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 March 25, 2006
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 a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer 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 April 28, 2006: 25,008,099
SYNAPTICS INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2006
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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March 31, |
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June 30, |
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2006 |
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2005 |
|
ASSETS |
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|
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Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
57,254 |
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|
$ |
72,232 |
|
Short-term investments |
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|
180,214 |
|
|
|
156,689 |
|
Accounts receivable, net of allowances of $189 and $165,
respectively |
|
|
29,720 |
|
|
|
33,790 |
|
Inventories |
|
|
10,646 |
|
|
|
7,731 |
|
Prepaid expenses and other current assets |
|
|
3,692 |
|
|
|
3,046 |
|
|
|
|
|
|
|
|
Total current assets |
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|
281,526 |
|
|
|
273,488 |
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Property and equipment, net |
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|
15,786 |
|
|
|
14,615 |
|
Goodwill |
|
|
1,927 |
|
|
|
1,927 |
|
Other assets |
|
|
23,819 |
|
|
|
21,175 |
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|
|
|
|
|
|
|
|
|
$ |
323,058 |
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|
$ |
311,205 |
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|
|
|
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|
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LIABILITIES
AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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|
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Accounts payable |
|
$ |
14,007 |
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|
$ |
12,390 |
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Accrued compensation |
|
|
4,889 |
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|
|
5,638 |
|
Income taxes payable |
|
|
11,489 |
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|
14,867 |
|
Other accrued liabilities |
|
|
5,483 |
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|
5,353 |
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|
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|
|
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Total current liabilities |
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35,868 |
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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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|
1,888 |
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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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|
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$0.001 par value; 60,000,000 shares authorized; 27,212,044
and 26,419,447 shares issued, respectively |
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27 |
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|
|
26 |
|
Additional paid-in capital |
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|
127,629 |
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|
106,686 |
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Less: 2,306,100 and 1,139,000 common treasury shares at
March 31, 2006 and June 30, 2005, respectively, at cost |
|
|
(39,999 |
) |
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|
(21,180 |
) |
Deferred stock compensation |
|
|
|
|
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|
(303 |
) |
Accumulated other comprehensive loss |
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|
(353 |
) |
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|
(129 |
) |
Retained earnings |
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71,498 |
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|
59,560 |
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|
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|
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Total stockholders equity |
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158,802 |
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|
144,660 |
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|
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|
|
|
|
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$ |
323,058 |
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|
$ |
311,205 |
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|
|
|
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|
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|
See notes to condensed 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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|
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|
|
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|
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Three Months Ended |
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Nine Months Ended |
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March 31, |
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March 31, |
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2006 |
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2005 |
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|
2006 |
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|
2005 |
|
Net revenue |
|
$ |
40,365 |
|
|
$ |
56,668 |
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|
$ |
140,645 |
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|
$ |
151,302 |
|
Cost of revenue
(1)(2) |
|
|
22,257 |
|
|
|
30,481 |
|
|
|
76,694 |
|
|
|
81,535 |
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|
|
|
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|
|
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|
|
|
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Gross margin |
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18,108 |
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26,187 |
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63,951 |
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69,767 |
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Operating expenses: |
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Research and development
(1)(2) |
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9,106 |
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6,157 |
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25,740 |
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18,448 |
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Selling, general, and administrative
(1)(2) |
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6,952 |
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4,937 |
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20,593 |
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|
13,091 |
|
Amortization of deferred stock
compensation |
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|
71 |
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|
|
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|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
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Total operating
expenses |
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|
16,058 |
|
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|
11,165 |
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|
46,333 |
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31,797 |
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|
|
|
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|
|
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Income from
operations |
|
|
2,050 |
|
|
|
15,022 |
|
|
|
17,618 |
|
|
|
37,970 |
|
Interest
income |
|
|
2,179 |
|
|
|
1,118 |
|
|
|
5,631 |
|
|
|
1,783 |
|
Interest
expense |
|
|
(485 |
) |
|
|
(483 |
) |
|
|
(1,454 |
) |
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes |
|
|
3,744 |
|
|
|
15,657 |
|
|
|
21,795 |
|
|
|
39,093 |
|
Provision for income
taxes |
|
|
2,121 |
|
|
|
3,983 |
|
|
|
9,857 |
|
|
|
13,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
$ |
1,623 |
|
|
$ |
11,674 |
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|
$ |
11,938 |
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|
$ |
25,829 |
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|
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Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic |
|
$ |
0.07 |
|
|
$ |
0.44 |
|
|
$ |
0.49 |
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.06 |
|
|
$ |
0.38 |
|
|
$ |
0.44 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
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|
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|
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Shares used in computing net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
24,737 |
|
|
|
26,315 |
|
|
|
24,602 |
|
|
|
25,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
29,201 |
|
|
|
31,464 |
|
|
|
29,002 |
|
|
|
29,588 |
|
|
|
|
|
|
|
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|
(1) |
|
Amounts include share-based compensation costs as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue |
|
$ |
145 |
|
|
$ |
|
|
|
$ |
525 |
|
|
$ |
|
|
Research and
development |
|
$ |
1,165 |
|
|
$ |
|
|
|
$ |
3,700 |
|
|
$ |
|
|
Selling, general, and
administrative |
|
$ |
1,967 |
|
|
$ |
|
|
|
$ |
5,752 |
|
|
$ |
|
|
|
|
|
(2) |
|
Amounts exclude amortization of deferred stock compensation as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue |
|
$ |
|
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
10 |
|
Research and
development |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8 |
|
Selling, general, and
administrative |
|
$ |
|
|
|
$ |
68 |
|
|
$ |
|
|
|
$ |
240 |
|
See notes to condensed consolidated financial statements.
