consists primarily of interest earned on our cash and cash
equivalents, and marketable debt securities, net of interest expense. Interest income was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2009
|
|
2008
|
|
2009 versus 2008
|
|
|
2009
|
|
2008
|
|
2009 versus 2008
|
|
Interest income
|
|
$
|
0.1
|
|
$
|
0.6
|
|
$
|
(0.5
|
)
|
|
(83
|
)%
|
|
$
|
0.2
|
|
$
|
1.4
|
|
$
|
(1.2
|
)
|
|
(86
|
)%
|
Interest income for the three months ended June 30, 2009 decreased $0.5 million, or
83%, to $0.1 million, and interest income for the six months ended June 30, 2009 decreased $1.2 million, or 86%, to $0.2 million. These decreases were due to lower effective interest rates earned on our investment portfolio,
which consists primarily of cash and cash equivalents, money market funds and short-term marketable debt securities issued by United States government entities and other highly-rated institutions.
Other Income and Expense Items
Other income
and expense items consist primarily of gains or losses from foreign currency exchange, gains or losses on the disposal of capital assets, miscellaneous income and other unusual items. The net of other income and expense items was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
2009 versus 2008
|
|
Other income (expense)
|
|
$
|
(0.4
|
)
|
|
$
|
0.4
|
|
$
|
(0.8
|
)
|
|
(200
|
)%
|
|
$
|
(1.0
|
)
|
|
$
|
2.2
|
|
$
|
(3.2
|
)
|
|
(145
|
)%
|
33
For the three and six months ended June 30, 2009, net other income (expense) was negatively impacted
by losses on foreign exchange experienced due to the strengthening of the United States dollar relative to the foreign currencies in which a portion of our cash balance was denominated. For the three and six months ended June 30, 2008, net
other income benefited from the weakening of the United States Dollar relative to the foreign currencies in which a portion of our cash balance was denominated.
Income Taxes
As of June 30, 2009, unrecognized tax benefits approximated $1.1 million, all of which would
affect our effective tax rate if recognized.
We estimate that we had net United States federal tax loss carryforwards of approximately
$185 million at the end of 2008, although our ability to make use of those tax loss carryforwards may be limited under applicable tax regulations. The calculation of those tax loss carryforwards is a complex matter and may require reassessment
from time to time, which could result in changes to that estimate. For all periods presented, substantially all federal tax benefits related to our losses have been offset by an increase in the valuation allowance against the resulting deferred tax
assets. Notwithstanding those federal tax loss carryforwards, we are subject to income taxes in certain state and foreign jurisdictions, and we have foreign taxes withheld from certain royalty payments.
Income tax expense consists primarily of foreign taxes, state taxes, tax benefits or refunds, and changes to reserves for identified potential foreign
tax exposure. Incomes taxes were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2009
|
|
2008
|
|
2009 versus 2008
|
|
|
2009
|
|
2008
|
|
2009 versus 2008
|
|
Income tax expense
|
|
$
|
0.2
|
|
$
|
0.4
|
|
$
|
(0.2
|
)
|
|
(50
|
)%
|
|
$
|
0.7
|
|
$
|
0.8
|
|
$
|
(0.1
|
)
|
|
(13
|
)%
|
The income tax expense of $0.2 million recorded in the three months ended June 30, 2009
versus the income tax expense of $0.4 million recorded in the same period in 2008 and the income tax expense of $0.7 million recorded in the six months ended June 30, 2009 versus the income tax expense of $0.8 million recorded in the same
period in 2008, primarily resulted from relative differences in the rates of taxation in the various foreign jurisdictions in which we generate revenue and a release of tax reserves following the expiration of the applicable statute of limitations.
Business Segment Results
In
March 2008, Nigel (Ben) Bennett was appointed as Chief Executive Officer after having served as Chief Operating Officer and Acting Chief Executive Officer since August 2007. Accordingly, Mr. Bennett is our chief operating decision maker, or
CODM. Our CODM currently assesses our results and financial performance and reviews our internal budgeting reports on the basis of two segments: middleware solutions and advertising solutions. We have prepared this segment analysis in accordance
with SFAS 131,
Disclosure about Segments of an Enterprise and Related Information.
Middleware solutions is composed of
set-top box middleware and embedded browser technologies, such as OpenTV Spyglass, as well as software components that are deployed at the network operators headend.
Advertising solutions includes our OpenTV Eclipse
Plus
, Eclipse and Participate products.
Our management reviews and assesses the contribution margin of each of these segments, which is not a financial measure calculated in
accordance with GAAP. We define contribution margin for these purposes as segment revenues less related direct or indirect allocable costs, including personnel and personnel-related support costs, communications, facilities, maintenance and support,
consulting and subcontractor costs, travel, marketing and network infrastructure and bandwidth costs. There are significant judgments management makes with respect to the direct and indirect allocation of costs that may affect the calculation of
contribution margins. While management believes these and other related judgments are reasonable and appropriate, others could assess such matters differently.
