10-Q 1 supertex10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) (x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2001 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 (No Fee Required) Commission File No. 0-12718 SUPERTEX, INC. (Exact name of Registrant as specified in its Charter) California 94-2328535 (State or other jurisdiction of (IRS Employer Identification #) incorporation or organization) 1235 Bordeaux Drive Sunnyvale, California 94089 (Address of principal executive offices) Registrant's Telephone Number, Including Area Code: (408) 744-0100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The total number of shares outstanding of the Registrant's common stock as of January 28, 2002 were 12,464,059 Total number of pages: 11 SUPERTEX, INC. QUARTERLY REPORT - FORM 10Q Table of Contents Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income.......................3 Condensed Consolidated Balance Sheets.............................4 Condensed Consolidated Statements of Cash Flows...................5 Notes to Condensed Consolidated Financial Statements..............6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................8 Item 3. Quantitative and Qualitative Disclosures About Market Risk and Interest Rate Risk.........................10 PART II- OTHER INFORMATION Item 1. Legal Proceedings................................................10 Item 2. Changes in Securities and Use of Proceeds........................10 Item 3. Defaults Upon Senior Securities..................................10 Item 4. Submission of Matters to a Vote of Security Holders..............11 Item 5. Other Information................................................11 Item 6. Exhibits and Reports on Form 8-K.................................11 Signatures...............................................................11 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SUPERTEX, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts) Three-months Ended, Nine-months Ended, December 31, December 31, 2001 2000 2001 2000 Net sales $ 14,062 $ 20,209 $ 43,386 $ 65,025 Cost and expenses: -------- -------- -------- -------- Cost of sales 7,955 11,800 25,651 38,208 Research and development 2,581 3,054 8,558 7,996 Selling, general and administrative 1,803 2,568 5,523 7,768 -------- -------- -------- -------- Total costs and expenses 12,339 17,422 39,732 53,972 -------- -------- -------- -------- Income from operations 1,723 2,787 3,654 11,053 Interest income 335 672 1,303 1,786 Other income (expense), net (46) (160) 478 464 -------- -------- -------- -------- Income before provision for income taxes 2,012 3,299 5,435 13,303 Provision for income taxes 684 1,122 1,848 4,523 -------- -------- -------- -------- Net income $ 1,328 $ 2,177 $ 3,587 $ 8,780 Net income per share: Basic $ 0.11 $ 0.18 $ 0.29 $ 0.71 Diluted $ 0.10 $ 0.17 $ 0.28 $ 0.67 Shares used in per share computation: Basic 12,445 12,386 12,424 12,335 Diluted 12,796 13,041 12,678 13,091 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. SUPERTEX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in thousands) December 31, March 31, 2001 2001 ASSETS Current assets: Cash and cash equivalents $ 48,650 $ 44,282 Trade accounts receivable, net of allowance of $1,710 and $2,412 11,183 13,536 Inventories 15,011 14,388 Prepaid expenses and other current assets 1,061 1,404 Deferred income taxes 4,388 4,388 --------- --------- Total current assets 80,293 77,998 Property, plant and equipment, net 17,111 15,200 Intangible and other assets, net 1,866 2,499 Deferred income taxes 2,998 2,998 --------- --------- TOTAL ASSETS $ 102,268 $ 98,695 LIABILITIES Current liabilities: Trade accounts payable $ 5,499 $ 6,659 Accrued salaries, wages and employee benefits 6,000 7,173 Other accrued liabilities 594 645 Deferred revenue 1,828 1,262 Income taxes payable 1,702 597 --------- --------- Total current liabilities 15,623 16,336 SHAREHOLDERS' EQUITY Preferred stock, no par value - 10,000 shares authorized, none outstanding -- -- Common stock, no par value - 30,000 shares authorized; issued and outstanding 12,460 and 12,394 shares 26,278 25,318 Retained earnings 60,367 57,041 --------- --------- Total shareholders' equity 86,645 82,359 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 102,268 $ 98,695 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. SUPERTEX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Nine months Ended CASH FLOWS FROM OPERATING ACTIVITIES December 31, December 31, 2001 2000 Net income $ 3,587 $ 8,780 Non-cash adjustments to net income: Depreciation and amortization 2,927 3,868 Provision for doubtful accounts and sales returns 1,005 1,683 Provision for excess and obsolete inventories 901 277 Loss (gain) on disposal of assets 12 (776) Gain on sale of long-term investments (127) -- Changes in operating assets and liabilities: Accounts receivable 1,348 (3,661) Inventories (1,524) 865 Prepaid expenses and other assets 315 (1,317) Trade accounts payable and accrued expenses (2,384) 519 Income taxes payable 1,105 1,157 Deferred revenue 566 289 -------- -------- Total adjustments 4,144 2,902 -------- -------- Net cash provided by operating activities 7,731 11,682 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (4,838) (4,888) Proceeds from disposal