e10vq
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended September 24, 2005
Commission
file number 000-49602
SYNAPTICS INCORPORATED
(Exact name of Registrant as specified in its charter)
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Delaware
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77-0118518 |
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.) |
3120 Scott Blvd., Suite 130
Santa Clara, California 95054
(Address of principal executive offices) (Zip code)
(408) 454-5100
(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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Number of shares of Common Stock outstanding at October 31, 2005: 24,253,795
SYNAPTICS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2005
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
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September 30, |
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June 30, |
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2005 |
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2005 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
51,903 |
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$ |
72,232 |
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Short-term investments |
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167,861 |
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156,689 |
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Accounts
receivable, net of allowances of $194 and $165, respectively |
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32,897 |
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33,790 |
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Inventories |
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7,117 |
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7,731 |
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Prepaid expenses and other current assets |
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2,895 |
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3,046 |
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Total current assets |
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262,673 |
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273,488 |
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Property and equipment, net |
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15,894 |
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14,615 |
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Goodwill |
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1,927 |
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1,927 |
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Other assets |
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21,499 |
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21,175 |
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$ |
301,993 |
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$ |
311,205 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
11,633 |
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$ |
12,390 |
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Accrued compensation |
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3,334 |
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5,638 |
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Income taxes payable |
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17,169 |
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14,867 |
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Other accrued liabilities |
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5,469 |
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5,353 |
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Total current liabilities |
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37,605 |
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38,248 |
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Note payable to a related party |
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1,500 |
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1,500 |
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Other liabilities |
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1,866 |
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1,797 |
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Convertible senior subordinated notes |
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125,000 |
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125,000 |
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Stockholders equity: |
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Common stock: |
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$0.001 par value; 60,000,000 shares authorized; 26,533,529
and 26,419,447 shares issued, respectively |
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27 |
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26 |
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Additional paid-in capital |
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111,085 |
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106,686 |
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Less: 2,306,100 and 1,139,000 common treasury shares at
September 30, 2005 and June 30, 2005, respectively, at cost |
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(39,999 |
) |
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(21,180 |
) |
Deferred stock compensation |
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(303 |
) |
Accumulated other comprehensive loss |
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(163 |
) |
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(129 |
) |
Retained earnings |
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65,072 |
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59,560 |
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Total stockholders equity |
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136,022 |
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144,660 |
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$ |
301,993 |
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$ |
311,205 |
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See notes to consolidated financial statements.
3
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(unaudited)
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Three Months Ended |
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September 30, |
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2005 |
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2004 |
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Net revenue |
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$ |
51,725 |
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$ |
38,091 |
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Cost of revenue (1)(2) |
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28,053 |
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20,899 |
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Gross margin |
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23,672 |
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17,192 |
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Operating expenses: |
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Research and development (1)(2) |
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8,289 |
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6,043 |
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Selling, general, and administrative (1)(2) |
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6,728 |
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3,766 |
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Amortization of deferred stock compensation |
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102 |
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Total operating expenses |
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15,017 |
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9,911 |
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Income from operations |
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8,655 |
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7,281 |
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Interest income |
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1,551 |
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268 |
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Interest expense |
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(484 |
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(26 |
) |
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Income before provision for income taxes |
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9,722 |
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7,523 |
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Provision for income taxes |
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4,210 |
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3,092 |
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Net income |
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$ |
5,512 |
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$ |
4,431 |
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Net income per share: |
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Basic |
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$ |
0.22 |
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$ |
0.18 |
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Diluted |
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$ |
0.20 |
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$ |
0.16 |
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Shares used in computing net income per share: |
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Basic |
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24,769 |
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25,099 |
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Diluted |
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29,036 |
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27,694 |
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(1) Amounts include share-based compensation costs as follows: |
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Cost of revenue |
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$ |
192 |
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$ |
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Research and development |
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1,292 |
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Selling, general, and administrative |
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1,826 |
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Share-based compensation costs |
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$ |
3,310 |
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$ |
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(2) Amounts exclude amortization of deferred stock compensation as follows: |
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Cost of revenue |
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$ |
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$ |
4 |
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Research and development |
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8 |
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Selling, general, and administrative |
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90 |
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Amortization of deferred stock compensation |
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$ |
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$ |
102 |
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See notes to consolidated financial statements.
4
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended |
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September 30, |
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2005 |
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2004 |
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Cash flows from operating activities |
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Net income |
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$ |
5,512 |
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$ |
4,431 |
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Adjustments
to reconcile net income to net cash provided by operating activities: |
|
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Share-based compensation costs |
|
|
3,310 |
|
|
|
|
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Deferred taxes |
|
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(688 |
) |
|
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Tax benefit from stock options |
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184 |
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|
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|
Excess tax benefit from share-based compensation |
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(139 |
) |
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Depreciation of property and equipment |
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377 |
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|
222 |
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Amortization of debt issuance costs |
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|
215 |
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Amortization of deferred stock compensation |
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|
102 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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893 |
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(7,587 |
) |
Inventories |
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|
614 |
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(1,159 |
) |
Prepaid expenses and other current assets |
|
|
151 |
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|
|
(240 |
) |
Other assets |
|
|
149 |
|
|
|
75 |
|
Accounts payable |
|
|
(757 |
) |
|
|
2,105 |
|
Accrued compensation |
|
|
(2,304 |
) |
|
|
(1,451 |
) |
Income taxes payable |
|
|
2,302 |
|
|
|
3,084 |
|
Other accrued liabilities |
|
|
116 |
|
|
|
594 |
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Other liabilities |
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|
69 |
|
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|
(1 |
) |
|
|
|
|
|
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Net cash provided by operating activities |
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|
10,004 |
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|
175 |
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|
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Cash flows from investing activities |
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|
|
|
|
|
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Purchases of short-term investments |
|
|
(50,994 |
) |
|
|
(4,200 |
) |
Proceeds from sales and maturities of short-term investments |
|
|
39,788 |
|
|
|
3,628 |
|
Purchases of property and equipment |
|
|
(1,656 |
) |
|
|
(246 |
) |
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|
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|
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Net cash used in investing activities |
|
|
(12,862 |
) |
|
|
(818 |
) |
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Cash flows from financing activities |
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Payments on capital leases and equipment financing obligations |
|
|
|
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|
(28 |
) |
Purchase of treasury stock |
|
|
(18,819 |
) |
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|
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|
Proceeds from issuance of common stock upon exercise of options
and stock purchase plan |
|
|
1,209 |
|
|
|
1,019 |
|
Excess tax benefit from share-based compensation |
|
|
139 |
|
|
|
|
|
|
|
|
|
|
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Net cash (used in) provided by financing activities |
|
|
(17,471 |
) |
|
|
991 |
|
|
|
|
|
|
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|
Net increase (decrease) in cash and cash equivalents |
|
|
(20,329 |
) |
|
|
348 |
|
Cash and cash equivalents at beginning of period |
|
|
72,232 |
|
|
|
59,489 |
|
|
|
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Cash and cash equivalents at end of period |
|
$ |
51,903 |
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$ |
59,837 |
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|
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|
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Supplemental disclosures of cash flow information |
|
|
|
|
|
|
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Cash paid for income taxes |
|
|
2,409 |
|
|
|
|
|
See notes to consolidated financial statements.
5
SYNAPTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) and
U.S. generally accepted accounting principles. However, certain information or footnote
disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to such SEC rules and
regulations. In our opinion, the financial statements include all adjustments, which are of a
normal and recurring nature, necessary for the fair presentation of the results of the interim
periods presented. The results of operations for the interim periods are not necessarily
indicative of the operating results for the full fiscal year or any future period. These financial
statements should be read in conjunction with the audited consolidated financial statements and
related notes included in our annual report on Form 10-K for the year ended June 30, 2005.
The consolidated financial statements include our financial statements and those of our wholly
owned subsidiaries. All significant intercompany balances and transactions have been eliminated
upon consolidation.
Our fiscal year ends on the last Saturday in June. For ease of presentation, the accompanying
consolidated financial statements have been shown as ending on June 30 and calendar quarter end
dates for all annual, interim, and quarterly financial statement captions, unless otherwise
indicated.
