UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 2003
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934 (No Fee Required)
Commission File No. 0-12718
SUPERTEX, INC.
(Exact name of Registrant as specified in its Charter)
California 94-2328535
(State or other jurisdiction of (IRS Employer Identification #)
incorporation or organization)
1235 Bordeaux Drive
Sunnyvale, California 94089
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (408) 222-8888
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
The total number of shares outstanding of the Registrant's common stock as of
February 3, 2004 were 12,837,994.
Total number of pages: 17
SUPERTEX, INC.
QUARTERLY REPORT - FORM 10Q
Table of Contents Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Income......... 3
Unaudited Condensed Consolidated Balance Sheets............... 4
Unaudited Condensed Consolidated Statements of Cash Flows..... 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk
and Interest Rate Risk.......................................... 14
Item 4. Controls and Procedures..................................... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................... 14
Item 2. Changes in Securities and Use of Proceeds................... 14
Item 3. Defaults Upon Senior Securities............................. 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Item 5. Other Information........................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures ............................................................ 15
Item 1. Financial Statements
SUPERTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three-months Ended, Nine-months Ended,
December 31, December 31,
2003 2002 2003 2002
Net sales $ 13,010 $ 13,888 $37,805 $ 40,385
--------- -------- ------- --------
Costs and expenses:
Cost of sales 7,703 8,658 22,515 25,609
Research and development 2,418 2,164 6,925 6,972
Selling, general and administrative 2,550 2,366 7,144 6,407
--------- -------- ------- --------
Total costs and expenses 12,671 13,188 36,584 38,988
--------- -------- ------- --------
Income from operations 339 700 1,221 1,397
Interest income 307 154 840 648
Other income, net 292 124 647 538
--------- -------- ------- --------
Income before provision
for income taxes 938 978 2,708 2,583
Provision for income taxes 291 281 839 827
Net income $ 647 $ 697 $ 1,869 $ 1,756
Net income per share:
Basic $ 0.05 $ 0.06 $ 0.15 $ 0.14
========= ======= ======== ========
Diluted $ 0.05 $ 0.05 $ 0.14 $ 0.14
========= ======= ======== ========
Shares used in per share computation:
Basic 12,775 12,608 12,728 12,591
========= ======= ======== ========
Diluted 13,086 12,680 13,013 12,752
========= ======= ======== ========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
SUPERTEX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
December 31, 2003 March 31, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 68,691 $ 60,931
Short-term investments 4,795 3,945
Trade accounts receivable,
net of allowance of $471 and $615 8,380 10,134
Inventories 13,527 14,582
Prepaid expenses and other current assets 893 575
Deferred income taxes 4,030 4,030
-------- --------
Total current assets 100,316 94,197
Property, plant and equipment, net 10,108 12,104
Other assets 94 97
Deferred income taxes 2,273 2,273
-------- --------
TOTAL ASSETS $ 112,791 $ 108,671
========= =========
LIABILITIES
Current liabilities:
Trade accounts payable $ 2,783 $ 3,572
Accrued salaries and employee benefits 6,795 6,784
Other accrued liabilities 593 485
Deferred revenue 3,234 2,001
Income taxes payable 3,372 3,304
------ ------
Total current liabilities 16,777 16,146
------ ------
SHAREHOLDERS' EQUITY
Preferred stock, no par value -
10,000 shares authorized, none outstanding -- --
Common stock, no par value - 30,000 shares
authorized; issued and outstanding 12,789
and 12,658 shares at December 31, 2003 and
March 31, 2003, respectively 30,665 29,045
Retained earnings 65,349 63,480
------- --------
Total shareholders' equity 96,014 92,525
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 112,791 $ 108,671
========= =========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
SUPERTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine-months Ended,
CASH FLOWS FROM OPERATING ACTIVITIES December 31, December 31,
2003 2002
Net income $ 1,869 $ 1,756
--------- ---------
Non-cash adjustments to net income:
Depreciation 3,316 4,128
Provision for doubtful accounts and sales returns 1,118 (147)
Provision for excess and obsolete inventories 538 896
Gain on sale of long-term investments -- (1,092)
Gain on disposal of assets -- (10)
Impairment of long term investment -- 750
Changes in operating assets and liabilities:
Short-term investments, categorized as trading (850) (3,866)
Trade accounts receivable 636 795
Inventories 517 819
Prepaid expenses and other assets (315) 237
Trade accounts payable and accrued expenses (670) (3,187)
Deferred revenue 1,233 152
Income taxes payable 68 1,884
------ ------
Total adjustments 5,591 1,359
------ ------
Net cash provided by operating activities 7,460 3,115
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,335) (1,136)
Proceeds from disposal of property and equipment 15 10
Sales of short-term investments, categorized as