4
SYNAPTICS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,938 |
|
|
$ |
25,829 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Share-based compensation
costs |
|
|
9,977 |
|
|
|
|
|
Deferred taxes from share-based
compensation |
|
|
(1,964 |
) |
|
|
|
|
Tax benefit realized from stock
options |
|
|
4,717 |
|
|
|
8,940 |
|
Excess tax benefit from share-based
compensation |
|
|
(3,962 |
) |
|
|
|
|
Depreciation of property and
equipment |
|
|
1,208 |
|
|
|
745 |
|
Amortization of debt issuance
costs |
|
|
645 |
|
|
|
272 |
|
Amortization of deferred stock
compensation |
|
|
|
|
|
|
258 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
4,070 |
|
|
|
(10,557 |
) |
Inventories |
|
|
(2,915 |
) |
|
|
(4,306 |
) |
Prepaid expenses and other current assets |
|
|
(646 |
) |
|
|
189 |
|
Other assets |
|
|
(1,325 |
) |
|
|
(10,334 |
) |
Accounts payable |
|
|
1,617 |
|
|
|
1,822 |
|
Accrued compensation |
|
|
(749 |
) |
|
|
(420 |
) |
Income taxes payable |
|
|
(3,378 |
) |
|
|
5,163 |
|
Other accrued liabilities |
|
|
130 |
|
|
|
1,105 |
|
Other liabilities |
|
|
91 |
|
|
|
19 |
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
|
19,454 |
|
|
|
18,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
(188,081 |
) |
|
|
(146,810 |
) |
Proceeds from sales and maturities of short-term
investments |
|
|
164,332 |
|
|
|
76,971 |
|
Purchases of property and equipment |
|
|
(2,379 |
) |
|
|
(11,303 |
) |
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
|
(26,128 |
) |
|
|
(81,142 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Payments on capital leases and equipment financing
obligations |
|
|
|
|
|
|
(28 |
) |
Proceeds from issuance of convertible senior subordinated notes |
|
|
|
|
|
|
125,000 |
|
Debt issuance costs |
|
|
|
|
|
|
(4,310 |
) |
Purchase of treasury stock |
|
|
(18,819 |
) |
|
|
|
|
Proceeds from issuance of common stock upon exercise of options
and stock purchase
plan |
|
|
6,553 |
|
|
|
8,215 |
|
Excess tax benefit from share-based
compensation |
|
|
3,962 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing
activities |
|
|
(8,304 |
) |
|
|
128,877 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
|
(14,978 |
) |
|
|
66,460 |
|
Cash and cash equivalents at beginning of
period |
|
|
72,232 |
|
|
|
59,489 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period |
|
$ |
57,254 |
|
|
$ |
125,949 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
469 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
11,494 |
|
|
$ |
9,595 |
|
|
|
|
|
|
|
|
See notes to condensed 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 fiscal 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 is the 52- or 53-week period ending on the last Saturday in June. Fiscal
years 2006 and 2005 are 52-week periods. 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.
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 or 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.
6
The following table presents the computation of basic and diluted net income per share (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income |
|
$ |
1,623 |
|
|
$ |
11,674 |
|
|
$ |
11,938 |
|
|
$ |
25,829 |
|
Interest expense and amortization of debt issuance
costs on convertible notes (net of tax) |
|
|
266 |
|
|
|
266 |
|
|
|
798 |
|
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income |
|
$ |
1,889 |
|
|
$ |
11,940 |
|
|
$ |
12,736 |
|
|
$ |
26,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares, basic |
|
|
24,737 |
|
|
|
26,315 |
|
|
|
24,602 |
|
|
|
25,743 |
|
Effect of dilutive share-based awards |
|
|
1,990 |
|
|
|
2,675 |
|
|
|
1,926 |
|
|
|
2,857 |
|
Effect of convertible notes |
|
|
2,474 |
|
|
|
2,474 |
|
|
|
2,474 |
|
|
|
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares, diluted |
|
|
29,201 |
|
|
|
31,464 |
|
|
|
29,002 |
|
|
|
29,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.07 |
|
|
$ |
0.44 |
|
|
$ |
0.49 |
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.06 |
|
|
$ |
0.38 |
|
|
$ |
0.44 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1,895,999, 328,978, 2,034,030, and 109,659 shares of common stock that
were outstanding during the three months ended March 31, 2006 and 2005 and the nine months ended
March 31, 2006 and 2005, respectively, were not included in the computation of diluted net income
per share. 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 compensation
costs 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.
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 Statement of Financial Accounting Standards (SFAS) 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS 115). 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):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Raw
materials |
|
$ |
10,327 |
|
|
$ |
7,618 |
|
Finished
goods |
|
|
319 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
$ |
10,646 |
|
|
$ |
7,731 |
|
|
|
|
|
|
|
|
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. 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.
7
6. Goodwill
As of March 31, 2006 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
nine-month periods ended March 31, 2006 and 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Beginning accrued
warranty |
|
$ |
369 |
|
|
$ |
704 |
|
Provision for product
warranties |
|
|
609 |
|
|
|
390 |
|
Cost of warranty claims and
settlements |
|
|
(665 |
) |
|
|
(789 |
) |
|
|
|
|
|
|
|
Ending accrued
warranty |
|
$ |
313 |
|
|
$ |
305 |
|
|
|
|
|
|
|
|
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 obligations.
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 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
8
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 March 31, 2006, none of the conditions for conversion
or redemption 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.
Interest expense includes the amortization of debt issuance costs. We recorded interest
expense of $449,000 and $1.3 million on the Notes during the three and nine months ended March 31,
2006, respectively, and interest expense of $449,000 and $566,000 on the Notes during the three and
nine months ended March 31, 2005, respectively. The fair value of the Notes as of March 31, 2006
was approximately $102.7 million based on trade activity.
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 to provide such persons with annual and
long-term performance incentives to focus their best efforts in the creation of stockholder value.
Consequently, share-based compensatory awards issued subsequent to the initial award to our
employees and consultants are determined primarily on individual performance. Our share-based
compensation plans currently consist of our 1996 Stock Option Plan, our 2000 Nonstatutory Stock
Option Plan, our 2001 Incentive Compensation Plan, and our 2001 Employee Stock Purchase Plan.