Reclassifications
Certain reclassifications have been made to prior year balances in order to conform to the
current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue
recognition, allowance for doubtful accounts, cost of revenue, inventories, product warranty,
share-based compensation costs, provision for income taxes, income taxes payable, intangible
assets, and contingencies. We base our estimates on historical experience, applicable laws, and
various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
2. Revenue Recognition
We recognize revenue from product sales when there is persuasive evidence that an arrangement
exists, delivery has occurred and title has transferred, the price is fixed and determinable, and
collectibility is reasonably assured. We accrue for estimated sales returns and other allowances,
based on historical experience, at the time we recognize revenue. We record contract revenue for
research and development as the services are provided under the terms of the contract. We
recognize non-refundable contract fees for which no further performance obligations exist and for
which there is no continuing involvement by us on the earlier of when the payments are received or
when collection is reasonably assured.
3. Net Income Per Share
Basic net income per share amounts for each period presented have been computed using the
weighted average number of shares of common stock outstanding. Diluted net income per share
amounts for each period presented have been computed (1) using the weighted average number of
potentially dilutive shares issuable in connection with stock options under the treasury stock
method, and (2) using the weighted average number of shares issuable in connection with convertible
debt under the if-converted method, when dilutive.
The following table presents the computation of basic and diluted net income per share (in
thousands, except per share amounts):
6
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Three Months Ended |
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|
September 30, |
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2005 |
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|
2004 |
|
Numerator: |
|
|
|
|
|
|
|
|
Basic net income |
|
$ |
5,512 |
|
|
$ |
4,431 |
|
Interest expense and amortization of debt issuance
costs on convertible notes (net of tax) |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income |
|
$ |
5,778 |
|
|
$ |
4,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Shares, basic |
|
|
24,769 |
|
|
|
25,099 |
|
Effect of dilutive stock options |
|
|
1,793 |
|
|
|
2,595 |
|
Effect of convertible notes |
|
|
2,474 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares, diluted |
|
|
29,036 |
|
|
|
27,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.22 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.20 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
Options to purchase 2,290,831 and 702,400 shares of common stock that were outstanding during
the three months ended September 30, 2005 and 2004, respectively, were not included in the
computation of diluted net income per share. For the period subsequent to our adoption of
Statement of Financial Accounting Standards (SFAS) 123R,
Share-Based Payment (SFAS 123R),
these options were not included in the computation of diluted net income per share because the
exercise prices of such options combined with the average unamortized grant date fair values
adjusted for the hypothetical tax benefit or deficiency creditable or chargeable, respectively, to
additional paid in capital, were greater than the average market price of our common stock and
therefore, their effect would have been antidilutive. For the period prior to our adoption of SFAS
123R, these options were not included in the computation of diluted net income per share because
the exercise prices of such options were greater than the average market price of our common stock
and therefore, their effect would have been antidilutive.
4. Cash Equivalents and Short-term Investments
Cash equivalents consist of highly liquid investments with original maturities of three months
or less. Short-term investments consist of marketable securities and are classified as securities
available for sale under SFAS 115, Accounting for Certain Investments in Debt and Equity
Securities. Such securities are reported at fair value, with unrealized gains and losses, net of
taxes, excluded from earnings and shown separately as a component of accumulated other
comprehensive income within stockholders equity. Interest earned on marketable securities is
included in interest income. Realized gains and losses on the sale of marketable securities are
determined using the specific identification method.
5. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market (estimated
net realizable value) and consisted of the following (in thousands):
|
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|
|
|
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2005 |
|
Raw materials |
|
$ |
6,992 |
|
|
$ |
7,618 |
|
Finished goods |
|
|
125 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,117 |
|
|
$ |
7,731 |
|
|
|
|
|
|
|
|
|
|
Write-downs to reduce the carrying value of obsolete, slow moving, and non-usable inventory to
net realizable value are charged to cost of revenue.
Periodically, we purchase inventory from our contract manufacturers when a customers delivery
schedule is delayed or a customers order is cancelled. In those circumstances in which our
customer has cancelled its order and
7
we purchase inventory from our contract manufacturers, we consider a write-down to reduce the
carrying value of the inventory purchased to its net realizable value.
6. Goodwill
As of September 30, 2005 and June 30, 2005, the carrying value of goodwill was $1,927,000. We
review the carrying value of goodwill at least annually for impairment as of the fiscal year end
balance sheet date. Based on our latest review, we determined that there was no impairment of
carrying value.
7. Product Warranties and Indemnifications
We generally warrant our products for a period of 12 months or more from the date of sale and
estimate probable product warranty costs at the time we recognize revenue. Factors that affect our
warranty liability include historical and anticipated rates of warranty claims, materials usage,
and service delivery costs. Warranty costs incurred have not been material in recent years.
However, we assess the adequacy of our warranty obligations periodically and adjust the accrued
warranty liability on the basis of our estimates.
Changes in our accrued warranty liability (included in other accrued liabilities) for the
three-month periods ended September 30, 2005 and 2004 were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Beginning accrued warranty |
|
$ |
369 |
|
|
$ |
704 |
|
Provision for product warranties |
|
|
154 |
|
|
|
427 |
|
Cost of warranty claims and
settlements |
|
|
(181 |
) |
|
|
(535 |
) |
|
|
|
|
|
|
|
|
|
Ending accrued warranty |
|
$ |
342 |
|
|
$ |
596 |
|
|
|
|
|
|
|
|
|
|
Certain third-party agreements obligate us to indemnify the third party in connection with any
technology infringement by us. We have also entered into indemnification agreements with our
officers and directors. Maximum potential future payments cannot be estimated because these
agreements do not have maximum stated liabilities. However, historical costs related to these
indemnification provisions have not been significant. We have not recorded any liability in our
consolidated financial statements for such indemnification.
8. Convertible Senior Subordinated Notes
During December 2004, we issued $125 million of 0.75% Convertible Senior Subordinated Notes
maturing on December 1, 2024 (the Notes) in a private offering pursuant to Rule 144A under the
Securities Act of 1933, as amended. The Notes bear interest at a rate of 0.75% per annum payable
on December 1 and June 1 of each year. We will pay additional contingent interest on the Notes if
the average trading price of the Notes is at or above 120% of the principal amount of the Notes for
a specified period beginning with the six-month period commencing December 1, 2009. The amount of
contingent interest payable on the Notes with respect to a six-month period, for which contingent
interest applies, will equal 0.375% per annum of the average trading price of the Notes for a
specified five trading-day period preceding such six-month period.
The Notes are convertible into 2,473,975 shares of our common stock, subject to adjustment in
certain events. The denominator of the diluted net income per share calculation includes the
weighted average effect of the 2,473,975 shares of common stock issuable upon conversion of the
Notes. Through November 30, 2009, upon the occurrence of a fundamental change as defined in the
indenture governing the Notes, we could potentially be obligated to issue up to 989,587 additional
shares, or a total of 3,463,562 shares of common stock. These additional shares, contingently
issuable upon a fundamental change, are not included in the calculation of diluted net income per
share.
The Notes may be converted (1) if, during any calendar quarter commencing after December 31,
2004, the last reported sale price of our common stock for at least 20 trading days in the period
of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is
greater than or equal to 120% of the applicable conversion price on such last trading day; (2) on
or after January 1, 2020; (3) if we have called the Notes for redemption; or (4) during prescribed
periods, upon the occurrence of specified corporate transactions or fundamental changes. On or
after
8
December 1, 2009, we may redeem for cash all or a portion of the notes at a redemption price
of 100% of the principal amount of the notes plus accrued and unpaid interest (including contingent
interest and additional interest, if any). Noteholders have the right to require us to repurchase
all or a portion of their notes for cash on December 1, 2009, December 1, 2014, and December 1,
2019 at a price equal to 100% of the principal amount of the Notes to be purchased plus accrued and
unpaid interest (including contingent interest and additional interest, if any). Upon conversion
of the Notes, in lieu of delivering common stock, we may, at our discretion, deliver cash or a
combination of cash and common stock. As of September 30, 2005, none of the conditions for
conversion of the Notes were satisfied.