available for sale 5,025 --
Sales of long-term investments, categorized as
available for sale -- 1,692
Purchases of short-term investments, categorized as
available for sale (5,025) --
------- ------
Net cash provided (used in) investing activities (1,320) 566
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and
employee stock purchase plan 1,620 1,132
------ ------
Net cash provided by financing activities 1,620 1,132
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,760 4,813
CASH AND CASH EQUIVALENTS:
Beginning of period 60,931 52,492
------- -------
End of period $ 68,691 $ 57,305
======== ========
Supplemental cash flow disclosures:
Income taxes (paid), net of refunds $ (771) $ 1,058
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Presentation
In the opinion of management, the unaudited condensed consolidated financial
statements for the quarters ended December 31, 2003 and 2002 include all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the consolidated financial position, results of operations, and
cash flows for those periods in accordance with accounting principles generally
accepted in the United States of America.
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. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
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. In particular, the year-end condensed
consolidated balance sheet data were derived from audited financial statements,
but do not include all disclosures required by accounting principles
generally accepted in the United States of America. These financial statements
should be read in conjunction with the audited condensed consolidated financial
statements of Supertex, Inc. for the fiscal year ended March 31, 2003, which
were included in the Annual Report on Form 10-K.
Interim results are not necessarily indicative of results for the full fiscal
year. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates, and such differences may be material to the
financial statements.
The financial statements have been prepared on a consolidated basis. The
condensed consolidated financial statements include the accounts of Supertex,
Inc. and its subsidiary. All significant intercompany balances have been
eliminated on consolidation.
For purposes of presentation, the Company labels its annual accounting period
end as March 31 and its interim quarterly periods as ending on the last day of
the corresponding month. The Company, in fact, operates and reports based on
quarterly periods ending on the Saturday closest to month end. The 13-week
second quarter of fiscal 2003 ended on December 28, 2002, and the 13-week
second quarter of fiscal 2004 ended on December 27, 2003.
Note 2 - Inventories
Inventories consisted of (in thousands):
December 31, 2003 March 31, 2003
Raw materials................................ $ 1,399 $ 1,348
Work-in-process.............................. 7,707 9,341
Finished goods............................... 4,421 3,893
-------- --------
$ 13,527 $ 14,582
======== ========
Note 3 - Comprehensive Income
SFAS No.130 establishes standards for disclosure and financial statement
display for reporting total comprehensive income and its individual components.
Comprehensive income, as defined, includes all changes in equity during a
period from non-owner sources. The Company's comprehensive income did not
differ from net income for all periods presented.
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 4 - Net Income per Share
Basic earnings per share ("EPS") is computed as net income divided by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur from common shares
issuable through stock options, warrants, and other convertible securities. A
reconciliation of the numerator and denominator of basic and diluted earnings
per share is provided as follows (in thousands, except per share amounts).
Three-months Ended, Nine-months Ended,
December 31, December 31,
2003 2002 2003 2002
BASIC:
Net income $ 647 $ 697 $ 1,869 $ 1,756
====== ====== ======= =======
Weighted average shares outstanding
for the period 12,775 12,608 12,728 12,591
====== ====== ======= =======
Net income per share $ 0.05 $ 0.06 $ 0.15 $ 0.14
====== ====== ======= =======
DILUTED:
Net income $ 647 $ 697 $ 1,869 $ 1,756
====== ====== ======= =======
Weighted average shares outstanding
for the period 12,775 12,608 12,728 12,591
Dilutive effect of stock options 311 72 285 161
------ ------ ------- -------
Total 13,086 12,680 13,013 12,752
====== ====== ======= =======
Net income per share $ 0.05 $ 0.05 $ 0.14 $ 0.14
====== ====== ======= =======
Options to purchase 391,067 shares of the Company's common stock at an average
price of $28.73 per share, and 841,369 shares at an average price of $21.70 per
share at December 31, 2003 and December 31, 2002, respectively, were
outstanding but were not included in the computation of diluted earnings per
share because their effect would have been anti-dilutive. For the nine-month
period ended December 31, 2003 and 2002, respectively, options to purchase the
Company's common stock of 413,003 shares at an average price of $28.59 per
share, and 650,292 shares at an average price of $24.74 per share were not
included in the computation of diluted earnings per share because their effect
would have been anti-dilutive.