Share-based compensation awards available for grant or issuance for each plan as of the
beginning of the fiscal year, including changes in the balance of awards available for grant during
the nine months ended March 31, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 |
|
|
Available |
|
1996 |
|
2000 |
|
2001 |
|
Employee |
|
|
Under All |
|
Stock |
|
Nonstatutory |
|
Incentive |
|
Stock |
|
|
Share-Based |
|
Option |
|
Stock Option |
|
Compensation |
|
Purchase |
|
|
Award Plans |
|
Plan |
|
Plan |
|
Plan |
|
Plan |
Balance at June 30,
2005 |
|
|
3,271,529 |
|
|
|
224,881 |
|
|
|
35,667 |
|
|
|
2,304,590 |
|
|
|
706,391 |
|
Additional shares authorized |
|
|
1,109,737 |
|
|
|
|
|
|
|
|
|
|
|
1,109,737 |
|
|
|
|
|
Stock options granted |
|
|
(1,305,934 |
) |
|
|
|
|
|
|
|
|
|
|
(1,305,934 |
) |
|
|
|
|
Deferred stock units
granted |
|
|
(30,710 |
) |
|
|
|
|
|
|
|
|
|
|
(30,710 |
) |
|
|
|
|
Purchases under employee
stock purchase plan |
|
|
(93,020 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93,020 |
) |
Forfeited |
|
|
215,787 |
|
|
|
1,334 |
|
|
|
1,917 |
|
|
|
212,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31,
2006 |
|
|
3,167,389 |
|
|
|
226,215 |
|
|
|
37,584 |
|
|
|
2,290,219 |
|
|
|
613,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of fiscal year 2006, we adopted SFAS 123R, Share-Based Payment (SFAS
123R), and applied the provisions of Staff Accounting Bulletin No. 107, Share-Based Payment, to
our existing share-based compensation plans in accordance with the modified prospective transition
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),
and 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.
Accordingly, no share-based compensation costs based on grant date fair value are included in our
consolidated statements of income for any period presented in the accompanying condensed
consolidated financial statements prior to fiscal year 2006.
We utilize the Black-Scholes option pricing model to estimate the grant date fair value of
certain employee share-based compensatory awards, which requires the input of highly subjective
assumptions, including expected volatility and expected life. Historical and implied volatility
were used in estimating the fair value of our share-based
9
awards, while the expected life of our
options 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 share-based awards
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 and deferred stock unit awards 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. As our stock option and employee stock purchase plan awards have
characteristics that differ significantly from traded options, and as changes in the subjective
assumptions can materially affect the estimated value, our estimate of fair value may not
accurately 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.
Awards of stock options granted to consultants under our share-based compensation plans 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 awards 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 award rather than the expected life.
In accordance with SFAS 123R, we recognize tax benefit upon expensing certain share-based
awards associated with our share-based compensation plans, including nonqualified stock options and
deferred stock unit awards, but under current accounting standards we cannot recognize tax benefit
currently for those share-based compensation expenses associated with incentive stock options and
employee stock purchase plan shares (qualified stock options). For qualified stock options that
vested after our adoption of SFAS 123R, we recognize tax benefit only in the period when
disqualifying dispositions of the underlying stock occur, and for qualified stock options that
vested prior to our adoption of SFAS 123R, the tax benefit is recorded directly to additional
paid-in capital. For the nine months ended March 31, 2006, we realized tax benefit from
non-qualified stock option exercises and disqualifying dispositions of qualified stock options
totaling $4.9 million, of which $150,000 of the tax benefit was recognized as a reduction of the
provision for income taxes, $71,000 reduced deferred tax assets established after our adoption of
SFAS 123R, and the remaining tax benefit was recorded directly to additional paid-in capital.
The impact of adopting SFAS 123R on our pre-tax income, net income, and basic and diluted net
income per share for the three and nine months ended March 31, 2006 is summarized in the following
table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, 2006 |
|
March 31, 2006 |
|
|
Intrinsic |
|
Fair |
|
Intrinsic |
|
Fair |
|
|
Value |
|
Value |
|
Value |
|
Value |
|
|
Method |
|
Method |
|
Method |
|
Method |
Income before provison for income taxes |
|
$ |
7,014 |
|
|
$ |
3,744 |
|
|
$ |
31,626 |
|
|
$ |
21,795 |
|
Net Income |
|
|
4,125 |
|
|
|
1,623 |
|
|
|
19,644 |
|
|
|
11,938 |
|
Net Income per share basic |
|
|
0.17 |
|
|
|
0.07 |
|
|
|
0.80 |
|
|
|
0.49 |
|
Net Income per share diluted |
|
|
0.15 |
|
|
|
0.06 |
|
|
|
0.70 |
|
|
|
0.44 |
|
Application of SFAS 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 related to the tax
deduction for nonqualified stock option exercises and disqualifying dispositions of qualified stock
options that exceeded their respective grant date fair values resulted in excess tax benefit of
$4.0 million for the nine months ended March 31, 2006, which 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 in connection with our share-based compensation plans;
however, 2.3 million treasury shares are also available for issuance. Our board has authorized an
expansion of our stock repurchase program to repurchase up to an additional $40 million of our
common stock through October 2007 and any shares repurchased under the expanded stock repurchase
program would be available for issuance.
10
Deferred Stock Units
Our 2001 Incentive Compensation Plan (2001 Plan) provides for the grant of deferred stock
unit awards (DSUs) to our employees, consultants, and directors. A DSU is a promise to deliver
shares of our common stock at a future date in accordance with the terms of the DSU grant
agreement. We began granting DSU awards in January 2006.
DSUs granted under the 2001 Plan generally vest 25% at the end of 12 months from the vesting
commencement date and at a rate of approximately 2% each month thereafter until fully vested at the
end of 48 months from the vesting commencement date. Delivery of shares under the plan takes place
quarterly for all DSUs vested as of the scheduled delivery dates. Until delivery of shares, the
grantee has no rights as a stockholder.
An election to defer delivery of the underlying shares for unvested DSU awards can be made
provided the deferral election is made at least one year before vesting and the deferral period is
at least five years from the scheduled delivery date.
The following table summarizes outstanding DSUs, including DSUs granted, delivered, and
forfeited during the nine months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
Aggregate |
|
|
Stock Unit |
|
Intrinsic |
|
|
Awards |
|
Value |
|
|
Outstanding |
|
(in thousands) |
Balance at June 30,
2005 |
|
|
|
|
|
|
|
|
Deferred stock units
granted |
|
|
30,710 |
|
|
|
|
|
Shares
delivered |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31,
2006 |
|
|
30,710 |
|
|
$ |
688 |
|
|
|
|
|
|
|
|
|
|
Unrecognized share-based compensation costs for DSUs granted under the 2001 Plan are
approximately $900,000 as of March 31, 2006, to be recognized over a weighted average period of
approximately four years.