of assets 149 961 Purchases of short-term investments -- (39,276) Proceeds from maturities of investments -- 28,228 Sales (purchases) of long-term investments 627 (1,750) -------- -------- Net cash used in investing activities (4,062) (16,725) CASH FLOWS FROM FINANCING ACTIVITIES Stock options exercised 1,014 1,123 Repurchase of stock (315) -- -------- -------- Net cash provided by financing activities 699 1,123 NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 4,368 (3,920) CASH AND CASH EQUIVALENTS: Beginning of period 44,282 22,584 -------- -------- End of period $ 48,650 $ 18,664 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. SUPERTEX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 - Basis of Presentation In the opinion of management, the unaudited condensed consolidated financial statements for the quarters ended December 31, 2001 and 2000 include all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of the consolidated financial condition, results of operations, and cash flows for those periods in accordance with accounting principles generally accepted in the United States of America. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the audited consolidated financial statements of Supertex, Inc. for the fiscal year ended March 31, 2001, which were included in the Annual Report on Form 10-K (File Number 0-12718). Interim results are not necessarily indicative of results for the full fiscal year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. During the three months ended December 31, 2001, gross profit was favorably affected by a credit of approximately $648,000 to cost of sales for the reduction of an accrual related to miscellaneous vendor commitments, however, it was adversely affected by one-time charges of approximately $472,000 associated with the move of our production test operations from California to Hong Kong. Note 2 - Inventories Inventories consisted of (in thousands): December 31, 2001 March 31, 2001 Raw materials.......................... $ 1,485 $ 1,662 Work-in-process........................ 10,687 9,281 Finished goods......................... 2,839 3,445 --------- --------- $ 15,011 $ 14,388 Note 3 - Net Income per Share Basic earnings per share ("EPS") is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. A reconciliation of the numerator and denominator of basic and diluted earnings per share is provided as follows (in thousands, except per share amounts). Three-months Ended Nine-months Ended December 31, December 31, 2001 2000 2001 2000 BASIC: Net income $ 1,328 $ 2,177 $ 3,587 $ 8,780 Weighted average shares outstanding for the period 12,445 12,386 12,424 12,335 ------- ------- ------- ------- Net income per share $ 0.11 $ 0.18 $ 0.29 $ 0.71 DILUTED: Net income $ 1,328 $ 2,177 $ 3,587 $ 8,780 Weighted average shares outstanding for the period 12,445 12,386 12,424 12,335 Dilutive effect of stock options 351 655 254 756 ------- ------- ------- ------- Total 12,796 13,041 12,678 13,091 ------- ------- ------- ------- Net income per share $ 0.10 $ 0.17 $ 0.28 $ 0.67 Note 4 - Recent Accounting Pronouncements In July 2001, FASB issued FASB Statements Nos. 141 and 142 (FAS 141 and FAS 142), "Business Combinations" and "Goodwill and Other Intangible Assets." FAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. FAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under FAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. FAS 141 and FAS 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of FAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under FAS 141 will be reclassified to goodwill. Companies are required to adopt FAS 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company expects to adopt FAS 142 effective April 1, 2002. The Company has determined that the adoption of FAS 142 will not have a material impact on its results of operations and financial position. In June 2001, the FASB issued FASB Statement No. 143 (FAS 143), "Accounting for Asset Retirement Obligations". FAS 143 requires that the fair value of a liability for an asset retirement obligation be realized in the period which it is incurred if a reasonable estimate of fair value can be made. Companies are required to adopt FAS 143 for fiscal years beginning after June 15, 2002, but early adoption is encouraged. The Company has not yet determined the impact this standard will have on its financial position and results of operations, although it does not anticipate that the adoption of this standard will have a material impact on the Company's financial position or results of operations. In August 2001, the FASB issued FASB Statement No. 144 (FAS 144). "Accounting for the Impairment or Disposal of Long-lived Assets". FAS 144 supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). This Statement also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. Companies are required to adopt FAS 144 for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, but early adoption is encouraged. The Company has not yet determined the impact this standard will have on its financial position and results of operations, although it does not anticipate that the adoption of this standard will have a material impact on the Company's financial position or results of operations. