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UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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FORM 10-Q |
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(MARK ONE) |
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(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended June 30, 2012 |
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or |
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( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 (No Fee Required) |
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Commission File No. 0-12718 |
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SUPERTEX, INC. |
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(Exact name of Registrant as specified in its Charter) |
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California |
94-2328535 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification #) |
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1235 Bordeaux Drive |
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Sunnyvale, California 94089 |
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(Address of principal executive offices) |
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Registrant’s Telephone Number, Including Area Code: (408) 222-8888 |
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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 [ ] |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ] |
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Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Check one. Large accelerated filer [ ] Accelerated filer [ X ] Non-accelerated filer [ ] Smaller Reporting Company[ ] |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ] |
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. |
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Class |
Outstanding on August 3, 2012 |
Common Stock, no par value |
11,800,306 |
Exhibit index is on Page 35 |
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Total number of pages: 36 |
1
SUPERTEX, INC.
QUARTERLY REPORT - FORM 10Q
Table of Contents |
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Page No. |
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PART I – FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (Unaudited) |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
31 |
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Item 4. |
32 |
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PART II – OTHER INFORMATION |
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Item 1. |
33 |
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Item 1A. |
33 |
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Item 2. |
34 |
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Item 3. |
34 |
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Item 4. |
34 |
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Item 5. |
34 |
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Item 6. |
35 |
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36 |
2
PART I - FINANCIAL INFORMATION
SUPERTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
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Three Months Ended |
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June 30, 2012 |
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July 2, 2011 |
Net sales |
$ |
16,059 |
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$ |
18,058 |
Cost of sales |
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8,565 |
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8,992 |
Gross profit |
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7,494 |
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9,066 |
Research and development |
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3,486 |
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3,814 |
Selling, general and administrative |
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3,384 |
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3,251 |
Total operating expenses |
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6,870 |
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7,065 |
Income from operations |
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624 |
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2,001 |
Interest income |
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301 |
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252 |
Other (expense) income, net |
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(99) |
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116 |
Income before provision for income taxes |
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826 |
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2,369 |
Provision for income taxes |
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229 |
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|
700 |
Net income |
$ |
597 |
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$ |
1,669 |
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Net income per share |
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Basic |
$ |
0.05 |
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$ |
0.13 |
Diluted |
$ |
0.05 |
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$ |
0.13 |
Shares used in per share computation: |
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Basic |
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11,999 |
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12,755 |
Diluted |
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12,001 |
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12,777 |
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
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Three Months Ended |
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June 30, 2012 |
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July 2, 2011 |
Net income |
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$ |
597 |
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$ |
1,669 |
Other comprehensive income: |
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Unrealized gain on available-for-sale investments, net |
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406 |
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522 |
Tax benefit (provision) related to other comprehensive income |
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(142) |
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(185) |
Other comprehensive income, net of tax |
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264 |
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337 |
Comprehensive income |
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$ |
861 |
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$ |
2,006 |
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
4
SUPERTEX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
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June 30, 2012 |
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March 31, 2012 |
ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ |
13,415 |
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$ |
19,860 |
Short-term investments |
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134,258 |
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111,137 |
Trade accounts receivable, net |
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7,754 |
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8,021 |
Inventories |
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12,924 |
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14,438 |
Prepaid expenses and other current assets |
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6,914 |
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6,786 |
Prepaid income taxes |
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3,017 |
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3,032 |
Deferred income taxes |
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7,545 |
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7,529 |
Total current assets |
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185,827 |
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170,803 |
Long-term investments |
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13,600 |
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25,900 |
Property, plant and equipment, net |
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4,674 |
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4,941 |
Other assets |
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585 |
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|
621 |
Deferred income taxes, noncurrent |
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5,344 |
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5,375 |
Total assets |
$ |
210,030 |
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$ |
207,640 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities: |
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Trade accounts payable |
$ |
2,472 |
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$ |
1,994 |
Accrued salaries and employee benefits |
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12,170 |
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12,434 |
Other accrued liabilities |
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610 |
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615 |
Deferred revenue |
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2,600 |
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2,560 |
Income taxes payable |
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234 |
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23 |
Total current liabilities |
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18,086 |
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17,626 |
Income taxes payable, noncurrent |
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4,148 |
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4,161 |
Deferred tax liabilities, noncurrent |
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127 |
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- |
Other accrued liabilities, noncurrent |
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564 |
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561 |
Total liabilities |
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22,925 |
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22,348 |
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Commitments and contingencies (Note 9) |
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Shareholders’ Equity: |
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Preferred stock, no par value -- 10,000 shares authorized; none issued and outstanding |
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- |
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- |
Common stock, no par value -- 30,000 shares authorized; issued and outstanding 12,004 shares as of June 30, 2012 and 11,992 shares as of March 31, 2012 |
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69,060 |
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68,031 |
Accumulated other comprehensive loss |
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(1,081) |
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(1,345) |
Retained earnings |
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119,126 |
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118,606 |
Total shareholders’ equity |
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187,105 |
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185,292 |
Total liabilities and shareholders’ equity |
$ |
210,030 |
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$ |
207,640 |
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
5
SUPERTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
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Three Months Ended |
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June 30, 2012 |
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July 2, 2011 |
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(As Revised) |
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
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$ |
597 |
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$ |
1,669 |
Non-cash adjustments to net income: |
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Depreciation and amortization |
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358 |
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|
498 |
Provision for doubtful accounts and sales returns |
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|
130 |
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|
51 |
Provision for excess and obsolete inventories |
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156 |
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|
958 |
Deferred income taxes |
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(127) |
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(13) |
Stock-based compensation |
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|
745 |
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|
593 |
Tax benefit related to stock-based compensation plans |
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7 |
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- |
Unrealized loss (gain) from short-term investments, categorized as trading |
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|
97 |
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(99) |
Amortization of premium on short-term investments |
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|
597 |
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|
946 |
Changes in operating assets and liabilities: |
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Trade accounts receivable |
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137 |
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(927) |
Inventories |
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1,358 |
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|
73 |
Prepaid expenses and other assets |
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(92) |
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|
451 |
Prepaid income taxes |
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15 |
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(152) |
Trade accounts payable and accrued expenses |
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|
165 |
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|
1,059 |
Deferred revenue |
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40 |
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|
84 |
Income taxes payable |
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|
325 |
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(1,834) |
Net cash provided by operating activities |
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4,508 |
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|
3,357 |
CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property, plant and equipment |
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(43) |
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(408) |
Purchases of investments |
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(49,624) |
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(58,787) |
Sales of investments |
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6,398 |
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24,189 |
Maturities and redemptions of investments |
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32,117 |
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45,558 |
Net cash (used in) provided by investing activities |
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(11,152) |
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|
10,552 |
CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from exercise of stock options and employee stock purchase plan |
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312 |
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|
266 |
Stock repurchases |
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(113) |
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(3,179) |
Net cash provided by (used in) financing activities |
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|
199 |
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(2,913) |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
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(6,445) |
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10,996 |
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CASH AND CASH EQUIVALENTS: |
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Beginning of period |
|
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19,860 |
|
|
23,962 |
End of period |
|
$ |
13,415 |
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$ |
34,958 |
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Supplemental cash flow disclosures: |
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Income taxes paid, net of refunds |
|
|
7 |
|
|
2,599 |
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
6
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 – Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Supertex, Inc. (“Supertex,” the “Company,” “we,” and “us”) and its subsidiary have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America. This financial information reflects all adjustments, which are, in the opinion of the Company’s management, of normal recurring nature and necessary to state fairly the balance sheet as of June 30, 2012; the statements of income for the three months ended June 30, 2012 and July 2, 2011; the statements of comprehensive income for the three months ended June 30, 2012 and July 2, 2011; and the statements of cash flows for the three months ended June 30, 2012 and July 2, 2011. The March 31, 2012 balance sheet was derived from the audited financial statements included in the fiscal 2012 Annual Report on Form 10-K, but does not include all disclosures required by GAAP in the United States of America. All significant intercompany transactions and balances have been eliminated.
The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in these financial statements have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements of Supertex, Inc. for the fiscal year ended March 31, 2012, which were included in the fiscal 2012 Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures 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. The results of operations for the three months ended June 30, 2012 are not necessarily indicative of the results to be expected for any future periods.
The Company reports on a fiscal year basis and it operates and reports based on quarterly periods ending on the Saturday nearest to the end of the applicable calendar quarter, except in a 53-week fiscal year, in which case the additional week falls into the fourth quarter of the fiscal year. Fiscal 2013 will be a 52-week year. The three months ended June 30, 2012 and July 2, 2011, both consist of thirteen weeks.
7
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
Revision to previously issued financial statements
The condensed consolidated statements of cash flows for the period ended July 2, 2011 has been revised as previously reported in Footnote 1 of the quarterly report on Form 10-Q for the period ended December 31, 2011.
Recent Accounting Pronouncements
In June 2011, Financial Accounting Standard Board (“FASB”) issued new authoritative guidance regarding Presentation of Comprehensive Income. This amendment attempts to improve comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. In order to facilitate convergence with International Financial Reporting Standards (“IFRS”), FASB has decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. Also, this amendment requires that all non-owner changes in stockholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. This amendment is effective for annual periods beginning after December 15, 2011 and interim periods within these years (the fiscal quarter ending June 30, 2012 for the Company) and is applied retrospectively. On October 21, 2011, the FASB proposed a deferral of the requirement to present reclassifications of other comprehensive income on the face of the income statement. Companies would still be required to adopt all other requirements contained in the guidance. The adoption of these amended standards affected the presentation of other comprehensive income, as the Company has elected to present two separate but consecutive statements, but did not have an effect on our financial position or results of operations.
Note 2 – Fair Value
The Company measures its cash equivalents, short-term investments and long-term investments at fair value. Fair value is defined as the price that would be received from selling an asset and paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
A three-tiered fair value hierarchy has been established as the basis for considering the above assumptions and determining the inputs used in the valuation methodologies in measuring fair values. The three levels of inputs are defined as follows:
Level 1 – Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 – Observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets.
Level 3 – Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.