The Notes are unsecured senior subordinated obligations and rank junior in right of payment to
all of our existing and future senior indebtedness, equal in right of payment with all of our
existing and future indebtedness or other obligations that are not, by their terms, either senior
or subordinated to the Notes, including trade debt and other general unsecured obligations that do
not constitute senior or subordinated indebtedness, and senior in right of payment to all of our
future indebtedness that, by its terms, is subordinated to the Notes. There are no financial
covenants in the Notes.
We recorded interest expense of $449,000 on the Notes during the three months ended September
30, 2005, which included amortization of debt issuance costs. The fair value of the Notes as of
September 30, 2005 was approximately $99.2 million based on quoted market prices.
9. Share-Based Compensation
The purpose of our various share-based compensation plans is to attract, motivate, retain, and
reward high-quality employees, directors, and consultants by enabling such persons to acquire or
increase their proprietary interest in our common stock in order to strengthen the mutuality of
interests between such persons and our stockholders, and provide such persons with annual and
long-term performance incentives to focus their best efforts in the creation of stockholder value.
Consequently, stock option grants issued subsequent to the initial grant to our employees and
consultants are determined primarily on individual performance. Our share-based compensation plans
currently consist of our stock option plans and our employee stock purchase plan.
At the beginning of fiscal 2006, we adopted SFAS 123R, and Staff Accounting Bulletin No. 107,
Share-Based Payment, for our existing stock option plans and employee stock purchase plan under
the modified prospective method. Previously, we followed Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for employee share-based compensation, as permitted by SFAS 123, Accounting for
Stock-Based Compensation, (SFAS 123) in accounting for our share-based compensation plans and,
accordingly, we did not recognize compensation expense for stock option grants to employees and
directors with an exercise price equal to the fair market value of the shares at the date of grant.
We utilize the Black-Scholes option pricing model to estimate the fair value of employee
share-based compensation at the date of grant, which requires the input of highly subjective
assumptions, including expected volatility and expected life. Historical volatility was used in
estimating the fair value of our share-based awards rather than implied volatility, while the
expected life was estimated to be five years based on historical trends since our initial public
offering. Further, as required under SFAS 123R, we now estimate forfeitures for options granted
that are not expected to vest. Changes in these inputs and assumptions can materially affect the
measure of estimated fair value of our share-based compensation. The estimated fair value is
charged to earnings on a straight-line basis over the vesting period of the underlying awards,
which is generally four years for our stock option plans and up to two years for our employee stock
purchase plan. The Black-Scholes option pricing model was developed for use in estimating the fair
value of traded options having no vesting restrictions and being fully transferable. Accordingly,
our estimate of fair value may not represent the value assigned by a third party in an arms-length
transaction. While our estimate of fair value and the associated charge to earnings materially
affects our results of operations, it has no impact on our cash position.
Options granted to consultants are accounted for at fair value determined by using the
Black-Scholes option pricing model in accordance with Emerging Issues Task Force Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or In
Conjunction with Selling, Goods or Services. These options are subject to periodic revaluation
over their vesting term, if any. The assumptions used to value share-based awards to consultants
are similar to those used for employees, except that we use the contractual life of the option
rather than the expected life of the option.
9
In accordance with SFAS 123R, we established a deferred tax benefit on share-based
compensation costs associated with nonqualified stock options, but under current accounting
standards we cannot establish a deferred tax benefit on costs associated with incentive stock
options and employee stock purchase plan shares (qualified stock options). For qualified stock
options, we will record tax benefit only in the period when disqualifying dispositions of the
underlying stock occur. For the period ended September 30, 2005, the tax benefit from
non-qualified stock option exercises and disqualifying dispositions of qualified stock options
totaled $186,000 of which $2,000 of the tax benefit was recognized in the consolidated statements
of income. The remaining $184,000 of the tax benefit was included in additional paid-in capital,
as it relates to stock options that vested prior to our adoption of SFAS 123R.
The impact of adopting SFAS 123R on our pre-tax income, net income, and basic and diluted net
income per share for the three months ended September 30, 2005 is summarized in the following table
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, 2005 |
|
|
Intrinsic |
|
Fair |
|
|
Value |
|
Value |
|
|
Method |
|
Method |
Income before provision for income taxes |
|
$ |
13,032 |
|
|
$ |
9,722 |
|
Net Income |
|
|
8,132 |
|
|
|
5,512 |
|
Net Income per share basic |
|
|
0.33 |
|
|
|
0.22 |
|
Net Income per share diluted |
|
|
0.29 |
|
|
|
0.20 |
|
Application of FAS 123R had no impact on our cash position, but did result in a change in
presentation on our consolidated statements of cash flows. Actual tax benefit connected with the
tax deduction for nonqualified stock option exercises and disqualifying dispositions of qualified
stock options that exceeded the grant date fair value of the associated stock options resulted in
excess tax benefit of $139,000. Accordingly, the excess tax benefit of $139,000 was deducted from
cash flows from operating activities and added to cash flows from financing activities in the
consolidated statements of cash flows.
Historically, we have issued new shares upon the exercise of stock options or employee stock
purchase plan purchases; however, treasury shares are now also available for issuance. Further, in
October 2005, our board authorized an expansion of our stock repurchase program and, depending upon
market conditions and other factors, we will repurchase up to an additional $40 million of our
common stock before the expiration of the plan.
Stock Option Plans
Our current stock option plans were adopted in 1996, 2000, and 2001 (the Plans) under which
employees, consultants, and directors may be granted incentive stock options or nonqualified stock
options to purchase shares of our common stock at not less than 100% or 85% of the fair value,
respectively, on the date of grant.
Options issued under the Plans generally vest 25% at the end of 12 months from the vesting
commencement date and approximately 2% each month thereafter until fully vested at the end of 48
months from the vesting commencement date. Options not exercised ten years after the date of grant
are cancelled.
In October 2002, we granted 200,000 options to a consultant that at the time were to vest over
four years; however, in December 2002 we hired the consultant as an employee. In accordance with
FIN 44, Accounting for Certain Transactions Involving Stock Compensation, we remeasured the
intrinsic value of the option grant on the date the consultant became an employee and recorded
deferred stock compensation that we were amortizing over the remaining vesting period of the
options. With the adoption of SFAS 123R, we ceased amortizing deferred stock compensation,
reclassified the remaining balance of deferred stock compensation on our balance sheet to
additional paid-in capital, and began amortizing the remaining fair value, as previously determined
under SFAS 123, over the remaining vesting period of the underlying options.
In August 2002, our board approved an option regrant offer to several employees who had
received option grants under the 2001 Incentive Compensation Plan having option exercise prices of
$12.98 and $18.70. The option exercise prices were substantially higher than the price of our
stock at the time of the regrant offer. Under the terms of the regrant, the employees were allowed
to elect to have their option cancelled and in consideration thereof to receive a new option for
the same number of shares as cancelled six months and one day after the date of cancellation. On
March 3, 2003, new options to acquire a total of 106,500 shares were granted pursuant to the
regrant offer with a new
10
exercise price of $6.56 per share. The vesting period and schedule for the new options
remained the same as the vesting period and schedule of the cancelled options.
The following table summarizes stock option activity and weighted average exercise prices for
the three months ended September 30, 2005, weighted average exercise prices, options exercisable,
weighted average remaining contractual life, and aggregate intrinsic value as of September 30,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Available |
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
|
for |
|
Options |
|
Exercise |
|
Contractual |
|
Intrinsic |
|
|
Grant |
|
Outstanding |
|
Price |
|
Life |
|
Value |
Balance at June 30, 2005 |
|
|
2,565,138 |
|
|
|
5,426,266 |
|
|
$ |
10.94 |
|
|
|
|
|
|
|
|
|
Additional shares authorized |
|
|
379,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
(863,600 |
) |
|
|
863,600 |
|
|
$ |
21.50 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
(64,640 |
) |
|
$ |
5.34 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
56,664 |
|
|
|
(56,664 |
) |
|
$ |
18.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2005 |
|
|
2,138,151 |
|
|
|
6,168,562 |
|
|
$ |
12.41 |
|
|
|
7.34 |
|
|
$ |
44,310,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
|
3,083,484 |
|
|
$ |
6.60 |
|
|
|
5.93 |
|
|
$ |
35,694,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes cash received and the aggregate intrinsic value for stock
options exercised during the three months ended September 30, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2005 |
|
2004 |
Cash received |
|
$ |
345 |
|
|
$ |
395 |
|
Aggregate intrinsic value |
|
$ |
847 |
|
|
$ |
1,234 |
|
The fair value of each award granted from our stock option plans during the three months ended
September 30, 2005 was estimated at the date of grant using the Black-Scholes option pricing model,
assuming no expected dividends and the following weighted average assumptions:
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
Expected volatility |
|
|
73.9 |
% |
Expected life in years |
|
|
5 |
|
Risk-free interest rate |
|
|
4.1 |
% |
Fair value per award |
|
$ |
13.58 |
|
The expected volatility is based on historical volatility; the expected life is based on
historical option exercise trends; and the risk free interest rate is based on U. S. Treasury
yields in effect at the time of grant for the expected life of the option.