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Statement Regarding Forward Looking Statements This 10-Q includes forward-looking statements. These forward-looking statements are not historical facts, and are based on current expectations, estimates, and projections about our industry, our beliefs, our assumptions, and our goals and objectives. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates ", and variations of these words and similar expressions, are intended to identify forward-looking statements. An example of such a statement in this 10-Q is that the Company anticipates available funds and expected cash generated from operations to be sufficient to meet cash and working capital requirements through at least the next twelve months. This statement is only a prediction, is not a guaranty of future performance, and is subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in "Risk Factors" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation" in our Annual Report of Form 10-K for the fiscal year ended March 31, 2001. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. Overview Supertex designs, develops, manufactures, and markets high voltage analog and mixed signal integrated circuits utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies. We supply standard and custom high voltage interface products primarily for use in the telecommunications, imaging, and medical electronics markets. We also provide wafer foundry services for the manufacture of integrated circuits for customers using customer-owned designs and mask toolings. Results of Operations Net Sales Net sales for the quarter ended December 31, 2001 were $14,062,000, a 30% decrease compared to $20,209,000 for the same quarter last year. Net sales for the nine months ended December 31, 2001 were $43,386,000, a 33% decrease compared to $65,025,000 for the same period of the prior fiscal year. Sales for the third quarter were adversely affected by the decline in the telecommunications infrastructure spending and general economic slowdown with weakness in all the markets we serve. Many of our customers reduced their demand for our products as they face lower customer orders and higher inventory. As a percentage of total sales for the quarter ended December 31, 2001, sales to customers in the medical electronics, imaging, and telecommunications markets represented 44%, 27%, and 21% of total sales, respectively, compared to 37%, 24% and 28% of total sales for the quarter ended December 31, 2000. Sales to customers in other markets for the quarter ended December 31, 2001 was 9% of total sales, compared to 11% of the same period of last year. Approximately 34% of the Company's net sales for the quarter ended December 31, 2001 and 30% for the nine-month period ended December 31, 2001 were derived from international customers as compared to 38% and 40% of the same periods of last year. The decrease in international sales resulted from decreased shipments to our customers in Asia and Europe primarily due to the sharp decline of orders from contract manufacturers in Asia and telecommunications infrastructure customers in Europe. Gross Profit As a percent of sales, the Company's gross margin were 43% and 41% for the three-month and nine-month periods ended December 31, 2001, respectively, compared with 42% and 41% for the respective periods in the prior fiscal year. Rigorous cost reduction measures allowed the Company to quickly lower manufacturing expenditures to adjust to a much lower sales level thereby improving the gross profit percentage to sales. Several cost reduction measures were implemented, including the move of our production test operations from Sunnyvale, CA to Hong Kong, which is near completion. Gross profit was adversely affected by one-time charges associated with this move of approximately $472,000, consisting of approximately $65,000 for severance pay, $55,000 for equipment and product freight costs, and $352,000 for closure and startup costs which were expensed as incurred during the quarter ended December 31, 2001. This was offset by a credit of approximately $648,000 resulting from the reduction of an accrual related to miscellaneous vendor commitments. Research and Development (R&D) R&D expense decreased 15% to $2,581,000 for the quarter ended December 31, 2001 as compared to $3,054,000 for the same quarter of the prior year. The dollar decrease in R&D expense for the quarter ended December 31, 2001 is partly due to many new products being transferred to production status during the quarter. For the nine months ended December 31, 2001, research and development increased 7% to $8,558,000 from $7,996,000 for the same period last year. The increase in R&D expense is due to the Company's continued development efforts in new integrated circuits (ICs) to drive the optical micro-electro-mechanical systems (MEMS) and in network power interface circuits to drive photonic and gigabit Ethernet modules and voice over Internet Protocol (VoIP) telephone systems. The increase in R&D expenses included labor costs of $796,000 for additional headcount, offset by a reduction in miscellaneous expenses. Selling, General and Administrative (SG&A) SG&A was $1,803,000 or 13% of net sales for the quarter ended December 31, 2001 as compared with $2,568,000 or 13% of