8
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. If a financial instrument uses an input that is significant to the fair value calculation, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The Company’s financial assets and liabilities measured at fair value on a recurring basis include cash equivalents and investment securities, both short-term and long-term.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities.
The Company’s money market investments, certificates of deposit purchased directly from the bank, and Non-Qualified Deferred Compensation (NQDCP) assets and liabilities are valued using Level 1 inputs. Fixed income available-for-sale portfolio, mainly consisting of municipal bonds, US government agency bonds, corporate bonds and certificates of deposits bought in the secondary market, are valued using Level 2 inputs.
The Company’s long-term investments consist entirely of auction rate securities (“ARS”), which are collateralized by student loans. Of its two ARS holdings, the credit rating of one with a par value of $12,800,000 was reduced to AA+ by S&P in February 2012 and to A with a negative outlook by Fitch in June 2012. The other ARS investment with a par value of $2,500,000 still holds an AAA or Aaa credit rating, which have not been reduced as of or subsequent to June 30, 2012. Due to the lack of availability of observable market quotes for the Company’s investment portfolio of these ARS, the fair value was estimated based on a discounted cash flow model using Level 3 inputs. The assumptions used in the discounted cash flow model include estimates for interest rates, timing and amounts of cash flows, liquidity of the underlying security, expected holding periods, and contractual terms of the security. In light of the current market condition for ARS, the Company developed different scenarios for the significant inputs used in the discounted cash flow model, including but not limited to a liquidity discount of 125 and 150 basis points per year for the current ARS market, and the timing of recovery of the ARS market from three to five years. The Company concluded that the fair value of those of its ARS which were classified as level 3 assets was $13,600,000 as of June 30, 2012 net of a temporary impairment of $1,700,000 to par value.
The Company also considered the quality, amount of collateral, and US government guarantee for the ARS and looked to other marketplace transactions and information received from other third party brokers in order to assess whether the fair value based on the discounted cash flow model is reasonable. The valuation of the Company’s investment portfolio is subject to uncertainties that are difficult to predict. Factors that may affect the Company’s valuation include changes to credit ratings of the securities as well as the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral values, discount rates, counterparty risk and ongoing strength, and quality of market credit and liquidity. Significant inputs to the investment valuations are unobservable in the active markets and therefore the Company’s ARS are classified as Level 3 in the hierarchy.
9
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
The following tables summarize assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and March 31, 2012, excluding accrued interest (in thousands):
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June 30, 2012 |
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Fair value measurements |
Assets |
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Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Money market funds |
|
$ |
8,005 | (1) |
$ |
- |
|
$ |
- |
|
$ |
8,005 |
Municipal bonds |
|
|
- |
|
|
46,443 |
|
|
- |
|
|
46,443 |
Corporate bonds |
|
|
- |
|
|
41,375 |
|
|
- |
|
|
41,375 |
Government agency bonds |
|
|
- |
|
|
29,657 |
|
|
- |
|
|
29,657 |
Certificate of deposits |
|
|
3,000 |
|
|
5,167 |
|
|
- |
|
|
8,167 |
Equity mutual funds related to NQDCP |
|
|
8,616 |
|
|
- |
|
|
- |
|
|
8,616 |
Long-term investments in ARS |
|
|
- |
|
|
- |
|
|
13,600 |
|
|
13,600 |
Total assets at fair value |
|
$ |
19,621 |
|
$ |
122,642 |
|
$ |
13,600 |
|
$ |
155,863 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Obligation related to NQDCP |
|
$ |
8,616 |
|
$ |
- |
|
$ |
- |
|
$ |
8,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
||||||||||
|
|
Fair value measurements |
||||||||||
Assets |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Money market funds |
|
$ |
16,453 | (1) |
$ |
- |
|
$ |
- |
|
$ |
16,453 |
Municipal bonds |
|
|
- |
|
|
32,268 |
|
|
- |
|
|
32,268 |
Corporate bonds |
|
|
- |
|
|
36,947 |
|
|
- |
|
|
36,947 |
Government agency bonds |
|
|
- |
|
|
26,010 |
|
|
- |
|
|
26,010 |
Certificate of deposits |
|
|
3,000 |
|
|
4,262 |
|
|
- |
|
|
7,262 |
Equity mutual funds related to NQDCP |
|
|
8,650 |
|
|
- |
|
|
- |
|
|
8,650 |
Long-term investments in ARS |
|
|
- |
|
|
- |
|
|
25,900 |
|
|
25,900 |
Total assets at fair value |
|
$ |
28,103 |
|
$ |
99,487 |
|
$ |
25,900 |
|
$ |
153,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Obligation related to NQDCP |
|
$ |
8,650 |
|
$ |
- |
|
$ |
- |
|
$ |
8,650 |
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|
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|
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_________________________
(1) | The money market funds of $8,005,000 and $16,453,000 were classified as cash equivalents as of June 30, 2012 and March 31, 2012, respectively. |
10
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
There were no significant transfers between Level 1 and Level 2 during the three months ended June 30, 2012 or July 2, 2011. The following table includes the activity for Auction Rate Securities that are classified as Level 3 of the valuation hierarchy (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, 2012 |
|
July 2, 2011 |
Beginning balance of ARS classified as Level 3 |
|
$ |
25,900 |
|
$ |
30,200 |
Total unrealized gains included in other comprehensive income |
|
|
450 |
|
|
400 |
Redemptions of investments in ARS |
|
|
(12,750) |
|
|
(2,400) |
Ending balance of ARS classified as Level 3 |
|
$ |
13,600 |
|
$ |
28,200 |
The Company recognizes transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual event or change in circumstances that caused the transfer occurs.
During the three months ended June 30, 2012, the Company received $12,750,000 relating to ARS with a carrying value at the time of $11,772,000 redeemed at par value. See Note 3 for further discussion of the Company’s ARS.
Note 3 – Cash and Cash Equivalents and Investments
The Company’s cash equivalents consist primarily of investments in money market funds as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
March 31, 2012 |
||
Cash |
$ |
5,410 |
|
$ |
3,407 |
Cash equivalents: |
|
|
|
|
|
Money market funds |
|
8,005 |
|
|
16,453 |
Total cash and cash equivalents |
$ |
13,415 |
|
$ |
19,860 |
11
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
The Company’s portfolio of short-term and long-term investments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Carrying |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity mutual funds related to NQDCP |
|
$ |
8,616 |
|
$ |
- |
|
$ |
- |
|
$ |
8,616 |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
46,438 |
|
|
60 |
|
|
(55) |
|
|
46,443 |
Corporate bonds |
|
|
41,364 |
|
|
68 |
|
|
(57) |
|
|
41,375 |
Government agency bonds |
|
|
29,633 |
|
|
36 |
|
|
(12) |
|
|
29,657 |
Certificates of deposits |
|
|
8,177 |
|
|
3 |
|
|
(13) |
|
|
8,167 |
Total short-term investments |
|
$ |
134,228 |
|
$ |
167 |
|
$ |
(137) |
|
$ |
134,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for sale securities |
|
$ |
15,300 |
|
$ |
- |
|
$ |
(1,700) |
|
$ |
13,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Carrying |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
|
|
|
|
|
|
|
|
|
|
|
Equity mutual funds related to NQDCP |
|
$ |
8,650 |
|
$ |
- |
|
$ |
- |
|
$ |
8,650 |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
32,250 |
|
|
39 |
|
|
(21) |
|
|
32,268 |
Corporate bonds |
|
|
36,912 |
|
|
68 |
|
|
(33) |
|
|
36,947 |
Government agency bonds |
|
|
25,984 |
|
|
33 |
|
|
(7) |
|
|
26,010 |
Certificates of deposits |
|
|
7,267 |
|
|
4 |
|
|
(9) |
|
|
7,262 |
Total short-term investments |
|
$ |
111,063 |
|
$ |
144 |
|
$ |
(70) |
|
$ |
111,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for sale securities |
|
$ |
28,050 |
|
$ |
- |
|
$ |
(2,150) |
|
$ |
25,900 |
12
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
The Company’s short-term and long-term investments by contractual maturity are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
March 31, 2012 |
Short-term investment: |
|
|
|
|
|
Trading securities: |
|
|
|
|
|
Due in one year or less |
$ |
8,616 |
|
$ |
8,650 |
Available-for-sale securities: |
|
|
|
|
|
Due in 12 months or less |
|
58,873 |
|
|
62,504 |
Due in 12 to 24 months |
|
27,394 |
|
|
29,903 |
Due in 24 to 36 months |
|
15,033 |
|
|
2,682 |
Due in 36 to 49 months |
|
24,342 |
|
|
7,398 |
Total short-term investments |
$ |
134,258 |
|
$ |
111,137 |
Long-term investment: |
|
|
|
|
|
Available-for-sale securities at fair value: |
|
|
|
|
|
Due after ten years |
$ |
13,600 |
|
$ |
25,900 |
Total long-term investments |
$ |
13,600 |
|
$ |
25,900 |
Short-term investments classified as trading securities consisted entirely of investments in mutual funds held by the Company’s Non-Qualified Deferred Compensation Plan (“NQDCP”). Unrealized gains (losses) on trading securities are recorded in the Condensed Consolidated Statement of Income. Unrealized loss on trading securities was $97,000 for the three months ended June 30, 2012 compared to a gain of $99,000 for the same period of the prior fiscal year.
The Company’s available-for-sale portfolio as of June 30, 2012 was comprised of municipal bonds, corporate bonds, government agency bonds, certificates of deposits and ARS. Unrealized gains (losses) on available-for-sale securities are recorded in other comprehensive income as increases (declines) in fair values and are considered to be temporary.
During the three months ended June 30, 2012, the Company disposed of short-term available-for-sale securities totaling $25,765,000 at par, compared to $67,347,000 for the same period of the prior fiscal year. The realized gains and losses of these transactions were immaterial.
The Company’s ARS have contractual maturities between 25 and 29 years. They are in the form of auction rate bonds whose interest rates had historically been reset every thirty-five days through an auction process. At the end of each reset period, investors could sell or continue to hold the securities at par. These ARS held by the Company are backed by pools of student loans and are primarily guaranteed by the U.S. Department of Education, although the credit rating of one ARS with a par value of $12,800,000 was reduced to AA+ by S&P in February 2012 and to A with a negative outlook by Fitch in June 2012.