34
Contribution margin is a non-GAAP financial measure that excludes unallocated corporate support,
interest, taxes, depreciation and amortization, amortization of intangible assets, share-based compensation, impairment of goodwill, impairment of intangibles, other income, noncontrolling interest, restructuring provisions, and unusual items such
as contract amendments that mitigate potential loss positions. These exclusions reflect costs not considered directly allocable to individual business segments and result in a definition of contribution margin that does not take into account some of
the substantial costs of doing business. Management believes that segment contribution margin is a helpful measure in evaluating the performance of our business segments. While our management may consider contribution margin to be an important
measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, profit from operations, net income, cash flow and other measures of financial performance prepared in accordance with GAAP
that are presented in our financial statements. In addition, our calculation of contribution margin may be different from, and not comparable to, the calculation used by other companies.
Because these segments reflect the manner in which management reviews our business, they necessarily involve judgments that management believes are
reasonable in light of the circumstances under which they are made. These judgments may change over time or may be modified to reflect new facts or circumstances. Segments may also be changed or modified to reflect technologies and applications that
are newly created, or that change over time, or other business conditions that evolve, each of which may result in reassessing specific segments and the elements included within each of those segments. Recent events may affect the manner in which we
present segments in the future.
Middleware Solutions
Revenues and contribution margin of our middleware solutions segment were as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Royalties and licenses
|
|
$
|
18.8
|
|
|
$
|
16.7
|
|
|
$
|
2.1
|
|
|
13
|
%
|
|
$
|
39.9
|
|
|
$
|
37.2
|
|
|
$
|
2.7
|
|
|
7
|
%
|
Services and other
|
|
|
6.0
|
|
|
|
6.8
|
|
|
|
(0.8
|
)
|
|
(12
|
)%
|
|
|
11.9
|
|
|
|
16.4
|
|
|
|
(4.5
|
)
|
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total middleware solutions
|
|
$
|
24.8
|
|
|
$
|
23.5
|
|
|
$
|
1.3
|
|
|
6
|
%
|
|
$
|
51.8
|
|
|
$
|
53.6
|
|
|
$
|
(1.8
|
)
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As percentage of total revenues
|
|
|
90
|
%
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
91
|
%
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution margin - middleware solutions
|
|
$
|
8.5
|
|
|
$
|
8.0
|
|
|
$
|
0.5
|
|
|
6
|
%
|
|
$
|
19.4
|
|
|
$
|
21.6
|
|
|
$
|
(2.2
|
)
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Total
revenues from the middleware solutions segment for the three months ended June 30, 2009 increased $1.3 million, or 6%, to $24.8 million.
Royalties and licenses revenues from the middleware solutions segment account for the majority of our overall royalties and licenses. Royalties and licenses from set-top box shipments and other product sales accounted for 76% and 71% of
segment revenues for the three months ended June 30, 2009 and 2008, respectively. Royalties and licenses from the middleware solutions segment for the three months ended June 30, 2009 increased $2.1 million, or 13%, to $18.8 million. As
described under
Royalties and licenses
in
Revenues
above, BSkyB, directly and indirectly through our set-top box manufacturer customers who sell set-top boxes to BSkyB, accounted for $4.4 million, or 23%,
of our total worldwide royalties and licenses revenues for the three months ended June 30, 2009. BSkyB royalties and licenses revenues for the three months ended June 30, 2009 increased by $0.5 million compared to the same period in
2008, primarily as a result of increased deployments of set-top boxes containing our software, which was partially offset by a volume-based price reduction that became effective as of January 1, 2009. As described above, this volume-based price
reduction may negatively impact the overall level of revenues that we generate from BSkyB in the future.
Royalties and licenses revenues
from TV Cabo and Portugal Telecom, which we receive through our license and distribution agreement with Nagravision, collectively accounted for an increase of $0.9 million in the three months ended June 30, 2009 compared to the same period in
2008. Royalties and licenses revenues from UGC, Bell TV, Sky Italia, HOT Telecom, Star Choice Communications, Sky Network Television, Multichoice Africa and FOXTEL increased $1.1 million, $0.5 million, $0.5 million, $0.4 million, $0.3 million, $0.2
million, $0.1 million and $0.1 million, respectively, for the three months ended June 30, 2009 compared to the same period in 2008, primarily due to increased deployments of set-top boxes containing our software. These increases were partially
offset by a decrease of $1.6 million in royalties and licenses revenues from Reliance during the three months ended June 30, 2009 compared to the same period in 2008 due to the one-time license fee for enterprise software received in the three
months ended
35
June 30, 2008 and by a decrease in royalties and licenses revenues from Panasonic of $0.6 million during the three months ended June 30, 2009
compared to the same period in 2008 which was primarily due to decreased deployments by that customer of our OpenTV Integrated Browser product. The remaining decrease of $0.3 million in royalties and licenses revenues resulted primarily from lower
volumes of set-top box shipments by other customers.