Note 5 - Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements using
the intrinsic value method as described in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and Financial
Accounting Standards Board Interpretation No. 44 "Accounting for Certain
Transaction Involving Stock Compensation" ("FIN 44") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") and Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS No. 148"). Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair value of the Company's stock at the date of grant over the stock option
exercise price. The Company accounts for stock issued to non-employees in
accordance with the provisions SFAS No. 123 and Emerging Issues Task Force
Consensus No. 96-18, "Accounting for Equity Instruments that are offered to
other than employees for acquiring or in conjunction with selling goods or
services" ("EITF 96-18"). Under SFAS No. 123 and EITF 96-18, stock option
awards issued to non-employees are accounted for at their fair value and re-
measured at each period end until a commitment date is reached, which is
generally the vesting date.
Had the Company recorded compensation costs for stock options issued to
employees under the Company's stock option plans and Employee Stock Purchase
Plan (ESPP) based on the fair value at the grant date for the awards
SUPERTEX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
consistent with the provisions of SFAS No. 123, the net income and net income
per share for the quarter ended December 31, 2003 and 2002 would have been
reduced to the pro forma amounts indicated as follows:
Three-months Ended Nine-months Ended
December 31, December 31,
----------- -----------
(in thousands except per share amounts) 2003 2002 2003 2002
---- ---- ---- ----
Net income As reported $647 $697 $1,869 $1,756
Add: Stock-based employee
compensation expense
included in reported net
income, net of tax -- -- -- --
Deduct: Stock-based employee
compensation expense
determined under fair
value based method,
net of tax (522) (784) (1,824) (2,448)
Pro forma net income (loss) $125 $(87) $45 $(692)
====== ====== ====== ======
Basic earnings As reported $ 0.05 $ 0.06 $ 0.15 $ 0.14
(loss) per share
Pro forma $ 0.01 $(0.01) $ 0.01 $(0.05)
Diluted earnings As reported $ 0.05 $ 0.05 $ 0.14 $ 0.14
(loss) per share
Pro forma $ 0.01 $(0.01) $ 0.01 $(0.05)
To compute the estimated fair value of each option grant under the Option Plans
and employee purchase rights under the ESPP, the Black-Scholes option-pricing
model was used with the following weighted average assumptions:
Employee Stock Option Employee Stock Option
Plans Plans
Three-months Ended Nine-months Ended
December 31 December 31
----------- -----------
2003 2002 2003 2002
---- ---- ---- ----
Risk-free interest rate 1.61% 1.84% 1.24% 1.88%
Expected option life from vest date (years) 1.52 1.52 1.52 1.52
Expected volatility 1.08 1.08 1.01 1.19
Expected dividends -- -- -- --
Employee Stock Purchase Employee Stock Purchase
Plan Three-months Ended Plan Nine-months Ended
December 31 December 31
----------- -----------
2003 2002 2003 2002
---- ---- ---- ----
Risk-free interest rate 1.07% 1.23% 1.18% 1.54%
Expected option life from vest date (years) .50 .50 .50 .50
Expected volatility .40 .68 .42 .60
Expected dividends -- -- -- --
SUPERTEX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Note 6 - Investments
The Company's short-term investments of $4,795,000 at December 31, 2003 and
$3,945,000 at March 31, 2003 consisted entirely of investments held by the
Company's Supplemental Employee Retirement Plan, which are categorized as
trading securities.