ARS with a par value of $15,300,000, whose carrying value was $13,600,000, were classified as non-current assets and were presented as long-term investments on the Company’s balance sheet as of June 30, 2012.
The Company has concluded that the decline in fair value of the ARS investments as of June 30, 2012 is considered to be temporary in part due to the following:
· | these investments are of investment grade credit quality and a significant portion of them are
13
SUPERTEX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) (unaudited)
collateralized and are guaranteed by the U.S. Department of Education; |
· | as of June 30, 2012, there have been no defaults on the ARS held by the Company; |
· | of the two ARS holdings, the credit rating of one with a par value of $12,800,000 was reduced to AA+ by S&P in February 2012 and to A with a negative outlook by Fitch in June 2012. The other ARS investment still holds a AAA or Aaa credit rating, which has not been reduced as of or subsequent to June 30, 2012. |
· | the Company has the intent and ability to hold these investments until the anticipated recovery in market value occurs or they are redeemed at par value; and |
· | to the extent the Company’s ARS have been redeemed, they were redeemed at par value. The Company received ARS redemptions at par value of $4,700,000, $36,450,000 and $19,250,000, all at par value in fiscal years 2012, 2011 and 2010, respectively. Additionally, during the three months ended June 30, 2012, two of its ARS were fully or partially redeemed at par value for $12,750,000. |
If uncertainties in the credit and capital markets continue or these markets deteriorate further, the Company may incur additional temporary impairment to its ARS holdings. The Company will continue to monitor its ARS holdings and may be required to record an impairment charge through the income statement if the decline in fair value is determined to be other-than-temporary or the credit quality of its ARS holdings declines.
Note 4 – Inventories
The Company’s inventories consist of high technology semiconductor devices and integrated circuits that are specialized in nature, subject to rapid technological obsolescence, and sold in a highly competitive industry. Inventory balances at the end of each period are stated at the lower of cost (determined on a first-in, first-out basis) or net realizable value.
Inventories consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
March 31, 2012 |
Raw materials |
|
$ |
626 |
|
$ |
936 |
Work-in-process |
|
|
7,728 |
|
|
8,221 |
Finished goods |
|
|
3,406 |
|
|
4,195 |
Finished goods at distributors and on consignment |
|
|
1,164 |
|
|
1,086 |
Total Inventories |
|
$ |
12,924 |
|
$ |
14,438 |
The Company wrote down excess and obsolete inventory totaling $156,000 for the three months ended June 30, 2012 compared to $958,000 for the same period of the prior fiscal year. The Company sold previously written-down inventory of $345,000 for the three months ended June 30, 2012. For the same period of the prior fiscal year, such sales were $295,000.
14
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
Note 5 - Comprehensive Income
As of June 30, 2012, the total unrealized loss on available-for-sale investments amounted to $1,670,000, which was recorded in accumulated other comprehensive loss, net of tax of $589,000. As of July 2, 2011, the total unrealized loss on available-for-sale investments amounted to $2,074,000, which was recorded in accumulated other comprehensive loss, net of tax of $729,000.
Note 6 - Stock-Based Compensation
The employee stock-based compensation expense for the three months ended June 30, 2012 was $745,000 compared to $593,000 for the same period of the prior fiscal year.
The Company granted no stock options during the three months ended June 30, 2012. For the same period of the prior fiscal year, the Company granted options with an estimated grant date fair value of $931,000. As of June 30, 2012, the unrecorded stock-based compensation related to stock options was $4,826,000 (net of estimated forfeitures) and will be recognized over an estimated weighted average amortization period of approximately 1.8 years.
The Company’s shareholders approved the adoption of the 2001 Stock Option Plan (the “2001 Plan”) and the reservation of 2,000,000 shares of common stock for issuance under 2001 Plan at the August 17, 2001 annual meeting of shareholders. Options granted under the 2001 Plan were granted at the fair market value of the Company’s common stock on the date of grant and generally expired seven years from the date of grant or thirty days after termination of service, whichever occurs first. The options generally were exercisable beginning one year from date of grant and generally vest ratably over a five-year period. On August 24, 2006, the Company’s board of directors approved a change in grant policy of the 2001 Plan to only grant non-statutory stock options to better align the Company’s compensation plan to employee incentives and to Company objectives. On August 17, 2007, the Company’s board of directors approved that all future stock option grants would have a ten-year term, which is within the guidelines of the Company’s 2001 Plan, subject to earlier expiration thirty days after termination of service. As of August 14, 2009, no further options may be granted under the 2001 Plan.
The Company’s shareholders approved the adoption of the 2009 Equity Incentive Plan (the “2009 Plan”) at the August 14, 2009 annual meeting for shareholders. Under the 2009 Plan, the total number of shares of Company common stock reserved for issuance consists of 1,000,000 shares plus (1) the 159,509 shares which remained authorized for issuance under the 2001 Plan but which were not subject to outstanding stock awards as of August 14, 2009, and (2) those of the 1,440,400 shares, subject to stock awards outstanding under the 2001 Plan as of August 14, 2009, that terminate prior to exercise and would otherwise be returned to the share reserves under the 2001 Plan, with the total shares in addition to the 1,000,000 shares thus being up to a maximum of 1,599,909 shares. The 2009 Plan allows the Company to continue its prior option practices under the 2001 Plan to grant non-statutory options to key employees with an exercise price equal to the fair market value of the Company’s stock on the date of grant. The Company’s options typically have a term of ten years and vest in 20% installments on each of the first five anniversaries of the date of grant. The 2009 Plan also provides the Company with the flexibility in designing equity incentives, including restricted stock awards, stock appreciation rights, restricted stock unit awards, performance stock awards, and performance cash awards.
15
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
The following table summarizes the activities under the 2001 and 2009 Plans for the three months ended June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Available for Grant |
|
Number of Shares |
|
|
Weighted Average Exercise Price |
Balance, March 31, 2012 |
|
677,429 |
|
1,677,962 |
|
$ |
26.49 |
Granted |
|
- |
|
- |
|
|
|
Exercised |
|
- |
|
(14,320) |
|
|
17.39 |
Canceled |
|
26,800 |
|
(26,800) |
|
|
25.25 |
Balance, June 30, 2012 |
|
704,229 |
|
1,636,842 |
|
$ |
26.59 |
The weighted average fair value of options, as determined under the authoritative guidance for stock compensation, granted under the 2009 Plan during the three months ended July 2, 2011 was $8.10 per share. The Company did not grant stock options during the three months ended June 30, 2012. The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the option on the date of the exercise) during the three months ended June 30, 2012 was $26,000. During the three months ended June 30, 2012, the amount of cash received from employees as a result of employee stock option exercises was $249,000.
The options outstanding and exercisable as of June 30, 2012, under the 2001 and 2009 Plans are in the following exercise price ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
Range of Exercise Prices |
|
Number Outstanding |
|
Weighted-Average Remaining Contractual Life (Years) |
|
|
Weighted-Average Exercise Price |
|
Number Outstanding |
|
|
Weighted-Average Exercise Price |
$ |
18.46 |
- |
$ |
19.99 |
|
243,400.00 |
|
9.22 |
|
$ |
19.31 |
|
6,000 |
|
$ |
19.51 |
|
20.00 |
- |
|
24.99 |
|
605,302.00 |
|
7.25 |
|
|
21.39 |
|
278,458 |
|
|
21.16 |
|
25.00 |
- |
|
29.99 |
|
313,380.00 |
|
6.32 |
|
|
27.03 |
|
202,452 |
|
|
26.92 |
|
30.00 |
- |
|
34.99 |
|
233,060.00 |
|
2.46 |
|
|
33.77 |
|
215,760 |
|
|
33.76 |
|
35.00 |
- |
|
39.99 |
|
90,800.00 |
|
4.96 |
|
|
35.83 |
|
76,640 |
|
|
35.83 |
|
40.00 |
- |
|
44.99 |
|
132,900.00 |
|
1.33 |
|
|
40.90 |
|
132,900 |
|
|
40.90 |
|
45.00 |
- |
|
46.92 |
|
18,000.00 |
|
1.42 |
|
|
46.92 |
|
18,000 |
|
|
46.92 |
$ |
18.46 |
- |
$ |
46.92 |
|
1,636,842.00 |
|
6.01 |
|
$ |
26.59 |
|
930,210 |
|
$ |
29.85 |
16
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
Options outstanding and options exercisable had no intrinsic value as of June 30, 2012.
2000 Employee Stock Purchase Plan (“ESPP”). Under the ESPP, eligible employees may elect to withhold up to 20% of their cash compensation to purchase shares of the Company’s common stock at a price equal to 95% of the market value of the stock at the time of purchase, which is at the end of the six-month offering period. An eligible employee may purchase no more than 500 shares during any six-month offering period. For the three months ended June 30, 2012, the amount of cash received from employees as a result of ESPP purchases was $63,000 compared to $89,000 for the same period of the prior fiscal year.
Note 7 – Income Taxes
The provision for income taxes for the three months ended June 30, 2012 was $229,000 on income before tax of $826,000 at the effective tax rate of 28% compared to a provision for income taxes of $700,000 on income before tax of $2,369,000 at the effective tax rate of 30% in the first quarter of the prior fiscal year. The year-over-year quarterly change in estimated effective tax rate was primarily due to a higher percentage of the estimated pre-tax profit applying to a lower tax bracket in fiscal 2013 compared to the estimated pre-tax profit for 2012 at the same time last year and due to a higher tax rate in the first quarter of fiscal 2012 resulting from recording a reserve for an uncertain tax position.
The income tax provision for interim periods reflects the Company’s computed estimated annual effective tax rate and differs from the taxes computed at the federal and state statutory rates primarily due to the effects of foreign rate differentials, R&D tax credits, domestic manufacturing tax deduction, non-deductible stock-based compensation expense, tax exempt interest income and tax contingencies.
During the three months ended June 30, 2012, the liability for uncertain income tax positions excluding accrued interest and penalties increased from $3,661,000 to $3,664,000. Of the total $3,664,000 of unrecognized tax benefits, $2,847,000 represents the amount that, if recognized, would favorably affect the Company’s effective income tax rate in a future period. The Company cannot conclude on the range of cash payments that will be made within the next twelve months associated with its uncertain tax positions.