Stock Options
Our current share-based compensation plans that provide for the grant of stock options include
our 1996 Stock Option Plan, our 2000 Nonstatutory Stock Option Plan, and our 2001 Incentive
Compensation Plan (the Plans). Under the Plans, 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 expensing the remaining fair value, as previously
determined under SFAS 123, of the underlying options over their remaining vesting periods.
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
11
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 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 nine months ended March 31, 2006, weighted average exercise prices, options exercisable,
weighted average remaining contractual life, and aggregate intrinsic value as of March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Weighted |
|
|
|
|
|
Aggregate |
|
|
Option |
|
Average |
|
Remaining |
|
Intrinsic |
|
|
Awards |
|
Exercise |
|
Contractual |
|
Value |
|
|
Outstanding |
|
Price |
|
Life (years) |
|
(in thousands) |
Balance at June 30,
2005 |
|
|
5,426,266 |
|
|
$ |
10.94 |
|
|
|
|
|
|
|
|
|
Stock options
granted |
|
|
1,305,934 |
|
|
$ |
23.01 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(699,577 |
) |
|
$ |
7.02 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(215,787 |
) |
|
$ |
15.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31,
2006 |
|
|
5,816,836 |
|
|
$ |
13.93 |
|
|
|
7.1 |
|
|
$ |
54,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
3,150,397 |
|
|
$ |
8.39 |
|
|
|
5.8 |
|
|
$ |
45,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes cash received and the aggregate intrinsic value for stock
options exercised during the nine months ended March 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
March 31, |
|
|
2006 |
|
2005 |
Cash received |
|
$ |
4,908 |
|
|
$ |
6,824 |
|
Aggregate intrinsic value |
|
$ |
13,393 |
|
|
$ |
28,312 |
|
The fair value of each award granted from our Plans during the nine months ended March 31,
2006 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no
expected dividends and the following assumptions:
|
|
|
|
|
Expected volatility |
|
|
72.1% - 73.9 |
% |
Expected life in years |
|
|
5.0 |
|
Risk-free interest rate |
|
|
4.1% - 4.4% |
|
Fair value per award |
|
$ |
12.38-$19.14 |
|
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.
Unrecognized share-based compensation costs for stock options granted under the Plans are
approximately $28.9 million as of March 31, 2006, to be recognized over a weighted average period
of approximately three years.
Employee Stock Purchase Plan
Our 2001 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
12
the plan, if the 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 purchased, weighted average purchase price, cash
received, and the aggregate intrinsic value for ESPP purchases during the nine months ended March
31, 2006 and 2005 (in thousands, except for shares purchased and weighted average purchase price):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
March 31, |
|
|
2006 |
|
2005 |
Shares purchased |
|
|
93,020 |
|
|
|
198,251 |
|
Weighted average purchase price |
|
$ |
17.69 |
|
|
$ |
7.02 |
|
Cash received |
|
$ |
1,645 |
|
|
$ |
1,391 |
|
Aggregate intrinsic value |
|
$ |
488 |
|
|
$ |
3,636 |
|
There were no ESPP shares purchased during the three months ended March 31, 2006 and 2005.
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 incremental compensation costs, net of estimated forfeitures, that will be recognized
on a straight-line basis over the two-year period ending June 30, 2007.
The fair value of each award granted under our ESPP during the nine months ended March 31,
2006 was estimated using the Black-Scholes option pricing model, assuming no expected dividends and
the following weighted average assumptions:
|
|
|
|
|
Expected volatility |
|
|
49.3% - 75.7 |
% |
Expected life in years |
|
|
0.5 - 2.0 |
|
Risk-free interest rate |
|
|
3.3% - 4.4 |
% |
Fair value per award |
|
$ |
7.40-$11.86 |
|
The expected volatility is based on implied and historical volatility; the expected life
is based on each period that begins with the enrollment date until each purchase date remaining in
the offering period at the date of enrollment in the plan; and the risk free interest rate is based
on U. S. Treasury yields or yield curve in effect for each expected life.
Unrecognized share-based compensation costs for awards granted under our ESPP are
approximately $1.5 million as of March 31, 2006, to be recognized over a weighted average period of
approximately one year.
13
Pre-SFAS 123R Pro Forma Accounting Disclosures
The fair value of each share-based award granted during the three and nine months ended March
31, 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 |
|
|
March 31, 2005 |
|
|
|
|
|
|
Employee Stock |
|
|
Stock Options |
|
Purchase Plan |
Expected volatility |
|
|
74.3 |
% |
|
|
57.5 |
% |
Expected life in
years |
|
|
5 |
|
|
|
1.2 |
|
Risk-free interest
rate |
|
|
3.7 |
% |
|
|
2.9 |
% |
Fair value per
award |
|
$ |
19.0 |
7 |
|
$ |
11.8 |
3 |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
March 31, 2005 |
|
|
|
|
|
|
Employee Stock |
|
|
Stock Options |
|
Purchase Plan |
Expected volatility |
|
|
67.8 |
% |
|
|
58.9 |
% |
Expected life in
years |
|
|
5 |
|
|
|
1.0 |
|
Risk-free interest
rate |
|
|
3.5 |
% |
|
|
2.6 |
% |
Fair value per
award |
|
$ |
13.7 |
6 |
|
$ |
10.3 |
1 |
During the three and nine months ended March 31, 2005, 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 |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2005 |
|
|
2005 |
|
Net income as reported |
|
$ |
11,674 |
|
|
$ |
25,829 |
|
Add: Total stock-based compensation included
in reported net income, net of tax |
|
|
53 |
|
|
|
170 |
|
Deduct: Total stock-based compensation
determined under fair value based method for all
awards, net of tax |
|
|
(2,039 |
) |
|
|
(4,683 |
) |
|
|
|
|
|
|
|
Net income pro forma |
|
$ |
9,688 |
|
|
$ |
21,316 |
|
|
|
|
|
|
|
|
Net income per share basic: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.44 |
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
0.37 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
Net income per share diluted: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.38 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
0.32 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
10. Income Taxes
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 recognize tax benefit upon expensing certain share-based
awards associated with our share-based compensation plans, including nonqualified stock options and
deferred stock unit awards, but under current accounting standards we cannot recognize tax benefit
currently for those share-based
14
compensation expenses associated with incentive stock options and
employee stock purchase plan shares (qualified stock options). For qualified stock options that
vested after our adoption of SFAS 123R, we recognize tax benefit only in the period when
disqualifying dispositions of the underlying stock occur, and for qualified stock options that
vested prior to our adoption of SFAS 123R, the tax benefit is recorded directly to additional
paid-in capital. For the three and nine months ended March 31, 2006, 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 this fiscal year to make a qualifying repatriation of foreign earnings, and are
currently evaluating whether we will repatriate foreign earnings under the provisions of the Act.