Share-based compensation costs related to the Plans for awards not yet recognized are $29.2
million to be recognized over a weighted average period of 3.1 years.
Employee Stock Purchase Plan
Our employee stock purchase plan (ESPP) became effective on January 29, 2002, the effective
date of the registration statement for our initial public offering. The ESPP allows employees to
designate up to 15% of their base compensation, subject to legal restrictions and limitations, to
purchase shares of common stock at 85% of the lesser of the fair market value (FMV) at the
beginning of the offering period or the exercise date. The offering period extends for up to two
years and includes four exercise dates occurring at six month intervals. Under the terms of the
plan, if the
11
FMV at an exercise date is less than the FMV at the beginning of the offering period, the
current offering period will terminate and a new two-year offering period will commence.
The following table summarizes shares exercised, weighted average exercise price, cash
received, and the aggregate intrinsic value for ESPP purchases during the three months ended
September 30, 2005 and 2004 (in thousands, except for share and exercise price):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2005 |
|
2004 |
Shares exercised |
|
|
49,442 |
|
|
|
91,961 |
|
Weighted average exercise
price |
|
$ |
17.47 |
|
|
$ |
6.78 |
|
Cash received |
|
$ |
864 |
|
|
$ |
624 |
|
Aggregate intrinsic value |
|
$ |
192 |
|
|
$ |
1,153 |
|
Under the terms of our ESPP, the offering period that commenced on January 1, 2005 was
terminated on June 30, 2005 and a new offering period commenced on July 1, 2005. In accordance
with Technical Bulletin No. FTB 97-1, Accounting under Statement 123 for Certain Employee Stock
Purchase Plans with a Look-Back Option, the early termination of an offering period followed by
the commencement of a new offering period represents a modification to the terms of the related
awards. This modification affected 169 employees participating in the ESPP as of June 30, 2005 and
resulted in $646,000 of incremental compensation costs, net of estimated forfeitures, which will be
recognized on a straight-line basis over the two-year period ending June 30, 2007.
The fair value of each award granted from our ESPP during the three months ended September 30,
2005 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no
expected dividends and the following weighted average assumptions:
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
Expected volatility |
|
|
70.9 |
% |
Expected life in years |
|
|
1.2 |
|
Risk-free interest rate |
|
|
3.5 |
% |
Fair value per award |
|
$ |
9.55 |
|
The expected volatility is based on historical volatility; the expected life is based on the
remaining term of the offering period at the date of enrollment to the plan; and the risk free
interest rate is based on U. S. Treasury yields or yield curve in effect for the remaining term of
the offering period at the date of enrollment in the plan.
Share-based compensation costs related to the ESPP for awards not yet recognized are $1.8
million to be recognized over a weighted average period of 1.2 years.
Pre-SFAS 123R Pro Forma Accounting Disclosures
The fair value of each share-based award granted during the three months ended September 30,
2004 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no
expected dividends and the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, 2004 |
|
|
|
|
|
|
|
Employee Stock |
|
|
|
Stock Options |
|
|
Purchase Plan |
|
Expected volatility |
|
|
64.4 |
% |
|
|
64.4 |
% |
Expected life in years |
|
|
5 |
|
|
|
0.5 |
|
Risk-free interest rate |
|
|
3.4 |
% |
|
|
1.9 |
% |
Fair value per award |
|
$ |
10.36 |
|
|
$ |
2.56 |
|
12
During the three months ended September 30, 2004, had compensation expense for stock options
been determined based on the fair value of the options at dates of grant consistent with the
provisions of SFAS 123, net income and net income per share would have been reduced to the pro
forma amounts indicated in the following table (in thousands, except per share amounts):
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2004 |
|
Net income as reported |
|
$ |
4,431 |
|
Add: Total stock-based compensation included
in reported net income, net of tax |
|
|
60 |
|
Deduct: Total stock-based compensation
determined under fair value based method for all
awards, net of tax |
|
|
(1,349 |
) |
|
|
|
|
Net income pro forma |
|
$ |
3,142 |
|
|
|
|
|
Net income per share basic: |
|
|
|
|
As reported |
|
$ |
0.18 |
|
|
|
|
|
Pro forma |
|
$ |
0.13 |
|
|
|
|
|
Net income per share diluted: |
|
|
|
|
As reported |
|
$ |
0.16 |
|
|
|
|
|
Pro forma |
|
$ |
0.11 |
|
|
|
|
|
10. Income Taxes
The income tax provision for the three months ended September 30, 2005 and 2004 reflects an
effective income tax rate based on expected pre-tax income for the applicable fiscal year. The
effective tax rate for the three months ended September 30, 2005 was approximately 43.3% and
diverged from the combined federal and state statutory rate primarily as a result of the impact of
accounting for share-based compensation and other permanent taxable differences, partially offset
by the impact of foreign operations, the benefit of research and development tax credits, and tax
exempt interest income. The effective tax rate for the three months ended September 30, 2004 was
approximately 41.1% and diverged from the combined federal and state statutory rate primarily as a
result of permanent taxable differences partially offset by the benefit of research and development
tax credits, and tax exempt interest income. We account for income tax contingencies in accordance
with SFAS No. 5, Accounting for Contingencies. Accordingly, our tax rate may be favorably or
unfavorably affected by the release or establishment, respectively, of tax contingency reserves
related to tax uncertainties.
In accordance with SFAS 123R, we established a deferred tax benefit on share-based
compensation costs associated with nonqualified stock options, but under current accounting
standards we cannot establish a deferred tax benefit on costs associated with incentive stock
options and employee stock purchase plan shares (qualified stock options). For qualified stock
options, we will record tax benefit only in the period when disqualifying dispositions of the
underlying stock occur. For the three months ended September 30, 2005, the effective tax rate was
negatively affected by the impact of accounting required for share-based compensation as determined
in accordance with SFAS 123R.
On October 22, 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law.
The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned
abroad by providing an 85% dividends received deduction for certain dividends from controlled
foreign corporations, resulting in an approximate 5.25% federal tax rate on the repatriated
earnings. To qualify for the deduction, the earnings must be reinvested in the United States
pursuant to a domestic reinvestment plan established by our chief executive officer and approved by
our board of directors. Certain other criteria in the Act must be satisfied as well. We have
until the end of our fiscal year ending June 2006 to make a qualifying repatriation of foreign
earnings, and prior to the end of this fiscal year we will evaluate whether we will repatriate
foreign earnings under the provisions of the Act. Our tax rate does not reflect any one-time
impact that may result from the repatriation of permanently reinvested offshore earnings under the
Act.
13
11. Segment, Customers, and Geographic Information
We operate in one segment: the development, marketing, and sale of interactive user interface
solutions for electronic devices and products. We generate our revenue from two broad product
categories: personal computer (PC) applications, primarily notebook computers, and non-PC
information appliance applications. PC applications accounted for 73% and 67% of net revenue for
the three months ended September 30, 2005 and 2004, respectively.