The Company records interest and penalties related to unrecognized tax benefits in income tax expense. On June 30, 2012, the Company had approximately $478,000 accrued for estimated interest and $152,000 for estimated penalties related to uncertain tax positions. For the three months ended June 30, 2012, the Company recorded a reduction of estimated interest of $16,000 and estimated penalties of $1,000.
The balance of unrecognized income tax benefits, including accrued interest and accrued penalties on June 30, 2012, was approximately $1,706,000 related to tax positions for which it is reasonably possible that the statute of limitations will expire in various jurisdictions within the next twelve months.
The Company’s major tax jurisdictions are the United States federal, State of California and Hong Kong and the Company’s income tax returns are no longer subject to examination by these taxing authorities for fiscal years before 2002.
17
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
Note 8 - 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 that may be issued through stock options and ESPP only, since the Company does not have warrants or any other convertible securities outstanding. 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 |
|
|
|
June 30, 2012 |
|
|
July 2, 2011 |
BASIC: |
|
|
|
|
|
|
Net income |
|
$ |
597 |
|
$ |
1,669 |
Weighted average shares outstanding for the period |
|
|
11,999 |
|
|
12,755 |
Net income per share |
|
$ |
0.05 |
|
$ |
0.13 |
|
|
|
|
|
|
|
DILUTED: |
|
|
|
|
|
|
Net income |
|
$ |
597 |
|
$ |
1,669 |
Weighted average shares outstanding for the period |
|
|
11,999 |
|
|
12,755 |
Effect of dilutive securities: stock options and ESPP |
|
|
2 |
|
|
22 |
Total |
|
|
12,001 |
|
|
12,777 |
Net income per share |
|
$ |
0.05 |
|
$ |
0.13 |
Options to purchase 1,656,126 shares of the Company’s common stock at an average price of $26.57 per share for the three months ended June 30, 2012 were outstanding but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.
For the three months ended July 2, 2011, options to purchase 1,351,271 shares of the Company’s common stock at an average price of $28.26 per share were outstanding but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.
Note 9 – Commitments and Contingencies
Indemnification
As is customary in the Company’s industry, the Company has agreed to defend certain customers, distributors, suppliers, and subcontractors against certain claims which third parties may assert that its products allegedly infringe on certain of their intellectual property rights, including patents, trademarks, trade secrets, or copyrights. The Company has agreed to pay certain amounts of any resulting damage awards and typically has the option to replace any infringing product with non-infringing product. The terms of these indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Company’s potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements. To date, the Company has not paid any damage awards nor has it been required to defend any claims related to its indemnification obligations, and accordingly, it has not accrued any amounts for indemnification obligations. However, there can be no assurance that the Company will not have any financial exposure under those indemnification obligations in the future.
18
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
Legal Proceedings
From time to time the Company is subject to possible claims or assessments from third parties arising in the normal course of business. Management has reviewed such possible claims and assessments with the Company’s outside legal counsel and believes that it is unlikely that they will result in any material adverse effect on the Company’s financial condition, results of operations, or cash flows. The Company is not currently involved in any legal proceeding that it believes will materially and adversely affect its business, financial condition, results of operations or cash flows.
Product Return and Warranty Reserves
The Company’s standard policy is to accept the return of defective parts for credit from non-distributor customers for a period of 90 days from date of shipment. This period may be extended in certain cases. The Company records estimated product returns as a reduction to revenue in the same period as the related revenues are recorded. These estimates are based on historical experience, analysis of outstanding returned material authorizations and allowance authorization data.
The reductions to revenue for estimated product returns for the three months ended June 30, 2012 and July 2, 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Balance at Beginning of Period |
|
Charge(1) |
|
Deductions and Other |
|
Balance at End of Period |
Three months ended June 30, 2012 |
|
$ |
213 |
|
$ |
134 |
|
$ |
(8) |
|
$ |
339 |
Three months ended July 2, 2011 |
|
$ |
234 |
|
$ |
24 |
|
$ |
(43) |
|
$ |
215 |
___________________
(1) Represent amounts charged to the allowance for sales returns.
While the Company’s sales returns are historically within the allowance established, it cannot guarantee that it will continue to experience the same return rates that it has had in the past. Any significant increase in product failure rates and the resulting sales returns could have a material adverse effect on the operating results for the period or periods in which such returns materialize.
For sales through distributors, the Company’s policy is to replace under warranty defective products at its own expense for a period of 90 days from date of shipment. This period may be extended in certain cases. This liability is limited to replacement of the product along with freight and delivery costs. In certain cases, the Company may pay for rework.
The Company reserves for estimated warranty costs in the same period as the related revenues are recorded. The estimate is based on historical expenses and is recorded as cost of sales. The warranty reserve was $51,000 as of June 30, 2012. Such amount was $45,000 as of March 31, 2012.
19
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
Operating Lease Obligations
The Company’s future minimum lease payments under non-cancelable operating leases as of June 30, 2012 are as follows (in thousands):
|
|
|
|
|
|
|
|
Payment Due by Fiscal Year |
|
Operating Lease |
2013 |
|
$ |
615 |
2014 |
|
|
709 |
2015 |
|
|
671 |
2016 |
|
|
662 |
2017 |
|
|
55 |
|
|
$ |
2,712 |
The Company leases facilities under non-cancelable lease agreements expiring at various times through April 2016. Rental expense for the three months ended June 30, 2012 amounted to $281,000 compared to $288,000 for the same period of last fiscal year.
Note 10 – Common Stock Repurchase
Stock repurchase activities for the three months ended June 30, 2012 and July 2, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, 2012 |
|
July 2, 2011 |
Number of shares repurchased |
|
|
6,000 |
|
|
151,000 |
Cost of shares repurchased |
|
$ |
113,000 |
|
$ |
3,179,000 |
Average price per share |
|
$ |
17.97 |
|
$ |
21.04 |
In January 2011, the Board of Directors designated $60,000,000 of its cash, cash equivalents and investments for a major stock repurchase during the period from January 2011 through March 2013, and accordingly, increased the Company’s share repurchase program from approximately 556,000 shares to 2,500,000 shares. The amended repurchase program has no expiration date except when an aggregate of 2,500,000 shares have been repurchased, either in the open market or through private transactions. Under this program, cumulatively the Company had repurchased approximately 1,180,000 shares for $23,519,000 as of June 30, 2012.
Since the inception of the Company’s initial share repurchase program in 1992 through June 30, 2012, the Company has repurchased a total of approximately 3,524,000 shares of the common stock for an aggregate cost of $60,070,000 under its share repurchase programs. Upon their repurchase, shares are restored to the status of authorized but unissued shares. As of June 30, 2012, there were approximately 1,320,000 shares authorized for future repurchase under the Company’s current repurchase program.
Subsequent to June 30, 2012, the Company has repurchased an additional 226,000 shares for $3,846,000 as of August 7, 2012.
20
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(unaudited)
Note 11 – Segment Information
The Company operates in one reportable segment comprising the design, development, manufacturing and marketing of high voltage semiconductor devices including analog and mixed signal integrated circuits. The Company’s chief operating decision maker, who is currently the Company’s chief executive officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.
The Company’s principal markets are in Asia, the United States, and Europe. Below is a summary of sales by major geographic area for the three months ended June 30, 2012 and July 2, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Net Sales |
|
|
June 30, 2012 |
|
|
July 2, 2011 |
United States |
|
$ |
5,379 |
|
$ |
6,181 |
China |
|
|
3,838 |
|
|
4,935 |
Asia (excluding China and Singapore) |
|
|
2,927 |
|
|
2,532 |
Singapore |
|
|
2,012 |
|
|
2,592 |
Europe |
|
|
1,743 |
|
|
1,708 |
Other |
|
|
160 |
|
|
110 |
Net Sales |
|
$ |
16,059 |
|
$ |
18,058 |
Net property, plant and equipment by country as of June 30, 2012 and March 31, 2012 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012 |
|
March 31, 2012 |
United States |
|
$ |
3,836 |
|
$ |
4,019 |
Hong Kong |
|
|
838 |
|
|
922 |
Property, plant and equipment, net |
|
$ |
4,674 |
|
$ |
4,941 |
Note 12 – Significant Customers
The Company sells its products to OEMs through its direct sales and marketing personnel, and through its independent sales representatives and distributors. Revenue from sales to distributors and the related cost of sales are recognized only upon resale to end-user customers, that is on a sell-through basis.
A major medical equipment company and a commercial printer manufacturer each accounted for approximately 11% of net sales for the three months ended June 30, 2012. Nearly all of the sales to these two customers were through distributors and contract manufacturers. Also, a distributor accounted for approximately 11% of net sales for the three months ended June 30, 2012.
There were no other customers that the Company believes accounted for more than 10% of the Company’s net sales for the three months ended June 30, 2012 and July 2, 2011.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this Report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. You are urged to carefully review and consider the various disclosures we made in this Report and in other reports filed with the SEC, including the annual report on Form 10-K for the fiscal year ended March 31, 2012.
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 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. Examples of the kinds of forward-looking statements in this report include statements regarding the following: (1) our expectation that through the introduction of our new integrated solutions along with our discrete building block product offerings, we will continue to be a major player in the medical ultrasound market and that the recent sales volatility is due to general economic conditions and due to low channel inventory levels; (2) our belief that there are significant growth opportunities for the medical ultrasound market in China and India; ((3) our belief that sales of LED driver ICs for general lighting will grow as they are designed in new lighting applications; (4) our belief that R&D expenses as a percentage of net sales may fluctuate from quarter to quarter; (5) our expectation that we will spend approximately $4,300,000 for capital acquisitions in fiscal 2013; (6) our belief that existing cash and cash equivalents and short-term investments together with cash flow from operations will be sufficient to meet our liquidity and capital requirements through the next twelve months; (7) our belief that we have substantial production capacity in place to handle our forecasted business in fiscal 2013 and 2014; (8) our belief that the credit quality of the auction-rate securities (“ARS”) we hold is high and our expectation that we will receive the full principal associated with these ARS; (9) our belief that the auction failures of our ARS will not materially impact our ability to fund our working capital needs, capital expenditures, or other business requirements; (10) our belief that the estimated range of fair values of our ARS is appropriate; (11) our lack of intention to sell our ARS securities below par value and our view that it is more likely than not that we will not be required to sell our ARS securities until their value returns to par; (12) our belief that the declines in our ARS fair values due to the lack of liquidity are temporary and the credit risk of default or not redeeming at par is very low; (13) our belief that the credit rating of our ARS would remain relatively high following any decline in the credit rating of U.S. government obligations; (14) our belief that our exposure to foreign currency risk is relatively small; and (15) our belief that it is unlikely that any legal claims will result in a material adverse effect on our financial position, results of operations or cash flows.