Our estimate of the amount we may repatriate under the Act ranges from $0 to $42 million. If we do
repatriate earnings under the provisions of the Act, our effective tax rate for the last quarter of
this fiscal year could be materially adversely affected.
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 90% and 52% of net revenue for
the three months ended March 31, 2006 and 2005, respectively, and 84% and 58% of net revenue for
the nine months ended March 31, 2006 and 2005, respectively.
The following is a summary of net revenue from sales to unaffiliated customers within
geographic areas based on the customer location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
China |
|
$ |
30,951 |
|
|
$ |
39,882 |
|
|
$ |
106,268 |
|
|
$ |
112,401 |
|
Singapore |
|
|
1,626 |
|
|
|
7,151 |
|
|
|
3,903 |
|
|
|
12,056 |
|
Taiwan |
|
|
4,124 |
|
|
|
5,374 |
|
|
|
18,784 |
|
|
|
17,431 |
|
Other |
|
|
3,664 |
|
|
|
4,261 |
|
|
|
11,690 |
|
|
|
9,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
40,365 |
|
|
$ |
56,668 |
|
|
$ |
140,645 |
|
|
$ |
151,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major customer net revenue data as a percentage of net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Customer A |
|
|
|
* |
|
|
33 |
% |
|
|
16 |
% |
|
|
35 |
% |
Customer B |
|
|
|
* |
|
|
13 |
% |
|
|
|
* |
|
|
|
* |
Customer C |
|
|
15 |
% |
|
|
|
* |
|
|
|
* |
|
|
|
* |
Customer D |
|
|
11 |
% |
|
|
|
* |
|
|
|
* |
|
|
|
* |
Major customer accounts receivable as a percentage of accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
March 31, |
|
June 30, |
|
|
2006 |
|
2005 |
Customer A |
|
|
12 |
% |
|
|
41 |
% |
Customer B |
|
|
11 |
% |
|
|
|
* |
Customer C |
|
|
|
* |
|
|
12 |
% |
15
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 were not material for the three or nine months
ended March 31, 2006 and 2005. Accordingly, comprehensive income closely approximated net income.
13. 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. Subsequent Events
On April 6, 2006, we filed an Answer to Complaint and Counterclaims against Elantech Devices
Corporation in response to their filing of a Complaint for Patent Infringement against us on March
10, 2006. Their complaint seeks damages, attorney fees, and a permanent injunction in connection
with one of their patents, and our counterclaim seeks damages, attorney fees, and a permanent
injunction in connection with four of our patents. We intend to vigorously defend our patents and
pursue our counterclaims.
16
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 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 in this report, 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; legal proceedings; 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 year 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 year 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 year 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 allows us to
design products that meet the demanding design specifications of original equipment manufacturers,
or 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, assembly
and test costs, and implementing design and process improvements. Our newly introduced products
may have lower margins than our more mature products that
17
have realized greater benefits associated with our ongoing cost improvement programs. As a
result, new product introductions may initially negatively impact our gross margin.
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 or 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.
Inventory
We state our inventories at the lower of cost or market. We base our assessment of the
ultimate realization of inventories on our expectations 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.
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.
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 apply the
provisions of Staff
18
Accounting Bulletin No. 107, Share-Based Payment (SAB 107). We utilize the Black-Scholes
option pricing model to estimate the grant date fair value of employee share-based compensatory
awards, which requires the input of highly subjective assumptions, including expected volatility
and expected life. Historical and implied volatility were used in estimating the fair value of our
share-based awards, while the expected life for our options 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 share-based awards 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 and
deferred stock unit awards 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. As our stock option
and employee stock purchase plan awards have characteristics that differ significantly from traded
options, and as changes in the subjective assumptions can materially affect the estimated value,
our estimate of fair value may not accurately represent the value assigned by a third party in an
arms-length transaction. There currently is no market-based mechanism to verify the reliability
and accuracy of the estimates derived from the Black-Scholes option pricing model or other
allowable valuation models, nor is there a means to compare and adjust the estimates to actual
values. 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.
The guidance in SFAS 123R and SAB 107 is relatively immature and the application of these
principles may be subject to further interpretation and guidance. There are significant variations
among allowable valuation models, and there is a possibility that we may adopt a different
valuation model or refine the inputs and assumptions under our current valuation model in the
future resulting in a lack of consistency in future periods. Our current or future valuation model
and the inputs and assumptions we make may also lack comparability to other companies that use
different models, inputs, or assumptions, and the resulting differences in comparability could be
material.
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 recognize tax benefit upon expensing certain share-based
awards associated with our share-based compensation plans, including nonqualified stock options and
deferred stock unit awards, but under current accounting standards we cannot recognize tax benefit
currently for those share-based compensation expenses associated with incentive stock options and
employee stock purchase plan shares (qualified stock options). For qualified stock options that
vested after our adoption of SFAS 123R, we recognize tax benefit only in the period when
disqualifying dispositions of the underlying stock occur and, for qualified stock options that
vested prior to our adoption of SFAS 123R, the tax benefit is recorded directly to additional
paid-in capital. Accordingly, because we cannot recognize the tax benefit for share-based
compensation expense associated with qualified stock options until the occurrence of future
disqualifying dispositions of the underlying stock, and because a portion of that tax benefit may
be directly recorded to additional paid-in capital, 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.
19
Results of Operations
The following table presents our historical operating results for the periods indicated as a
percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2006 |
|
2005 |
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
55.1 |
% |
|
|
53.8 |
% |
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
44.9 |
% |
|
|
46.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and
development |
|
|
22.6 |
% |
|
|
10.9 |
% |
Selling, general, and
administrative |
|
|
17.2 |
% |
|
|
8.7 |
% |
Amortization of deferred stock
compensation |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
39.8 |
% |
|
|
19.7 |
% |
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
|
5.1 |
% |
|
|
26.5 |
% |
Interest income |
|
|
5.4 |
% |
|
|
2.0 |
% |
Interest
expense |
|
|
-1.2 |
% |
|
|
-0.9 |
% |
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes |
|
|
9.3 |
% |
|
|
27.6 |
% |
Provision for income
taxes |
|
|
5.3 |
% |
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
Net income |
|
|
4.0 |
% |
|
|
20.6 |
% |
|
|
|
|
|
|
|
|
|
Net Revenue. Net revenue was $40.4 million for the three months ended March 31, 2006 compared
with $56.7 million for the three months ended March 31, 2005, a decrease of 28.8%. The decrease in
net revenue was primarily attributable to a reduction in unit shipments and a reduction in overall
average selling prices because of changes in product mix and general competitive pricing pressure.