Services and other revenues accounted for 24% and 29% of segment revenues for the
three months ended June 30, 2009 and 2008, respectively. Services and other revenues from the middleware solutions segment for the three months ended June 30, 2009 decreased $0.8 million, or 12%, to $6.0 million. As described under
Services and other
in
Revenues
above, services and other revenues from BSkyB, Comcast, Multichoice Africa, Numericable and NET decreased $0.6 million, $0.5 million, $0.4 million, $0.2 million and $0.1 million,
respectively, primarily due to a decrease in professional services engagements with those customers in the three months ended June 30, 2009 compared to the same period in 2008. The decreases were partially offset by increases of $0.6 million in
services and other revenues from each of SKY Perfect and Cisco, which were primarily the result of an increase in professional services engagements with those customers. Services and other revenues from other customers during the three months ended
June 30, 2009 accounted for a net decrease of $0.2 million compared to the same period in 2008.
Costs associated with our middleware
solutions segment consist primarily of personnel and personnel-related support costs and consulting and subcontractor costs incurred in connection with professional services engagements. Total contribution margin for the middleware solutions segment
for the three months ended June 30, 2009 increased $0.5 million, or 6%, to $8.5 million compared to the same period in 2008, primarily as a result of a $1.3 million increase in revenues generated in this segment, which was partially offset
by $0.4 million increase in provision for service contracts that are under loss position as a result of changes in cost estimates impacting some of our professional services engagements, a $0.3 million increase in personnel and personnel-related
support costs and a $0.2 million increase in consulting and subcontractor costs.
Six Months ended June 30, 2009 versus Six Months
ended June 30, 2008.
Total revenues from the middleware solutions segment for the six months ended June 30, 2009 decreased $1.8 million, or 3%, to $51.8 million.
Royalties and licenses from set-top box shipments and other product sales accounted for 77% and 69% of segment revenues for the six months ended
June 30, 2009 and 2008, respectively. Royalties and licenses from the middleware solutions segment for the six months ended June 30, 2009 increased $2.7 million, or 7%, to $39.9 million. As described under
Royalties and
licenses
in
Revenues
above, BSkyB, directly and indirectly through our set-top box manufacturer customers who sell set-top boxes to BSkyB, accounted for $9.6 million, or 23%, of our total worldwide royalties and
licenses revenues for the six months ended June 30, 2009. BSkyB royalties and licenses revenues for the six months ended June 30, 2009 decreased by $0.1 million compared to the same period in 2008, primarily as a result of increased
deployments of set-top boxes containing our software, which was offset by a volume-based price reduction that became effective as of January 1, 2009. As described above, this volume-based price reduction may negatively impact the overall level
of revenues that we generate from BSkyB in the future. Royalties and licenses revenues from Portugal Telecom and TV Cabo, which we receive through our license and distribution agreement with Nagravision, collectively accounted for an increase of
$2.2 million in the six months ended June 30, 2009 compared to the same period in 2008.
Royalties and licenses revenues from EchoStar
for the six months ended June 30, 2009 increased $0.9 million compared to the same period in 2008, primarily due to the receipt of a late royalty report for set-top boxes that were shipped during 2008 but not reported to us until the first
quarter of 2009. Royalties and licenses revenues from UPC, HOT Telecom, Multichoice Africa, Sky Network Television, FOXTEL and Sky Italia increased $1.3 million, $0.7 million, $0.7 million, $0.5 million, $0.4 million and $0.1 million, respectively,
for the six months ended June 30, 2009 compared to the same period in 2008, primarily due to increased deployments of set-top boxes containing our software. These increases were partially offset by a decrease of $1.4 million in royalties and
licenses revenues from Reliance during the six months ended June 30, 2009 compared to the same period in 2008, primarily due to the one-time license fee for enterprise software received in the three months ended June 30, 2008, and by
decreases in royalties and licenses revenues from Panasonic and Austar of $1.2 million and $1.0 million, respectively, compared to the same period in 2008 due to lower volumes of deployments of our products. Royalties and licenses revenues from
other customers in the region accounted for a net decrease of $0.4 million compared to the same period in 2008.
36
Services and other revenues accounted for 23% and 31% of segment revenues for the six months ended
June 30, 2009 and 2008, respectively. Services and other revenues from the middleware solutions segment for the six months ended June 30, 2009 decreased $4.5 million, or 27%, to $11.9 million. As described under
Services and
other
in
Revenues
above, services and other revenues from Numericable, Austar, Multichoice Africa, Reliance, Digiturk, BSkyB, Sky Network Television and NET decreased $1.7 million, $1.0 million, $0.8 million, $0.7
million, $0.7 million, $0.4 million, $0.4 million and $0.4 million, respectively, primarily due to a decrease in professional services engagements with those customers in the six months ended June 30, 2009 compared to the same period in 2008.