The following is a summary of net revenue within geographic areas based on the customer
location (in thousands):
Net revenue from sales to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
China |
|
$ |
40,209 |
|
|
$ |
29,628 |
|
Taiwan |
|
|
7,244 |
|
|
|
5,940 |
|
Other |
|
|
4,272 |
|
|
|
2,523 |
|
|
|
|
|
|
|
|
|
|
$ |
51,725 |
|
|
$ |
38,091 |
|
|
|
|
|
|
|
|
Major customer net revenue data as a percentage of total net revenue:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2005 |
|
2004 |
Customer A |
|
|
26 |
% |
|
|
36 |
% |
Major
customer accounts receivable as a percentage of total accounts
receivable:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
September 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2005 |
|
Customer A |
|
|
23 |
% |
|
|
34 |
% |
12. Comprehensive Income
Our comprehensive income consists of net income, plus the effect of unrealized gains and
losses from short-term investments at fair value, which was not material for the three months ended
September 30, 2005 and 2004. Accordingly, comprehensive income closely approximated net income.
13. Subsequent Events
On October 18, 2005, our board of directors authorized an expansion of our stock repurchase
program for up to an additional $40 million of our common stock on the open market or in privately
negotiated transactions depending upon market conditions and other factors. No additional shares
have been repurchased under the expanded stock repurchase program.
14. Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board issued SFAS No. 154, Accounting Changes
and Error Corrections, (SFAS 154). SFAS 154, which replaces APB Opinion No. 20, Accounting
Changes, (APB 20) and SFAS No. 3 Reporting Accounting Changes in Interim Financial Statements,
applies to all voluntary changes in accounting principle and changes the requirements for
accounting for and reporting of a change in accounting principle. APB 20 previously required that
most voluntary changes in accounting principle be recognized by including in net income of the
period of change a cumulative effect of changing to the new accounting principle while SFAS 154
requires retrospective application to prior periods financial statements of a voluntary change in
accounting principle, unless it is impracticable. SFAS 154 enhances the consistency of financial
information between periods. SFAS 154 will be effective beginning the first quarter of our fiscal
2007. We do not expect the adoption of SFAS 154 will have a material impact on our financial
position, results of operations, or cash flows.
14
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements and Factors That May Affect Results
You should read the following discussion and analysis in conjunction with our condensed
consolidated financial statements and notes in Item 1 above and with our audited consolidated
financial statements and notes included in our Annual Report on Form 10-K for the year ended June
30, 2005.
In addition to the historical information contained herein, this report contains
forward-looking statements, including those related to market penetration and market share in the
notebook, iAppliance, and other electronic devices markets; competition in the notebook,
iAppliance, and other electronic devices markets; revenue from the notebook, iAppliance, and other
electronic devices markets; growth rates of these markets; average selling prices; product mix;
manufacturing costs; cost-improvement programs; gross margins; customer relationships; research and
development expenses; selling, general, and administrative expenses; and liquidity and anticipated
cash requirements. These forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially.
We caution that these statements are qualified by various factors that may affect future
results, including the following: changes in the market for our products and the success of our
customers products, our success in moving products from the design phase into the manufacturing
phase, changes in the competitive environment, infringement claims, warranty obligations related to
product failures, the failure of key technologies to deliver commercially acceptable performance,
our dependence on certain key markets, penetration into new markets, the absence of both long-term
purchase and supply commitments, and our lengthy development and product acceptance cycles. This
report should be read in conjunction with our Annual Report on Form 10-K for the year ended June
30, 2005, including particularly the section captioned Business Risk Factors.
Overview
We are a leading worldwide developer and supplier of custom-designed user interface solutions
that enable people to interact more easily and intuitively with a wide variety of mobile computing,
entertainment, communications, and other electronic devices. From our inception in 1986 through
fiscal 1995, we were a development stage company, focused on developing and refining our pattern
recognition and capacitive sensing technologies, and generated revenue by providing contract
engineering and design services. In fiscal 1996, we began shipping our proprietary TouchPad. We
are a leading supplier of interface solutions to the notebook computer market and the hard-disk
drive, or HDD, portable digital music player market. In fiscal 2005, we believe we were the market
leader in providing interface solutions for notebook computers and HDD portable digital music
players. We believe our market share results from the combination of our customer focus, the
strength of our intellectual property, and our engineering know-how, which allow us to design
products that meet the demanding design specifications of OEMs.
Our manufacturing operations are based on a virtual manufacturing model in which we outsource
all of our production requirements, eliminating the need for significant capital expenditures for
manufacturing facilities and equipment and allowing us to reduce our investment in inventories.
This approach requires us to work closely with our manufacturing subcontractors to ensure adequate
production capacity to meet our forecasted production requirements. We provide our manufacturing
subcontractors with six-month rolling forecasts and generally issue purchase orders based on our
anticipated requirements for the next 90 days. However, we do not have any long-term supply
contracts with any of our manufacturing subcontractors. Currently, we use two third-party
manufacturers to provide our proprietary capacitive based ASICs, and in certain cases, we rely on a
single source or a limited number of suppliers to provide other key components of our products.
Our cost of revenue includes all costs associated with the production of our products, including
materials, manufacturing, and assembly and test costs paid to third-party manufacturers and related
overhead costs associated with our manufacturing operations personnel. Additionally, all warranty
costs and any inventory provisions or write-downs are charged to cost of revenue.
Our gross margin generally reflects the combination of the added value we bring to our
customers products in meeting their custom design requirements and our ongoing cost-improvement
programs. These cost-improvement programs include reducing materials and component costs and
implementing design and process improvements. Our newly introduced products may have lower margins
than our more mature products, which have realized greater benefits associated with our ongoing
cost-improvement programs. As a result, new product introductions may initially negatively impact
our gross margin.
15
Our research and development expenses include costs for supplies and materials related to
product development, as well as the engineering costs incurred to design interface solutions for
customers prior to and after the customers commitment to incorporate those solutions into their
products. These expenses have generally increased, reflecting our continuing commitment to the
technological and design innovation required to maintain a leadership position in our existing
markets and to adapt our existing technologies or develop new technologies for new markets.
Selling, general, and administrative expenses include expenses related to sales, marketing,
and administrative personnel; internal sales and outside sales representatives commissions; market
and usability research; outside legal, accounting, and consulting costs; and other marketing and
sales activities. These expenses have generally increased, reflecting incremental staffing,
commission expense associated with increased business levels, and additional personnel in
anticipation of our continued growth in our existing markets and penetration into new markets.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue
recognition, allowance for doubtful accounts, cost of revenue, inventories, product warranty,
share-based compensation costs, provision for income taxes, income taxes payable, intangible
assets, and contingencies. We base our estimates on historical experience, applicable laws, and
various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of our consolidated
financial statements. Actual results may differ from these estimates under different assumptions
or conditions.
Revenue Recognition
We recognize revenue from product sales when there is persuasive evidence that an arrangement
exists, delivery has occurred and title has transferred, the price is fixed and determinable, and
collectibility is reasonably assured. We accrue for estimated sales returns and other allowances,
based on historical experience, at the time we recognize revenue, which is typically upon shipment.
We record contract revenue for research and development as the services are provided under the
terms of the contract. We recognize non-refundable contract fees for which no further performance
obligations exist and for which there is no continuing involvement by us on the earlier of when the
payments are received or when collection is reasonably assured.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability
of customers to meet their financial obligations. On an ongoing basis, we evaluate the
collectibility of accounts receivable based on a combination of factors. In circumstances in which
we are aware of a specific customers potential inability to meet its financial obligation, we
record a specific reserve of the bad debt against amounts due. In addition, we make judgments and
estimates on the collectibility of accounts receivable based on our historical bad debt experience,
customers creditworthiness, current economic trends, recent changes in customers payment trends,
and deterioration in the customers operating results or financial position. If circumstances
change adversely, additional bad debt allowances may be required.
Inventory
We state our inventories at the lower of cost or market. We base our assessment of the
ultimate realization of inventories on our projections of future demand and market conditions.
Sudden declines in demand, rapid product improvements, or technological changes, or any combination
of these factors, can cause us to have excess or obsolete inventories. On an ongoing basis, we
review for estimated obsolete or unmarketable inventories and write down our inventories to their
net realizable value based upon our forecasts of future demand and market conditions. If actual
market conditions are less favorable than our forecasts, additional inventory reserves may be
required. The following factors influence our estimates: changes to or cancellations of customer
orders, unexpected decline in demand, rapid product improvements and technological advances, and
termination or changes by our OEM customers of any product offerings incorporating our product
solutions.