These statements are only predictions, are not guarantees of future performance, and are 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 material adverse changes in the demand for our customer’s products in which the Company’s products are used; that competition to supply semiconductor devices in the markets in which the Company competes increases and causes price erosion; that demand does not materialize and increase for recently released customer products incorporating the Company’s products; that we have delays in developing and releasing into production our planned new products; that there could be unexpected manufacturing issues as production ramps up; that the demand for the Company’s products or results of its product development changes such that it would be unwise not to decrease research and development; that the IRS will determine that more US income was realized than the Company claimed or that fewer expenses were allowable; that some of the Company’s equipment will be unexpectedly damaged or become obsolete, thereby
22
requiring replacement; and that Federal deficit issues will not result in substantial reductions to the credit rating of U.S. government obligations which in turn would materially affect our auction rate securities; as well as those described in "Factors Which May Affect Operating Results" under Item 1A of Part I , “Risk Factors” in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2012. The information included in this Form 10-Q is provided as of the filing date with the SEC and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, the readers are cautioned not to place undue reliance on such statements. The Company undertakes no obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
Critical Accounting Policies
Our critical accounting policies are those that both (1) are most important to the portrayal of the financial condition and results of operations and (2) require management’s most difficult, subjective, or complex judgments, often requiring estimates about matters that are inherently uncertain. There have been no material changes from the methodology applied by management for critical accounting estimates previously disclosed in our fiscal 2011 Annual Report on Form 10-K.
Overview
We design, develop, manufacture, and market integrated circuits (“ICs”) and application specific discrete DMOS transistors, utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies. We are an industry leader in certain high voltage ICs (HVCMOS and HVBiCMOS) which take advantage of the best features of CMOS, bipolar and DMOS technologies and integrate them into the same IC. These ICs are used for medical ultrasound imaging, LED backlighting for LCD TVs and computer monitors, LED general lighting, telecommunications, printer, flat panel display, industrial and consumer product industries. We also offer custom processing services using customer-owned designs and mask tooling with our process technologies. Our current growth strategy relies on our ability to continuously and successfully introduce and market new innovative products that meet our customers’ requirements.
Results of Operations
Net Sales
We operate in one reportable segment comprising the design, development, manufacturing and marketing of high voltage semiconductor devices including analog and mixed signal ICs and specialty double-diffused metal oxide semiconductor (“DMOS”) transistors. We have a broad customer base, which in some cases manufactures electronic end products and equipment spanning multiple markets. As such, the assignment of revenue to the markets described in the overview above requires the use of estimates, judgment, and extrapolation. Actual results may differ slightly from those reported here. During the first fiscal quarter of 2012 we reviewed our assignment of products to markets and made minor adjustments to the market assignment for certain DMOS products. Additionally, we renamed the “imaging” market “EL/printers” to avoid confusion with the medical imaging market.
Net sales for the three months ended June 30, 2012 were $16,059,000, an 11% decrease compared to $18,058,000 for the same period of the prior fiscal year and a 2% decrease sequentially. These year-over-year and sequential decreases were primarily due to decreases in sales of our analog switches and high voltage pulser ICs and chipsets for medical ultrasound products, LED driver ICs for backlighting LCD TVs, and industrial and other products. Partially offsetting these reductions were higher sales of optical MEMS drivers and printer head ICs.
23
The table below shows our estimate of the breakdown of net sales by end market for the three months ended June 30, 2012, July 2, 2011 and March 31, 2012, as well as year-over-year and sequential percentage changes (in thousands except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Net Sales |
June 30, 2012 |
|
March 31, 2012 |
|
July 2, 2011 |
|
Sequential Change |
|
Year-Over-Year Change |
Medical Electronics |
$ |
5,492 |
|
$ |
6,983 |
|
$ |
7,053 |
|
-21% |
|
-22% |
EL/Printers |
|
5,184 |
|
|
4,457 |
|
|
4,665 |
|
16% |
|
11% |
Industrial/Other |
|
2,438 |
|
|
2,586 |
|
|
3,528 |
|
-6% |
|
-31% |
Telecom |
|
1,596 |
|
|
871 |
|
|
1,020 |
|
83% |
|
56% |
LED Lighting |
|
1,349 |
|
|
1,554 |
|
|
1,792 |
|
-13% |
|
-25% |
Net Sales |
$ |
16,059 |
|
$ |
16,451 |
|
$ |
18,058 |
|
-2% |
|
-11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Net Sales |
|
June 30, 2012 |
|
March 31, 2012 |
|
July 2, 2011 |
Medical Electronics |
|
34% |
|
43% |
|
39% |
EL/Printers |
|
32% |
|
27% |
|
26% |
Industrial/Other |
|
15% |
|
16% |
|
19% |
Telecom |
|
10% |
|
5% |
|
6% |
LED Lighting |
|
9% |
|
9% |
|
10% |
Net Sales |
|
100% |
|
100% |
|
100% |
Our medical electronics product family, primarily for ultrasound imaging, accounted for the largest sales of all of our five markets for the three months ended June 30, 2012, March 31, 2012 and July 2, 2011. Sales to that market for the three months ended June 30, 2012 decreased 22% and 21%, respectively, compared to same period of the prior fiscal year and sequentially due to decreased sales of our analog switches and high voltage pulser ICs and chipsets.
Sales to this market for the past six quarters have been characterized by alternating quarters of significantly increased or decreased sales sequentially, with the exception of the second quarter of fiscal 2012. Sales in the first quarter of fiscal 2013 were on a down cycle, while sales of the same quarter last fiscal year were on an up cycle. We believe the volatility is primarily due to our end customers’ fluctuating sales due to changing general economic conditions and due to low channel inventory levels.
In recent years, the overall ultrasound market has been shifting from big console systems to transportable and hand-held ultrasound imaging units, which has driven the ultrasound imaging market growth along with product upgrades for cart-wheel consoles and large stationary systems. Because of space and power constraints, there are more requirements for integration, and with our high voltage IC technology we have been among the most qualified to support these requirements. Geographically, the imaging equipment market is expanding very rapidly in China and India. Traditionally, OEMs in the United States, Germany, and Japan have been the main developers and manufacturers of medical ultrasound imaging machines to whom we have sold our products successfully. Companies in those regions continue to grow and develop new machines although most of them have moved their operations to Asia to reduce cost. Today we see significant opportunities with Chinese and Korean medical ultrasound imaging machine companies. We are expanding our product development activities
24
and product offerings to capitalize on these exciting market growth opportunities. Through the introduction of our new integrated solutions complemented by our discrete transistor and array building block product offerings, we believe we will continue to be a major player in this business.
Sales of our product offerings for the EL/printers market, which consist of EL inverter ICs, commercial printing ICs, display ICs and custom processing services, for the three months ended June 30, 2012 were 11% higher compared to the same period in the last fiscal year and 16% higher sequentially. These increases were primarily due to greater shipments of commercial printing ICs and custom processing services. Additionally, sales of drivers to an OLED market manufacturing application were higher than the same period last year but lower sequentially.
Sales in the industrial and other markets for the three months ended June 30, 2012 decreased 31% when compared to the same period in the prior fiscal year and were 6% lower sequentially. The year-over-year quarterly reduction is due to reduced sales of products for an ATE application and for various products for a broad set of applications. The sequential decline was due to lower custom processing services sales.
The year-over-year quarterly sales decline of LED driver ICs of 25% resulted primarily from a very soft TV market. Sequentially, total LED driver IC sales decreased by 13% due primarily to lower shipments to a computer monitor application. We believe that sales of LED driver ICs for general lighting will grow as our new products are being designed into new lighting applications.
Sales to the telecom market for the three months ended June 30, 2012 increased 56% compared to the same period of the prior fiscal year and 83% sequentially primarily due to higher unit shipments of high voltage driver ICs for optical MEMS applications.
Our principal markets are in Asia, the U.S., and Europe. Sales by geographic regions as well as year-over-year and sequential percentage changes were as follows, where international sales include sales to U.S. based customers if the products are delivered to their contract manufacturers outside the U.S. (in thousands except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Net Sales |
|
|
June 30, 2012 |
|
|
March 31, 2012 |
|
|
July 2, 2011 |
|
Sequential Change |
|
Year-Over-Year Change |
United States |
|
$ |
5,379 |
|
$ |
6,061 |
|
$ |
6,181 |
|
-11% |
|
-13% |
China |
|
|
3,838 |
|
|
3,749 |
|
|
4,935 |
|
2% |
|
-22% |
Asia (excluding China and Singapore) |
|
|
2,927 |
|
|
2,834 |
|
|
2,532 |
|
3% |
|
16% |
Singapore |
|
|
2,012 |
|
|
1,880 |
|
|
2,592 |
|
7% |
|
-22% |
Europe |
|
|
1,743 |
|
|
1,861 |
|
|
1,708 |
|
-6% |
|
2% |
Other |
|
|
160 |
|
|
66 |
|
|
110 |
|
142% |
|
45% |
Net Sales |
|
$ |
16,059 |
|
$ |
16,451 |
|
$ |
18,058 |
|
-2% |
|
-11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Sales |
|
$ |
10,680 |
|
$ |
10,390 |
|
$ |
11,877 |
|
3% |
|
-10% |
Domestic Sales |
|
|
5,379 |
|
|
6,061 |
|
|
6,181 |
|
-11% |
|
-13% |
Net Sales |
|
$ |
16,059 |
|
$ |
16,451 |
|
$ |
18,058 |
|
-2% |
|
-11% |
Total net sales to international customers for the three months ended June 30, 2012 compared to the same period last year decreased 10% primarily due to reduced sales of our analog switches and high voltage pulser ICs and
25
chipsets for medical ultrasound products, LED driver ICs for backlighting LCD TVs, and industrial and other products. Partially offsetting these reductions were higher sales of printer head ICs. Compared to the prior quarter, total net sales to international customers increased 3% primarily due to higher sales of printer head ICs. Total net sales to domestic customers for the three months ended June 30, 2012 decreased 13% compared to the same period of the prior fiscal year and 11% sequentially primarily due to lower unit shipments of medical ultrasound products.