Our non-PC revenue decreased to 10% of net revenue for the three months ended March 31, 2006 from
48% of net revenue for the three months ended March 31, 2005, primarily due to decreased demand for
our capacitive interface solutions for HDD portable digital music players.
Gross Margin. Gross margin as a percentage of net revenue was 44.9% for the three months
ended March 31, 2006 compared with 46.2% for the three months ended March 31, 2005. The decline in
gross margin as a percentage of net revenue reflects a less profitable product mix, lower selling
prices, and the inclusion of non-cash share-based compensation costs, partially offset by lower
manufacturing costs, which resulted from the combination of our continuing design and process
improvement programs and lower materials, assembly, and test costs. Non-cash share-based
compensation costs resulted from our adoption of SFAS 123R on a modified prospective basis at the
beginning of fiscal year 2006.
Research and Development Expenses. Research and development expenses increased as a
percentage of net revenue to 22.6% from 10.9%, and increased $2.9 million, or 47.9%, to $9.1
million for the three months ended March 31, 2006 compared with $6.2 million for the three months
ended March 31, 2005. A major contributor to the increase in research and development
expenses was the inclusion of non-cash share-based compensation costs of $1.2 million as a result
of adopting SFAS 123R on a modified prospective basis at the beginning of fiscal year 2006.
Excluding non-cash share-based compensation costs, research and development expenses increased $1.8
million, or 29.0%, because of increased project related spending, increased employee salary costs
resulting from additional staffing and our annual performance review process, and higher temporary
labor and consulting costs.
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses
increased as a percentage of net revenue to 17.2% from 8.7%, and increased approximately $2.0
million, or 40.8%, to approximately $7.0 million for the three months ended March 31, 2006 compared
with $4.9 million for the three months ended March 31, 2005. The increase in selling, general, and
administrative expenses reflects the inclusion of non-cash share-based compensation costs of $2.0
million as a result of adopting SFAS 123R on a modified prospective basis at the beginning of
fiscal year 2006. Excluding non-cash share-based compensation costs, selling, general, and
administrative expenses increased $48,000, or 1.0%, because of increased employee salary costs
resulting from additional staffing and our annual performance review process.
20
Amortization of Deferred Stock Compensation. Beginning with fiscal year 2006, we adopted SFAS
123R and as a result ceased amortizing deferred stock compensation. Accordingly, no amortization
expense for deferred stock compensation was recorded for the three months ended March 31, 2006
while $71,000 was recorded for the three months ended March 31, 2005.
Interest Income. Interest income was $2.2 million for the three months ended March 31, 2006
compared with $1.1 million for the three months ended March 31, 2005. The $1.1 million increase in
interest income resulted from a combination of higher average interest rates and higher average
invested cash balances. During the past twelve months, the increase in cash balances was primarily
a result of cash flows from operations of $43.3 million and share-based compensation programs which
generated $10.7 million of cash, partially offset by $40 million of cash used for our stock
repurchase program.
Interest Expense. Interest expense was $485,000 for the three months ended March 31, 2006
compared with $483,000 for the three months ended March 31, 2005. Interest expense primarily
results 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 March
31, 2006 was $2.1 million compared with $4.0 million for the three months ended March 31, 2005,
reflecting significantly lower pre-tax profit levels partially offset by a higher effective tax
rate. The income tax provision represented estimated federal, foreign, and state taxes for the
three months ended March 31, 2006 and 2005. The effective tax rate for the three months ended
March 31, 2006 was approximately 56.7% and diverged from the combined federal and state statutory
rate primarily as a result of the impact of accounting for share-based compensation, the true up of
our year-to-date tax rate to the expected tax rate, and other permanent taxable differences,
partially offset by the impact of the release of contingency reserves and tax-exempt interest
income. The effective tax rate for the three months ended March 31,
2005 was approximately 25.4% and diverged from the combined federal and state statutory rate
primarily as a result of the impact of higher income from foreign operations with lower tax rates,
the release of contingency reserves, the true up of the year-to-date tax rate to the expected tax
rate, the benefit of research and development tax credits, and tax-exempt interest income,
partially offset by permanent taxable differences.
In accordance with SFAS 123R, we recognize tax benefit upon expensing certain share-based
awards associated with our share-based compensation plans, including nonqualified stock options and
deferred stock unit awards, but under current accounting standards we cannot recognize tax benefit
currently for those share-based compensation expenses associated with incentive stock options and
employee stock purchase plan shares (qualified stock options). For qualified stock options that
vested after our adoption of SFAS 123R, we recognize tax benefit only in the period when
disqualifying dispositions of the underlying stock occur, and for qualified stock options that
vested prior to our adoption of SFAS 123R, the tax benefit is recorded directly to additional
paid-in capital. Tax benefit associated with total share-based compensation was approximately
$771,000 for the three months ended March 31, 2006. Excluding the impact of share-based
compensation and the related tax benefit, the effective tax rate for the three months ended March
31, 2006 would have been 41.2%. Because we cannot recognize the tax benefit for share-based
compensation expense associated with qualified stock options until the occurrence of future
disqualifying dispositions of the underlying stock and because a portion of that tax benefit may be
recorded directly to additional paid-in capital, 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.