The decreases were partially offset by increases of $1.6 million and $0.6 million in services and other revenues from SKY Perfect and Cisco, which were primarily the result of an increase in professional services engagements with those customers.
Services and other revenues from other customers during the six months ended June 30, 2009 accounted for a net decrease of $0.6 million compared to the same period in 2008.
Total contribution margin for the middleware solutions segment for the six months ended June 30, 2009 decreased $2.2 million, or 10%, to
$19.4 million compared to the same period in 2008, primarily as a result of a $1.8 million decrease in revenues generated in this segment, a $0.7 million increase in provision for service contracts that are under loss position as a result of
changes in cost estimates impacting some of our professional services engagements and a $0.6 million increase in consulting and subcontractor costs, which were partially offset by a $0.6 million decrease in personnel and personnel-related support
costs.
Advertising Solutions
Revenues and contribution margin of our advertising solutions segment were as follows (in millions, except percentages):
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Royalties and licenses
|
|
$
|
0.7
|
|
|
$
|
1.5
|
|
|
$
|
(0.8
|
)
|
|
(53
|
)%
|
|
$
|
1.2
|
|
|
$
|
3.2
|
|
|
$
|
(2.0
|
)
|
|
(63
|
)%
|
Services and other
|
|
|
2.1
|
|
|
|
1.8
|
|
|
|
0.3
|
|
|
17
|
%
|
|
|
4.0
|
|
|
|
3.8
|
|
|
|
0.2
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total advertising solutions revenues
|
|
$
|
2.8
|
|
|
$
|
3.3
|
|
|
$
|
(0.5
|
)
|
|
(15
|
)%
|
|
$
|
5.2
|
|
|
$
|
7.0
|
|
|
$
|
(1.8
|
)
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As percentage of total revenues
|
|
|
10
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution margin - advertising solutions
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
%
|
|
$
|
(0.1
|
)
|
|
$
|
0.9
|
|
|
$
|
(1.0
|
)
|
|
(111
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, 2009 versus Three Months ended June 30, 2008.
Total
revenues from the advertising solutions segment for the three months ended June 30, 2009 decreased $0.5 million, or 15%, to $2.8 million.
Royalties and licenses revenues from the advertising solutions segment for the three months ended June 30, 2009 decreased $0.8 million, or 53%, to $0.7 million. As described under
Royalties and licenses
in
Revenues
above, royalties and licenses revenues from Time Warner Cable and Comcast decreased $0.6 million and $0.2 million, respectively, compared to the same period in 2008, primarily due to a new pricing model that became effective
as of January 1, 2009 as part of an upgrade sold to those customers for our latest Eclipse
Plus
product. This pricing model includes a one-time, upfront license fee that is typically recognized over the term of the contract as compared to
our prior pricing model under which we recognized recurring monthly license fees as received.
Services and other revenues from the
advertising solutions segment for the three months ended June 30, 2009 increased by $0.3 million, or 17%, to $2.1 million. As described under
Services and other
in
Revenues
above, services and other
revenues from Comcast decreased by $0.1 million during the three months ended June 30, 2009 compared to the same period in 2008, primarily due a decrease in professional services engagements with that customer. Services and other revenues from
other customers accounted for a net increase of $0.4 million during the three months ended June 30, 2009 compared to the same period in 2008, primarily due a decrease in professional services engagements.
Costs associated with our advertising solutions segment consist primarily of personnel and personnel-related support costs and consulting and
subcontractor costs incurred in connection with professional services engagements. Total contribution margin for the advertising solutions segment was $0.2 million for the three months ended June 30, 2009, which is consistent with the same
period in 2008. Revenues generated in this segment decreased by $0.5 million. Personnel and personnel-related support costs decreased $0.5 million and consulting and subcontractor costs decreased $0.2 million, which were partially offset by the
impact of a $0.2 million
37
reversal of a previously accrued liability during the three months ended June 30, 2008, which related to a contract commitment that we assumed in
connection with the Wink acquisition.
Six Months ended June 30, 2009 versus Six Months ended June 30, 2008.
Total
revenues from the advertising solutions segment for the six months ended June 30, 2009 decreased $1.8 million, or 26%, to $5.2 million.
Royalties and licenses revenues from the advertising solutions segment for the six months ended June 30, 2009 decreased $2.0 million, or 63%, to $1.2 million. As described under
Royalties and licenses
in
Revenues
above, royalties and licenses revenues from Time Warner Cable and Comcast decreased $1.2 million and $0.6 million, respectively, compared to the same period in 2008, primarily due to a new pricing model that became effective
as of January 1, 2009 as part of an upgrade sold to those customers for our latest Eclipse
Plus
product. This pricing model includes a one-time, upfront license fee that is typically recognized over the term of the contract as compared to
our prior pricing model under which we recognized recurring monthly license fees as received. Royalties and licenses revenues from other customers accounted for a net decrease of $0.2 million compared to the same period in 2008 due to decreased
deployments of our products.