Note 7 - Recent Accounting Pronouncements
On December 18, 2003 the SEC issued Staff Accounting Bulletin No. 104, Revenue
Recognition ("SAB 104"), which supersedes SAB 101, Revenue Recognition in
Financial Statements. SAB 104's primary purpose is to rescind accounting
guidance contained in SAB 101 related to multiple element revenue arrangements,
which was superseded as a result of the issuance of EITF 00-21, "Accounting for
Revenue Arrangements with Multiple Deliverables." SAB 104 does not materially
impact the Company's financial position or results of operations.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Cautionary Statement Regarding Forward Looking Statements
This 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 such forward-looking statements in this Form 10-Q are
our expectation of flat revenue in our fourth fiscal quarter; our plans to
continue in the future our current level of R&D investment on new product
development as a percent of net sales; our plan to not add capacity in the
future and to spend approximately $1,486,000 for capital acquisitions in the
last quarter of fiscal 2004; and our anticipation that our available funds and
expected cash generated from operations will be sufficient to meet cash and
working capital requirements through at least the next twelve months. These
statements are only predictions not a guaranty 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 that there are no material
adverse changes in the demand for our customer's products in which our chips
are used; competition to supply semiconductor devices in the markets in which
we compete does not increase and cause price erosion; demand materializes and
increases for recently released customer products incorporating our products;
we do not have unexpected manufacturing issues as we ramp up production; the
demand for our products or results of our product development change such that
it would be unwise not to decrease research and development and that some of
our equipment will not be unexpectedly damaged or obsoleted, thereby requiring
replacement as well as those described in "Risk Factors" under Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" in our Annual Report of Form 10-K for the fiscal year ended March
31, 2003. Except as required by law, we undertake no obligation to update any
forward-looking statement, whether as a result of new information, future
events, or otherwise.
Critical Accounting Policies
We described our critical accounting policies in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of
our Annual Report on Form 10-K for the year ended March 31, 2003.
Our critical accounting policies are those that are most important to the
portrayal of our financial condition and results of operations, and require our
management's significant judgments and estimates and such consistent
application fairly depicts our financial condition and results of operations
for all periods presented.
Critical accounting policies affecting us and the critical estimates we made
when applying them have not changed materially since March 31, 2003.
Overview
Supertex designs, develops, manufactures, and markets high voltage
semiconductor devices, including analog and mixed signal integrated circuits
utilizing state-of-the-art high voltage DMOS, HVCMOS and HVBiCMOS analog and
mixed signal technologies. We supply standard and custom high voltage
interface products primarily for use in the telecommunications (telecom),
imaging, medical electronics, and industrial markets. We also provide wafer
foundry services for the manufacture of integrated circuits for customers using
customer-owned designs and mask toolings.
Results of Operations
Net Sales
Net sales for the quarter ended December 31, 2003 were $13,010,000 compared to
$13,888,000 for the same quarter of fiscal 2003, a decrease of $878,000 or 6%.
Compared to net sales of prior quarter of $12,315,000, sales increased
$695,000, or 6%. Net sales for the nine months ended December 31, 2003 were
$37,805,000, a 6% decrease compared to $40,385,000 for the same period of
fiscal 2003.
As a percentage of total net sales, sales to customers in the medical
electronics, imaging, and telecom markets for the quarter and nine-month period
ended December 31, 2003 were as follows:
Three-months Ended, Nine-months Ended,
December 31, December 31,
----------- -----------
Markets 2003 2002 2003 2002
------- ---- ---- ---- ----
Medical electronics 34% 37% 35% 35%
Imaging 35% 37% 37% 36%
Telecom 23% 18% 21% 20%
Others 8% 8% 7% 9%
Overall conditions in the markets we serve remained weak in the third quarter
of fiscal 2004 relative to those in the third quarter of fiscal 2003. This is
reflected in the reduced demand for our products in most of our major markets.
However, in the third quarter of fiscal 2004 conditions in our telecom market
improved. Compared to the prior quarter, sales to our telecom market increased
31%, which was primarily from our legacy ISDN products and to a lesser extent
from optical-to-optical switcher arrays. Sales in the medical electronics
market declined 9% primarily due to a delay in production of certain newer high-
end platforms utilizing our chip scale package products. The rest of the
markets we serve remained stable. We expect flat revenue for the fourth
fiscal quarter based on higher backlog, positive book-to-bill ratio, and
contributions of new products sales as a result of design-wins achieved over
the last two years on the one hand but perhaps less turns business on the
other hand. Design-wins and request for quotes for our new products have
continued at a good rate.