21
The following table presents our historical operating results for the periods indicated as a
percentage of net revenue.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
March 31, |
|
|
2006 |
|
2005 |
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
54.5 |
% |
|
|
53.9 |
% |
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
45.5 |
% |
|
|
46.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and
development |
|
|
18.3 |
% |
|
|
12.2 |
% |
Selling, general, and
administrative |
|
|
14.7 |
% |
|
|
8.7 |
% |
Amortization of deferred stock
compensation |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
33.0 |
% |
|
|
21.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
|
12.5 |
% |
|
|
25.1 |
% |
Interest income |
|
|
4.0 |
% |
|
|
1.2 |
% |
Interest
expense |
|
|
-1.0 |
% |
|
|
-0.4 |
% |
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes |
|
|
15.5 |
% |
|
|
25.9 |
% |
Provision for income
taxes |
|
|
7.0 |
% |
|
|
8.8 |
% |
|
|
|
|
|
|
|
|
|
Net income |
|
|
8.5 |
% |
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
Net Revenue. Net revenue was $140.6 million for the nine months ended March 31, 2006 compared
with $151.3 million for the nine months ended March 31, 2005, a decrease of 7.0%. The decrease in
net revenue was primarily attributable to a reduction in overall average selling prices because of
changes in product mix and general competitive pricing pressure, partially offset by an increase in unit shipments. Our non-PC
revenue decreased to 16% of net revenue for the nine months ended March 31, 2006 from 42% of net
revenue for the nine months ended March 31, 2005, primarily due to decreased demand for our
capacitive interface solutions for HDD portable digital music players.
Gross Margin. Gross margin as a percentage of net revenue was 45.5% for the nine months ended
March 31, 2006 compared with 46.1% for the nine months ended March 31, 2005. The decline in gross
margin as a percentage of net revenue reflects a less favorable product mix, lower selling prices,
and the inclusion of non-cash share-based compensation costs, partially offset by lower
manufacturing costs, which resulted from the combination of our continuing design and process
improvement programs and lower materials, assembly, and test costs. Non-cash share-based
compensation costs resulted from our adoption of SFAS 123R on a modified prospective basis at the
beginning of fiscal year 2006.
Research and Development Expenses. Research and development expenses increased as a
percentage of net revenue to 18.3% from 12.2%, and increased $7.3 million, or 39.5%, to $25.7
million for the nine months ended March 31, 2006 compared with $18.4 million for the nine months
ended March 31, 2005. A major contributor to the increase in research and development
expenses was the inclusion of non-cash share-based compensation costs of $3.7 million as a result
of adopting SFAS 123R on a modified prospective basis at the beginning of fiscal year 2006.
Excluding non-cash share-based compensation costs, research and development expenses increased
approximately $3.6 million, or 19.5%, because of increased project spending, increased employee
salary costs resulting from additional staffing and our annual performance review process, and
higher temporary labor and consulting.
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses
increased as a percentage of net revenue to 14.7% from 8.7%, and increased approximately $7.5
million, or 57.3%, to $20.6 million for the nine months ended March 31, 2006 compared with $13.1
million for the nine months ended March 31, 2005. The increase in selling, general, and
administrative expenses reflects the inclusion of non-cash share-based compensation costs of
approximately $5.8 million as a result of adopting SFAS 123R on a modified prospective basis at the
beginning of fiscal year 2006. Excluding non-cash share-based compensation costs, selling,
general, and administrative expenses increased approximately $1.7 million, or 13.4%, because of
increased employee salary costs resulting from additional staffing and our annual performance
review process, and increased recruiting and hiring costs related to our ongoing staffing
initiatives.
22
Amortization of Deferred Stock Compensation. Beginning with fiscal year 2006, we adopted SFAS
123R and as a result ceased amortizing deferred stock compensation. Accordingly, no amortization
expense for deferred stock compensation was recorded for the nine months ended March 31, 2006 while
$258,000 was recorded for the nine months ended March 31, 2005.
Interest Income. Interest income was $5.6 million for the nine months ended March 31, 2006
compared with $1.8 million for the nine months ended March 31, 2005. The $3.8 million increase in
interest income resulted from a combination of substantially higher average invested cash balances
and higher average interest rates. The increase in average 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. During the past twelve months, the increase in cash balances
was primarily the result of cash flows from operations of $43.3 million and share-based
compensation programs which generated $10.7 million of cash, partially offset by $40 million of
cash used for our stock repurchase program.
Interest Expense. Interest expense was approximately $1.5 million for the nine months ended
March 31, 2006 compared with $660,000 for the nine months ended March 31, 2005. The $794,000
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 nine months ended March
31, 2006 was approximately $9.9 million compared with $13.3 million for the nine months ended March
31, 2005, reflecting lower pre-tax profit levels partially offset by a higher effective tax rate.
The income tax provision represented estimated federal, foreign, and state taxes for the nine
months ended March 31, 2006 and 2005. The effective tax rate for the nine months ended March 31,
2006 was approximately 45.2% and diverged from the combined federal and state statutory rate
primarily as a result of the impact of accounting for share-based compensation, the true up of our
year-to-date tax rate to the expected tax rate, and other permanent taxable differences, partially
offset by the impact of the release of contingency reserves and tax-exempt interest income. The
effective tax rate for the nine months ended March 31, 2005
was approximately 33.9% and diverged from the combined federal and state statutory rate
primarily as a result of the impact of higher income from foreign operations, the release of
contingency reserves, the true up of the year-to-date tax rate to the expected tax rate, the
benefit of research and development tax credits, and tax-exempt interest income, partially offset
by permanent taxable differences.
In accordance with SFAS 123R, we recognize tax benefit upon expensing certain share-based
awards associated with our share-based compensation plans, including nonqualified stock options and
deferred stock unit awards, but under current accounting standards we cannot recognize tax benefit
currently for those share-based compensation expenses associated with incentive stock options and
employee stock purchase plan shares (qualified stock options). For qualified stock options that
vested after our adoption of SFAS 123R, we recognize tax benefit only in the period when
disqualifying dispositions of the underlying stock occur, and for qualified stock options that
vested prior to our adoption of SFAS 123R, the tax benefit is recorded directly to additional
paid-in capital. Tax benefit associated with total share-based compensation was approximately $2.2
million for the nine months ended March 31, 2006. Excluding the impact of share-based compensation
and the related tax benefit, the effective tax rate for the nine months ended March 31, 2006 would
have been 37.9%. Because we cannot recognize the tax benefit for share-based compensation expense
associated with qualified stock options until the occurrence of future disqualifying dispositions
of the underlying stock and because a portion of that tax benefit may be recorded directly to
additional paid-in capital, 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 $237.5 million as of March 31,
2006 compared with $228.9 million as of June 30, 2005, an increase of $8.6 million. The increase
in cash, cash equivalents, and short-term investments was primarily attributable to cash generated
from operating activities of $19.5 million and proceeds from stock option exercises of $6.6
million, partially offset by $18.8 million of cash used for the repurchase of approximately 1.2
million shares of our common stock.