Our assets are primarily located in the United States and Hong Kong.
Cost of Sales and Gross Profit
Gross profit represents net sales less cost of sales. Cost of sales includes the cost of raw silicon wafers; the costs associated with assembly, packaging, test, quality assurance and product yields; the cost of personnel, facilities and depreciation on equipment for manufacturing and its support; and charges for excess or obsolete inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
(Dollars in thousands) |
|
June 30, 2012 |
|
March 31, 2012 |
|
July 2, 2011 |
Gross Margin Percentage |
|
|
47% |
|
|
47% |
|
|
50% |
Included in Gross Margin Percentage Above: |
|
|
|
|
|
|
|
|
|
Gross Margin Benefit from Cost of Previously Written Down Inventory Sold |
|
$ |
345 |
|
$ |
401 |
|
$ |
$ 295
|
Percentage of Net Sales |
|
|
2% |
|
|
2% |
|
|
2% |
Gross profit for the three months ended June 30, 2012 was $7,494,000 and compared to $7,728,000 and $9,066,000, respectively, for the prior quarter and for the same period of the prior fiscal year. As a percentage of net sales, gross margin was 47% for the three months ended June 30, 2012 compared to 47% and 50%, respectively, for the prior quarter and for the same period of the prior fiscal year. The year-over-year quarterly decreases in gross profit and gross margin were primarily attributable to decreased sales resulting in lower fab utilization, partially offset by a decrease in charges for excess and obsolete inventory. During the first quarter of fiscal 2013 we increased our wafer fab capacity utilization to 50% from 35% in the prior quarter, however the product sold in the first quarter of fiscal 2013 was built in previous quarters when FAB utilization was lower, and therefore product cost was higher than the product built in the first quarter of fiscal 2013, which will be shipped in future quarters.
We wrote down excess and obsolete inventory totaling $156,000 for the three months ended June 30, 2012 compared to$1,721,000 for the prior quarter and $958,000 for the same period of the prior fiscal year.
Research and Development (“R&D”) Expenses
R&D expenses include payroll and benefits, development costs, and depreciation. We also expense prototype wafers and mask sets related to new product development as R&D expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
(Dollars in thousands) |
|
June 30, 2012 |
|
March 31, 2012 |
|
July 2, 2011 |
|
Sequential Change |
|
Year-Over-Year Change |
R&D Expenses |
|
$ |
3,486 |
|
$ |
3,885 |
|
$ |
3,814 |
|
-10% |
|
-9% |
Percentage of Net Sales |
|
|
22% |
|
|
24% |
|
|
21% |
|
|
|
|
26
The quarterly year-over-year decrease of $328,000 was due primarily to a decrease in the cost of development wafer processing. The sequential decrease of $399,000 was primarily due to reduced expense of $281,000 related to our Non-Qualified Deferred Compensation Plan (“NQDCP”) as the assets in the NQDCP decreased in fair market value by $69,000 compared to an increase in fair market value of $213,000 last year. An increase or decrease in the fair value of our NDQCP assets corresponds to an increase or decrease in the NDQCP liability. To recognize the increase or decrease in the NDQCP plan assets, we record the difference in fair value to other income (expense) net. Correspondingly, to recognize the increase or decrease in the NDQCP liability, we record the difference to other benefits expense, as the investments are beneficially owned by employees in various departments.
Some aspects of our R&D efforts require significant short-term expenditures. As such, timing of such expenditures may cause fluctuations in our R&D expenses, which, as a percentage of net sales, may fluctuate from quarter to quarter.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses consist primarily of employee related expenses, commissions to sales representatives, occupancy expenses including expenses associated with our regional sales offices, cost of advertising and publications, and outside professional services such as legal, auditing and tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
(Dollars in thousands) |
|
|
June 30, 2012 |
|
|
March 31, 2012 |
|
|
July 2, 2011 |
|
Sequential Change |
|
Year-Over-Year Change |
SG&A Expenses |
|
$ |
3,384 |
|
$ |
3,614 |
|
$ |
3,251 |
|
-6% |
|
4% |
Percentage of Net Sales |
|
|
21% |
|
|
22% |
|
|
18% |
|
|
|
|
The year-over-year quarterly increase of $133,000 was primarily due to higher professional services expense due to timing of the work performed. The sequential decrease of $230,000 was primarily due to lower NQDCP expense of $265,000 as the assets in the NQDCP decreased in fair market value by $2,000 compared to an increase in fair market value of $263,000 for the prior quarter.
Interest Income and Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
(Dollars in thousands) |
|
|
June 30, 2012 |
|
|
March 31, 2012 |
|
|
July 2, 2011 |
|
Sequential Change |
|
Year-Over-Year Change |
Interest Income |
|
$ |
301 |
|
$ |
262 |
|
$ |
252 |
|
15% |
|
19% |
Other (Expense) Income, Net |
|
|
(99) |
|
|
575 |
|
|
116 |
|
-117% |
|
-185% |
Total Interest and Other Income, Net |
|
$ |
202 |
|
$ |
837 |
|
$ |
368 |
|
-76% |
|
-45% |
Percentage of Net Sales |
|
|
1% |
|
|
5% |
|
|
2% |
|
|
|
|
Interest income consists primarily of interest income from our cash, cash equivalents and short-term and long-term investments. For the three months ended June 30, 2012, interest income increased $49,000 and $39,000, respectively, compared to the same period of the prior fiscal year and for the prior quarter. These increases
27
resulted from higher investment yields due to longer average maturities and the sequential increase also resulted from a higher cash balance.
Other income (expense), net, consists of changes in the fair market value of investments held by our NQDCP, sales of fixed assets, foreign exchange gains and losses and other miscellaneous income and expense items. Other expense, net for the first fiscal quarter was $99,000 compared to income of $116,000 for the same period last year, or an increase of $215,000 primarily due to a decrease in fair market value of our NQDCP of $97,000 whereas it had increased $99,000 last year. Sequentially, the increase was $674,000 and resulted primarily from an increase of $659,000 in fair value of our NQDCP asset of $562,000 in the prior quarter compared to a decrease of $97,000 in the first quarter of fiscal 2013.
Provision for Income Taxes
The income tax provision for the interim period represents federal, state and foreign taxes and reflects our computed estimated annual effective tax rate. The tax provision differs from the taxes computed at the federal and state statutory rates primarily due to the effect of foreign rate differentials, R&D tax credits, domestic manufacturing tax deduction, non-deductible stock-based compensation expense, tax exempt interest income and tax contingencies.
The income tax provision for the three months ended June 30, 2012 was $229,000 on profit before tax of $826,000 at the effective tax rate of 28% compared to an income tax benefit of $207,000 on income before tax of $1,066,000 at the effective tax benefit rate of 19% for the prior quarter, and an income tax provision of $700,000 on income before tax of $2,369,000 at the effective tax rate of 30% in the first quarter of the prior fiscal year. The year-over-year quarterly change in estimated effective tax rate was primarily due to a higher percentage of the estimated pre-tax profit applying to a lower tax bracket in fiscal 2013 compared to the estimated pre-tax profit for 2012 profit at the same time last fiscal year and due to a higher tax rate in the first quarter of fiscal 2012 resulting from recording a reserve for an uncertain tax position. The sequential tax rate difference is primarily due to an expiration of a statute of limitations on an uncertain position in the fourth quarter of fiscal 2012 and changes in where we expect our income and losses to be generated this year between our US and Hong Kong entities which have different tax rates.
We maintain liabilities for uncertain tax positions within our income taxes payable account. The determination of the liability amount involves considerable judgment and estimation, and is continuously monitored by management, based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.
Financial Condition
Overview
We ended the first quarter of fiscal 2013 with $161,273,000 in cash, cash equivalents, short-term and long-term investments. This represents an increase of $4,376,000 when compared with the amount of $156,897,000 as of March 31, 2012 resulting from cash provided by operating activities of $4,508,000. Working capital is defined as current assets less current liabilities. As of June 30, 2012, working capital was $167,741,000, an increase of $14,564,000 from $153,177,000 as of March 31, 2012. The increase in working capital was primarily the result of auction rate security redemptions of $12,750,000 and cash provided by operating activities of $4,508,000.
Since we announced the twenty-six month $60 million stock repurchase program at the end of January 2011, as of August 7, 2012, we have repurchased approximately 1,406,000 shares for $27,365,000.
28
Liquidity and Capital Resources
In summary, our cash flows are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, 2012 |
|
|
July 2, 2011 |
Net cash provided by operating activities |
|
$ |
4,508 |
|
$ |
3,357 |
Net cash (used in) provided by investing activities |
|
|
(11,152) |
|
|
10,552 |
Net cash provided by (used in) financing activities |
|
|
199 |
|
|
(2,913) |
Net (decrease) increase in cash and cash equivalents |
|
$ |
(6,445) |
|
$ |
10,996 |
Operating Activities
Net cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. For the three months ended June 30, 2012, net cash provided by operating activities was $4,508,000 compared to $3,357,000 for the same period of the prior fiscal year. The increase of $1,151,000 resulted from an increase in changes in assets and liabilities of $1,948,000 compared to a decrease last year of $1,246,000, partially offset by lower net income after non-cash adjustments of $2,043,000. These lower net income after non-cash adjustments were primarily due to lower net income of $1,072,000 and a decrease in the provision for excess and obsolete inventory resulting from lower inventory balances compared to last year. Also contributing to the lower non-cash adjustments was a lower amortization of premium paid on our short-term investments. The increase from changes in assets and liabilities was primarily due to an increase in income taxes payable compared to a decrease last year and due to reduced inventories as products with relatively high unit costs were shipped in the quarter.