Net sales to international customers for the quarter ended December 31, 2003
were $4,738,000, or 36% of the Company's net sales as compared to $3,788,000 or
27% of the net sales for the same period of prior fiscal year. The increase in
the international sales during the quarter is the result of increased shipments
to our original equipment manufacturers (OEMs) in Europe and Asia in the
telecom and imaging markets. Net sales to international customers for the nine-
month period ended December 31, 2003 were $13,988,000 or 37% of the Company's
net sales as compared to $12,190,000 or 30% of the net sales for the same
period of the prior fiscal year. The increase in the percentage of
international sales during the nine-month period is attributable to increased
shipments to customers in Europe and Asia excluding Japan.
Gross Profit
Gross profit represents net sales less cost of sales. Cost of sales includes
the cost of purchasing raw silicon wafers, cost associated with assembly,
packaging, test, quality assurance and product yields, the cost of personnel,
facilities, and equipment associated with manufacturing support and charges for
excess inventory. Gross profit for the three and nine-month periods ended
December 31, 2003 are $5,307,000 and $15,290,000, respectively. This compares
to $5,230,000 and $14,776,000, respectively for the same period of fiscal 2003.
As a percent of sales, the Company's gross margin was 41% and 40% respectively
for the three and nine-month periods ended December 31, 2003, compared with 38%
and 37% respectively for the same periods of fiscal 2003.
Gross margin for the quarter ended December 31, 2003 was favorably impacted by
lower depreciation expenses, reduced reliance on outside implant services,
lower occupancy costs and better production capacity utilization. In addition,
for the comparable quarter in fiscal 2003, gross profit included a $989,000
increase in cost of goods sold due to a write-down of work-in-process inventory
for our Telecom data communication products.
The increase in gross profit percentage for the nine-month period ended
December 31, 2003 as compared to the same period of fiscal 2003 was primarily
due to rigorous cost reduction measures and lower depreciation expenses.
Research and Development (R&D)
Research and development (R&D) expenses, which include payroll and benefits, as
well as expensed material and facility costs associated with the development of
new process and new products, increased 12% to $2,418,000 for the quarter ended
December 31, 2003 as compared to $2,164,000 for the same quarter of the prior
fiscal year, which represented 19% and 16% of our net sales in each period,
respectively. R&D expenses for the nine-month period ended December 31, 2003
were $6,925,000 compared to $6,972,000 for the same period in fiscal 2003,
which represented 18% and 17% of net sales respectively.
The increase in absolute dollars in R&D expense for the quarter ended December
31, 2003 over the same period in fiscal 2003 is primarily from increased new
process and new product development work using our wafer fabrication
facilities. The slight decrease in absolute dollars in R&D expense for the
nine-month period ended December 31, 2003 compared to the same period of fiscal
2003 is primarily due to a reduction in software licensing costs and lower
depreciation expenses despite an increase in cost of new process and new
product development.
We plan to continue this level of R&D investments as a percent of net sales.
Selling, General and Administrative (SG&A)
SG&A expenses consist primarily of employee related expenses, commissions to
sales representatives, occupancy expenses including expenses associated with
our regional sales offices and outside services such as legal, auditing and tax
services. SG&A expenses for the quarter ended December 31, 2003 were
$2,550,000, or 20% of net sales, as compared to $2,366,000, or 17% of net sales
for the same quarter of the prior fiscal year. The increase in absolute dollars
in SG&A expenses for the three-month period is attributed to increase in
payroll expenses of $100,000, occupancy expenses of $69,000, consulting fees of
$61,000, travel and entertainment expenses of $50,000, partially offset by a
decrease in commissions of $52,000. The increase in payroll is attributed to
increased headcount while the increase in occupancy cost is primarily
attributed to an increase in facilities maintenance costs. The increase in
consulting fees is due to an increase in our provision for legal fees. Travel
and entertainment expense increased slightly due to increased sales and
marketing activities. Sales commission expense decreased due to lower
commissionable sales.