Services and other revenues from the advertising solutions segment for the six months ended June 30,
2009 increased by $0.2 million, or 5%, to $4.0 million. As described under
Services and other
in
Revenues
above, services and other revenues from Comcast decreased by $0.4 million, primarily due a decrease in
professional services engagements during the six months ended June 30, 2009 compared to the same period in 2008. Services and other revenues from other customers accounted for a net increase of $0.6 million compared to the same period in 2008,
primarily due to an increase in professional services engagements.
Total contribution margin for the advertising solutions segment for the
six months ended June 30, 2009 decreased $1.0 million, or 111%, to a loss of $0.1 million compared to $0.9 million gain in the same period in 2008, primarily as a result of a $1.8 million decrease in revenues. Personnel and
personnel-related support costs decreased $0.9 million and consulting and subcontractor costs decreased $0.2 million, which were partially offset by the impact of a $0.2 million reversal of a previously accrued liability during the three months
ended June 30, 2008, which related to a contract commitment that we assumed in connection with the Wink acquisition.
Reconciliation of
Contribution Margin to Net Income
Total contribution margin reconciled to net income on a GAAP basis was as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Change
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
|
2009
|
|
|
2008
|
|
|
2009 versus 2008
|
|
Total contribution margin
|
|
$
|
8.7
|
|
|
$
|
8.2
|
|
|
$
|
0.5
|
|
6
|
%
|
|
$
|
19.3
|
|
|
$
|
22.5
|
|
|
$
|
(3.2
|
)
|
|
(14
|
)%
|
Unallocated corporate overhead
|
|
|
(4.7
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
(11.2
|
)
|
|
|
(12.5
|
)
|
|
|
|
|
|
|
|
Restructuring and impairment costs
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
(2.2
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
(0.4
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
Share-based and non-cash compensation
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(0.4
|
)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income taxes
|
|
|
1.9
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OpenTV
|
|
$
|
1.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
$
|
2.9
|
|
|
$
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue
When we apply our revenue recognition policy, we must determine which portions of our revenue are recognized currently and which portions must be deferred, principally in accordance with Statement of Position (SOP)
97-2,
Software Revenue Recognition,
SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type Contracts,
and SEC Staff Accounting Bulletin No. 104,
Revenue
Recognition.
In order to determine current and deferred revenue, we make judgments and estimates with regard to future product and services deliverables and the appropriate valuation of those deliverables.
38
Some of our contractual arrangements with our customers involve multiple elements that impact the timing
of recognition of revenues received from such customers, including, for example, our arrangements with Essel Group (which operates the DishTV network in India), FOXTEL in Australia and Comcast and Time Warner Cable in the United States. At the time
that a multiple-element arrangement is entered into, we make a determination as to whether vendor specific objective evidence, or VSOE, of fair value exists for each of the elements involved in the arrangement. To the extent VSOE does not exist for
any undelivered elements, then all or portions of the amounts that we invoice under the applicable arrangement are generally deferred and recognized as revenue over time. For example, some of our arrangements provide for the delivery of future
specified products and services, for which VSOE of fair value does not exist. In addition, some of our contracts include maintenance and support offerings, for which VSOE of fair value does not exist. In instances where VSOE of fair value for
maintenance and support does not exist, we will generally recognize all revenues from the arrangement either over the remaining contractual period of support or over the remaining period during which maintenance and support is expected to be
provided, once all other specified deliverables have been delivered. In instances where VSOE of fair value for maintenance and support exists and there are future specified products and services for which VSOE of fair value does not exist, we will
generally recognize all revenues upon the final delivery of the future specified products and services, except for the fair value of the revenues relating to the remaining undelivered maintenance and support, which will be recognized over the
remaining period of support.
As of June 30, 2009, we had a balance of $38.7 million in deferred revenue compared to
$33.2 million as of December 31, 2008. Based on our current estimates, we expect the following recognition of this deferred revenue balance (in millions):
|
|
|
|
|
|
Expected Recognition
of Deferred Revenue
|
Through June 30, 2010
|
|
$
|
23.0
|
July 1, 2010 through June 30, 2011
|
|
|
8.0
|
Thereafter
|
|
|
7.7
|
|
|
|
|
|
|
$
|
38.7
|
|
|
|
|
In order to determine the expected recognition of deferred revenue set forth in the foregoing
table, we make judgments and estimates regarding, among other things, future product and services deliverables, the appropriate valuation of those products and services and expected changes in customer requirements. These judgments and estimates
could differ from actual events, particularly those that involve factors outside of our control. As a result, the actual revenue recognized from these arrangements and the timing of that recognition may differ from the amounts identified in this
table. While management believes that this information is a helpful measure in evaluating the companys performance, investors should understand that unless and until the company is actually able to recognize these amounts as revenue in
accordance with GAAP, there can be no assurance that the conditions to recognizing that revenue will be satisfied.