Investing Activities
Investing cash flows consist typically of capital expenditures and purchases of short-term and long-term investments, partially offset by sales, maturities and redemptions of short-term and long-term investments. Net cash used in investing activities for the three months ended June 30, 2012 was $11,152,000 compared to net cash provided of $10,552,000 for the same period last fiscal year. This difference of $21,704,000 was primarily due to decreased sales and maturities of short-term investments of $31,232,000, partially offset by decreased purchases of investments of $9,163,000. We expect to spend approximately $4,300,000 for capital acquisitions in fiscal 2013, of which we have spent $43,000 during the first three months of fiscal 2013. We believe that we have substantial production capacity in place to handle our forecasted business for the remainder of fiscal 2013 and fiscal 2014. We also believe that existing cash and cash equivalents and short-term investments together with cash flow from operations will be sufficient to meet our liquidity and capital requirements through the next twelve months.
Our investment portfolio is primarily comprised of corporate bonds, municipal bonds, government agency bonds, discount notes, certificates of deposits, and ARS.
As further described in Note 3, auction failures of our ARS have limited our ability to liquidate them to date at par value, and may continue to limit our ability to liquidate them at par value for some period of time. However, we do not believe the auction failures will materially impact our ability to fund our working capital needs, capital expenditures, or other business requirements. As of June 30, 2012, we had approximately $167,741,000 of working capital, including approximately $147,673,000 of cash, cash equivalents, and short-term investments, and we have generated positive cash from our operations every quarter over the past 20 years.
29
Financing Activities
Financing cash flows consists primarily of proceeds from the exercise of stock options under the 2001 and 2009 Plans and sale of stock through the ESPP, stock repurchased under our previously announced stock repurchase plan, and reclassification of non-cash excess tax benefit from operating into financing activities as required by authoritative guidance for stock compensation. Net cash provided by financing activities for the three months ended June 30, 2012 was $199,000 due to proceeds from the exercise of stock options granted under the 2001 and 2009 Plans and stock purchases under the ESPP of $312,000 less repurchases of $113,000. Net cash used in financing activities for the three months ended July 2, 2011 was $2,913,000 due to repurchases of our shares in the open market, partially offset by the proceeds from the exercise of stock options granted under the 2001 and 2009 Plans and stock purchases under the ESPP of $266,000.
Off-Balance Sheet Arrangements
We do not have nor have we ever had any off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our financial condition, sales, expenses, results of operations, liquidity, capital expenditures, or capital resources. See Note 9, “Commitments and Contingencies” regarding our indemnification agreements.
Contractual Obligations
We purchase products from a variety of suppliers and use several contract assemblers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help assure adequate material supplies at low cost, we may enter into agreements with contract assemblers and suppliers which commit us to a minimum purchase over a specified time period at a negotiated low price. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being released. Consequently, only a portion of our reported purchase commitments arising from these agreements are firm, non-cancelable, and unconditional commitments.
The following table summarizes our significant contractual cash obligations as of December 31, 2011, which consist of operating facility lease obligations and purchase obligations as described above, and the effects such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in Fiscal Years |
||||||||||||||||
Contractual Obligations |
|
Total |
|
2013 (remaining 9 months) |
|
2014 |
|
2015 |
|
2016 |
|
2017 | ||||||
Operating lease obligations (1) |
|
$ |
2,712 |
|
$ |
615 |
|
$ |
709 |
|
$ |
671 |
|
$ |
662 |
|
$ |
55 |
Purchase obligations |
|
|
4,224 |
|
|
3,012 |
|
|
491 |
|
|
675 |
|
|
22 |
|
|
24 |
Total contractual cash obligations |
|
$ |
6,936 |
|
$ |
3,627 |
|
$ |
1,200 |
|
$ |
1,346 |
|
$ |
684 |
|
$ |
79 |
______________________________
_____________
(1) We lease facilities under non-cancelable lease agreements expiring at various times through April 2016. Rental expense for the three months ended June 30, 2012 amounted to $281,000 compared to $288,000 for the same period of the prior fiscal year.
As of June 30, 2012, our liability for uncertain tax positions, net of offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes, interest deductions, and other receivables, was $2,847,000. As of June 30, 2012, we have accrued $478,000 of interest and $152,000 of penalties associated with our uncertain tax positions. We did not include these obligations in the table above as
30
we cannot determine the exact amount or timing of such cash payments that would be made associated with these uncertain tax positions.
Recent Accounting Pronouncements
In June 2011, Financial Accounting Standard Board (“FASB”) issued new authoritative guidance regarding Presentation of Comprehensive Income. This amendment attempts to improve comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. In order to facilitate convergence with International Financial Reporting Standards (“IFRS”), FASB has decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. Also, this amendment requires that all non-owner changes in stockholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. This amendment is effective for annual periods beginning after December 15, 2011 and interim periods within these fiscal years (the fiscal quarter ending June 30, 2012 for us) and is applied retrospectively. On October 21, 2011, the FASB proposed a deferral of the requirement to present reclassifications of other comprehensive income on the face of the income statement. Companies would still be required to adopt all other requirements contained in the guidance. The adoption of these amended standards affected the presentation of other comprehensive income, as we have elected to present two separate but consecutive statements, but did not have an effect on our financial position or results of operations.
Available Information
We file electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments, if any, to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The SEC maintains an Internet site at http://www.sec.gov that contains these reports, proxy and information statements and other information regarding Supertex, Inc. We make available free of charge and through our Internet website at www.supertex.com copies of these reports as soon as reasonably practicable after filing or furnishing the information to the SEC. Copies of such documents may be requested by contacting our Investor Relations department at (408) 222-8888 ext. 4295.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to financial market risks due primarily to changes in interest rates. We do not use derivatives to alter the interest characteristics of the investment securities. We have no holdings of derivative or commodity instruments. Our investment portfolio is comprised of corporate bonds, municipal bonds, government agency bonds, discount notes, certificates of deposits and ARS. During the three months ended June 30, 2012, investments and cash and cash equivalents generated interest income of $301,000 compared to $252,000 for the same period of the prior fiscal year. Based on the par value of our investments (excluding the fair market value of our NQDCP) and cash and cash equivalent balances as of June 30, 2012, a one-percentage point change in interest rates would cause a change in our quarterly interest income by approximately $386,000.
As of June 30, 2012, we had no long-term debt outstanding.
Our ARS are in the form of auction rate bonds whose interest rates were reset every thirty-five days through an auction process. ARS are subject to the risk that the secondary market might fail to provide the liquidity opportunity at the rate reset points. This risk, which we encountered with regard to our ARS beginning February 2008, manifests itself in sponsoring broker-dealers withdrawing from the auction process that provides the rate reset and liquidity. We believe the declines in our ARS fair value due to the lack of liquidity are temporary. In
31
the event we need to access the funds associated with failed auctions, they are not expected to be available until one of the following occurs: a successful auction occurs, the issuer redeems the issue, a buyer is found outside of the auction process, or the underlying security has matured. As of June 30, 2012, our ARS had a total par value of $15,300,000 and contractual maturities between 25 and 29 years.
Due to the temporary impairment in value of our ARS, we recorded an unrealized loss of $1,700,000 to their par value as of June 30, 2012, which decreased from $2,150,000 as of March 31, 2012, primarily because of additional redemptions of our ARS at par value during three months ended June 30, 2012.
The ARS we hold are backed by student loans and are primarily guaranteed by the US Department of Education. In addition, all the ARS we hold are rated by the major independent rating agencies as AAA or AA+/A with a negative outlook, which are investment grades. As a result, we believe the credit risk of default or not redeeming at par is very low.
If the issuer of the ARS is unable to successfully close future auctions or does not redeem the ARS, or the US government fails to support its guaranty of its obligations, or the credit quality of these ARS declines, we may be required to further adjust the carrying value of these ARS and record other-than-temporary impairment charges in future periods, which could materially affect our financial condition. However, we expect that we will receive the principal associated with these ARS through one of the means described above. Based on our ARS holdings specifically as of June 30, 2012, a one-percentage point change in interest rates would cause a change in our quarterly interest income by approximately $38,000.
Foreign Currency Exchange Risks
We do not hedge any potential risk from any foreign currency exposure. With our operations in Hong Kong, we may be exposed to an adverse change in the exchange rate of the Hong Kong dollar which is traditionally pegged to the U.S. dollar. We believe that our exposure is relatively small, thus we do not employ hedging techniques designed to mitigate fluctuations in this exchange rate. However, we could experience unanticipated currency gains or losses if the Hong Kong dollar ceases to be pegged to the U.S. dollar. As the level of activity at our Hong Kong operation changes over time, actual currency gains or losses could have an adverse effect to our consolidated financial statements.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures.
Disclosure Controls and Procedures: Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, including, without limitation, that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures.
Limitations on the Effectiveness of Disclosure Controls: In designing and evaluating our disclosure controls and procedures, we recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, we necessarily were required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the
32
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Evaluation of Disclosure Controls and Procedures: Our chief executive officer and chief financial officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of June 30, 2012, and have determined that they are effective at the reasonable assurance level.
(b) Internal Control over Financial Reporting.
Our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) is designed to provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with GAAP. There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect such control.
From time to time, we are subject to possible claims or assessments from third parties arising in the normal course of business. We have reviewed such possible claims and assessments with outside legal counsel and believe that it is unlikely that they will result in a material adverse effect on our financial position, results of operations or cash flows.
There have been no material changes to the risk factors disclosed in Item 1A of Part I of our Form 10-K for the fiscal year ended March 31, 2012, filed on June 13, 2012, which risk factors are hereby incorporated by reference, except as described in the last paragraph under the heading “Interest Rate Risk” in Part I, Item 3 of this Form 10-Q.