16
Periodically, we purchase inventory from our contract manufacturers when a customers delivery
schedule is delayed or a customers order is cancelled. In those circumstances in which our
customer has cancelled its order and we purchase inventory from our contract manufacturers, we
consider a write-down to reduce the carrying value of the inventory purchased to its net realizable
value.
Product Warranties
We provide for the estimated cost of product warranties at the time we recognize revenue. Our
warranty obligation is affected by product failure rates, materials usage, rework, and delivery
costs incurred in correcting a product failure. We exercise judgment in determining the estimates
underlying our accrued warranty liability. The actual results with regard to warranty expenditures
could have a material adverse effect on our operating results if the actual rate of unit failure or
the associated costs of repair or replacement are greater than what we used in estimating the
accrued warranty liability.
Share-Based Compensation Costs
We account for employee share-based compensation costs in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment (SFAS 123R) and Staff
Accounting Bulletin No. 107, Share-Based Payment. We utilize the Black-Scholes option pricing
model to estimate the fair value of employee share-based compensation at the date of grant, which
requires the input of highly subjective assumptions, including expected volatility and expected
life. Historical volatility was used in estimating the fair value of our share-based awards rather
than implied volatility, while the expected life was estimated to be five years based on historical
trends since our initial public offering. Further, as required under SFAS 123R, we now estimate
forfeitures for options granted, which are not expected to vest. Changes in these inputs and
assumptions can materially affect the measure of estimated fair value of our share-based
compensation. The estimated fair value is charged to earnings on a straight-line basis over the
vesting period of the underlying awards, which is generally four years for our stock option plans
and up to two years for our employee stock purchase plan. The Black-Scholes option pricing model
was developed for use in estimating the fair value of traded options having no vesting restrictions
and being fully transferable. Accordingly, our estimate of fair value may not represent the value
assigned by a third-party in an arms-length transaction. While our estimate of fair value and the
associated charge to earnings materially impacts our results of operations, it has no impact on our
cash position.
Income Taxes
We recognize federal, foreign, and state current tax liabilities or assets based on our
estimate of taxes payable or refundable in the then current fiscal year for each tax jurisdiction.
We also recognize federal, foreign, and state deferred tax liabilities or assets for our estimate
of future tax effects attributable to temporary differences and carryforwards and record a
valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based
on available evidence and our judgment, are not expected to be realized. If our assumptions, and
consequently our estimates, change in the future, the valuation allowance we have established for
our deferred tax assets may be changed, which could impact income tax expense.
We account for income tax contingencies in accordance with SFAS No. 5, Accounting for
Contingencies. The calculation of tax liabilities involves significant judgment in estimating the
impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties
in a manner inconsistent with our expectations could have a material impact on our results of
operations and financial condition. We believe we have adequately provided for reasonably
foreseeable outcomes in connection with the resolution of income tax contingencies. However, our
results have in the past, and could in the future, include favorable and unfavorable adjustments to
our estimated tax liabilities in the period an assessment is made or resolved or upon the
expiration of a statute of limitation. Accordingly, our effective tax rate could fluctuate
materially from quarter to quarter.
In accordance with SFAS 123R, we established a deferred tax benefit on share-based
compensation costs associated with nonqualified stock options, but under current accounting
standards we cannot establish a deferred tax benefit on costs associated with incentive stock
options and employee stock purchase plan shares (qualified stock options). For qualified stock
options, we will record tax benefit only in the period when disqualifying dispositions of the
underlying stock occur. Accordingly, as we cannot record tax benefit for the option expense
associated with qualified stock options until the occurrence of future disqualifying dispositions
of the underlying stock, our future quarterly and annual effective tax rates will be subject to
greater volatility and, consequently, our ability to estimate reasonably our future quarterly and
annual effective tax rates is greatly diminished.
17
Results of Operations
The following table presents our historical operating results for the periods indicated as a
percentage of net revenue.
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Three Months Ended |
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September 30, |
|
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2005 |
|
2004 |
Net revenue |
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|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
54.2 |
% |
|
|
54.9 |
% |
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|
|
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|
Gross margin |
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|
45.8 |
% |
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|
45.1 |
% |
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|
|
|
|
Operating expenses: |
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|
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|
Research and development |
|
|
16.0 |
% |
|
|
15.9 |
% |
Selling, general, and administrative |
|
|
13.0 |
% |
|
|
9.9 |
% |
Amortization of deferred stock compensation |
|
|
0.0 |
% |
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|
0.2 |
% |
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|
|
|
|
|
|
|
|
Total operating expenses |
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|
29.0 |
% |
|
|
26.0 |
% |
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|
|
|
|
|
|
|
Income from operations |
|
|
16.8 |
% |
|
|
19.1 |
% |
Interest income |
|
|
3.0 |
% |
|
|
0.7 |
% |
Interest expense |
|
|
-1.0 |
% |
|
|
-0.1 |
% |
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
18.8 |
% |
|
|
19.7 |
% |
Provision for income taxes |
|
|
8.1 |
% |
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
Net income |
|
|
10.7 |
% |
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
Net Revenue. Net revenue was $51.7 million for the three months ended September 30, 2005
compared with $38.1 million for the three months ended September 30, 2004, an increase of 35.8%.
The increase in net revenue was primarily attributable to a 53% increase in unit shipments in the
September 2005 quarter compared with the September 2004 quarter. The impact of the increase in
unit shipments was partially offset by a reduction in overall average selling prices, resulting
from changes in product mix and general competitive pricing pressure. Revenue from our dual
pointing applications was approximately 15% of total revenue for the three months ended September
30, 2005 compared with approximately 17% for the three months ended September 30, 2004. Our non-PC
revenue decreased to 27% of total revenue for the three months ended September 30, 2005 from 33% of
total revenue for the three months ended September 30, 2004, primarily due to decreased demand for
our capacitive interface solutions for HDD portable digital music players.
Gross Margin. Gross margin as a percentage of revenue was 45.8% for the three months ended
September 30, 2005 compared with 45.1% for the three months ended September 30, 2004. The
improvement in gross margin as a percentage of revenue primarily reflected the benefit of a
favorable product mix, and lower manufacturing costs, which were driven by the combination of our
continuing design and process improvement programs and lower materials, assembly, and test costs,
partially offset by lower average selling prices resulting from general competitive pricing
pressure and non-cash share-based compensation costs of $192,000. Non-cash share-based
compensation costs resulted from our adoption of SFAS 123R on a modified prospective basis at the
beginning of the quarter ended September 30, 2005.
Research and Development Expenses. Research and development expenses increased as a
percentage of revenue to 16.0% from 15.9%, and increased approximately $2.3 million, or 37.2%, to
$8.3 million for the three months ended September 30, 2005 compared with $6.0 million for the three
months ended September 30, 2004. The increase in research and development expenses
primarily reflected the inclusion of non-cash share-based compensation costs of $1.3 million,
higher employee compensation costs resulting from additional staffing, increased base compensation
related to our annual performance review process, and increased project spending. Non-cash
share-based compensation costs resulted from our adoption of SFAS 123R on a modified prospective
basis at the beginning of the quarter ended September 30, 2005.
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses
increased as a percentage of revenue to 13.0% from 9.9%, and increased approximately $2.9 million,
or 78.7%, to $6.7 million for the three months ended September 30, 2005 compared with $3.8 million
for the three months ended September 30, 2004. The increase in selling, general, and
administrative expenses primarily reflected the inclusion of non-cash share-based
18
compensation costs of $1.8 million, higher employee compensation costs resulting from additional staffing,
increased base compensation related to our annual performance review process, increased recruiting
and hiring costs related to our ongoing staffing initiatives, higher corporate governance costs
associated with Sarbanes-Oxley Act compliance, and higher commission costs. Non-cash share-based
compensation costs resulted from our adoption of SFAS 123R on a modified prospective basis at the
beginning of the quarter ended September 30, 2005.
Amortization of Deferred Stock Compensation. During the quarter ended September 30, 2005, we
adopted SFAS 123R and ceased amortizing deferred stock compensation. Accordingly, no amortization
expense for deferred stock compensation was recorded for the three months ended September 30, 2005
while $102,000 was recorded for the three months ended September 30, 2004.