Liquidity and Capital Resources
We expect to be able to fund our operating and capital requirements for at least the next twelve months by using existing cash balances and
short-term and long-term marketable debt securities if our assumptions about our revenues, expenses and cash commitments are generally accurate. Because we cannot be certain that our assumptions about our business or the digital television and
advanced advertising markets in general will prove to be accurate, our funding requirements may differ from our current expectations.
Our
primary source of cash from operations is royalty payments from customers. The primary uses of cash are personnel and personnel-related costs, subcontractor and consulting costs, facilities costs, and capital expenditures. In February 2008, we
received $14.3 million in cash from Liberty Media after the expiration of the indemnity period specified in the stock purchase agreement between Liberty Media and Kudelski.
The mix of cash and short-term and long-term investments may change in the future as we make decisions regarding the composition of our investment
portfolio. We use professional investment management firms to manage a significant portion of our invested cash. The portfolio consists of highly liquid, high-quality investment grade securities of the United States government and agencies,
corporate notes and bonds and certificates of deposit that predominantly have maturities of less than three years. All investments are made in accordance with our written investment policy, which has been approved by our board of directors.
39
The mix of cash and short-term and long-term securities was as follows, which may change in the future as
we make decisions regarding the composition of our investment portfolio (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
92.7
|
|
$
|
93.9
|
|
$
|
(1.2
|
)
|
|
(1
|
)%
|
Short-term marketable debt securities
|
|
|
18.6
|
|
|
7.7
|
|
|
10.9
|
|
|
142
|
%
|
Long-term marketable debt securities
|
|
|
|
|
|
1.2
|
|
|
(1.2
|
)
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash portfolio
|
|
$
|
111.3
|
|
$
|
102.8
|
|
$
|
8.5
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The summary of cash flows from operating activities, investing activities and financing activities
for the six months ended June 30, 2009 and 2008 was as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
2009 versus 2008
|
|
Cash provided by operating activities
|
|
$
|
9.9
|
|
|
$
|
5.1
|
|
$
|
4.8
|
|
Cash provided by (used in) investing activities
|
|
$
|
(11.3
|
)
|
|
$
|
12.2
|
|
$
|
(23.5
|
)
|
Cash provided by (used in) financing activities
|
|
$
|
(0.3
|
)
|
|
$
|
13.9
|
|
$
|
(14.2
|
)
|
Cash provided by operating activities
The increase of $4.8 million in net cash provided by operating activities during the six months ended June 30, 2009 as compared to the same period in
2008 was primarily attributable to an $11.4 million increase in the changes in accounts receivable, which was partially offset by a $5.1 million decrease in net income, net of non-cash items, and a net decrease of $1.5 million in changes of
other current assets and liabilities.
Cash provided by (used in) investing activities
The decrease of $23.5 million in net cash provided by (used in) investing activities during the six months ended June 30, 2009 compared to the same
period in 2008 primarily represented a $12.0 million decrease in net proceeds from the sales of marketable debt securities and additional investments of $10.2 in marketable debt securities. In addition, during the six months ended June 30,
2008, we received $1.9 million from the sale of a cost investment. These decreases were partially offset by a $0.6 million reduction in capital expenditures.
Cash provided by (used in) financing activities
The decrease of $14.2 million in net cash provided by (used in)
financing activities during the six months ended June 30, 2009 compared to the same period in 2008 was primarily due to the $14.3 million capital contribution received from Liberty Media in February 2008 and $0.2 million cash paid during the
six months ended June 30, 2009 to repurchase our Class A ordinary shares. These decreases were partially offset by a $0.4 million decrease in cash paid to repurchase restricted Class A ordinary shares held by employees in order to
satisfy applicable withholding taxes upon lapsing of the restrictions on such shares.
Commitments and Contractual Obligations
Information as of June 30, 2009 concerning the amount and timing of required payments under our contractual obligations is summarized below (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Due in
remaining six
months in
2009
|
|
Due in
2010 - 2011
|
|
Due in
2012 - 2013
|
|
Due in
2014 or after
|
Operating leases obligations
|
|
$
|
18.4
|
|
$
|
2.3
|
|
$
|
8.5
|
|
$
|
4.9
|
|
$
|
2.7
|
Noncancellable purchase obligations
|
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
18.6
|
|
$
|
2.5
|
|
$
|
8.5
|
|
$
|
4.9
|
|
$
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
In the ordinary course of business we enter into various arrangements with vendors and other business
partners for marketing and other services. Future minimum commitments under these arrangements as of June 30, 2009 were $0.2 million for the remaining six months of 2009, and insignificant for the years ending December 31, 2010 and 2011.
In addition, we also have arrangements with certain parties that provide for revenue sharing payments.