For the nine-months ended December 31, 2003, SG&A expenses increased $737,000
to $7,144,000, or 19% of net sales, compared to $6,407,000, or 16% of net sales
for the same period of the prior fiscal year. This 12% increase in SG&A was
attributed to an increase in payroll and benefits expenses of $328,000, an
increase in consulting fees of $328,000, and an increase in bad debt expenses
of $128,000. In addition, SG&A expenses were favorably impacted in the nine
months ended December 31, 2002 by the reversal of a provision for an
anticipated settlement of $224,000 following the favorable resolution of a
claim initiated by a customer in fiscal 2002. The increase in payroll and
benefits expenses was attributed to the increase in accrued compensation
resulting from the increase in valuation of plan assets for the Company's
Supplemental Employee Retirement Plan as well as an increase in headcount in
our sales and marketing group. The increase in bad debt expense was attributed
to a credit taken in the first half of fiscal 2003 that resulted from a
successful collection of a previously reserved receivable in that period.
Interest Income and Other Income, Net
Interest income and other income, net for the three and nine-month periods
ended December 31, 2003 were $599,000 and $1,487,000 respectively, compared to
$278,000 and $1,186,000 respectively for the same periods of the prior fiscal
year.
Interest income for the three and nine-month periods ended December 31, 2003
was $307,000 and $840,000, respectively, compared to $154,000 and $648,000,
respectively for the same periods of the prior fiscal year. The moderate
increase in interest income for the three and nine-month periods is due to a
larger average cash, cash equivalent and short-term investment balance in the
current periods compared to the same periods of the prior fiscal year in
addition to a slight improvement in interest rates.
Other income, net, was $292,000 for the quarter ended December 31, 2003
consisting primarily of an increase in fair market value of investments held by
the Company's Supplemental Employee Retirement Plan of $202,000, foreign
currency exchange gain of $45,000 and licensing income of $38,000. For the
comparable period in fiscal 2003, other income, net, of $124,000 consisted of a
gain on sale of a long-term investment of $140,000, licensing income of
$38,000, and sublease income of $166,000, offset by sublease expenses of
$220,000.
Other income, net, of $647,000 for the nine-month period ended December 31,
2003 consisted primarily of an increase in fair market value of investments
held by the Company's Supplemental Employee Retirement Plan of $545,000,
licensing income of $113,000, gain from foreign currency exchange of $8,000 and
sublease income of $128,000 offset by sublease expenses of $133,000. For the
comparable period in fiscal 2003, other income, net, of $538,000 consisted of
gain on sale of a long-term investment of $1,092,000, lease income of $464,000,
an increase in the fair market value of investments held in the Company's
Supplemental Employee Retirement Plan of $140,000, licensing income of
$113,000, gain from sale of a previously disposed equipment of $10,000, offset
by sublease expenses of $523,000 and an impairment charge of $750,000 due to
the uncertainty surrounding the recoverability of another long-term investment.
The increase in sublease expense in that prior period was primarily attributed
to roof repairs on a leased facility.
Provision for Income Taxes
The effective tax rate for the third quarter of fiscal years 2004 and 2003 was
31% and 29%, respectively. The Company reduced its effective tax rate in the
third quarter of fiscal 2003 from 34% to 29%, due to a higher proportion of its
earnings attributed to its foreign-based subsidiary, which is in a lower tax
jurisdiction. For the nine-month periods ended December 31, 2003 and December
31, 2002, the effective tax rate was 31% and 32%, respectively.
Liquidity and Capital Resources
On December 31, 2003, the Company had $73,486,000 in cash, cash equivalents,
and short-term investments, compared with $64,876,000 on March 31, 2003. The
Company anticipates that available sources of funds including cash, cash
equivalents, short-term investments, and expected positive cash flow to be
generated from operations will be sufficient to meet cash and working capital
requirements through at least the next twelve months.
The increase in cash and cash equivalents of $7,760,000 from $60,931,000 at
March 31, 2003 to $68,691,000 at December 31, 2003 is due to cash flows
provided by operating activities of $7,460,000 and cash flows provided by
financing activities of $1,620,000, offset by cash used in investing activities
of $1,320,000. Our primary source of funds for the nine-month period ended
December 31, 2003 has been the net cash generated from operating activities.