Interest Income. Interest income was $1.6 million for the three months ended September 30,
2005 compared with $268,000 for the three months ended September 30, 2004. The $1.3 million
increase in interest income resulted from a combination of substantially higher average invested
cash balances and higher average interest rates. The increase in cash balances was primarily a
result of net cash proceeds of $120.7 million received from the issuance of our convertible senior
subordinated notes in December 2004 combined with cash flows from operations during the past twelve
months of $52.4 million, partially offset by $40 million of cash used for our stock repurchase
program.
Interest Expense. Interest expense was $484,000 for the three months ended September 30, 2005
compared with $26,000 for the three months ended September 30, 2004. The $458,000 increase in
interest expense resulted primarily from a combination of interest expense and amortization of debt
issuance costs related to our convertible senior subordinated notes issued in December 2004. The
annual debt service cost on the notes is approximately $938,000, which excludes the amortization of
debt issuance costs.
Provision for Income Taxes. The provision for income taxes for the three months ended
September 30, 2005 was $4.2 million compared with $3.1 million for the three months ended September
30, 2004, which reflected the combination of higher pre-tax profit levels and a higher effective
tax rate. The income tax provision represented estimated federal, foreign, and state taxes for the
three months ended September 30, 2005 and 2004. The effective tax rate for the three months ended
September 30, 2005 was approximately 43.3% and diverged from the combined federal and state
statutory rate primarily as a result of the impact of accounting for share-based compensation and
other permanent taxable differences, partially offset by the impact of higher income from foreign
operations, the benefit of research and development tax credits, and tax exempt interest income.
The effective tax rate for the three months ended September 30, 2004 was approximately 41.1% and
diverged from the combined federal and state statutory rate primarily as a result of permanent
taxable differences, partially offset by the benefit of research and development tax credits, and
tax exempt interest income.
In accordance with SFAS 123R, we established a deferred tax benefit on share-based
compensation costs associated with nonqualified stock options, but under current accounting
standards we cannot establish a deferred tax benefit on share-based compensation costs associated
with incentive stock options and employee stock purchase plan shares (qualified stock options).
For qualified stock options, we will record tax benefit only in the period when disqualifying
dispositions of the underlying stock occur. Tax benefit associated with total share-based
compensation of $3.3 million was approximately $690,000, representing an effective tax rate on this
deduction of 20.8%. Excluding the impact of share-based compensation, the effective tax rate for
September 30, 2005 would have been 37.6%. As we cannot record tax benefit for the option expense
associated with qualified stock options until the occurrence of future disqualifying dispositions
of the underlying stock, our future quarterly and annual effective tax rates will be subject to
greater volatility and, consequently, our ability to estimate reasonably our future quarterly and
annual effective tax rates is greatly diminished.
Liquidity and Capital Resources
Our cash, cash equivalents, and short-term investments were $219.8 million as of September 30,
2005 compared with $228.9 million as of June 30, 2005, a decrease of $9.1 million. The decrease in
cash, cash equivalents, and short-term investments was primarily attributable to our repurchase of
1.2 million shares of our common stock for $18.8 million, partially offset by cash generated from
operating activities of $10.0 million.
Cash Flows from Operating Activities. During the three months ended September 30, 2005,
operating activities generated cash of approximately $10.0 million compared with $175,000 of cash
generated during the three months ended September 30, 2004. For the three months ended September
30, 2005, the net cash provided by operating activities was primarily attributable to net income of
$5.5 million plus adjustments for non-cash charges,
19
including share-based compensation costs,
depreciation, and amortization of debt issuance costs totaling $3.9 million, partially offset by
deferred tax benefits from share-based compensation of $688,000 and a net decrease in operating
assets and liabilities of $1.2 million. For the three months ended September 30, 2004, the net
cash provided by operating activities was primarily attributable to net income of $4.4 million plus
adjustments for non-cash charges, including depreciation and amortization of deferred stock
compensation totaling $324,000, partially offset by an increase in operating assets and liabilities
of $4.6 million. The increase in operating assets and liabilities for the period ended September
30, 2004 primarily related to a $7.6 million increase in accounts receivable, which resulted from
approximately 60% of our revenue occurring in the last month of the quarter.
Cash Flows from Investing Activities. Our investing activities typically relate to purchases
of government-backed securities and investment-grade fixed income instruments and purchases of
property and equipment. Investing activities during the three months ended September 30, 2005 used
net cash of $12.9 million compared with net cash used of $818,000 during the three months ended
September 30, 2004. During the three months ended September 30, 2005, net cash used in investing
activities consisted of purchases of $51.0 million of short-term investments and $1.7 million of
property and equipment, which included $1.3 million for building improvements, partially offset by
$39.8 million in proceeds from sales and maturities of short-term investments. Cash used by
investing activities during the three months ended September 30, 2004 consisted of cash used for
purchases of short-term investments of $4.2 million and $246,000 of capital equipment, partially
offset by proceeds from sales and maturities of short-term investments of $3.6 million.
Cash Flows from Financing Activities. Net cash used in financing activities for the three
months ended September 30, 2005 was $17.5 million compared with net cash provided by financing
activities of $1.0 million for the three months ended September 30, 2004. Our financing activities
for the three months ended September 30, 2005 consisted primarily of $18.8 million of cash used for
the purchase of treasury stock, partially offset by $1.2 million in
proceeds from common stock issued under our stock option plans and employee stock purchase
plan and $139,000 of excess tax benefit from share-based compensation. Our financing activities
for the three months ended September 30, 2004 consisted primarily of proceeds from common stock
issued under our stock option plans and employee stock purchase plan of $1.0 million, less payments
made on capital lease and equipment financing obligations.
Common Stock Repurchase Program. In April 2005, our board of directors authorized a stock
repurchase program for up to $40 million of our common stock on the open market or in privately
negotiated transactions, depending upon market conditions and other factors. Common stock
repurchased under this program is held as treasury stock and through September 30, 2005, purchases
under this program totaled 2,306,100 shares for an aggregate cost of $40 million, or an average
cost of $17.34 per share.
In October 2005, our board of directors authorized an expansion of our stock repurchase
program for up to an additional $40 million of our common stock on the open market or in privately
negotiated transactions, depending upon market conditions and other factors. The number of shares
purchased and the timing of purchases will depend on general business and market conditions and
other factors, including alternative investment opportunities. No additional shares have been
repurchased under the expanded stock repurchase program.
Bank Credit Facility. We currently maintain a $15 million working capital line of credit with
Silicon Valley Bank. The Silicon Valley Bank revolving line of credit, which expires on November
27, 2005, has an interest rate equal to Silicon Valley Banks prime lending rate, and provides for
a security interest in substantially all of our assets. We intend to renew our revolving line of
credit on or before the expiration date, provided mutually agreeable terms can be reached. We had
not borrowed any amounts under the line of credit as of September 30, 2005.
Convertible Senior Subordinated Notes. During December 2004, we issued $125 million of 0.75%
Convertible Senior Subordinated Notes maturing on December 1, 2024 (the Notes) in a private
offering pursuant to Rule 144A under the Securities Act of 1933, as amended. The Notes bear
interest at a rate of 0.75% per annum payable on December 1 and June 1 of each year.
The Notes are convertible into 2,473,975 shares of our common stock, subject to adjustment in
certain events. The denominator of the diluted net income per share calculation includes the
weighted average effect of the 2,473,975 shares of common stock issuable upon conversion of the
Notes. Through November 30, 2009, upon the occurrence of a fundamental change as defined in the
indenture governing the Notes, we could potentially be obligated to issue up to 989,587 additional
shares, or a total of 3,463,562 shares of common stock. These additional shares, contingently
issuable upon a fundamental change, are not included in the calculation of diluted net income per
share.
20
The Notes may be converted (1) if, during any calendar quarter commencing after December 31,
2004, the last reported sale price of our common stock for at least 20 trading days in the period
of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is
greater than or equal to 120% of the applicable conversion price on such last trading day; (2) on
or after January 1, 2020; (3) if we have called the Notes for redemption; or (4) during prescribed
periods, upon the occurrence of specified corporate transactions or fundamental changes. On or
after December 1, 2009, we may redeem for cash all or a portion of the notes at a redemption price
of 100% of the principal amount of the notes plus accrued and unpaid interest (including contingent
interest and additional interest, if any). Noteholders have the right to require us to repurchase
all or a portion of their notes for cash on December 1, 2009, December 1, 2014, and December 1,
2019 at a price equal to 100% of the principal amount of the Notes to be purchased plus accrued and
unpaid interest (including contingent interest and additional interest, if any). Upon conversion
of the Notes, in lieu of delivering common stock, we may, at our discretion, deliver cash or a
combination of cash and common stock. As of September 30, 2005, none of the conditions for
conversion of the Notes were satisfied.