Cash Flows from Operating Activities. During the nine months ended March 31, 2006, operating
activities generated cash of approximately $19.5 million compared with $18.7 million of cash
generated during the nine months ended March 31, 2005. For the nine months ended March 31, 2006,
the net cash provided by operating activities was primarily attributable to net income of $11.9
million plus adjustments for non-cash charges, including share-based
23
compensation costs,
depreciation, and amortization of debt issuance costs totaling $11.8 million and tax benefit from
stock options net of excess tax benefit from share-based compensation of $755,000, partially offset
by deferred tax benefit from share-based compensation of $2.0 million and a net increase in
operating assets and liabilities of $3.1 million. For the nine months ended March 31, 2005, the
net cash provided by operating activities was primarily attributable to net income of $25.8 million
plus adjustments for non-cash charges, including depreciation and amortization of deferred stock
compensation, and amortization of debt issuance costs totaling $1.3 million and tax benefit from
stock options of $8.9 million, partially offset by an increase in operating assets and liabilities
of $17.3 million. The net change in operating assets and liabilities related primarily to a $10.6
million increase in accounts receivable and a $10.3 million increase in other assets consisting
mainly of non-current prepaid taxes, partially offset by higher income taxes payable, all of which
reflect our higher operating levels.
Cash Flows from Investing Activities. Our investing activities typically relate to purchases
of government-backed securities and investment-grade fixed income instruments. Investing
activities during the nine months ended March 31, 2006 used net cash of $26.1 million compared with
net cash used of $81.1 million during the nine months ended March 31, 2005. During the nine months
ended March 31, 2006, net cash used in investing activities consisted of purchases of $188.1
million of short-term investments and $2.4 million of property and equipment, partially offset by
$164.3 million in proceeds from sales and maturities of short-term investments. Cash used by
investing activities during the nine months ended March 31, 2005 consisted of cash used for
purchases of short-term investments of $146.8 million and $11.3 million of property and equipment,
which included $8.5 million for the purchase of our corporate headquarters, partially offset by
proceeds from sales and maturities of short-term investments of $77.0 million.
Cash Flows from Financing Activities. Net cash used in financing activities for the nine
months ended March 31, 2006 was $8.3 million compared with net cash provided by financing
activities of $128.9 million for the nine months ended March 31, 2005. Our financing activities
for the nine months ended March 31, 2006 consisted primarily of $18.8 million of cash used for the
purchase of 1.2 million shares of treasury stock, partially offset by approximately $6.6 million in
proceeds from common stock issued under our stock option plans and employee stock purchase plan and
$4.0 million of excess tax benefit from share-based compensation. Our financing activities for the
nine months
ended March 31, 2005 consisted primarily of the proceeds from the issuance of $125.0 million
of convertible senior subordinated notes and $8.2 million from common stock issued under our stock
option plans and employee stock purchase plan, partially offset by $4.3 million of debt issuance
costs.
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 though October 2007.
Through March 31, 2006, 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
26, 2006, 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 had not borrowed any amounts under the
line of credit as of March 31, 2006.
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
24
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 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 March 31, 2006, none of the conditions for conversion
or redemption 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.
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, 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 or decline, 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.
25
Contractual Obligations and Commercial Commitments
The following table sets forth a summary of our material contractual obligations and
commercial commitments as of March 31, 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
Convertible senior
subordinated
notes |
|
$ |
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 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.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk 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 designed to ensure that information required to be disclosed
is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure and 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.
27
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 10, 2006, Elantech Devices Corporation filed a Complaint for Patent Infringement
against us in the United States District Court for the Northern District of California, San Jose
Division, claiming that we infringed Elantechs U.S. Patent No. 5,825,352 and seeking single and
treble damages, attorneys fees, and a permanent injunction against us infringing or inducing
others to infringe the patent. On April 6, 2006, we filed our Answer to the Complaint and
Counterclaims against Elantech Devices Corporation claiming that Elantech has infringed and induced
infringement of our U.S. Patent Nos. 5,543,591, 5,880,411, 5,943,052, and 6,380,931 and seeking
single and treble damages, attorneys fees, and a permanent injunction against infringing or
inducing others to infringe. We intend to vigorously defend our patents and pursue our
counterclaims.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
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. There were no purchases under the stock
repurchase program during the quarter ended March 31, 2006.
ITEM 6. EXHIBITS
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) |
|
|
32.1 |
|
Section 1350 Certification of Chief Executive Officer |
|
|
32.2 |
|
Section 1350 Certification of Chief Financial Officer |
28
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: May 3, 2006
|
|
By:
|
|
/s/ Francis F. Lee
|
|
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Name:
|
|
Francis F. Lee |
|
|
|
|
Title:
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Russell J. Knittel |
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
Russell J. Knittel |
|
|
|
|
Title:
|
|
Senior Vice President, Chief Financial Officer, and
Chief Administrative Officer |
|
|
29
EXHIBIT INDEX
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) |
|
|
32.1 |
|
Section 1350 Certification of Chief Executive Officer |
|
|
32.2 |
|
Section 1350 Certification of Chief Financial Officer |
30
exv31w1
EXHIBIT 31.1
Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a)
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: May 3, 2006
|
|
|
|
|
|
|
|
|
/s/ Francis F. Lee
|
|
|
Francis F. Lee |
|
|
Chief Executive Officer |
|
exv31w2
EXHIBIT 31.2
Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)/15d-14(a)
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: May 3, 2006
|
|
|
|
|
|
|
|
|
/s/ Russell J. Knittel
|
|
|
Russell J. Knittel |
|
|
Chief Financial Officer |
|
exv32w1
EXHIBIT 32.1
Section 1350 Certification of Chief Executive Officer
In connection with the Quarterly Report on Form 10-Q of Synaptics Incorporated (the Company)
for the quarterly period ended March 25, 2006 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 |
|
|
May 3, 2006 |
|
|
exv32w2
EXHIBIT 32.2
Section 1350 Certification of Chief Financial Officer
In connection with the Quarterly Report on Form 10-Q of Synaptics Incorporated (the Company)
for the quarterly period ended March 25, 2006 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 |
|
|
May 3, 2006 |
|
|