As of June 30, 2009, we had
three standby letters of credit aggregating approximately $1.2 million, two of which were issued to landlords of our leased properties, and one of which was issued to a sublessee at our New York facility, which we vacated in the second quarter of
2005. As of June 30, 2009, the two certificates of deposit that we had previously pledged as collateral in respect of these standby letters of credit had expired. However, in July 2009, we pledged approximately $1.2 million deposited in a
savings account as collateral for these letters of credit.
Indemnification
In the ordinary course of our business, we provide indemnification to customers, subject to limitations, against claims of intellectual property
infringement made by third parties arising from the use of our products. Costs related to these indemnification provisions are sometimes difficult to estimate. While we have not historically experienced significant costs for these matters, there may
be occasions in the ordinary course of our business where we assume litigation and other costs on behalf of our customers that could have an adverse effect on our financial position depending upon the outcome of any specific matter. We ordinarily
seek to limit our liabilities in those arrangements in various respects, including monetarily, but the costs associated with any type of intellectual property indemnification arrangement continue to escalate in general, and especially in the
technology sector.
As permitted under the laws of the British Virgin Islands, we have agreed to indemnify our officers and directors for
certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited;
however, we have director and officer insurance coverage that mitigates our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable
insurance coverage is not material.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
We are exposed to financial market risks. This exposure relates to our holdings of fixed income investment securities and assets and liabilities denominated in foreign currencies.
Fixed Income Investment Risk
We own a fixed income
investment portfolio with various holdings, types and maturities. These investments are generally classified as available-for-sale. Available-for-sale securities are recorded on the balance sheet at fair value with unrealized gains or losses, net of
tax, included as a separate component of the balance sheet line item entitled accumulated other comprehensive income (loss).
Most of these investments consist of a diversified portfolio of highly liquid United States dollar-denominated debt securities classified by maturity as cash equivalents, short-term investments or long-term investments. These debt
securities are not leveraged and are held for purposes other than trading. Our investment policy limits the maximum maturity of securities in this portfolio to three years and weighted-average maturity to 15 months. Although we expect that
market value fluctuations of our investments in short-term debt obligations will not be significant, a sharp rise in interest rates could have a material adverse effect on the value of securities with longer maturities in the portfolio.
Alternatively, a sharp decline in interest rates could have a material positive effect on the value of securities with longer maturities in the portfolio. We do not currently hedge interest rate exposures.
Our investment policy limits investment concentration in any one issuer (other than with respect to United States treasury and agency securities) and
also restricts this part of our portfolio to investment grade obligations based on the assessments of rating agencies. There have been instances in the past where the assessments of rating agencies have failed to anticipate significant defaults by
issuers. It is possible that we could lose most or all of the value in an individual debt obligation as a result of a default. A loss through a default may have a material impact on our earnings even though our policy limits investments in the
obligations of a single issuer to no more than five percent of the value of our portfolio.
41
The following table presents the hypothetical changes in fair values in our portfolio of investment
securities with original maturities greater than 90 days as of June 30, 2009 using a model that assumes immediate sustained parallel changes in interest rates across the range of maturities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as
of June 30,
2009
|
|
Valuation of
Securities if
Interest Rates
Decrease 1%
|
|
Valuation of
Securities if
Interest Rates
Decrease 0.5%
|
|
Valuation of
Securities if
Interest Rates
Increase 1%
|
|
Valuation of
Securities if
Interest Rates
Increase 2%
|
Marketable debt securities
|
|
$
|
18,601
|
|
$
|
18,632
|
|
$
|
18,620
|
|
$
|
18,555
|
|
$
|
18,509
|
The modeling technique used in the above table estimates fair values based on changes in interest
rates assuming static maturities. The fair value of individual securities in our investment portfolio is likely to be affected by other factors including changes in ratings, market perception of the financial strength of the issuers of such
securities and the relative attractiveness of other investments. Accordingly, the fair value of our individual securities could also vary significantly in the future from the amounts indicated above.
Foreign Currency Exchange Rate Risk
We transact
business in various foreign countries. We incur a substantial majority of our expenses, and earn most of our revenues, in United States dollars. Although a majority of our worldwide customers are invoiced and make payments in United States dollars,
some of our customer contracts provide for payments to be remitted in local currency. As of June 30, 2009, we held approximately $7.8 million of various foreign currencies as a result of our worldwide operations.
We have a foreign currency exchange exposure management policy. The policy permits the use of foreign currency forward exchange contracts and foreign
currency option contracts and the use of other hedging procedures in connection with hedging foreign currency exposures. The policy requires that the use of derivatives and other procedures qualify for hedge treatment under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
and SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities.
During the three months ended June 30, 2009, we did not
use foreign currency forward exchange contracts, options in hedging foreign currency exposures, or other hedging procedures. However, we regularly assess our foreign currency exchange rate risk that results from our global operations, and we may in
the future elect to make use of appropriate hedging strategies.
Item 4.
|
Controls and Procedures
|
Management of the company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Based on
their evaluation as of June 30, 2009, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) were effective.