Note Payable to a Related Party. The long-term note payable of $1.5 million to National
Semiconductor Corporation (National) represents limited-recourse debt that matures in August 2007
and is secured solely by a portion of our stockholdings in Foveon, Inc. (Foveon), in which
National is also an investor. We do not anticipate making any payments under the limited-recourse
loan with National, either prior to or at maturity, unless Foveon is participating in a liquidity
event, such as an initial public offering of its equity securities or a merger, through which we
would receive amounts in excess of our $1.5 million long-term note payable plus accrued interest
expense.
$100 Million Shelf Registration. We have registered an aggregate of $100 million of common
stock and preferred stock for issuance in connection with acquisitions, which shares generally will
be freely tradeable after their
issuance under Rule 145 of the Securities Act, unless held by an affiliate of the acquired
company, in which case such shares will be subject to the volume and manner of sale restrictions of
Rule 144.
$125 Million Shelf Registration. We have registered an aggregate of $125 million of our 0.75%
Convertible Senior Subordinated Notes due 2024 and the common stock issuable upon conversion of the
Notes. The shares issued upon conversion generally will be freely tradeable after their issuance
under Rule 145 of the Securities Act, unless held by an affiliate, in which case such shares will
be subject to the volume and manner of sale restrictions of Rule 144.
Liquidity and Capital Resources Outlook. We believe our existing cash, cash equivalents,
and short-term investment balances and anticipated cash flows from operating activities will be
sufficient to meet our working capital and other cash requirements over the course of the next 12
months. Our future capital requirements will depend on many factors, including our rate of revenue
growth, the timing and extent of spending to support product development efforts, costs related to
protecting our intellectual property, the expansion of sales and marketing activities, the timing
of introductions of new products and enhancements to existing products, the costs to ensure access
to adequate manufacturing capacity, the continuing market acceptance of our product solutions, our
common stock repurchase program, and the amount and timing of our investments in, or acquisitions
of, other technologies or companies. We cannot assure you that further equity or debt financing
will be available to us on acceptable terms or at all. If sufficient funds are not available or
are not available on acceptable terms, our ability to take advantage of unexpected business
opportunities or to respond to competitive pressures could be limited or severely constrained.
Contractual Obligations and Commercial Commitments
The following table sets forth a summary of our material contractual obligations and
commercial commitments as of September 30, 2005 (in millions):
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Payments due by period |
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Less than |
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1-3 |
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3-5 |
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
|
1 year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
Convertible debt and interest |
|
$ |
125 |
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
125 |
|
Note payable |
|
|
2 |
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Building leases |
|
|
1 |
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
128 |
|
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our convertible senior subordinated notes include a provision allowing the noteholders to
require us, at the noteholders discretion, to repurchase their notes at a redemption price of 100%
of the principal amount of the notes
21
plus accrued and unpaid interest (including contingent
interest and additional interest, if any) on December 1, 2009, December 1, 2014, and December 1,
2019 and in the event of a fundamental change as described in the indenture governing the notes.
The early repayment of the notes is not reflected in the above schedule, but if all the noteholders
elected to exercise their rights to require us to repurchase their notes on December 1, 2009, then
our contractual
obligations for the three-to-five year period would be increased by $125 million with a
corresponding decrease in amounts due in more than 5 years.
Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board issued SFAS No. 154, Accounting Changes
and Error Corrections (SFAS 154). SFAS 154, which replaces Accounting Principles Board Opinion
No. 20, Accounting Changes, (APB 20) and SFAS No. 3 Reporting Accounting Changes in Interim
Financial Statements, applies to all voluntary changes in accounting principle and changes the
requirements for accounting for and reporting of a change in accounting principle. APB 20
previously required that most voluntary changes in accounting principle be recognized by including
in net income of the period of change a cumulative effect of changing to the new accounting
principle while SFAS 154 requires retrospective application to prior periods financial statements
of a voluntary change in accounting principle, unless it is impracticable. SFAS 154 enhances the
consistency of financial information between periods. SFAS 154 will be effective beginning the
first quarter of our fiscal 2007. We do not expect the adoption of SFAS 154 will have a material
impact on our financial position, results of operations, or cash flows.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk for our company has not changed significantly from the interest rate and foreign
currency risks disclosed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended
June 30, 2005.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our Chief Executive Officer and Chief
Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and
procedures, which included inquiries made to certain other of our employees. Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have each concluded that our
disclosure controls and procedures are effective and sufficient to ensure that we record, process,
summarize, and report information required to be disclosed by us in our periodic reports filed
under the Securities Exchange Act within the time periods specified by the Securities and Exchange
Commissions rules and forms.
During the fiscal quarter covered by this report, there have not been any changes in our
internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
23
PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
In April 2005, our board of directors authorized a stock repurchase program for up to $40
million of our common stock on the open market or in privately negotiated transactions, depending
upon market conditions and other factors. Purchases under this program are held as treasury stock.
The following sets forth purchases of our common stock under the repurchase program for each
fiscal month during the three month period ended September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Dollar Value |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
of Shares |
|
|
|
|
|
|
|
Average |
|
Purchased |
|
that May |
|
|
|
Total |
|
Price |
|
as Part of |
|
Yet Be |
|
|
|
Number |
|
Paid |
|
Publicly |
|
Purchased |
|
|
|
of Shares |
|
per |
|
Announced |
|
Under the |
Period |
|
|
Purchased |
|
Share |
|
Program |
|
Program |
June 26,
2005 July 23, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,820,000 |
|
July 24,
2005 August 20, 2005 |
|
|
|
1,108,800 |
|
|
$ |
16.11 |
|
|
|
2,247,800 |
|
|
$ |
956,000 |
|
August 21,
2005 September 24, 2005 |
|
|
|
58,300 |
|
|
$ |
16.39 |
|
|
|
2,306,100 |
|
|
$ |
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
1,167,100 |
|
|
$ |
16.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In October 2005 our board of directors authorized an expansion of our stock repurchase program
for up to an additional $40 million of our common stock.
ITEM 6. EXHIBITS
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended |
|
|
|
32.1
|
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
24
SIGNATURES
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.
|
|
|
|
|
|
|
|
|
SYNAPTICS INCORPORATED
(Registrant) |
|
|
|
|
|
Date: November 2, 2005
|
|
By:
|
|
/s/ Francis F. Lee |
|
|
|
|
|
|
|
Name:
Title:
|
|
Francis F. Lee
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Russell J. Knittel |
|
|
|
|
|
|
|
Name:
Title:
|
|
Russell J. Knittel
Senior Vice President, Chief Financial Officer and
Chief Administrative Officer |
25
EXHIBIT INDEX
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended |
|
|
|
32.1
|
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Francis F. Lee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Synaptics Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date: November 2, 2005
|
|
|
|
|
|
|
|
|
/s/ Francis F. Lee
|
|
|
Francis F. Lee |
|
|
Chief Executive Officer |
|
exv31w2
EXHIBIT 31.2
CERTIFICATION
I, Russell J. Knittel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Synaptics Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date: November 2, 2005
|
|
|
|
|
|
|
|
|
/s/ Russell J. Knittel
|
|
|
Russell J. Knittel |
|
|
Chief Financial Officer |
|
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Synaptics Incorporated (the Company)
for the quarterly period ended September 24, 2005 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Francis F. Lee, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and |
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
/s/ Francis F. Lee
Francis F. Lee
Chief Executive Officer
November 2, 2005
|
|
|
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Synaptics Incorporated (the Company)
for the quarterly period ended September 24, 2005 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Russell J. Knittel, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and |
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
/s/ Russell J. Knittel
Russell J. Knittel
Chief Financial Officer
November 2, 2005
|
|
|