Net operating cash flows for the nine-month period were the result of the
following items:
* Net income of $1,869,000;
* Non-cash charges for depreciation of $3,316,000;
* A decrease in net trade accounts receivable of $1,754,000 including a non-
cash charge of $1,118,000 for the provisions for doubtful accounts and sales
returns and a net decrease in gross accounts receivable of $636,000;
* An increase in deferred revenue of $1,233,000 due to an increase in inventory
at distributors;
* A decrease in net inventory of $1,055,000 consisting of an
decrease in inventory of $517,000 and a non-cash charge for the provision for
excess and obsolescence of $538,000;
* An increase in short-term investments categorized as trading securities of
$850,000. These investments are held by the Company's Supplemental Employee
Retirement Plan. The increase is due to net employee contributions of
$305,000 and an increase in the fair market value of plan assets of $545,000
during the nine-month period.
* A decrease in trade accounts payable and accrued expenses of $670,000
comprised primarily of a decrease in trade accounts payable of $789,000 which
resulted from a decrease in operating expenses and equipment purchases;
Net cash used in investing activities in the nine-month period ended December
31, 2003 was $1,320,000, which consisted of equipment purchases of $1,335,000,
purchase of short-term investments categorized as available for sale of
$5,025,000, offset by proceeds from sale of short-term investment of the same
amount and proceeds from disposal of property and equipment of $15,000.
Net cash provided by financing activities in the nine-month period ended
December 31, 2003 was $1,620,000, which consisted of proceeds from stock
options exercises of $1,006,000 and employee stock purchases of $614,000.
The Company expects to spend approximately $1,486,000 for capital acquisitions
in the fourth quarter of fiscal 2004, which is less than prior fiscal years
because most of the upgrades to our fab and our test operations have been
completed, and we do not plan to add any capacity in the near future.
The Company has commitments for non-cancelable operating lease. In January 23,
2004, the Company amended the lease term of its manufacturing facility in San
Jose, California extending the term to seven years to expire in April 2011.
The Company has one remaining Option to extend the term for an additional five
years. Future minimum lease payments and sublease income under all non-
cancelable operating leases at December 31, 2003 are as follows (in thousands):
Fiscal Year Ending March 31 Operating Lease Sublease Income
- --------------------------- --------------- ---------------
2004 (remaining three months) $ 307 $ 142
2005 947 184
2006 908 150
2007 950 150
2008 850 -
Thereafter 2,852 -
-------- --------
$ 6,814 $ 626
======== ========
Item 3. - Quantitative and Qualitative Disclosures About Market Risk and
Interest Rate Risk.
Interest Rate Sensitivity
The Company is not likely exposed to financial market risks due primarily to
changes in interest rates. The Company does not use derivatives to alter the
interest characteristics of its investment securities. It has no holdings of
derivative or commodity instruments. The fair value of the Company's
investment portfolio or related income would not be significantly impacted by
changes in interest rates since the investment maturities are short and the
interest rates are primarily fixed. As of December 31, 2003, the Company
maintained its funds primarily in money market funds and it plans to continue
to invest a significant portion of its existing cash in interest bearing money
market funds and other short-term debt securities with maturities of less than
a year.
Item 4. - Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
The Company's principal executive and financial officer has evaluated
the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this Form 10-Q and has determined that they are reasonable
taking into account the totality of the circumstances.
(b) Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial
reporting that occurred during the period covered by this Form 10-Q
that have materially affected, or are reasonably likely to materially
affect such control.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
None
Item 2. - Changes in Securities and Use of Proceeds
None
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 31, Rule 13(a)-14(a)/15(d)-14(a) Certification by Henry C. Pao
Exhibit 32, Section 1350 Certification of Henry C. Pao
(b) Reports on Form 8-K
On October 14, 2003, the Company filed a Report on Form 8-K, dated October 13,
2003, furnishing under Item 12, an October 13, 2003 press release announcing
the second fiscal quarter results. (Such press release is not incorporated by
reference herein or deemed "filed" within the meaning of Section 18 of the
Securities Act.)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERTEX, INC.
(Registrant)
Date: February 10, 2004
By: /s/ Henry C. Pao
______________________________
Henry C. Pao, Ph.D.
President
(Principal Executive and Financial Officer)