net sales in the same quarter of the prior year. For the nine months ended December 31, 2001, SG&A expense was $5,523,000 or 13% of net sales compared to $7,768,000 or 12% for the same period of the prior year. In absolute dollars, SG&A expense for the quarter decreased by $765,000, or 30% when compared to the same period of the prior year primarily due to a reduction of sales commissions of $189,000 attributed to lower sales and a drop in bad debt expense of $360,000. For the nine-month period, the reduction in SG&A expense of $2,245,000, or 29% when compared to the same period of the prior year was mainly due to a reduction in sales commissions of $529,000, a reduction in bad debt expense of $966,000, and a decrease in labor costs and related benefits of $423,000 due to a headcount reduction. Income from Operations Income from operations was $1,723,000, or 12% of net sales for the quarter ended December 31, 2001 compared to $2,787,000, or 14% of net sales for the quarter ended December 31, 2000. For the nine months ended December 31, 2001, income from operations was $3,654,000 or 8% of net sales, compared to $11,053,000 or 17% of net sales for the same period of the prior year. The decrease in operating income is attributable to lower sales. Interest and Other Income Interest and other income for the three and nine-month periods ended December 31, 2001, were $289,000 and $1,781,000, respectively. For the three and nine-month periods ended December 31, 2000, interest and other income were $512,000 and $2,250,000, respectively. The decrease in interest and other income compared with the same periods of prior fiscal year is primarily attributable to lower yields on cash deposit accounts combined with lower gains from sale of surplus equipment from the consolidation of our wafer fabrication facilities. Provision for Income Taxes The Company's effective tax rate for the three and nine-month periods ended December 31, 2001 remained unchanged at 34%. Liquidity and Capital Resources On December 31, 2001, the Company had $48,650,000 in cash and cash equivalents, compared with $44,282,000 on March 31, 2001. This increase is due primarily to a positive cash flow from operating activities of $7,731,000 consisting principally of net income of $3,587,000 and non-cash charges for depreciation and amortization of $2,927,000. Factors affecting cash flow from operating activities include (a) a decrease in accounts receivable of $1,348,000 with a corresponding reduction in the provision for doubtful accounts and sales returns of $1,005,000 largely due to lower sales; (b) a decrease in accounts payable and other accrued items of $2,384,000 due to a decrease in purchasing activities; (c) an increase in deferred revenue of $566,000, of which $388,000 is derived from a technology licensing agreement; and (d) an increase of 1,105,000 income tax payable. Net cash used in investing activities during the nine-month period was $4,062,000 of which $4,838,000 was used to purchase equipment for the wafer fab and testing operations offset in part by $627,000 provided by the proceeds from the sale of long-term investments in Galleon New Media Funds. Net cash provided by financing activities for the nine-month period was $699,000 generated by proceeds from the issuance of common stock through the exercise of employee stock options of $362,000, and by proceeds from the issuance of common stock through the Employee Stock Purchase Plan of $652,000. This amount was offset by our repurchase of 25,000 shares of common stock for $315,000 as authorized by the Company's Stock Repurchase Program. The Company anticipates that available funds and expected cash to be generated from operations will be sufficient to meet cash and working capital requirements through at least the next twelve months. Item 3. - Quantitative and Qualitative Disclosures About Market Risk and Interest Rate Risk. Interest Rate Sensitivity The Company may be exposed to financial market risks due primarily to changes in interest rates. The Company does not use derivatives to alter the interest characteristics of its investment securities. The Company has no holdings of derivative or commodity instruments. The fair value of the Company's investment portfolio or related income would not be significantly impacted by changes in interest rates since the investment maturities are short and the interest rates are primarily fixed. As of December 31,2001, the Company maintained its funds primarily in money market funds and it plans to continue to invest a significant portion of its existing cash in interest bearing money market funds and other short-term debt securities with maturities of less than a year. PART II - OTHER INFORMATION Item 1. - Legal Proceedings None Item 2. - Changes in Securities and Use of Proceeds None Item 3. - Defaults Upon Senior Securities None Item 4. - Submission of Matters to a Vote of Security Holders None Item 5. - Other Information None Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K No report on Form 8-K was filed during the quarter for which this Form 10-Q is filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUPERTEX, INC. (Registrant) Date: February 14, 2002 By: /s/ Henry C. Pao Henry C. Pao, Ph.D. President (Principal Executive and Financial Officer)