There were no changes in our internal control over financial reporting during the quarter ended
June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected.
42
Part II. Other Information
Item 1.
|
Legal Proceedings
|
The
information set forth in this Section has been included only to the extent that it reflects a significant update of information previously set forth in our Annual Report on Form 10-K for the year ended December 31, 2008 and our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2009. To the extent that we do not have any significant changes in the legal proceedings referred to in such Annual Report or such Quarterly Report, we have not restated the descriptions of
those proceedings. That determination not to so restate those descriptions should not be taken as a representation that we have resolved the matter or that it is no longer a contingency. In addition, any update to the legal proceedings referred to
below does not necessarily mean that the information contained in the update is material; rather, we have determined that the updated information is relevant to a fair assessment of the matter and is intended to provide our investors with a
reasonable understanding of the nature of the legal proceeding as we understand it on the date of this Quarterly Report.
Initial
Public Offering Securities Litigation.
In July 2001, the first of a series of putative securities class actions was filed in the United States District Court for the Southern District of New York against certain investment banks which acted
as underwriters for our initial public offering, us and various of our officers and directors. In November 2001, a similar securities class action was filed in the United States District Court for the Southern District of New York against Wink
Communications and two of its officers and directors and certain investment banks which acted as underwriters for Wink Communications initial public offering. We acquired Wink Communications in October 2002. The complaints allege
undisclosed and improper practices concerning the allocation of initial public offering shares, in violation of the federal securities laws, and seek unspecified damages on behalf of persons who purchased our Class A ordinary shares during the
period from November 23, 1999 through December 6, 2000 and Wink Communications common stock during the period from August 19, 1999 through December 6, 2000. Other actions have been filed making similar allegations regarding
the initial public offerings of more than 300 other companies. All of these lawsuits have been coordinated for pretrial purposes as
In re Initial Public Offering Securities Litigation
, 21 MC 92 (SAS). Defendants in these cases filed an
omnibus motion to dismiss on common pleading issues. All claims against our officers and directors have been dismissed without prejudice in this litigation pursuant to the parties stipulation approved by the Court on October 9, 2002. On
February 19, 2003, the Court denied in part and granted in part the omnibus motion to dismiss filed on behalf of defendants, including us and Wink Communications. The Courts order dismissed all claims against us and Wink Communications
except for a claim brought under Section 11 of the Securities Act of 1933.
In 2007, a settlement that had been pending with
the Court since 2004 was terminated by stipulation of the parties, after a ruling by the Second Circuit Court of Appeals in six focus cases in the IPO litigation (neither OpenTV nor Wink Communications is a focus case) made it
unlikely that the settlement would receive final Court approval. Plaintiffs filed amended master allegations and amended complaints in the six focus cases. In 2008, the Court largely denied the defendants motion
to dismiss the amended complaints.
Earlier this year, the parties reached a global settlement of the litigation, and
on April 2, 2009, a motion for preliminary approval of the settlement was filed with the Court. Under the settlement, which remains subject to final Court approval, the insurers would pay the full amount of settlement share
allocated to us and to Wink Communications, and we would bear no financial liability. We, as well as the officer and director defendants (including the OpenTV officer and director defendants who were previously dismissed
from the action pursuant to tolling agreements), would receive complete dismissals from the case. On June 9, 2009, the Court entered an order granting preliminary approval of the settlement. It is uncertain whether the settlement
will receive final Court approval. If the settlement does not receive final Court approval and litigation against us and Wink Communications continues, we believe we have meritorious defenses and intend to defend ourselves vigorously.
No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.
Other Matters.
From time to time in the ordinary course of our business, we are also party to other legal proceedings or receive correspondence
regarding potential or threatened legal proceedings. While we currently believe that the ultimate outcome of these other proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall
trends in our results of operations, legal proceedings are subject to inherent uncertainties.
43
Based on
information available to management as of the date of this Quarterly Report on Form 10-Q, management has determined that no material changes are required to the risk factor disclosure as reported in our Annual Report on Form 10-K for the
year ended December 31, 2008.
(a)
Exhibits
. Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
|
|
|
10.1
|
|
Office Lease between VNO Patson Sacramento LP and OpenTV, Inc. dated as of May 27, 2009.*
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification*
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification*
|
|
|
32
|
|
Section 1350 Certification**
|
44
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.
|
|
|
|
|
|
|
|
|
|
|
OpenTV Corp.
|
|
|
|
Date: August 7, 2009
|
|
|
|
/s/ Nigel W. Bennett
|
|
|
|
|
Nigel W. Bennett
|
|
|
|
|
Chief Executive Officer
|
45
Exhibit Index
|
|
|
Exhibit
Number
|
|
Description
|
10.1
|
|
Office Lease between VNO Patson Sacramento LP and OpenTV, Inc. dated as of May 27, 2009.*
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification*
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification*
|
|
|
32
|
|
Section 1350 Certification**
|
46
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