33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following is a summary of share purchase activities by us during the three months ended June 30, 2012. There was no purchase activity during that period by an “affiliated purchaser” of ours as defined in Rule 10b-18(a)(3).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased (1) |
|
Average Price Paid per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
|
Maximum Number of Shares that May yet be Purchased Under the Plans or Programs |
4/1/12 – 4/28/12 |
|
1,269 |
|
$ 18.01
|
|
1,269 |
|
1,324,898 |
4/29/12 – 5/26/12 |
|
- |
|
|
|
- |
|
1,324,898 |
5/27/12 – 6/30/12 |
|
5,036 |
|
17.96 |
|
5,036 |
|
1,319,862 |
Total |
|
6,305 |
|
$ 17.97
|
|
6,305 |
|
|
_________________________________
|
|
(1) |
Our current share repurchase program, under which we repurchased these 6,305 shares during the three months ended June 30, 2012, has been in place since 1999. Although we publicly announced the most recent 1,944,145 share program increase, we are not certain but do not believe we publicly announced this program at its inception, although our financial statements have reflected purchases from time to time under this program. These 6,305 shares were purchased in open market transactions. |
(2) |
We adopted a share repurchase program in 1992 authorizing the repurchase of 1,000,000 shares. The board of directors terminated this program in 1999 after 938,000 shares had been repurchased and adopted a share repurchase program authorizing the repurchase of 900,000 shares plus the 62,000 shares authorized for repurchase under the 1992 program whose repurchase had not been affected. As described in footnote (1), we are not certain but do not believe that we publicly announced the inception of the 1999 repurchase program. On January 30, 2008, and January 21, 2011, the board of directors amended the 1999 repurchase program to add 1,000,000 and 1,944,145 shares, respectively. The 1999 repurchase program has no expiration date, other than, unless extended, when all of the shares in the program have been repurchased. As of June 30, 2012, there were 1,319,862, shares remaining in the 1999 repurchase program. Neither this program nor any other repurchase program or plan has expired during the three months ended June 30, 2012 nor have we decided to terminate any repurchase plan or program prior to expiration. There are no existing repurchase plans or programs under which we do not intend to make further purchases. |
We have had share repurchase programs in place since 1992 under which our board of directors authorized us to repurchase an aggregate of 4,844,145 shares.
Since the inception of these repurchase programs in 1992 through June 30, 2012, we have repurchased a total of 3,524,283 shares of the common stock for an aggregate cost of approximately $60,070,000. Upon their repurchase, shares are restored to the status of authorized but unissued shares. As of June 30, 2012, there were 1,319,862 shares authorized for future repurchase under our current program.
Item 3. Defaults Upon Senior Securities
None
34
None
Exhibit 31.1 & 31.2 - Certification of Chief Executive Officer and of Chief Financial Officer pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 & 32.2 - Certification of Chief Executive Officer and of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
35
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.
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|
SUPERTEX, INC. |
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|
|
(Registrant) |
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|
Dated: August 9, 2012 |
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|
|
By: /s/PHILLIP A. KAGEL |
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|
|
Phillip A. Kagel |
|
|
|
Vice President, Finance and Chief Financial Officer |
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|
|
(Principal Financial and Accounting Officer) |
36
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Exhibit 31.1
Certifications Under Rule 13a-14(a)/l5d-14(a)
I, Henry C. Pao, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Supertex, Inc., a California corporation;
2.Based on my knowledge, this quarterly 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 quarterly report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
4.The registrant’s other certifying officer 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 I 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 me by others within those entities, particularly during the period in which this quarterly 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 GAAP;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(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 registrant’s ability to record, process, summarize, and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/HENRY C. PAO |
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Henry C. Pao, Ph.D. |
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President & Chief Executive Officer |
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|
|
(Principal Executive Officer) |
Exhibit 31.2
Certifications Under Rule 13a-14(a)/l5d-14(a)
I, Phillip A. Kagel, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Supertex, Inc., a California corporation;
2.Based on my knowledge, this quarterly 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 quarterly report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
4.The registrant’s other certifying officer 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 I 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 me by others within those entities, particularly during the period in which this quarterly 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 GAAP;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(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 registrant’s ability to record, process, summarize, and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/PHILLIP A. KAGEL |
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Phillip A. Kagel |
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Vice President, Finance and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32.1
Statement of Chief Executive Officer under 18 U.S.C. § 1350
I, Henry C. Pao, the chief executive officer of Supertex, Inc., a California corporation (the “Company”), certify pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, that to my knowledge:
(i) the quarterly report of the Company on Form 10-Q for the period ended June 30, 2012 , as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), whichever is applicable, of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
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/s/HENRY C. PAO |
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Henry C. Pao, Ph.D. |
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President & Chief Executive Officer |
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|
|
(Principal Executive Officer) |
The material contained in this Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
Statement of Chief Financial Officer under 18 U.S.C. § 1350
I, Phillip A. Kagel, the chief financial officer of Supertex, Inc., a California corporation (the “Company”), certify pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, that to my knowledge:
(i) the quarterly report of the Company on Form 10-Q for the period ended June 30, 2012, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), whichever is applicable, of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
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Dated: August 9, 2012 |
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/s/PHILLIP A. KAGEL |
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Phillip A. Kagel |
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Vice President, Finance and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
The material contained in this Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.
Income Taxes (Details) (USD $)
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3 Months Ended | ||
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Jun. 30, 2012
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Jul. 02, 2011
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Mar. 31, 2012
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Income Taxes [Abstract] | |||
(Benefit from) provision for income taxes | $ 229,000 | $ 700,000 | |
Income before provision for income taxes | 826,000 | 2,369,000 | |
Effective income tax rate | 28.00% | 30.00% | |
Unrecognized tax benefits | 3,664,000 | 3,661,000 | |
Unrecognized tax benefits that would affect income tax rate | 2,847,000 | ||
Accrued income tax interest | 478,000 | ||
Accrued income tax penalties | 152,000 | ||
Income tax interest | 16,000 | ||
Income tax penalties | 1,000 | ||
Unrecognized tax benefits reasonably possible to expire in the next twelve months | $ 1,706,000 |
Cash And Cash Equivalents And Investments (Schedule Of Investments By Contractual Maturity) (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
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Mar. 31, 2012
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Cash and Cash Equivalents and Investments [Abstract] | ||
Trading securities, due in one year or less | $ 8,616 | $ 8,650 |
Due in 12 months or less | 58,873 | 62,504 |
Due in 12 months to 24 months | 27,394 | 29,903 |
Due in 24 months to 36 months | 15,033 | 2,682 |
Due in 36 months to 49 months | 24,342 | 7,398 |
Short-term investments | 134,258 | 111,137 |
Available for sale securities, due after ten years | 13,600 | 25,900 |
Long-term investments | $ 13,600 | $ 25,900 |
Common Stock Repurchase (Tables)
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3 Months Ended |
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Jun. 30, 2012
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Common Stock Repurchase [Abstract] | |
Schedule Of Stock Repurchase Activity |
Commitments And Contingencies (Schedule Of Operating Lease Obligations) (Details) (USD $)
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3 Months Ended | |
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Jun. 30, 2012
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Jul. 02, 2011
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Commitments and Contingencies [Abstract] | ||
2013 | $ 615,000 | |
2014 | 709,000 | |
2015 | 671,000 | |
2016 | 662,000 | |
2017 | 55,000 | |
Operating lease payments due, total | 2,712,000 | |
Operating Leases, Rent Expense | $ 281,000 | $ 288,000 |
Stock-Based Compensation (Schedule Of Stock Option Activity) (Details) (USD $)
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3 Months Ended |
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Jun. 30, 2012
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Share-based Compensation [Abstract] | |
Beg balance, Options outstanding | 1,677,962 |
Options exercised | (14,320) |
Options canceled | 26,800 |
End balance, Options outstanding | 1,636,842 |
Beg balance, options outstanding weighted average exercise price | $ 26.49 |
Exercised, weighted average exercise price | $ 17.39 |
Canceled, weighted average exercise price | $ 25.25 |
End balance, options outstanding weighted average exercise price | $ 26.59 |
Beg Balance, available for grant | 677,429 |
Options cancelled | 26,800 |
End Balance, available for grant | 704,229 |
Cash and Cash Equivalents and Investments
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Jun. 30, 2012
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Cash and Cash Equivalents and Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents and Investments | Note 3 – Cash and Cash Equivalents and Investments The Company’s cash equivalents consist primarily of investments in money market funds as follows (in thousands):
The Company’s portfolio of short-term and long-term investments is as follows (in thousands):
The Company’s short-term and long-term investments by contractual maturity are as follows (in thousands):
Short-term investments classified as trading securities consisted entirely of investments in mutual funds held by the Company’s Non-Qualified Deferred Compensation Plan (“NQDCP”). Unrealized gains (losses) on trading securities are recorded in the Condensed Consolidated Statement of Income. Unrealized loss on trading securities was $97,000 for the three months ended June 30, 2012 compared to a gain of $99,000 for the same period of the prior fiscal year. The Company’s available-for-sale portfolio as of June 30, 2012 was comprised of municipal bonds, corporate bonds, government agency bonds, certificates of deposits and ARS. Unrealized gains (losses) on available-for-sale securities are recorded in other comprehensive income as increases (declines) in fair values and are considered to be temporary. During the three months ended June 30, 2012, the Company disposed of short-term available-for-sale securities totaling $25,765,000 at par, compared to $67,347,000 for the same period of the prior fiscal year. The realized gains and losses of these transactions were immaterial. The Company’s ARS have contractual maturities between 25 and 29 years. They are in the form of auction rate bonds whose interest rates had historically been reset every thirty-five days through an auction process. At the end of each reset period, investors could sell or continue to hold the securities at par. These ARS held by the Company are backed by pools of student loans and are primarily guaranteed by the U.S. Department of Education, although the credit rating of one ARS with a par value of $12,800,000 was reduced to AA+ by S&P in February 2012 and to A with a negative outlook by Fitch in June 2012. ARS with a par value of $15,300,000, whose carrying value was $13,600,000, were classified as non-current assets and were presented as long-term investments on the Company’s balance sheet as of June 30, 2012. The Company has concluded that the decline in fair value of the ARS investments as of June 30, 2012 is considered to be temporary in part due to the following: · these investments are of investment grade credit quality and a significant portion of them are collateralized and are guaranteed by the U.S. Department of Education;
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